Chairman and CEO's Message
Positioned for Growth
As anticipated, the credit crunch arising from the global financial crisis greatly reduced global trade activity in 2009. However, amidst this challenging business environment, Pelikan International remained committed to its long-term strategies for growth and successfully initiated a strategic new acquisition which should see Pelikan Group doubling our revenue, growing our product portfolio and strengthening our global distribution networks in the near future.
The Global Economy 2009 (statistics sourced from the World Bank)
Year 2009 was a difficult period for businesses worldwide as the global economic crisis challenged the performances and growth momentum of companies both large and small. Though it began with a massive plunge in global trade followed by the credit crunch, as the year progressed, mature economies showed signs of recovery well into 2010. In Asia and Latin America, healthier growth rates returned. Equity markets rallied worldwide though riled with uncertainty. Nonetheless, the economic environment in mature markets remained fragile with high levels of unemployment and continued reliance on the external stimulus measures taken by governments around the world in the wake of the financial crisis.
In 2009, most economies faced deep recession and the world Gross Domestic Product (“GDP”) growth fell to an estimated -2.2% (2008: 1.9%). On average, high income economies contracted by 3.3% (2008: 0.8%) while developing economies grew merely 1.2% on average (2008: 5.8%). World trade volumes reduced as much as -14.4% in 2009 compared to a 3% growth in 2008, signifying the deep plunge in global demand and exports. This significantly affected Pelikan Group’s global business performance, particularly our operations in Europe. Nearly all our markets registered lower sales volume as a result of the glut in overall consumer spending and demand. In high-income Europe area, GDP declined by 3.9% in 2009 (2008: 0.7%) as weakened banking systems and financing conditions became a drag to the economies. Our largest market, Germany, was in recession towards end of 2008 but recorded an annualized growth pace of 2.9% in the third quarter of 2009, signifying a steady recovery from the crisis albeit slowly. The recovery is expected to continue into 2010, largely supported by large stimulus government programs, corporate investment and construction.
Latin America and the Caribbean countries recorded a contraction growth of 2.6% in 2009, and Mexico suffered the deepest contraction because of its close economic activities with the U.S.; however our Mexican operations performed above expectations under such economic conditions. Asia, particularly in China and India, have shown great resilience in weathering the economic crisis due to the massive fiscal stimulus packages and macroeconomic management. East Asia and the Pacific registered a growth of 6.8% (2008: 5.8%) where else South Asia sustained a stable growth of 5.7%. This is particularly positive news for Pelikan Group as we aim for further expansion in these markets. Countries in the Middle East and North Africa were adversely affected by the crisis and GDP growth in 2009 was estimated at 2.9% (2008: 4.3%).
Financial Performance
For the year in review, revenue of Pelikan International was RM1.21 billion, a decline of 6.2% from the previous year (2008: RM1.29 billion). The result was within expectations considering the effects of the economic slump on our global operations, particularly towards our business in Europe. Europe was the hardest hit by the economic crisis with markets such as Spain, Italy, and Greece faced serious recession in 2009.
Profit before taxation for the financial year 2009 improved slightly to RM50.0 million (2008: RM49.4 million). This was attributed to better control of costs and working capital management. Other income has also decreased partly due to lower foreign currency exchange gains, experienced similarly in 2008, as exchange rates were more stable in 2009. Finance costs have shown substantial reduction as all loan stocks of the Group had fully been converted to shares since last quarter of 2008. The lower finance costs were also due to refinancing of more expensive loans to less expensive ones.
In the first quarter of 2009, the Group recorded sales of RM285.4 million, a decline of 8.8% from the corresponding quarter in 2008. The overall sales were weaker due to the declined market conditions of Europe impacted by the slump in consumer spending. However, the first quarter results showed that the Group had better absorption costs due to the increased production volumes from customary stocking up for the upcoming “Back to School” season during the mid year.
The Group’s revenue for the second financial quarter was RM343.2 million compared to RM407.5 million for the corresponding quarter in 2008. The lower sales faced by the Group was a consequence of the economic slump in the European market. On a year to date basis, sales contracted by 12.7% to RM628.6 million. Accordingly, the profit before tax also reduced to RM46.2 million. The Group’s revenue however increased by 20.3% compared to RM285.4 million in the preceding quarter, as sales are higher in mid year due to the annual “Back to School” season in Europe and Latin America.
The Group recorded RM312.6 million sales for the third financial quarter compared to RM340.1 million in the corresponding quarter of 2008. Accordingly, the profit before tax reduced from RM21.4 million in the corresponding quarter last year to RM14.2 million for the third quarter. Turnover in the fourth quarter of RM267.1 million was lower than the preceding quarter due to seasonality. Sales in the last quarter of the year is always a challenging quarter, which the Group expects lower sales, and indeed recorded the weakest performance after the end of the “Back to School” season. The last quarter’s loss before taxation was RM10.4 million as a result from lower sales level and efficiency in absorption of fixed costs particularly in the production entities.
The anticipated poorer results of the Group last year was largely foreseen in 2008. Pelikan Group was ready with counter strategies and effectively took steps to stabilize operations by aggressively implementing cost reduction measures across our operations, cutting down inventory and scaling down on our expansion plans. The Group noted peak sales in July this year instead of the customary June as experienced in previous years. Sales for August 2009 are also above expectation despite the summer holidays where businesses normally slow down. This suggested that the trade and consumers delayed purchases in the previous months due to uncertainty in the economic situation; however the positive growth slowly contributed to improved consumer sentiments.
The management took the opportunity to look within our operations, especially in procurement, supply chain management and production, to reduce our working capital requirement and inventory levels, so that these adjustments will meet the lower market requirements.
Dividends
The Board of Directors has recommended a final single tier dividend of 2 sen per share in respect of the financial year ended 31 December 2009. Subject to approval by shareholders at the forthcoming 28th Annual General Meeting (“AGM”) on 21 June 2010, the final dividend will be paid on 15 September 2010.
Creating Opportunity
During the course of the challenging year we continued to adhere to our fundamental strategies of growth, one of which was to be on the lookout for strategic acquisition opportunities. The Group has been poised for growth with consistent strategies to expand both organically and via acquisitions. Through acquisitions, the Group expects to reap synergies and economies of scale with higher volume, which will act as a platform for the Group to strengthen its position as one of the market leaders in the stationery industry.
As early as 2008, we had identified Herlitz AG (“Herlitz”) – a leading producer of papeterie, office stationery and school supplies in Europe; headquartered in Berlin, Germany - as a corporation within the industry that met all our requirements as it is a reputable 100 year old brand, carried products that complement over 80% of our range, and has strong distribution channels in Eastern Europe where we have long been seeking a stronger network. In October 2009, we announced the acquisition of the Herlitz and this was completed in March 2010. This acquisition will allow greater cross selling opportunities on products, distribution channels and markets for both Pelikan and Herlitz, and opportunities for further growth by leveraging each respective strengths and assets in innovation, quality and distribution in the years ahead. With the merger in progress, Pelikan International now heads two of the most significant brands in the industry in Germany. We are convinced that by pursuing the right strategies, investing in research and development (“R&D”) and innovation, and continuing on the path of consolidation and rationalization of duplicate functions, we are able to achieve significant cost savings, higher productivity, improved operations and processes, and create better quality products for our consumers.
Strengthening Commitments
Though sales were negatively impacted in 2009, our brand and repute for quality and excellence continued to gain popularity. Pelikan products, in particular our griffix® “Learn to Write” system, and brand were recognized globally. These included the Smac d’Or de L’Innovation 2009 prize for innovation as well as first place in “Stationery and Cards’ category; IPBBS award for “Best product in the office and school sector”; Red Dot Design honourable mention for the xcycle roller, Benelux Office Products Award, OPI award for “New Product Innovation”; Good Design award for the U.S. and Japan in children’s products category; and Retailvision’s ‘Best Vendor Retail Strategy’ award.
These are testaments to our continued growth in quality and repute. We may have focused on cost saving projects but we had not compromised when it came to the quality and innovation of our heritage. In 2009, innovation and Research and Development (“R&D”) remained a core focus and we are proud to report that 79 new products were launched and many more were developed for 2010 launches. The Group invested RM32.56 million into the R&D centre for the research, technology, tools and fixed assets for the new products and upgrading of current assortments.
The Group believes that education industries are resilient to any economic downturns and have in fact grown as more governments and private sectors invest in education, therefore we dedicate a large proportion of our resources into creating school products annually and developing the school channels through direct communication to teachers and students, heavy promotions and marketing campaigns during “Back to School” season. Product wise, we are committed to growing our school assortment with more innovative and functional products for the current range. In 2008, the Group has had success with the launch of griffix® and we followed up the success in 2009 by introducing more accessories such as erasers, sharpeners and fun buttons in various colours to complete the family. We also launched a revamped model of the popular Grand Prix writing instruments originated from Italy targeted at the youths of 10 – 13 year olds for worldwide release.
Enabling Talent
As our business grows, there is a need to grow our people and as such, we are determined to further enhance and enrich our employee’s welfare, capabilities, expertise and experience. Drawing from our constant drive to improve and excel, we create a conducive environment, organise training sessions, provide exposure to various work divisions to develop skills and maximise the potential of our human capital.
We aim to provide a workplace that recognises and rewards the efforts of our people. In light of the acquisition, the merger between Pelikan and Herlitz will create an enlarged Group that will not only require our employees to take up more responsibilities and tasks to drive growth and excellence but also enable more opportunities for our employees to showcase their talent and skills in their performance.
Outlook of 2010 (statistics sourced from World Bank)
The global economy in 2010 is in recovery mode and recording positive growth as financial markets stabilized. Stronger household demand and consumption were recorded, showing improved signs of business optimism. According to World Bank, GDP is projected to grow at 2.7%.
Business prospect for Pelikan so far has been positive. The Group has launched a portfolio of products for this year’s “Back to School” season, such as the new Pelikano school writing instrument and more office products that will boost our sales and market share. With a strong following within the fine writing instrument (“FWI”) category, we are rapidly enhancing our products to complement our existing collection. While we are aware that the worldwide luxury market has been hit by the economic crisis, we are constantly developing new designs and exclusive editions to satisfy our loyal pen connoisseurs by bringing reviving classic designs and upgrading our pens with superior quality elements. The Group will also focus efforts on enhancing the fine writing instruments products in anticipation of launching the new writing instrument collection in partnership with Porsche Design at the beginning of 2011. Pelikan Group is honoured and excited to have an affiliation with a strong brand known for its unique designs and quality.
For the rest of 2010, Group management plans to embark on strategies to merge both Pelikan and Herlitz under one umbrella. The merger promises greater prospect with cross selling opportunities, common cost savings and synergies, and we plan to reap these benefits by executing plans that maximizes capabilities with cost efficiency. With the combined turnover of approximately €550 million, it is imperative that the distribution system be able to manage this volume of business. We stand to reap tremendous benefits with the Falkensee Logistics Centre on board. Given its strategic location near Berlin, large capacity and superior technology, it would enable us to better manage our supply chain in Europe. Barring any unforeseen circumstances, we anticipate better results from the merged entities.
Corporate Governance
In 2009, Pelikan International welcomed onto its Board of Directors Datuk Ismee bin Ismail who serves as a Non-Independent and Non-Executive Director. Datuk Ismee is an associate member of the Chartered Institute of Management Accountants and a member of the Malaysian Institute of Accountants. He is currently the Group Managing Director and Chief Executive Officer of Lembaga Tabung Haji and holds several directorships in several prominently listed companies in Malaysia. On behalf of the Board, we are delighted and honoured to have Datuk Ismee bin Ismail as a Director and we are confident that his background, knowledge, and experience will bring valuable contributions to the growth and performance of Pelikan Group.
Appreciation
On behalf of the Board of Directors, we would like to thank the management and employees for their endless commitment and efforts during the challenging year. We would also like to express thanks to all our shareholders, investors, business partners and associates for their continuous support and encouragement.
In Conclusion
Moving forward the management will continue to embark on strategies and solutions that minimize the impact of the financial crisis to our businesses while maintain focus on growing the Group to a sizable and profitable organization. The Group continues to pursue various consolidation projects and strategic acquisitions aimed to generate growth and sales for the Company. With the merging of Pelikan and Herlitz in the progress, we are in a position more than ever for growth to be a global market leader while delivering on our promise to be a brand of quality and distinction.
Tan Sri Musa Bin Mohamad Loo Hooi Keat
Chairman Chief Executive Officer
Selangor Darul Ehsan
Malaysia
