Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2026 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 star and the number one. We will now begin with KT&G's presentation for 2026 second quarter earnings.
Ladies and gentlemen, I am [Aaron Lee], Head of Investor Relations at KT&G. Thank you for attending KT&G's 2026 second quarter earnings report. 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. Sang-hak Lee, Chief Finance and Operating Officer; Mr. Young-Chan Yoon, Chief Strategy Officer; Mr. Chang-Gu Heo, Chief Marketing Officer; Mr. Min-seok Kwon, Chief of Global Business; Mr. Dong-pil Kim, Chief of NGP; Mr. Seung-jun Woo , Chief of Real Estate; Mr. Yongbum Kim , Head of Finance Office; and Mr. Seungkyu 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, and 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 second 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. First, please allow me to invite Mr. Sang-hak Lee, our COO and CFO, to share with you updates on our shareholder returns as resolved at the board today, highlights of our 2026 Q2 results, and updates on our annual guidance.
Ladies and gentlemen, this is Sang-hak Lee, COO and CFO of KT&G. Thank you for attending KT&G's 2026 Q2 earnings report. First, starting on our shareholder return. Earlier today, our board of directors resolved for the execution of the 2026 interim dividends. The board has decided to raise DPS by KRW 600 to KRW 2,000 per share. The record date for this interim dividend will be August 21st, and the dividends will be paid out on September 7th. Details will be uploaded on our company website on a later date.
Based on our profit growth and capacity for shareholder returns, we have increased the amount and the portion of our interim dividend and are assessing the possibility of increasing the DPS for our year-end dividend as well. We will proceed with share buyback and cancellation in the second half as planned, the scale and timing of which will be decided based on comprehensive assessment of the market situation and our capital policy. We are also preparing for a new round of mid to long-term shareholder return plan to transfer our elevated corporate value into shareholder value, on which our CEO will communicate with the market in the fourth quarter. Moving on to our key results of the second quarter. The robust growth of the tobacco business drove our consolidated earnings in Q2 as well. Consolidated revenue reached KRW 1.7 trillion, operating profit KRW 414.5 billion, rising 18.5%.
With this, we recorded highest ever H1 revenue for two years and four consecutive quarters of double-digit growth in operating profit. Our international cigarette business recorded triple growth of volume, revenue, and operating profit for nine quarters in a row. As the ASP growth trend continued through pricing and mix improvement, volumes grew 7.3%, revenue 18.9%, and operating profit 45.6%. Our NGP business reinforced brand competitiveness and profitability as the lil AIBLE platform successfully penetrated the market with higher contribution from high ASP sticks, leading to profit growth outpacing the revenue growth. In Korea, as the category's penetration increases, our market share rose to 48.2%, solidifying lil's market-leading position. Overseas, strong sales in key markets and a low base effect as the device supply chain normalized led to 35.9% in revenue growth. To strengthen our platform competitiveness in heat-not-burn, we are investing in R&D twice as much as last year.
In the second half, we will launch a new platform equipped with innovative heating technology in Korea and launch our HNB products independently in two markets overseas, all in line with our growth strategy. Our HFF business also continued its growth trajectory this quarter, supported by promising results in Korea. Promotions maximizing market activation opportunities, like the family month and individual brand campaigns, led to 7.8% revenue growth and double-digit growth in operating profit. Our global nutrition business is also making significant attempts based on various partnerships. In China, we started to supply ginseng materials to a certain global F&B player in launching a new energy drink, which is currently being sold in large distribution channels. In the U.S., through our partnership with Altria, we have expanded our localized product portfolio with products going through pilot tests in key retail channels.
Reflecting our first half results and our projections for the second half, we are also revising up our 2026 annual guidance. We are now raising our revenue growth target from the previous 3%-5% to 5%-7%, and operating profit growth target from 6%-8% to now 10%-13%. We will do our utmost in the second half as well to achieve this guidance target as we maintain our profit-based growth trend. We ask for your unwavering support for KT&G going forward. Thank you. Now we will move on to details on our 2026 Q2 earnings on page six. In the second quarter, robust growth from our tobacco business drove consolidated earnings, while HFF and real estate businesses also grew. Consolidated revenue rose by 9.9% to KRW 1.7016 trillion. Operating profit growth outpaced the revenue growth, rising by 18.5% to KRW 414.5 billion.
Net income was lifted by higher operating profit and currency-related non-operating profits, rising 152.3% to KRW 362.1 billion. EPS grew by 164.2% to KRW 3,509. EBITDA rose by 17.4% to KRW 494.4 billion, with EBITDA margins at 29.1%. Next are factors behind movement in earnings on page seven. Starting with the tobacco business. Increase in volume from international CC and NGP sticks added KRW 43.1 billion. Improved product mix and pricing was a KRW 34.6 billion impact, and dollar appreciation against the won was KRW 15.8 billion increment, totaling to KRW 60.5 billion increase in profit from the tobacco business. HFF and real estate also saw profit growth of KRW 3.8 billion and KRW 2.8 billion respectively. As a result, consolidated operating profit grew 18.5% to KRW 414.5 billion. Let's move on to the results from each business segment on page eight. First on the tobacco business.
Tobacco business revenue was driven by the strong growth of international CC and Korea NGP, rising 11.7% to KRW 1.2185 trillion. Operating profit was supported by Korea and international CC and the profit center growth of NGP to grow 18.8%, with margins also growing 1.9 percentage points too. Also, as business expanded via overseas CC, the share of international business in tobacco continued to rise to reach 65.1%. Breaking down the tobacco business into segments on page nine. Beginning with international CC. Our international business continued its strong growth momentum despite the prolonged external uncertainties. In the Middle East, we managed to secure various alternative routes to see growth in both shipment and local sales volumes. Strong volume growth continued in key regions, including Africa and Eurasia. With it, total international sales volume grew 7.3% year-on-year to 17.92 billion sticks.
ASP also maintained its solid growth with pricing and product mix improvement, leading to the international CC business recording triple growth of volume, revenue and profit for nine quarters in a row now. Next to Korea CC on page 10. In Q2, the total cigarette market volume decline was mitigated, shrinking only 1.2% year-on-year. We reinforced our market-leading position as we continued to increase our market share and minimized our volume decline to 0.6%, with our revenue rising 1.1%. Next is page 11 on NGP. In the Korean NGP business, strong sales of the lil AIBLE platform led to higher contribution from higher ASP sticks and improved profitability. Profit growth outpaced revenue growth as a result international NGP was lifted by expanded sales in key markets, including Russia, and partial impact from the low base effect of the device supply disruption in the previous year.
Allow me to elaborate on the performance on page 12. In Korea, while the HNB category's penetration of the market continued to grow and competition intensified, the lil AIBLE platform and new stick products were well received in the market, recording 48.2% in market share for KT&G. In the international business, upgraded device launches in Russia, a key market, continued to show effect, leading to moderate growth in stick volumes. Next, on page 13, the HFF business. With promotions for the Family Month campaign and individual brand campaigns in Korea, Q2 HFF revenue grew by 1.5%. As high profit channels, including online, expanded and costs improved, operating profit was boosted by 61.3%. Breaking down Korea and international on page 14. In Korea, promotions for Family Month and high oil price relief subsidies and individual brand campaigns led to expanded sales across all channels, with overall revenue rising by 7.8%.
Overseas, reduced sales in China due to inventory adjustment led to lower revenue year-on-year. Lastly, on page 15 for real estate. Real estate revenue grew as construction rates progressed and development projects, including Anyang, Mia, East Daejeon, rising 10.2% YoY. Operating profit also grew by 15.8%, with higher revenue from development projects. This concludes our 2026 second quarter earnings release presentation. We are now happy to take your questions.
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 Jungwook Kim from Meritz Securities. Please go ahead with your question.
Thank you for taking my question. I would like to ask three questions. First being, in the second quarter, we've seen that the natural erosion of your domestic combustible cigarette business had actually narrowed compared to the past. I would like to understand as to the reason why, and whether you believe that this trend will continue onwards into the second half of the year. Second question has to do with your NGP business. What do you think are the key success factors that's driving the growth of lil AIBLE, and also, what's your outlook going forward? The third question is, would like to gain some more direction and guidance of the new shareholder return policy, which you will be announcing in the second half of the year.
I am CMO Heo Chang-gu. I will be responding to your question about the reason why we've seen narrower decline in terms of the total volume. If you look at the total CC demand, it naturally eroded due to the decline in population, also because the demand is shifting to other alternative products like HNB, heat-not-burn, and e-vapor products. There was around 4% yearly decline. In the second quarter, if you look at the total demand, it was 14.5 billion sticks, which is down only by 1.2% versus last year. You would see that the decline is narrowing. We think part of the reason is because of the slower demand shift to synthetic nicotine e-vapor products following the amendment to the Tobacco Business Act, which took effect in the month of April.
Having said that, we believe that it is however, too early to say that this is a structural change, we will closely monitor demand trend going forward as well as key drivers for change.
Responding to your question about the key success drivers behind lil AIBLE and what our take in terms of the market outlook is for the domestic market, I am NGP Chief, Kim Dong-pil. The company had expanded the rollout of lil AIBLE 3.0 in June, which is an upgraded version compared to the existing lil AIBLE 2.0 platform. If you take a look at this upgraded platform, it provided a better convenience to our users by reducing the preheat time and providing high speed charging, which received quite positive response from our consumers. As a result, we were able to see a very fast uptake in the sales of the sticks for lil AIBLE, as well as the device.
Out of this total stick market, the share of market had recorded 48.2%, and we were able to widen the gap with the number two player by 3 percentage points. Going forward, our plan is to continuously strengthen the competitiveness of our existing platform, including that of lil AIBLE, and we will continue also to roll out more upgraded version of the platform in the NGP market so that we can continue on with the growth momentum.
Taking your question on the upcoming shareholder return program, which we will be sharing in the second half of the year. I am Lee Sang-hak, Chief Finance and Operating Officer, responding to your question. As I've mentioned at the opening, during the fourth quarter, the company will be announcing its new mid to longer term shareholder return program.
Since we achieved treasury share cancellation target under the value plan of November 2024 at 20% earlier than planned and expected, and in light of the increases in the share price that we are seeing and considering the payout ratio of our global peers, we're currently looking at developing shareholder return policy with a strong focus on strengthening dividend payout. Share buyback and cancellation will also be an important pillar of our shareholder return program, and we will implement the program considering the overall aspects, including market situation and effects on corporate value enhancement. Under such progressive stance on dividend payout, as the first step, we decided to increase interim dividend by KRW 600 and are also considering increasing the year-end dividend as well.
We also increased the share of interim payout against the annual distribution so as to strengthen shareholder returns during the calendar year.
The following question will be presented by Eun Ae Ryu from KB Securities. Please go ahead with your question.
I am Eun Ae from KB Securities. Thank you for taking my question. Today, I have two questions that I wish to ask. The first one has to do with your global CC business. In light of the strong dollar environment, what is your second half outlook in terms of the volume as well as ASP trend? My second question relates to the timing of when you're going to do your share buyback, and when you will implement the cancellation of such treasury shares. Also, is there any possibility of you implementing the Plus Alpha Program, which is for the non-core asset liquidation?
Thank you. Responding to your question. I am Kwon Min-seok, Chief of Global Business. I will talk about our second half outlook for volume and ASP growth. If you look at our global CC business in the first half of the year, we also reported a double-digit volume growth, as was the case back in 2024 and 2025. We've been able to drive growth not only around the new markets, which include Africa and Latin America, but also in countries where we directly engage in the business, which are Russian market and Indonesia. We've been able to achieve an evenly spread growth across these regions. If you look at ASP trend as well, even if you exclude the impact of FX movement in 2024 and 2025, we still were able to drive a double-digit growth. We are expected to continue on with that robust uptrend this year as well.
By leveraging increases in the sales price, the ASP, and improving the product mix, focusing on premium product, we are able to sustain the improvement in ASP trajectory. Hence, we believe that for 2026 and 2027 as well, we will be able to maintain a quite steady trend in terms of volume and ASP.
I am Lee Sang-hak, Chief Finance and Operating Officer. Will take your question on the timing of share buyback and cancellation. I will tell you that share buyback and cancellation is planned for this year, and it will take place in the second half of the year. However, because of high market volatility that we see in the stock market, we are trying to decide on the best timing and scale that will maximize shareholder value enhancement. The BOD will make their decisions after thorough deliberation. In terms of our plan for further monetizing our assets, through KRW 1 trillion of asset monetization, we made incremental shareholder return and had made growth investment under our Plus Alpha Program.
We believe that progressive dividend payout stance is an important pillar for us, share buyback and cancellation shall be based on the earnings growth of the company, which will form a key pillar behind the shareholder return program that we implement. In terms of the monetization from non-core assets, the decision will be made when necessary. In light of the movement in the capital expenditure spending and rising free cash flow, after considering cash flow and shareholder return implementation and global growth investment, we will make the decision to implement such monetization.
The following question will be presented by Sang hoon Cho from Shinhan Investment & Securities. Please go ahead with your question.
Thank you for taking my question. I am Cho Sang hoon from Shinhan Investment & Securities. I have three questions for you today. I would like to understand about your plans on new NGP platform rollout. Second question is, it seems like the geopolitical risk is extending much more than we had originally expected. I'd like to know what implication it has on your strategies regarding the Middle Eastern market in terms of sales, distribution, as well as your marketing plans. Third question has to do with your HFF business. Would like to get some update on how you're collaborating with Altria for your business endeavors in the U.S. Can you also provide us an update with your raw material B2B business?
I am Kim Dong -pil, NGP chief, responding to your question about our rollout plans for new platform.
Now, the company will continuously strengthen our NGP portfolio by rolling out new platforms as well as introducing sticks that really incorporate the needs of our consumers. In the case of the domestic market, we will be introducing a new platform during the third quarter that uses the new heating technology. In the case of these new platforms, it will truly support and help acquiring new consumers, and it will also contribute to expanding the penetration rate of heat-not-burn products. In the case of the overseas market, we are also continuously expanding on our platform portfolio that best incorporates the market characteristics. Russia being our core market, in June, we released Solid 4.0, and we've also expanded on our distribution coverage. In order to provide more choice to our consumers, we have plans to continuously adopt and introduce new stick products.
In the global overseas market, we also have plans to further strengthen our competitiveness in terms of the platform that we offer.
I'm Kwon Min-seok, Chief of Global Business. Responding to your question about the geopolitical risk. Revenue from Middle Eastern market is around 20% of our global CC sales, so it was lower than the levels of the past. We have actually regionally diversified portfolio, so the impact from the Middle Eastern geopolitical conflict on our global CC performance is somewhat constrained or limited. After the war broke out, we very quickly found alternative transport routes and managed stable operation of the overall supply chain. As a result, we were able to drive a healthy and solid sales growth in the first half of the year. On the cost side, the impact is also quite limited because although there are some price pressures on the raw materials, core material price is actually stably managed based on the long-term contract that we have and subject to the price and negotiations.
Transport costs also account for a very small portion of the entire cost base. Going forward, to cater to or to respond to the geopolitical risk, we will continue to take on a preemptive response and based on stable management of our supply chain, we will continue on with an uptrend in the Middle Eastern market.
Responding to your question about our cooperation with Altria and the health functional foods category, as well as raw material B2B business. I am CSO Yoon Young-Chan. The company's approach to HFF is to nurture both B2C and B2B business at the same time. We are cooperating with Altria in our beverage business and have started test marketing in the U.S. market since June. We will complete the market test of our five products, including energy drinks, by the fourth quarter. We will start to push for a full product launch. In B2B, the material B2B business, we are also testing various different business opportunities and looking at business feasibility as well.
We are building meaningful references globally as we supplied red ginseng to Starbucks China to be used in a new energy drink product. Also in Korea, using the brand equity of Jung Kwan Jang, we are expanding the business scope by supplying red ginseng to major F&B companies like Emart, Lotte Chilsung, and Shilla DFS. Also rolling out collaboration products or private brand PB products. Based upon such initial collaboration, we are continuously going to expand joint development with major F&B companies going forward in developing and also in supplying the products.
The last question will be presented by Yoo -jung Han from Hanwha Investment & Securities. Please go ahead with your question.
I am Han Yoo-jung from Hanwha Securities. I have three questions that I would like to ask. First is an update on your overseas plant utilization and also what's the potential cost savings that you can gain from this. Second is, in the second half of the year, do you believe that your operating profit improvement will continue to outpace your top-line growth? My third question is, it's a follow-up question from the previous question that was asked. In your HFF business, it's been a while since we've seen a mid-single-digit profit, and you were able to achieve that in the second quarter. I am wondering whether such improvement in the bottom line can continue onwards into the future.
I am CSO Yoon Young-Chan, responding to your question about the update of our overseas plant, also expected cost savings. I can tell you that the company is on a smooth sail as we migrate to global production. Following the completion of Kazakhstan plant last year, our number two Indonesian plant commenced its operations this year, and global share of our total production will be scaled from 49% of last year to more than 60% by 2028. Through such expansionary implementation of production, we are going to further strengthen our production efficiency and also the competitiveness of our global supply chain.
On the cost side, we are also looking forward to a gradual improvement. We expect lower manufacturing costs by about 20% from Indonesia due to lower labor costs, and we will start to see cost savings from Kazakhstan plant start to emerge starting this year, benefiting from the Eurasia tariff expansion. Tariff exemption, excuse me.
Impact of such cost saving will also continue to amplify once utilization of the plant stabilizes and production scales. In tandem with our overseas demand growth, we will be installing high-speed equipment in our Indonesian plant, and we will invest into enhancing production efficiency and also lifting our cost competitiveness. This is the CSO again, responding to your question relating to our profit-driven growth going forward. If you look at the first half of this year, revenue recorded 12.1% year-over-year growth, while operating profit grew 22.6%, demonstrating that we achieved profit-led growth that exceeded the top-line uptrend. This is because of improvements in product mix, stronger cost competitiveness, which is underpinned by structural profitability improvement rather than it being a one-time event.
Today we shared with you annual guidance, which has been revised upward, and that revision is based on the premise that such trend will continue onwards into the second half of the year. We expect our core businesses of tobacco and HFF business will see both top-line and bottom-line improvement. On higher unit price and better mix, global CC ASP is also expected to uptrend. For domestic NGP business on lil AIBLE platform expansion and high ASP stick mix improvement, we expect profit contributions will continue onwards.
Yes. I'm from KGC, and responding to your question about our outlook for HFF business as we move into the second half of the year. In 2026, we are focusing our efforts on gaining cost efficiencies underpinned by the brand equity that we have and implementing that and incorporating that into our business. Supported by the brand competitiveness, we are going to drive growth in terms of both quality and volume as well. In the second half of the year, in time for the Chuseok holidays, we will be running extensive promotions to further drive up profitability.
This brings us to the end of the second quarter 2026 earnings conference call of KT&G. Thank you all for joining us today. I wish everyone good health, and if you have any other unanswered questions, please do not hesitate to contact us. Thank you.