KT&G, Continued Growth in NGP... Progressing Towards Vision Global Top-Tier Company 2023.05.11
KT&G (CEO Baek Bok-in) recorded favorable performance in the first quarter of this year, aligning with market expectations, thanks to the strong domestic and international sales of electronic cigarettes (NGP) and the high growth of overseas subsidiaries.
Despite the challenges in the business environment, including increased cost burden due to global inflation, KT&G recorded consolidated performance for the first quarter based on sales of KRW 1.3957 trillion and operating profit of KRW 316.5 billion, showing a decrease of 0.5% and 5.0%, respectively, compared to the same period last year.
KT&G recorded a strong performance in its core business sector, the tobacco business (cigarettes and NGP), with sales of KRW 85.76 billion in the first quarter. This represents a 3.6% increase compared to the same period last year. The operating profit amounted to KRW 236.6 billion, an 8.9% decrease compared to the same period last year. This decline was attributed to the significant increase in prices of raw materials, such as tobacco leaves.
Despite a decrease in sales volume due to the overall reduction in domestic demand, the domestic cigarette sales for the first quarter recorded KRW 38.97 billion, showing a 0.5% increase compared to the same period last year. This growth can be attributed to the increase in duty-free sales. The domestic market share for the first quarter aggregated at 65.7%, which is an increase from the previous year's annual figure of 65.4%.
The overseas cigarette sales for the first quarter amounted to KRW 26.51 billion, marking a 17.1% increase compared to the same period last year. This increase can be attributed to the high growth of overseas subsidiaries, such as the Indian corporation, as well as expanding sales coverage in emerging markets like Africa and Central and South America. The sales volume for the first quarter also saw a 16.1% increase compared to the same period last year.
In particular, the domestic and international stick sales quantity in the NGP sector recorded 3.22 billion units, showing a continued growth trend with a 41.9% increase compared to the same period last year. In the domestic market, the market share continued to expand, and in the first quarter, it recorded a market share of 48.4%, which is an increase from the previous year's annual figure of 47.5%. This demonstrates consistent maintenance of market leadership. In the international market, stick sales quantity saw a significant increase of 64.3% compared to the same period last year, driven by the expansion of market penetration in existing countries. This led to increased profitability for KT&G. However, the NGP domestic and international sales recorded KRW 199.6 billion, showing a slight decrease of 2.8% compared to the same period last year. This decline can be attributed to the base effect resulting from the expansion of preemptive device exports in the previous year.
In addition, in the duty-free channel, the duty-free sales in the travel retail sector of the duty-paid business recorded a significant increase of 85.5% compared to the same period last year, driven by an increase in inbound travelers. However, due to the early promotion for the Lunar New Year holidays, sales were affected by the occurrence of advanced demand at the end of last year, resulting in a 3.2% decrease in sales compared to the same period last year, amounting to KRW 38.41 billion. The operating profit recorded a significant increase of 70.8% compared to the same period last year, amounting to KRW 550 billion. This growth was primarily driven by cost-saving efforts and a substantial improvement in the profitability of overseas operations.
A KT&G representative stated, "The three core growth businesses of NGP, overseas cigarettes, and duty-paid business have been continuously growing, with their sales accounting for over 60% of the total. Operating profit has increased by 14% compared to the same period last year." He further added, "Especially, the overseas performance has been a major driving force, contributing to 80% of the sales growth in the three core businesses. This has strengthened our global-oriented fundamental growth, and we will continue to maintain a robust growth trajectory to accelerate the realization of our vision as a global top-tier company."
>Meanwhile, KT&G has introduced webcasting for its earnings announcements to enhance communication with stakeholders, including shareholders. In addition, the company is expanding the disclosure of profitability indicators for each business sector. This initiative aims to strengthen transparency and communication with all stakeholders. Currently, KT&G is diligently implementing a three-year shareholder return plan with a scale of approximately KRW 2.75 trillion, starting from 2021. In the second half of this year, the company plans to announce an expanded shareholder return policy, which will include initiatives such as the repurchase of treasury shares.
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