이 기사는 2021년 12월 16일 08:04 thebell 에 표출된 기사입니다.

KT&G Corp, South Korea's dominant tobacco manufacturer, will suspend its combustible cigarette business in the U.S. for an unspecified period.

The company said in its regulatory filing on Tuesday that it will review its tobacco business in the U.S. amid intensifying regulations and growing competition.
The decision is estimated to cost KT&G about 205.8 billion won ($173 million) in lost sales, about 3.9% of the company's revenue in 2020.

The tobacco manufacturer’s latest decision is mostly due to a hostile business environment, such as the U.S. Food and Drug Administration (FDA)'s recent move to introduce a bill to curb nicotine content and to ban menthol cigarettes, the last form of flavored cigarette allowed in the U.S.

The move is unlikely to have a significant impact on the Korean tobacco manufacturer’s overall earnings as the lost sales will account for only 3.9% of its 2020 revenue. However, the overall performance of its overseas units is highly likely to worsen for the time being as the U.S. subsidiary has the largest sales volume among major countries where KT&G sells its cigarettes through its local units.

KT&G currently sells its combustible cigarettes in five countries, including the U.S., Indonesia, Russia, Turkey, and Iran. It also sells its tobacco products through exports and overseas offices, but the five countries are playing the vital role in its overseas business through local units. The tobacco manufacturer generated revenue of 246.3 billion won in the U.S. last year, accounting for 59% of the total revenue generated in major countries.

It is positive that KT&G doesn’t have to make payments into a mandatory tobacco escrow account for smoking-related legal settlements.

Money deposited in an escrow account is reverted back to the company after 25 years if not used before then to pay a settlement. KT&G has placed total 1.19 trillion won into escrow as of the end of third quarter.

This is expected to help KT&G improve its financial soundness. As of the end of September, the tobacco manufacturer had negative net borrowing of 2.19 trillion won, with zero long-term debt. Its debt-to-equity ratio was 26.8% and debt dependency ratio was 1.4%. (Reporting by Kyu-seok Park)