Tag: Eastern Co.

  • Eastern Sells Factory to PMI

    Eastern Sells Factory to PMI

    Image: Stephen Finn

    Eastern Co. will sell the land, buildings and currently rented equipment of its Factory No. 9 to United Tobacco Co. (UTC), a subsidiary of Philip Morris International, for EGP1.58 billion ($32.66 million), reports Ahram Online.

    According to an Eastern Co. statement to the Egyptian Exchange, the sales price was the average of three valuations offered by valuation companies.

    As part of the deal, UTC will waive its right to recollect the remaining annual rent value of the factory that was paid in full according to the rent contract that ends on April 26, 2026.

    Egypt is in the process of privatizing many state-owned companies. The government hopes to earn $5 billion from this program.

    In November 2023, Egypt’s Ministry of Public Enterprise sold a 30 percent stake in Eastern Co. to the United Arab Emirates’ Global Investment Holding Co. for EGP19.34 billion.

    In May 2024, PMI acquired an indirect 14.7 percent stake in Eastern Co.

  • PMI Acquires Minority Stake in Eastern Co.

    PMI Acquires Minority Stake in Eastern Co.

    Photo: artmim

    Philip Morris International has acquired 14.7 percent of Eastern Co., reports Egypt Today.

    PMI and Eastern reportedly seek to explore potential strategic areas for collaboration in technology, manufacturing and innovation.

    “We look forward to exploring potential areas of cooperation with Eastern, including opportunities to provide adult smokers in Egypt with better options than cigarettes,” said Fred de Wilde, PMI president for South and Southeast Asia, the Commonwealth of Independent States and the Middle East and Africa, in a statement.

    In November, Global Investment Holdings, an investment firm based in the United Arab Emirates, paid EGP16.4 billion ($531.6 million) for 669 million shares in Eastern Co.

    Eastern Co.’s primary shareholders include the state-owned Holding Company for Chemical Industries (20.9 percent), the Allan Gray Equity Fund (7.2 percent) and the shareholders union of the Eastern Co. (6 percent), with the remaining 36 percent of shares trading freely on the stock exchange.

    Egypt has been selling stakes in 35 state-owned companies through offering shares to strategic investors.

    Eastern Co. is Egypt’s largest cigarette manufacturer, with a portfolio that also includes cigars and pipe tobacco, among other products.

  • Eastern CEO Defends Price Hike

    Eastern CEO Defends Price Hike

    Photo: Taco Tuinstra

    Eastern Co. increased cigarette prices by between EGP2 ($0.06) and EGP8 per pack, effective Feb. 17, 2024, reports Ahram Online.

    The company’s most affordable brand, Cleopatra, now retails for EGP30 instead of EGP27 for a pack of 20 cigarettes.

    This marks the company’s second price hike in three months. Cigarette prices have increased multiple times over the past year in Egypt amid the decreasing value of the Egyptian pound against the U.S dollar.

    Earlier this month, Philip Morris Egypt raised prices of traditional cigarette brands, including Marlboro, Merit and L&M, by between EGP9 and EGP11 per pack.

    In a television interview, Eastern Co. CEO Hani Aman insisted the price hikes were modest when compared to the significant increase in the cost of raw materials.

    “We are not a very commercial company, otherwise we would have raised our prices by large proportions like other companies, but we look at the issue from a different point of view. Cigarettes are a strategic commodity,” he was quoted as saying by The Egypt Independent.

    According to Aman, 95 percent of cigarette components are imported. The price of cigarette filters, for example, has increased by about 400 percent, he said.

    Approximately 18 million people out of Egypt’s nearly 105 million-strong population smoke cigarettes, according to official data.

  • Investors Buy Stake in Eastern Co.

    Investors Buy Stake in Eastern Co.

    Image: xtock

    Investors have acquired 3.3 percent of the shares in Eastern Co. for EGP2.05 billion ($66.55 million), reports Ahram Online, citing an announcement by the Egyptian Exchange

    The acquisition was conducted in a block-trading transaction, typically carried out by a single investor or a group of investors on the market.

    In November, Global Investment Holdings of the United Arab Emirates acquired a 30 percent stake in Eastern Co. for EGP16.4 billion.

    Following the most recent transaction, the remaining shareholders in the company are the state-owned Holding Company for Chemical Industries (20.9 percent), Allan Gray Equity Fund (7.2 percent), the shareholders union of the Eastern Tobacco Co., with the remaining 6 percent of shares trading on the stock market.

    Eastern Co. is listed among 35 companies slated for partial or complete privatization by the government.

  • Shifting Sands

    Shifting Sands

    Image: Givaga

    Under pressure from the IMF, Egypt’s government reduces its share in Eastern Co.

    By Stefanie Rossel

    On Oct. 29, 2023, Egypt’s House of Representatives approved a long-expected tax hike on tobacco products. The amendment to the 2016 VAT law will expand the price ranges of taxed cigarettes by raising the minimum and maximum limits of each segment by 12 percent annually for five years. In addition, the draft law will increase the fixed tax by EGP0.50 ($0.02) on the three segments of cigarette prices, resulting in EGP4.5 for cigarettes retailing at less than EGP31, EGP7 for the mid-price cigarette range (those costing between GDP31 and GBP45) and EGP7.5 for cigarettes priced above EGP45.

    The bill also increases the tax on tobacco products by 75 percent, raising the minimum from the present EGP30 to EGP60 per kilogram. Imported and local molasses products will see a 25 percent tax hike whereas the tax on heated-tobacco products will rise from EGP1,400 per kilogram to EGP1,800 per kilogram. Under the new law, e-liquids will be taxed at EGP4 per milliliter instead of the current EGP2 per milliliter.

    The amendment will allow cigarette manufacturers, who have been facing increasing production costs and a plummeting Egyptian pound, to adjust prices without moving into higher tax brackets. The tax hike is expected to generate up to EGP8 billion annually in additional revenues for the state budget.

    According to the head of the House’s Planning and Budget Committee, the move is also designed to encourage tobacco companies to increase production in a way that will stem the rise in cigarette prices, thus putting an end to the country’s cigarette crisis. Since May, the Egyptian cigarette market has been in turmoil. According to observers, the problem emerged after the minister of finance called for an amendment to the 2023–2024 budget to increase its tax revenue from EGP81 billion to EGP87 billion. The government, however, was slow to implement the tax hike. What followed was a shortage of tobacco products, particularly cigarettes, and the rise of an informal, parallel market in which a pack of the country’s most popular brand, Cleopatra, sold at EGP50 instead of EGP24.

    As soon as they got wind of the tax increase, tobacco traders seized the opportunity to make additional profits by hoarding cigarettes. The artificial scarcity caused cigarette prices to soar, forcing smokers to buy unknown, adulterated or smuggled cigarettes, which in turn reduced tax revenues. After Egypt’s tobacco monopoly, Eastern Company, increased production by 40 percent and stepped up vigilance against illicit sales, cigarette prices decreased to EGP40 in September.

    In the short term, [the deal] is clearly positive,” says Vorster, “but the potential for more adverse excise and regulatory regimes could detract from that significantly.” 

    Pieter Vorster, managing director, Idwala Research

    Foreign Currency Crisis

    “Other than for the traders exploiting the situation, it is clearly an unfavorable environment, albeit one caused by tax increases telegraphed well ahead of their implementation, exacerbated by weak enforcement and currency shortages,” says Pieter Vorster, managing director of Idwala Research. “The tax hike helps to reduce margins in the parallel market, but stockpiling will likely continue if potential disruptions to production owing to currency shortages are viewed as possible.”

    Egypt was hit hard by Russia’s invasion of Ukraine in February 2022, which caused many foreign investors to abandon emerging markets. Consequently, the country has been struggling with rising global wheat and energy prices. According to a report by the U.S. Department of State, Egypt’s external debt reached $164.7 billion in June 2023.

    In December 2022, the International Monetary Fund (IMF) approved a 46-month $3 billion loan for Egypt to overcome its economic crisis under the condition that the government undertake several structural reforms. It insisted that Egypt adopt a flexible exchange rate, lift of import restrictions and privatize state-owned companies.

    Despite the government’s efforts to create a more favorable business environment, foreign investors continue to face challenges such as bureaucracy, lack of transparency, uneven enforcement, corruption, intellectual property issues and a shortage of skilled labor.

    Egypt’s sale of a major stake of Eastern Co. on Sept. 3, 2023, was part of its commitment to sell shares in 35 state-owned firms. Global Investment Holding (GIH) of the United Arab Emirates paid EGP19.3 billion for a 30 percent stake of the 50.9 percent stake that the state-owned firm Chemical Industries Holding Co. had previously held—a price that Vorster deems steep. “It seems a high multiple for a noncontrolling stake without the synergies that a tobacco company might have been able to extract,” he says. According to Daily News Egypt, both Japan Tobacco International and United Tobacco Co., in which Philip Morris International controls most shares, also submitted offers for a stake in Eastern Co.

    Following the deal, 20.9 percent of Eastern Co. remains with Chemical Industries Holding Co., 35 percent is freely traded on the Egyptian Stock Exchange, and the remaining 15 percent is owned by various private stakeholders. GIH announced that it would invest $150 million to rejuvenate Eastern Co.’s raw material supplies. Whether it will be allowed to use its funds to import tobacco, however, remains unclear. Egypt prohibits tobacco cultivation and taxes leaf imports at 75 percent. According to Mada, an Egyptian media organization, the Emirati firm will work with banks to facilitate Eastern Co.’s access to foreign currency for imports. “In the short term, [the deal] is clearly positive,” says Vorster, “but the potential for more adverse excise and regulatory regimes could detract from that significantly.” 

    A Growing Market

    The deal might still prove to be a win-win for both parties. Egypt is in dire need of U.S. dollars to pay for imports. Eastern Co. accounts for 70 percent of tobacco sales in Egypt, which is one of the world’s few remaining growth markets for cigarettes. Statista anticipates the market to generate $6.3 billion in 2023 and projects it to enjoy an annual growth rate of 9.65 percent by 2028. According to Alternative Policy Solutions, a public policy research project at the American University in Cairo, around 18 million Egyptians over the age of 15 are smokers. Overall cigarette consumption increased 7 percent in 2022. Smoking is a male habit: The World Health Organization projects that by 2025, 63 percent of the country’s male population will be smokers, up from presently 41.8 percent. Only 0.3 percent of women currently smoke.

    According to Forbes Middle East, Eastern Co. is worth $1.2 billion. The company reported a net profit of EGP5.29 billion in the first nine months of fiscal year 2022–2023– 24 percent higher than in the comparable prior-year period. Its revenues rose to EGP14.6 billion from July 2022 to March 2023 compared to EGP12.78 billion in the comparative period of the previous fiscal year. The company supplied 88 billion cigarettes to the Egyptian market in 2022–2023.

    With the acquisition of its stake in Eastern Co., GIH will have effectively established control over 40 percent of the Egyptian tobacco market as the investment firm’s founders also hold shares in UTC, according to Mada. How their acquisition will impact on the overall market remains to be seen. Citing Turkiye as an example, Vorster points out that there are several examples where the excise tax and regulatory environments became significantly less favorable when the state exited former monopolies. “It also seems plausible that the market could become significantly more competitive with PMI now manufacturing themselves, and others potentially following in future,” he says.

    PMI Starts Local Production

    In its domestic market, Eastern Co. is rivaled by only JTI and UTC. BAT exited the Egyptian market last year, claiming a lack of economic viability. Its withdrawal came shortly after PMI in April 2022 had reached a licensing agreement with Eastern Co. to manufacture cigarettes in Egypt. More than a year earlier, Egypt’s Industrial Development Authority had invited companies to bid to become the country’s second tobacco company. However, the agency was forced to relaunch the tender after bidders complained that its conditions gave unjust advantages to Eastern Co. In the renewed tender, UTC was the only company to bid. Under the agreement, Eastern Co. acquired a 24 percent stake in UTC.

    Although meant as a first step toward privatization of the tobacco monopoly, the agreement stipulates that UTC manufactures only products owned by PMI, thus protecting Eastern Co.’s market share by preventing the newcomer from producing cigarettes in the same price category as Eastern Co.’s bestseller, Cleopatra.

    In September 2022, UTC started producing cigarettes at the manufacturing site of its predecessor Philip Morris Misr, the licensee for PMI products in Egypt established in 2013. PMI’s flagship brand Marlboro has been manufactured by Eastern Co. since 1985. Following the agreement, PMI products in Egypt are marketed under the label “Made by UTC.”

    UTC also has permission to manufacture e-cigarettes. In April 2022, Egypt legalized the import and commercialization of vape products. Statista estimates that the revenue generated in the country’s e-cigarette market will reach $400 million in 2023.

    The recent sale of the stake in Eastern Co. could also pave the way for more ambitious tobacco harm reduction in Egypt. To date, Eastern Co.’s portfolio has offered only high-risk products, such as cigarettes, shisha and cigars. Vorster is less optimistic. “In theory, it is slightly positive, but with cigarette prices below $2 per pack, it is hard to see reduced-risk products gaining significant traction,” he says.  

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • JT Complains About Eastern’s Dominance

    JT Complains About Eastern’s Dominance

    Photo: Anton Petrus

    Japan Tobacco International has complained to the Egyptian Competition Authority (ECA) about Eastern Co.’s dominance of the domestic cigarette market, reports Daily News Egypt.

    The complaint allegedly involves JTI’s Gold Coast brand, which competes in Egypt’s low-priced cigarette segment. Recent tax amendments have made it costly for JTI to import the cigarette from Turkiye, where it used to be produced.

    JTI has reportedly been trying to get Gold Coast produced by Eastern Co., which has a monopoly on domestic cigarette production, and included it in the contract between the two parties, which will expire in mid-2024. However, the two parties have not yet reached a final agreement, and JTI has stopped selling its Gold Coast brand until the negotiations with Eastern Co. are completed.

    While the state-owned Eastern Co. continues to dominate the Egyptian tobacco market, its position has weakened in recent years.

    In September 2022, United Tobacco Co. (UTC) started manufacturing cigarettes in Egypt, ending Eastern Co.’s decades-old monopoly. UTC is jointly owned by Eastern Co. and Philip Morris International.

    The tax amendments also allowed the cigarette companies to increase the prices of their products after the crisis that hit the cigarette market in Egypt amid a shortage in supply.

    Earlier this month, Global Investment Holding Co. of the United Arab Emirates completed its acquisition of a 30 percent stake in Eastern Co.

  • Egypt Releases Details of Eastern Sale

    Egypt Releases Details of Eastern Sale

    Photo: MamdouhKamals

    Egypt’s Ministry of Public Enterprises has released details of the sale of a 30 percent stake in Eastern Co. to Global Investment Holdings Co (GIHC), reports Ahram Online.

    The Emirati company will pay EGP19.336 billion ($625 million) for 6.689 billion shares of Eastern Co. The payment will be made in U.S. dollars in two transactions. The first payment will be made upon conclusion of the deal in the amount of EGP16.403 billion, and the second payment will be made in the amount of EGP2.932 billion on an agreed upon schedule.

    GIHC has also pledged to provide $150 million to procure tobacco required for Eastern Co.’s manufacturing processes.

    This deal is part of Egypt’s broader initial public offering program aimed at selling stakes in 35 state-owned companies to strategic investors by the end of June 2024.

    In February, the government announced a list of 32 companies for privatization, subsequently adding Eastern Company, Telecom Egypt, and Ezz El-Dekheila. The privatization program is a component of Egypt’s commitment under its $3 billion loan program with the International Monetary Fund. The government hopes to attract $5 billion through privatization between October 2023 and June 2024.

  • GIHC Completes Eastern Co. Share Purchase

    GIHC Completes Eastern Co. Share Purchase

    Photo: artmim

    Global Investment Holding Co. (GIHC) has completed its acquisition of a 30 percent share in Eastern Co., according to reports by Reuters and Ahram Online. The United Arab Emirates company paid EGP16.4 billion ($531.6 million) for its stake in the Egyptian tobacco firm.

    First announced in September, the deal is part of Egypt’s floundering privatization program. In December 2022, the government promised the International Monetary Fund that it would allow private companies a greater role in Egypt’s economy in exchange for a $3 billion, 46-month financial support package.

    In February, the government announced a list of 32 companies for privatization, subsequently adding Eastern Co., Telecom Egypt, and Ezz El-Dekheila to the roster, Ahram Online reported in a separate article. The government hopes to attract $5 billion through privatization between October 2023 and June 2024.

    While it has announced a number of sales to foreign investors in principle, the sale to GIHC is the first to go through. 

    Under the agreement, the Emirati company will provide Eastern Co. with $150 million to procure tobacco materials for manufacturing.

    In addition to CIHC, Eastern Co.’s primary shareholders are the state-owned Holding Company for Chemical Industries (20.9 percent), the Allan Gray Equity Fund (7.2 percent), the shareholders union of the Eastern Co. (6 percent), with the remaining 36 percent of shares trading freely on the stock exchange.

  • Eastern Raises Prices

    Eastern Raises Prices

    Image: mehaniq41

    Egypt Eastern Co. has raised prices of its tobacco products to absorb part of the increase in production cost following the devaluation of the Egyptian pound, said Hany Aman, the company’s chairman, according to Ahram Online.

    The company is coordinating with oversight authorities to control the market and is canceling contracts with vendors that do not adhere to official prices, according to Aman. Eastern Co. has also increased production to increase supply of all tobacco types in order to ensure market stability and contain prices.

    Local cigarette brand Cleopatra has increased in price from EGP24 ($0.77) to EGP27 for a 20-cigarette pack. Brands Boston, Belmont and Mondial have increased from EGP24 to EGP27 per pack, and Moreover, Viceroy and Pall Mall have increased from EGP35 to EGP42. Hookah tobacco prices have also increased to EGP50 for 250-gram packs and EGP85 for 500-gram packs of the Muʽassel Saloum brand.

    Egypt’s Parliament approved an amendment to the VAT law on Oct. 30, imposing a tax of EGP0.50 on tobacco products sold in the local market.

  • Emirati Group Acquires a Third of Eastern Co.

    Emirati Group Acquires a Third of Eastern Co.

    Photo: xtock

    Global Investment Holding Co. of the United Arab Emirates has acquired a 30 percent state in Eastern Co. of Egypt for EGP19.3 billion ($625 million), reports Ahram Online.

    After the sale, the state-owned shareholder, Chemical Industries Holding Co. (CIHC), will retain a 20.9 percent stake in Eastern.

    The deal is part of Egypt’s program to sell stakes in 35 state-owned companies to strategic investors by the end of June 2024.

    Egypt’s minister of public enterprises, Mahmoud Esmat, said the deal underscores the government’s commitment to the success of its program to expand ownership and encourage direct private investment across various sectors.

    In the first nine months of fiscal year 2022-2023 (which concluded in March), Eastern Co. had a domestic market share of more than 70 percent and reported a net profit of EGP5.29 billion, up 24 percent over the comparable period in the previous year.

    The privatization program is part of Egypt’s commitments under a $3 billion loan from the International Monetary Fund.

    The government announced wants to attract $5 billion from the offering of power plants and state-owned companies from October 2023 until the end of June 2024.

    In related news, Eastern recently boosted its production by 40 percent to help alleviate a cigarette shortage in Egypt, according to The Egypt Independent.

    The short supply had caused prices of popular brands such as Cleopatra to surge to unprecedented levels.

    Following Eastern’s decision to increase output and step up vigilance against illicit sales, cigarette prices fell by EGP20, bringing the price of a pack to EGP40.

    Eastern Company CEO Hani Aman announced that the company is working with various state agencies to ensure the proper supplies are being provided to the public.