The fortunes of one of Saudi Arabia’s leading food companies have been turned around since Saleh Ahmed Hefni took over as CEO in 2007. In the past seven years, Halwani Brothers’ profits have grown from 20 million Riyals ($5.3 million) to nearly 100 million Riyals, while sales have increased to 1 billion Riyals ($267 million). Mr. Hefni aims to double revenues to 2 billion Riyals, one of three clear objectives he set when entering the company eight years ago. In this interview, he talks about these objectives, why he will not sacrifice quality to lower prices, re-branding the company, and the possibility of entering the growing health foods market.
Since your arrival in 2007, you have restructured the company and transformed performance. Please tell us more about the company when you arrived and Halwani Brothers today?
When I first arrived at the company we had three strategic objectives. First was to start building state-of-the-art industrial facilities and move out of the existing facility that had been in operation for 40 years.
Our second objective was to take the company to an IPO (Initial Public Offering). The third objective was to take the company up to revenues of 2 billion Riyals ($533 million).
This involved both organic growth as well as the acquisition of companies locally and regionally.
Thus far we have completed two of the strategic objectives, the company was listed in 2008 following the IPO. Secondly, the industrial complex begun construction in 2009 – we are now in the process of moving locations and will start commissioning in the middle of this year.
Thirdly, we have achieved our organic growth as projected, but have yet to acquire new companies. We have looked at a number of opportunities In Egypt, Turkey and Saudi, but as of yet nothing has materialized.
The restructuring phase was very important for the company, the vehicle that we wanted to use to achieve our future goals and strategic objectives required a new setup on the board and a different setup in the management.
What was the rationale behind taking Halwani Brothers to the stock market, and how has this influenced the company’s development subsequently?
Our expansion mechanism was behind the decision to go public. Secondly, the major shareholders wanted to build an institution out of Halwani; it is no longer a family business.
We are now fully fledged in corporate governance in terms of internal audit, transactions and board structure.
This was really a second reason for us to ensure that the company was perceived in the local market as a company that can grow upon a solid and transparent foundation, as well as to attract capital for our expansion plans.
When you say establishing Halwani as an institution, what do you mean by that?
Most family businesses have a decision making structure that is based upon what the owner wants. The board structure is a little more democratic and transparent.
When you have a public company, you require particular decision-making structures and committees that approve investment decisions, senior appointments and such like.
At the same time, it is very important to separate management from ownership in structuring public companies.
All of this has been done in our organisation, and we are very proud to demonstrate this to all of our stakeholders and can confidently move forwards as a result.
You are in quite a unique position in that you have worked with the company before it was listed for an IPO, as well as after. How has this changed the company from your perspective?
It has been very important, particularly as the Capital Market Authority has evolved towards requiring strict regulations and transparent structures.
Board members now have real responsibility on the things that are said and done – it is no longer about coming along for a cup of coffee and a casual meeting.
The whole team is far more focused. The position of the Board is far more prestigious, this presents a challenge in itself because finding directors willing to take on the responsibility that comes with being a board member can sometimes be difficult.
Coming back to point one on the strategic plan: infrastructure. Could you elaborate further on how having world-class facilities has served to move the company in forward?
In Egypt for example we doubled our meat production last year. In 9 months we used most of our extra capacity.
Also in Halawa production, we have increased our production capacity by 50%. Also, in Egypt we are in the process of building a factory that produces chicken fillet and nuggets; this will become operational later this year.
Considering your production balance, is most done in Egypt or in Saudi Arabia?
Looking at revenue, in 2014 the balance was about 50/50 with 80% of profit coming in Egypt and 20% coming from Saudi Arabia. In Saudi, we are building nine factories right now.
Basically, the equipment available on site will service our future requirements until 2020, but the facility will serve us for the next 30 years.
Saudi Arabia is not considered a beacon of world-class standards in food production such as in the United States or Europe.
How do you keep up with the highest international standards from your position in Jeddah?
We have been able to penetrate the international market with certain niche products such as Maamoul (pastries with dates) that are allowed in these markets.
We have been able to develop export markets by using the highest quality materials and implementing the best possible international standards such as those of the International Organization of Standardization and the Hazard Analysis and Critical Control Points.
Halwani has developed a wide portfolio of international export markets as well as the business in the Kingdom. How important is Saudi Arabia for the overall business?
Currently Saudi Arabia accounts for around 80% of local production and 20% for international export. The same balance goes for Egypt.
We believe that the sky is the limit for growing this international proportion of the Saudi production.
How do you perceive the Halwani Brothers brand and what direction do you want to take that in?
We have been thinking about the brand carefully and working on re-branding the company for the past couple of months.
Halwani has numerous sub-brands; we are going through a process of re-focusing our brands. Our main brand, that is, the green logo gives a seal of quality symbolic of Halwani.
We have been positioned for the past 30 years as a trusted product; our prices are higher than our competitors but we use the highest quality materials and processes.
Those customers that want quality are welcome, but we shall not be cutting on our prices or quality as a competitive strategy.
Sales have increased by approximately 80 million Riyals ($21 million) year on year for the past five years. What’s driving this growth in terms of product lines and strategy?
We have doubled sales over the course of the past 5 years. Seven years ago the company was making 20 million Riyals profit, now the company is making above 90 million Riyals profit.
There was a lot of focus and work done in order to deliver that growth – the key thing was to focus on products with strong growth.
On top of this, we have re-visited all of our input processes, our pricing structures, sales and distribution.
All of this has accumulated to reach sales in excess of 1 billion Riyals for 2014.
A key risk for the region concerns health. Rates of diabetes, obesity and such lifestyle related illnesses are a key issue. To what extent does helping counter this issue factor into your strategic plans?
This issue is a core part of our strategic planning. Many of our products depend upon sweetness.
Nevertheless, we are seriously discussing how we can diversify into healthy products that will be more attractive over the long-term. We are capable of producing such foods and it is a great intention of ours to do so.
What are your thoughts on the opportunities presented by the opening of the Saudi Stock Exchange and the ability of Saudi companies to work at a strategic level with international investment partners?
It is extremely important, especially for those companies that have not yet adopted strong corporate governance measures.
This change will influence such companies to become more compliance focused in their operations.
The Saudi Stock Market is huge, by welcoming foreign investors into the market it shall open up doors for family businesses to start operating in a more sustainable way.
On top of this, the Saudi market is quite volatile, having international institutions will take some of this volatility away and replace the sentiment driven investment culture with a more fundamentals-based approach.
How is Halwani Brothers gearing up to work with international investment partners?
Any international investors will be looking for clear strategic goals in the companies they are considering partnering with.
Any investor that comes into the market will look at several key points such as board structure, governance, cash flow and such key performance indicators.
Management is also a very important point, as well as, obviously the product offering. This detailed investment approach will add great value for the market as a whole; I think everyone involved will do well from this.
If I was an international investor I would certainly look into developing a relationship with Halwani.