KT&G targets 15 percent return on equity through buyback plan

KT&G plans significant buybacks and dividends, targeting a 15 percent ROE by 2027.

KT&G

Following a robust quarter, KT&G expects that its continued unwillingness to spin off its ginseng subsidiary won't hurt its shareholders in the next few years.

Korea's dominant tobacco company is targeting a return on equity (ROE) ratio of 15 percent in 2027 and plans to buy back 1.3 trillion won ($933 million) worth of its own shares, the company announced Friday and detailed further Monday. In addition to the buybacks, the company aims to pay out 2.4 trillion won in cash dividends through 2027.

It plans to achieve this by off-loading low profit noncore assets, which it expects will secure 1 trillion won in cash to fund investments in addition to the shareholder return plan.

It also said it would reduce its planned capital expenditure for the period from 3.5 trillion won to 2.4 trillion won but will streamline investment plans to maintain its initial profit and production goals.

The company also said it would cancel up to 20 percent of its own shares, or an estimated 26.7 million, by the same year. It will cancel 1.35 million of those shares by the end of this year.

KT&G reported operating proft of 415.7 billion won for the third quarter on Thursday, an on-year increase of 2.2 percent, having made efforts to expand its global production capacity and invest in overseas plants. It had been facing pressure to sell its wholly owned subsidiary Korea Ginseng Corporation to the activist fund Flashlight Capital Partners, but reportedly indicated on the same day of the buyback announcement that it did not plan to do so, seeking to boost its shareholder returns in other ways.

The firm's ROE most recently stood at 10 percent. It vowed on Monday to up that ratio by improving profitability across its heat-and-burn tobacco, health-functional food and overseas tobacco business categories.

“The company has been pursuing improving its company value and maximizing shareholder value using ROE as a primary indicator,” KT&G Senior Vice President Lee Sang-hak said in a statement.

BY CHO YONG-JUN [cho.yongjun1@joongang.co.kr]