Flashlight Capital Calls for Transparency in KT&G Operations

According to a report from South Korean business news outlet StreetInsider on October 10th, KT&G, one of the country's major tobacco companies, is facing accusations of a lack of transparency from one of its key shareholders, Flashlight Capital. In an official statement, Flashlight Capital's managing partner, Lee Sang-hyun, expressed concerns over the company's opaque information practices. The statement called for KT&G to disclose pertinent details, such as its profits from export operations, its global distribution contract with Philip Morris International, and a $19 million "consulting fee.

In April 2023, Flashlight Capital sent an open letter to KT&G Corporation emphasizing the need for greater transparency in its investor relations, particularly concerning its profit-export business. In response in May, the company stated that such disclosures will be delayed until more accurate data is available, citing the aim of safeguarding shareholders' interests.

Lee Sang-hyun, Managing Partner of Flashlight Capital, raised concerns over the protection of shareholders in light of the alleged information cover-up. He emphasized that 55% of the company's total revenue is derived from the export of its tobacco business.

According to KT&G's annual report for 2020, the average selling price of cigarette exports in key regions was significantly lower than the domestic market. Specifically, prices reported in Northeast Asia, Southeast Asia, and Africa were less than half of those in the domestic market. However, starting from 2021, the company has ceased to publicly disclose this information.

Another issue that Flashlight Capital is keeping a close eye on is the recent extension of KT&G's global distribution contract with Philip Morris International (PMI) from three years to fifteen years.

Lee Sang-hyun pointed out that "Heating not Burning (HNB) symbolizes the future of tobacco and should become the cornerstone of KT&G's corporate vision." He emphasized the most crucial issues, namely the problem of relying on competitors and the lack of transparency surrounding agreement terms and potential risks.

Finally, Flashlight Capital has requested KT&G Corporation to explain its $19 million consulting fee for the fourth quarter of 2022.

Lee Sang-hyun pointed out that the consulting fee of $19 million for a quarter is unheard of, stating that "this astonishing amount coincides with our public activities concerning KT&G since last October".