Brahim's cuts cost to revive Burger King

by **Cals** Tue 10 Feb 2015, 20:16

Brahim's cuts cost to revive Burger King

By Cynthia Blemin / theedgemarkets.com | February 10, 2015 : 6:41 PM MYT

KUALA LUMPUR: To compete more effectively with prominent fast-food chains like McDonalds and [size=14]KFC (KFC Holdings Bhd), Brahim’s Holdings Bhd will need to take measures to revive loss-making Burger King franchise in Malaysia and Singapore after the proposed acquisition.

The inflight catering company together with private equity fund Quantum Angel intend to buyout the fast-food franchise for RM95 million cash from Rancak Selera Sdn Bhd, a unit of Ekuiti Nasional Bhd.

Rancak Selera is the holding company for Cosmo Restaurants Sdn Bhd and Burger King Singapore Pte Ltd, both of which hold the Burger King franchise in Malaysia and Singapore respectively.

Under the proposed acquisition plan, Brahim’s wholly-owned subsidiary Brahim’s Trading Sdn Bhd and Quantum Angel will form a special purpose vehicle (SPV) to take over the franchise. Brahim’s will hold 80% and Quantum Angel the balance 20% in the SPV.

"This (proposed acquisition) will further provide our company the opportunity to grow the Burger King franchise and expand our F&B (food and beverage) division.

"The proposed acquisition will provide synergistic opportunity to integrate our existing portfolio and future F&B brands including Burger King outlets in the international airports as well as Cafe Barbera, Kopitime, Food Paradise, The Chicken Rice Shop, Popeyes and additional outlets to be opened in klia2 such as Taste of India, Big Bowl/Noodles & Yong Tau Foo and Hot Wok,” said Brahim’s in a circular to shareholders.

Brahim's said it would embark on a set of turnaround strategies that would include cost-cutting measures as a means to revive the business of Burger King restaurants in Malaysia and Singapore.

Management is of the view that the partnership with Datuk Ahmad Zaki through Quantum Angel,should enable them to revive the Burger King business in Malaysia and Singapore.

Other turnaround strategies are selective expansion of Burger King restaurants in strategic locations in both Malaysia and Singapore; refurbishment and remodeling of existing Burger King restaurants to entice customer visits; introduction of innovative products together with effective execution of marketing promotions to encourage new customer trials and repeat visits and launching of new campaigns and marketing programmes for brand building and market positioning, it added.

Brahim’s also highlighted that Ahmad Zaki, who has been chosen to head the joint-venture as managing director, has the necessary experience for the job having been the managing directors of both QSR Brands Bhd ([You must be registered and logged in to see this image.]Financial Dashboard) and KFC Holdings.

In the note, Brahim notes that the F&B industry in Malaysia is competitive and Burger King faces competition in terms of product innovation, product quality, price, brand recognition and marketing budget and resources, from international burger fast-food restaurant chains and home-grown burger restaurants.

"Based on the latest financial statements of Cosmo and BK Singapore, both companies are currently incurring losses," it added.

For the nine-month financial period ended (FPE) Sept 30, 2014, Rancak Selera dipped into a loss of RM50.4 million compared with an income of RM29.8 million in the previous corresponding period.

The loss was mainly due to unrealised loss on fair value recognised on investment in Cosmo and BK Singapore.

"The proposals may contribute to the future earnings and EPS of our Group (Brahim's) for the FYE 31 December 2015 and beyond," it said in the circular.

Still, Brahim notes that there is no assurance that the parties are able to turnaround the business of Cosmo and BK Singapore, and to generate sufficient returns to offset the associated acquisition costs incurred for the proposed acquisition.

In any event, the effect on the earnings of Brahim’s will depend on future profitability derived from the proposals based on amongst others, the ability of our management to turnaround the business of Burger King in Malaysia and Singapore, the additional revenue from Rancak Selera and its subsidiaries, potential cost reduction from suppliers and customers being absored into our group, it added.

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