KT&G started exporting its e-cigarette heating devices to Russia last month in accordance with the company’s agreement with Philip Morris International (PMI) under which the two parties will work on promoting global marketing campaigns, according to the tobacco company, Thursday.
During a conference call upon the announcement of its second-quarter results, the company confirmed an analyst question that 12.5 billion won ($10.54 million) worth of e-cigarette devices were exported to Russia throughout last month. KT&G signed a pact for strategic collaboration with its rival PMI in January.
“It is true that e-cigarette devices were exported last month. We plan to announce further details on the outcome of the PMI deal in the near future,” the company said during the call. The partnership is calling for KT&G to export its “lil” tobacco heating devices and tobacco sticks worldwide through PMI’s global sales network spanning 180 international markets, without specifying which markets the two companies will focus on.
Some questions have persisted over the progress of the deal so far, as no visible outcome has been achieved over the past six months since the agreement was made. However, as exports have now begun, KT&G’s effort to expand its e-cigarette presence is anticipated to pick up momentum.
The export came after heat-not-burn (HNB) tobacco products’ domestic market penetration rate declined for the second consecutive quarter. The rate stood at 13 percent at the end of last year, but declined to 12.6 percent in the first quarter and 12.4 percent in the second quarter. The company, however, said this does not mean a deadlock in HNB products’ growth, citing the expansion in overseas markets.
“From a future business standpoint, the overall heat-not-burn (HNB) tobacco market is expected to grow,” the company said. “When the new products are introduced, the market is bound to grow. While there would be some minor impact from governments’ policies and market events, there is no doubt about the growth trajectory.”
Apart from the e-cigarette business, KT&G said conventional tobacco sales this year will likely exceed its annual goal set earlier as demand remains strong. In exports, the firm has already secured shipping volume destined for Middle Eastern markets in the second half of the year, while other overseas markets are showing signs of recovery from the impact of COVID-19.
Separately, KT&G decided to acquire 2.5 million treasury shares worth 200.25 billion won to improve shareholder value. The company said it has no plans to retire those shares, but the buyback will have the same effect because it will not sell the shares back to market.
KT&G reported 1.32 trillion won in consolidated sales during the latest quarter, up 4.8 percent from a year earlier. But the operating profit contracted by 1.1 percent year-on-year to 394.7 billion won, due to the decline in duty free sales.
Of them, overseas tobacco sales increased by 14.1 percent to 286.4 billion won, as its main export markets in the Middle East show solid recovery. The company expected the growth trajectory will continue as its sales are growing in Latin South America and Africa.