KT&G is simultaneously expanding the scale of its global business and accelerating improvements in profitability. Its strategy of enhancing price competitiveness for key brands and expanding overseas production bases to reduce cost pressures is viewed as delivering results.

According to the Financial Supervisory Service’s electronic disclosure system on the 11th, KT&G’s consolidated sales for the third quarter of this year totaled KRW 1,905.2 billion, up 4.3% year-on-year. Operating profit came to KRW 530.1 billion, an increase of 13.9%. Both sales and operating profit marked all-time quarterly highs.

The tobacco business drove the improvement in earnings. The tobacco division’s sales amounted to KRW 1,306.5 billion, up 6.0% from a year earlier, while operating profit rose 14.4% to KRW 425.5 billion.

Growth in the overseas cigarette (combustible) business was particularly notable. Third-quarter overseas cigarette sales volume increased 6.2% year-on-year. Sales reached KRW 579.0 billion, up 10.5%, and operating profit rose 21.9%.

In the third quarter, overseas cigarette sales significantly exceeded domestic sales (KRW 429.7 billion). This trend has continued since last year. KT&G’s annual overseas cigarette sales surpassed its domestic sales for the first time last year.

● Overseas cigarettes post 10 consecutive quarters of ‘triple growth’…localization strategy proves effective

Alongside the expansion of overseas business volume, profitability improvements are also gaining momentum. In its overseas cigarette business, KT&G has recorded simultaneous increases in sales volume, sales, and operating profit for 10 consecutive quarters. Analysts say that the growth base of the overall overseas business is becoming more solid, going beyond temporary export increases or strong performance in specific regions.

Advancing the growth strategy for the overseas cigarette business is cited as a key factor in enhancing profitability. Whereas the company previously focused on boosting sales volume through entry into new countries and distribution-network expansion, it has recently shifted weight to implementing strategic price increases for core brands such as ESSE and raising the proportion of premium products in its sales mix.

Localized production has also contributed to improved profitability. This year, KT&G began operating a new plant in Indonesia, completing a five-country global production system spanning Korea, Indonesia, Russia, Kazakhstan, and Türkiye. The industry assesses that preemptive investment in overseas production bases and cultivation of local markets have laid the business foundation that is now translating into earnings growth.

KT&G plans to raise the share of overseas production to over 70% going forward to reduce its fixed-cost burden. The company intends to enhance profitability by combining the sales capabilities of local subsidiaries with the cost competitiveness of its production bases.

There are also cases in which local business capabilities have directly led to improved results. According to Yuanta Securities, KT&G Kazakhstan’s sales subsidiary is expected to post a compound annual growth rate (CAGR) of 20.4% in sales volume, 70.2% in sales, and 89.7% in operating profit between 2022 and 2025. The fact that sales and operating profit are growing faster than sales volume is attributed to the internalization of distribution margins following the shift to a direct business model, as well as improvements in pricing and product mix.

Bang Kyung-man, CEO of KT&G, said, “Over the past five years, more than half of overseas cigarette sales growth has been driven by 14 overseas subsidiaries,” adding, “The ability to manage and operate business locally is the key growth engine for the company as a whole.”

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