KT&G executing a long-term agreement with PMI, continuing global expansion of its smoke-free product 'lil'

• Securing profitability and growth for global NGP with a 15-year long term agreement

SEOUL, South Korea, Jan. 30, 2023 /PRNewswire/ -- KT&G(CEO Baek Bok-In) has entered into a new long-term agreement of 15 years with the global tobacco giant, Philip Morris International(PMI), for the expansion of KT&G's next generation product 'lil' into the overseas market.

On the 30^th at the Seoul Conrad Hotel, KT&G and PMI hosted a KT&G-PMI GLOBAL COLLABORATION event as they entered into a supply agreement for the overseas distribution of KT&G's smoke-free product 'lil'. Senior members from both companies including CEO Baek Bok-In of KT&G and CEO Jacek Olczak of PMI attended the event where they signed the contract and took photographs to celebrate the event.

The agreement is a long-term partnership that covers 15 years from January 30^th 2023 through January 29^th 2038, with three-year performance review cycles that allow flexibility for evolving market conditions. KT&G will continue to supply its smoke-free products to PMI, which PMI will sell in markets worldwide except for Korea.

The agreement includes existing heat-not-burn tobacco products that are launched in Korea, namely 'lil Solid', 'lil Hybrid', 'lil Aible' devices and their dedicated sticks, which are 'Fiit', 'Miix' and 'Aiim' respectively, as well as other innovative products to be launched at a later date.

The two companies set volume commitments for NGP consumables, securing the stability of the business. The volume commitments are subject to three-year performance review cycles that allow flexibility for changing market conditions. Over the initial stage of the agreement, from 2023 to 2025, PMI will guarantee the sales of at least 16 billion sticks.

Based on its own independent assumptions, KT&G estimates that CAGR of its global NGP revenue for the next 15 years will be 20.6%, and CAGR of its global NGP consumables volume in the same period will be 24.0%. Also, the agreement provides KT&G's smoke-free products with further access to PMI's commercialization capabilities and distribution infrastructure, which will enhance financial efficiency and maximize effects in terms of reduction in resources.

KT&G first introduced 'lil' in 2017 and continued to launch differentiated products that are the integration of its independent technologies, with their innovation being widely recognized. KT&G's products recorded the highest market share in the domestic smoke-free market last year.

KT&G chose PMI as its partner in January 2020, in initiating a full-fledged overseas expansion of and securing a distribution network for 'lil'. PMI chose KT&G as its strategic partner which expanded its portfolio of innovative products.

The two companies first introduced 'lil' in three markets including Japan in 2020 and achieved the expansion of 'lil' into 31 markets worldwide by widening the coverage of overseas markets to major European countries such as Italy and Greece as well as the Central America region. 

Baek Bok-In, CEO of KT&G stated, "we are now able to further raise the competitiveness of KT&G's smoke-free products in the overseas market and establish a basis for stable growth of our global business through the advancement of the strategic partnership with PMI", as he added "KT&G will make efforts to acquire world-class capabilities to become a global top-tier company in NGP earlier than planned and to lead the next generation tobacco market".

Jacek Olczak, CEO of PMI stated, "Smoke-free products of the two companies will play a complementary role to each other, providing a more innovative product portfolio to more consumers", as he added "This agreement clearly shows the two companies' commitments to provide better alternatives to about one billion smokers around the world".