KT&G Aktie

Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2026 Second Quarter Earnings Report. [Operator Instructions] We will now begin with KT&G's presentation for 2026 second quarter earnings.

Ladies and gentlemen, I'm [ Erin 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 and simultaneous interpretation and the Q&A session and 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 Huh, Chief Marketing Officer; Mr. Min-Seok Kwon, Chief of Global Business; Mr. Dong-Pil Kim, Chief of NGP; Mr. Sung Jung Hoon, Chief of Real Estate; Mr. Yong Beom 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 subjective 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 a result of 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 21, and the dividends will be paid out on September 7. 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. And 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.

And 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 2 years and 4 consecutive quarters of double-digit growth in operating profit. Our international cigarette business recorded triple growth of volume, revenue, and operating profit for 9 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 normalize, 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 2 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 a 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 test 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% to 5% to 5% to 7%, and operating profit growth target from 6% to 8% to now 10% to 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.

And now we will move on to details on our 2026 Q2 earnings in Page 6. 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 to factors behind movement in earnings in Page 7. 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 in Page 8. 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 in Page 9. 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 shipments 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 9 quarters in a row now.

Next to Korea CC in Page 10. In Q2, the total cigarette market volume decline was mitigated, shrinking only 1.2% Y-o-Y. We reinforced our market-leading position as we continue 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 high 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 in Page 12. In Korea, while the HNB category's penetration of the market continue 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 in 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 progress in development projects, including Anyang, Mia, East Daejeon, rising 10.2% Y-o-Y. 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.

[Interpreted] [Operator Instructions] The first question will be provided by Jung Wook Kim from Meritz Securities.

[Interpreted] 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. So 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?

And the third question is, I 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.

[Interpreted] I am CMO, Huh Chang Gu. I will be responding to your question about the reason why we've seen a 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, but 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.

But 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. So you would see that the decline is narrowing. And we think part of the reason is because of the slower demand shift to synthetic nicotine e-vapor products following the amendment to the act on tobacco business, 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, so we will closely monitor demand trend going forward as well as key drivers for change.

[Interpreted] Next, 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 AIBLE 3.0 in month of June, which is an upgraded version compared to the existing 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. And out of the total stick market, the share of market has recorded 48.2%, and we were able to widen the gap with the #2 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.

[Interpreted] 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 of 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 return during the calendar year.

[Interpreted] The following question will be presented by Eunae Ryu from KB Securities.

[Interpreted] I am Eunae from KB Securities. 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? And also, is there any possibility of you implementing the Plus Alpha program, which is for the non-core asset liquidation?

[Interpreted] 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 movements in '24 and '25, we still were able to drive a double-digit growth, and we are expected to continue on with that robust up trend 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. And hence, we believe that for '26 and '27 as well, we will be able to maintain a quite steady trend in terms of volume and ASP.

[Interpreted] I am Lee Sang Hak, Chief of Finance and Operating Officer. I 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. And so the BOD will make their decision after thorough deliberation.

In terms of our plan for further monetizing and our asset through KRW 1 trillion of asset monetization, we made incremental shareholder return and had made investment into -- and had made growth investment under our Plus Alpha program. We believe that progressive dividend payout stance is an important pillar for us. And 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, it will be -- the decision will be made when necessary. And 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.

[Interpreted] The following question will be presented by Sanghoon Cho from Shinhan Investment and Securities.

[Interpreted] I am Cho Sanghoon from Shinhan Investment Securities. I have three questions for you today. I would like to understand about your plans on new NGP platform rollout. And second question is, it seems like the geopolitical risk is extending much more than we had originally expected, 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.? And can you also provide us an update with your raw material B2B business?

[Interpreted] I am Kim Dong-Pil, NGP Chief. Responding to your question about our rollout plan for new platforms. Now 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. And 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. And in order to provide more choice to our consumers, we have plans to continuously adopt and introduce new stick products.

So in the global overseas market, we also have plans to further strengthen our competitiveness and in terms of the platform that we offer.

[Interpreted] 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 before -- of the past. We have actually regionally diversified portfolio. So the impact from the Middle East and geopolitical conflict on our global CC performance is somewhat constrained or limited.

And after the war broke out, we very quickly found alternative transfer routes and manage 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.

Cost -- 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 under -- and subject to the price 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.

[Interpreted] Responding to your question about our cooperation with Altria and the Health Functional Food 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 and our beverage business and have started test marketing in the U.S. market since June, and we will complete the market test of our 5 products, including energy drinks by the fourth quarter and 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, and also in Korea, using the brand equity of Chang Guang jiang, we're expanding the business scope by supplying red ginseng to major F&B companies like Emart, Lotte Chilsung, Shilla DFS, and 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 product.

[Interpreted] The last question will be presented by Yu-jung Han from Hanwha Investment & Securities.

[Interpreted] I am Han Yu-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?

And 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?

And 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. And so I'm wondering whether such improvement in the bottom line can continue onwards into the future?

[Interpreted] I am CSO, Yoon Young-Chan. Responding to your question about the update of our overseas plant and also expected cost savings. I can tell you that the company is on a smooth sale as we migrate to global production.

Following the completion of Kazakhstan plant last year, our #2 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. The Indonesia -- 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 savings will also continue to amplify once utilization of the plant stabilizes and production scale. Also, 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.

[Interpreted] 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. And this is because of improvements in product mix, stronger cost competitiveness, which is underpinned by structural profitability improvement rather than it being a onetime event.

And today, we shared with you an 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. And we expect our core businesses of tobacco and HFF business will exceed both top line and bottom line improvements.

And on higher unit price and better mix, global CC ASP is also expected to uptrend. And for domestic NGP business, on lil AIBLE platform expansion and high ASP stick mix improvement, we expect profit contribution will continue onwards.

[Interpreted] 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.

And in the second half of the year in time for the Chuseok holidays, we will be running extensive promotions to further drive up profitability.

[Interpreted] 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.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2026 First Quarter Earnings Report. And we will now begin with KT&G's presentation.

Ladies and gentlemen, I'm Erin 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. Sang Lee, Chief Finance and Operating Officer; Mr. Yung Chang Yun, Chief Strategy Officer; Mr. Chang Koo Ho, Chief Marketing Officer; Mr. Min Kwan, Chief of Global Business; Mr. Tong K Kim, Chief of NGP; Mr. Sung Junu, Chief of Real Estate Business; Mr. Yong Kim, Head of Finance Office; and Mr. S K 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 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. Sang-Hak Lee, our COO, CFO, to share with you highlights of the 2026 first quarter earnings and some business updates.

Ladies and gentlemen, I'm Sung Hung Le, 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 increased combined with volume growth drove volumes up 15%, revenue 24.6% and operating profit 56.1%. Amidst 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. Bill Ael 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. and we will sequentially expand our direct NGP business, starting with key markets in APAC and Eurasia.

Our HFS business grew in both revenue and operating profit. 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 gineson. As the global SMB 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, and we will also pursue additional partnerships with other parties. And 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. With it, we have exceeded the target for cancellation as announced in November 2024 via the corporate value of plan for '24 to '27 ahead of schedule, canceling total 22.4% of issued shares across the 3 years.

Based on robust business growth and profitability, KT&G will continue its earnings-based shareholder returns. And 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.

And now we will move on to details of our 2026 Q1 earnings in Page 2. 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 nonoperating 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 3. 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, total linked 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 4. First on the 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% Y-o-Y to KRW 1.1559 trillion. Operating profit grew across domestic and overseas DC 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 9. Beginning with domestic CC. Quarter domestic CC market volumes 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 6 for Global CC. Global cigarette revenue grew by 24.6% Y-o-Y 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 SGD 18.1 billion. While strong ASP increase continued, improvements in cost and SG&A efficiency added to once again drive up the profit significantly. Next to NGP in Page 7. 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 in Page 4 or Page 8. Domestically, penetration of the HMV category reached 25%, expanding its presence. And with the growth of our L-Ael device and sticks, KT&G market share reached 47.4%, solidifying our leadership position. Internationally expanded its distribution coverage in Russia and new product launches drove volume growth.

Next is Page 9 to HFF. Strong results from the Lunar New Year promotion in Korea and the boost from the Chango brand campaign drove HFF revenue by 5.8%. In operating profit, 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 Anang, Lia and East Dejan, real estate revenue for the quarter rose by 16.4%. Operating profit grew as well by 34.6% with higher development project revenue.

This concludes the KT&G 2026 first quarter earnings release. We'll now proceed to Q&A.

[Interpreted]. [Operator Instructions]. The first question will be provided by Woojeong Kwon from Kyobo Securities.

[Interpreted]. I would like to ask you 3 questions. First, we have seen quite solid trends in terms of your global CC ASP. I would like to understand going forward, what is the level at which you're currently targeting? And 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. I 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?

[Interpreted].

Responding to your question, I am 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. And 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 2 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. So compared to 2024 up to 2027, we are expecting about mid- to upper 20% growth.

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 the Middle East, right after the war broke out, we were moved very quickly in securing an alternative route, so as to stabilize our supply chain. And we do have safety stock in place. So we do not believe that the impact from the war is going to be -- is going to create significant risk.

And despite the war happening in the Middle East, our local sales are quite solid and 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. But 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.

[Interpreted] Responding to your question, I am Donghyun Kim, Chief of NGP Business. I will talk about our plan regarding the rollout of a new H&B platform and expected results. Now in April, the company expanded the Lill Ael 3.0 sales and upgraded a new and upgraded device to the online channel. And we are seeing very positive responses from the market. So we are going to expand the coverage to nationwide by the end of the first half of the year. And this is really going to help us further speed up growth of our Lill Able platform.

Also in Q3 and Q4, following on the trend that we've seen in the second quarter, we are planning for an additional launch of new and innovative products. All of these new products to be launched are going to significantly improve the user convenience, and 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. And through such endeavors, we believe that we will be able to solidify consumer loyalty to our brand, the Lu brand.

[Interpreted] The following question will be presented by Jung Wook Kim from Meritz Securities.

[Interpreted]

I would like to ask you 3 questions. First, where -- in regards to your HFF business, where would be your focus in 2026? Would it be more towards the scale of the top line or more focus on profitability, the bottom line?

Second question, you did mention this during the opening presentation, but can you provide a little more detail with regards to this B2B business? -- for your nutritional ingredient business?

And the third question is, are there any changes or any enhancements that you've made to your shareholder return policy for 2026? And also, do you have plans to make additional treasury buyback or cancellation thereof? Or are you reviewing any potential liquidation of noncore assets?

[Interpreted]

Responding to your question, I am Chang Gu Huh, Chief of Strategy from KGC. I would like to briefly walk you through our growth strategy for HFS Health Functional Food business. In 2025, despite the decline in top line revenue, we focused on margin and profitability, and so we were able to drive a meaningful result of operating profit expansion. In Q1 of 2026, we continue to have that focus on profitability, and 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're going to focus our efforts on growing the revenue and improving the operating and improving the operating profit margin as well as improving the cost base and also making our promotional spending more efficient. So we will continue to rigorously maintain and control our bottom line profitability.

And 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.

[Interpreted]. Responding to your question, I am 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 United States beverage market and 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, and we are going to focus our capabilities and our infrastructure resources towards this nutritional center.

Also, we will initially build references by supplying ingredients to global top-tier companies in the United States 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 Jinseng Research Institute, which is scheduled for establishment before the end of the year as well as our future manufacturing facility.

[Interpreted]

Responding to your question regarding any changes or enhancements made to our shareholder return plan, I Gyeong-Bo Kang, Chief Finance and Operating Officer. Now we achieved that 20% target for treasury share cancellation earlier than what was planned for in the value enhancement plan of FY '24 and 2027, which was announced back in November of 2024.

Now we will do share buyback and cancellation based upon this year's plan, and we'll 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.

Now talking about the liquidation or sales of noncore assets, we completed the sell-off of Buchio Tower and Namemoon 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 noncore 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 -- in light of the dividend payout at our global peer companies and in light of the fact that the recent stock price 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 plans 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.

[Interpreted]. The following question will be presented by Hyeeun Kim from Morgan Stanley.

[Interpreted]

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. So 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. So what is the progress as of the first quarter? And what should we expect as we go into the second quarter? So what is the plan basically? That is the question.

[Interpreted]

Responding to your question, I am Kim Yong, 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, beef tobacco, which was sourced back in 2024 at peak price is now mostly depleted, and we started to input tobacco beef sourced at low price in 2025. Therefore, we expect stabilization of input cost and boost in profitability. Also through corporate-wide cost savings project, we plan to further stabilize cost of materials, save processing costs so that we can accelerate optimized -- achievements of optimized cost profile.

Now 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, basically, our objective is to produce 50% of the outbound sales volume in the overseas sites in year 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.

The following question will be presented by Dayeon Lee from DAOL Investment & Securities.

[Interpreted]

My first question relates to the Phase 2 of your PMI relationship. would like to know as to what impact this would have in terms of your direct business because there inevitably is going to be certain overlap. So if you could provide color there, that would be helpful. And also, what would be your direction going forward? In terms of the global CC business, I believe that your direct business model is expanding. So accordingly, with that business model, what is your growth strategy?

[Interpreted]

Responding to your question, I am Kim Dong Pil, 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 excluding certain number of countries, we now have the commercial rights to directly provide our L hybrid and Bel 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 -- and 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, but at the same time, directly expand our business directly on our own so that we can further up our global growth momentum.

[Interpreted]

Responding to your question, I am Kwon S, 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 business' 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 fit those specific markets. And 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 cost as well as logistics cost, 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. And 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 SA and Bohem.

Moving forward, the company is going to continuously going to focus on markets and geographies where there is high potential for growth so that we can speed up our market penetration.

[Interpreted]

This brings us to the end of first quarter 2026 Earnings Conference Call of KT&G. Thank you very much, everyone, for joining us. And for any unanswered questions, please feel free to call us at our IR team. We wish you good health. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2025 Fourth Quarter and Full Year Earnings Report. [Operator Instructions].

Ladies and gentlemen, I am Erin Lee, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2025 Fourth Quarter and Full Year Earnings Report. Today's presentation will be provided in English and simultaneous interpretation and the Q&A session and 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 Huh, Chief Marketing Officer; Mr. Min-Seok Kwon, Chief of Global Business; [ Mr. Donghyun Kim], Chief of NGP; Mr. Sung Jung Hoon, Chief of Real Estate Business; Mr. Yong Beom Kim, Head of Finance Office; and Mr. Tae Won Kim, 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 2025 fourth quarter and full year 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. Sang-Hak Lee, our COO and CFO, to share with you Board resolutions on shareholder returns, key performances in 2025 and the outlook for 2026.

Ladies and gentlemen, I am Sang Hak Lee, COO and CFO of KT&G. I deeply thank everyone for joining KT&G's 2025 Fourth Quarter and Full Year Earnings Report. Please allow me to first share with you the agenda on shareholder return resolved at the Board today. Considering the company's business performance and cash flow, our BOD has resolved to pay out year-end dividends of KRW 4,600 per share, which is KRW 400 higher than last year. Annual DPS, including the already paid interim dividend will rise 11.1% Y-o-Y with payout ratio reaching 58%. The year-end dividend will be finally confirmed at the AGM to be hosted in upcoming March of this year.

Next is share cancellation. The Board also resolved to cancel 3.3 million shares from our treasury shares held, making our aggregate share cancellation 14.3% of outstanding shares since 2024. The cancellation will be immediately executed with the amount of treasury shares held reduced to 9.5% of outstanding shares after the cancellation.

I'd like to move on to our key performances in 2025. Upon focusing company-wide energy on enhancing core competitiveness around the global business, we recorded highest ever earnings with 2025 revenues, surpassing KRW 6.5 trillion for the first time. We also met a historic transition point where our overseas CC revenues have passed our domestic CC revenue. They reinforced our local direct business model, moving away from an export-based model, both consolidated revenue and operating profit broke previous records.

Thanks to robust growth in our core business, both our operating profit and operating profit margins grew putting our group's profitability on an uptrend. Based on such performance, we executed dividends at the scale of KRW 627.4 billion and KRW 560 billion of share buyback and cancellation, totaled KRW 1.1874 trillion cash return, reaching 109.8% in total shareholder return ratio. Ultimately, we recorded 103.3% in aggregate return ratio since 2024. And thanks to our solid earnings and strong willingness for shareholder returns, KT&G value is in a new limelight.

Our share price that started off 2025 from [ KRW 107,100 ] as steadily gone up to the end of the year at [ KRW 142,100 ] And as of February 4, it broke a historic record of KRW 161,800, proving the successful re-rating of our corporate value. Based on such significant results in 2025, we intend to continue our profit-led growth and best-in-class shareholder return policy in 2026. To start with our 2026 business performance outlook. We are aiming for 3% to 5% growth in revenue and 6% to 8% growth in operating profit for the year as we continue our profit-based management.

Currently, our global business is on a very good track. And while we saw impact from one-off costs last year, we expect this to be very limited for 2026. Depending on how our performance goes during the year, when we believe there is confidence to revise up the outlook, we will communicate with the market immediately. And for our shareholder return plans, at the baseline, we will execute best-in-class shareholder returns targeting more than 100% in total shareholder return ratio. While we continue our upward trend in DPS, we will be repurchasing shares worth KRW 300 billion or higher in the year to be canceled immediately after acquisition. When we combine this with the cancellation of existing treasury shares that we plan to do, we will be canceling more than 4% of our outstanding shares in the year 2026.

Moreover, we are also planning to maintain the Plus Alpha program, utilizing funds from noncore assets. KT&G will continue to do its utmost along with the Board of Directors for global business management to maximize our corporate and shareholder value. I ask for your unwavering support for the company. Thank you.

And now we will move on to details of our 2025 Q4 and full year earnings in Page 6. Starting with Q4 consolidated revenue. Strong results in Global CC and real estate drove our quarter revenue up by 10.1% to KRW 1.7137 trillion. Despite recognizing one-off cost of KRW 13 billion related to voluntary retirements in the fourth quarter, again after the first quarter, the quarter's operating profit increased by 17.1% to KRW 248.8 billion. Net income was impacted by currency fluctuations in the quarter with lower currency-related nonoperating profits driving down income by 15.7% to KRW 274.2 billion. EPS was down by 15.3% Y-o-Y at KRW 2,472. EBITDA, on the other hand, grew by 17.7% to KRW 325.8 billion, with EBITDA margins at 19%.

Next to our full year consolidated earnings on Page 7. Robust growth in the tobacco business led by Global CC and improved earnings in the Real Estate segment led annual revenue up by 11.4% to KRW 6.5796 trillion. Annual operating profit was up 13.5% to KRW 1.3495 trillion. After adjusting for the KRW 70 billion wage-related costs, operating profit is at KRW 1.4198 trillion, 19.4% higher Y-o-Y. Net income also impacted by currency fluctuations in the year saw lower currency-related nonoperating profits, driving income down by 6.1% to KRW 1.0944 trillion. EPS for the year was down 3% to KRW 10,143. EBITDA was up 14.1% to KRW 1.6416 trillion with EBITDA margins at 24.9%.

Next, key factors behind movement in earnings in Page 8. Starting with the fourth quarter. Q4 tobacco business benefited from product mix improvement and pricing in the amount of KRW 35.5 billion and KRW 15.7 billion from dollar appreciation against the won. The volume decline due to advanced sales in domestic CC to the previous quarter led to a KRW 43.8 billion decline and cost variance, including one-off costs, a KRW 23.2 billion decline. All in all, tobacco operating profit was reduced. While there was KRW 0.5 billion decrease in HFF profit, the real estate business drove a KRW 56 billion increase, leading to a 17.1% growth in consolidated operating profit in the quarter.

For the full year, cost variance in tobacco, including wage-related one-offs was a minus KRW 313.5 billion, while product mix improvement and pricing added KRW 196.8 billion. FX is KRW 74.7 billion impact and higher volumes in Global CC and NGP, KRW 114.8 billion plus. Tobacco business combined saw KRW 72.8 billion growth in profit for the year. Profits improved in HFF and Real Estate by KRW 4.6 billion and KRW 86.5 billion, respectively. As a result, consolidated operating profit increased by 13.5%.

Let us move on to performance by business segment in Page 9. First, on the tobacco business. Tobacco business revenue was supported by Global CC that reached record high revenue and solid results across the NGP business to rise 4.5% in Q4 to KRW 1.0564 trillion and on an annual basis, rising 11.8% to KRW 4.3672 trillion. Q4 operating profit was impacted by one-off costs related to voluntary retirement same as the first quarter and reduced revenue from domestic CC, a big profit contributor to decline year-over-year. However, annual operating profit increased, thanks to a stronger profitability from Global CC that demonstrated a 53.8% operating profit growth Y-o-Y. We continued our global expansion in the business as quarter and annual share of global sales increased, thanks to robust sales in Global CC.

Zooming in on each segment of the tobacco business on Page 10. Beginning with domestic CC. Q4 revenue saw a temporary fluctuation due to volume movement across quarters caused by the advanced demand in Q3 before the Chuseok holiday. Performance on an annual basis is still keeping to the previous trend. Domestic cigarette market volume in 2025 dropped 5.1%, showing a steeper decline versus the previous year. However, we continue to launch new products catering to consumer needs, sustaining our market share growth by 0.6 percentage points to 67.3%. As a result, we were able to meaningfully mitigate the volume and revenue reduction against a structural market volume decline.

Moving on to Global CC in Page 11. Global CC continued robust performance in Q4 as ASP growth was sustained in double digits. We expanded our presence to 145 countries in the year with our active penetration into new markets, breaking the record again for our highest ever volume. Adding the double-digit growth in our ASP, the revenue grew by 29.4%, operating profit by 53.8%, recording historical highs in the bottom and top line at the same time.

Next to NGP in Page 12. The NGP business, despite the supply chain disruption for the overseas market in the first half, continued to expand revenue as a result of new device and stick launches domestically and globally.

Let's look at some details of the NGP performance in Page 13. Domestically, while the penetration of the category continues to expand, we maintained the upward trend of market share through new product launches despite intensifying market competition. Internationally, launch of upgraded devices in core markets like Russia and new stick products led to higher stick volume for the full year against the previous year.

Next to HFF in Page 14. In 2025, Health Functional Food revenue was impacted by subdued consumer sentiment driving down demand and continued portfolio restructuring towards high-profit channels and products to decline versus the previous year. However, our profit center strategy, including more efficient marketing execution, led to higher operating profit for the year. Share of global sales declined due to lower overseas revenue, especially in Greater China.

Going into the specifics of the domestic and overseas performance in Page 15. In domestic revenue by channel, high-profit strategic channel revenue grew especially online, while off-line revenue declined in large distribution channels, including department stores and supermarkets due to restructuring of low-profit channels. Overseas revenue declined overall as we reduced less efficient promotions in the business.

Lastly, on real estate in Page 16. In real estate revenue, higher construction rates and development projects like Anyang, Mia and East Daejean led to higher revenue recognition in the year. In the Seocho SPC subsidiary project, profits were recognized at once in Q4, leading to a jump in overall revenue. On top of such revenue increase in development and subsidiary projects, infrastructure costs from the Suwon development project were greatly reduced, leading to significant growth in operating profit.

This concludes the KT&G 2025 fourth quarter and full year earnings release. We will now proceed to Q&A.

[Interpreted] [Operator Instructions] First question will be provided by Younghoo Joo from NH Investments & Securities.

[Interpreted] I would like to ask you 3 questions. The first one is, you shared with us what your 2026 guidance is. Can you also give some color as to what strategies you will be employing to achieve that guidance?

Second question, regarding including the overseas new production line in terms -- I understand that you've put in quite a bit of effort to optimize your production. Can you share with us an update and also at the same time, share with us an outlook for 2026, including any plans for expanding the CMO initiative?

Third question, could you also provide a little more information as to what your new launch plans are for your NGP business for both domestic and global?

[Interpreted] Responding to your question, this is Lee Sang-Hak the Chief Finance and Operating Officer. Now you asked about key strategies behind achieving the 2026 guidance. First, if I may talk about our global CC business for Indonesia and Eurasia region, we will be expanding coverage through revamping the distribution structure and stabilizing such distribution network. And also, we will continue on with new market expansion strategies. At the same time, we will continue to drive up the ASP, the selling price in order to grow both the volume and the profitability aspect of the business.

Moving on to NGP business. We are continuously expanding the R&D efforts and investment into NGP business. And also by the end of the year, we are planning to launch innovative platform for heat-not-burn product, bringing together and leveraging our internal and external capabilities. We will also focus on expanding the NGP category as a whole, around nicotine pouch, in countries where we see high growth potential.

For Health and Functional Food business, we will strengthen strategic channels, which include travel retail and online. And also, we will localize global product portfolio so that we may sustain an uptrend in bottom line. Last but not least, in terms of manufacturing, we will be competing end-to-end integration by the end of the year, which will give us a stronger cost competitiveness and help us achieve the committed targets that we have just shared.

[Interpreted] Responding to your question, I am CSO, Chief Strategy Officer, Young-Chan Yoon. I will respond to your question about our production optimization as well as the outlook in that regard. First, in terms of our new plants in Kazakhstan and Indonesia, #2 and #2 plant were completed last year, and we have finished building up a solid global production base. Kazakhstan plant will be the supply center for CIS countries. So we're very quickly increasing utilization and production yield.

For Indonesia #2 plant, which is the biggest in size globally, we will start production during the first half of the year. Now through such production optimization, by 2027, we will produce more than 50% of the total volume overseas. And by localizing materials and sources, we will maximize cost efficiency as well.

Just to talk about our CMO expansion plan. CMO collaboration is actually one pillar behind the production optimization and flexibility. And based on successful collaboration with Altria last year for regular high tier product just as we were able to implement a successful collaboration, we will continue to expand the CMO model this year so that we can bolster cost competitiveness.

[Interpreted]

Responding to your question about our heat-not-burn rollout for a new platform and our plans for direct business, I am [ Donghyun Kim ] Chief of NGP business. Now first off, relating to the first part of the question, we expect to be able to bring a new platform where there is a breakthrough technology adoption before the end of the year. This will be a platform and product where we would have significantly improved on the convenience of use, and we expect this will be a good product to acquire new consumers into our -- to our products. So our plan is to roll it out for the domestic market first and then eventually gradually expand out into the global market.

Responding to the second part of your question about the direct business arrangement. Recently, we have decided in consultation with PMI that for our stand-alone product platforms for lil Hybrid and lil ABEL, we have gained the commercialization authority and right to do commercialization in the global market. So we will eventually -- we'll first target countries where we have our subsidiaries such as in regions like Asia Pacific and CIS countries and where we feel that there is high growth potential. Those will be our first off countries that we'll target and enter into. At the same time, we will be in the process of finding a new commercialization partner. So depending on how the market regulation and approval process proceeds, we believe that even at the earliest stage, we may be able to do a direct release in the global market before the end of the year.

[Interpreted] The following question will be presented by Jaehyung Choi from UBS.

[Interpreted] Would like to ask you 2 questions. First, I would like to understand with regards to the spot prices, spot prices for the raw materials and the materials used to manufacture your goods? What is the current trend like? And how do you foresee it will play out in 2026? And from a long-term perspective, do you believe that the cost for the raw materials will stabilize as we go further out into the future?

Second question is, in recent 2 years, we've seen the ASPs for your global CC business continue to show an upward trend. What is the price gap that you currently have with your competitors? And in 2026 and '27 onwards, to what extent do you think that, that ASP could continue to go upwards?

[Interpreted] Responding to your question about the recent cost trend and the cost outlook for 2026. I am Kim Yong Beom, Head of Finance. Now the input costs have increased as raw materials, which were purchased back in 2024 were used in 2025. But NTM costs did stabilize and with processing cost savings cost of CC manufactured was kept flat year-over-year. And NGP cost savings was also achieved versus last year. And with the sourcing cost for tobacco leaf continuing its decline in Q3 and Q4 of last year, we expect input costs will stabilize and profitability to improve.

Now for this year, we will sustain and speed up such cost optimization trend, and we will also expand global sourcing so that we could save a material cost and leverage off of lower labor cost overseas so that we can achieve meaningful savings in production.

Now responding to your question about our global CC ASP upward trend and the outlook for 2026 and '27. I am Min-Seok Kwon, Chief of Global Business. Now through a very optimized pricing strategy that cater to each of the global markets, starting from 2024 for 2 years consecutively, we were able to achieve a double-digit growth in terms of ASP. In particular, if you look at the Asia Pacific region, we increased the export unit price. And in countries like Taiwan and Kazakhstan, we converted to a direct business. And in Russia, we changed our distribution partner, which were key structural changes that actually drove meaningful growth.

In 2026, we foresee that across all of the regions, we will be able to sustain a stable volume growth and also in new markets such as Africa and Latin America, we will increase prices and improve our product mix so that we may maximize ASP growth so that we can step up the size of profit. Up to 2027, we expect such ASP-driven growth will continue.

[Interpreted] The following question will be presented by Karen Choi, from HSBC.

[Interpreted] You shared with us your guidance for this year. And I see that in light of the revenue and operating profit growth that you have achieved last year, it seems like the guidance is quite conservative. And is that because you are quite conservative in forecasting your revenue and operating profit from your property, the real estate business? Can you give us a little more color on what you foresee and what you project for your real estate business going forward?

And the second question is in terms of the noncore asset sales program, I would like to understand at this point, to what extent has there been a progress? And in 2026, how much of such noncore asset divestment should we expect?

[Interpreted] This is Lee Sang-Hak. I'm the Chief Finance and Operating Officer responding to your question on guidance, and I will also talk about the shareholder return question as well.

Yes, in the opening presentation, I talked about the previous year's financial performance as well as guidance for 2026. And as was communicated in previous occasions as well, the company is focusing on quality driven growth rather than volume-driven growth. And in 2026, we will continue to have a strong focus on profitability with profitability driving growth going forward. And so the guidance that we have come up with is based upon that profitability-centric approach on a year-over-year basis in terms of the revenue and operating profit guidance that we have just shared.

And last year, there were one-off expenses that did -- that was incurred. And in 2026, there may be a limited impact, and especially considering the fact that our global business is failing smoothly, we are at a good positioning. Having said that, if you look back previous year, during the second half of the earnings call, we -- as you understand, we actually upward adjusted the guidance that we communicated at the beginning of the year. So we will closely look at how our performance and earnings actually pan out. And if we find that there is an upside potential, we will come back to the market and communicate to you any changes that's necessary.

Now moving on to the other parts of the question on the sale of the noncore assets and the size thereof as well as our shareholder return plan going forward. As I've mentioned at the very beginning of the year for this year, the 2 key pillars under shareholder return will be dividend and share buyback and cancellation. And we've kept our promise that our shareholder return policy is going to be industry top, and we've kept that promise, and we will continue to be committed to that promise going forward as well.

First, in terms of achieving the total shareholder return rate, TSR of above 100%, the key to this is DSP. And for this year as well, we will continue to have a progressive approach and expanding the amount of dividend that is actually paid out.

And also second point is share cancellation. I have mentioned that we've decided to cancel the treasury shares that we currently own. And continuing on from that, there will also be about KRW 300 billion, the amount that will be additionally canceled. Now whenever we feel that compared to our intrinsic value that there is undervaluation vis-a-vis the market value, if we feel that, that is the case, we will -- and we could make additional decision to make additional share buyback during the year. In terms of how we are going to finance and fund that share buyback, one way would be to -- through the proceeds of the sale and the divestment that we make on our noncore assets.

As per the plans relating to the sale of the noncore assets, we are currently quite faithfully implementing the corporate value enhancement plan, which we announced back in 2024. And also, we have sold more than 50% of the noncore assets by the end of 2025. So through this asset liquidation process, we have conducted in total about KRW 420 billion and use that to return that to the shareholders. So for this year as well, we will continue on with that monetization of our noncore assets, and we will use that proceeds for returning back to the shareholders.

Now having said that, with regards to the planning and the timing of the assets to be sold, we will closely monitor what the capital market situation is and make an appropriate determination as to the size to the shareholder return and the timing. And once we make the decision, we will immediately come back to you and communicate with the market.

[Interpreted] Responding to your question, I'm Chief of Real Estate Sung Jung Hoon. For the real estate development project of Anyang, Mia and [ East ] Daejean which actually drove good revenue, that whole project is going to come to an end in 2026 and 2027. We will continue to tap into new business opportunities, particularly the apartment complex project at [ Tanhyeon ] and make use of idle properties to continue to make up for the P&L gap that may take place. We will also continue to sell off the noncore assets, and we will focus on the fundamentals of the business.

[Interpreted] The following question will be presented by Sanghoon Cho, from Shinhan Investment and Securities.

[Interpreted] I am Sanghoon Cho, from Shinhan. I would like to first understand what your business plans are for your nicotine pouch business and your vapor business. And second question relates to Health and Functional Food business. You've had a clear focus on profitability. So you've seen a decline in top line revenue, but was able to improve on profitability. Will you continue to stick to this approach? And also, what are your strategies to grow your volume, both domestic and global?

[Interpreted] Responding to your question about nicotine pouch and our vapor business, I'm Kim Donghyun, Chief of NGP. The company's strategy is to expand the category for nicotine pouch and vapor products from its current stand-alone NGP business structure that is focused on HNB, the heat-not-burn products. If you look at nicotine pouch products, we will bring together the capabilities that KT&G has and what ASF has, which is a company that we acquired last year.

ASF is a company that is based in Nordic countries, basically utilizing those capabilities to expand nicotine pouch business across core markets, including U.K. For the vapor business, we are going to optimize our capabilities, both internal and external in building up the portfolio and also will be fully mindful of changes in the regulatory environment, particularly regarding the ban on the disposables. And so we will take mostly the CSV type products to enter into and tap into the global market. So we will very quickly expand the markets where we play in so that we can solidify our positioning in the vapor segment.

Responding to your question about our strategy focusing on profitability, whether that strategy will continue in 2026 and what our both global and domestic growth strategies are. This is Tae-Won Kim. I'm Chief of Future Strategy and KGC. Now despite the decline in top line revenue in 2025, we were able to employ strategic operations, having a strong focus on profit and margin and was able to drive an annual expansion in operating profit, which was quite meaningful. In 2026, we will continue to hold on to such approach having a strong focus on profit. So for the domestic market, we will focus our efforts around strategic channels, which include online and travel retail.

And also, we will roll out high-margin, differentiated product lineup so that we can drive further growth. In terms of the global market through strategic alliances and M&A, we are going to expand our market coverage, and we will build out customized product portfolio that best fit the local requirement and also will strengthen our R&D capabilities, so that we can strongly push forward with our scientific benefits. Through these efforts, we are going to achieve a turnaround in top line revenue in 2026 at the same time, enhancing -- as well as enhancing profitability.

[Interpreted] The last question will be presented by Eunae Ryu, from KB Securities.

[Interpreted] Just have one question. On your Q4 net profit, the reason why we see the variance there? And what is the company's FX sensitivity?

[Interpreted]

This is Head of Finance, Yong Beom Kim. Regarding the variability or the changes in the net profit for 2025, basically, if you look at FY '25 net profit, it dipped 6.1% year-over-year despite an increase in operating profit, which is due to lower FX valuation gains due to the fluctuation in the exchange rate. Valuation gain for FY '25 dropped notably year-over-year due to period end FX rate fluctuations. So if you look at FX rate as of end of '24, it was 14% higher versus '23 which led to sizable valuation gain, while FX rate end of '25 turned negative to 2.4%, significantly lowering FX valuation gain.

Now on the FX sensitivity for 2026, KRW 10 movement in $1 cross has KRW 4.6 billion impact on annual operating profit, and we estimate about KRW 13.4 billion impact on nonoperating accounts, including FX translation and valuation. So to counter such volatility, we're using FX forward derivatives and are adjusting the timing of foreign currency inflow and outflow in order to hedge risks all around.

[Interpreted] Thank you very much. That ends the earnings conference call for Q4 of 2025 of KT&G. Thank you, everyone, for joining us. I wish you all good health and prosperity. And if you have any unanswered questions, please feel free to contact us. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2025 Third Quarter Earnings Report.

[Operator Instructions]

[Interpreted] Ladies and gentlemen, I am Kate Park, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2025 Third Quarter Earnings Report. Today's presentation will be provided in English and 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. Chang Gu Huh, Chief Strategy Officer; Mr. Min Seok Gwon, Chief of Global Business; Mr. Yeong Chan Yoon, Chief of Marketing; Mr. Tae Hwa Hong, Chief of NGP; Mr. Sung Jung Hoon, Chief of Real Estate Business; Mr. Yong Beom Kim, Head of Finance Office; and Mr. Tae Won Kim, Chief of Future Strategy at KGC.

Please be advised that the earnings we're 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 present our 2025 third quarter earnings. 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 key Q3 performances and updates on the business.

[Interpreted] Ladies and gentlemen, I am Sang Hak Lee, COO and CFO of KT&G. I would like to begin by extending my deepest gratitude to our shareholders and investors for all the interest and support you have shown for KT&G. Please allow me to share with you our key performance for the third quarter of 2025, the full year outlook, and our plans on the nicotine pouch business. First of all, KT&G has set a new record for quarter operating profit in 5 years, reaching highest ever revenue and profit at the same time for a quarter. This performance is a result of continued robust growth in Global CC and strong earnings across the entire tobacco business.

With improved profitability in Health Functional Food and expanded profit in real estate on top of this, we were able to achieve double-digit growth in both revenue and operating profit on a consolidated basis.

The Global CC business continued its streak of record high earnings for 3 consecutive quarters. Both volume and ASP grew in double digits and this drove quarter revenue up by 25% versus the previous year, surpassing KRW 500 billion for the first time. That being said, reflecting the growth trend that has continued into the third quarter, we are raising our full year guidance for 2025. Based on the strong growth momentum in the global market, we now anticipate our full year revenue and operating profit to grow by double digits compared to the previous year. And moving on to our plans for the nicotine pouch business. KT&G is materializing our entry into the nicotine pouch category, which is the fastest-growing category in the industry.

In September, we executed a strategic partnership with Altria, the #1 tobacco company in the U.S. and signed a joint acquisition agreement for Another Snus Factory or ASF. ASF has established itself in the Nordics with high market share in Iceland, Sweden and Norway based on its nicotine pouch brand Loop. Starting from next year, we plan to engage in full-fledged global market expansion beyond the 5 Nordic markets going into Western Europe, Middle East, Africa, Asia and North America. Going forward, KT&G intends to enforce global business-oriented structural changes and business expansion to create a sustainable competitive edge and growth momentum to maximize corporate and shareholder value. I ask for your unwavering support for KT&G. Thank you.

And now we will move on to the details of our Q3 earnings. Consolidated earnings on Page 4. Strong results across the tobacco business, including robust global CC growth, along with improved earnings in real estate drove Q3 consolidated revenue up by 11.6% Y-o-Y to KRW 1.8269 trillion. Operating profits were up 11.4% to KRW 465.3 billion. Net income was impacted by currency fluctuations in the quarter with higher currency-related nonoperating profits, driving income up by 73.4% to KRW 418.7 billion. EPS rose by 81.7% to KRW 389.8 billion. EBITDA grew by 12.3% to KRW 540.5 billion with EBITDA margins at 29.6%. Next is our reasons behind movement in earnings in Page 5. In the tobacco business, there was a KRW 100.4 billion increase in costs connected to the volume increase.

The positive impact from a better product mix and pricing added KRW 34.1 billion in profit. Total cigarette and NGP stick volume increase was plus KRW 90.4 billion, and depreciation of the dollar against the won was a KRW 12.7 billion impact totaling to a KRW 36.8 billion increase. The HFS business that was operated under a profit-centered policy showed a KRW 2.7 billion increase. Real estate profits also rose by KRW 8 billion with progress in development projects. These factors combined led to a 11.4% year-on-year increase in consolidated operating profit. Next, I will move on to performance by business segment in Page 6. Starting with tobacco. Q3 tobacco business revenue was supported by global CC that once again broke the record for highest ever quarter revenue as well as strong results across the board with CC and NGP to rise 17.6% Y-o-Y to KRW 1.2323 trillion.

Such revenue growth led to Q3 profit growth of 11% to KRW 371.8 billion. Meanwhile, the share of global business in tobacco continued to expand with a double-digit growth in global CC volume to rise 1.8 percentage points to 62.3%. Let's go into each tobacco segment in Page 7. Starting with domestic CC. We saw some advanced demand ahead of the long-term Chuseok holiday in early October, leading to increased market volume in domestic CC for the quarter. KT&G volume growth outpaced the market volume growth, which was a result of differentiated new product launches leading to strong market share growth with our market share for 9 months year-to-date surpassing 68%.

Let's move on to global cigarettes in Page 8. Q3 global cigarette volume saw growth across all regions, including CIS, Latin America, APAC and Middle East, combining to 12.9% growth year-over-year to 18.42 billion sticks. Pricing and better mix with higher contribution from premium products drove ASP up by double digits, leading to 25% revenue growth despite the high base from the third quarter of last year. This was again a new record in quarter volume and revenue. Next to NGP in Page 9. Q3 NGP revenue was driven by new product launches and the catch-up supply of delayed devices for the first half to grow domestically and internationally to KRW 279.1 billion. Zooming in on details of domestic and international NGP numbers in Page 10.

As for the domestic business, while the NGP category's penetration of the market continues, we are maintaining our market share at a stable level, addressing the intensified competition with new product launches. And in the global business, the launch of an upgraded version of low solid in Russia and the catch-up supply of delayed devices from the first half led to growth in both devices and stick volumes. Next, to Page 11 on Health Functional Food. Q3 HFF revenue was impacted by economic factors, including a subdued consumer sentiment and price pressure as well as continued portfolio restructuring towards high-profit channels and products with revenue declining versus the previous year. On the other hand, as COGS improves and the profit-centered strategy, including optimization of the marketing policy continues to show effect, Q3 operating profit grew Y-o-Y. Share of global revenue in HFF declined due to lower revenue from Greater China.

Breaking down domestic and international numbers in Page 12. Looking at the revenue of each domestic channel, while revenue grew in high-profit strategic channels, including Duty-free and online, channel portfolio restructuring led to reduced off-line revenue from low-profit large distribution channels, including supermarkets and department stores. Overseas revenue declined due to reduced promotions. Next to Page 13 on real estate business. Q3 real estate revenue grew as higher revenue is recognized from development projects with construction progress in Anyang, Mia and East Deja to KRW 146.1 billion. As development revenue increased, Q3 operating profit saw a KRW 20.7 billion rise Y-o-Y. This concludes the KT&G Q3 earnings presentation, and we are now happy to take your questions.

[Operator Instructions]

The first question will be provided by Eunae Ryu from KB Securities.

[Interpreted] I am Eunae Ryu from KB Securities. I would like to ask you 2 questions. First, you've raised your annual performance guidance. I would like to understand as to the rationale behind that adjustment. And based upon that, what will be your outlook for the fourth quarter? And also I would like to understand that in the third quarter, there was a significant increase in net profit. I would like to understand what the key driver behind that growth is? And also, what is your FX-related sensitivity, in particular with regards to the write-backs?

[Interpreted] Responding to your question, I am Sang Hak Lee, the COO of the company. We would like to respond to the 2 questions that you've asked first regarding the annual guidance, the basis upon which we've raised those guidance as well as talk about the outlook for the fourth quarter. As we've mentioned during the presentation, we've seen much stronger business come through from our global CC business, which drove our revenue a double-digit growth. Also in terms of our operating profit, we've seen adjustments taking place in our health functional food business and also the profits coming in from the real estate business as well as strong growth from our global CC business and NGP business, which actually drove the growth of operating profit in the extent of 11.4%.

Based upon these drivers, we have decided to raise our annual guidance. So in terms of revenue, which previously was 5% to 7%, we've raised our expectations to above 10%. And for operating profit as well, our previous projection was around 6% to 8% growth. But we expect going forward, it will be in excess of 12%. What's important for us will be for the company to endeavor and really increase its efforts by twofold in order for us to achieve this raised guidance up until the end of the fourth quarter.

And on the global CC business side, we will focus on increasing the ASP pricing, also improving the mix towards the high-end product so that we could continuously drive profit growth. Another important pillar will be for us to accelerate the improvement for our production and manufacturing framework, which focuses on the economics, basically improving on the cost base. So through such efforts, we will do our utmost to achieve the guidance that we have raised.

[Interpreted] To your second question, responding to your second question, I am Kim Yong Bong, Head of Finance. I would provide you with the reasons behind why we've seen such a significant increase in our quarterly net profit. I would also like to talk about the FX sensitivity. On top of the operating profit growth due to the fluctuation in the FX rate, we've seen increases in the foreign currency-related valuation gains, which significantly drove our quarterly net profit on a year-over-year basis.

Because we have net position in foreign currency-denominated assets under which we own the escrow fund, which amounts to around USD 1.13 billion, when there is an FX-related fluctuation, that impacts our gains relating to foreign currency and that plays as an important driver in determining the movement in the net profit. So in terms of the valuation gains on our foreign currency-denominated assets, whereas as of end of the third quarter of 2024, the FX rate compared to the previous year's second and quarter, there was about 5% decline. But if you look at as of end of the third quarter of 2025 compared to the end of second quarter of 2025, there was an increase in the FX rate in the extent of 3.4%, which drove on a year-over-year basis, valuation gains of KRW 183 billion.

So if we look at the impact that such FX rate movement has on the bottom line of the company, when there is a KRW 10 movement in 1 to dollar cross exchange rate, KT&G's annual operating profit is impacted in the extent of KRW 5.3 billion and FX-related translation gains and losses, the amount of impact will be around KRW 16.3 billion.

[Interpreted] The following question will be presented by Jung Wook Kim from Meritz Securities.

[Interpreted] I would like to ask you 3 questions. First has to do with your global CC business. I would like to understand as to the key driver behind such a great performance this quarter on your global CC business. And if you could break that down between the volume impact as well as the pricing impact. And also, if you could add on what the outlook is for the fourth quarter, that would also be quite helpful.

Second question is, what do you -- what was the cost-related trajectory or the trend that you've seen in the third quarter? And what are your plans going forward in terms of cost savings? And my last question has to do with your nicotine pouch business. Can you give us an update as to the acquisition progress for your intent to acquire ASF? And also, what will be your global expansion strategy going forward for nicotine pouch?

[Interpreted] I am Kwang Min Choi, Chief of Global Business. I will respond to your question about the global CC business, the key drivers behind good performance in Q3 as well as shed light on what the Q4 outlook is. Now if you look at our global CC business, over 6 consecutive quarters, we've been able to sustain a double-digit growth on a year-over-year basis in terms of volume as well as ASP. In terms of volume, we were able to expand into the Russia as well as Asia Pacific distribution coverage has been expanded, which drove the year-over-year growth to around 12.9%. If you also look at our ASP, we've seen an even increase across all of the regions. And in particular, if you look at Asia Pacific, we were able to increase the sales of high-end products.

We also made some adjustments in terms of the distributor network in Russia and CIS region. We also converted to local production and also we drove some savings from tariffs, and there was an impact from retail price increases. So all of these factors came together in driving the ASP up on a year-over-year basis by 10.7%. Now looking at the outlook for the fourth quarter, we will enter into new countries, including Jordan and Bangladesh through adopting an OEM and licensing model in the fourth quarter. There will be an increase in the unit prices as well as strengthening of our brand portfolio, particularly focusing on mid- to higher-end products. Through these efforts, our plan is to sustain the ASP uptrend.

[Interpreted] Yes. This is Head of Finance, responding to your question about the cost-related trend as well as our plans going forward for cost savings. Now if you look at the cost per p that we have seen over the past period where it was a low single digit, starting this quarter, it started to turn downwards. Now this is happening despite the fact that the tobacco leaf, which we purchased previous year, were inputed into our production in Q3, which drove up the cost for the raw materials, we were able to achieve stabilized cost basis for nontobacco materials, the NTMs, which helped us save on the processing and production cost.

Now also, if you look at the sourcing cost for the imported leaves as of the third quarter, we saw a decline on a year-over-year basis by 5.6%, making a turnaround from 2024 statistics, which is a [ 16% ] increase. Now such change in the sourcing cost is going to start to have an impact on next year's manufacturing cost. Now as we've shared during the CEO Investor Day, we are in the process of expanding our global production base so that we can further improve our cost competitiveness from mid- to long-term perspective. Once we have in place and once we complete our global production basis that will help us nimbly respond to global demand.

We will be able to enjoy lower labor cost compared to domestic as well as logistics cost and also save on the tariff-related costs and also benefit from standardization of the materials, localization and also expansion of the production volume, which will all translate into meaningful cost savings.

[Interpreted] taking your question, I'm the CFO. I will respond to your question about the current update on our acquisition of ASF and what our global expansion strategy is going forward. September 23, we entered into and executed an MOU so that we can together with Altria, acquire a nicotine pouch company called Another Snus factory, ASF, which is a company that is located in Northern Europe. We will complete the acquisition process before the end of the year, and we will focus our efforts carrying out the PMI post-merger integration process successfully, and we are planning on assigning our key talent as CEO and CFO in Sweden.

Now in terms of our global expansion plan, ASF already has a top-tier market positioning, and it has strong competitiveness in Sweden and in Nordic countries. Upon that competitiveness, we are going to expand into other global markets, including Western Europe, Middle East, Africa, Asia and North America. And in so doing, we will leverage KT&G's capabilities for global distribution network and also leverage specialized distribution channels that exist in local and individual markets, we will find the most optimal route to enter these markets.

We will, at the same time, make use of our unparalleled flavor technology to come up with a differentiated product portfolio, and we will take the high-quality premium image that Loop currently has and expand that into -- and further strengthen that into the global market. Through such strategies, we will make sure that we drive concrete results early on so that we can gain a benefit from such acquisition.

[Interpreted] the following question will be presented by Jaehyung Choi from UBS.

[Interpreted] I would like to ask 2 questions. I understand that aside from nicotine pouch, you also have other cooperation and collaboration with Altria in the domains of CC and health functional food, HFF. Can you give us an update as to how that cooperation is ongoing and what your plan is going forward? Second question, I understand that your Kazakhstan plant is going through ramp-up at this point. What is an update on that? And also, do you have some other production sites that you are currently planning to start commencing operation? And also, what would be your expected CapEx for 2026?

[Interpreted] this is Yoon Young-Chan. I'm Chief of Marketing. Responding to your question about our collaboration with Altria. KT&G has entered into a global partnership with Altria, which is the #1 tobacco company in the United States. We're working together to expand our global business portfolio in CC as well as HFF. Through such efforts, we want to further solidify our basis for growth from mid- to longer-term perspective. Now first, if you look at our tobacco business, we are currently working together to target and tap into original high-tar regular market where our competitors have a strong competitive edge.

We're currently cooperating with Altria under a CMO model. And in Q3, we have released this plus product renewal and also released a new product HoSE. And by the end of this year, we are currently ramping up and preparing to release another high-end product. So by adopting the CMO method, we expect we will be able to reduce cost. And through various different efforts, we will rationalize our tobacco business operations, and we will continue with the collaboration.

[Interpreted] I am Kim Tae Won from KGC. I'm a Chief of Future Strategy. In the domain of health functional food, we are, at this point, running a product sample test. And in the first half of 2026, we're going to take our core product and have it go through market test and also expand on the market. And next year, we are going to co-develop together with Altria, to develop a customized new product that best fit the consumer preferences of the local market. We will be making use of distribution network that Altria has so that we can enter into the key channels of North America in phases.

[Interpreted] this is the CSO responding to your question about our Kazakhstan plant and our future commencement of operation plans for other overseas plant as well as for 2026 CapEx. Now our Kazakhstan plant was completed back in April, and it started its commencement. And this plant was set up with the purpose of ensuring supply stability in the CIS region and to gain competitiveness in terms of cost base. And right now, this plant is supplying products to neighboring countries, including Russia and Uzbekistan. What we are projecting is that for this year, the production will be up to about 70% of the capacity, and this will drive downwards the labor cost and logistics cost, which will help us improve on profitability.

Once the utilization and run rate of the plant becomes more stabilized and once we see improvement in the production yield, we expect production efficiency will also further go up and the contribution to gross profit margin will also expand. Now for other production sites, in Indonesia, we recently completed a flavor capsule plant, and they've started and they've commenced their operations. And Indonesia #2 plant, which has the biggest capacity out of all of our overseas production sites that is expected to be complete -- the construction is expected to be completed around November and will start its commercial operations sometime February of next year. So Indonesia will serve Asia Pacific, Kazakhstan, CIS and European market and Turkey will be serving Africa and Latin American market. And about 50% of the total production volume will be produced from such global plants and global sites and will be supplied across the world. In terms of the CapEx, compared to the CapEx plan that we had announced amounting to KRW 2.4 trillion, the implementation rate by the end of the year will be around 80%.

And CapEx spend, we expect is going to stabilize at around KRW 200 billion to KRW 300 billion. We think going forward, CapEx burden starting next year will go down. We will improve our capability in generating surplus cash, which will then be used as sources for shareholder return and for investment for the future. All of this will help us further solidify our financial position.

[Interpreted] the following question will be presented by Eunji Kang from Korea Investment & Securities.

[Interpreted] I would like to ask 2 questions. First is, what was the key driver behind the growth in revenue for your NGP business, which had a bigger impact? Was it the stick business? Or was it the device business? Second question is, we see that for the HFF market domestically, the Red Ginseng is being downsized. I would like to gain an update as to what your business strategy is. And we recently also heard that you will be taking your B2B business model overseas. Would like to know as to what your global expansion plan is.

[Interpreted] responding to your question, I'm Chief of NGP business. The reason why we've seen significant improvement in top line is because we were able to solve the supply chain-related issue for the devices in Vietnam, and we saw a double-digit growth for both domestic and global in terms of device as well as stick volume. So if you look at Q3, the overall NGP top line had posted a growth of about 45%. In terms of the Russian market, we've seen a very solid stick growth, reporting a 30% growth. And for domestic market for Lil Aible, we've seen year-over-year growth of around 40%, really contributing to a very sound bottom line position.

Now in terms of the outlook, as we go into the fourth quarter, we will continuously upgrade the platforms that are the basis of what we are currently selling out into the market, and we will also continue to release new stick products as well. So for domestic market, we are going to leverage our biggest platform, the lil Hybrid and based upon that launch product. And for the Russian market, we will be introducing 2 new stick products as well. This will help us support the growth going forward. So on an annual basis, our NGP business will be supported in terms of revenue, operating profit and volume as well. We expect there will be a year-over-year growth.

[Interpreted] to your question on HFF, I am Kim Tae Won, Chief of Future Strategy at KGC. If you look at our strategic approach, basically, our focus will be on channel growth strategy based upon the brand portfolio that we have so that we can overcome the erosion that we are currently experiencing in terms of the profitability in the domestic health functional food market. At the same time, we are going to expand into the global market with a full-fledged endeavor so that we can achieve a turnaround. If you look at the domestic market, we will focus on our strategic channels, which include online and duty-free channel, so -- and upon which we will be reallocating the resources that we will use.

And also by rationalizing the discount rate, we want to improve on the profitability. In the global market, we will focus on the so-called growth channels that is brand-centric and also achieve cost innovation. If you look at China, we are collaborating with a company, a local company in China, jointly developing products, and we will also strengthen our premium lineup of product offerings. In regions like United States and in Japan, through strategic alliances with large retailers, we will expand our market coverage. We will also diversify sources of our raw materials and make use of leading technologies in terms of -- from R&D perspective so that we can gain product competitiveness and drive up profitability so that come 2026, we may achieve a turnaround.

[Interpreted] Well, thank you very much. That brings us to the end of the third quarter 2025 KT&G earnings presentation. We thank you for your time. And if you have any unanswered questions, please feel free to contact us at the IR team. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]