Raya Holding
Raya Holding ‘Raya’ is a major investment conglomerate incorporated in Egypt and has broad diversified investments throughout the MENA. Raya is best known for belonging to the information and communication technology (ICT) sector with more than ten businesses operating in ICT.
Lines of businesses hosted by Raya included: IT, contact center, data center outsourcing, smart buildings, consumer electronics, social media development, food and beverage, land transport and Polyetylene Teterphthalate (PET) remanufacturing. Those fields were represented by: Raya Information Technology, Raya Contact Center, Raya Data Center, Raya International Services, Raya Smart Buildings, Raya Social Media, Raya Trade, Raya Venture Investments, Raya Restaurants, BariQ, and Ostool. In addition, Raya owns 23% in Fawry, an e-payment company that provides bill payment services to end users, has a 30% share in an Egyptian Pharmaceutical company, RAMEDA pharmaceuticals and owns 3% in the Smart Village, an Egyptian Technology Cluster and Business Park located on the outskirts of Cairo.
Raya started its operations in 1998 in the IT sector when 7 leading Egyptian IT companies merged together to create the largest ICT company in the MENA region. In 1998, it had less than one hundred employees. The company’s vision was to be “a market leader, no matter where we are.” Raya flourished and by 2014 employed around 6,500 employees serving international customers through its offices based in Egypt, Saudi Arabia, UAE, Qatar, Poland and Nigeria.
Raya has four values: respect for people (employees, customer and shareholders), customer focus, teamwork and excellence.
The corporate strategy of Raya has five pillars: portfolio diversification strategy, fast-entry into profitable markets, expanding value-added services maximizing shareholders’ returns and commitment to corporate citizenship.
Shareholding and Capital Structure
The shareholding structure of Raya is as follows:
Figure 1: Shareholding structure
The breakdown of the shareholding structure is:
Figure 2: Breakdown of shareholding structure by nationality, industry and sector
Raya has a market capitalization of EGP 495 million (as of December 31st, 2013) where its capital structure is as follows:
• Authorized capital: Egyptian Pounds (EGP) 1 billion
• Issued and paid-in capital: EGP 370,520,695
• Share par value: EGP 5
• Outstanding shares: 74,104,139
Financial indicators
Raya had its key indicators increasing in 2014 compared to 2013 where the total consolidated revenues increased by 20.7% being EGP 4,069.3 million in 2014 while the gross profit became EGP 503.2 million representing an increase of 21.9%. However, the net income after tax and minority interest decreased by 14.9% to become EGP 47.7 million in 2014.
Figure 3: Key financial indicators
(All figures are in EGP million)
Raya’s Success
Raya had its shares listed in the Egyptian Exchange (EGX) since May 2005. This step was taken upon reaching successful performance levels where the IPO was for EGP 400 million. Accordingly, funding became easier for Raya allowing its expansion locally and internationally. Raya’s success was also revealed in being included in the CASE30 index (currently referred to as EGX30) during the first year of its listing . This index includes the top thirty companies with respect to liquidity and activity where it is weighted by market capitalization and adjusted by free float. Moreover, Raya was included in the Environmental, Social and Governance (ESG) index since its inception in 2007 to date. This index assesses the disclosure of ESG information in publicly available sources such as companies’ annual reports, websites, bulletins, etc. The index also considers size and liquidity in addition to the ESG selected items. Raya ranked sixteenth in 2007 ESG index . Raya was able to overcome the political unrest and the challenging environment that Egypt had in 2011 where it scored the fifth rank in the ESG index compared to the tenth rank in 2010 . Raya is also a member in UN Global Compact.
Corporate Governance Development
“Egypt’s bid for an open market has changed the way the country does business. On a corporate level, and as a CASE-listed [Cairo and Alexandria Stock Exchange] company, we’re evolving to meet global standards of corporate governance and market conduct. Raya has adopted the code of best practices in corporate governance [2005 Egypt Code of Corporate Governance], financial reporting, disclosure regulations and listing rules. The company’s corporate governance initiative, one of Egypt’s first, demonstrates a commitment to transparency and accountability and the board’s commitment to the company’s shareholders for good corporate governance. This alignment of the interests of management and shareholders has the ultimate objective of maximizing the profitability and long-term value of the company for its shareholders.”
Medhat Khalil, Chairman and CEO of Raya Holding.
It was very apparent that Raya would be one of the corporate governance (CG) leaders in the Egyptian market. Raya’s early implementation of CG best practices dated back to 2007 when CG was considered a novel term and concept in Egypt. CG was defined in 2007 annual report as “checks and balances and an internal controls framework to support and monitor the practices of the company.” Raya developed a CG committee in 2008 reflecting their clear awareness of the importance of CG to the company.
In 2011, upon being ranked the fifth in the ESG index which was the highest rank that Raya scored till 2014, Reem Asaad, Director of Investor Relations clearly proved Raya’s awareness of CG importance and provided a more comprehensive definition of CG adopted by the company. Asaad said “Corporate governance is a complete system of company management and a source of value add for all stakeholders, as it leads to more effective performance, higher profitability and efficiency. On a macro scale, corporate governance takes into consideration the social responsibility of the company towards its investors and the society at large.” Moreover, importance of CG to Raya was further explained by Khalil “Since governance is tied to operational performance and the company’s valuation, it encourages foreign direct investments and it became a basic requirement for international financial organizations.”
Compliance with the Egyptian Code of Corporate Governance
The code has principles for the annual general meeting (AGM), board of directors (BOD), internal audit department, external auditor, audit committee, transparency and disclosure and policies for avoiding conflict of interest.
Annual General Meeting
The board charter discusses the rights reserved by the shareholders in the AGM. In addition, minutes of the AGM published on Raya’s website confirmed that the company followed the code.
Board of directors
The BOD’s role in CG was vital as highlighted in 2011 by Khalil “the board of directors should play a main role in corporate governance, as part of its responsibility in approving the company’s strategy, setting its policies, and attracting high-level executives, as well as ensuring the company’s credibility to its shareholders and to all the governmental bodies.”
Raya introduced the term ‘independent’ BOD in its 2007 report which was not defined or included in 2005 CG code. In 2014, Raya’s BOD comprised twelve members in which five committees were formed: nomination, audit, remuneration, investment and corporate governance. The board met at least four times a year. Re-election of the BOD and performance evaluation took place every three years. In addition, an annual performance evaluation of the board was conducted. Biography of the BOD was disclosed on Raya’s website confirming that various backgrounds were there with the majority of the members being independent. Moreover, the website and annual report listed all names of board committees’ members and specified who the chair is.
Raya had a board charter discussing all details regarding board responsibilities, size and composition of the board, nomination and election of directors, director qualifications, board meetings, directors compensation, director access to management and independent advisors access to management, director orientation and continuing education, removal of directors and filling of vacancies resignation of directors ownership, annual self evaluation and ownership and sale of company shares. In addition, Raya had a charter for each of the five board committees listing its establishment, composition, duties and responsibilities, meetings, and reporting and functioning.
Internal Audit
Raya had an internal audit department where its charter discussed its purpose, authorization, independence, responsibilities and scope.
External Auditor
Raya was audited in 2014 by Ernst and Young, one of the Big-four accounting firms. The auditor’s fees were disclosed in the annual general meeting minutes published on Raya’s website.
Audit Committee
Raya had an audit committee comprising five members. The committee met at least four times a year. Detailed requirements of composition, meetings, purpose and authority were discussed in Raya audit committee charter. In addition, responsibilities concerning financial statements, internal control, internal audit, external audit, compliance and reporting were discussed in the charter.
Transparency and Disclosure
Raya disclosed its annual reports including financial and non-financial information. The report was available on Raya’s website in English. In addition, Raya disclosed other documents including minutes of the board meetings, minutes of the annual general assembly, board of directors reports, stock performance, earnings releases and investor presentations. Moreover, Raya transparently disclosed all news related to the company on its website. Contacts of the investor relations were available on the website and in the annual report.
Raya disclosed its audited financial statements, board of directors biography, shareholding structure, and investment in other subsidiaries and affiliate companies. Raya also published on its website its corporate social responsibility policy. Thus, it was expected to find Raya clearly mentioning in the annual report that it “complies with the code of best practices in corporate governance, financial reporting, disclosure regulations and listing rules.”
Policies for Avoiding Conflict of Interest
Raya had a code of business conduct, insider trading policy, dividends policy, disclosure policy where Raya had a structured investor relations program, related party transactions policy, risk management policy, succession planning policy and whistle blowing policy.
Key Challenges Ahead
Raya provided an example of how successful a company had been in implementing corporate governance (CG) practices and complying with the Egyptian CG code. However, challenges do existed to maintain a strong position in the CG environment generally and in the Egyptian market specifically. Raya’s rank in the ESG index was sixteenth in 2007 when the rank firstly took place. During the two Egyptian revolutions that took place in Egypt in 2011 and 2013, Raya’s rank was fifth and eleventh, respectively. Meanwhile, Raya scored the twenty eighth rank in 2012 and the tenth rank in 2014!