Philip Morris, KT&G extend sales partnership to 2038

KT&G Corp., the world's fifth-largest tobacco maker, has extended its sales partnership with US cigarette giant Philip Morris International Inc. for 15 years to early 2038.

Under the contract signed on Jan. 30, the South Korean tobacco maker will supply its heat-not-burn products to Philip Morris until January 29 of 2038 for sales in more than 30 markets, excluding Korea.

The products include electronic devices lil Solid, lil Hybrid and lil Able; tobacco sticks Fiit, Miix and Aiim and other items set for launch. 

SALES OF AT LEAST 16 BILLION CIGARETTES GUARANTEED

Philip Morris signed a contract in January 2020 to sell KT&G's heat-not-burn products for three years. Through the extension of the agreement, the US tobacco company will guarantee minimum sales of 16 billion cigarettes between 2023 and 2025, which exceeds KT&G's current annual supply of 3 billion-4 billion cigarettes.

Last week, KT&G announced it will spend 3.9 trillion won ($3.2 billion) -- which includes 1.2 trillion won for the smokeless tobaccos -- on capital expenditures over the next five years.

KT&G will accelerate its global sales power and licensing procedures through the partnership with Philip Morris.

"In 2022, our heat-not-burn products' revenue and operating profit in the overseas market were respectively double and 4.6 times compared with the previous year," said Lim Wang-seop, the head of next-generation products business at KT&G. The revenue of the products will jump in the long term as consumers buy the devices first then regularly purchase the tobacco sticks, Lim added.

The Korean tobacco maker forecasts its heat-not-burn products will show a compound annual growth rate (CAGR) of 20.6% from overseas market revenue for 15 years.

Philip Morris has stated the agreement brings continued exclusive access to KT&G's smoke-free brands and product-innovation pipeline, including offerings for low- and middle-income markets. It will enhance Philip Morris’ existing portfolio of smoke-free products, the US tobacco giant added.

Write to Jiyoon Yang at yang@hankyung.com

Jihyun Kim edited this article.