Kt&G Corp Gdr 144A

Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2026 Second Quarter 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. We will now begin with KT&G's presentation for 2026 Second Quarter Earnings. Ladies and gentlemen, I'm Aaron Lee, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2026 Second Quarter 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. Youngchan Yoon, Chief Strategy Officer, Mr. Changku Heo, Chief Marketing Officer, Mr. Min Seok Kwon, Chief of Global Business, Mr. Dongpyo Kim, Chief of NGP, Mr. Sangjun Woo, Chief of Real Estate, Mr. Yongbeom Kim, Head of Finance Office, and Mr. Seungkyu Han, 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 2026 second quarter earnings report. Today's presentation consists of key items from our consolidated results and earnings for each business segment. After the presentation, we will proceed to Q&A with the management team in attendance. First, please allow me to invite Mr. Sanghak Lee, our COO and CFO, to share with you updates on our shareholder returns as resolved at the board today, highlights of our 2026 Q2 results, and updates on our annual guidance. Ladies and gentlemen, this is Sanghak Lee, COO and CFO of KT&G. Thank you for attending KT&G's 2026 Q2 earnings report. First, starting on our shareholder return. Earlier today, our board of directors resolved for the execution of the 2026 interim dividends. The board has decided to raise DPS by 601 to 2001 per share. The record date for this interim dividend will be August 21st and the dividends will be paid out on September 7th. Details will be uploaded on our company website on a later date. Based on our profit growth and capacity for shareholder returns, we have increased the amount and the portion of our interim dividend and are assessing the possibility of increasing the DPS for our year-end dividend as well. And we will proceed with share buyback and cancellation in the second half as planned The scale and timing of which will be decided based on comprehensive assessment of the market situation and our capital policy. We are also preparing for a new round of mid to long term shareholder return plan to transfer our elevated corporate value into shareholder value on which our CEO will communicate with the market in the fourth quarter. Moving on to our key results of the second quarter. The robust growth of the tobacco business drove our consolidated earnings in Q2 as well. Consolidated revenue reached 1.7 trillion won, operating profit 414.5 billion won, rising 18.5%. With this, we recorded highest ever H1 revenue for two years. and four consecutive quarters of double-digit growth in operating profit. Our international cigarette business recorded triple growth of volume, revenue and operating profit for nine quarters in a row. As the ASP growth trend continued through pricing and mix improvement, volumes grew 7.3%, revenue 18.9%, and operating profit 45.6%. Our NGP business reinforced brand competitiveness and profitability as the little able platform successfully penetrated the market with higher contribution from high ASP sticks leading to profit growth outpacing the revenue growth. In Korea, As the category's penetration increases, our market share rose to 48.2%, solidifying LIL's market-leading position. Overseas, strong sales in key markets and a low base effect as the device supply chain normalized led to 35.9% in revenue growth. To strengthen our platform competitiveness in eNotBurn, We are investing in R&D twice as much as last year. In the second half, we will launch a new platform equipped with innovative heating technology in Korea and launch our H&B products independently in two markets overseas, all in line with our growth strategy. Our HFF business also continued its growth trajectory this quarter, supported by promising results in Korea. Promotions maximizing market activation opportunities like the Family Month and individual brand campaigns led to 7.8% revenue growth and double-digit growth in operating profit. Our global nutrition business is also making significant attempts based on various partnerships. In China, We started to supply ginseng materials to a certain global SMB player in launching a new energy drink, which is currently being sold in large distribution channels. In the U.S., through our partnership with Altria, we have expanded our localized product portfolio with products going through pilot tests in key retail channels. Reflecting our first half results and our projections for the second half, we are also revising up our 2026 annual guidance. We are now raising our revenue growth target from the previous 3-5% to 5-7% and operating profit growth target from 6-8% to now 10-13%. We will do our utmost in the second half as well to achieve this guidance target as we maintain our profit-based growth trend. We ask for your unwavering support for KT&G going forward. Thank you. And now we will move on to details on our 2026 Q2 earnings in page six. In the second quarter, robust growth from our tobacco business drove consolidated earnings, while HFF and real estate businesses also grew. Consolidated revenue rose by 9.9% to 1.7016 trillion won. Operating profit growth outpaced the revenue growth, rising by 18.5% to 414.5 billion won. Net income was lifted by higher operating profit and currency-related non-operating profits, rising 152.3% to $362.1 billion. EPS grew by 164.2% to $3,591. EBITDA rose by 17.4% to $494.4 billion, with EBITDA margins at 29.1%. next to factors behind movement in earnings in page seven. Starting with the tobacco business. Increase in volume from international CC and NGP sticks added 43.1 billion won. Improved product mix and pricing was a 34.6 billion won impact and dollar appreciation against the won was 15.8 billion won increment totaling to 60.5 billion won increase in profit from the tobacco business. HFF and real estate also saw profit growth of 3.8 billion won and 2.8 billion won respectively. As a result, consolidated operating profit grew 18.5% to 414.5 billion won. Let's move on to the results from each business segment in page eight. First on the tobacco business. Tobacco business revenue was driven by the strong growth of International CC and Korea NGP rising 11.7% to 1.2185 trillion won. Operating profit was supported by Korea and International CC and the profit center growth of NGP to grow 18.8% with margins also growing 1.9 percentage points too. Also, as business expanded via overseas CCC, the share of international business in tobacco continued to rise to reach 65.1%. Breaking down the tobacco business into segments in page nine. Beginning with international CCC. Our international business continued its strong growth momentum despite the prolonged external uncertainties. In the Middle East, We managed to secure various alternative routes to see growth in both shipment and local sales volumes. Strong volume growth continued in key regions including Africa and Eurasia. With it, total international sales volume grew 7.3% year-on-year to 17.92 billion sticks. ASP also maintained its solid growth with pricing and product mix improvement leading to the international CC business recording triple growth of volume, revenue, and profit for nine quarters in a row now. Next to Korea CC in page 10. In Q2, the total cigarette market volume decline was mitigated, shrinking only 1.2% YOI. We've reinforced our market leading position as we continue to increase our market share, and minimized our volume decline to 0.6%, with our revenue rising 1.1%. Next is page 11 on NGP. In the Korean NGP business, strong sales of the Low Able platform led to higher contribution from higher ASP sticks and improved profitability. Profit growth outpaced revenue growth as a result. International NGP was lifted by expanded sales in key markets including Russia and partial impact from the low base effect of the device supply disruption in the previous year. Allow me to elaborate on the performance in page 12. In Korea, while the HMB category's penetration of the market continued to grow and competition intensified, The little able platform and new stick products were well received in the market, recording 48.2% in market share for KT&G. In the international business, upgraded device launches in Russia, a key market, continued to show effect, leading to moderate growth in stick volumes. Next on page 13, the HFF business. With promotions for the Family Month campaign and individual brand campaigns in Korea, Q2 HFF revenue grew by 1.5%. As high profit channels, including online, expanded and costs improved, operating profit was boosted by 61.3%. Breaking down Korea and international in page 14. In Korea, promotions for family month and high oil price relief subsidies and individual brand campaigns led to expanded sales across all channels, with overall revenue rising by 7.8%. Overseas, reduced sales in China due to inventory adjustment led to lower revenue year on year. Lastly, on page 15, for real estate. Real estate revenue grew as construction rates progressed in development projects, including Anyang MIA East Daejeon, rising 10.2% YOY. Operated profit also grew by 15.8% with higher revenue from development projects. This concludes our 2026 second quarter earnings release presentation. We are now happy to take your questions.

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 Jong-wook Kim from Merit Securities. Please go ahead with your question.