KT&G: Business Update

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March 2024: “Victory for Everyone”

Despite the opposition from the top shareholder, the Industrial Bank of Korea (IBK), Singapore-based activist fund, Flashlight Capital Partners (FCP) and global proxy adviser, Institutional Shareholder Services (ISS), Kyung-man Bang secures the CEO position at the AGM with overwhelming shareholder support. However, the Board Member (outside director) recommended by IBK and supported by Flashlight Capital is also appointment by the shareholders in a balancing act. Thereby, KT&G 37th AGM turned out to be a victory for everyone.

Following the AGM, the new CEO pledged to boosting KT&G’s market value and building trust with the shareholders. FCP welcome the appointment of the first “truly” independent director, committed to advancing shareholder interests. FCP also requested action in the top-priority areas over the next three months:

– Link Compensation to Performance

– Enhance Accounting Transparency (overseas profitability, illicit tobacco risks, under-performance of lil in the key Japanese market)

– Prevent Illegal Treasury Share Giveaway

– Globalize Ginseng Business

– Stop Asset Management Business (excess cash invested in real estate and private equity funds).

March 2024: Countdown to the AGM

Heading towards the AGM, Bang’s approval as the next KT&G CEO is becoming more uncertain. KT&G’s largest shareholder, Industrial Bank of Korea (IBK, 6.9% stake), already declared its opposition. Moreover, the global proxy advisor, Institutional Shareholder Services (ISS), recommended KT&G shareholders to vote against the appointment of Bang. ISS also endorsed the Board Member (outside director) recommended by IBK and supported by Flashlight Capital (1% stake) – instead of the two candidates put forward by KT&G.

The pro-Bang camp, Korea’s National Pension Service (the second largest shareholder with 6.3% stake) and KT&G “friendly” groups (with an estimated stake of 13%, including the in-house labor welfare fund and the employee stock ownership association) gathers close to 20% stake.

Bang’s approval hinges on the votes of foreign shareholders (44.3% combined stake; likely to be more receptive of the recommendation of ISS).

Recall: Singapore-based, Flashlight Capital is leading shareholder activism against KT&G since 2022.

Feburary 2024: CEO appointment update (III)

The CEO Candidate Recommendation Committee selects Kyung-man Bang, currently KT&G’s Chief Operating Officer, as the final CEO candidate following face-to-face interviews with the four candidates on the second shortlist. The Committee assessed the shortlisted candidates based on the five key competency criteria: management expertise, global acumen, strategic thinking skills, stakeholder communications and universal morality & ethical awareness.

Bang joined KT&G in 1998 and played a key role in formulating the company’s mid-to-long term growth strategies across diverse business areas that focus on three core business areas: Next Generation Products, Health & Functional Foods and Overseas Combustibles. His notable achievements include the launch of the ESSE Change brand and expanding KT&G’s overseas market presence to over 100 countries. Pending approval at the AGM (on March 28, 2024), Bang will officially assume the role for the next three years with the aim to overcome market limitations and shape KT&G into a global top-tier company.

We will follow whether the activists (seeking a shake-up at the helm of the company) will be able to drive a powerful opposition at the AGM.

Feburary 2024: “Esse – World’s #1 ultra-slim cigarette brand”

Launched in November 1996, Esse sold 50.8Bn sticks in 2023: 21.9Bn sticks in Korea and 28.9Bn sticks abroad in 2023 – making it the largest ultra-slim cigarette brand in the world1. Esse’s total global sales topped 900Bn sticks (496.5Bn domestic plus 405.1Bn overseas) since the launch and its annual overseas sales exceeding its domestic sales since 2015.

Esse differentiates itself with a slim design, low-tar profile (1mg), application of innovative technologies (such as odor reduction) and steady expansion in taste dimensions. Esse maintains its leadership the overall Korean market since 2004 (i.e. ~35% SoM in 2023). KT&G started exporting Esse to the Middle East and Russia in 2001 and the brand is now sold in more than 90 countries. Esse currently makes about one-third of global ultra-slim cigarette sales.

January 2024: CEO appointment update (II)

 KT&G Governance Committee finalized the first shortlist of CEO candidates on January 31, 2024 and recommended the finalized list to the CEO Candidate Recommendation Committee. The first shortlist includes 8 candidates in total: 4 external and 4 internal.

The CEO Candidate Recommendation Committee is composed entirely of outside directors, without the participation of the incumbent CEO. The Committee will carry out an in-depth assessment on these 8 candidates and finalize the second shortlist of 3-4 candidates by mid-February. Then, the Committee will conduct face-to-face interviews to select & report the final CEO candidate to the Board by the end of February. The Board will table the CEO selection subject at the AGM in late March.

January 2024: Shareholder activism

In a new chapter of its offensive campaign2, Singapore-based activist fund Flashlight Capital Partners (FCP) sent a request to the KT&G Audit Committee recommending a lawsuit against KT&G’s board of directors to claim compensation worth ~₩1Tn (US$0.75Bn). The fund’s position is that former and current KT&G executives donated (10.85Mn) treasury shares to the company’s public interest foundations for the purpose of strengthening management control and that the board of directors did not properly check and monitor the process. FCP believes that KT&G caused serious damage to shareholders by buying back treasury shares and donating them to the foundations headed by the current/former CEOs – instead of using the money to enhance the shareholder value. Currently, KT&G holds 15.3% of the company’s shares. KT&G Welfare Foundation (2.23%) and KT&G Scholarship Foundation (0.63%) also hold shares.

FCP plans to file a civil lawsuit directly on behalf of shareholders to claim compensation from the board of directors if the KT&G Audit Committee does not file a lawsuit within a month in accordance with the Commercial Act. Depending on the outcome of the lawsuit, criminal proceedings are reportedly being considered for alleged dereliction of duty.

January 2024: KT&G under investigation in the US for omitting harmful product details

KT&G confirmed that an investigation is under way since 2021 by the US Department of Justice (DOJ) and the Food and Drug Administration (FDA) for allegedly omitting information on harmful substances in the cigarettes sold in the US3. The company is facing allegations of violating tobacco regulations set by the US FDA, including the submission of inaccurate data during the approval and review process of tobacco products. KT&G stated that they received an order from the DOJ to submit a comprehensive document on the regulatory compliance status of their products, but (so far) they haven’t received a sanction or a notification regarding the results.

KT&G launched Carnival in the US in 2007, Timeless Time in 2011 and This in 2017. Local media reports suggest that KT&G is being investigated for the Carnival and Timeless Time brands. Internal company documents (seen by the local media) reveal that the submissions to the FDA intentionally omitted harmful substances such as diacetyl and levulinic acid found in these cigarettes.

KT&G halted its US operations in December 2021, citing “intensified regulations and heightened market competition”. The investigation raises concerns over the possibility of KT&G failing to retrieve long-term deposits (i.e. payments made to escrow by a manufacturer not participating to MSA) of ₩1.54Tn ($1.15Bn) as a result of a possible penalty.

January 2024: CEO appointment update (I)

Amid shareholder activism and stating that KT&G is at a “crucial juncture requiring fresh leadership for global advancement and transformative changes within the company”, K&G’s incumbent CEO (also K&G’s longest-serving CEO) announced his intention not to seek reappointment for a fourth term. Thereby, the KT&G Governance Committee excluded him from the long-list of CEO candidates which comprises 24 individuals, including 14 external candidates and 10 internal candidates.

The CEO appointment process is expected to unfold over a period of three months, following a three-step procedure:

(1) Comprehensive assessment of the long-listed candidates by the Governance Committee which is composed of 5 external experts (end of January 2024)

(2) Selection of the final CEO candidate by the CEO Candidate Recommendation Committee (end of February 2024)

(3) Approval of the final CEO candidate at the General Meeting of Shareholders (end of March 2024). 

December 2023: CEO nomination process

Activist shareholder, Flashlight Capital expressed disappointment in the performance of KT&G’s CEO, who has held the position for nine years (three consecutive terms), and demanded a fair and transparent CEO nomination process: Flashlight Capital’s YouTube video, addressing the KT&G shareholders.

Flashlight Capital notes that

– over the past nine years, KT&G stock fell by 19% while the KOSPI index rose by 26%

– the Management pursued volume at the expense of profit (40% revenue growth coupled with a 17% decrease in operating profit)

– “lack of profit motive” is the primary cause for the stock’s more than 50% discount relative to its peers.

Subsequently, KT&G announced that the Board of Directors enhanced the fairness and transparency of the CEO appointment process by removing a clause that allows the incumbent CEO to be considered in preference to other candidates. KT&G will proceed with the process of appointing a (new) CEO in Dec 2023.


  1. KT&G, Global Ultra-Slim Cigarette ‘Esse’ Surpassed 900 Billion Cigarette Sales ↩︎
  2. Activist Fund Claims KT&G to Sue Former and Current Directors ↩︎
  3. Exclusive: KT&G faces US Investigation for alleged violations and data manipulation (chosun.com) ↩︎

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