Pelikan sets to cut costs after inking Herlitz deal

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KUCHING: Pelikan International Corporation Bhd (Pelikan) is set to cut costs by utilising Herlitz acquisition to integrate certain operations.

INKED DEAL: Pelikan’s Herlitz acquisition will help it integrate operations leading to better profit margins.

INKED DEAL: Pelikan’s Herlitz acquisition will help it integrate operations leading to better profit margins.

ECM Libra Capital Sdn Bhd (ECM Libra) recently reported that Pelikan’s management stated it would be putting emphasis on three key drivers to boost organic growth and carve out net profit margins of between five to 10 per cent.

It added the drivers included investing on branding to increase brand awareness among the younger generation, expanding on distribution in other countries such as Africa where Pelikan saw potential and continuing focus on research and development (R&D) to create new products.

Pelikan recognised that these efforts would take several years and continuous investment to bear fruit but it was necessary to build up a global stationery company that could produce sufficient business volume to enjoy economies of scale, the research house mentioned.

It stated that reaching such a scale was necessary for Pelikan to enjoy better profit margins due to high operating leverage.

To recap, Pelikan announced the completion of the proposal to acquire Herlitz PBS AG (Herlitz) and now owned 69.37 per cent of Herlitz on April 9, according to ECM Libra.

It appended Pelikan now sought to fully carry out its shorter term objectives to integrate Herlitz’s operations into Pelikan to increase net profit margins by cost cutting, which Pelikan was confident of achieving within the next 12 months.

Pelikan had guided for total synergistic benefits amounting to RM100 million in 2010 upon the initial announcement of its proposed acquisition of Herlitz, the research firm revealed.

It pointed out that among the key cost cutting measures were consolidating its logistic operations in Germany into its newly acquired Falkensee Logistics Centre (FLC), removing duplication of business operation such as distribution and in the longer run rationalising down from 13 plants to 5 plants.

ECM Libra was optimistic that these synergistic targets could be achieved because by simply centralising raw material and packaging material sourcing by June 2010 alone would result in cost savings of +30 million translated as RM132 million this year.

It highlighted Pelikan’s target price (TP) at RM1.94 per share based on a price earnings (PE) multiple of 10 times to the financial year 2011 (FY11) earnings per share (EPS) of 19.4 sen.