KT&G posts record quarter, commits over KRW 5tn to returns

By Amara Osei

KT&G’s third-quarter operating profit reached a record KRW 530.1 billion, up 13.9% from a year earlier, as strong overseas cigarette sales and domestic next-generation products offset a decline in the won-dollar exchange rate.

Revenue rose 4.3% to a record KRW 1.9052 trillion. Both measures surpassed the previous third-quarter records of KRW 1.8269 trillion in revenue and KRW 465.3 billion in operating profit, set a year earlier.

KT&G disclosed the provisional figures on November 5 and paired them with a Capital Markets Day covering shareholder returns and business strategy. KT&G President Bang Kyungman presented the plans, which rest on overseas growth and next-generation products at home.

How did KT&G reach a record quarter?

The tobacco segment supplied the core advance. Revenue increased 6% year on year to KRW 1.3065 trillion, while operating profit rose 14.4% to KRW 425.5 billion.

Overseas cigarette operations recorded simultaneous growth in sales volume, revenue and profit for the 10th consecutive quarter. Revenue climbed 10.5% to KRW 579 billion, and volume increased 6.2% to about 19.6 billion cigarettes, setting quarterly records for volume and revenue.

Next-generation products, including heated tobacco, generated KRW 294 billion in revenue across South Korea and overseas markets. Domestic NGP revenue reached KRW 173.9 billion and maintained KT&G’s No. 1 market share.

Subsidiary KGC’s health functional foods delivered KRW 372.2 billion in revenue, up 3.4% from a year earlier, and KRW 80.1 billion in operating profit, up 12.2%. Those businesses form the three pillars KT&G named in its global growth strategy.

Takeaway: Overseas cigarettes led the record quarter, while NGP and health functional foods added breadth.

What does the shareholder-return plan change?

KT&G will set this year’s annual dividend at KRW 8,000 a share, up KRW 2,000, or 33.3%, from KRW 6,000 last year. The company plans to lift the payout ratio from about 60% now to at least 75% by 2030.

Starting next year, the company will buy back and cancel KRW 1.2 trillion of its own shares over four years. Dividends and repurchases form a shareholder-return program of more than KRW 5 trillion, and KT&G will consider extra special returns if it sees a need for further measures to enhance shareholder value.

Management also forecast group revenue of KRW 7 trillion and operating profit of KRW 1.5 trillion for this year.

Takeaway: The cash commitment is specific: a higher dividend, four years of buybacks and a rising payout ratio.

Where does the overseas growth strategy go?

KT&G plans to strengthen its overseas cigarette, NGP and health functional food businesses. It will raise prices on key brands such as Esse, increase the premium-product mix, pursue 30 countries where it has not entered and expand local subsidiaries.

By 2030, the company set three targets:

• Generate at least 70% of cigarette business revenue overseas.
• Raise NGP to at least 30% of tobacco business revenue.
• Raise the overseas share of health functional food revenue to at least 30%.

KT&G also plans to optimize its global production network, including a new Indonesian plant the company completed last month, and expand local subsidiary operations. The network strategy targets more than KRW 550 billion in cumulative cost savings over the next four years.

Bang said: “We will pursue profitable growth by advancing our three growth pillars—overseas cigarettes, NGP and health functional foods—and expanding globally.” He added: “We will increase shareholder returns and enhance shareholder value, supported by continued profit growth.”

Takeaway: KT&G is pairing higher cash returns with a 2030 push to make overseas sales, premium products and NGP a larger part of growth.