By Mohsen Allam By Mohsen Allam ETC Chairman Nabil Abdel Aziz says “attack smoking,not the company,” of recent health campaigns. By Mohsen Allam By Mohsen Allam By Mohsen Allam By Mohsen Allam

By Dina Basiony

The first thing visitor’s are greeted by in Eastern Tobacco Company’s (ETC) reception is a striking poster of Giza Pyramids and the Sphinx. In between them sits a massive pack of Cleopatra cigarettes, as if the well-known company brand is a large part of Egypt’s heritage. Funny, yes. But the picture doesn’t really lie. Eastern Tobacco products, including Cleopatra and Boston cigarettes and fruit-flavored shisha tobacco, are among the oldest and most well known products manufactured in the country.

Established in 1920 as a subsidiary of the Chemicals Industries Holding Company, ETC is the sole manufacturer of tobacco in Egypt. In the Egyptian market, at least 95% of cigarettes produced are domestic brands, the remaining 5% foreign brands that ETC manufactures under license. According to the Central Agency for Public Mobilization and Statistics’ records released June 2008, there are at least 13 million smokers in Egypt consuming nearly 80 billion cigarettes annually.

Partial privatization of ETC began in 1995, when the Holding Company for Mining and Refractoriness sold 20% of its stake in ETC through the issue of 5 million shares, equally divided between employees and the public. ETC then made another public offering in 1999. Today the holding company retains 66% of ETC, the other 34% is publicly-owned. The company that was first established with a capital of LE 25,000 made a net profit of LE 751.3 million in FY2007/08, up 8% from LE 695.9 million in the previous year.

ETC is involved in several activities in addition to manufacturing tobacco products. The company builds and owns real estate, rents and sells land and exports other products including fertilizer, fodder, pasta and tires. The company exports products worth LE 112 million annually.

ETC has 20 factories in Egypt producing cigarettes, pipe tobacco, cigars and molasses tobacco (shisha tobacco). ETC’s biggest plan now is to move to its new 360-feddan headquarters in Sixth of October City. The company’s current headquarters on Al-Ahram Street, Giza, has been crowded in by residential developments, which have killed expansion plans. In addition, being located on one of Cairo’s busiest streets makes it hard for deliveries to enter or exit the building smoothly.

Nabil Abdel Aziz, chairman and managing director of ETC since April 2008, spoke to Business Today Egypt about the company’s latest activities and future plans. Edited excerpts:

Of course, among the major changes the company has witnessed is the fact that it was first owned by an Armenian owner, then, in 1961, the company entered the public sector as a company that belonged to the Egyptian government. In the early 1990s we started having some shareholders.

You know, in 1984, ETC was originally two small companies ­— Eastern Tobacco and Al Nasr — both producing tobacco products, then they merged to form one big company. The companies decided back then that if we wanted to be tough competitors in the national and international market, then we had to expand and unite into one big entity.

After this we entered long term agreements with companies like Philip Morris and British American Tobacco [BAT] to manufacture cigarettes here for them — for Philip Morris, Marlboro and Merit and for BAT, Kent and others. Right now, I’m waiting for more agreements and business with other companies like Japan Tobacco International.

First of all, we are working very hard to develop our human resources sector. Our financial evaluations are quite positive. In the Middle East Rating and Investors Service [MERIS] evaluation report [for FY2007/08], ETC got ‘AA,’ which is a very high ranking on the financial, developmental and investment levels.

In general, when we do an evaluation for ourselves to figure out whether we’re developing as anticipated or not, we compare the current status of the company to the plans we had for the company at the beginning of the year. We also compare our performance to that of other big international companies. There isn’t, however, a company in Egypt that we can compare ourselves with, because we’re unique in the market; we don’t really have any competitors. We’re the only company producing tobacco here in Egypt.

Of course. I only smoke ETC products; cigars and molasses. You know, cigars are becoming fashionable among women now. The only problem I have with smoking cigars, though, is my wife. She gets very angry when she sees me smoking cigars [but] I have spent 35 years working in this business and I have been located in the tobacco experts’ department, where I have been in charge of testing the tobacco. So, it has been inevitable for me to smoke. I have to smoke the products I’m selling, like the cook who has to taste what he’s cooking.

I have three children and I don’t encourage any of them to smoke. But I suspect that my eldest son smokes. He never smokes in front of me, though. Honestly, I feel ashamed when I see young people smoking. I feel sad. But I believe that ETC is only working to cover the demands of smokers, not to increase the number of smokers. You see, we don’t advertise our products. Personally, I feel scared when I see a young boy or girl smoking, but what can I do? This is the price I pay for my job.

The number one aspiration was to move our operations to the Sixth of October complex in order for future expansion to happen. The idea to move was there long before I became chairman, but once I took over I started to implement it. The company will leave this location [on Al-Ahram Street], which is nearly 90 years old, by 2012.

What I worked on doing also is increasing our exports. We have expanded and reached places in Europe and Africa, like Niger and Chad, all West Africa, as well as the Philippines.

Not much, to be honest. First, our cigarettes are very cheap at LE 3 a pack. Second, it’s not easy for smokers to quit smoking. Some people can stop eating more easily than they can stop smoking. So, our business never gets affected by financial crises or anything. When people are upset, they smoke. When people are happy, they smoke, so we’re never out of business.

What hurt us really, though, is that more than 90% of the material we use to manufacture tobacco is imported and the materials’ prices started to increase. Now anti-smoking campaigns have started to spread all over the world and the tobacco exporters started reducing production, which is bad because we rely on them.

What we’re trying to do, or what we are hoping to do, is to force the government to make some changes in the taxation system because it’s not fair now. For example, we sell the cigarette pack for LE 3. We pay LE 1.75 taxes which is more than the profit we make. You also have to know that for other companies, like BAT, they’re selling their cigarettes for LE 5 and paying the same tax, LE 1.75. They get two pounds profit, which is not fair. It’s not fair to have the same taxes for both products. So, we need the government to be fairer in the taxation system. [The price of cigarettes is set by the government.]

We contribute a lot and we’re making lots of donations. For example, we give out at least LE 10 to 12 million annually for social projects; hospitals, schools, etc. We give financial help to anyone that urgently needs our help. We contributed to the Red Crescent during the Gaza crisis and we sent them LE 1 million. We’re also giving Cairo University LE 15 million to help them move to their new location in Sixth of October City.

We have a training program for all young graduates who wish to join our company. The training program lasts for two years. We take in 300 to 400 trainees annually. They can join ETC when they finish the program or they can take a certificate that enables them to use their experience at another company. But most of them are hired by us.

The company currently has 20 factories. Eight facilities in Giza, Talbia and Alexandria produce cigarettes, pipe tobacco and cigar. Three factories in Giza, Talbia and Alexandria produce filters. Al-Zomor factory in Giza manufactures cartons and printed material. Six facilities in Giza, Alexandria, Menouf, Tanta and Abu Teeg produce molasses. Three of the factories, in Giza, Talbia and Alexandria, produce homogenized tobacco.

On May 5, a major fire erupted in ETC’s Al-Zomor factory. The fire lasted a few hours and left four factory workers and three firemen injured. The injured, whose conditions have now stabilized, were moved to Umm El-Masrien Hospital. Mohammed Yasin Badawy, Giza deputy governor and Ahmed Gamal, consultant to the governor, visited the site along with Abdel Aziz. The fire resulted in “burning insignificant paper rolls and printing materials, but no major damage resulted,” says Abdel Aziz.

Well, it’s not the first time that such unfortunate incidents happen. Fires erupt in big factories all the time and there is nothing specific you can do to stop this happening entirely. The factory didn’t stop working for one minute. We have four floors in the Al-Zomor factory. The fire started on just one floor and some paper reels were burned. It was amusing, however, to read in the papers that important files got burned in the fire. Why would I keep important files in a minor factory? Anyway, the fire lasted for a few hours, and that was it. We will try to work on preventing this in the future. I will start banning people from smoking in the company buildings, but what can we do? We’re a tobacco company. People smoke everywhere. This is our business.

From August 2008, a picture of a dying man, lying on a hospital’s bed with a mask covering his nose and mouth, was shown on all cigarette packs sold in Egypt. It was part of a health campaign launched by the Ministry of Health, and featured the slogan ‘Smoking Kills,’ among others. A few months later, the picture was changed to that of a young boy surrounded by smoke, with the slogan, ‘Smoking Kills Your Children.’

This doesn’t affect our sales. I will tell you something — I’m not against any health campaigns that are against smoking in general. But campaigns that target our company in particular, or our products, this is what I don’t like or accept. Some people attack ETC as the source of something sinful. I don’t like that and it’s not true. Attack smoking, but do not attack the company.

Regarding the anti smoking ads, we did abide by the law and put them on all our cigarette packs. It was an ugly photo, but we had to follow the rules. It did hurt sales slightly at the beginning. But, you know, Egyptians never give up on something they want. They started covering the pictures of the sick man and coughing child with more pleasant photos of Nancy Ajram, Elissa and Haifaa Wahbe. Egyptians know how to manage.

I feel like we have started to really feel the crisis. God help us in the coming period of time. It is worrying. The tourism rate is going down. The income of Suez Canal is going down. We rely on our exports. Petroleum prices are going down. So what’s next? It is worrying.

Well, I can’t give recommendations for the government. Maybe if they asked me behind closed doors, I would. But what I can say now is that we at ETC are trying to tighten our belts and limit expenses, reduce losses, plan well for the future and try to be self sufficient.

Well, we do have some major plans for the future. But I don’t want to speak elaborately about them. It’s not good to talk about your business before it’s done.

“I usually buy ETC products, mainly because they’re cheap. LE 3 for a pack and 10 piasters for a cigarette is not bad at all [] I come from a family of smokers: My dad smokes, my grandfather smoked and my great grandfather smoked as well. It’s funny to see old packs of Cleopatras in the drawer of my late grandfather’s bedroom [] generations of the family have been smoking the same brand of cigarettes.” Ahmed Tawfiq, 19, student

“[ETC’s] apple shisha has been the most popular order for both my Egyptian and foreign customers for over 30 years. If a day passed and I didn’t smoke apple shisha with one of my regular customers, there would have to be something terribly wrong with the world.”

Mohamed El Sayed, owner of Hamada coffee shop in Downtown Cairo bt