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 Strategy
 Company Activities
1/Products
Cigarettes
Cigar and toskany
Pipe tobacco
Wrap it your self tobacco
Molassed Tobacco (Water Pipe)
Filer tow, homogenized tobacco, carton packets, printing and spare parts
Manufacture of international cigarettes brands : Marlboro, Marlboro lights, camel, Rothmans, Rothmans lights, Kent, Du Marruer, Silk cut violet yellow and blue, Winston, Winston lights, Dunhill, Carlton, Gitanes, kansas, Merit
2/Fast Facts
Eastern’s domestic market share : 95 Percent
Foreign brand share (Imported) : 1 Percent
Foreign brand share (Locally manufactured ): 4 percent
No.1 Brand : Cleopatra (93 Percent market share)
No.1 Foreign Brand : Marlboro (About 95 percent of foreign brand sales)
Price of imported international trademark brands: At Least 5.5 to 6 Egyptian Pounds(US$1.66 TO $1.82 )
Price of local brand Cleopatra : 1.5 to 1.65 Egyptian pounds (45 U.S. Cents to 50 U.S. Cents )
Strategy
1/ The New Objects In Eastern Company Mission
1-The manufacture and trade of tobacco, its products and requirements.
2-The practice of any investment : Financial, Commercial, Industrial, Agricultural or Service Activities.
3-Ownership of Real Estates and Lands for the purpose of sale, investment, leasing or trade.
4-Importation, exportation and commercial agencies.
2/ New Factory In 6th Of October city will consolidate Eastern’s production
Eastern Tobacco is constructing a new factory in 6th of October city, about 30 kilometers outside Cairo. The factory will consolidate production from five Eastern factories now in operation throughout Egypt. A welcome move as its main Giza factory, for example, is squeezed by urban congestion, and production floors are cramped.
The Site at 6th of October City is a stark contrast to Giza . Traffic is light in this new Industrial Zone, and the area is mostly desert. Few factories dot the landscape. The factory will be constructed in stages, says Eastern Chairman Mohamed Sadek Ragab. "Like chess. You have to spend and collect so it is not a big burden" A committee has been appointed to handle the project. Real estate sales will largely finance construction; Land at its Giza complex, for instance, has been valued at around 9,000 Egyptian Pounds (About US$ 2,700) per Square Meter. The land at 6th of October City was had for just 100 Egyptian Pounds (about 30$ ) per Square Meter. Obviously staying in Giza, Eng. Sadek Says, is "Not Very Economical."
There will be manufacturing bonuses, too, at 6th of October City. Manufacturing a uniform product with five separate primaries is a struggle. But a central primary in the new factory will solve that problem. Plus there will be space enough for the introduction of new technologies at Eastern (among them: Expanded Tobacco).
For a detailed company profile please visit our Website : http://www.easternegypt.com
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INTERVIEW WITH
ENG. MOHAMED SADEK RAGAB
CHAIRMAN EASTERN COMPANY
Tuesday 17 November 1998
1/Q: Mr. Ragab, could you give our readers a historical background of your company profile as well as your professional background?
It is only Eastern Company and not Eastern Tobacco Company. This is because we shall not be working only in the activity of tobacco. We started diversification in real estate, in addition to our major activity. We are studying some other projects apart from tobacco products. That is why I am always keen to maintain the name "Eastern Company".
I joined the Eastern Company in 1959 as a trainee. I started training on the tobacco varieties and qualities so as to be prepared for being a tobacco expert. I also spent some time training in the USA, Bulgaria, Turkey, Greece and in Egyptian factories. I was gradually promoted from one position to another, until I was appointed Chairman of Eastern Company in 1991. My major interest was to try to diversify the activities of the company from only producing cigarettes and some other tobacco products to offering a set of different activities. Indeed, we are facing anti-smoking campaigns and it might be difficult to put all your eggs in one basket. We managed to get the approval of the General Assembly to widen [our activities]. We have already started some activities in real estate. We are walking step by step, because it is new for us.
The other major project that I was very enthusiastic to follow was to collect all the branches and sites of the company in just one complex located in an industrial zone, i.e. in the 6th of October city. We took this decision for many reasons. The first reason is that the span of control in different sites is not as strong as it should be when it is all located in one site. Secondly, by having a central primary we can guarantee the uniformity of the quality of our blends because as I can always say, different kitchens have different tastes of food, but in one kitchen you can guarantee food with one single taste. Also, having all our sites in the down town area is against the environmental needs of getting the industrial activities apart from the housing areas. We are facing severe difficulties of traffic, old infrastructure, and getting to the factory or out of the factory with raw materials and final products. So, we realized in the end that it was better to continue our activities in one complex, at the 6thof October City. This will create very good opportunities to reinvest the old location, having very expensive lands downtown replaced by very cheap pieces of land at the 6thof October industrial zone. This will help to cover all the expenses of relocating and also make some profit out of that. All what we need during executing the steps of relocation is a kind of bridging finance. This means that I do not need money except for short periods of time, until some of the investments start to pay back. I think that the study we carried out explains that in detail. For me, I believe that this project is the most important project for Eastern Company since it was formed in 1920.
see graph
2/Q: Not long ago, the situation of Eastern Company was
"alarming". You managed to give your company a new momentum through an investment program. Do you consider this to be your most satisfying personal achievement since you have been Chairman of your company?
All what we have achieved in the past is to enable the company to be ready to achieve its relocation because the relocating is really very important to our eyes, not only for environmental reasons but for economic and technical ones as well. Because we are not able to adopt a lot of new technologies in the tobacco industry due to the lack of space in our old factories, like tobacco expansion for example. We do not have a room for it here but it is a very economical and technical improvement in the tobacco industry. However, I am unable to introduce it due to a lack of space. Another thing is tobacco toasting. It improves quality but there is no room for it here either. These are just a few examples of which we can benefit a lot by having a new infrastructure, to be designed from the very beginning, with tailored buildings which will fit with the latest machinery and equipment in our industry : weight-wise of the machines, height of the ceiling which match the new equipment, etc. We can not do all that in our already existing buildings and sometimes it can not fit or host the new machinery. Actually, we are making our layout of the machinery to achieve a clever and easy flow of production on a white piece of paper. Then, the building is tailored to fit this design and vice versa. The production people are very happy to feel free in designing the layout and then the building will accommodate all that. So, I believe that relocating and collecting all sites in one big site will reflect on better quality of production, better efficiency, a lot of savings in many aspects, and seen and unseen savings will be achieved. Then having 5 or 6 sites to be invested in real estate, housing, shopping malls and trade will represent a new source of profits to the company.
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3/Q: Regarding the privatization process, 34% of the company is in private hands. Are you in favor of a full privatized status?
What I understood is that the Government and the holding company are planning to introduce 6% more to reach 40% to go public. I believe that Eastern Company will remain 40% privately owned for some more years to come. I believe so but I can not assure anything because the Government is revising the situation from time to time and it is a state policy.
4/Q: Your company is doing quite well on the stock exchange as shareholders enjoyed a rise (up from their 14% from their L.E. 69 close on August 3rd). Still your company announced that it had adopted a new sales strategy for the fiscal year ending June 30, 1999. Could you tell us more?
First of all, we are introducing new brands and new forms of packets for the first time since years ago. We are introducing new packets of 10 cigarette packet. It has been accepteded very positively by the smokers to the point that we are hardly covering the demand of this packet, i.e. Toshka. Now, we are planning to enter the market for the first time ever in our history with different packages as the double-bundle package under the name of Matinee. We never introduced a double-bundle package before. We are trying to make the packet as luxurious as possible. Now, this is under the printing stage in Europe for the moment because they have better facilities for this technology of printing. In the future we may print it locally when we are able to. With such brands we are trying to enter the prime brand sector which Eastern Company has never entered before. Also, we are preparing our N. 1 brand Cleopatra in menthol as well, that will be introduced to the market with updated technology of mentholating tobacco, i.e. in a very healthy way with lower tar nicotine. This is because menthol will make a coverage on the nicotine and tar so the smoker will never feel it and in the morning he might have a deep breath. So, we meant to make it a light cigarette with very low tar and nicotine so the menthol will not hide any extra danger.
5/Q: So, this is part of the re-launch of the Cleopatra king size-new blend?
Also, we launched the Cleopatra King Size-new blend and the Super King, which is 94mm. We seized the occasion of launching these new brands by fixing a new economical price for it because our prices remained frozen since October ’91. So, we managed to keep one brand for L.E 1.5, which is the regular size. The King Size is becoming now L.E.1.60; the Super King is now L.E. 1.70. So, we made what you call a double compromise: (1) we have a cheap cigarette for limited income and poor people. There is a
10 piaster difference between one brand and the other to make a reasonable difference between one size and the other, a reasonable difference between the soft packets and the carton ones, within the limits of the sales tax. We still have a "ceiling". If we enter this ceiling we shall pay a sales tax of 127 piasters per packet instead of 82 piasters. Only if an ex-factory price may exceed 65 piasters even by a fraction. So, we are keen to keep the ex-factory price below 65 piasters to maintain having the privilege of paying only 82 piasters.
6/Q: If possible, could you give us your turnover for last year in US dollars?
The capital is L.E. 250 million. The value of total sales is about L.E.
4 billion.
7/Q: The price of cigarettes is still fixed by the Government. How does this affect your business?
It affects our business both positively and negatively: positively by having more attractive and competitive price. This is because keeping the price of cigarettes the same for 7 years while everything is going up makes the price of cigarettes very relatively cheap, which encourages people to smoke more or encourages new smokers to enter. The negative side of having your prices frozen while salaries and prices of most materials are going up means a kind of shrinking of the profit margin. But, this was a kind of challenge for us and we adopted a bundle of policies to avoid the negative effect of having frozen prices. This bundle of policies enables us to increase our profits one year after the other even though the prices are frozen. Those policies are mainly in producing our spare parts locally in Egypt, which proved to be much cheaper than importing them. We adopted a policy of tobacco purchasing by choosing the best periods of time to buy when the total production, worldwide, is high, total consumption is low and stocks are high. Then, we buy our needs and we managed to build up a stock from the cheapest possible seasons. This saved our neck when in some other seasons the tobacco was expensive. We avoid buying any tobacco through loans. No more loans for tobacco because we used to have loans to buy tobacco and then we pay back with a different exchange rate from the time in which we borrowed the money. So, it was twice expensive; by being obliged to buy expensive tobacco in the time when the loans were available and pay back when the exchange rate was not to the favor of the Egyptian pound. So, we were paying more in Egyptian pounds. Therefore, we stopped buying any tobacco by loans like AID, CCC and all these programs. We managed to replace our needs from the substitutes from Zimbabwe, Brazil, Argentine, Europe or from East Asia. This was much cheaper and we were getting more or less the same taste of cigarettes or blends. You can not imagine the huge savings that we managed to make out of that, i.e. accumulating savings since 1990 till now that exceed L.E.1 billion. If we did not do that we would be making big losses by now.
8/Q: The mission of Eastern Company is to maintain its pioneer attitude and to operate in other activities. Still you stated several new objectives to reach. Our readers are very much interested in attracting new business, in which areas of your activities are you interested in attracting new business opportunities?
We are now studying some other activities. We will check how feasible they will be. All what we need is feasible investment to be used in such activities with a reasonable pay back. Some of these activities are still under initial study and we can not announce it before they are released. We are not insisting on the fact that we do all of these investments on our own. We can have some partners. For example, in real estate we can have some partners from specialized companies in this activity either by offering them the land or offering them financing facilities and they take care of the rest. At the end of the day we can split the cake in a way or another because we can not be specialized in all activities. We need to rely upon the experience of others in that.
9/Q: You strike me as a confident person. How confident are your towards your country and your company?
When it comes to Eastern Company, I am very confident in a very prosperous future because in the last few years we prepared things in a way like preparing the plane to take off. We have the runway, the plane is fueled and ready to take off. All what we have done in the last few years is preparing the company for this situation; having the new location at the 6th of October City, we already covered the price of the land and the preparatory stage of gates, fences and gardening wind-proof trees to be grown there, etc. Now, I can say that we are going to contract with one of the contractors to start building the first stage at the 6th of October project, that will take between one year and 15 months to be finished. This will enable us to evacuate one of the old sites which will consequently be ready for investments. At this stage, a kind of self-finance can continue from the old site that will be evacuated year by year.
10/Q: What will your final message to our readers be?
My final message to your readers and mainly those interested in investing in Egypt is that I hope that they can learn more about the projects that we are planning to achieve at the old sites by evacuating them to the new site of the 6thof October, so that whenever we call for any kind of investment in any of these locations, those who are interested should have an idea to be ready to participate. I believe that this is an important message because it will be something very helpful for Eastern Company and very interesting for the investors. |
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© World INvestment NEws, 1998.
This is the electronic edition of the special country report on Egypt published in FORBES Magazine,
May 31st issue.
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EGYPT
