Operating Profit of 105.7 Billion KRW Last Year... 31.1% Increase YoY
‘IQOS Iluma’ Market Share Rises Amid Market Growth
Reduced Donations Despite Strong Performance... Minimal Social Contribution
Korea Philip Morris has raised its operating profit by more than 30% last year, driven by the growth of the heated tobacco market and the strong performance of the ‘IQOS Iluma.’ However, despite the significant improvement in earnings, criticism has emerged that its social contribution to Korea is low as the scale of donations has rather decreased.
According to the Financial Supervisory Service's electronic disclosure system on the 5th, Korea Philip Morris's operating profit last year was 105.7 billion KRW, a 31.1% increase from 80.6 billion KRW a year earlier. During the same period, sales rose 15.1% to 790.5 billion KRW from 686.8 billion KRW the previous year, and net profit also surged 96.6% to 89.1 billion KRW.
The improvement in Korea Philip Morris's performance is analyzed to have been led by IQOS Iluma. Earlier, in October 2022, Korea Philip Morris launched the new heated tobacco product IQOS Iluma and its exclusive stick ‘Terea’ after three years. Then, in February last year, it released the integrated product ‘IQOS Iluma One,’ and in July and November, it focused on expanding its lineup by introducing limited edition products ‘IQOS Iluma We Edition’ and ‘IQOS Iluma Stardrift,’ respectively. This was a crucial turnaround move as the company had lost its leading position in the domestic heated tobacco market to KT&G in the first quarter of 2022 after holding it since the launch of ‘IQOS’ in 2017 for five years.
Although it failed to reclaim the top spot with IQOS Iluma, it succeeded in reversing market share and achieved improved performance. According to Philip Morris International (PMI), the domestic market share of Korea Philip Morris's heated tobacco sticks (HTU), including Terea and ‘Heets,’ was 7.1% last year, up 0.9 percentage points from 6.2% in the same period the previous year. This increase is three times the overall tobacco market share growth rate (0.3 percentage points), indicating that heated tobacco is leading the market share rise. HTU shipments also increased by 13.1% to 5.1 billion units from 4.5 billion units the previous year, contrasting with the conventional cigarette shipments, which declined from 9.4 billion to 8.9 billion units during the same period.
Last year’s sales of Korea Philip Morris were the highest since 2018 (870.6 billion KRW), when IQOS was launched in June 2017 and sales began in earnest. The operating profit exceeding 100 billion KRW was also the first time in eight years since 2015. On the other hand, selling and administrative expenses increased only 6.2% from 260 billion KRW in 2022 to 276 billion KRW last year, showing relatively well-controlled costs that supported the performance improvement.
With the clear growth trend in the domestic heated tobacco market recently, Korea Philip Morris appears to be continuing last year’s momentum this year through new product launches and discount events for electronic cigarette devices. Last month, it expanded its product lineup to a total of 16 by launching the capsule-type new product ‘Terea Arber Pearl,’ and from the end of January, it increased the discount for first-time buyers of IQOS Iluma from 20,000 KRW to 30,000 KRW to strengthen price competitiveness.
However, despite net profit nearly doubling to 90 billion KRW last year compared to the previous year, domestic donations actually decreased. Korea Philip Morris’s donations last year amounted to 1.0291 billion KRW, down 28.3% (462.8 million KRW) from 1.43538 billion KRW in 2022. Donations were 2.05557 billion KRW in 2020, decreased to 1.46463 billion KRW in 2021, slightly rose the following year, and then fell to about 1 billion KRW last year.
Meanwhile, according to the Ministry of Economy and Finance, total domestic tobacco sales turned to a decline last year for the first time in four years, while heated tobacco showed a clear increase in sales. The share of electronic cigarettes in total tobacco sales rose 2.1 percentage points from a year earlier to 16.9%. As the preference for heated tobacco became more distinct, sales last year increased 12.6% to 610 million packs from 540 million packs the previous year.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
