KT&G reports 2023 Q1 results, on track to become a 'global top-tier' company

Q1 revenue of KRW 1.396 trillion,operating profit of KRW 316.5 billion

Continued robust growth in combustibles and Heat Not Burn,fundamentals intact

Overseas Heat Not Burn sales volume and operating profit up 64.3%,127% YoY

Overseas subsidiaries sales volume and revenue up 60%,44.3% YoY

SEOUL,South Korea,May 11,2023 -- KT&G Corporation("KT&G" or the "Company") (KRX:033780),South Korea's leading tobacco manufacturer,today announced its financial results for the first quarter of 2023.

The first quarter consolidated revenue decreased 0.5% YoY to KRW 1.396 trillion and consolidated operating profit decreased 5% YoY to KRW 316.5 billion. The slight decrease in operating profit was mainly driven by COGS inflation,mix,and increase in costs.

Despite such headwinds,KT&G delivered continued robust growth in its main business,consisted of combustibles and Heat Not Burn,which proves the company's fundamentals remain intact. It is also worth noting that the company's first quarter overseas sales volume accounted for more than 58% of its total sales volume,showing that the company is on track to become a 'global top-tier' company.

For the combustibles,KT&G sold 9.48 billion sticks in the domestic market and 13.37 billion sticks in the overseas market in the first quarter. The overseas combustibles category saw remarkable growth in both sales volume and revenue compared to the same period last year.

As mentioned above,KT&G's overseas combustibles category recorded the sales volume of 13.37 billion sticks,which represents 16.1% growth YoY. The revenue increased 17.1% to KRW 265.1 billion. Such significant growth in overseas combustibles category was led by strong performance by the overseas subsidiaries. Overseas subsidiaries saw 60% increase in the sales volume and 44.3% increase in the revenue compared to the same period last year. The company's Indonesian subsidiary played a huge role as it accounted for 24% of the total overseas combustibles sales volume in the first quarter. KT&G's Indonesian subsidiary reported sales volume of 3.21 billion sticks,representing 40.8% growth YoY.

The total Heat Not Burn sales volume that includes both domestic and overseas figures increased 41.9% compared to the same period last year to 3.22 billion sticks,fueled by robust growth in both domestic and overseas markets. In the domestic market,KT&G's market share hit an all-time high of 48.4% buoyed by the company's successful launch of the new Heat Not Burn platform,lil AIBLE,and the rapid growth of the market. Out of the total 3.22 billion sticks,overseas sales volume accounted for almost 58%. KT&G sold 1.84 billion sticks of Heat Not Burn consumables in the overseas market,representing 64.3% growth YoY.

Strong performance in the overseas Heat Not Burn category is largely attributable to the strategic alliance with Philip Morris International("PMI") to expand KT&G's Heat Not Burn product line lil into the overseas market. The two companies began their partnership in 2020 and successfully launched lil in more than 30 global markets.

Based on the successful outcome of their initial partnership,KT&G and PMI have entered into a new long-term agreement of 15 years on January 30,2023. The two companies set volume commitment for the Heat Not Burn consumables,securing profitability of the business. The volume commitments are subject for three-year performance review cycles that allow flexibility for changing market conditions. Over the initial stage of the agreement,which covers from 2023 to 2025,PMI will guarantee the minimum sales volume of 16 billion sticks. The company expects the overseas Heat Not Burn revenue and consumables sales volume to grow 20.6% and 24% CAGR respectively for the next 15 years through the collaboration with PMI.

Earlier this year,the company has unveiled the 2027 KT&G Vision and outlined its growth strategies that focus on three core business areas,which include Heat Not Burn,Health Functional Food,and overseas business. As the company has continuously strived to foster growth of the three core business areas,the sum of their revenues for the first quarter accounted for more than 60% of the company's total revenue,and their operating profit saw 14% growth YoY. The company plans to strengthen its commitment to leap forward as a 'global top-tier' company and accelerate the global expansion of its core businesses.

Meanwhile,KT&G has decided to host a webcast of its financial results and disclose financial performance of each business unit starting from the first quarter,as an effort to engage in more open and transparent communication with its shareholders.

Currently,the company is faithfully executing on its three-year shareholder return policy worth KRW 2.75 trillion from 2021. In the second half of this year,the company also plans to announce a New Shareholder Return Policy that includes treasury cancellation and increase shareholder returns.