Ladies and gentlemen, thank you for attending the call today. We will now begin the conference call for KT&G's 2024 second quarter earnings report. After the presentation from KT&G, there will be a Q&A session with the participants to the call. If you wish to participate with a question, please press the asterisk sign and the number one. We will now begin with KT&G presentation. Ladies and gentlemen, I am Yong-Bum Kim, Head of Finance Office at KT&G. Thank you for attending KT&G's 2024 second quarter earnings report. Please allow me to first introduce the KT&G management team in attendance today. With us today, we have Mr. Sang-Hak Lee, Chief Financial Officer of KT&G, Mr. Chang-Gu Ha, Chief of Strategy and Planning, Mr. Sung-S ik Park, Chief of Real Estate Business, Mr. Min-Seok Kwon, Chief of Global Business.
Tae-Hwa Hong, Head of NGP Office, Mr. Yeong-Chan Yoon, Chief of Marketing, and Mr. Jeong Joong , Chief of Strategy at KGC. Please be advised that the earnings we are about to present today have yet to be audited by the outside auditor, therefore, are subject to change in the audit process, and any forward-looking information discussed in the call today may differ from the actual results to be reported in the future. Before we go into the 2024 second quarter results, Sang-Hak Lee, our CFO and CSO, will share with you some key updates on our business activities.
Ladies and gentlemen, this is Sang-Hak Lee, CSO and CFO at KT&G. I would like to start by thanking all our shareholders and investors for the interest and support given to KT&G.
Before we begin the presentation for the 2024 second quarter earnings, I would like to share with you some key management updates. KT&G is in process of executing a mid to long-term shareholder return plan for 3 years, from 2024 to 2026, with a scale of KRW 1.8 trillion worth of dividends and KRW 1 trillion worth of share buyback and cancellation of 15% of total outstanding shares. As a first step, in February, we canceled our treasury shares worth KRW 315 billion. Today, the board of directors have decided to pay out interim dividends and execute share buyback and cancellation in the second half of this year for continuous enhancement of shareholder value. The board resolved to pay out interim dividends of 1,200 KRW per share, considering the earnings and cash flow of the first half.
We expect the total DPS for the fiscal year 2024, including this interim dividend, to increase versus the previous year. The board also resolved a share buyback and cancellation of KRW 350 billion. As such, starting tomorrow, we will be repurchasing a total of 3.61 million shares or 2.7% of total outstanding shares, to be canceled in full immediately after the acquisition. And with it, the total value of the shares to be canceled in 2024 is expected to reach approximately KRW 665 billion. Taking further, the board and the management team is planning to make a disclosure for our new corporate value enhancement plan in the second half, to actively participate in the government's value program and enhance our corporate and shareholder value. Next is an update regarding our global NGP business.
We recently executed a MOU with Philip Morris International for collaboration on U.S. PMTA submission for new KT&G NGP products. With the MOU, the parties established the intent to collaborate on regulatory submissions on new NGP products to be selected for commercialization by PMI in the U.S. The parties also recognized the importance of the U.S. market, a key market of nearly 31 million adult smokers and 180 billion cigarettes, and agreed to advance the shared strategic vision of providing better alternatives to legal-age smokers with scientifically substantiated NGPs. The new KT&G NGP products are expected to be launched first outside the U.S., and then the parties plan to work on PMTA submission.
Going forward, KT&G will enhance corporate value by advancing our sustained growth momentum in the three core growth businesses of NGP, Global CC, and HFF, while at the same time strive to maximize shareholder value with shareholder returns at top level, domestically and globally. I ask our shareholders and market stakeholders for your continued support. Thank you. So now we will present to you KT&G's 2024 second quarter results. We will begin with key items from our consolidated results, and then move on to each business segment. Starting with the key takeaways from our Q2 results. Quarter on consolidated basis, our revenue grew 6.6%, operating profit 30.6% year-over-year.
The strong Q2 performance was driven by solid growth in our tobacco business, the main business of the company, with tobacco business revenues growing by 11.5%, profits by 30.4%, reaching 32% in operating profit margin. Especially the Global CC business delivered a growth trifecta of volume, revenue, and operating profit to reach the highest revenue for a quarter. The growth across the board in key regions led to YoY growth of 16.2% in volume, 35.3% in revenue, and 139.1% in operating profits. The growth of our NGP business was more profit-centered. Domestically, we saw triple growth in key metrics of stick volume, revenue, and operating profit. Internationally, profits continued to improve as sticks account for a higher portion of the revenue mix.
In health functional food, our global business expanded its growth. Revenue in China, our top priority target market, grew by 75.4%, driving the 38.4% revenue growth of our Global HFF business and extending the proportion of the global business from 25.7% to 34.9%. We'll now move on to consolidated results for the second quarter. Q2 consolidated revenue was supported by strong growth in Global CC and NGP, rising by 6.6% YoY to KRW 1.438 trillion. Operating profits for the quarter benefited by sales growth in Global CC and NGP, as well as higher per unit profits, showing 30.6% YoY growth to KRW 321.5 billion.
As for the net income, operating profit growth and higher currency-related profits with FX movement within the quarter, drove net income up by 57.5% to KRW 318 billion, and earnings per share grew 59.5% to KRW 2,705.54. EBITDA rose by 25.4% to KRW 383.1 billion, with EBITDA margins at 26.9%. Moving on to reasons behind movement in earnings. Within the tobacco business, higher manufacturing costs per pack due to global inflation led to a KRW -37.6 billion variance in the cost. But improved product mix and pricing supported profits by KRW 36.1 billion.
Impact from appreciation of the dollar against the won was KRW 19.3 billion, and volume effect from higher Global Conventional C igarettes sales and NGP stick sales contributed KRW 56 billion, adding to a KRW 73.8 billion additional contribution to the profit from the Tobacco business. HFF saw KRW 9.2 billion increase in profits, with higher contribution from high profit channels, and Real E state suffered the unfavorable comparison from the completion of large development projects, leading to a KRW 11.3 billion drop in profits. Due to these factors, consolidated operating profit increased by 30.6% YoY. Moving on to each business segment. Starting with the Tobacco business, in Q2 T obacco revenue, stronger Global CC and domestic NGP revenues drove the entire tobacco business revenue by 11.5% to KRW 989.9 billion.
In operating profit, all segments of the Tobacco business grew in profits, mainly in G lobal Conventional Cigarettes, but also in Domestic Cigarettes and NGP to reach KRW 316.4 billion. The share of the global operation in Tobacco business for the quarter grew by 3.0 percentage points YoY to 59.6%, with volumes growing in major regions, including Middle East, Indonesia, and Eurasia. Going into the details of each Tobacco business segment. Beginning with Domestic Cigarettes, our Domestic Cigarette volumes for Q2, while suffering a decline in market volume, managed to increase market share to mitigate the volume drop to a 0.4% decrease to 10.33 billion sticks.
As for KT&G market share, despite intensifying market competition with new product launches from competitors, we were able to launch new products catering to consumer needs and with a higher share of the super slim segment, where KT&G has an advantage, the market share continued to grow by 1.7 percentage points YoY to 66.9%. Q2 Domestic Cigarette revenues inched up by 0.5% to KRW 428.9 billion, thanks to stronger contribution from high ASP duty-free channels, higher share of premium segment products, and increase in ASP. Moving on to Global C igarettes. In Q2 Global C igarettes, both volumes and ASP grew to drive the revenue growth in all regions, reaching a record high quarter revenue of KRW 359.1 billion and a 35.3% YoY increase.
For global subsidiaries, the newly launched CIC systems in Indonesia and Russia, CIS, led the volume growth and pricing initiative, resulting in a 53% YoY increase for subsidiary revenues to KRW 172.2 billion. In terms of export, robust export volumes in the Middle East, combined with ASP growth in major regions, led to a 22.2% YoY revenue growth to KRW 186.9 billion. Q2 total global cigarette volumes, driven by simultaneous growth in export and subsidiaries, grew 16.2% to 115.31 billion sticks next to NGP. In Q2 domestic revenue, despite intensifying competition with aggressive price promotions, the growth in both market volume and KT&G market share drove higher stick volumes, leading to stronger revenue with 10.9% YoY increase to KRW 137.3 billion.
Global NGP revenues were impacted by inventory adjustments for devices that are high unit price, declining by 8.8% YoY to KRW 60.4 billion. When it comes to the domestic and global stick revenues, the key growth driver of the NGP business, we saw a 5.7% YoY growth for the first half to 7.22 billion sticks. Allow me to go a bit deeper into domestic and global NGP performance. For the domestic market, higher demand for NGP products was demonstrated in a 1.6 percentage point YoY growth in market penetration, which recorded 20.8%. As for our domestic stick market share, stronger advantage in devices with lil HYBRID and new stick launches sustained the market share growth trend to 45.8%.
For the global business, stronger penetration within launched markets continued the stick volume growth trend and higher share of sticks in the revenue mix led to improved profitability. Next is HFF. Q2 HFF top line overcame sluggish domestic revenue caused by subdued HFF market and strategic channel adjustments, with higher global revenues to a combined 1.6% YoY increase to KRW 265.1 billion. Q2 HFF operating profit was supported by improvements to the cost structure and adjustments to the discount promotion policy to improve by KRW 9.2 billion to a KRW 1.5 billion loss for the quarter. Share of global operations in the quarter was driven by a steep increase in global HFF revenue, growing by 9.2 percentage points to 34.9%. Breaking down the revenue by domestic and global business.
First, the domestic revenue by channel for the quarter, while standalone store revenues grew by 9.1%, thanks to family month promotions, low profit teleshopping channels going through continued strategic reductions to improve profitability and adjustments to the discount promotions in department stores and channel stores led to 11.11% YoY decline in domestic revenue to KRW 172.5 billion. As for the global business, with China at the center, revenue grew 38% YoY to KRW 92.6 billion. In China, with the 618 promotion, performance improved on and offline to show a 75.4% YoY revenue growth. Moving on to Real Estate business.
In Q2 Real E state revenue, despite revenue recognition from the Anyang development project and contribution from other developments, including East Daejeon and Mia, the continued compression against completed subsidiary development projects, including Gwacheon, Sangsang PFV, drove total revenues down by 29.2% to KRW 80.5 billion. Q2 operating profits still impacted by completion of Suwon and subsidiary development projects, including Gwacheon, was down 79.6% YoY to KRW 2.9 billion. I would like to move on to our guidance for the year 2024. For our Tobacco business, robust growth is expected to continue into the second half. We anticipate to meet the previously announced guidance in tobacco as we strengthen both growth momentum and profitability in all segments of cigarettes and NGP.
For Health F unctional Food, as we attempt to improve the fundamentals of the business and pursue structural innovation, as well as increase marketing investments to accelerate the global expansion, we do expect some changes to the P&L. As such, we anticipate the performance for the business to fall short of the previous guidance as revenue declines 2.5%-3% YoY, and operating profits, profit is reduced by 28%-28.5% YoY versus 2023. For Real Estate, in response to the deteriorating real estate market, we plan to reassess the business directions for Real Estate to restructure the business. For the subsidiary projects, including equity investments that accounted for 30% of the previous guidance, we have decided to do a complete reassessment from an ROE management perspective.
On top of that, as the delay in recognition of major development projects of legacy properties, including Anyang, is reflected into our P&L, we anticipate revenue to be down 34.5%-35% YoY, and operating profits, 92.5%-93% down. After taking into account these changes in business environment for HFF and Real E state, 2024 consolidated revenue that was initially expected to grow 10%-10.5% versus 2023, is now projected to grow 2.5%-3%. As for 2024 consolidated operating profit, with initial expectations to be 6%-6.5% growth versus 2023, we now revise our projection to remain flat compared to the previous year.
KT&G will do its utmost for revenue growth and profitability enhancement based on the strong growth, momentum, and profitability of the tobacco business, and any changes to the guidance will be immediately communicated. With that, I conclude the KT&G second quarter earnings presentation, and we can now move on to Q&A.
Now, Q&A session will begin. Please press star one, that is, star and one if you have any questions. Questions will be taken according to the order you have pressed, star and number one. For cancellation, please press star two, that is, star and two on your phone. The first question will be presented by Jungwook Kim from Meritz Securities. Please go ahead with your question.
[Foreign language]
Thank you for the opportunity to ask questions. I have three questions in total. The first one being, if we look at Q2, it seems that the earnings related to exports for our global business and our key target markets were quite significantly improved compared to Q1. What are the main reasons for that? And is it going to be sustainable in the second half? The second question is with regards to the cost burden coming from the tobacco leaves. So in Q2, what is the level of the cost burden? And, also in terms of the purchase price, because the purchase price for this year will have an impact for next year. I would like to get a level of the sense for on a YoY basis, if you could provide some more details. And the third question is regarding HFF.
It does seem that the domestic business is still sluggish. Is it that you're seeing an overall shrinking of the entire market? And the main reasons, from the company's perspective, what have you identified as the key reasons? Is it because of the economic cycle? It is the overall trend of the HFF consumption. If there are any insights that you can share, that would be appreciated, and also your outlook for the second half as well. Thank you.
[Foreign language]
First, the first questions in terms of the improvement that we see for the Global CC business. We did see a significant improvement in the second half, centering around the markets in Indonesia and Russia, with the strategic approach of increasing ASP supply prices there. We also focused a lot on the new product release for new market categories that of our high margin, which resulted in good significant numbers for the second quarter. Moving forward in the second half, we will also continue to focus on markets like Asia Pacific and also Eurasia and CIC, to further strengthen marketing activities there, and we expect as a result, we will be able to see a growth of 10%-20% on a YoY basis.
[Foreign language]
For the second question, in terms of the cost burden coming from the tobacco leaf. So if we look at the overall situation, due to the impact of global inflation, we do see the increase, cost increase pressure of the main and sub materials of tobacco leaves continuing from 2022. The main, material, foreign tobacco leaf, in terms of the purchase price for 2024, has increased 14% on a YoY basis, and the domestic, tobacco leaf purchase price for 2024 is, the same as the level of Q4 of 2023.
[Foreign language]
Moving forward, if we look at the cost burden impact for the second half, we do expect to see continued price increase pressure from the tobacco leaf purchase, so the cost burden will continue in 2024 as well. However, if we look at the pace of the price increase for tobacco leaves, it is slowing down. And if we look at the sub-material price trend, it is stabilizing since 2023. So if we look at the overall situation, we do believe that in the long term, the cost burden of impact will be minimal.
[Foreign language]
Next for our HFF. If we look at the overall situation of the consumption trend in HFF, a lot of the products centering around red ginseng have been showing a trend change from oriental materials to general Health Functional F ood like vitamins and probiotics. As a result, we do see an overall reduction or shrinking of the red ginseng market and a slowdown in recovery as a result. And on top of that, with the economic slowdown and inflation pressures, the overall impact has been materializing in the recovery of the red ginseng market overall. And we do expect that this trend will continue in the second half of it as well. In response, we are trying to respond accordingly based on new product releases and also products with new functional enhancements.
So focusing on the six major functional enhancements for the red ginseng products that will prove to be efficient in terms of boosting health. We will try to also continue to push additional new product and releases of the health functional market to increase our presence in the market. On top of that, we also plan to continue to expand our presence in the online and CVS channels, targeting the young population. Providing good value for value products and also additional new products that are trendy that will fill the generation so that we could create new demand in the market.
[Foreign language] The next question will be presented by Hye -Eun Kim from Morgan Stanley. Please go ahead with your question.
[Foreign language]
Yes. Thank you for the opportunity to ask questions. I have four questions in total. The first one being for NGP. There was the release of the lil AIBLE , so if you could share any initial feedback from the customers, that would be much appreciated. And if you have any further plans for channel expansion, could you share that as well? The second question would be for Global NGP. So in terms of new country, entry and also new product releases, if you could provide some updates, that would be much appreciated. And the third question is, of course, there are a lot of difficulties surrounding the business environment.
I think there are some potential changes that could come related to tobacco tax and regulations. So if the company has any prospects or thinking about what is going to happen on that front, if you could share some of your thoughts, that would be great. And the third question, or the last question is with regards to what you spoke about in your opening comments in terms of the new Corporate Value-up Program. I think there was already the announcement of the three-year shareholder return policy that was announced earlier, before. So was the Corporate V alue-up P rogram intention to be on top of the previous existing one that was announced, or are there additional points that are being considered? If you could share those plans as well, that would be appreciated.
[Foreign language]
[Foreign language]
First, I would like to answer the question. The question would be answered by head of NGP, Mr. Tae-Hwa Hong. If we look at the initial consumer response for the lil AIBLE 2.0 launching. So as you probably well know, we did release lil AIBLE 2.0 in six sites minimum nationwide on June 26th. And on July 10th, we also did expand that further to 19 sites, lil STATION and CVS in Seoul. I think it is a little bit early in time to give you an overall, I guess, a detailed explanation of the initial customer response, as it's still in its early stages.
But we are getting initial feedback that is quite positive from the consumers, because with one device, it's possible to use three different types of stick, and also has enhanced functions, such as reduction of heating time and also fast charging. And in such aspects, the user convenience has been significantly improved. So the overall response at the moment, as we can say, in its initial stages, have been quite positive.
[Foreign language]
Moving on to the next question, which I understand to be mostly about the overall business landscape surrounding NGP and with regards to our product plan. So, if we look at the current market entry, we have entered into 33 markets as of now, which covers about 80% of the total NGP demand. So I think in terms of the number of countries that have been entered, we don't really view that as a significant importance as of now. What we rather view as important from the company's perspective is really what we have available in terms of product launches. So we do want to have additional platform launches to be able to have success of the overall business operations, and that is something that we have consensus with PMI.
If we look at the overseas, an important update for the global business, for Russia, we have released the lil HYBRID in four major cities in Russia. Considering that this is the number two market in terms of total demand, this is quite a significant update. The HYBRID platform is actually one of the most successful ones that we have experienced in Korea. So this is an area to be highly, I guess, have high expectations about.
I think probably we will have, in terms of the detailed plans for the new market penetration and new product releases, please understand that at this point in time, this is only the high-level information that we can share. With the main details, please understand that they cannot be shared at the moment.
[Foreign language]
For the next question, it will be answered by the Chief of Marketing, Mr. Yeong-Chan Yoon. So with regards to the tax and regulation changes, as of now, there hasn't been any discussions or deliberation at the government or the National Assembly level in terms of tobacco tax. So it is difficult for the company to predict the timing and the possibility of a potential tax implementation or a change. We are going to closely monitor the discussions and the outcomes that are happening at the government, the National Assembly, and academic circles. And we will be using different types of scenarios so that we could further enhance the profitability of the Domestic CC business by responding accordingly to any potential situation.
[Foreign language]
With regards to your last question, it will be answered by CFO, Mr. Sang-Hak Lee. If you look at the shareholder of the value enhancement program and the plans, we did already announce from the company side the Corporate V alue-up related plans even before the government initiated such Corporate Value-up Program back in 2023 November. And on top of that, the company also did announce a new shareholder return policy, and we are going to make according the related executions according to that plan moving forward. We did announce that we are going to have an announcement on the Corporate Value -up Program in the second half of the year.
We did announce that we will, we have an announcement, for that, today, just today, and this will be based on the new shareholder return policy. Based on that, there will be updates to the corporate value plan to be released in the second half, disclosed, after there is an approval from the Board of Directors. In the first quarter, we also did, put forward the plan in terms of our ROE to increase by 15% until the year 2027, and the main three pillars being enhancement of profitability, asset efficiency, and also sophistication of capital policy. Among these main three pillars, the main key initiatives have been identified, and we are going to pursue the related activities according to such plans.
The next question will be presented by Sang -Hoon Jo from Shinhan Investment and Securities. Please go ahead with your question.
[Foreign language]
Yes. My question is with regards to the global business. So if you look at it, not from the company at the entity level, but more focusing on the overall export-related earnings or performance, we do see that coming for Asia Pacific and Middle East, there is a fluctuation in your earnings number on a quarter-over-quarter basis, depending on shipping. I think because in the Middle East previously, there were some issues in shipping that had a sway in numbers. And also in Q1, we saw that being an issue on the Asia Pacific side of the business, but it did rebound back in Q2. So I think because of such fluctuations that we are currently seeing, I am curious if there are any strategies or ideas that you have to improve that from a structural standpoint.
[Foreign language]
So with regards to our overall business in the Middle East and Asia Pacific, we did see some activities to normalize the level of local inventory that had an impact on the fluctuations and the numbers for the period of the end of 2023 and 2024. So we are closely monitoring the current situation in terms of sales and the inventory levels on the ground. In the second half, we plan to have additional tightened monitoring to view the level of sales to be able to meet the demand of the site based on the actual demand on the site, so that we could further have better management of the numbers in terms of volatility and fluctuations.
[Foreign language] The next question will be presented by Young -Hoon Joo from NH Investment & Securities. Please go ahead with your question.
[Foreign language]
Thank you for the opportunity to ask questions. I have two questions in total. If we look at the duty free channel side, it seems that on the airport side, with the increase or the recovery of the foreign tourists, we are seeing the better level of recovery compared to the previous levels. I think I would appreciate an update in terms of the domestic side of the channel for Tobacco and the Health F unctional Food. In terms of the guidance that was provided as part of the presentation for Real Estate, obviously, I think for this segment, there are more fluctuations on an annual basis that are having an impact on the numbers. So if you could provide an idea or approach that you are having mid to long term for the Real Estate business, that would be appreciated.
[Foreign language]
First, I will answer for the tobacco part of the duty free channel. This would be by Mr. Yeong-Chan Yoon, Chief of Marketing. If we look at Q2 for the duty free channel, there has been an increase of the number of people going in and out for international travel. So as a result, we have seen an increase in both revenue and volume on a YoY basis. And if we look at the overall situation moving forward, there is an increase in terms of international flights and also the increase of foreign tourists that will help to recover the performance of the duty free channels to back to previous levels. However, because of such impact, like external factors on effects of fluctuations, there are some uncertainties that are still existing.
In terms of the timing, that it will be completely normalized back to the previous levels, and that would be a little bit flexible in terms of the exact timing.
[Foreign language]
The answer to, for the HFF side of the business will be answered by Chief of Strategy at KGC, Jeong Joo ng. If we look at for HFF, for the duty free channel, there was an increase of 5.5% compared to the previous year in terms of revenue. A lot of the recovery has been pulled by the duty free channels at the airport. If we look at the overall situation of the duty free channel for HFF moving forward, there has been a slowdown in terms of the overall duty free channel performance due to the reduction in commission for agencies and buyers, and also the strength and monitoring of bulk purchases from the customs office.
Also, because of the slow recovery in Chinese group tourists, we don't really expect a fast recovery in the city, the duty free channels as well, in the downtown area. Because of that, we don't expect that the recovery in terms of our earnings from China will be in a fast pace. KGC is going to respond accordingly, by trying to identify new demand, really focusing on the domestic consumers and the airport duty free channel, and also try to improve profitability by focusing our operations on high efficiency strategic products.
[Foreign language]
For the Real E state question, the question will be answered by Chief of the Real Estate Development Office, Mr. Sung -Sik Park. Despite the various measures that the government has announced to vitalize the real estate sector, there still has been limitations in terms of recovery due to the impact of increased costs for construction, and also the additional cost burden impact that we are seeing from the cost side on the real estate and the construction side in general.
For ROE moving forward, in order to make improvements to that, we are going to focus, but at the time, at the moment, we had to review overall from scratch the overall opportunities that we have for new business and also the equity investment projects that were on in our agenda because of the current business landscape. Moving forward, we will continue to try to take on our business projects based on profitability and stability, and really focus on carrying out the development projects for the land that we own, that we deem that have a high development value.
The next question will be presented by Eun -Ju Shim from Hana Securities. Please go ahead with your question.
[Foreign language]
I have a question in terms of the business for the Middle East. It seems that our exports in the Middle East did increase quite significantly, in comparison, and we did see some good numbers there. Were there any specific drivers for that, and what's your outlook for the second half?
[Foreign language]
For that question, it will be answered by Chief of Global Business, Mr. Min-Seok Kwon. We are focusing really on the second half of the second quarter of 2024 for the Middle East market to expand the demand, local demand for our high turnover products. And there was an increase in terms of our export volume to have adequate level of inventory secured by our partner companies. So as a result, in the second half, we do also expect that there will be an increase of about 5%-7% on a YoY basis, based on the increase of our main product sales and also new product releases to be expected.
With that, we will now close the earnings call for KT&G for 2024 Q2. Thank you very much for your participation. Thank you.