This article first appeared in The Edge Malaysia Weekly on July 19, 2021 - July 25, 2021

STATIONERY producer Pelikan International Corp Bhd is hoping to start a new chapter with the proposed sale of its logistics centre in Falkensee, Germany.

CEO Loo Hooi Keat, who is also the third largest shareholder of Pelikan, professes his confidence in the company’s future post the Covid-19 pandemic. He says its performance will continue to hinge on its core market of Germany and other parts of Europe.

Part of the proceeds from the disposal of the Falkensee logistics centre will be used to develop Pelikan’s product range further as well as to grow new markets, Loo tells The Edge, noting that its business results have been mixed amid the pandemic.

“Our core market in Germany and other parts of Europe is performing well. Latin America is now beginning to pick [up]. With the sale of the property, we will invest in and expand our product range further and into new markets.”

On July 8, Pelikan announced that it was disposing of its logistics centre in Germany for €81 million (about RM400 million) in cash to wholly-owned subsidiaries of HWE Investor GP Sàrl, which is part of the Hillwood Group — a Dallas, Texas-based real estate developer.

Based on Pelikan’s audited consolidated financial statements for the financial year ended Dec 31, 2020 (FY2020), the disposal is expected to realise an estimated one-off gain of RM184.83 million as Pelikan bought the property in 2010 for about €45 million, or RM221.85 million.

The asset’s net book value as at Dec 31, 2020, was RM181 million.

To ensure the continuity of its operations in Germany, Pelikan also entered into a conditional lease agreement with HE4 Falkensee 2 Sàrl — one of the purchasers — for its subsidiary Pelikan Group GmbH (PGG) to remain as a tenant of the property for a five-year period.

PGG will rent 109,036 sq m of the property, comprising office and administrative space; production, storage, picking, dispatch and conveyor technology areas; an operating cost prepayment office as well as a high-bay warehouse and box storage.

The rental property’s annual gross lease fee of €4.15 million (about RM20 million) is payable monthly.

Pelikan said the proposed disposal will enable the group to unlock capital resources that are being tied up as long-term assets and to realise the value of the property at a fair market value while strengthening its financial position.

As much as RM200 million will be used to repay its bank borrowings, resulting in an annual gross interest saving of RM8 million.

But why sell the asset when it can refinance its borrowings and take advantage of the current low interest rate environment?

“We decided to cash out the property because its value has appreciated and the cash would be used to partly [pare] down our debts and for future working capital, business expansion and to return to shareholders as dividends,” says Loo.

“Also, the size of the property is surplus to our requirements and we can now focus on our core business, which is development and marketing of Pelikan products.”

By paring down its debts, Pelikan expects its gearing ratio to decrease to 0.31 times from 0.86 times in FY2020.

As at March 31, 2021, the group had RM273.03 million in current borrowings and RM126.43 million in non-current borrowings. It also had RM28.2 million in deposits, cash and bank balances.

As rumours started to swirl that the group was selling its European assets, the counter jumped 52.78% to 55 sen on July 7 — the highest since Sept 24, 2018 — after which it declined as the group is only disposing of its German logistics centre and not its European business. Moreover, the quantum of the special dividend was not stated at the time.

On July 8, when the announcement was made to Bursa Malaysia, Pelikan’s share price plunged as much as 17.8% to an intraday low of 37.5 sen before recovering slightly.

On July 13, Pelikan announced that it has proposed to utilise RM120.64 million of the total proceeds for special dividends. This translates into a special dividend of 20 sen per share. As at last Wednesday’s closing price of 46 sen per share, the special dividends translate into a dividend yield of 43.5%. News of the specific allocation for special dividends proved popular, as Pelikan’s share price jumped 21.5% to 48 sen per share on July 13.

Meanwhile, Pelikan’s financial performance has been tepid. In the first quarter ended March 31 (1QFY2021), it recorded a higher net loss of RM10.88 million compared with RM8.86 million in the previous corresponding quarter. Its operation was cash flow negative to the tune of RM14.18 million in 1QFY2021.

Almost all of its markets are registering losses, and Germany — its largest market — reported a loss of RM2.54 million. Although the company was profitable in the Americas, it only eked out a profit of RM1.83 million. The Americas is also a rather small market for Pelikan, compared with Germany and the rest of Europe.

It remains to be seen how the disposal of the Falkensee logistics centre will improve the group’s performance.

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