SOUTH KOREA. South Korean tobacco products company KT&G has reported a +25.0% growth in net income to KRW931.1 billion (US$0.84 billion) for the 2010 financial year ended 31 December. Operating profit decreased -2.3% to KRW925 billion (US$0.83 billion).
Net sales fell -10.0% to KRW2,499.9 billion (US$2.24 billion). Domestic cigarette sales dipped -8.5% year-on-year, while export cigarette sales increased +10.3%.
Full year sales volumes declined -3.8% to 92.3 billion sticks, with domestic sales volumes falling -10.4% to 52.9 billion sticks.
Click here to view the enlarged image (then hover over graphs with your cursor and click for full detail)4Q FY2010 results
In the fourth quarter of 2010 (October–December) sales volumes in the quarter rose +9.2% to 26.2 billion sticks, with domestic sales volumes falling -2.0% to 12.9 billion. In comparison, the total market in Korea sold 23.2 billion sticks in the quarter – a year-on-year growth of +2.7%.
Despite the -2.0% decline in domestic sales volumes, domestic sales grew +0.5% to KRW432.4 billion (US$0.39 billion). Export sales rose +21.6%. Total net sales in the quarter hit KRW664.6 billion (US$0.60 billion) – a -6.3% decrease on the same period in 2009.
KT&G’s premium portion ratio (the ratio of its premium segment to the rest of its portfolio) in the quarter rose +2.1%, outpacing that of the total Korean market (+1.9%).
The company’s export business fared particularly well, with fourth quarter sales volumes soaring +22.9% to 13.2 billion sticks. The growth rate of sales was slightly less than the volume growth rate at +21.6%, amounting to KRW185.1 billion.
Export sales volumes in KT&G’s main market (Middle East/CIS/Russia) grew +15.0% in the quarter, while the ‘New Market’ segment (all other export regions except main market) grew by a striking +92%.
Net income grew +6.8% to KRW147.3 billion (US$0.13 billion) while operating profit fell -0.8% to KRW192.5 billion (US$0.17 billion). The profitability ratio improved, with net income margin and operating profit margin rising +2.8% and +1.7% respectively.
Click here to view the enlarged image (then hover over graphs with your cursor and click for full detail)Goals for 2011
KT&G has set its targets for FY2011, with an aim to achieve net sales of KRW2,630.9 billion (US$2.46 billion)* – a growth rate of +5.2% (with a foreign exchange rate assumption of 1,070KRW/US$).
2011 operating profit is estimated to hit KRW886 billion (-4.2%) while net income is approximated at KRW733 billion (-21.3%).
For its overseas markets, KT&G noted the potential of the New Market segment, which is showing continuous growth. The company’s strategy is to secure a foothold in each market and strengthen channel control, while bolstering alliances and cooperation with competitors in the form of local manufacturing or OEM. It also plans to launch mid-premium regular type products and expand its premium lines.
Click here to view the enlarged image (then hover over graphs with your cursor and click for full detail)To this end, KT&G has unveiled a new high-end product from its Bohem cigar range – Bohem Cigar Master – in the Korean domestic market. The Bohem cigar collection is a range of cigarettes containing 30% premium cigar leaves in a vintage package design. “We are planning on launching this in airports in Japan,” KT&G Overseas Brand Development Manager Kelly Song told The Moodie Report.
Each Bohem Cigar Master cigarette contains 6mg of tar and 0.6mg of nicotine and has a carbon charcoal filter. The 84mm King Size cigarette contains 36% of Cuban cigar leaves and is wrapped in cigar wrapper instead of white cigarette paper. The high-end product is offered in both regular cigarette packaging and in a special edition wooden gift box.
Each Bohem Cigar Master cigarette contains 36% of Cuban cigar leaves and is wrapped in cigar wrapper instead of white cigarette paper; it comes in both regular cigarette packaging (left) and in a special edition wooden gift box (right)“In order to reach out to various regions, we will try to participate in more exhibitions starting from this year. The TFWA World Exhibition has become an annual event [for KT&G] and for the first time, we will be taking part in Inter-Tabac show in Germany in September. All of these efforts will pave the way for successful new market development,” she explained.
“Also, the European market is our new target on a long-term basis. By breaking into the local market, we will then start penetrating into the travel retail sector. If necessary, collaboration with operators will be taken into consideration,” Song added.
For the 2011 TFWA World Exhibition in Cannes, KT&G will be promoting three strategic brands: ESSE, Bohem and Raison.
ESSE has been selling very well in Asia Pacific, Song noted, thanks to the popularity of super slim cigarettes in the region. Raison, which is highly popular among the young generation in Korea, was launched in the Russian domestic market this month and KT&G hopes to introduce the brand into travel retail as well, she added.
*NOTE: Calculated based on an indicated foreign exchange rate of 1,070 KRW/US$. All other calculations based on a current rate of 1,114.24 KRW/US$ (XE.com).
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