Eastern Company negotiates with foreign tobacco companies to add new products to middle price segment

Company produced 62m cigarettes in last FY with a market share of 72%, says Haroun

Eastern Company is negotiating with a number of foreign tobacco companies located in the market to add new products in the middle price segment through partnerships.
The first consumption segment is priced with a maximum of EGP 18 per pack, middle segment between EGP 18 and EGP 30, then the third segment priced at over EGP 30.
Chairperson, and CEO of Eastern Company, Mohamed Haroun, said that the company has signed a partnership with Al-Mansour Holding Company for Financial Investments to produce West through targeting production of 3mcigarettes per day.
He added that the company has produced a total of 62bn cigarettes during the previous fiscal year (FY), an increase of 1bn cigarettes on the budget estimates with a market share of 72%.
Haroun explained that the total number of produced cigarettes in 2017/2018 reached EGP 83bn, likely to increase this year to 87bn with a growth of 0.5%.
Additionally, he pointed out that the company contracted earlier on five new production lines from Europe at a cost of €8m, which includes new machines and overhauling others. Two of those lines have been received. He said that the company is seeking in the coming period to develop Mondial and Black Label to produce 4m Mondial cigarettes this year, up from 1.5bn last year.
The company is considering the use of a new mechanism in production to lower costs, where the new study is expected to be completed within three months. He pointed out the difficulty of producing electronic cigarettes now, in light of their declining market share, along with the counterfeit products that affect their investment feasibility, Haroun added.
Moreover, he also said that the company produces 1.3m cigars per year and plans to maintain the same quantity, especially after the new price hikes that reached 10%. Also, the company produced a type of cigar known as Brontē at a cost of EGP 500 for 10 cigars, and the company produced only 40 packs.
Notably, the company received written requests from UAE companies to enter the Egyptian market to manufacture their products in the market.
He noted that the company is currently considering the size of the company's production capacity to determine the possibility of UAE companies' entry into Egypt, whereby he pointed out that 85% of the company's exports are in Mu'assel (tobacco used in smoking shisha), especially Salloum—most popular brand—against 15% for Cleopatra.
Haroun said that the recent decision to increase the price of cigarettes by EGP 0.75 per pack was due to the issuance of the new Comprehensive Health Insurance Law on 11 January with a six-month grace period.
Also, he noted that the company's profits in the first 11 months of FY 2017/2018 reached EGP 4bn, which will reach EGP 4.25bn by the end of the FY, against EGP 3bn in the FY before.
He pointed out that the tax law, according to the latest amendments, imposes a flat tax of EGP 3.5 on the first segment of cigarettes and EGP 5.5 on the second, along with a tax of EGP 6.5 on packs more than EGP 30, which comes in addition to the 75 piasters as a health insurance tax, and 1 piaster for students.
Minister of Finance Mohamed Moeit had issued a ministerial decree No. 288 for the year 2018 of prices of cigarettes after imposing the new insurance law, setting the price of Marlboro, Kent, and Davidoff at EGP 37, up from EGP 35. The price of Merit and Dunhil reached EGP 40 and Camel tagged at EGP 34.
LM and Lucky Strike are now selling at EGP 29, Rothman, Gauloises, and Winston at EGP 27, while Next and BS were priced at EGP 25 per pack.
Moreover, Pall Mall and Viceroy were priced at EGP 24, Cleopatra Black Label and Time Golden West at EGP 22, while Super and Target, as well as Black Box, Red, and Gold Cleopatra, were set at EGP 17.
The decision included the prices of Cleopatra King at EGP 15.5, Queen at EGP 16, and Mondial Red, Blue, and Lite, as well as Boston and Belmont, to EGP 16.5.
According to Haroun, the existence of three segments of cigarettes products enables all companies to compete in the presence of differently priced products. He said that the recent ministerial decision on cigarette prices contributed to solving the price distortions between the various segments and creating a balance in financial burdens resulting from the imposition of taxes and fees.
He explained that a period of three months is needed to measure the impact of price hikes on cigarettes, as some clients could reduce their intake or downgrade to a lower price segment.
Achieving sales revenues of the company helps in the promotion of some products in the event of stagnation in markets through commodity or financial incentives, he added, pointing out that the success of companies is usually measured by one of two things: to increase market share or collect large cash from traders.
Moreover, he said that they target exports to $10m in the coming years, up from $4.7m at the end of the last FY.
He explained that the company is coordinating with the Chemical Industries Holding Company to exploit untapped areas in Manstrali, Dahab Island, Faisal, and Salloum, along with completing licenses procedures. Adding that it is difficult to implement residential or administrative projects on land with industrial licenses. Therefore, it is necessary to change the activity first and then determine the mechanism of exploitation by selling, leasing or partnership.
The company is stable with no need to borrow, he noted. Adding that the company is working to create a balance between costs and revenues to maintain profitability rates in view of the high cost of production. He added that the company will be affected by the high prices of Mu'assel due to the presence of unlicensed plants to sell counterfeited products.
The decrease in the company's production of fruit-flavoured mix represents a weak point for the company, hence they consider partnering with companies that produce flavours to export to Arab and Gulf countries, he explained, adding that the market share of Mu'assel amounts to 20%, with plans to reach 30%.