Egypt’s leading tobacco product manufacturer, the Eastern Company (EAST), has reported historic high records in its financial indicators for the second quarter (Q2) of fiscal year (FY) 2020/21.
The highs have been particularly reported in terms of the company’s quarterly production, sales, and profitability.
Revenues came in at EGP 4.21bn, a rise of 6.5% quarter-on-quarter (q-o-q) and 5.9% year-on-year (y-o-y). The company also achieved net profit of EGP 1.38bn, a rise of 18.2% q-o-q and 18.8% y-o-y, which was driven by improved sales, margins and financing income.
For the local cigarettes segment, which represents 79% of the company’s revenues, EAST reported revenues of EGP 3.3bn during the quarter, up 3% q-o-q and 10% y-o-y. Sales volumes stood at 17.5bn cigarettes, reflecting an all-time high, up 7% q-o-q and 9% y-o-y.
The surge in volumes was mainly due to the upgrades that EAST had recently implemented at its production facilities, at a cost of EGP1bn. The upgrades have resulted in raising the production capacity from 200m cigarettes/day to 250m cigarettes/day.
The company was also able to indirectly raise its ex-factory prices, by reducing retailers’ margins in December 2020 from EGP 1.0 to EGP 0.25 per 10-pack box. As for the toll manufacturing segment, which represents 15.5% of the company’s revenues, EAST reported revenue of EGP 651m, reflecting a rise of 8% q-o-q but down 11% y-o-y.
EAST reported a consolidated gross profit margin (GPM) of 43.5%, an increase of 2.7pps q-o-q and 1.6pps y-o-y. This was led mainly by better economies of scale and favourable seasonality.
The company has made two other important announcements, the first of which saw the board extend its printing and manufacturing contract with Phillip Morris International (PMI). The global tobacco manufacturer represents about 95% of EAST’s toll manufacturing, and has a market share in Egypt of about 20% with the same terms and conditions. The second announcement saw EAST’s management decide to stop buying back shares.
EAST is planning to offer a heat-not-burn (e-cigarette) product, and is in discussions with three companies on introducing its brand to the market. The Egyptian company is expected to introduce the product to the market by the end of FY 2020/21.
EAST is planning to introduce its own brand to fulfil the need of the targeted segment which is the C income group.
It has maintained its excellent relations with PMI, and more details regarding the contract negotiations will be available within 10 days. The company is waiting for the right time and price to sell its unutilised assets.