BRAHIM’S HOLDINGS BERHAD (“BRAHIM’S” OR “THE COMPANY”) NEW CATERING AGREEMENTS ENTERED INTO BETWEEN BRAHIM’S AIRLINE CATERING SDN BHD (A 70%-OWNED SUBSIDIARY OF BRAHIM’S) AND MALAYSIA AIRLINES BERHAD [COMPANY NO. 1116944-X]

1. INTRODUCTION

The Board of Directors of the Company wishes to announce that the Company’s 70%-owned subsidiary, Brahim’s Airline Catering Sdn Bhd (“BAC”) has on 10 May 2015 entered into New Catering Agreements (NCAs) with Malaysia Airlines Berhad (“MAB”) as part of the MAS Recovery Plan announced by Khazanah Nasional Berhad on 29 August 2014. BAC is currently the exclusive in-flight caterer to Malaysian Airline System Berhad (“MAS”) under a 25-years catering agreement expiring in 2028 (“Catering Agreement”) in KLIA and Penang International Airport.

As announced on 29 August 2014, the Prime Minister of Malaysia called for a support of all parties to return the national carrier MAS to profitability under The MAS Recovery Plan. This involves a comprehensive and holistic restructuring plan for MAS. One of the twelve principal actions called for all supply contracts to be reviewed, reset and renegotiated based on market norms and benchmarks.

The MAS Recovery Plan calls for the formation of a new National Carrier, MAB, to replace the existing MAS come 1 September 2015. MAB is also mentioned in the Malaysian Airline System Berhad (Administration) Act 2015 (“MAS Act”). BAC to ensure continuity of in-flight catering and cabin handling businesses (‘the Services’) with the new National Carrier, therefore engages MAB to specifically enter into two new agreements with MAB. Under the new regime, BAC services are now categorised into Wide Body Aircraft Flights and Narrow Body Aircraft Flights in line with international benchmarks. Thus 2 sets of NCAs were signed between BAC and MAB, covering each category.

The NCAs are envisaged to promote a more collaborative working relationship between BAC and MAB, with a focus on service delivery and quality of output with specific measurable key performance indicators (“KPIs”), and includes a pricing methodology that will realise savings and operational efficiencies. These elements of the NCAs are part of the outcome of a joint-process review at both BAC and MAS, which has identified areas of improvements for both parties. In addition, the NCAs have a tenure of 5 years, with the option of renewal for another 5 years.

Overall, the NCAs are benchmarked against international standards and are based on industry best practices.

2. SALIENT TERMS OF THE NCAs

Purpose of the NCAs

In view of the restructuring exercise currently being undertaken by MAS, MAS and BAC had earlier wished to enter into a new catering agreement as announced to Bursa Malaysia Securities Berhad on 26 February 2015. In conjunction with MAS’ and BAC’s efforts to negotiate, finalise and execute a mutually acceptable new agreement to supersede the Catering Agreement by mutual consent, MAS and BAC (“Parties”) had also entered into a Settlement Agreement (SA) which sets out their mutually agreed rights, duties, liabilities and obligations vis-à-vis each other which were applicable during the Interim Period, including a settlement of all outstanding debts and disputed amounts between MAS and BAC, pending the signing of the NCAs.

(a) The salient terms of the NCAs which include amongst others, are as follows:

i) the NCAs are in 2 separate contracts covering ‘Wide Body Aircrafts’ flights and ‘Narrow Body Aircrafts’ flights and both shall commence on 1 September 2015 or such other date as agreed between MAB and BAC in writing; and shall remain in force for a period of 5 years with an additional 5 years renewal subject to no breach of any of the Key Events which will trigger a Termination of the NCA; meeting of Critical Performance KPIs over the initial 5 years, and upon mutually agreed pricing for the extended term of the next 5 years.

ii) Pricing of the NCAs is based on a competitive pricing methodology for meals and cabin handling, to realise savings and operational efficiencies for both MAB and BAC.

iii) BAC shall not in any way impact on its services to MAB as its major customer, in its participation in Non-Airline Food Related Business as a result of its new opportunity to undertake the services of Non-Airline Food Related Business provided in the NCAs.

iv) BAC undertakes to provide in-flight catering services and cabin handling services as well as inventory storage and management services to MAB and other services which are inherent to or necessary for the proper performance of the above services based on international standards and practices, taking into consideration it is a home-based caterer servicing a home-based airline, with appropriate KPIs and Service Level Agreement (“SLA”) in place to ensure alignment and consistency in quality of service.

v) The NCAs include clearly defined remedies and/or service credits for non-performance of the SLA, as well as incentives for fulfilment of agreed targets and outstanding performance based on KPIs. Additionally, the NCAs also outline specific events which will trigger a Termination of the NCA.

vi) MAB acknowledges that BAC will use the in-flight kitchen in KLIA and Penang International Airport for services to other airlines and BAC shall ensure that it can continue to provide such services to third parties upon the expiration or termination of the NCAs.

vii) Should MAB wish to buy frozen and/or fully prepared meals or other products which significantly alters the method of preparing meals at any location, the first right of refusal is given to BAC. In any event, BAC is entitled to charge a separate agreed handling fee for the handling of the frozen and/or fully prepared meals, if MAB decides to procure these meals from other vendors.

viii) BAC and MAB each agree and undertake to the other that in connection with the NCAs and the provision of Services contemplated by the NCAs, they will each respectively comply with the Anti-Corruption Laws.

ix) The NCAs are governed by, and will be construed in accordance with, the laws of Malaysia.

3. RATIONALE

Based on an earlier announcement by Brahim’s, it was stated that the objective of the SA was to bring MAS’ in-flight catering contract in line with market norms and benchmarks, as called for under the MAS Recovery Plan. BAC can be compelled under the new MAS Act to continue supplies to MAS despite MAS withholding payments and is prevented from filing legal action for unpaid receivables. This had also caused severe problems in cashflows to BAC operations and had affected its ability to upstream dividends to Brahim’s. Brahim’s as a holding company required cashflows from BAC to meet its debt obligation to avoid triggering loan defaults.

Under such circumstances and through no fault of BAC or Brahim’s, the signing of the SA was the only option then for BAC to maintain its role as an inflight meals caterer to MAS as well as staying relevant as a global halal flight kitchen servicing 36 other international airlines in KLIA. The signing of the SA was intended to ease the tight cashflows of BAC and that of Brahim’s caused by MAS actions of withholding payments. MAS and Khazanah had indicated in writing and during negotiations that they will not hesitate to look for new caterers to replace BAC for Malaysia Airlines Berhad (“MAB”) should BAC not enter into the interim SA pending negotiation of the NCA.

With the signing of the SA on 26 February 2015, BAC had received a portion of the cash withheld and this had enabled Brahim’s to meet its debt repayment due on 1 April 2015. The SA also served to show a commitment for both MAS/Khazanah and BAC to carry out negotiations to firm up the NCAs.

The parties had agreed that to avoid uncertainties in negotiations posed by the yet to be appointed Administrator over the existing Catering Agreement, or revisiting the terms of the NCAs agreed between BAC and MAS/Khazanah prior to the Administrator’s appointment, the NCAs shall be executed by MAB instead. The new airline entity MAB is independent of MAS and is outside the ambit of the MAS Act. Under such circumstances, BAC shall continue to serve MAS until MAB becomes operational at the instructions of MAB. Thus there is no longer a requirement of the NCAs to be novated by MAS to MAB. However in the absence of the NCA(s), it was reiterated to BAC that there is a possibility that MAS, MAB or Khazanah Nasional Berhad, its shareholder, will look for other parties to replace BAC.

Thus the existing Catering Agreement is at risk of not being novated by MAS to MAB as a result of the passing of the MAS Act.

The signing of the NCAs will now allow for a high degree of certainty in BACs business with MAS and later with MAB as its caterer in the nominated flights, whilst maintaining its position as KLIA principal halal in-flight caterer to the remaining 36 international airlines and other potential new airlines calling on KLIA and Penang.

4. EFFECT OF THE NCAs

(a) Issued and Paid-up Share Capital and Substantial Shareholders’ Shareholdings

The execution of the NCAs will not have any effect on the share capital and substantial shareholders’ shareholdings of Brahim’s.

(b)   Earnings and earnings per share (“EPS”)

The NCAs are expected to contribute positively to the earnings and EPS of Brahim’s Group for the financial year ending 31 December 2015.

(c)    Net Assets

Based on the audited financial statements of the Group as at 31 December 2014, the execution of the NCAs is expected to increase the net assets of the Group.

5. INTEREST OF MAJOR SHAREHOLDERS AND DIRECTORS

None of the directors and/or major shareholders of Brahim’s and/or persons connected to them have any interest, direct or indirect, in the NCAs.

6. DIRECTOR’S STATEMENT

The Board of Directors of Brahim’s, having considered the rationale and terms of the NCAs, is of the opinion that the execution of the NCAs are in the best interest of the Company.

7. DOCUMENTS FOR INSPECTION

In view of the confidentiality clause on certain terms in the Agreements, the Agreements would not be made available for inspection.

This announcement is dated 11 May 2015.