EGYPT
Egypt, new dimensions, new frontiers









Mr. Mohamed Sadek Ragb, Chairman and Managing Director of ECS

Interview with Mr. Mohamed Sadek Ragab,
Chairman & Managing Director
Read our exclusive interview


Egypt - Winne.com

"Confidently entering the new millenium"

Mr. Mohamed Sadek Ragab
Chairman & Managing Director

Contact:
450, Al Ahram street, Giza
CAIRO, EGYPT
Tel: (202) 570 33 26
        (202) 572 49 65
Fax: (202) 568 74 34
Website: www.easternegypt.com
Company profile

Egypt - Winne.com
EASTERN Company (EC) is an Egyptian Joint Stock Company, a subsidiary to the Mining and Refractories Holding Company which was established on 12/7/1920.

EC is committed to keep its leading role catering to the satisfaction of the smokers optimal taste through a wide range of its worldwide renown cigarettes and retain its responsibilities manufacturing tobacco products with the highest up-to-date technology concerned to preserve consumers wholesome, surrounding society and economical effect.

Activities

Products

  • Cigarettes

  • Cigars and toskany

  • Pipe tobacco

  • Wrap it yourself tobacco

  • Molassed tobacco

  • Filter tow, homogenized tobacco, carton packets, printing and spare parts

  • Manufacture of international cigarettes brand


  • Factories

  • Giza, Talbia & Alexandria Cigarettes, cigars & pipe tobacco

  • Giza, Talbia & Alexandria Filter rods

  • Alzomor warehouses, Giza Carton boxes, printing

  • Giza, Alexandria, Menouf, Tanta & Abou Teeg Molassed tobacco

  • Giza, Talbia Homogenized tobacco


  • Production Line stages

    Primary stage

  • Raw tobacco received and moisture added

  • Tobacco mixing and casing

  • Tobacco kept in holds to guarantee absorption and to homogenize

  • Tobacco stems are processed separately

  • Cutting of tobacco and drying of the blend

  • Adding of cut stems and flavors

  • Blend kept in cut rag holds

  • Blend transferred of the making stage


  • Secondary stage

  • Cut rag transferred to cigarette making machines

  • Paper, adhesive and filter are used for cigarette wrapping

  • All processes are mechanized and automated


  • Packaging stage

  • Cigarette transferred to packing departments

  • Packaging materials paper or cartons aluminum foil adhesive, polypropylene and tear tape are used to make the cigarette pack

  • Cigarette packs are arranged in paper or carton outers and finally put in carton boxes of different capacities


  • Objects in EC

  • The manufacture and trade of tobacco, its product and requirements

  • The practice of any investment: Financial, Commercial, Industrial, Agricultural or Service Activities

  • Ownership of real Estates and lands for the purpose of sale, investment, leasing or trade

  • Importation, exportation and commercial agencies

  • Establishing, shareholding or taking over ownership of companies operating in Egypt or abroad which have any similar objects of Eastern Company or participate or develop any of its objects
  • Research and Development

    In the field of Lab research

    The sectors of Lab, Research and Quality is not only hiring experts in all fields, but EC administration provided it with the up-to-date scientific apparatuses. Therefore, labs were provided with the latest technology in this field.

    EC's labs now own a very modern auto smoking machine, which not only measures the components of the cigarette but also the components of every puff as well as making use of new training, discussing new ideas and getting in touch with modern trends in EC's industry.

    In the field of Computer and Internet

    EC has decided to link all sectors of the company through a giant computer to comprise all data of the company and has several degrees of security levels to protect the data and its handling. Therefore one the biggest world companies in the field of information systems and computers, IBM, was contacted for that.

    EC Information system Center was provided with new young and ambitious personnel and also subscribed in the internet world net.

    Investment case and valuation

    Financial statements:

  • During the fiscal year ending June 1999, EC sold 58.1 billion cigarettes, of which 50 billion cigarettes were its own brands while the balance were produced as a sub-contractor for three multinational companies.

  • Cigarette sales represent 91% of EC's total revenues and amount to almost 99% of total market consumption, with the balance covered bye imported brands.

  • At the beginning of January 2000, EC applied a 6% increase in prices to its 20-Cigarettes hard pack that contribute around 11% of total sales.

  • The gross margin increased from 14.2% in 1997/98 to 23.1% in 1998/99.

  • EC produces its own brands as well as producing 13 other brands as a sub-contractor for three multinational companies. Revenues from producing under license grew from US$26m in 1997/98 to US$42m in 1998/99, an increase that reflects the multinationals' confidence in EC's operational efficiency. EC's revenue rate for its production of foreign brands was raised in January 2000, from US$5 to US$6 per thousand cigarettes.


  • Key Developments

  • Egypt is still in its early stages of developing environmental and health awareness, while its population is growing at almost 2% per annum. Taking into consideration EC's position as the only company licensed to produce cigarettes in Egypt and the GDP growth rate of 6% p.a., EC has assumed that cigarette consumption will grow at a CAGR of 11% during the four-year period from July 2000 to June 2004. Sales of molasses tobacco are expected to grow at 4% p.a. as water pipes become a more popular method of smoking tobacco in Egypt.

  • Gross margin up from 14% in 1997/98 to 23% in 1998/99, EC expects it to be maintained 24-25% in coming years.

  • EC expects to apply a gradual increase in sales prices, ranging between 1.5% and 2.5% per annum over the five years. But EC would not apply any further price increase to its sub-contract cigarette production over the next five years.

  • The government is planning to sell between 6% and 11% of its holding in EC while still retaining a minimum, controlling stake of 55%.

  • EC is currently building a new factory on a 300 acre in Sixth of October City (an industrial zone on the outskirts of Cairo) to consolidate its production process. The relocation will take around seven years and should be finalised by 2006.


  • The market value of the real estate assets that would be released by the relocation is estimated by EC at more than 1.2 LE bn (US$351m). But these assets are not incorporated in EC's evaluation, as it is still debatable whether EC will have the right to profit from them or whether ownership will be transferred to the government after the relocation.

    Tobacco, all of which is imported, is the major cost component and accounts for 52.1% of the total cost of goods sold. While a severe currency devaluation is not expected in the near future, a devaluation of the Egyptian pound would have a negative effect on EC's profitability: the majority of its revenues are dominated in local currency.

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    © World INvestment NEws, 2000.
    This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine.
    August 7th 2000 Issue.
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