South Korea - Tobacco Reporter

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

Korea Backtracks on Hnb Tax Increase

The government of South Korea has ditched a plan to raise the tax on heated-tobacco products just two days after the finance minister proposed the measure, reports The Korea Herald.

South Korea currently taxes regular cigarettes at higher levels than noncombustible tobacco products because it considers the former to be more harmful to health.

Combustible cigarettes attract a tax of KRW3,323 ($2.52) per pack, which includes a KRW1,007 tobacco excise tax, a KRW443 education tax, a KRW594 consumption tax, a KRW409 value-added tax, a KRW841 health promotion fee, a KRW24.4 waste charge and KRW5 to support tobacco farmers.

Noncombusted cigarettes, by contrast, are subject to a tax of KRW3,004, which represents 90.4 percent of the taxes imposed on regular tobacco products.

However, on April 17, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said noncombusted cigarettes “should be treated similarly to regular cigarettes.”

His comments immediately provoked a public backlash, prompting the government to backtrack. The government “is not currently considering raising the tobacco tax at the moment,” the finance ministry said in a statement on April 19.

South Korea’s revenue from tobacco products has shrunk in recent years due to declining sales of combustible cigarettes. In 2022, the government collected KRW11.8 trillion in taxes on all tobacco products compared with KRW12 trillion in 2020. While sales of tobacco-heating products increased during the same periods, their comparably low volumes and lower tax rates meant that they did not offset the revenue lost due to declining cigarette sales.

April 19, 2023

Philip Morris Korea Appoints New MD

Philip Morris Korea (PMK) has appointed Hannah Yun as its new managing director. Yun will take the helm at the Seoul office on May 1, reports The Korea Times.

“With its cutting-edge technology and dynamic market environment, Korea is one of the most important countries leading Philip Morris’ transformation to a ‘smoke-free future,’” said Yun, who is currently the managing director of Philip Morris Australia. “I will further strengthen the competitiveness of Philip Morris Korea by implementing consumer-centric strategies and services based on my international experience.”

Yun joined PMK in 1997, where she took charge of corporate affairs, business strategy and budget management. From 2003 to 2007, she worked for Philip Morris International in Malaysia, Switzerland and Hong Kong, supporting the development of business growth strategies and operational plans for each market.

She led PMI’s financial analysis and support division in Switzerland from 2008 to 2013, where she was responsible for managing the communication of consolidated PMI financial information.

In 2019, Yun was entrusted with overseeing Philip Morris Australia’s financial and commercial strategies. Two years later, she was appointed as managing director of that affiliate, leading the business in Australia, New Zealand and the Pacific Islands.

PMK’s current managing director, Paik Young-jay, will move on to new opportunities, the firm said. Paik assumed the position amid the Covid-19 pandemic and is credited with establishing a corporate culture of agility and collaboration.

April 19, 2023

KT&G Assists Tobacco Growers

KT&G volunteers helped tobacco growers in Nong’am-myeon plant about 20,000 seedlings on April 14. Since 2017, KT&G workers have been assisting tobacco farmers, who face difficulties recruiting labor in South Korea.

“KT&G engages in employee volunteer activities every year to support the activities of leaf tobacco farms, which have a problem of labor shortages,” said Kim Jeong-ho, director of KT&G’s raw materials department, in a statement. “We will continue to make the best efforts for mutual growth with farmers.”

Since 2013, KT&G has also provided KRW3.34 billion ($2.53 million) in financial support to tobacco growers. The money has paid for scholarships and medical checkups, among other things.

April 18, 2023

Investors Press KT&G on Ginseng Spinoff

A group of activist funds has filed an injunction at the Deajeon District Court in South Korea demanding that KT&G address their demand to spin off its lucrative ginseng business, appoint certain outside directors and strengthen its shareholder return policy, reports The Korea Times.

Led by the Singaporean activist private equity fund Flashlight Capital, the group has repeatedly demanded that the ginseng business be spun off for to recover corporate value and share prices.

However, during an investor relations event last month, KT&G rebuffed the request. “The spinoff will have little to no benefit to the company’s corporate value and shareholders from a long-term perspective,” said KT&G Senior Executive Vice President Bang Kyung-man.

Bang expressed concern that KT&G would potentially lose “synergy” in the event of the ginseng unit’s separation.

During the meeting, KT&G also dismissed the funds’ demand to strengthen KT&G’s shareholder return policy. The cigarette and ginseng product manufacturer said the current policy “should hold for now.”

Flashlight Capital founder Lee Sang-hyun believes KT&G’s share price will bounce back to over KRW140,000, a level last seen in 2016, once the firm reorients its investment portfolio to better achieve environmental, social and governance goals.

KT&G’s share price hit a low of KRW87,100 on Feb. 17 but has recovered since.

February 27, 2023

South Korea: Cigarette Sales Up

Cigarette sales in South Korea increased by 1.1 percent in 2022 compared to the prior year, according to the finance ministry, according to The Korea Herald.

In 2022, smokers purchased 3.63 billion packs of cigarettes compared to 3.59 billion in 2021.

Sales decreased 16.8 percent from 2014, the year before the government raised cigarette prices by 80 percent to help reduce smoking.

Heat-not-burn product demand increased by 21.3 percent while conventional cigarette demand dropped by 1.8 percent.

February 15, 2023

BAT Rothmans Releases New Glo Device

BAT Rothmans has released the glo Hyper X2 heat-not-burn device to the South Korean market, reports The Korea Times.

“Glo Hyper X2 is a next-generation e-cigarette device that will lead the BAT Group’s smoke-free product business,” said Kim Eun-ji, BAT Rothmans’ country manager for South Korea. “We have not only increased the users’ convenience of the platform but also improved its design and portability.”

February 15, 2023

IQOS Iluma One Debuts in South Korea

Philip Morris International has introduced its IQOS Iluma One in South Korea, reports The Korea Times. The launch comes three months after the debut of IQOS Iluma and IQOS Iluma Prime models in the country.

According to Philip Morris Korea Managing Director Paik Young-jae, the launch of Iluma One completes the Iluma platform family.

“The first two Iluma models have received a good response from the market, and if this continues, I am hoping that we will reclaim the leading position in the e-cigarette market here,” Paik said.

Since the launch of the IQOS device in 2017, Philip Morris Korea had maintained the No. 1 spot in the domestic heat-not-burn for five years. However, in the first quarter of 2022, KT&G took over market leadership in the first quarter of last year.

IQOS Iluma One retails in South Korea for KRW69,000 ($54.74), which is about 30 percent cheaper than the IQOS Iluma.

The new device is made with an all-in-one lightweight design that can be held in one hand. A single charge can be used to smoke 20 tobacco sticks.

Like other IQOS Iluma models, the IQOS Iluma One uses “Terea Smartcore” sticks, which heat tobacco with an induction system adopted inside its body so that users don’t have to clean any residue afterward.

February 9, 2023

KT&G: Half of Sales from Abroad by 2027

KT&G Corp. aims to earn over half of its sales from overseas businesses in 2027, the company told participants in an investor event.

The South Korean cigarette manufacturer targets sales of KRW10 trillion ($8.1 billion) by that year compared with an estimated annual sales of KRW5.9 trillion for 2022. Last year, KT&G likely earned about one-third of its sales from overseas operations.

In addition to focusing on its combustible cigarette business, the company will reinforce its next-generation product (NGP) businesses, which include heat-not-burn (HnB) products and health functional food products, KT&G Senior Executive Vice President Bang Kyung-man was quoted a saying by the Yonhap News Agency.

“We will invest KRW4 trillion to build new overseas production facilities and expand existing ones in the next five years to meet growing demand for NGPs, like HnB products,” he said.

The company is also considering building a new factory, either in Kazakhstan or eastern Europe, Bang said. To raise the necessary capital, the company plans to sell unused property and borrow money from banks, he said.

KT&G has exported its HnB products to more than 30 countries since 2020 when it signed an agreement with Philip Morris International for the commercialization of KT&G’s smoke-free products outside of South Korea.

KT&G currently earns 90 percent of its revenues from cigarette sales and 10 percent from HnB products. The company has four tobacco manufacturing plants—one each in South Korea, Russia, Turkey and Indonesia—with a combined capacity of 13.6 billion cigarettes a year.

January 26, 2023

Tag: South Korea