After Leadership Change After 9 Years, the Launch of Bang Gyeongmanho
Improving Declining Operating Profit for 3 Consecutive Years is the Biggest Challenge
Tobacco Business is Stable... Health Supplements Slump is a Hindrance
KT&G has changed its leadership for the first time in nine years and embarked on a journey with the goals of surpassing 6 trillion won in sales and improving operating profit. However, the first performance report of this year is expected to fall short of expectations. While growth is anticipated in the core tobacco business centered on e-cigarettes, other sectors such as health functional foods are expected to underperform due to a decline in domestic consumption.
According to financial information firm FnGuide on the 30th, KT&G's consolidated operating profit for the first quarter of this year is estimated to decrease by 11.8% compared to the same period last year, reaching 279.1 billion won. Sales for the same period are expected to decline by 3.0% to 1.3539 trillion won.
With new leadership, KT&G has identified improving operating profit as its top priority this year. KT&G's operating profit has decreased for three consecutive years, recording 1.4824 trillion won in 2020, 1.3384 trillion won in 2021, 1.2677 trillion won in 2022, and 1.1673 trillion won last year. Sales also barely increased by 0.2% to 5.8626 trillion won last year from 5.8514 trillion won the previous year. Although sales grew slightly due to increased sales volume and price hikes, profitability worsened due to rising raw material costs such as tobacco leaf purchase prices.
First, the most important tobacco business segment is expected to perform well. Although domestic demand for conventional heated tobacco products continues to decline, the Next Generation Products (NGP) business, which focuses on heated e-cigarettes, is expected to offset the sluggishness of conventional tobacco products by maintaining growth. In particular, sales of NGP sticks, which have high profit margins, continue to grow despite intensified competition due to market expansion, thanks to the effect of new product launches.
KT&G has announced plans to expand its influence in the e-cigarette market this year through portfolio expansion, including the release of limited edition Lil Hybrid and new Mix products. In fact, following the launch of the new dedicated stick product "Mix Uptu" for the heated e-cigarette "Lil Hybrid" last month, the company aggressively introduced another new product, "Mix Orasome," within just one month this month.
Overseas markets, including exports and overseas subsidiaries, are also expected to grow by double digits or more, driven by strong sales of heated e-cigarette sticks and the effect of price increases. Additionally, while conventional heated tobacco products are sluggish domestically, overseas subsidiaries in markets such as the Middle East, Indonesia, Africa, and Latin America are expected to record mostly favorable sales performance.
KT&G plans to make overseas markets the main growth engine by expanding overseas production bases. Earlier, the company revealed a mid-to-long-term vision called "Leap to Global Top Tier" and a growth strategy focusing on three core businesses: e-cigarettes, overseas heated tobacco, and health functional foods. The plan is to increase the global sales ratio to over 50% by 2027 through strengthening direct overseas business capabilities. Newly appointed KT&G President Bang Kyung-man also began active global on-site management by attending the groundbreaking ceremony for the 2nd and 3rd factories in Indonesia as his first overseas schedule on the 26th.
Bang Kyung-man, President of KT&G (sixth from the left), is taking a commemorative photo at the groundbreaking ceremony for Indonesia's 2nd and 3rd factories held on the 26th in Surabaya, East Java Province, Indonesia, to secure global production bases.
However, there is analysis that the health functional foods segment may hold back performance due to weak demand caused by the economic slowdown. While sales in overseas markets such as the U.S. and China are expected to grow centered on online channels, the domestic market is expected to show poor performance due to reduced consumer sentiment amid decreased disposable income and structural adjustments in low-profit channels.
KGC Ginseng Corporation, which is responsible for the health functional foods business, recorded sales of 1.3961 trillion won last year, remaining in the 1.3 trillion won range for three consecutive years since 2021. KGC Ginseng Corporation led the growth of the domestic red ginseng market in the 2010s centered on the "CheongKwanJang" brand and became a representative domestic health functional food company. However, competition intensified as NongHyup and CJ CheilJedang entered the red ginseng market following the abolition of the red ginseng monopoly system in 1996, and demand for red ginseng declined due to increased interest in various health functional foods during the COVID-19 pandemic, resulting in stagnant performance.
As growth in the domestic market becomes difficult to expect, KGC Ginseng Corporation is also turning its attention overseas. To break the performance stagnation, KGC Ginseng Corporation replaced its CEO this month with An Bin, who previously served as head of the global headquarters. The new CEO An stated, "A shift in perception to a 'global one market' view that integrates domestic and overseas markets is necessary," adding, "We will maximize profits through overwhelming growth overseas and lead a resurgence domestically through integrated online and offline marketing, starting with franchise business."
KGC Ginseng Corporation is expected to focus on expanding exports and its lineup, including health functional food brands such as "Alpha Project" and red ginseng cosmetics brand "Donginbi," in addition to its existing red ginseng products.
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