Now, begin with KT&G's presentation. Ladies and gentlemen, I'm Jay Park, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2025 second quarter earnings report. Today's presentation will be provided in English, in simultaneous interpretation, and a Q&A session in consecutive interpretation. The materials can be found via the live webcast screen or downloaded from the company website. Please allow me to introduce the KT&G management team in attendance today. With us, we have Mr. Sang-Hak Lee, Chief Finance and Operating Officer, Mr. Chang-Woo Ho, Chief of Strategy and Planning, Mr. Min-Seop Kwon, Chief of Global Business, Mr. Young-Chan Yoon, Chief of Marketing, Mr. Dae-Hwa Hong, Chief of NGP, Mr. Sang-Joon Woo, Chief of Real Estate Business, Mr. Yeong-Beom Kim, Head of Finance Office, and Mr. Tae-Won Kim, Chief of Future Strategy at KT&G.
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. We will begin with key items from our consolidated earnings and then move on to each business segment. The presentation will be followed by a Q&A session with the management team. I will first invite Mr. Sang-Hak Lee, our CFO and COO, to share with you updates on our shareholder returns as resolved by the board of directors today. Please refer to page three.
Ladies and gentlemen, I am Sang-Hak Lee, COO and CFO of KT&G. I would first like to extend my gratitude to our shareholders and investors for your support and interest for KT&G.
Today, our board of directors resolved for the execution of the interim dividend for 2025, along with a round of share buyback and cancellation. First of all, for the interim dividend, the board has resolved to reflect the robust growth in our first half performance while maintaining balanced dividend metrics, including the payout ratio and the yield, by increasing the dividend by KRW 201 to KRW 1,401. The dividend record date will be the 22nd of August, and the dividend will be paid out on September 8th. Please refer to our website for further details. Going forward, we will consider further capacity to pay out dividends opened up by share buybacks, share price performance, and our profit growth trend to continue to keep our dividends on an upward trajectory. The board also authorized the share buyback and cancellation of KRW 300 billion.
The company will begin repurchasing shares from the market as of tomorrow and end the process when the total amount of KRW 300 billion is depleted as per relevant regulations, and the shares will be canceled immediately after. This is part of the KRW 1.3 trillion share buyback program from 2024 to 2027, and completing this round will put us at about 53% progress versus the plan. We will continue to fulfill our mid-to-long-term shareholder return plan as announced. Furthermore, regardless of this round of shareholder returns, when we have to proceed from the liquidation of non-core assets in progress, we will use the funds for additional return. Amid a rapidly changing business environment with increasing uncertainties, KT&G continues to be laser-focused on the core business, global business competitiveness, as well as quality-centered growth with expanded profits, and we will spare no effort in enhancing corporate value while executing top-level shareholder returns.
I ask for unwavering support from our shareholders and members of the capital market. Thank you.
Now, we will move on to the second quarter performance. Please refer to page four for the key takeaways. Solid growth continued in the second quarter, allowing our first half revenue to surpass KRW 3 trillion for the first time. This was driven by strong growth in global CC and higher real estate earnings. Our global cigarette business broke the record once again for quarter volume and revenue as it sustained the robust growth momentum. Volume grew in key regions, including APAC and Latin America, and as continued pricing and product mix improvement drove up the ASP, the business saw 9.1% volume growth, 30.6% revenue growth, 51.1% growth in adjusted operating profit. The HFF business created profit-centered results as per our efforts for structural improvements.
Restructuring the business portfolio towards high-profit channels and products, bringing efficiency behind marketing activities, led to improved profits. As we strive for further profit expansion in the second half, we will aim to achieve double-digit growth in annual operating profits. Sustained growth momentum in global CC, combined with better global cost competitiveness, is expected to bring better profitability for the company. I will move on to Q2 consolidated results at page five. Q2 consolidated revenue was supported by strong growth in global CC and improved earnings in real estate, to rise 8.7% YoY to KRW 1.5479 trillion. Global CC profit expanded to drive up Q2 operating profit by 8.6% to KRW 349.8 billion. As for net income, currency fluctuations in the quarter led to lower currency-related non-operating profits, driving income down by 54.1% to KRW 143.5 billion. This led to a 51.1% reduction in EPS to KRW 1,328.
EBITDA rose by 9.7% to KRW 421 billion, with EBITDA margins at 27.2%. Next to page six on reasons behind the movement of our earnings. In the tobacco business, a high base from the allowance reversal in the previous year was a KRW 95.8 billion minus in cost variance, but product mix improvement and pricing added KRW 83.6 billion. Volume growth from the global CC business added KRW 10.2 billion, and appreciation of the dollar against the won was + KRW 7.4 billion, surmounting to a total of KRW 5.4 billion growth in profits from tobacco. The HFF business saw results from optimizing marketing activities, adding KRW 7.2 billion to profits, and the real estate business saw higher revenue from development projects, adding KRW 14.8 billion. All these factors combined drove up consolidated OP by 8.6% year-over-year. I would like to move on to earnings from each business segment in page seven.
First on the tobacco business. Tobacco revenue for the quarter was driven by global CC with new quarter revenue records to rise 10.2% to KRW 1.09 trillion. As profit continues to expand for global cigarettes, tobacco operating profit is growing strong as well. However, the high base from the allowance reversal in the last year diluted the operating profit growth for this quarter, and this led to adjusted operating profits still growing in double digits. Share of global business in the quarter continued to grow thanks to expanded coverage and volume in global CC to rise 3.0 percentage points to 62.6%. Let's go to each tobacco segment in page eight. Starting with domestic CC. Domestic cigarette market volume continued to decline in Q2, partially impacting our revenue, while we continued to launch new products catering to consumer needs, sustaining our market share gain. Next to page nine on global cigarettes.
Q2 global CC volumes grew especially in key regions like APAC and Latin America, showing a 9.1% growth to 60.7 billion sticks. Pricing and higher contribution from premium products continued to boost ASP, reaching record volume and revenue at the same time. Moving on to page 10 with NGP. In Q2, NGP revenue continued to be impacted by the device supply chain issue, leading to KRW 196.1 billion, similar to the previous year. Let's go deeper into domestic and global NGP numbers in page 11. Domestically, heightened demand for NGP accelerated the category's market penetration, and despite increased competitive activities, including new product launches and aggressive marketing, the consistent growth of lil ABLE drove further expansion in our market share. Globally, coverage expansion in Russia enabled a rebound in quarter volumes, demonstrating resilience in a difficult environment. Next to page 12 on HFF.
Q2 HFF revenue was impacted by a business portfolio restructuring towards high-profit channels and products, dipping slightly year-on-year. However, optimizing marketing execution and other profit-centered strategies took effect, allowing for Q2 operating profit to pick up back to the black. Share of global sales in HFF was reduced due to lower revenue from Greater China, breaking down domestic and overseas performance in page 13. Looking at revenue by channel in the domestic business, online platforms and other high-profit strategic channels grew in revenue by 43%, while the overall market slowdown in HFF and restructuring of low-profit business and product drove down offline revenue. All in all, domestic revenue was reduced year-on-year. In global revenue, large supermarket channel coverage expansion in the U.S.
and Japan and establishment of new products were more than offset by a reduction of inefficient promotions for quality growth, with overall overseas revenue down along with Greater China. Lastly, to page 14, earnings from real estate. In real estate revenue, construction progress and development projects, including Anyang, Mia, and East- Daejeon, led to higher revenue recognition to KRW 143.7 billion. Such increase in development project revenue also contributed to higher profits, with Q2 operating profit growing to KRW 17.7 billion. With that, we conclude our presentation for KT&G 2025 second quarter results. We are now happy to take your questions.
[Foreign language] the star and one on your telephone keypad. To cancel your question, please press the star and two.
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 the number star one. For cancellation, please press star two, that is star and two on your phone. The first question will be provided by Eun Ae Ryu from KB Securities. Please go ahead with your question.
[Foreign language] 안녕하세요. 질문해 주셔서 감사합니다. 상반기 3조 원 실적 축하드립니다. 저 두 가지 질문 드리고 싶은데요. 첫 번째는 해외 거래 관련해서 하반기부터 기저 부담이 있는데 사업 전략 등 하반기 전망하고 향후 고성장 지속 가능성을 어떻게 보시는지 답변 부탁드리고요. 두 번째로는 민생회복 협의금 지급에 따른 국내 담보 그리고 KGC 쉘터 경영을 어떻게 보고 계시는지도 질문드립니다. 감사합니다.
Thank you for taking my question. Before asking the question, congratulations on achieving that KRW 3 trillion earnings in the first half. I have two questions. First one relates to the fact that you have a high base of the revenues coming in from global CC. We'd like to understand, hence, what your outlook is as you move into the second half of the year, and would you be able to sustain that growth going forward? Second question, the Korean government has decided to pass out the social relief vouchers in order to trigger economic recovery. We'd like to understand whether that will have and what type of an impact it will have on your tobacco business as well as KGC earnings. [Foreign language] 첫 번째 질문 해외 거래 관련해서 하반기 실적 전망 및 고성장 지속 가능성에 대해서 해외 사업 본부장님께서 답변 주시겠습니다.
두 번째 민생회복 쿠폰 지급에 따른 국내 담배 및 KGC 실적 영향에 대해서는 KT&G 마케팅 본부장과 KGC 미래 전략 본부장께서 각각 답변 주시겠습니다.
[Foreign language] has continued high growth, recording over 30% sales growth and even higher profit growth every quarter since Q2 2024. Due to this, the current base is at a high level, but solid growth is expected to continue in the second half. Strategic export price increases, product mix improvements, and volume growth through expanded coverage will be applied in combination, and a locally completed business structure is expected to reduce the cost ratio. Based on this, we plan to continue double-digit growth in both sales and operating profit in 2025.
Responding to the first question, I am Min-Seop Kwon, the Chief of Global Business, regarding the second half outlook as well as whether we will be able to sustain the growth. Under the new leadership at the company, we've been implementing a pricing policy, and since then, starting the second quarter of 2024 for the global CC business, we've been able to record above 30% of top-line growth as well as a very high profit growth as well. We've been able to sustain that uptrend. Admittedly, the current level, the base, is yes, it is quite high, but we do expect that even in the second half of the year, we will be able to sustain a solid growth trend.
Basically, we believe that there will be a further increase in the volume thanks to a strategic increase in our export unit price and improvement of the product mix as well as expansion of the coverage. Also, as we set up an end-to-end local integration in each of the local markets, we expect to be able to reduce the cost base as well. Upon these bases, our projection is that for year 2025, in terms of both top-line revenue and operating profit, we will be able to continue on with a double-digit growth.
[Foreign language] expected to have a short-term demand expansion and sales increase effect, similar to the emergency disaster relief funds provided during the COVID-19 pandemic. According to the first week monitoring results, device sales performance has increased, and this is expected to lead to an increase in NGP stick sales in the future.
Responding to the second question, I am Chief of Marketing Young-Chan Yoon. If you were to look at the impact that the social relief vouchers will have on our business, which was started in July of this year, we could look back to the COVID pandemic period where there were relief supports that were given out to the population. Based upon that, we can project that there will be a short-term impact in terms of expansion of the demand, which will eventually have an impact on driving up our top-line revenue. If you look at the initial results from the first week monitoring, we were able to see that there were increases in the number of devices that were sold, and eventually, we think that this would lead to increases in the sales of the NGP sticks.
[Foreign language] the emergency disaster relief funds provided in May 2020. In fact, during the Family Month promotion period at that time, daily sales at road shops increased by 22% and annual sales rose by 10%. This time as well, we are conducting individual brand campaigns and road shop-focused promotional activities to absorb consumer demand in a timely manner. According to first-week monitoring results, an increase in road shop sales has been detected.
I am Tae-Won Kim from KGC. I'm Chief of Future Strategy. If you look back to May of 2020, quite similar to when the COVID support was given out, we are hence looking forward to stimulation in the domestic consumption, just as is the case for the domestic CC business. At the time when the disaster relief payments were made, during the family month promotion period, the daily revenue from road shops had actually gone up by 22%, and annual revenue increase was reported to be around 10%. For this time around as well, in order to make sure we leverage the stimulation in the consumption and demand, we are in the process of running brand campaigns for each individual brand and also undertaking promotions, mostly focusing on the road shops for the months of July and August.
If we look at the result of the monitoring in the first week, we are seeing signs of increases in the road shop sales.
[Forein language] The following question will be presented by Jung Wook Kim from Meritz Securities. Please go ahead with your question.
[Forein language] 질문해 주셔서 감사합니다. 먼저 이 제 질주하는 관련해서 두 가지 여쭤보고 싶은데요. 첫 번째로 배당 정책 중간 배당 발표해 주셨는데, 향후에 배당 정책 방향성에 대해서 좀 더 부연 설명 부탁드리고, 결산 배당금 인상 가능성과 또 가능하다면 인상 폭에 대해서 힌트 가능하시면 좀 더 부탁드리고요. 두 번째로 DX 투자자 매각 진행 된 지가 좀 되고 있는데, 투자자 매각 진행 경과 좀 더 업데이트해 주시고, 자료에 나와 있는 이 제 추가 질주하는 규모에 대해서 예상 수준 정도 좀 더 코멘트 부탁드리고요. 마지막으로 환율 영향이 조금 부차성이 큰 것 같은데, 환율 변동에 따른 이 제 손익 영향 하반기 전망 좀 어떻게 해야 되는지 컬러 좀 부탁드립니다. 감사합니다.
Thank you for taking my question. I would like to gain some more color on your future dividend policy direction. You did share with us your shareholder return decisions. We'd like to know, as we go into the second half or the year-end dividend basis, would there be any increases? If you could also share with us the extent of that increase, that would be also helpful. Second question is, can you update us on the progress of the divestment of your non-core assets? You did mention the proceeds from that sales will be used as resources for further shareholder return. If you could also share with us what the size is, that would also be helpful. Third question is, with the fluctuation in the FX rate, what impact is that having on your P&L, especially what your outlook is for the second half?
[Forein language] 첫 번째 향후 배당 정책 방향과 결산 배당금 인상 가능성 및 인상 폭에 대해서는 당사 수석 부사장이신 이창학 총괄 부문장님께서 답해 주시겠습니다. 두 번째 현재 진행 중인 비핵심 자산 매각 진행 경과와 이를 활용한 연내 추가 주주 환원 가능성과 예상 규모에 대해서는 허창구 전략기획본부장님께서 답해 주시겠습니다. 마지막으로 환율 변동성이 심화되고 있는 가운데 연중 환율에 따른 손익 영향이 어떻게 전망되는지에 대해서는 당사 재무실장이신 김용범 전무님께서 답해 주시겠습니다.
[Forein language] 총괄 본부장 이상학입니다. 먼저 오늘 이사회에 결의된 내용 다시 한 번 말씀을 드리겠습니다. 저희가 상반기 실적이 견조해서 중간 배당금을 지난해 1,200원이었는데 오늘 200원 상향 조정해서 1,400원 이사회에서 결의하였습니다. 지난해 저희가 기말 배당을 보시면 지난해 4,200원 지급이 되었습니다. 향후에도 마찬가지로 저희가 회사가 지금 생각을 하고 있는 부분은 자사주 매입을 통해서 배당 여력이 계속 확대가 되고 있다. 그리고 저희가 주가가 최근 상승을 했는데 주가 상승에 따른 배당 수익률을 적극적으로 고려하겠다. 또 3분기, 4분기 연간의 이익 성장 흐름도 적절히 고려해서 배당금의 상향 기조를 최대한 배당 정책에 반영하겠다. 이것이 회사의 기본적인 입장이다 말씀을 드리겠습니다.
This is Sang-Hak Lee, I'm Chief Finance and Operating Officer. Just to once again summarize what the resolution was in today's BOD. For the first half of the year, as you know, our business earnings have been quite solid. Today, we resolved to increase the dividend per share by KRW 200 compared to last year's interim dividend, which is KRW 1,200, bringing us to this year's interim dividend of KRW 1,400. On a year-end basis for last year, the figure was KRW 4,200 for your information. Going forward, we will continuously be engaged in share buybacks so that we can expand on our dividend payout resources. Recently, we've seen our share prices show an upward trend. We will also be considering the dividend yield as we go forward and make decisions on the dividend payout. We will also be considering the profit growth that will come in Q3 and Q4 as well.
The company's position is to come up with a dividend payout plan in consideration of the factors that I have just mentioned.
[Forein language] 안녕하십니까, 전략기획본부장 허창구입니다. 비핵심 자산 매각 진행 경과 및 연내 추가 주주 환원 예상 규모에 대해 설명드리겠습니다. 당사는 자산 효율성 제고와 주주 가치 강화를 위해 저수익 비핵심 자산의 유동화를 단계적으로 추진하고 있으며, 2025년 6월 기준으로 전체 계획된 수량의 약 46%를 매각 완료하였습니다. 2025년 매각 예정 자산 중 규모가 큰 Euljiro Tower의 경우 경쟁 입찰로 우선 협상 대상자를 선정하여 MOU를 체결하였으며, 관련 실사 작업을 진행 중에 있습니다. 또한 Namdaemun Marriott Hotel은 최근 매각 입찰 후 평가 및 심사를 진행하고 있는 상황입니다. 회사는 임대 빌딩이나 상업용 부동산, 지역 영업 기반 등 저수익 비핵심 자산 유동화에 속도를 내고 있으며, 이를 통해 창출된 현금을 활용하여 추가적인 주주 환원을 시행할 계획입니다. 다만 그 규모와 시기는 시장 여건 등 변동에 따라 결정되는 바, 향후 자사가 추가 주주 환원을 결정할 시 자본 시장과 지체 없이 소통하도록 하겠습니다. 이상입니다.
Hello, I am Chang-Woo Ho, Chief of Strategy and Planning. Responding to your question about our liquidation of non-core assets, as well as the potential size of additional shareholder return. In order to further enhance the efficiency of the assets that we own and also to strengthen shareholder value, we are in the process of divesting non-core assets that we currently own. As of June 2025, we've completed 46% out of the total amount of non-core assets that we were planning to sell off. In 2025, if you look at some of our major assets, one of which is Euljiro Tower, we have shortlisted bidders through the competitive bidding process and entered into MOU with those shortlisted bidders, and currently, the due diligence process is ongoing. For the Marriott Hotel located at Namdaemun, we have gone through the bidding process, and right now, we're under an evaluation phase.
In terms of the buildings, rental buildings, and commercial real estate, as well as some other regional-based locations, we are speeding up the process of optimizing and divesting these non-core assets. The cash flow that is generated through such sales will be used as resources for shareholder return. Having said that, with regards to the size and the timing of that additional shareholder return, it will fluctuate depending on the changes in the market. When we make that decision, we'll make sure that we'll come back to you and communicate to the capital market in an expeditious manner.
[Forein language] are estimated to be affected by about KRW 16.3 billion. Due to unstable external variables, it is currently difficult to forecast the exchange rate, so the scale of annual profit impact from FX risk is fluid. However, the company is managing FX risk in various ways, such as using forward contracts to measure volatility in foreign currency-related profit and loss due to exchange rate fluctuations, and adjusting the timing of foreign currency outflows according to internal guidelines. That is all.
This is Kim Yong Beom, Head of Finance Office. Responding to your question about the impact from the FX fluctuation. At KT&G, when there's a KRW 10 change in the won to US dollar FX rate, there's an impact of KRW 5.3 billion on our operating profit, and FX translation gain or loss of around KRW 16.3 billion. That is based upon our estimation. Because of uncertainties, both external, at this point, it's quite difficult to make an accurate projection as to how the FX rate will move forward, and hence, the impact from that is also undetermined at this point in time.
However, the company, in order to minimize the volatilities that come from the changes in the FX rate, we leverage FX forward products, and also, in line with our internal guidelines, we do adjust for the timing of the inflow and outflow of foreign currencies, through which we are hedging against FX risk.
[Foreign language]The following question will be presented by Jae Yeon Choi from HSBC. Please go ahead with your question.
[Foreign language] 네, 질문 기회 감사합니다. 두 가지 질문 드리고 싶은데요. 사실 이거는 회사에서도 답변하시기가 어려울 것 같은데, 첫 번째로는 이제 국내 관련 담배세 인상 가능성, 시장에서는 기대를 많이 하는 것 같아서 이거에 대해서 회사에서는 어떻게 전망하고 계시는지 궁금하고요. 두 번째로는 그 건기식이 비용 절감으로 그래도 이익으로 돌아서긴 했는데, 그래도 좀 의미 있는 실적 개선의 회복 시기, 회사의 전략하고 하반기 전망에 대해서 말씀 부탁드립니다.
I would like to ask two questions. The first question, it may be difficult for the company to answer, but when we look at the domestic CC business, there's quite a bit of expectation from the market from an increase in the tobacco tax. What is the company's view regarding this topic of increasing tobacco tax? Second question is, HFF was able to really reduce cost and hence drive a turnaround in profit. Going forward, in terms of when you will be able to regain profitability in terms of timing and the strategies that were used to affect that, can you share with us some more color on that topic? 네, 첫 번째 국내 담배세금 인상 가능성에 대한 회사의 전망과 관련해서는 당사의 마케팅 본부장이신 윤영찬 상무님께서 답해 주시겠습니다. 다음으로 건기식 사업 분야의 의미 있는 실적 회복 시기 및 전략, 그다음에 하반기 전망에 대해서는 김세연 KGC 미래 전략 본부장님께서 답해 주시겠습니다.
[Foreign language] difficult for the company to predict accurately. Instead, the company is closely monitoring the movements of the government, National Assembly, industry, and academia, and plans to promote the profitability of the domestic cigarette business through strategies based on various anticipated scenarios.
I have to say that it is difficult from our perspective as a private company to project as to what the government's tobacco tax-related policy would look like going forward. Having said that, we're very closely monitoring the developments that's happening with the government, the National Assembly, the industry, and the academia. Based upon various different scenarios, we are looking into different strategies so that we can drive further improvement in terms of the profitability of our tobacco business.
[Foreign language] emphasizing scientific credibility. We will also continue to improve yield and reorganize low-margin SKUs to enhance profitability. Additionally, from the end of September to November, visa-free entry for Chinese group tourists has been decided. The company estimates that more than 200,000 additional entries are expected, and based on previous cases, this is a highly profitable channel, so we expect it will accelerate profit and sales recovery. Overseas, we are focusing on securing new demand and expanding key distribution channels through joint product development and sales with local companies. In Greater China, we plan to strengthen actual sales touchpoint activities targeting Singles' Day, and in the U.S. and Japan, we plan to expand market coverage through strategic alliances with major distributors. We also aim to secure cost competitiveness by utilizing local materials and diversifying raw materials. Through these management activities, we will achieve meaningful performance and profit by 2025.
This is Tae-Won Kim, I'm Chief of Future Strategy at KGC. I would like to talk to you about the strategies that we've been implementing, as well as the second half outlook. We'd like to talk about both the domestic as well as overseas as well. For the domestic business, we will be launching a specialized new product with special efficacies and do a master brand campaign that really focuses on the scientific foundation. We will really target the Chuseok, the Korean Thanksgiving holiday gifting season. Also, by improving the production yield and restructuring low margin SKUs, we will continue on with the increasing of the price point, which will help us improve on the profitability. There will be visa exemption for Chinese group tourists, inbound group tourists.
From September to November, based upon our projection, we think there will be about 200,000 more Chinese inbound tourists who will be coming in, which is quite beneficial from our perspective because basically, they would go to this channel, which is where it's more profitable from our perspective. We believe that that will form the basis of a recovery in top-line revenue. In line with that, if you look at our global business, we will also engage in joint product development and sales together with the local companies so that we could secure new demand sources. We're very much focused on expanding the core distribution. For the Greater China market, we're targeting the Double Eleven season, and we will really strengthen our marketing activities that could drive actual increases in sales. Also, in countries like the U.S.
and Japan, we will enter into strategic partnerships with large-scale distributors, and that will also help us. We will also actively make use of locally sourced resources and diversify the sourcing streams so that we can gain cost competitiveness. Based upon such profitability-centric business management, we are committed in bringing about a turnaround in profit in year 2025.
[Foreign language] The following question will be presented by Eunji Kang from Korea Investment and Securities. Please go ahead with your question.
[Foreign language] 안녕하세요. 한국투자증권 강은지입니다. 질문 기회 주셔서 감사합니다. 저는 세 가지 질문 드리고 싶습니다. 첫 번째는 입단배 원가랑 대조 원가 현황 궁금하고, 추가로 원가 절감 계획 관련하여 업데이트 부탁드리겠습니다. 두 번째는 이제 실적 발표 초반에 올해 영업이익 두 자릿수 성장을 목표로 말씀해 주셔서 연간 가이던스 변경 계획이 있으신 건지, 그리고 하반기 업황은 어떻게 전망하고 계신지 궁금합니다. 마지막으로 지난 4월에 일본 건기식 기업 M&A 검토 기사가 있었는데, 건기식 사업 M&A 진행 현황 및 향후 전략이 궁금합니다. 감사합니다.
Thank you. I am Kang Eunji from Korea Investment Securities. I would like to ask you three questions. The first question relates to your manufacturing cost base. What does the cost trend look like? Also, what are your future plans to reduce or save on that cost? Second question, for 2025, you are projecting a double-digit operating profit. Do you have plans to adjust for the guidance that you have previously shared with us? My last question, I would like to get an update on how things are going with regards to potential acquisition of an M&A for a Japanese HFF company. I remember seeing an article on that topic last April. 네, 첫 번째 입단배 구매 단가 추이와 제조 원가 추이 및 원가 절감 진행 경과에 대해서는 당사 재무실장이신 김용범 전무님께서 답해 주시겠습니다.
두 번째 2025년 가이던스 변경 여부 및 하반기 업사이드가 어떤 게 있는지에 대해서는 당사 전략기획본부장이신 허창구 전무님께서 답변해 주시겠습니다. 마지막으로 건기식 관련 해외 M&A 진행 현황과 전략에 대해서는 KGC 미래 전략 본부장님께서 답해 주시겠습니다.
[Foreign language] costs, in the domestic market, the leaf tobacco purchased last year was used this year, so there was an increase in raw material input cost in Q2. However, with the stabilization of NTM input costs and reduction in processing costs, various manufacturing costs were managed stably. Lastly, regarding the future cost outlook, the company is pursuing enhancement of mid- to long-term cost competitiveness through the expansion of global production bases. In 2025, the overseas plant production volume is expected to increase by about two times year-on-year, and the company plans to continuously expand the proportion of overseas production. After the operation rates of the Kazakhstan plant, completed in April this year, and the new Indonesia plant, scheduled for completion early next year, are stabilized, the cost reduction effect from the expansion of overseas production will be realized in earnest.
Through lower labor costs compared to domestic, standardization and localization of material sales, and expansion of production volume, we ultimately expect meaningful investment effects such as about 20% reduction in various manufacturing costs. That is all.
This is Kim Yong Beom, Head of Finance Office. Responding to your question about our purchasing costs for the tobacco leaves as well as manufacturing costs and outlook going forward. If you look at the second quarter, purchase costs from the overseas tobacco leaves actually went up by 6.9% year-on-year. It moderated compared to the 16% growth rate of year 2024. Basically, when the FX rate goes up, our purchase cost actually goes up as well. All of that is completely offset with an increase in our export earnings. In terms of the manufacturing costs for the domestic, what we do is we use the tobacco leaves that we purchased the preceding year. In Q2 of the year, there was actually an increase in the input cost of the raw material.
We were able to drive a stable NTM input cost and also save on the processing and the production cost. We were able to maintain the cost quite steadily on a per pack basis. In terms of the outlook going forward, we will be expanding our global manufacturing base and will continuously improve on our cost competitiveness. In 2025, we expect the amount of volume that is produced by our global plants will probably go up by about 2x compared to the previous year. We will continuously expand on the mix from these overseas productions. In April of this year, we've completed the build-out of the Kazakhstan plant. Early next year, the new plant in Indonesia, their utilization and run rate will stabilize. We believe that will help us really stabilize the cost savings.
On top of that, in these local or in these global markets, the labor cost is lower compared to domestic. We will localize and standardize the types of materials used and also expand on the production volume. At the end of the day, that will help us reduce the manufacturing cost per pack by around 20%.
[Foreign language] profitability through continued high growth in overseas-related segments and securing global cost competitiveness. In overseas-related segments, we will focus sales on countries and regions with high growth potential and continue strategic export price increases and a premium product mix to drive simultaneous growth in both volume and profit. We also plan to systematically pursue detailed tasks such as standardization and localization of materials and reduction of processing costs, aiming to reduce the cost ratio by establishing a local relationship-based business structure. However, as various variables such as economic uncertainty in the second half, exchange rate, and raw material price volatility persist, we will maintain our existing guidance but are setting and pursuing business goals to exceed a double-digit operating profit margin. That is all.
I am Chang-Woo Ho, Chief of Strategy and Planning, responding to your question on annual guidance. As you know, we were able to report a good performance in the first half of the year. In light of the improvements that we're seeing on our bottom line, we do expect that on an annual basis, operating profit will be able to continue on with a double digit. We see that for global CC, we are seeing volume increase as well as ASP increase as well. Since we are able to secure global cost competitiveness, we believe that there will be additional drivers behind further expansion of profitability.
If you look at our global CC, we will focus on regions where there is high growth potential and where there will be strategic decisions made on increasing the export pricing as well as increasing the mix of high-end or high ASP product, which is a key strategy that will help us drive both the growth in terms of volume and profit as well. We will also set up an end-to-end local integration in each of these local markets under the goal of reducing the cost rate. We will also standardize, localize, and save on the processing and manufacturing costs. All of these very segmented and detailed strategies and tasks will be implemented.
Now, having said that, because in the second half of the year, there are still uncertainties in the geopolitical backdrop and there are fluctuations in terms of FX rate as well as the raw material prices, there are still many variables that are out there. Hence, we've decided to just keep the existing guidance. However, having said that, we believe that we will be able to attain and outperform the double-digit operating profit guidance. We will make sure that we run and operate our business with full responsibility and with rigorous guidance.
[Foreign language] the acquisition of a leading company in Japan, which is the world's third largest health-functional foods market. Japan is a region expected to see gradual growth due to expanding demand from its super-aged population and channel diversification. However, due to the high entry barriers and significant time and cost required for initial establishment, we believe that acquiring a leading company with proven capabilities will be effective. By combining our excellent product development capabilities with the marketing capabilities and distribution network of a local company, we expect to create business synergies. Through this, we believe we can overcome the limitations of distribution channels in the country and diversify our overseas portfolio.
I'm Tae-Won Kim, Chief of Future Strategy at KGC, responding to your question about our M&A attempt in the Japanese market. We've been continuously reviewing potential acquisition of a promising HFF company in key global markets. If you look at Japan, they are a global number three in terms of health food market. We've been considering and acquiring and doing an M&A with a leading company in Japan. Japan is an aging society. There's going to be growing demand for such products. It's a market where we think there's going to be gradual growth underpinned by channel diversification. This market has a very high entry barrier, and it takes a long time for a company to set themselves up in the market.
We felt that the most effective way for us to tap into the market is by acquiring a leading company, leveraging our superior product capabilities, and also joining that with marketing capabilities of the local Japanese market. We believe that we will be able to create great business synergies. Through that attempt, we will be able to overcome the limitations of that nation's distribution channel. This will be an opportunity for us to diversify our global portfolio.
[Foreign language] The following question will be presented by Yu- Jeong Han from Hanwha Investment & Securities. Please go ahead with your question.
[Foreign language] 안녕하세요. 한화투자증권 한유정입니다. 질문 기회 주셔서 감사합니다. 저는 두 가지 질문이 있습니다. 첫 번째는 모던 프로덕트 공개 혹은 출시 계획이 어떻게 되는지 공유해 주시면 감사하겠고요. 두 번째로는 저희 MZP 디바이스 공급망 문제가 3분기부터는 더 이상 영향을 주지 않아도 되는지, 그리고 신규 디바이스 출시 계획은 어떻게 되는지 궁금합니다.
Thank you for taking my question. I have two questions. First, I would like to understand as to what your plans are regarding the release and rollout of your modern product. The second question is, I understand that there no longer exists any supply-related issue with your NGP device. Is my understanding correct? What are some of the new device plans that you have in place? 네, 첫 번째 모던 프로덕트 진출 계획 관련해서는 전략기획본부장님이 답해 주시겠습니다. 두 번째 NGP 디바이스 공급망 이슈 해결 진행 경과에 대해서는 NGP 사업본부장님께서 답변해 주시겠습니다.
[Foreign language] GMB-centered NGP business system to modern products, including nicotine pouches and liquids. Accordingly, we have established a dedicated organization for the modern product business and are preparing to enter the market in various ways. Currently, we are pursuing collaboration with partners who have experience in this business, utilizing M&A opportunities to enter the global market, developing our own products, and internalizing capabilities. As soon as these plans are further specified, we will communicate with the capital market as quickly as possible. That is all.
This is Chang-Woo Ho, Chief of Strategy and Planning. Responding to your question about our plans regarding modern products, this year, we've made the announcement that we will expand into modern products that include nicotine pouches and liquids, moving our key focus away from HMV-based NGP business to these new modern products. Under that objective, we've already set up a dedicated organization for modern products, and we are in the process of expanding into this market. Basically, through collaboration with partners who have experience in these domains, we may be leveraging M&A opportunities to very quickly enter into the global market. We are also, at the same time, building up on our in-house capabilities when it comes to product development. Once we have more concrete information that we could share, we will come back to you and share that with you.
[Foreign language] 네, 안녕하십니까. KT&G NGP 사업본부장 홍대화입니다. 공급망 NGP 공급망 문제 해결 여부에 대해서 질문 주셨는데요. 결론부터 말씀드리면 현재 상태에서는 완전히 해결되었다라고 말씀드릴 수 있을 것 같고요. 문제가 있었던 베트남 정부에서 한시적으로 생산과 통관을 허용해 줬기 때문에 재고 수급에도 문제가 없는 상황이고요. 장래적으로 이런 문제를 없게 하기 위해서 현재 경쟁사들이 생산 시설을 가지고 있는 말레이시아, 인도네시아, 중국으로 저희 업체의 생산 기반을 옮겨놓은 상태입니다. 이에 따라서 2쿼터부터 실적이 회복되고 있고요. 하반기에는 보다 더 나은 성과를 보여드릴 수 있을 것으로 생각됩니다. 또 마지막으로 신규 플랫폼 출시 계획에 대해서도 질문 주신 걸로 기억하는데요. 국내부터 말씀드리면 현재 운영되고 있는 메인 플랫폼인 하이브리드와 에이블은 지속적으로 업그레이드하는 방향으로 이해해 주시면 될 것 같고요. 업그레이드 방향은 소비자들의 페인 포인트를 제거하고 보다 다양한 편의 기능을 제공하는 방향이라고 보시면 될 것 같습니다. 이외에도 타 브랜드와의 콜라보, 한정판 컬러 확장 등 브랜드 이슈의 지속 창출 및 플랫폼 전환에 따른 경쟁사 이탈 수요를 흡수하는 전략을 지속적으로 추진할 계획입니다.
해외 같은 경우에는 하이브리드와 솔리드 두 가지 플랫폼이 있는데, 하이브리드 같은 경우에는 이미 러시아와 일본에서 신규 플랫폼들이 출시가 되고 있는 상황이고요. 6월에 일본에서 Hybrid 3.0이 출시된 바가 있습니다. 그 외에 솔리드를 대체할 신규 플랫폼에 대해서는 상세한 출시 스펙이나 일정을 말씀드리기 어렵다는 점 이해해 주시기 바라겠습니다.
I am Dae-Hwa Hong, Chief of NGP. Responding to your question about the supply chain-related issue, to cut to the chase, we've completely resolved the supply chain-related issue. The problem was, the problem erupted in Vietnam, but the government had temporarily given us the permission to go ahead with manufacturing and customs clearance. At this point, we do not have an issue with sourcing the products that are in need. We've also relocated our production base to where our competitors have their base, for instance, in countries like Malaysia, Indonesia, and China as well. We were able to drive some recovery in the second quarter, and we think that the results from the second half of the year will be much more robust. In terms of the question on the new platform, first talking about the domestic platform, our main platforms are Hybrid and ABLE.
We will continuously be upgrading those platforms. Basically, our focus will be to remove any pain points that our consumers had and also providing more convenient features. We will also engage in more collaborations with our partners and really focus on absorbing the demand from consumers, moving away from our competitors' brand. In terms of our overseas platform, we have a Hybrid as well as SOLID. In terms of Hybrid for Russia and Japan, we already have new platforms in place. For Japan, we're supporting Hybrid 3.0. In terms of the new platform that will be replacing the previous, at this point, we do not have the specific information to share with you. Once they become more clear, we'll be able to communicate that with the market.
[Foreign language] 2025 second quarter earnings conference call. We sincerely thank everyone for attending, and if you have any additional questions, please feel free to contact the IR team at any time. Thank you.
This brings us to the end of KT&G's second quarter 2025 earnings call. Thank you very much for joining us today. If you have any unanswered questions, please feel free to contact us at the IR team. Thank you.