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| KT&G CEO Baek Bok-in, left, poses with Philip Morris International CEO Jacek Olczak after signing a 15-year contract to supply lil, a lineup of heat-not-burn products, to the multinational tobacco maker at Conrad Hotel in Seoul, Monday. Courtesy of KT&G |
By Kim Jae-heun
KT&G, Korea's largest cigarette and red ginseng maker, is expected to generate 31.5 trillion won ($25 billion) in sales abroad through 2037 via a recently renewed business partnership with Philip Morris International (PMI), according to the company and Hanwha Investment & Securities, Tuesday.
Under the 15-year partnership extension deal signed on Jan. 30, PMI will market and sell KT&G's heat-not-burn (hnb) products including electronic devices and tobacco sticks and other next-generation products (NGPs) outside Korea.
According to Hanwha's report, the annual sales growth of the tobacco firm's NGP business abroad is estimated at 20.6 percent over the next 15 years. Its sales growth of tobacco sticks in the same period is predicted to reach 24 percent under the condition that there will be no changes in the unit price of consumables.
PMI guaranteed at least 16 billion KT&G tobacco stick sales from 2023 to 2025 under the contract term. After 2025, the two companies will adjust the sales volume flexibly in accordance with evolving market conditions.
"KT&G signed a global partnership contract with PMI, the world's No. 1 tobacco company, in January 2020. Within only two years of our global business entry for hnb products, we have entered 31 countries around the world," said Lim Wang-seop, chief of KT&G's NGP Business Headquarters. "KT&G will continue to strengthen its collaboration with PMI based on the company's innovative devices and rapid product development and become a top-tier player in the fast-growing global NGP market centered on Eurasian countries."
He said the firm has established medium- to long-term growth strategies with Boston Consulting Group since the first half of 2022, adding it will invest 1.2 trillion won in the NGP sector in preparation for the rapidly growing e-cigarette market.
KT&G is also preparing to increase its sales volume by expanding domestic facilities producing smoke-free products and securing production bases for overseas plants in Kazakhstan and other Eastern Europe countries. The company expects faster improvement of its profit structure after securing tobacco stick production bases abroad.
In addition, the company will continue to develop innovative smoking devices following the global trend of preference for smoke-free products over cigarettes.
KT&G is seeking to acquire PMTA and MRTP for its new hnb products from the U.S. Food and Drug Administration, which are certifications approving legal sales of cigarette and e-cigarette products in the United States.
The tobacco firm has not yet entered the hnb market in North America, but when it does, it expects the revenue of its global NGP business to grow even more.
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