Food & Drink

Shareholder disputes worsen Saudi fast-food chain Herfy’s woes

October 9, 2024, 4:02 PM

Herfy operates 385 branches in Saudi Arabia and also has a presence in Kuwait, Bangladesh and Nigeria

Chain valued at $440m
It has 385 Saudi outlets
Founder has 15% stake

As its profits and share price plunge, Saudi Arabia’s leading fast-food chain Herfy has become embroiled in disputes with its two biggest shareholders.

Founded in 1981 by Ahmed Al-Said after he returned from studying in the United States, Herfy operates about 385 restaurants across the kingdom, plus bakeries and meat processing factories. It also has outlets in Kuwait, Bangladesh and Nigeria.

Conglomerate Savola Group, Saudi Arabia’s 23rd-largest listed company, is Herfy’s top shareholder with a 49 percent stake, having bought into the business in 1998.

Al-Said holds 15.3 percent, while Vanguard Group (1.3 percent) and BlackRock Inc (0.8 percent) are other notable investors. Herfy’s market capitalisation is $440 million (SAR1.65 billion), bourse data shows.

This week, Savola wrote to Herfy asking its affiliate to hold a shareholder meeting to vote on dismissing board member Mohammed Abdulaziz Alshetwey, according to a bourse filing that did not specify any reasons why. Savola and Herfy did not immediately respond to requests for comment.

Savola’s action may be separate from a deepening feud between Herfy and its founder Al-Said. On August 18 he sent a letter asking the company to hold a shareholder meeting to dismiss chairman Mutaz Qusai Alazzawi. The meeting will be held on November 4.

Earnings slump

Al-Said made a similar request in 2022 that shareholders subsequently rejected, a bourse filing states.

The disputes add to ongoing problems for Herfy. The company’s 2023 annual net profit was SAR8.4 million ($2.2 million), more than double that of 2022 but a fraction of its previous earnings.

From 2008 to 2021, its annual net profit averaged SAR163 million, according to AGBI calculations based on S&P Global data.

The company’s stock price has mirrored this earnings slump. Herfy’s shares ended Tuesday at SAR25.45, down 65 percent from November 2021’s six-year high of SAR77.30. The stock hit a 14-year low of SAR22.92 in early August.

On October 7, Herfy published a lengthy statement in response to Al-Said’s claims that there was “misrepresentation” in its accounts.

The statement says Al-Said submitted a letter in early 2021 demanding a SAR20 million bonus for himself and for the transfer of its Doka brand, its outlets and company’s Sudair factory to him.

He asked to become a “technical consultant” to Herfy on a five-year contract that would pay him an annual bonus of SAR3 million. He also demanded that his son, Khalid, be appointed CEO and managing director.

In 2022, Al-Said filed a lawsuit for nearly SAR45 million for end-of-service benefits and 40 years’ unused vacation allowance. His claim was dismissed.

In March 2021 – a month before he resigned as chairman – Al-Said raised the annual rent on a property he owned and leased to Herfy to SAR950,000 from SAR250,000, the statement says. Al-Said similarly raised the rent on two other properties Herfy leased from him.

These increases were made without board approval. The board and general assembly subsequently rejected them.

'Lack of harmony in vision'

The statement also claims Al-Said on two occasions transferred a total of about SAR80 million to his personal account from company funds before returning the monies a few weeks later. He also changed the ownership of two vehicles to himself from the company without explanation, the statement said.

Herfy said its second-quarter net loss of SAR23.7 million was partly a result of former CEO Khalid Al-Said – the founder’s son – who successfully claimed for 18 years’ unused holiday allowance.

Sam Bader was appointed acting CEO, eventually taking the role permanently, in June 2021, replacing Khalid Al-Said. The latter had been given the position on a temporary basis just a month earlier.

In June 2021, founder Al-Said resigned as a board member having quit his role as CEO in April that year with immediate effect “due to the lack of harmony in vision”, a bourse filing states.