In late July, President Abdel Fattah al-Sisi held a meeting with Prime Minister Mostafa Madbuly and Supply Minister Ali Meselhy focusing on the strategic stocks of basic food commodities for citizens. In the meeting, Sisi recommended that the Kaha Company for Preserved Foods be developed as part of a larger project to restore the subsidiaries of the Holding Company for Food Industries to their former stature.
The presidential directive instructed that Kaha’s production be revamped to restore Kaha to its status as a beloved brand and major market player. The formerly profitable company has struggled since it was privatized, only to suffer financial difficulties before it was put under judicial receivership and eventually returned to the public sector. An in-depth look at the tumultuous history of Kaha shows a company struggling to survive.
What is Kaha?
As with all of the storied public sector companies in Egypt, we feel a sort of nostalgia for Kaha’s products: that plate of fava beans for breakfast, the jam sandwiches we’d take to school, the sherbert served during weddings and graduation.
Kaha has a 90-year history in preserved foods and maintained an outsized presence in the market until the mid-1990s. The company was established in 1940 with one factory in the city of Kaha in the Qalyubia governorate under the name Egyptian Food Factory. It was the first food processing company in the Middle East. In 1961 it was placed under stewardship until it was reestablished a year later as an Egyptian joint stock company owned by the state under the name Al-Nasr Preserved Foods. The name was later changed to just “Kaha.”
By 1972, the company had grown to six factories, each with its own comprehensive production line (Kaha Al-Tahrir in 1961, Al-Tabiya in 1965, Abou Kebir in 1971, and Al-Rashid and Karein in 1972, in addition to the original factory).
The Kaha factories played a crucial role in the supply of food during the War of Attrition with Israel between 1967 and the 1973 October War. The company’s 32 products were marketed across the country and across the region under the slogan: “Try it once, you will always prefer it.”
The 1991 Public Business Sector Law allowed the company to transfer its ownership and expand through privatization. This marked the beginning of the decline in Kaha’s performance, a trajectory the government is now trying to reverse.
In 1998, despite Kaha’s profitability, the government sold 90 percent of the company stock at LE32 per share in a deal that was valued at LE144 million at the time. The principal investor was the Auf Group, represented by businessman Hassan Mohamed Auf, whose main interests lay in industrial gases.
Auf took over the company in December 1998 after paying LE35 million with an agreement to pay the remainder over five annual installments after the expiration of an 18-month grace period. After the grace period expired, he failed to pay off the installments and was given an additional 16 months, after which he again failed to pay.
The investor’s failure to manage the company, pay the installments or even pay workers’ salaries (workers did not receive salaries between July 2001 and August 2002) prompted the Food Industries Holding Company to file a lawsuit to place Kaha under receivership. In April 2002, the Alexandria Court for Urgent Matters ruled to impose receivership effective August 2002.
During the period the company operated under receivership, years-long negotiations were held between the holding company and the Investment Ministry on one side and the investor on the other. This ended in a settlement to terminate the contract with the investor, transfer ownership back to the holding company and return LE52 million to the investor. In November 2007, ownership of Kaha was transferred back to the holding company.
The holding company then filed a lawsuit to lift Kaha out of receivership. On May 25, 2008, Kaha was brought out of receivership and the company was returned to the state after a decade of disruption and mismanagement.
In those 10 years, Kaha’s presence in the preserved foods market had withered away and new private sector companies had entered the fray. Kaha’s storied brand had disappeared into the realm of memory.
A difficult return
Kaha returned to the state with its financial statements recording a total loss of LE126 million. The company was also saddled with loans, including LE18 million to the holding company, LE45 million to the Export Development Bank, LE26.3 million to the Misr Exterior Bank, in addition to some LE30 million in unpaid expenses: social security dues for workers, debts to suppliers, electricity, telephone and water bills, and taxes.
The holding company chairman at the time, Ahmed al-Rakaiby, held the previous investor responsible for a lack of experience and poor management that drove the company into the ground. Rakaiby admitted that Kaha’s equity value went from positive before privatization to negative.
The toll on Kaha during the period of privatization and receivership went beyond financial losses. The company also lost trained human capital and assets (equipment and production lines), according to a source on the company’s board who spoke to Mada Masr on condition of anonymity. In the period Kaha was under private control and receivership, the company was operating at 20 percent capacity, which led to a breakdown of equipment and a loss of efficiency.
Workers also lost some of their skills as a result of the prolonged period of forced disruption. At times, the company was unable to procure some of the raw materials needed for production. Workers sought alternative jobs to compensate for their lost income as their bonuses, incentives, and sometimes even salaries were withheld. Even after the holding company regained control, it only paid the workers their base salaries.
When it took back control and held the first general assembly, the holding company implemented an early retirement scheme through which it lost around half of its trained staff, who ended up working for the competition, according to internal company reports obtained by Mada Masr.
Paying lip service to development
Sisi’s directives to restore the company were not the first time such a call was made. In the past, various initiatives to develop the company were put forward by various officials, without results. This inaction is documented in the company’s status report obtained by Mada Masr, which was issued by its current board of directors at the beginning of this year.
The current board began overseeing a company with main and sub production lines that had been idle for between 10 and 20 years. According to sources on the board, the company operated at just 20 percent capacity until 2016 — the same low level of production the company was operating at during the tumultuous period of privatization and receivership.
Among the production lines that had been idle for 20 consecutive years were the tomato sauce line in the original factory in Kaha along with the jam, fava bean and tinplate lines (used in the production of tin cans) in the Tabiya factory in Alexandria. This comprised some of the company’s most important products for which the Kaha brand had gained widespread recognition and market share prior to privatization. A number of cooling tunnels and other equipment had also remained idle for periods of between 10 to 15 years, causing the stoppage of other main production lines.
The production lines that lay idle until 2016 point to the failure of previous development plans, to which various officials paid lip service after the company was returned to the public sector.
In 2009, the year following the company’s return to the public sector, the holding company approved a plan to restructure the company financially, administratively, and technically at a cost of LE38 million. Although the plan included financial and technical restructuring (the technical aspect refers to the reactivation of the halted production lines and investment in assets and equipment), in practice LE33 million of the restructuring budget went to the establishment of a hypermarket to sell products, with only LE5 million for the remaining sectors.
The plan did not bear fruit, and Kaha’s losses persisted. In the years that followed, the company depleted half of its capital, according to financial statements, prompting the general assembly in 2014 to consider liquidating the company. Nevertheless, the decision by the general assembly in January 2014, which was published in the Official Gazette, was to continue operations and develop a new plan to overcome losses.
The following year, the Supply Ministry announced that it approved LE100 million to develop the company and restore its legacy.
But the company’s 2015 financial statement shows that no development plan was enacted. By the time the new board of directors took over the company in 2016, the company’s main production lines had been idle for over 20 years.
The board began developing the disrupted production lines and tried to solve worker issues, both financial and functional, according to a source on the board who spoke to Mada Masr on condition of anonymity. The source confirmed the fava bean, jam, and tomato sauce production lines are once again operational. Additionally, around 280 workers received promotions out of 1,096 workers registered at the end of 2019.
Although the halted production lines are now operational, the company is not able to control the market like it once did. Production and sales figures show that the company’s market share remains minimal. The company currently produces 12,000 tons annually, half of which are exported to a number of Arab countries, as well as the US, France and Greece, bringing in LE60 million in revenue, according to the source. The quantity of production and the volume of sales fall well below the company’s production capacity, the source says. Although the holding company chairman and the board of directors have stressed the importance of developing Kaha, the volume of production and sales do not reflect any significant progress.
The modest results of development plans initiated by subsequent governments prompted the Supply Ministry, with which Kaha is affiliated, to sign a contract with Fincorp consultancy in November 2019 to develop a comprehensive financial and administrative restructuring plan in order to raise domestic market share as well as enter new foreign markets for exports, according to statements by the president of Fincorp, Mohamed Salem Hamdy. Part of the plan includes merging Kaha with companies that operate similar production lines, like the Edfina Company for Preserved Foods. A study of both companies was scheduled to be delivered by May 2020. Based on the study, a clear plan to develop and modernize production lines will be put in place, which have not been upgraded since the last century. This will be done through replacement and renewal as well as through modernizing transport and distribution methods.
None of this has happened yet. According to a second member on the board, who spoke to Mada Masr on condition of anonymity, Fincorp has yet to submit the development and merger plan. According to the source, the main aspects of the plan revolve around establishing a new complex for preserved food industries in a different location. The source also said that the funding for the new development plan will come from the company’s internal sources and won’t tap into the state budget. The new comprehensive development plan is expected to be ready within three years, the source said, adding that the main goal is to restore the company’s legacy.
Attempts to develop Kaha have been ongoing since 1998. Now its customers will once again have to wait and see whether this latest plan can save the company.