KT&G Board of Directors Sends Letter to Shareholders Expressing Concern over the Proposing Shareholders' Requests

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Mar 13, 2023, 04:29 ET

The Board is concerned that the proposing shareholders' "excessive request" for shareholder return policy might undermine the company's future growth potential
The Board is unable to verify whether the audit committee members nominated by the proposing shareholders meet the Korean Commercial Code's qualification requirement for financial expert

SEOUL, South Korea, March 13, 2023 /PRNewswire/ -- The Board of Directors of KT&G Corporation ("KT&G", "we", or the "company") (KRX:033780) issued a below letter to its shareholders in connection with its 2023 Annual General Meeting of Shareholders, which is scheduled to be held on March 28, 2023. The letter explains KT&G Board of Directors' position on the shareholder proposals and urges shareholders to vote in favor of agenda items proposed by the Board.

The full text of the letter follows:

KT&G Board of Directors' Position on the Shareholder Proposals

Dear valued shareholders,

As Chairman, on behalf of the Board of Directors of KT&G, I am always deeply grateful for the support and interest that our shareholders shown to our company.

KT&G's Board of Directors has paid heed to the recent shareholder proposals and the proposing shareholders' views, as well as various opinions and feedback from a wider group of shareholders. Hence, the Board has held a series of in-depth discussions and deliberations over the potential legal and business issues that may arise out of the proposals in close consultation with experienced legal, strategic and financial advisors.

We now would like to share with our valued shareholders the conclusions the Board drew through a series of extensive discussions and deliberations and would like to ask for your valuable support.

We Need a Reasonable Dividend Policy

Following the announcement of "Mid-to Long-term Shareholder Return Policy (2021-2023)" in 2021, KT&G has faithfully carried out the return policy amounting to approximately KRW 1 trillion per year. Our dividend payout ratio has significantly increased compared to2020 and we made share repurchases for the three consecutive years since 2020.

It is the Board's view that the proposing shareholders' demand is such an excessive request that could seriously undermine our company's future growth potential if they call for a per-share dividend of KRW 10,000, or an aggregate dividends of KRW 1.2 trillion, together with an additional share repurchase of KRW 1.2 trillion. The Board concluded that we could not accommodate a request for approximately a threefold of the current shareholder returns, considering our company's growth investment plan (CAPEX investments of KRW 3.9 trillion for the next five years) and financing plans.

In the second half of this year, which is the end of the three years under the current shareholder return policy, the Board plans to announce "New Shareholder Return Policy" to increase shareholder returns, and will also consider more proactive financing plans to secure required resources, including through increased liquidity making use of the company's real estate and borrowings. The Board is also reviewing and actively considering the cancellation of treasury shares, in which some of our shareholders have shown interest. The specific plans for share cancellation will be included in the aforementioned "New Shareholder Return Policy" to be announced to the public.

KT&G's Board is fully aware of the market concerns about the use of our company's cash holding and capital efficiency, and will make best efforts to enhance in capital management efficiency and to maximize our corporate and shareholder values, through active monitoring of the business decisions regarding dividends and investment, as well as our management's KPI such as share price and ROE.

We Need a Board That Best Suits Our Mid-and Long-term Strategies

KT&G's Board of Directors believes that it would be best suited to KT&G's corporate and shareholder value maximization to maintain the current Board's composition and competence.

Candidates Myung-Chul, Kim and Yun-Sung Koh, nominated for re-appointment for our Board members, are professionals with extensive experience and outstanding expertise in the fields of finance and global business, and financial management, accounting and tax, respectively. With such experience and competence, both nominees have made great contributions to important business decisions as well as management supervision.

As to the candidates for the audit committee members nominated by the proposing shareholders, we have concerns about whether our audit committee, should those candidates be appointed thereto, would indeed be able to perform its functions required under the laws and our articles of incorporation, because we were unable to verify whether they meet the Korean Commercial Code's qualification requirement for financial expert. On the contrary, the nominees of the Board have served on our audit committee for the most recent term, making great contribution to strengthening the roles of the Committee, including by enhancing its internal audit functions. Based on these grounds, we sincerely ask for your strong support for the nominees of the Board.

KT&G has continuously expanded its business into the world Beyond Korea, currently standing at a critical juncture to become a true global company by implementing our mid-to long-term growth strategy announced in January 2023.

KT&G's Board will make best efforts to ensure our company's growth into a more transparent and sound company by diligently performing the duties of active check and supervision of the management, as well making proposals for our company's continuous performance.

We appreciate again your interest and support for KT&G's continued growth and kindly ask for your continuous encouragement and unwavering support for KT&G.

Thank you.

Yours sincerely,

Myung-Chul Kim

Chairman of the Board of Directors of KT&G

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