Brahim’s Holdings Berhad gearing up to exit PN17

For Immediate Release

Brahim’s Holdings Berhad gearing up to exit PN17

Kuala Lumpur, 5 March 2019, — Brahim’s Holdings Bhd (BHB) targets to recover and gear up to exit from PN17.  The company wishes to assure all its shareholders, customers, suppliers, joint venture partner and employees that its business at operations level is not affected by this status.

The company will enter into strategic discussions with partners to review capital and business structure with the view of complying with the listing requirements as soon as practicable.  The company will also push key initiatives to drive operational improvement and productivity enhancements following a board and management review to rejuvenate its consolidated financials. In the near term outlook, it should be positive given improved costs management and productivity. This is in addition to increased business volumes recorded for the aviation catering business. 

BHB will seek consultations with prospective Principal Advisers to formulate and submit a regularisation within the next 3 months and will make necessary announcements in due course.

Brahim’s is in the right business.  Halal is one of the most promising and potentially high value industry.  A report had valued the global halal food and beverage market at USD 1.37 trillion in 2014, which represented 18% of the entire market, and the number of Muslims worldwide is expected to increase from 1.6 billion in 2010 to 2.8 billion in 2050, according to Pew Research Center. 

The appeal of halal has extended beyond religious rules being accepted even by non-Muslims.  The halal business is growing fast and the halal food industry is burgeoning. It is more evident in the past decade and Brahim’s is one of the major player in this sector, having its own Halal Excellence Centre which has certified 13 Halal Flight Kitchen globally.

“With the support of our government and Malaysians in general, Brahim’s hope to achieve its aim of being a major global Halal company, insya Allah,” said Chairman Dato’ Seri Ibrahim.

“With the above measures, we hope to project a much better achievement by the end of this fiscal year and it is important to take note that other subsidiaries and private companies helmed by the Executive Chairman are not affected by this situation,” said the company.

“Certainly, we are saddened by the events that had unfolded over the years, and the resultant NCA for the MAS Recovery Plan where we were forced to write off RM74 million in receivables from MAS, accepting very thin margins for meals served and flights handled and non-compensated shortened contract terms,” added Dato’ Seri Ibrahim.

“Nevertheless, it is important that we get the Group back to “investment grade” – and paying dividends. We are a business of scale and complexity and we have the resources to do a lot more. It will be our relentless focus on meeting customers’ and markets’ needs that will help us to achieve our goals for the long-term success of the Company for the benefit of all our stakeholders.”

Chronology of Events

In 2003, Brahim’s and MAS signed a 25 years Catering Agreement. Brahim’s paid RM170 million in cash for a 70% equity in MAS Catering with accumulated losses of RM240 million, negative shareholders fund and bleeding at about RM40 million per year in its operations.   The 25 years concession was needed to ensure Brahim’s had sufficient time to recover its investment, which is not unlike any other bailout projects, certainly not a gifted ‘monopoly’.  This exercise by the government was primarily to have MAS re-focus itself as a carrier rather than being in other non-core business.  In the same year, Brahim’s entered into a joint venture with LSG Sky Chef and renamed to LSG Sky Chef Brahim’s Sdn Bhd (LSGB) with a new shareholding structure of Brahim’s 36%, LSG Sky Chef 34% and MAS 30%.

During the transformation period from 2004 to 2011, LSGB saw a 50% improvement in terms of productivity and efficiency and has become the premier provider of halal kitchen facilities and inflight catering services.

In 2012, the inherited accumulated losses burden of RM240 million under MAS Catering was eventually wiped out after 10 years of hard work by the management and staff of LSGB.  By then LSGB has served up to 36 airlines with a total output of about 50,000 meals per day and is the world’s biggest halal flight kitchen and garnered multi-winning awards for quality and excellence.

During the Malaysianisation Program in 2013, Brahim’s took over LSG Sky Chef stake and renamed to Brahim’s Airline Catering Sdn Bhd with a new shareholding structure of Brahim’s 70%, and MAS 30%.  The company recorded a profit after tax of RM57 million – the highest profit since it took over from MAS.  Share price was at RM2.40 per share.

Following the MAS tragedies in 2014, Khazanah in 2015, developed the MAS Recovery Plan to rebuild the country’s national carrier, which among others reviewing all supply contracts.   As a result of this massive cost-cutting Recovery Plan, Brahim’s signed a New Catering Agreement on 16 September 2015 with up to 40% price cut in monthly bills.  Brahim’s had to accept very thin margins for meals served and flights handled.  In that contract, the company was forced to write off RM74 million in receivables from MAS, and reduce the remaining contract term from 14 years to 5+5 years without any compensation, which affected their shareholders fund.  In 2014 saw a first time loss of RM35 million and the share price plunged to below 50 sen from a high of RM2.40 of the previous year.

In 2016, the company went into a joint venture with SATS (Singapore) with a new shareholding structure of Brahims 36%, SATS Singapore 34% and MAS 30%, and renamed to Brahim’s SATS Food Services Sdn Bhd.

On February 28, 2019, BHB was classified as Practice Note 17 (PN17) status, after its shareholder equity fell below the 25% threshold.  Its shareholders fund stands at negative RM5.816 million for year ending 2018 as compared to positive RM98.812 million for 2017.  This decline is attributable to impairment on goodwill of RM88.6 million.