KT&G Makes Strong Showing Abroad

Posts an increase in net sales and profit, but a drop in operating profit

KT&G posted 631.5 billion won in net sales for the third quarter of this year, up 2.1 percent over the same period of last year, thanks to a boost in exports.
The company saw its third quarter net profit rising 27 percent over a year earlier to 173.8 billion won, but operating profit declining 1.7 percent to 219.8 billion won.
KT&G officials analyzed that net sales increased by a small margin as the impacts of hoarding cigarettes ahead of price hikes late last year have been eased and its exports rose.
A drop in operating profit was attributable to a rise in the cost of sales mainly stemming from an increase in the use of leaf tobacco, they said. A greater portion of leaf tobacco use for the period between July and September 2005 compared to the same period of last year has put pressure to increase the cost of production, they said. As a result, the ratio of gross profit to net sales and the ratio of operating profit to net sales have dropped. KT&G witnessed the third quarter ratio of gross profit to net sales declining 2.3 percentage points to 56.4 and the ratio of operating profit to net sales dropping 1.3 percentage points to 34.8 percent over the same period of last year.
However, its net profit soared 27 percent due to an improvement in non-business revenues like a plunge in the loss on the redemption of bonds last year.
Meanwhile, KT&G? third quarter market share declined a little from the previous quarter to 73.5 percent. The decline was attributable to the development of imaginary demand following the rumors concerning a possible rise in cigarette taxes. KT&G saw its market share soaring from 70.1 percent in the first quarter of the year to 74.4 percent in the second quarter but declining to 73.5 percent in the third quarter.
Exporting 10 billion sticks of Esse
In commemoration of exporting 10billion sticks of the best selling brand Esse, KT&G has presented an author's copy known as the 'Esse Special Version'
KT&G has been able to prove that Esse, which was been the No. 1 selling brand domestically since 2002, also has sufficient potential to grow abroad by achieving 10 billion sticks sales within 4 years of overseas market exploitation. Thus in commemoration of the constant love of Esse customers and its successful launching as a global brand to sell 10 billion sticks on the world markets for the first time in history, KT&G set forth 2 types of author' copy, namely the 'Esse Special Version?from November 16.
Features of these 2 types are as follows: 'Esse Special Version'selling at 5,000 won per pack comes with silver aluminum tin package, consists of both functionality and high-class impression. 'Esse Special Gold' selling at 3,000 won per pack adorned itself using the existing Esse package additionally upgraded by artistic touch of golden color design. Being the limited editions, they are sold only for a limited three-month period after their launching.
In addition, as the existing 5 brands of the Esse family (Esse Classic, Esse Lights, Esse Field, Esse One, Esse Menthol) comprise of different levels of tar and nicotine content per stick, these limited editions contain 3.5mg of tar and 0.4mg of nicotine per stick.
Ever since it was first released in December 1996, Esse has been increasing its brand power. After ascending to the throne of the No. 1 selling brand in year-end of 2002, Esse has recorded a market share of 34.4 percent among the KT&G products in last October (that is around 25 percent of M/S within the entire domestic market) and has been holding the dominant position by an overwhelming majority.
With the aid of strong brand equity in domestic market, Esse initiated to capture overseas market since 2001 originally starting from the Middle East and Central Asia and later spread out to Russia and China. Esse recorded an accumulative export amount totaling 10 billion sticks over 28 countries worldwide this November.
In consideration of this festive atmosphere, KT&G held the ?ommemorative ceremony of 10 billion sticks export?in Russia on October 16 this year and once again resolved to continue its efforts to tackle both Russia and China as the main export market for Esse in the future.
In short, the launching of these 2 types of 'Esse Special Editions'is another expression of KT&G to maintain the eternal market leader? position in the domestic market and exhibition of self-confidence to become the authentic global company. As you may already know, the continuous globalization of Esse brand contributes greatly in doing so and hence these limited editions seem to carry more than good reason to collect as curios if you simply consider the undying fame of Esse brand.
In a related development, KT&G has put on the market the new brand LO CRUX M, a lower tar cigarette product. LO CRUX M contains 5.0 mg of tar, 1.0 mg less than that of LO CRUX. The new brand fetches to 2,500 won per pack.
LO CRUX M keeps the original tastes of cigarette because harmful substances are removed on a selected basis, but it has reduced irritable and strong tastes.
Export market
KT&G appeared to face the worst crisis, as multinational tobacco juggernauts forced their way into the local tobacco market, which was opened to imports in 1987. The Korean corporation, known formerly as Korea Tobacco & Ginseng Corp., a corporation owned wholly by the state, underwent dramatic changes as it was completely privatized in December 2002.
Overcoming challenges stemming from the restructuring process and fending off an aggressive offensive by foreign global players, KT&G posted a 20.6 percent surge to 2,178.8 billion won in net revenues and a 34.1 percent jump to 466 billion won in 2003, the biggest achievements the company has made since its founding a century ago.
KT&G's marked performance was significant, given the domestic tobacco market, fraught with such factors as tougher restrictions on smoking and mounting competition on the domestic market, business analysts said.
Surprisingly, KT&G exported 30.9 billion cigarettes in 2003, a 16-fold upsurge from seven years ago when the company launched its maiden overseas shipments. KT&G?exports accounted for 29.3 percent of its totals sales in terms of the value for 2003. The percentage of the value of exports out of the total revenues has been on the upswing since 2000 when the figure stood at 6 percent.
Ranking sixth or seventh in the global tobacco market, KT&G has built up a strong presence in the Middle East and Central Asia. KT&G has achieved its goal of recouping its lost share of the home turf by expanding exports overseas.

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