KRW4 trillion of Cash
KT&G’s balance sheet has a total of eight accounts of cash and cashable assets. They are:
- Cash and cash equivalents
- Long-term deposits in MSA Escrow Fund
- Current other financial assets
- Current financial assets at fair value through profit or loss
- Assets held for sale
- Long-term financial assets measured at fair value through other comprehensive income or loss
- Long-term other financial assets
- Long-term financial assets measured at fair value through profit or loss
The total of these eight accounts (according to Mar 2022 annual report) was KRW4.2 trillion. KT&G has little debt, of only KRW0.2 trillion, so net cash (gross cash – debt) is KRW4.0 trillion.
9 Businesses Worth KRW2 trillion
To be conservative, we are counting the value of only one subsidiary, Yungjin Pharmaceutical. If we use the current stock price (average August 2022) with no control premium, the value of 52% stake is KRW0.3 trillion.
Value of Real Estate: according to KT&G annual report (2021), Investment RE asset is estimated to be KRW2.2 trillion.
The value of these two is KRW2.5 trillion.
We have assumed zero value for all other non-core subsidiaries.
It’s KRW2.5 trillion to be exact, but we are calling it KRW2 trillion for simplicity.
Announcement in 2021
Last November, KT&G announced a shareholder distribution plan. (Source) Then why are we still demanding the distribution of excess cash?
KT’&G’s 2021 plan entails KRW2.7 trillion for 3 years, or KRW0.9 trillion a year, vs. 2021 operating cash flow of KRW1.4 trillion. It means KT&G will still do nothing about its excess cash.
In 2006, shareholder distribution announced a total of KRW2.8 trillion. (Source) Despite growth and cash accumulation between 2006 and 2021, the amount actually declined.
Among the top 5 global players, KT&G is the only tobacco company with net cash. For example, as of 2021, Philip Morris International had net debt of roughly 2x EBITDA. Can anyone say the management team at Philip Morris International is incompetent or immoral to take debt and return cash to shareholders?
Even after distributing KRW6 trillion, KT&G can stay net cash. Please see Shareholder Presentation for more details. (Here, page 42)