Tobacco Asia

2021: Tobacco Asia's 25th Anniversary 65 In February, PMI announced an ambition for smoke-free products to account for more than 50% of its total net revenues by 2025, a significant increase on the previous 2025 ambition of 38-42%. The company also aims to have commercialized IQOS in 100 markets by the end of 2025—an increase from the 64 markets at the end of 2020 – as well as launch the IQOS ILUMA in the second half of 2021. PMI reported strong Q1/2021 results, with net revenues climbing by 6% to US$7.59 billion year-on-year in Q1 (+2.9% on an organic basis), ahead of expectations. Net revenues from smoke-free products accounted for 28% of total net revenues, with operating income up by 23.5% to US$3.44 billion and ad- justed operating income rising by 18.5% to US$3.49 billion on an organic basis. Market share for heated tobacco units in IQOS markets, excluding the US, increased by 1.7% to 7.6%. Bok-In Baek, c.e.o., KT&G Corporation Bok-In Baek was reappointed c.e.o. of KT&G Corporation this March. This is his third term as c.e.o., with his first term starting in 2015 and his second term in 2018. Baek is the first-ever c.e.o of KT&G who joined the company (Korea Tobacco & Ginseng Corporation at the time) through open recruit- ment and climbed all the way up the ladder. He has culti- vated a wide variety of expe- riences on his way during his 29 years at the company since 1993, taking on key roles in the company's core business- es including strategy, market- ing global business, manufac- turing, and r&d. Shareholders have highly recognized Baek's success in ex- panding the company's global business. Under his leadership, the number of KT&G's exporting countries has dramatically increased. In 2017, the company exported to approximately 50 countries. By the end of 2020, that number has more than dou- bled to over 100 countries. In his c.e.o. speech after his reappointment during this year's general shareholders meeting, Baek said, "This year, due to the prolonged Covid-19 pandemic and steep decline in the exchange rate, uncertainties have been more heightened than ever. Under the heightened uncertainties, KT&G has set the word 'resilience' as the keyword for the year 2021's business management goal. The keyword 'resilience' reflects KT&G's determination to not only recover from the negative impacts of Covid-19, but also leap forward and achieve greater advance amid the pandemic situation. This year, KT&G will strive to se- cure a leadership position in the market and seize opportunities in the rapidly changing world economic order." During his previous two terms of leadership and his im- plementing a "two-track" strategy, both KT&G's cigarette and heat-not-burn (HNB) business segments thrived. While the cigarette segment remains KT&G's primary business category, Bok-In Baek the company has made great achievements in the HNB segment as well. The company registered its first patent related to heat- not-burn technology in 2005, resulting in the launch of KT&G's first HNB product, lil 1.0, just a few months after IQOS was introduced in Korea. KT&G may not have been the first to launch in Korea's HNB market, but it has today succeeded in securing a lead- ing position in the market by executing a 'fast follower' strat- egy. When PMI's IQOS and BAT's glo were first launched in Korea, many consumers gave feedback that it would be more convenient if the device could be used consecutively without a recharge. Based on such feedback, KT&G designed 'lil 1.0' in a way that it provides three consecutive smoking experiences without having to recharge. Over the last four years, KT&G launched a number of subsequent models, such as lil Plus, lil mini, and lil HYBRID, with each model offering new features. KT&G has continuously expanded its HNB segment, both domestically and internationally. Last year, the company joined hands with PMI to kick off the overseas expansion of the lil product line. Following the agreement, KT&G and PMI launched lil Solid and its consumable Fiit in Russia and Ukraine in August and September, respectively. In October, 'lil HY- BRID' and MIIX consumables were launched in Japan. However, this does not imply that KT&G's focus will significantly tilt towards the HNB segment. HNB products (all manufacturers included) account for less than 15% of the overall tobacco market in Korea, and combined with a recent stagnation in the e-cigarette market and increasing government regulations, many manufacturers are acknowledging the need to focus on both traditional cigarette and HNB segments. KT&G's ultimate goal is to excel in both segments and the company is prepared to maintain its leading position in both segments as its two-track strategy has been driving its operations for years. While some smokers have completely switched to heat- not-burn products, still a majority of them are cigarette smok- ers or multi-users (of both cigarette and heat-not-burn). Thus, while it is important to increase presence in the HNB market that has significant room for growth, it is also important to maintain a leading position and optimize customer retention in the already mature conventional cigarette market. For such reasons, KT&G aims to maintain a well-balanced portfolio be- tween both segments. KT&G is also increasing its presence in the Asian mar- ket, recognizing the region's great significance and potential due to the market size and consumer behavior (the smoking rate is especially high in south and southeast Asia, and con- sumers in the Asian region tend to be very sensitive and re- sponsive to new trends.) The company currently enjoys the #1 position in the Mongolia market, accounting for 36% of the market at the end of 2020. KT&G is also exceling in Tai- wan, where it sold more than 771 million sticks last year. Based on such an accomplishment, KT&G saw a very prospective outlook for the Taiwan market, resulting in the company es- tablishing an overseas subsidiary in Taiwan in March. 'KT&G Taiwan Corporation' now marks the fifth subsidiary KT&G owns in the overseas market after subsidiaries in Turkey, Rus- sia, Indonesia, and the US.

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