Kt&G Corp Gdr 144A

Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2025 Fourth Quarter and Foliar Earnings Report. After the presentation from KT&G, there will be a Q&A session with the participants to the call. If you wish to participate with a question, please press star and the number one. Ladies and gentlemen, I am Aaron Lee, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2025 Fourth Quarter and Full Year Earnings Report. Today's presentation will be provided in English in simultaneous interpretation and the Q&A session in consecutive interpretation. The materials can be found via the live webcast screen or downloaded from the company website. Please allow me to introduce the management team in attendance today. With us we have Mr. Sanghak Lee, Chief Finance and Operating Officer, Mr. Young Chan Yoon, Chief Strategy Officer, Mr. Chang-Koo Heo, Chief Marketing Officer, Mr. Min Seok Kwon, Chief of Global Business, Mr. Dong-Tae Kim, Chief of NGP, Mr. Sangjun Woo, Chief of Real Estate Business, Mr. Yongbam Kim, Head of Finance Office, and Mr. Taewon Kim, Chief of Future Strategy at KGC. Please be advised that the earnings we are about to present today have yet to be audited by the outside auditor, therefore are subject to change in the audit process, and any forward-looking information discussed in the call today may differ from the actual results to be reported in the future. With that, we will begin the 2025 fourth quarter and full year earnings report. Today's presentation consists of key items from our consolidated results and earnings for each business segment. After the presentation, we'll proceed to Q&A with the management team in attendance. Please allow me to invite Mr. Sanghak Lee, our COO and CFO, to share with you board resolutions on shareholder returns, key performances in 2025, and the outlook for 2026. Ladies and gentlemen, I am Tanghak Lee, COO CFO of KT&G. I deeply thank everyone for joining KT&G's 2025 fourth quarter and full year earnings report. Please allow me to first share with you the agenda on shareholder return resolved at the board today. Considering the company's business performance and cash flow, our BOD has resolved to pay out year-end dividends of 4,601 per share, which is 401 higher than last year. Annual DPS, including the already paid interim dividend, will rise 11.1% YOY with payout ratio reaching 58%. The year end dividend will be finally confirmed at the AGM to be hosted in upcoming March of this year. Next is share cancellation. The Board also resolved to cancel 3.3 million shares from our Treasury Shares held, making our aggregate share cancellation 14.3% of outstanding shares since 2024. The cancellation will be immediately executed with the amount of Treasury Shares held reduced to 9.5% of outstanding shares after the cancellation. I'd like to move on to our key performances in 2025. Upon focusing company-wide energy on enhancing core competitiveness around the global business, we recorded highest ever earnings with 2025 revenues, surpassing 6.5 trillion won for the first time. We also met a historic transition point where our overseas CC revenues surpassed our domestic CC revenues. As we reinforced our local direct business model, moving away from an export-based model, both consolidated revenue and operating profit broke previous records. Thanks to robust growth in our core business, both our operating profit and operating profit margins grew, putting our group's profitability on an uptrend. Based on such performance, we executed dividends at the scale of 627.4 billion won and 560 billion won of shared buyback and cancellation, total 1.1874 trillion won cash return, reaching 109.8% in total shareholder return ratio. Ultimately, we recorded 103.3% in aggregate return ratio since 2024. And thanks to solid earnings and strong willingness for shareholder returns, KT&G's value is in a new language. Our share price that started off 2025 from 107,101 has steadily gone up to the end of the year at 142,101, and as of February 4, it broke the historic record of 161,801, proving the successful re-rating of our corporate value. Based on such significant results in 2025, we intend to continue our profit-led growth and best-in-class shareholder return policy in 2026. To start with our 2026 business performance outlook, we are aiming for 3% to 5% growth in revenue and 6% to 8% growth in operating profit for the year as we continue our profit-based management. Currently, our goal business is on a very good track, and while we saw impact from one-off costs last year, we expect this to be very limited for 2026. Depending on how our performance goes during the year, when we believe there is confidence to revise up the outlook, we will communicate with the market immediately. And for our shareholder return plan, at the baseline, we will execute best in class shareholder returns targeting more than 100% in total shareholder return ratio. While we continue our upper trend in DPS, We will be repurchasing shares worth $300 billion or higher in the year to be canceled immediately after acquisition. When we combine this with the cancellation of existing treasury shares that we plan to do, we will be canceling more than 4% of our outstanding shares in the year 2026. Moreover, we are also planning to maintain the Plus Alpha program, utilizing funds from non-core assets. AT&G will continue to do its utmost along with the board of directors for global business management to maximize our corporate and shareholder value. I ask for your unwavering support for the company. Thank you. And now we will move on to details of our 2025 Q4 and full year earnings in page six. Starting with Q4 consolidated revenue, strong results in global CC and real estate drove our quarter revenue up by 10.1% to 1.7137 trillion won. Despite recognizing one-off cost of 13 billion won related to voluntary retirement in the fourth quarter, again after the first quarter, the quarter's operating profit increased by 17.1% to 248.8 billion won. Net income was impacted by currency fluctuations in the quarter. The lower currency-related non-offering profits driving down income by 15.7% to 274.2 billion won. EPS was down by 15.3% YOY at 2,472 won. EBITDA, on the other hand, grew by 17.7% to 325.8 billion won, with EBITDA margins at 19%. Next to our foliar consolidated earnings in page seven. Robust growth in the tobacco business led by Global CC and improved earnings in the real estate segment led annual revenue up by 11.4% to 6.5796 trillion won. Annual operating profit was up 13.5% to 1.3495 trillion won. After adjusting for the 70 billion won rate-related costs, operating profit is at 1.4198 trillion won, 19.4% higher ROI. Net income also impacted by currency fluctuations in the year, saw lower currency-related non-operating profits, driving income down by 6.1% to 1.0944 trillion won. EPS for the year was down 3%, to 10,143.1. EBITDA was up 14.1% to 1.6416 trillion won with EBITDA margins at 24.9%. Next, the key factors behind movement in earnings in page eight. Starting with the fourth quarter, Q4 tobacco business benefited from product mix improvement and pricing in the amount of $35.5 billion won and $15.7 billion won from dollar appreciation against the won. The volume decline due to advanced sales in domestic CC to the previous quarter led to a $43.8 billion won decline. In cost variance, including one-off costs, a $23.2 billion won decline. All in all, tobacco operating profit was reduced. While there was 0.5 billion won decrease in HFF profits, the real estate business drove a 56 billion won increase leading to a 17.1% growth in consolidated operating profit in the quarter. For the full year, cost barriers in tobacco, including wage-related one-offs, was a minus 313.5 billion won, While product mix improvement and pricing added 196.8 billion won, FX a 74.7 billion won impact and higher volumes in global CC and NGP 114.8 billion won plus. Tobacco business combined saw 72.8 billion won growth in profits for the year. Profits improved in HSS and real estate by 4.6 billion won and $86.5 billion respectively. As a result, consolidated operating profit increased by 13.5%. Let us move on to performance by business segment in page 9. First on the tobacco business. Tobacco business revenue was supported by global CCE that reached record high revenue and solid results across the NGP business. to rise 4.5% in Q4 to 1.0564 trillion won, and on annual basis rising 11.8% to 4.3672 trillion won. Q4 operating profit was impacted by one-off costs related to voluntary retirement, same as the first quarter, and reduced revenue from domestic CC, a big profit contributor, to decline year over year. However, annual operating profit increased thanks to a stronger profitability from GlobalCC that demonstrated a 53.8% operating profit growth YOY. We continued our global expansion in the business as quarter and annual share of global sales increased thanks to robust sales in GlobalCC. Zooming in on each segment of the tobacco business in page 10. beginning with domestic CC. Q4 revenue saw temporary fluctuation due to volume movement across quarters caused by the advanced demand in Q3 before the Chuseok holiday. Performance on an annual basis is still keeping to the previous trend. Domestic cigarette market volume in 2025 dropped 5.1%, showing a steeper decline versus the previous year. However, we continue to launch new products catering to consumer needs, sustaining our market share growth by 0.6 percentage points to 67.3%. As a result, we were able to meaningfully mitigate the volume and revenue reduction against a structural market volume decline. Moving on to Global CC in page 11. Global CC continued robust performance in Q4 as ASP growth was sustained in double digits. We extended our presence to 145 countries in the year with our active penetration into new markets, breaking the record again for highest ever volume. Adding the double digit growth in our ASP, the revenue grew by 29.4%, operating profits by 53.8%, quoting historical highs in the bottom and top line at the same time. Next to NGP in page 12. The NGP business, despite the supply chain disruption for the overseas market in the first half, continued to expand revenue as a result of new devices take launches domestically and globally. Let's look at some details of the NGP performance in page 13. Domestically, while the penetration of the category continues to expand, we maintain the upward trend of market share through new product launches despite intensifying market competition. Internationally, launch of upgraded devices in core markets like Russia and new stick products led to higher stake volume for the foliar against the previous year. Next to HFF in page 14. In 2025, health functional food revenue was impacted by subdued consumer sentiment driving down demand and continued portfolio restructuring towards high profit channels and products declined versus the previous year. However, Our profit-centered strategy, including more efficient marketing execution, led to higher operating profit for the year. Pair of global sales declined due to lower overseas revenue, especially in Greater China. Going into the specifics of the domestic and overseas performance in page 15. In domestic revenue by channel, high profit strategic channel revenue grew especially online, while offline revenue declined in large distribution channels including department stores and supermarkets due to restructuring of low profit channels. Overseas revenue declined overall as we reduced less efficient promotions in the business. Lastly, on real estate in page 16. In real estate revenue, Higher construction rates in development projects like Anyang, Mia, and East Daejeon led to higher revenue recognition in the year. And the Seocho SPC subsidiary project profits were recognized at once in Q4, leading to a jump in overall revenue. On top of such revenue increase in development and subsidiary projects, infrastructure costs from the Suwon development project were greatly reduced, leading to significant growth in operating profits. This concludes the KT&G 2025 fourth quarter and full year earnings release. We will now proceed to Q&A.

Now Q&A session will begin. Please press star 1. That is star and 1 if you have any questions.

Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2. That is star and 2 on your phone. The first question will be provided by Young-Hoon Yeo from NH Investment and Securities. Please go ahead with your question.