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KT&G refuses ginseng unit spin-off, aims to double sales by 2027

By Shim Woo-hyun

Published : Jan. 27, 2023 - 17:59

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A KT&G branch in Yeongdeungpo-gu, western Seoul. (Yonhap) A KT&G branch in Yeongdeungpo-gu, western Seoul. (Yonhap)

KT&G, South Korea's dominant tobacco and ginseng company, rolled out an aggressive mid-term business plan Friday to bolster its investment and sales in an apparent move to fend off a campaign launched by a Singapore-based activist fund.

Under the plan, the company will invest a total of 3.9 trillion won ($3.1 billion) until 2027 with it businesses focused three areas -- next generation tobacco and nicotine products, often referred to e-cigarettes, and health supplement products including ginseng as well as overseas businesses related to vapes.

It also aims to increase its annual sales to over 10 trillion won, a 73 percent increase from last year's estimated sales of 5.9 trillion won.

KT&G, however, said there would be no plan to spin off its ginseng unit for a separate listing, dismissing one of the requests made by activist investor Flashlight Capital Partners.

"The spin-off will have little to no benefit to the company’s corporate value and shareholders from a long term perspective," KT&G Senior Executive Vice President Bang Kyung-man said.

Bang expressed concern that KT&G would potentially lose “synergy” in the event of the ginseng unit's separation.

The corporate plan was announced amid the activist fund’s ongoing pressure ahead of the firm's annual shareholders meeting slated for March. The fund has been demanding the company to increase dividends and spin off its ginseng unit into a separate listing, among other requests.

In terms of the company dividend payout policy, Bang said KT&G is planning a share buyback worth 300 billion won and a 590 billion won of dividend payout this year.

About the activist fund’s criticism on KT&G’s partnership with Philip Morris in the overseas market, Bang said the partnership “provided the company with a great opportunity to promote its heat-not-burn cigarette brand ‘lil’ in overseas market over the past two years.”

Bang added the partnership allowed KT&G to access its partner’s distribution channel, which would have cost a great deal otherwise.

Bang stressed that KT&G now sells its own heat-not-burn cigarette brand in 31 different countries, mainly those in Europe, and its “lil” sales increased by four times since the company inked the partnership. Bang added the company would consider unveiling sales data regarding “lil,” which has been not disclosed under the partnership agreement with Philip Morris.

The company introduced its business expansion strategy as well, through which it hopes to earn over half of its sales from overseas businesses in 2027. In 2022, around 33 percent of KT&G’s annual sales were known to be from overseas operations.

KT&G is considering Kazakhstan and Eastern Europe as possible locations for a new plant, according to Bang.

To raise the necessary capital, KT&G can sell some of its property assets and borrow money from banks, he added.