KT&G runs out of puff as Q2 profits plunge

Korean tobacco company KT&G reported a 25.9 percent drop in its second quarter operating profit of 242.9 billion won ($186.6 million), primarily due to increased raw material costs.

[KT&G]

Korean tobacco company KT&G reported a 25.9 percent drop in its second-quarter operating profit of 242.9 billion won ($186.6 million), primarily due to increased raw material costs.

It fell short of the market consensus of 271.2 billion won compiled by market tracker FnGuide.

KT&G's revenue declined by 5.7 percent on year, totaling 1.3 trillion won. It dipped below the market consensus of 1.4 trillion won.

The tobacco manufacturer's net profit saw a decrease of 41.3 percent compared to the same period last year, recording 199 billion won. It was over the market consensus of 194.9 billion won.

By business segment, the heat-not-burn business, which covers electronic tobacco devices, saw continued growth as the total consumables volume, including both domestic and overseas sales, jumped 43.5 percent to 3.63 billion sticks.

"Such steep volume growth was largely attributable to the rapid global expansion of KT&G’s heat-not-burn brand," the company said.

KT&G’s overseas heat-not-burn category recorded a sales volume of 2.21 billion sticks, a 72.7 percent growth year-on-year.

The company’s overseas revenue, including both overseas subsidiaries and exports, reached 265.5 billion won. The export revenue increased 5.9 percent on year to 152.9 billion won, mainly due to the favorable pricing in its key markets, including Latin America and the Middle East. The favorable pricing has also increased the profitability of its combustibles exports, as its export operating profit grew 42.6 percent on year. Its overseas sales volume also saw growth of 2.6 percent year-on-year, recording 13.17 billion sticks. The volume growth was driven by a 20.4 percent jump in its overseas subsidiaries’ sales volume.

However, the company saw challenges in its real estate business. It experienced a 21.3 percent decrease in revenue to 113.7 billion won, primarily due to the reduced size of development projects impacted by the imminent completion of a project in Suwon, Gyeonggi. The operating profit for this sector plummeted by 73.5 percent to 11 billion won.

"Earnings are gradually rebounding despite the lasting impact from COGS [cost of goods sold] inflation and shrinking profit due to the completion of the Suwon project," KT&G explained.

Meanwhile, as part of the three-year shareholder return policy the company previously announced in 2021, KT&G said it plans to acquire 3.47 million of its own shares worth 0.3 trillion won within three months. This represents 2.5 percent of its outstanding shares.

In addition, the company declared its first-ever interim cash dividend of 1,200 won per share, scheduled to be paid out by Aug. 23. Including the interim dividend, the total dividend per share is expected to increase by at least 200 won per share compared to last year’s 5,000 won.

“We will continue to use our best efforts to enhance the shareholder and corporate values by developing the competitiveness of our core business areas, represented by heat-not-burn products, overseas combustibles, and Health Functional Food," said a spokesperson for KT&G. "It is also worth noting that in the fourth quarter this year, we will be announcing a New Shareholder Return Policy that includes treasury cancellation."

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]