Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2026 first 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 star and the number 1. We will now begin with KT&G's presentation.
Ladies and gentlemen, I'm Aaron Lee, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2026 first quarter results. Today's presentation will be provided in English in simultaneous interpretation and the 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 management team in attendance today.
With us, we have Mr. Lee Sang-hak, Chief Finance and Operating Officer, Mr. Yoon Young-chan, Chief Strategy Officer, Mr. Changku Huh, Chief Marketing Officer, Mr. Kwon Min-seok, Chief of Global Business, Mr. Dongpil Kim, Chief of NGP, Mr. Sangjun Woo, Chief of Real Estate Business, Mr. Kim Yong-beom, Head of Finance Office, and Mr. Seung-gyu Han , Chief of Future 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. Any forward-looking information discussed in the call today may differ from the actual results to be reported in the future. With that, we will begin the 2026 first quarter earnings report. Today's presentation consists of key items from our consolidated results and earnings for each business segment.
After the presentation, we will proceed to Q&A with the management team in attendance. Please allow me to invite Mr. Sanghak Lee, our COO/CFO, to share with you highlights of the 2026 first quarter earnings and some business updates.
Ladies and gentlemen, I'm Sanghak Lee, CFO and COO of KT&G. Thank you for joining us at our 2026 first quarter earnings release. Please allow me to brief you on our key achievements in the first quarter of 2026. Our global cigarette business recorded highest ever quarter revenue with a growth trifecta of volume, revenue, and operating profit. ASP increase combined with volume growth drove volumes up 15%, revenue 24.6%, and operating profit 56.1%. Amid tensions in the Middle East, we have secured safety stocks by promptly discovering alternative routes, and offtake sales are showing strong numbers still.
All regions, including APAC, Eurasia, and new markets, have shown stable sales growth, allowing us to project our overseas CC business growth to continue throughout the entire year. In NGP, the domestic and overseas earnings grew in tandem. In Korea, we reached 47.4% in stick market share to solidify our leadership position in the market. lil AIBLE 3.0 that was launched in online channels in April is well received in the market, acknowledged for our product capabilities. Going further, we are preparing to launch new products every quarter of this year to strengthen our firm dominance in the NGP market. Internationally, strong sales in big markets and favorable comparison against last year, thanks to a normalized device supply chain, drove significant increase in revenue. We will sequentially expand our direct NGP business, starting with key markets in APAC and Eurasia.
Our HFF business grew in both revenue and operating profits. Profit-centered structural transformation, along with strong results from the Lunar New Year promotion, drove revenue up by 5.8% and operating profit by 53.3%. KT&G intends to foster a global nutrition business at group level based on our competitiveness on red ginsengs. As the global F&B and health supplement market today is rapidly transitioning to functional materials and science-based solutions, we aim to diversify our business model from simply B2C to add B2B on materials. Through collaboration with Altria, starting from May, we will launch energy drink products for U.S. consumers. We will also pursue additional partnerships with other parties. Under resolution by the newly formed board of directors after our AGM, we have completed the full cancellation of our treasury shares worth approximately KRW 1.8 trillion.
We have exceeded the target for cancellation as announced in November 2024 via the corporate value of plan for 2024-2027 ahead of schedule, canceling total 22.4% of issued shares across the three years. Based on robust business growth and profitability, KT&G will continue its earnings-based shareholder returns. In the second half of this year, we plan to announce a new mid to long-term shareholder return policy that focuses on stronger dividends. I ask for your unwavering support and interest for KT&G going forward. Thank you. Now we will move on to details of our 2026 Q1 earnings in page two. Q1 consolidated revenue was supported by a strong tobacco business, rising 14.3% year-on-year to KRW 1.7036 trillion.
Operating profit grew across all segments of tobacco, health functional food, and real estate to rise 27.6% to KRW 364.5 billion. Net income was lifted by higher operating profit and currency related non-operating profits, rising 46.6% to KRW 378.2 billion. EPS grew by 54.7% to KRW 3,666. EBITDA rose by 25% to KRW 442.7 billion, with EBITDA margins at 26%. Next, to factors behind movement in earnings in page three. Starting with the tobacco business. Despite an increased cost of KRW 15.6 billion linked to higher volumes, improved product mix and pricing added KRW 21.1 billion. Volume growth in overseas CC and NGP was KRW 58.8 billion.
Dollar appreciation against the won was KRW 4.4 billion increment, totaling to KRW 68.7 billion increase in profit for the tobacco business. HFF and real estate also saw increase in profit by KRW 9.7 billion and KRW 3.6 billion respectively. All in all, consolidated operating profit rose by 27.6% to KRW 364.5 billion. Let's move on to the results for each business segment in page four. First on to tobacco business. Tobacco business revenue was supported by overseas cigarettes that recorded highest ever quarter revenue as well as strong results across the NGP business to rise 17% YOY to KRW 1,155.9 billion. Operating profit grew across domestic and overseas CC and NGP, growing by 27.2%, with operating margins growing 2.2 percentage points.
The share of global sales in tobacco grew by 3.7 percentage points as the international cigarette business showed robust earnings, continuing our global business expansion. Breaking down the tobacco business into segments in page nine. Beginning with domestic CC. Quarter domestic CC market volume saw a natural decline in transfer of demand to NGP, declining by 5.2% year-over-year. However, with new product launches catering to consumer needs, we continued our market share growth trend, with market share rising 0.4 percentage points, reaching 68.8%. Moving on to page six for global CC. Global cigarette revenue grew by 24.6% YOY to reach record high quarter revenue, proving the sustainability of our global growth. Volumes grew across all regions of Eurasia, APAC, and new markets, rising by 15% to 18.01 billion sticks.
While strong ASP increase continued, improvements in cost and SG&A efficiency added to once again drive up the profit significantly. Next to NGP on page seven. NGP grew in both revenue and operating profit, thanks to growth in the domestic and international businesses. Internationally, strong device and stick sales in key markets, including Russia, combined with a favorable comparison against last year that suffered a supply chain disruption on the device, led to growth in all stick volume, revenue and operating profit. Next on details of the domestic and international NGP business on page four or page eight. Domestically, penetration of the HNB category reached 25%, expanding its presence. With the growth of our lil AIBLE devices sticks, KT&G market share reached 47.4%, solidifying our leadership positions. Internationally, expanded distribution coverage in Russia and new product launches drove volume growth.
Next is page nine to HFF. Strong results from the Lunar New Year promotion in Korea and the boost from the CheongKwanJang brand campaign drove HFF revenue by 5.8%. In operating profits, higher revenue from high profit channels, including online and profit center strategy, including efficiency and marketing execution, led to profit growth of 53.3%. Share of global sales was reduced as domestic revenue grew. Going into specifics of the domestic and overseas performance in page 10. In domestic revenue by channel, inflow of consumers via the Lunar New Year promotion and brand campaigns were mainly in high profit online channels, supporting the revenue and operating profit growth. Internationally, while revenue in China grew with the Lunar New Year promotion, U.S. revenue decline drove down overall international revenue. Lastly, on page 11 for real estate.
As construction rates progressed in development projects for Anyang, Mia, and East Daejeon, real estate revenue for the quarter rose by 16.4%. Operating profit grew as well by 34.6% with higher development project revenues. This concludes the KT&G 2026 first quarter earnings release. We'll now proceed to Q&A.
Now Q&A session will begin. The first question will be provided by Kwon Woo-jung from Kyobo Securities. Please go ahead with your question.
Thank you for taking my question. I would like to ask you three questions. First, we have seen quite solid trend in terms of your global CC ASP. I would like to understand going forward, what is the level at which you're currently targeting? Also, do you foresee there will be continuous improvement in terms of profitability?
Second question has to do with, in the wake of the war in the Middle East, I believe that you are able to really hold on to your business quite well despite that difficulty. Would like to know what your take is in terms of how the market consumption looks like in those markets, and also what your update is in terms of the inventory level and any update on logistics. Third question has to do with your NGP business. Can you provide some color with regards to the update regarding your new platform?
Responding to your question, I am Kwon Min-seok, Chief of Global Business Division. If you look at our global CC business, it's been growing quite rapidly, driven by a joint growth of volume as well as ASP increase.
We expect that driven by structural changes, such improvement in profitability will continue into the future. If you look at the markets where we're adopting direct business model through structural changes, we are seeing impact in terms of improving the margin structure and supported by brand competitiveness, we are continuously going to push for ASP hike. For new markets, by leveraging the high-end new products such as capsules and flavor products, we are going to improve on our product mix, which will help us expand on profitability. For two years in a row, starting 2024, the company's ASP has been posting a double-digit growth. In 2026, we will actively make inroads into newly cultivated markets, which may moderate the ASP uptrend. However, that uptrend will continue. Compared to 2024 up to 2027, we are expecting about mid-to-upper 20% growth.
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Responding to your second question about what the company's responses are and what our planning is in light of the geopolitical issue that is emerging in Middle East. Right after the war broke out, we were moved very quickly in securing on the alternative route so as to stabilize our supply chain. We do have safety stock in place, so we do not believe that the impact from the war is going to create significant risk. Despite the war happening in the Middle East, our local sales are quite solid, not just in the Middle East. If you look at the global CC business, our Q1 volume as well as the top line revenue all posted a growth. We are continuously reviewing alternative routes in case the war extends in terms of its duration or if the war escalates.
In order to minimize any potential business issue being impacted from the Middle Eastern issue, we are going to continuously, very closely monitor the situation.
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Responding to your question, I am Dongpil Kim, Chief of NGP Business. I will talk about our plan regarding the rollout of a new HNB platform and expected results. In April, the company expanded the lil AIBLE 3.0 sales and upgraded a new and upgraded device to the online channel. We are seeing very positive responses from the market. We are going to expand the coverage to nationwide by the end of the first half of the year. This is really going to help us further speed up growth of our lil AIBLE platform. In Q3 and Q4, following on the trend that we've seen in the second quarter, we are planning for a additional launch of new and innovative products.
All of these new products to be launched are going to significantly improve the user convenience. It will help us acquire new consumers and also activate repeat purchases. Last but not least, we are planning to roll out an upgrade version in the overseas market, including the Russian market. Through such endeavors, we believe that we will be able to solidify consumer loyalty to our brand, the Lil brand.
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The following question will be presented by Jung-Wook Kim from Meritz Securities. Please go ahead with your question.
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Thank you. I would like to ask you three question. First, in regards to your HFF business, where would be your focus in 2026? Would it be more towards the scale, the top line, or more focus on profitability, the bottom line? Second question, you did mention this during the opening presentation, can you provide a little more detail with regards to this B2B business for your nutritional ingredient business? The third question is, are there any changes or any enhancements that you've made to your shareholder return policy for 2026? Do you have plans to make additional treasury buyback or cancellation thereof, or are you reviewing any potential liquidation of non-core assets?
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Responding to your question. I am Han Seung-gyu, Chief of Strategy from KGC. I would like to briefly walk you through our growth strategy for HFF, Health Functional Food business. In 2025, despite the decline in top-line revenue, we focused on margin and profitability, we were able to drive a meaningful result of operating profit expansion. In Q1 of 2026, we continued to have that focus on profitability, we ran Lunar New Year promotion as well as the brand campaign, which helped generate demand, especially around the high margin online channel, which helped to rebound our top-line revenue. In 2026, we are going to focus our effort on growing the revenue and improving the operating profit margin, as well as improving the cost base and also making our promotional spending more efficient.
We will continue to rigorously maintain and control our bottom line, the profitability. Also we will continue to roll out high margin differentiated products that will focus on online as well as DFS channel, which are considered strategic channels so that we may drive growth in terms of top-line scale as well as profitability.
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Responding to your question. I am Yoon Young-chan, the CSO. I will share with you what our B2B business plan looks like. As part of the umbrella agreement that we have with Altria, we are going to first target the U.S. beverage market. We'll start to introduce new types of products starting the month of May. At the KT&G group level, we are going to place full momentum behind fostering our global nutritional business, including the B2B ingredient business. In order to implement this strategy, KT&G has newly established Global Nutrition Center. We are going to focus our capabilities and our infrastructure resources towards this nutritional center.
We will initially build references by supplying ingredients to global top tier companies in the U.S. and through joint product development efforts, and also based on which we will roll out KT&G's own products while expanding global markets, including Europe and Asia. In the mid to longer term, we will develop our global nutritional business as a key future growth driver. We will establish integrated North American business platform, incorporating and implementing local production, R&D, and commercialization, all of which will be built upon North American Ginseng Research Institute, which is scheduled for establishment before the end of the year, as well as our future manufacturing facilities.
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Responding to your question regarding any changes or enhancements made to our shareholder return plan. I am Lee Sang-hak, Chief Finance and Operating Officer. We achieved that 20% target for treasury share cancellation earlier than what was planned for in the value enhancement plan of FY 2024 and 2027, which was announced back in November of 2024. We will do share buyback and cancellation based upon this year's plan, and will consider and closely monitor and follow the market, as well as how the stock price moves, and operate nimbly in determining the right timing and the size of such share buyback, as well as cancellation. Talking about the liquidation or sales of non-core asset. We completed the sell-off of Euljiro Tower and Namdaemun Hotel, and including also other certain financial assets.
We completed the asset securitization, which amounted to around KRW 1 trillion. In light of the cash flow situation, we will make appropriate decisions regarding securitizing or liquidating such non-core assets going forward. You also asked about any changes or improvements that were made to our shareholder return plan. In the recent BOD at the company, the board of directors recognized that we had achieved our cancellation target of treasury shares, and that our investment towards our core business had driven certain growth of business, and also our innovation and structural enhancement effort has translated into higher level of bottom line profit. In light of the dividend payout at our global peer companies, in light of the fact that the recent stock prices increase has actually brought down the dividend yield.
Those different elements are currently being considered, and there is actually a consensus that we still have room to further strengthen our dividend payout going forward. Upon those understanding and consideration, once the new dividend plan is drafted and finalized, we will be able to come back to the capital market and announce such upgraded shareholder return plan in the second half of the year. We will continue to listen closely to the feedback and the views of the market, and will continuously endeavor to further enhance our corporate value going forward.
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The following question will be presented by Hye-eun Kim from Morgan Stanley. Please go ahead with your question.
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Thank you for taking my question. I have a question relating to the cost for your tobacco business, your CC business. I've seen that at the end of last year, we've seen the cost profile stabilize in terms of the tobacco leaf as well as some packaging material. Can you provide a bit more color with regards to the guidance regarding cost? Second question is, you've opened your production facility in Indonesia, and I see that the company has intent to move its production base or shift the production mix to overseas locations. What is the progress as of the first quarter, and what should we expect as we go into the second quarter? You know, what is the plan basically? That is the question.
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Responding to your question, I am Kim Yong-beom, Head of Finance. I will talk about the cost trends, the recent cost trends that we are seeing and what the cost outlook is for 2026, and also the changes in the overseas production mix. In terms of the raw material, leaf tobacco, which was sourced back in 2024 at peak price, is now mostly depleted, and we started to input tobacco leaf sourced at low price in 2025. We expect stabilization of input cost and boost in profitability. Through corporate-wide cost savings project, we plan to further stabilize cost of materials, save processing costs so that we can accelerate optimized achievement of optimized cost profile. From a mid to longer term perspective, through revamping of our global production portfolio, our objective is to strengthen profitability of our businesses.
As we expand production into our global production sites, our objective is to produce 50% of the outbound sales volume in the overseas sites in 2026. This will help us leverage off of local sourcing, lower labor cost, as well as logistics cost, and also save on tariff related expenses, which will help us maximize company's profitability.
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The following question will be presented by Dayeon Lee from Daol Investment & Securities. Please go ahead with your question.
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Thank you for taking my question. My first question relates to the phase 2 of your PMI relationship. Would like to know as to what impact this will have in terms of your direct business, because there inevitably is going to be certain overlap. If you could provide color there, that would be helpful. What would be your direction going forward? In terms of the global CC business, I believe that your direct business model is expanding. Accordingly with that business model, what is your growth strategy?
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Responding to your question, I am Dongpil Kim, Chief of NGP Business. I will talk about the current status as well as outlook for our direct business. In light of the global market environment, KT&G and PMI have structured its partnership in the most efficient way, through adjusting the guaranteed volume within a reasonable scope. Company KT&G, we were able to secure PMI's guaranteed volume and also excluding certain number of countries, we now have the commercial right to directly provide our lil Hybrid and lil AIBLE platform products. Accordingly, we are going to roll out within the end of this year in key markets, including Asia Pacific and in Eurasia markets, where we could leverage our existing global CC competitiveness. At the same time, we will continuously look for a partner, our commercial partner, in this process.
Through continuous development of innovative and new products, we are going to sustain a steady level of growth under the arrangement with PMI. At the same time, directly expand our business directly on our own so that we can further up our global growth momentum.
Responding to your question, I am Kwon Min-seok, Chief of Global Business. I will talk about our growth strategy regarding our direct business markets. Across all of the markets, the company, we want to be able to continuously drive our global CC businesses growth momentum by driving a volume growth as well as profitability growth of our business. First, if you look at Asia Pacific, we are fully mindful of each nation's characteristics, which will be used in developing new and differentiated products that best befit those specific markets.
Also by entering into new countries, we are planning to expand on coverage. At the same time, with the new plant in Indonesia now complete, we will be able to expand our overseas production, which will help us save on manufacturing costs as well as logistics costs, and that will help us achieve both growth in terms of scale as well as improvement in profitability. In terms of the Eurasia markets and zone, last year, we had improved our distribution channel, which helped us drive up volume sales as well as increase the ASP. Also, as we are making use of the plant located in Kazakhstan, we were able to gain tariff related savings, which really helped with revenue growth and profit growth in the first quarter.
We are also, going forward, going to focus on margin-focused growth by diversifying the product mix around high-end or highly priced brand lineup that include brands such as Esse and Bohem. Moving forward, the company is going to continuously focus on markets and geographies where there is high potential for growth so that we can speed up our market penetration. This brings us to the end of first quarter 2026 earnings conference call of KT&G. Thank you very much, everyone, for joining us. For any unanswered questions, please feel free to call us at our IR team. We wish you good health. Thank you.