KT&G Reports Strong Fourth Quarter and FY 2022 Results

FY 2022 revenue of KRW 5.857 trillion,operating profit of 1.268 trillion

KT&G's sales hit record high,driven by growth in both Heat Not Burn and overseas businesses

Set out to reach consolidated revenue of KRW 10 trillion by 2027 by focusing on overseas business,Heat Not Burn,Health Functional Food

SEOUL,South Korea,Feb. 10,2023 --KT&G Corporation("KT&G" or the "Company") (KRX:033780),South Korea's leading tobacco manufacturer,reported strong financial results for the fourth quarter and full year of 2022.

KT&G posted KRW 1.412 trillion in consolidated revenue and KRW 0.202 trillion in operating profit in the quarter ended December 31,2022. For the full year,the company reported KRW 5.857 trillion in consolidated sales and KRW 1.268 trillion in operating profit.

KT&G's sales hit record high in both consolidated and separate bases. The company also set a record-breaking overseas sale of KRW 1.42 trillion for the full year,driven by strong growth in both overseas combustibles and Heat Not Burn businesses.

On a separate basis,KT&G delivered a strong performance in both the fourth quarter and full year,as revenue and profit all saw increase from the same period last year. This reflects continued robust growth of KT&G's main business,consisted of combustibles and Heat Not Burn.

As for combustibles,KT&G is maintaining the number 1 position in the domestic market by accounting for 65.4% of the market for the full year 2022,which is up by 0.8%p compared to the prior year. Despite the decrease in the total market volume by 1% in 2022,KT&G managed to increase its sales volume by 0.2% by constantly launching new products to meet the consumers' needs. As for the overseas sales that include both the sales from exports and overseas subsidiaries,the full year revenue exceeded KRW 1 trillion,which is 47.2% increase from the prior year. The strong revenue growth in overseas combustibles was mainly driven by the company's increasing market presence in new markets,such as the Latin America region and strength in overseas subsidiaries,especially KT&G Indonesia.

Heat Not Burn business reported total sales volume of 10.69 billion sticks,48.9% increase from the prior year and total revenue of KRW 0.876 trillion,73.9% increase for the full year 2022. The significant growth in the Heat Not Burn business is underpinned by KT&G and Philip Morris International(PMI)'s partnership 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 31 global markets,12 of them being EU countries. This milestone was achieved in only about two years since the agreement commenced. Based on successful outcomes 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 commitments for the Heat not Burn consumables,securing the stability of the business,and the volume commitments are subject to three-year performance review cycles that allow flexibility for changing market conditions. Over the initial stage of the agreement,from 2023 to 2025,PMI will guarantee the sales of at least 16 billion sticks. KT&G has independently estimated that the CAGR of its overseas Heat Not Burn revenue for the next 15 years will be 20.6%,and CAGR of its overseas Heat Not Burn consumables volume in the same period will be 24%. Based on such assumption,Hanwha Investment & Securities has estimated the cumulative revenue for the 15-year contract with PMI to reach KRW 31.5 trillion.

For 2023,KT&G expects to accelerate growth in overseas and Heat Not Burn businesses. The company will strive to continue global expansion of its Heat Not Burn product line lil and further implement direct business model in the overseas market by increasing the number of overseas subsidiaries. The company hosted Investor Day on January 26,2023 and announced that it will reach annual consolidated revenue of KRW 10.2 trillion,which is almost twofold increase from FY 2022 revenue,by 2027. In order to achieve the ambitious goal of doubling sales in 5 years,the company will develop its Heat Not Burn,Health Functional Food,and overseas business as the core business areas and invest KRW 4 trillion in them.

As for the shareholder return policy,KT&G is planning to launch a KRW 0.9 trillion shareholder return program this year,including a KRW 0.3 trillion share buyback and KRW 0.6 trillion dividend payout. The company has declared annual dividend of KRW 5,000,which is KRW 200 up from the prior year. It is also expected that the company will start paying dividends based on semi-annual basis within this year.

Fourth Quarter Highlights

· Consolidated revenue of KRW 1.412 trillion (+13.2% YoY),and operating profit of KRW 0.202 trillion (-29% YoY)

· On a separate company basis,revenue of KRW 0.913 trillion (+ 7.2% YoY),and operating profit of KRW 0.226 trillion (+22.4% YoY)

· Domestic market share of combustibles recorded 65.2% (+0.6%p YoY)

· Overseas combustible sales volume recorded 12.8 billion sticks (+13.8% YoY),and its sales posted KRW 0.26 trillion (+38.3% YoY)

· Total Heat Not Burn sales volume including both domestic and overseas recorded 2.94 billion sticks (+41.3% YoY) and the total Heat Not Burn sales reported KRW 0.21 trillion (+44.6 YoY)

· Domestic market share of Heat Not Burn recorded 49% (+6.5%p YoY)

Full-Year Highlights

· Consolidated revenue of KRW 5.857 trillion (+12% YoY),and operating profit of KRW 1.268 trillion (-5.3% YoY)

· On a separate company basis,revenue of KRW 3.694 trillion (+ 5.8% YoY),and operating profit of KRW 1.12 trillion (+3.3% YoY)

· Domestic market share of combustibles recorded 65.4% (+0.8%p YoY)

· Overseas combustible sales volume recorded 49.4 billion sticks (+27.1% YoY),and its sales posted KRW 1.01 trillion (+47.2% YoY)

· Total Heat Not Burn sales volume including both domestic and overseas recorded 10.69 billion sticks (+48.9% YoY) and the total Heat Not Burn sales reported KRW 0.876 trillion (+73.9 YoY)

· Domestic market share of Heat Not Burn recorded 47.5% (+7.1%p YoY)

Consolidated Results (K-IFRS)

KT&G's Consolidated Results for fiscal year 2022,4Q and full-year

KT&G Performance on a Separate Basis (K-IFRS)

KT&G's Separate Results for fiscal year 2022,4Q and full-year

About KT&G

KT&G is a leading tobacco manufacturer in South Korea and the fifth-largest global player by market share. KT&G is exporting its combustible products to more than 130 markets globally. Its Heat Not Burn product lil is being commercialized in more than 30 countries globally,outside of Korea under the supply agreement with Philip Morris International(PMI). The two companies have entered into a new long-term agreement of 15 years on January 30,2023. As an effort to diversify and strengthen its business portfolio,the company also operates business in Health Functional Food,pharmaceuticals,cosmetics,and so on.

For more information,please visit https://en.ktng.com