KT&G - Tobacco Reporter

KT&G Boosts NGP Capacity

KT&G has expanded its Sin Tanjin next-generation product (NGP) factory.

During a ceremony attended by CEO Baek Bok-in and over 40 employees, the company pledged to grow its NGP segment into a leading business.

KT&G has installed three additional electronic cigarette stick production lines this year, bringing the total number to eight. It also established an automated warehouse capable of storing up to 360,000 boxes.

KT&G plans to further expand its production innovation hubs, focusing on domestic manufacturing facilities such as Sin Tanjin and Gwangju, to ensure a smooth response to the rapidly growing demand for its NGP products.

The expansion of the Sin Tanjin NGP factory is part of KT&G’s investment plan, which was presented during the company’s “Future Vision Proclamation” event in January.

During that event, KT&G announced its strategy would focus on e-cigarettes, heated tobacco and the international expansion of its combustible cigarette business. The company intends to increase the revenue share of its noncombustible products to more than 60 percent by 2027 through investments and innovation.

The Sin Tanjin NGP factory will play a role as a growth engine that enhances the essential competitiveness of the NGP business, which is strengthening its market leadership.

Baek Bok-in , CEO, KT&G

In September, KT&G announced the construction of a new factory in Indonesia, which will be manufacturing for exports. In October, it broke ground for a new factory in Kazakhstan, establishing a foothold in Eurasia.

“The Sin Tanjin NGP factory will play a role as a growth engine that enhances the essential competitiveness of the NGP business, which is strengthening its market leadership,” said Baek in a statement.

“In the future, we will lead the growth of the NGP business based on innovative technology and advanced global partnerships and will leap to the ‘global top-tier’ through domestic innovative growth investments, including expanding production infrastructure.”

November 6, 2023

KT&G Celebrates Korea-Indonesia Ties

KT&G celebrated the 50th anniversary of South Korea-Indonesia diplomatic relations by organizing various global CSR activities, including support for university student startups, cultural festivals and improvements in the education environment.

On Sept. 28, KT&G selected the finalists in a competition for business ideas at UNTAR University’s Imagination Entrepreneurship School in Jakarta, Indonesia. A day earlier, the South Korean cigarette maker hosted a similar event at the State University of Jakarta.

Meanwhile, the KT&G Welfare Foundation finished renovating an elementary school in the Bogor region, transforming an old building into a new educational facility with an earthquake-resistant construction.

In 2014, KT&G established the KT&G Korean Language Institute in Indonesia, providing approximately 2,800 people with opportunities to learn Korean. In addition, the company operates Imagination University, which supports the development of the capacity and cultural experiences of Indonesian youth. In 2021, it established the KT&G Vocational Training Center at Malang’s UKCW University, teaching marginalized youth sewing, computer technology and other skills.

“We are taking the lead in promoting communication between the two countries through cultural exchanges in celebration of the 50th anniversary of Korea-Indonesia diplomatic relations,” said a KT&G representative. “We will continue to make efforts to spread Korean culture and enhance exchanges through various platforms.”

Indonesia is an important market for KT&G, which aims to earn half of its sales from overseas business by 2027. The company operates a tobacco factory in Indonesia and recently announced the construction of a second manufacturing facility.

October 31, 2023

KT&G Breaks Ground for Kazakhstan Factory

KT&G Corp has broken ground in Kazakhstan for its fourth overseas plant as part of its expansion strategy.

The Korean tobacco firm aims to complete construction by 2025 and export its products to the Eurasian region. The news follows KT&G’s announcement last month that it would build a second factory in Indonesia, with an aim of starting operations in 2026 and exporting products to neighboring countries.

“The new Kazakhstan factory will serve as a global core production hub covering the Eurasian market and will be a forefront base for realizing the group’s future vision of global top-tier,” said KT&G CEO Baek Bok-in in a statement, referring to the company’s global ambitions.

The company aims to earn half of its sales from overseas businesses in 2027. It wants to achieve sales of KRW10 trillion ($7.4 billion) in 2027, compared with KRW5.9 trillion in 2022.

While focusing on the conventional cigarette business, KT&G said it will reinforce its heat-not-burn (HNB) and health functional food product businesses.

KT&G has exported its HNB products to more than 30 countries since 2020 through a distribution deal with Philip Morris International.

The company’s cigarette division earns 78 percent of its sales from the conventional cigarette business and 22 percent from the HNB business.

KT&G has six tobacco factories—three in South Korea and one each in Russia, Turkey and Indonesia.

October 13, 2023

KT&G Wins Admin and Security Award

KT&G received the Minister of Public Administration and Security Award at the 12th Korea Knowledge Awards organized by the Ministry of Public Administration and Security.

The Korea Knowledge Award is the nation’s highest accolade in the field of knowledge, awarded to government and public institutions and private enterprises that have shown outstanding results in knowledge administration and management, leading to government innovation and enhanced corporate competitiveness. KT&G was recognized for its systematic knowledge management accomplishments, including establishing a dedicated intellectual property division and developing intellectual property processes, distinguishing itself as the sole private enterprise recipient of the award.

KT&G has concentrated on strengthening its proprietary technology development capabilities to swiftly respond to an ever-changing market. The company has been operating a dedicated organization for intellectual property, constructing a unique intellectual property computer system for effective management and promoting in-house research and development as well as technological innovation by uncovering and nurturing employees’ innovative business ideas through initiatives like Patent Week, leading to patent applications.

KT&G’s consistent drive in knowledge management led to a significant increase in intellectual property creation, resulting in domestic patent applications surging from 82 in 2017 to 444 in 2022—a more than 440 percent increase. Domestic and overseas applications also saw a monumental rise, starting from 27 in 2017 to 1,065 in 2022—an increase of over 3,800 percent. Currently, the total registered trademarks stand at 7,132.

Owing to these achievements in intellectual property creation, KT&G was honored with the Prime Minister’s Award at the 56th Invention Day event hosted by the Korean Intellectual Property Office in 2021, recognizing its contribution to protecting national industrial technology and advancing the intellectual property system. Moreover, in the 2021 South Korean Corporate European Patent Index released by the European Patent Office, the company ranked third, following Samsung and LG. This year, KT&G was also chosen as one of the Top 100 Global Innovative Momentum Companies by LexisNexis, a global intellectual property solution company.

Cho Seong-moon, the head of KT&G’s R&D division, stated, “Based on our technological competitiveness and rapid adaptability to the ever-changing market, KT&G will continue to grow into a global ‘top-tier’ enterprise through the continuous enhancement of knowledge management.”

September 18, 2023

KT&G to Build Second Factory in Indonesia

KT&G Corp. plans to expand its production facilities in Indonesia, reports the Yonhap News Agency.

The South Korean tobacco company currently operates a factory in Surabaya and plans to build a second one in the Southeast Asian country. The new plant will produce KT&G products for export to neighboring and other countries.

Indonesia’s government is supporting the investment, according to KT&G.

The expansion fits into KT&G’s ambition to earn half of its sales from overseas businesses in 2027. It aims to achieve sales of KRW10 trillion ($7.53 billion) in 2027, compared with KRW5.9 trillion in 2022.

In addition to producing conventional cigarettes, KT&G said it will reinforce its heat-not-burn (HNB) and health functional food product businesses.

The company has exported its HNB products to more than 30 countries since 2020 through the distribution deal with Philip Morris International.

Currently, KT&G earns 90 percent of its overall sales from the cigarette business division and the 10 percent from the HNB division.

The company has four tobacco manufacturing plants, one each in South Korea, Russia, Turkey and Indonesia, whose combined capacity amounts to 13.6 billion cigarettes a year.

September 11, 2023

KT&G Releases 2022 Integrated Report

KT&G has published its 2022 Integrated Report: An ESG Overview, encompassing sustainability management strategies and performance.

The publication has three key sections: the Strategic Report, outlining the group’s novel vision; the ESG Report, detailing performance across various ESG domains; and the ESG Factbook, displaying the global information disclosure index and quantitative accomplishments.

Introduced within the Strategic Report of this publication, KT&G provides insights into its 2027 New Vision, combining prospective growth strategies with environmental, social and governance (ESG) principles. Moving forward, the company aims to channel its strengths into mobilizing business structure innovation, fostering sustainability alongside the spread of important ventures like next-generation products and health-functional foods.

KT&G says it has made significant progress toward achieving its ESG objectives. Among other things, the company has reduced its greenhouse gas emissions by 7.5 percent over a two-year period, even as it stepped up production at its Korean and international sites. KT&G aims to increase its use of renewable energy sources by more than 18 percent, mainly through the installation of solar power systems.

On the social front, KT&G helped address challenges through its Sangsang Planet and Sangsangmadang initiatives.

Recognizing sustainability as intrinsically tied to corporate value, “KT&G has boarded a fresh vision, seamlessly weaving it into our widespread growth strategy,” said KT&G CEO Baek Bok-in in a statement. “Imposing the strengths of our growing ventures, we will rise as an outstanding global enterprise, targeting over 50 percent of our sales from international markets within the upcoming five years.”

August 9, 2023

KT&G Reports Second-Quarter Results

KT&G Corp. posted consolidated revenue of KRW1.34 trillion ($1.03 billion) and operating profit of KRW242.9 billion for the second quarter ended June 30, 2023, according to PR Newswire.

Sales of both combustible cigarettes and heat-not-burn (HnB) products were higher than in the comparison period.

HnB volumes jumped 43.5 percent to 3.63 billion sticks, driven primarily by the rapid global expansion of KT&G’s Lil brand. For the second quarter, KT&G’s overseas heat-not-burn category recorded sales volume of 2.21 billion sticks, a 72.7 percent growth year-over-year.

The company’s overseas combustibles revenue, including both overseas subsidiaries and exports, was KRW265.5 billion. The export revenue increased 5.9 percent year-over-year to KRW152.9 billion, mainly due to the favorable pricing in key markets, including Latin America and the Middle East. The favorable pricing has also increased the profitability of the combustibles exports, as the export operating profit grew 42.6 percent year-over-year. The overseas combustibles sales volume grew 2.6 percent year-over-year to 13.17 billion sticks.

KT&G also shared its plans on share repurchase and cancellation and interim dividend. As part of its three-year shareholder return policy, KT&G plans to acquire 3.47 million of its own shares (KRW0.3 trillion), representing 2.5 percent of its outstanding shares, within three months for cancellation. KT&G will be cancelling its own shares for the first time in 14 years.

In addition, the company declared its first-ever interim cash dividend of KRW1,200 per share. The interim dividend is scheduled to be paid out by Aug. 23. Including the interim dividend, the total dividend per share is expected to increase by at least KRW200 per share compared to last year’s KRW5,000.

August 3, 2023

The Heat is On

Competition in South Korea’s heated-tobacco products market is intensifying.

By Stefanie Rossel

When it comes to adoption of heated-tobacco products (HTPs), South Korean consumers are second only to their Japanese counterparts. Sales of HTPs have increased significantly since their introduction to the South Korean market in 2017, cannibalizing sales of traditional cigarettes. In 2023, the country’s HTP market is estimated to reach a value of KRW2.2 trillion ($913.39 million), up from KRW1.6 trillion in 2019 and KRW2 trillion in 2021, according to Euromonitor. By 2025, the business intelligence firm predicts that the Korean HTP market will be worth KRW2.4 trillion.

While the number of tobacco products sold in South Korea rose by 1.1 percent from 3.59 billion packs of 20 cigarettes in 2020 to 3.63 billion packs in 2022, it was consumable sales of HTPs that drove the market. Their share increased from 380 million packs in 2020 to 540 million packs in 2022 whereas the sale of combustible cigarette packs dropped from 3.2 billion packs in 2020 to 3.09 billion in 2022, the country’s finance ministry stated in February.

Demand for conventional cigarettes fell by 1.8 percent year-on-year while sales of HTPs rose by 21.3 percent. According to a survey by the Ministry of Finance, HTPs held a share of 14.8 percent of the total tobacco market in the first half of 2022. In 2023, the overall South Korean tobacco products market will be worth an estimated $9.2 billion, according to Statista. The country’s continuously declining smoking rate has been linked to the introduction of HTPs to the market. Smoking prevalence, which stood at 23.8 percent in 2015, dropped to 15.6 percent in 2021 and is expected to decrease by another 2.6 percent by 2026.

Both traditional cigarettes and tobacco sticks for HTPs retail at roughly KRW4,500 per pack of 20 but are taxed slightly differently. Total tax per pack of 20 combustible cigarettes amounts to KRW3,223. For a pack of HTP consumables, it’s 90 percent of that, or KRW3,004, reflecting that the products are considered to be less harmful than traditional smokes. In April this year, South Korea’s ruling party suggested subjecting cigarettes and HTPs to the same tax rates amid a government drive to boost falling revenue, but the Ministry of Finance rejected the proposal. With a general election coming up in April 2024, the government is not expected to equalize the tax differential between the two categories in the near term.

Partners and Competitors

South Korea’s HTP market is split among three players: Philip Morris International, KT&G and BAT. Recently, competition has been heating up in the category: PMI, which in 2017 introduced the first HTP (IQOS) in South Korea, remained the market leader until 2019, when IQOS sales declined from KRW800 billion in 2017 to KRW500 billion and KT&G overtook PMI with its Lil device. According to 2FIRSTS, Lil accounted for 48 percent of the market in May 2023 followed by IQOS with 42 percent and BAT’s Glo with 10 percent.

In the past six months, all manufacturers have introduced new models of their HTP brands in Korea; they have also unleashed an aggressive price war.

In November, KT&G launched Lil Aible, which is equipped with artificial intelligence technology that shows how long it takes to fully charge the device and preheat the consumable as well as how many times the user can puff with the remaining battery. On KT&G’s dedicated mobile app, users can check messages, phone notifications, the weather and calendar information. What sets the new model apart from other HTPs is its ability to use three different tobacco sticks with one device. Like its predecessor, Lil Aible features automatic heating, a self-cleaning system and a maximum of three consecutive uses.

The product comes in two versions—an original version that retails at KRW110,000 and a premium version, which has an OLED touchscreen to make it easier for users to control diverse functions, at KRW200,000.

To recapture its No. 1 position, PMI in February launched IQOS Iluma One, an economy version of its latest HTP device. The Iluma series works with a bladeless induction system and can only be used with dedicated heat sticks named Terea. The sticks are equipped with a metal heating element, a thin solid metal thread that is coated with stainless steel that heats the tobacco from within. A front plug at the end of the stick behind the tobacco element prevents tobacco residue, which means users do not need to clean the device.

The company had been selling the more premium variants, Iluma and Iluma Prime, in major South Korean cities including Seoul and Busan since late 2022 and seized the opportunity of the Iluma One introduction for a nationwide rollout of all of its Iluma models. Iluma One is available at KRW69,000 whereas Iluma and Iluma Prime are sold for KRW99,000 and KRW139,000, respectively.

In late November 2022, PMI had started manufacturing Terea consumables at its South Korean Yangsan plant, where the company has invested more than KRW300 billion in the production of noncombustible products since 2017.

While battling for market share in South Korea, PMI and KT&G cooperate internationally. On Jan. 30, 2023, PMI and KT&G turned the three-year agreement they signed in 2020 into a 15-year contract. The agreement gives PMI exclusive access to KT&G’s smoke-free brands and innovation pipeline, including offerings for low-income and middle-income markets, and provides KT&G with continued access to PMI’s global commercial infrastructure and experience in commercializing smoke-free products. As a result of the collaboration, Lil, which PMI considers complementary to its existing portfolio of smoke-free products, is currently present in 31 countries in Central America, Europe and Central Asia.

Fierce Price Battle

Also in February, BAT launched Glo Hyper X2 in South Korea. After years of plodding along with a market share of 6 percent, the company increased its market share to 11.7 percent in 2022, according to The Korea Herald. Glo Hyper X2 is expected to further bolster the company’s position in South Korea. The all-in-one device, which features induction heating technology, faster heating and an LED indicator showing battery status, was introduced at a cut-rate price of KRW40,000.

In May, BAT cut prices of its HTPs in South Korea by half to expand its market share, according to 2FIRSTS.com. Glo Hyper X2 now retails at KRW19,000. According to the website, BAT Korea’s revenue in 2022 increased 14.3 percent compared to the previous year, but operating profits declined by 11.6 percent to KRW44.6 billion. Analysts fear that the low price strategy will cause BAT’s profitability to decline.

BAT’s price reductions prompted KT&G to follow suit. The company began selling Lil Aible and Lil Aible Premium at a promotional price of KRW99,000 and KRW167,000, respectively. Analysts estimate that to maintain profit margins, the companies must sell their heating products for at least KRW30,000.

Whether BAT’s strategy will work out remains to be seen. With an estimated 8 million smokers of combustible cigarettes, the South Korea market still holds a lot of potential for manufacturers of less hazardous alternatives.

Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

July 1, 2023

KT&G Authorized as “Economic Operator”

The Korea Customs Service has certified KT&G as an “Authorized Economic Operator” (AEO).

AEO is an international standard certification system in which the Korea Customs Service recognizes companies based on their performance in terms of export and import safety management, legal, internal control systems, financial soundness and safety management.

The AEO certification provides KT&G with benefits, such as speedy customs clearance and reduced inspections of imported and exported goods.

The certification will help the company accelerate its global expansion program as major export destinations such as the United Arab Emirates, Indonesia and Tunisia will receive similar customs clearance benefits under a mutual recognition arrangement between those countries and Korea.

“We expect to be able to deliver products to our domestic and foreign customers more quickly under challenging trade conditions, such as rising protectionism and non-tariff barriers,” KT&G said in a statement. “In the future, we will acquire additional local AEO certifications for our foreign subsidiaries to strengthen our import and export competitiveness and accelerate our leap to becoming a global top-tier company.”

May 20, 2023

Exports Boost KT&G Profit

KT&G reported a net profit of KRW274.23 billion ($206 million) for the first quarter of 2023, up 4 percent over the comparable 2022 period, reports Yonhap News Agency.

The South Korean cigarette maker credited increased exports for its improved numbers.

“Increased tobacco sales in emerging markets, such as Indonesia, Africa and Latin America helped the quarterly bottom line,” KT&G wrote in a statement.

However, quarterly operating profit fell 4.9 percent year-on-year to KRW316.55 billion, due in part to higher leaf tobacco and other raw materials costs. Sales were down 0.5 percent to KRW1.4 trillion from KRW1.403 trillion during the cited period.

In January, KT&G signed a 15-year supply contract with Philip Morris International, the allows the South Korean cigarette maker to distribute its Lil tobacco-heating products through the multinational’s extensive global sales network.

KT&G aims to earn more than half of its sales from overseas businesses in 2027. It targets sales of KRW10 trillion won in 2027, compared with KRW5.9 trillion in 2022.

KT&G has exported its tobacco-heating products to more than 30 countries since 2020 through the PMI’s distribution network.

The South Korean company earns 90 percent of its overall sales from the cigarette business division and 10 percent from its tobacco-heating products division.

KT&G has four tobacco manufacturing plants, one each in South Korea, Russia, Turkey and Indonesia, whose combined capacity amounts to 13.6 billion cigarettes a year.

May 12, 2023

Tag: KT&G

Competition in South Korea’s heated-tobacco products market is intensifying.

Partners and Competitors

Fierce Price Battle