Pelikan International Corporation Berhad

Pelikan International Corporation Berhad (Company No. 63611-U)

ANNUAL REPORT 2013 (63611-U) COLOUR, FUN

COLOUR, FUN & INSPIRATION! & INSPIRATION!

Pelikan International Corporation Berhad

(Company No. 63611-U) ANNUAL REPORT 2013 No. 9, Jalan Pemaju U1/15 Seksyen U1 Hicom Glenmarie Industrial Park 40150 Shah Alam Selangor Darul Ehsan Malaysia T (+603) 5569 5511 F (+603) 5569 5500 www.pelikan.com Revenue by Product Group in 2013 office school printer 28.01% 16.26% 34.46% consumables

VISION To be globally recognised as a market-leading brand offering a range of products that reflects the highest standards of quality, innovation and timeless German heritage.

Our Guiding Principles 9.15% 3.24% 4.39% 4.49% others papeterie hobby, art & craft hobby, fine writing instruments fine writing

MISSION We create products that inspire brand awareness since young Selecting and developing a creativity and imagination, fulfil from children to adults network of effective distribution customers’ satisfaction and channels Accumulating in-depth knowledge confidence by offering the highest of our customers’ needs and Recruiting, training, developing, quality products and services. provide the expected solutions retaining and rewarding talented We accomplish our mission by: and motivated people Applying proven technology and Establishing a strong brand tools for developing and executing Ensuring the environment in which presence worldwide by building innovative ideas we operate is safe, healthy and secured

Quality • Innovation • Commitment • Integrity • Teamwork 175 years of Colour, Fun & Inspiration!

In the last 175 years, the Pelikan brand has roosted in several continents and what was originally a German heritage is now a celebration of many cultures, communities and lifestyle. Today, Pelikan products cater to all age groups and diverse creative uses – from school to work, moments of creativity, and for a defining touch of luxury. There is always a Pelikan that will inspire you. CONTENTS

001 001 Vision & Mission 002 Financial Highlights 003 Corporate Information 004 175 Years of Colour, Fun & Inspiration! 006 Group Corporate Structure 008 Chairman & CEO’s Statement 2013 016 Board of Directors’ Profile 022 Group Management Team 024 Group Operations Review 2013 044 Diary of Events 050 Statement on Corporate Governance 060 Statement on Risk Management and Internal Control 063 Statement on Internal Audit Function 066 Audit Committee Report 070 Statement on Corporate Social Responsibility 074 Financial Calendar 075 Financial Statements 163 Additional Compliance Information 165 Analysis of Shareholdings 169 List of Group Properties 170 Pelikan Group of Companies Directory 174 Notice of Annual General Meeting Form of Proxy 002 ANNUAL REPORT 2013

Financial Highlights for the financial year ended 31 December 2013

2013 2012 2011 2010 2009 RESTATED RESTATED RESTATED RESTATED Revenue RM’000 1,442,136 1,601,203 1,923,368 1,786,848 1,202,494 Profit/(Loss) before tax RM’000 2,619 (48,743) (63,292) 147,986 41,566 (Loss)/Profit for the financial year RM’000 (13,660) (65,116) (101,302) 130,791 31,057 (Loss)/Profit for the financial year attributable to owners of the parent RM’000 (5,602) (58,044) (88,423) 127,808 27,814 Equity attributable to owner of the parent RM’000 545,244 537,607 656,863 768,763 532,672 Basic (loss)/earning per share sen (1.10) (11.46) (17.44) 24.90 7.52 Fully diluted (loss)/earning per share sen (1.10) (11.46) (17.44) 24.90 7.52 Net asset per share attributable to owner of the parent sen 1.06 1.05 1.28 1.50 1.55 Dividend per share – proposed sen – – 3.00 2.00 2.00

Revenue Profit/(Loss) before Tax Equity Attributable (RM’000) (RM’000) (RM’000) 147,986 768,763 1,923,368 1,786,848 41,566 656,863 1,601,203 545,244 1,442,136 537,607 2,619 532,672

1,202,494 2009 2010 2011 2012 2013

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 (63,292) (48,743)

Basic (Loss)/Earning Per Share Net Assets (sen) (sen) 1.55 24.90 1.50 1.28 7.52 1.06 1.05 (1.10)

2009 2010 2011 2012 2013

(17.44) (11.46) 2009 2010 2011 2012 2013 Pelikan International Corporation Berhad 003

Corporate Information

BOARD OF DIRECTORS Tan Sri Abi Musa Asa’ari bin Mohamed Nor Dato’ Lua Choon Hann Chairman & Independent Non-Executive Director Independent Non-Executive Director Loo Hooi Keat Yap Kim Swee President/Chief Executive Officer Independent Non-Executive Director Dato’ Afifuddin bin Abdul Kadir Datuk Rozaida binti Omar Independent Non-Executive Director Non-Independent Non-Executive Director Dato’ Mohamad Norza bin Zakaria Normimy binti Mohamed Noor Independent Non-Executive Director Non-Independent Non-Executive Director

COMMITTEE

AUDIT NOMINATION REMUNERATION EXECUTIVES’ SHARE OPTION SCHEME Yap Kim Swee Yap Kim Swee Tan Sri Abi Musa Asa’ari Tan Sri Abi Musa Asa’ari Chairman Chairman bin Mohamed Nor bin Mohamed Nor Chairman Chairman Dato’ Afifuddin Dato’ Afifuddin bin Abdul Kadir bin Abdul Kadir Yap Kim Swee Loo Hooi Keat Datuk Rozaida binti Omar Dato’ Lua Choon Hann Dato’ Mohamad Norza Yap Kim Swee bin Zakaria

COMPANY SECRETARIES SHARE REGISTRAR PRINCIPAL BANKERS

Ho Ming Hon Tricor Investor Services Sdn Bhd AmBank (M) Berhad (MICPA 3814) Level 17, The Gardens North Tower CIMB Bank Berhad Mid Valley City HSBC Bank Malaysia Berhad Chua Siew Chuan Lingkaran Syed Putra (MAICSA 0777689) 59200 Kuala Lumpur, Malaysia Malayan Banking Berhad Tel: (+603) 2264 3883 AUDITORS Fax: (+603) 2282 1886 STOCK EXCHANGE LISTING

BDO (AF 0206) Main Market of REGISTERED OFFICE Chartered Accountants Bursa Malaysia Securities Berhad, th 12 Floor Menara Uni. Asia No. 9 Jalan Pemaju U1/15 Malaysia 1008 Jalan Sultan Ismail Seksyen U1 Stock Name: PELIKAN 50250 Kuala Lumpur, Malaysia Hicom Glenmarie Industrial Park Stock Code: 5231 Tel: (+603) 2616 2888 40150 Shah Alam Fax: (+603) 2616 3190 Selangor Darul Ehsan, Malaysia WEBSITE Tel: (+603) 5569 5511 Fax: (+603) 5569 5522 www.pelikan.com 004 ANNUAL REPORT 2013

of Colour, Fun & Inspiration!

Pelikan has been making history for 175 years now, since 28 April 1838, when chemist Carl Hornemann released the first price list for his paint factory. This was the foundation laid for the success of this world renowned stationery and writing instruments company from Hanover, Germany. Pelikan International Corporation Berhad 005

Under the motto “175 Years of Pelikan”, the 2013 Jubilee looked back at Pelikan’s rich heritage of progress from a one-man company to a multinational corporation. From paint and ink to a high quality array of stationery solutions for diverse age groups. From a distinct German tradition to an integrated global business. Through the changes and evolution, one thing has remained constant – and that is a time tested commitment to unwavering quality.

To commemorate Pelikan’s 175th anniversary, a special highlight for 2013 was the unveiling of the Limited Edition M101N Jubilee Pen called the “Lizard”, modeled after a vintage Pelikan FWI edition, which became a favourite amongst pen connoisseurs. Only 238 of these noble fountain pens were available worldwide and have now been sold out. 006 ANNUAL REPORT 2013

Group Corporate Structure

2.60%

Pelikan International Corporation Berhad (Company No. 63611-U)

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ìëë +}„ƒy† ‹ŒŠzŒ‡† 1}Šy„Œ†‹ " z# " -()4 Pelikan International Corporation Berhad 007 AMERICAS Sales & marketing organisations in • Mexico • Colombia • Argentina

Percentage of Group’s revenue % (2012: 12.3%) 13.7 Manufacturing plants facilities 2 Pelikan International Corporation Berhad (Company No. 63611-U) Employees (2012: 618) 597 ôîóô ìëë ìëë òëôí ìëë ôïôë +}„ƒy† #‡„|† " +}„ƒy† +Š‡|{Œ‡† +}„ƒy† #yŠ|{‡ˆ‘ #‡„|† " #}Š„Œ’ "y†‘ }| !y„ƒ}†‹}} (‡„ƒyŠ .2$/5 -')  (y„y‘‹y .|† €| .2$/5 -')  ƒŒ}†}‹}„„‹{€y~Œ "Š†|‹Œä{ƒ‹Ž}Šy„Œ†‹ 1}Š }Œ†‹}‹}„„‹{€y~Œ ('4.$ " -()4 " z# z# • ‡ *z‚}ƒŒ ìëë " -()4 !y„ƒ}†‹}} &" EUROPE ìëë +}„ƒy† #yŠ|{‡ˆ‘ Š‡ˆ} 'Œ| " -()4 ìëë ìëë ìëë ìëë +}„ƒy† (||„} y‹Œ !5 .*/')  +}„ƒy† )}|}Š„y†| 1 +}„ƒy† $Œy„y +}„ƒy† $†{ +}„ƒy† ‹y .|† €| 0)$/ - ($-/ . Sales & marketing organisations in /# ) /# -') . .ˆ 0. ('4.$ ðìë $/'4 òð ìëë ìëë • Turkey • Greece • Hungary • Poland íð +}„ƒy† .†yˆ‡Š} +Œ} 'Œ| +}„ƒy† #yŠ|{‡ˆ‘ +Š‡|{Œ‡† " ìëë ìëë +}„ƒy† %yˆy† && .$)"+*-  .2$/5 -')  • Italy • Austria • Sweden • Germany +}„ƒy† ‹ŒŠy +}„ƒy† . %+) ìëë ìëë }*( '‡‹Œƒ ‡†Ž} .{€Š}zyŠ}† "}‹}„„‹{€y~Œ z# .+$) ìëë ìëë • Switzerland • Czech Republic • Bulgaria 0./-$ ôð ðëëì 1}Šy„Œ†‹ #y†|}„‹ " z# +}„ƒy† /yy† ‡ 'Œ| +}„ƒy† #yŠ|{‡ˆ‘ 1 " z# " -()4 ð ïôôô /$2) /# ) /# -') . • Belgium • The Netherlands • France ìëë +}„ƒy† #}„„y‹ +}„ƒy† ({‡ " -()4 ìëë +}„ƒy† .{€}’ " 'Œ| . |} 1 ìëë ìëë • Romania • Slovakia .2$/5 -')  "-   ( 3$* ìëë #}Š„Œ’ „yŠy +}„ƒy† +‡„‹ƒy .ˆ’‡‡ +}„ƒy† #yŠ|{‡ˆ‘ }*( '‡‹Œƒ ‡‡ +*')  5 ‹Š‡ " z# • ‡ &" 0'"-$ ìëë îíï 5 # - +0'$ +}„ƒy† +.+Š‡|ƒŒ‡† ôñòñ " -()4 Percentage of revenue ìëë ìëë % 1}Šy„Œ†‹" z# +}„ƒy† Š}†Œ†y +}„ƒy† /Šy|† ìëë " -()4 . ìëë #}Š„Œ’ #†´Šy &~Œ (2012: 83.6%) 82.1 .€y†€y ‡ 'Œ| +}„ƒy† #yŠ|{‡ˆ‘ .{‡Œ„y†| ' Œ}| #}Š„Œ’ #0)"-4 -" )/$) #$) .*/')  ìëë ôìî +yˆ}ŠŽ}ŠyŠz}Œ†‹ " z# ðì +}„ƒy† +. ôëóò ôô ìëë Manufacturing +Š‡|ƒŒ‡†‹}‹}„„‹{€y~Œ +}„ƒy† ‡„‡ zy " -()4 #}Š„Œ’ -‡ ¶†y .-' plants +/ +}„ƒy† $†|‡†}‹y "- $! 2 -& " z# -*()$ z# • ‡ &" .. $) *) .$ " -()4 facilities 6 " -()4 *'*($ ìëë ì (}Š{‡„†} " z# ìëë ñë ôô ìëë ìëë ìëë ïë " -()4 #}Š„Œ’ .ˆ‡„ ‹Š‡ #}Š„Œ’ .„‡Žyƒy +}„ƒy† /Šy|† $†|y $)$/$* " z# 5 # - +0'$ ‹Š‡ Employees +}„ƒy† " z# &Š}’}Š +Š‡|ƒŒ‡† ñë +ŠŽyŒ} ' Œ}| " -()4 " -()4  1}ŠŒŠ}z " z# +}„ƒy† *~‹ 1} ìëë .'*1&$ $) $ .‹‘ yŠ| " z# ìëë (2012: 2,283) 2,021 " -()4 &ŠŒy‹‘} (y„’} }„}Š ìëë " -()4 #}Š„Œ’ .ˆ‡„ƒy ’‡‡ /{yŠ}Œ 'Œ| .Šƒ}Œ óíòò ‡†y† +}„ƒy† #yŠ|{‡ˆ‘ 'Œ| /0-& 4 +*')  ìëë +}„ƒy† /€y„y†| #$) ìëë +}„ƒy† 1}ŠŒŠ}z ‡ 'Œ| +*. ìëë 1}Šy„Œ†‹" z# /#$')  ìëë .}ŠŽ{}}‹}„„‹{€y~Œ #5 -}y„ ‹ŒyŒ} ‹Š‡ " -()4 +}„ƒy† #yŠ|{‡ˆ‘ ‹y +y{~{ 'Œ| z# 5 # - +0'$ #*)" &*)" #$) " -()4 ìëë ïë +}„ƒy† 1}ŠŒŠ}z‹}‹}„„‹{€y~Œ z# • ‡ &" " -()4 ASIA, MIDDLE EAST ìëë +}„ƒy† )1. ~ƒy +}„ƒy† }„ )1. & AFRICA  '"$0(

ìëë +}„ƒy† !Šy†{} .. Sales & marketing organisations in !-)  • United Arab Emirates • India • Thailand ìëë '†}y " z# • Malaysia • Singapore • Indonesia • Taiwan " -()4 • People’s Republic of China • Japan ìëë +}„ƒy† )‡Š|{  +Š†{ˆy„ {ŒŽŒ}‹ .2 ) Percentage of revenue +Š‡|{Œ‡† • ‹ŒŠzŒ‡† $†Ž}‹Œ }†Œ+Š‡ˆ}ŠŒ‘ #‡„|† % ìëë (2012: 4.1%) 4.2 -}(}Š{€ " z# ‡Š y†Œ$†y{ŒŽ} ‹ŒŠzŒ‡† " -()4 +Š‡|{Œ‡† .}ŠŽ{}‹ Manufacturing ìëë plants +}„ƒy† #yŠ|{‡ˆ‘ ‹ŒŠzŒ‡† " z# • ‡ &" facilities 2 " -()4 ìëë Employees +}„ƒy† ‹ŒŠzŒ‡† 1}Šy„Œ†‹ " z# " -()4 (2012: 278) 234 008 ANNUAL REPORT 2013

Dear Shareholders,

On behalf of the Board of Directors, we are pleased to present the annual report of Pelikan International Corporation Berhad (“Pelikan International”) for the financial year ended 31 December 2013.

TAN SRI ABI MUSA ASA’ARI BIN MOHAMED NOR Chairman & Independent Non-Executive Director

THE GLOBAL ECONOMY 2013 (statistics sourced from the World Bank)

Helming a company with a 175 year heritage The Euro area countries contracted by 0.4% is an undeniable honour, more so as we have (2012: -0.6%) last year, but growth improved nurtured a global business through challenging in the second quarter of 2013 led by robust times without any compromise to quality and growth in Germany. The developing Europe innovation that has defined the Pelikan brand and Central Asia economies recorded a better since 1838. Last year was another chapter in GDP performance of 3.4% (2012: 2.0%) due to this enduring story. positive spillover from the recovering high-income Euro Area countries. As 82.1% 2013 continued to be a challenging year from of the Group’s revenue was contributed global economic and financial perspective. by operations in Europe, Pelikan Group’s The global Gross Domestic Product (“GDP”) businesses improved gradually from the year growth was estimated at 2.4% in 2013 before, largely because of the positive effects (2012: 2.5%), a relatively flat growth from from the reorganisation projects that were the year before due to fiscal consolidations undertaken. and tighter policy controls in high-income economies. For developing countries in East The economies in the Latin America and Asia and Latin America, economic activities Caribbean region performed moderately in and sentiments were moderate before 2013 and recorded a 2.5% GDP growth rate accelerating from mid-2013 onwards, reflecting (2012: 2.6%) with accelerations in Argentina strengthening high-income economies and and Brazil at 5.0% and 2.2% respectively. rising demand in China. Mexico, on the hand, experienced slower economic growth due to softening domestic demand and a slump in exports to the United States of America, which only picked up Pelikan International Corporation Berhad 009

Chairman & CEO’s Statement 2013

LOO HOOI KEAT President/Chief Executive Officer

towards the second half of 2013. Despite the lacklustre economic growth, Pelikan Americas managed to generate similar revenue in 2013 as with 2012 as sales deterioration in Mexico and Colombia were compensated by improved sales in Argentina, particularly in its office products segment.

In the Middle East and Africa region, political turmoil, trade sanctions and domestic unrests in Syria, Egypt and Tunisia among others, continue to dampen economic activities and growth resulting in a contraction of 0.1% in 2013 (2012: 1.5%). In Japan, the economy recorded a GDP growth of 1.7% (2012: 1.9%) and Pelikan Japan’s business increased by 6% against budget due to the successful Fine Writing Instruments editions launched in 2013. The East Asia and Pacific countries performed moderately at 7.7% in 2013 due to the slower domestic growth of China as well as declining commodity prices and policy tightening to address external imbalances in South East Asia. 010 ANNUAL REPORT 2013

Chairman & CEO’s Statement

Since 2012, the Group had undergone FINANCIAL PERFORMANCE year’s corresponding quarter mainly various structural reorganisations via attributable to the loss of RM56.2 divestment of plants and merging of For the financial year ended million in revenue from the disposed operating units. Furthermore, the Group 31 December 2013, Pelikan Group businesses in March 2012, which implemented strategies within its recorded total revenue of RM1.4 billion, were no longer consolidated in the product assortments and distribution a decline of 9.9% from the previous year first financial quarter. In addition, the channels to improve operating (2012: RM1.6 billion). The lower revenue business and products rationalisations margins and reduce operational costs. level achieved in 2013 was attributable within the Group, particularly in Overall, these restructuring projects to the manufacturing facilities and the presentation, office equipments have brought about improvement product groups which were sold off in and printer consumables business in the operating results, though the March 2012 and hence not consolidated segment had also resulted in lower key European markets had not fully into the Group’s 2013 financials. On revenue contribution in the first resolved its economic issues and had a full year basis, the Group achieved financial quarter. As the first financial an impact on the Group’s overall an operating profit of RM24.9 million, quarter is usually a low season for the performance for 2013. Nevertheless, an increase of RM47.8 million against stationery business, in particular the with the restructuring exercises, the 2012’s operating loss position of RM22.9 European markets, the Group recorded operating structures became leaner million. The significant improvement a loss before tax of RM7.9 million. The and operating costs base are better was the result of a turnaround in Americas region however achieved a aligned to the Group’s sales levels. the European operations which have steady growth in revenue of 3.7% as Moving forward, the Group is focused undergone structural, distribution and compared to the preceding year’s first on implementing measures that will product level restructuring since 2012. financial quarter. improve sales within Europe and The Group recorded a profit before enhance sales in developing markets taxation of RM2.6 million. In the second financial quarter, the such as Latin America and Asia by Group’s revenue declined by 10.2% The Group’s revenue for the first launching new products, improving (2012: RM427.7 million) to RM383.9 financial quarter was RM328.8 marketing strategies and strengthening million mainly due to the effects of the million (2012: RM417.5 million), a distribution channels. disposed private label filing business decline of 21.3% from the preceding and plants of the Herlitz Group in 2012, Pelikan International Corporation Berhad 011

which amounted to RM37.7 million the “Back to School” season in Europe in revenue from the corresponding with additional sales in school business quarter of 2012. The presentation, office segment of approximately RM64.1 equipment and printer consumables million as compared to the preceding business segment experienced a sales quarter, showing signs of improved decline of RM10.8 million in the second consumer sentiments and retail sales. financial quarter due to the product and incurred in the third financial quarter as channel rationalisations undertaken The Group achieved revenue of opposed to the corresponding quarter in 2012. Excluding such declines in RM406.0 million in the third financial of 2012. sales arising from plant disposals quarter (2012: RM427.8 million), a The Group’s revenue in the fourth and product line rationalisations, the decline of 5.1% as due to the effects financial quarter declined by 1.2% Group’s real revenue increased by of the sales of the private label filing to RM323.5 million (2012: RM328.1 approximately RM4.7 million, evidently business and plants in 2012 of which million). Approximately RM13.1 million in the school product segment in approximately RM30.0 million in sales sales of the disposed private label Germany whereby sales grew 6.5% in were no longer consolidated. However, filing business and plants in 2012 were the second financial quarter against the Group’s revenue increased by 5.8% no longer consolidated in the fourth 2012’s corresponding quarter. Despite compared to the preceding quarter due financial quarter comparatively. The the overall decline in sales, the Group to improved Euro currency and higher drop in revenue was also a result of recorded a profit before tax of RM10.1 sales demand arising from markets in the slowdown of sales in the European million in the second financial quarter Colombia, Poland, Greece and Romania. and Americas markets subsequent to (2012: - RM0.2 million), which was The Group recorded a profit before tax the “Back to School” season. The Group mainly the result of the restructuring of RM11.5 million in the third financial recorded a loss before tax of RM11.1 and product rationalisation measures quarter (2012: - RM0.04 million). The million in the fourth financial quarter, in 2012. Higher revenue in the second improved results was attributable mainly attributable to the lower margin financial quarter also reflected a to the lower cost base arising from contribution due to the lower sales stronger quarter for the Group due to restructuring measures undertaken in 2012 and less restructuring expenses value. 012 ANNUAL REPORT 2013

Chairman & CEO’s Statement

PELIKAN AND HERLITZ AS ONE its operations and businesses. Now COLOUR. FUN. INSPIRATION – that Pelikan and Herlitz PBS business 175TH YEAR The restructuring exercises and are operating as one, the management projects that began in 2012 were more team can steer both brands with more For the last 175 years Pelikan has overwhelming than anticipated and control over its direction and strategies stood for quality, innovation and hence the completion of the merger particularly in such challenging global creativity. Though it has moved its between Pelikan and Herlitz business economic environments. Pelikan and roost from Germany to Malaysia, under one Group took longer than Herlitz have complementary products its brand qualities have remained planned. However, the Group managed to each other with different brand constant. Today, Pelikan continues to achieve better performance in 2013 image and appeals to different target to actively spread its wings and and the significant improvement audiences, though both brands carry capture the imagination of a new was the result of a comeback in the German identities, high quality and generation of customers globally. Group’s European operations that innovative products that appeal to Pelikan Group’s 175th year was met were restructured and reorganised pupils, teachers, parents, office workers with celebrations in offices around in terms of product offerings, supply and pen collectors. Together with the the world. The year also marked chain and distribution channels. other brands under the Group, Geha The restructurings were proven and Susycard, the Group strives to be effective with the lower cost base a full fledge writing instruments and which had improved overall margins. stationery supplier and provider for The structural changes within the everyone’s needs at schools, offices and distribution channels and consumer homes. Not only does the Group strive buying behaviors in Europe also allowed to reap the synergies of the merger in the Group to implement change in terms of cost savings from the back- business strategies that will better end support services, Research and serve the customers’ demands in terms Development (“R&D”) capabilities, of product offerings and promotional human resource knowledge and skills, activities. technology transfer, product know-how, sales and marketing convergence, and The Group is pleased and relieved so much more, the Group also believes to announce that as of March 2014, that with a larger and complete range Pelikan and Herlitz brand and business of products available for the trade and are now operating under the same end users, our sales and marketing management team, from sales and organisations will have better leverage marketing departments all the way to and negotiation positions for new its back-end supporting services. We customer listings, better margins and are grateful to all the parties involved pricing policies, higher turnover and in this massive merger process and we more brand visibility and awareness. are confident that the newly merged Group will be even more effective in Pelikan International Corporation Berhad 013

Chairman & CEO’s Statement

the 40th year for our manufacturing marketing internationally. Furthermore, collection was awarded the German plant in Vöhrum, Germany, 50th year the Group launched a Limited Edition ‘Ecodesign’ Award. As for school of business operations in Mexico, and Special Edition M101N Jubilee products, Pelikan’s new Twist fountain and 80th year of business operations pen called the “Lizard”, modelled pen for school children was awarded in Argentina! The Group wanted to after a vintage Pelikan edition to the ‘Red Dot Design Honourary Mention convey a global message that Pelikan commemorate the 175th year, which Award 2013’ while the Herlitz my.pen is proud to have a great history and became an immediate favourite erasers launched last year were given is a contemporary brand with huge amongst pen connoisseurs. While sales the ‘Red Dot Design Award 2013’. These aspirations for the future. Hence it was and marketing organisations around awards are significant for the Group a great opportunity to celebrate and the world were facing challenging as they provide recognition for our communicate the Jubilee celebrations market situations, nonetheless, each products contributions and design to our end users, customers, employees were celebrating the anniversary in competence in the writing instruments and general public. A new 175th Year their own way with their staff and and stationery fields. These esteemed logo for stationery and for fine writing business partners. awards also give merit and confidence instruments were introduced and to our product development, product imprinted on all new Pelikan product AWARDS & ACCOLADES marketing and R&D teams which packaging as well as marketing, comprise of talented and skilled advertising and promotional collateral Pelikan Group continued to be employees who have worked endless worldwide to commemorate the honoured and awarded with several hours together to achieve great results. occasion. Using our brand values that prestigious accolades from renowned are emotional, creative and inspiring, global institutions. From the office the celebration phrase for our 175th product segment in the mass writing year was “Farbe. Freude. Inspiration.” instrument collection, power® ballpoint or “Colour. Fun. Inspiration.” in English, pen won a ‘Red Dot Design Award 2013’ which worked well for the brand and while Herlitz’s easy orga to go green 014 ANNUAL REPORT 2013

Chairman & CEO’s Statement

IN APPRECIATION in 2015 and 2016 respectively. The Euro area countries are projected to A total of 2,852 employees represented grow 1.1% in 2014 after two years of the Pelikan Group by end of 2013. On contraction before stabilising to 1.4% behalf of the Board of Directors, we and 1.5% in 2015 and 2016 respectively. want to thank the management and all Growth in developing countries on the employees for their passion, dedication, other hand will increase to 5.3% this team work, and loyalty to the Pelikan year, followed by 5.5% in 2015 and 5.7% and Herlitz brand and company. Our in 2016. The developing East Asia and sincere thanks and gratitude also Pacific countries are expected to grow extend to our fellow shareholders, at 7.1% in 2014 and 2015 while growth investors, business associates and in developing Europe & Central Asia all other stakeholders who continue will be 3.5% this year due to strong to give their unwavering support trade and financial links to the Euro and commitment no matter the area countries. In line with the global circumstances and outcomes. GDP projections, the Group expects performance to improve in terms of BEYOND 175 YEARS revenue and profitability as global (statistics sourced from World Bank) markets recover in terms of economic activities. The previous structural The world economy is projected to and product reorganisations are also strengthen this year, with GDP growth expected to contribute positively to accelerating in developing countries overall performance and the Group thanks to the recovery from high- shall focus to improve sales, enhance income economies and continued marketing activities and market strong growth in China. A global GDP expansions in the lesser but growing growth of 3.2% is expected for 2014, markets of Latin America and Asia with better growth of 3.4% and 3.5% regions.

For 2014 and beyond, the Group has many new products in the pipeline to be launched. While the Group expects the school business to remain relatively stable in Europe and other developed markets, in order to defend market leading positions and to maintain and grow market shares, new products and marketing approaches need to be constantly developed to offer our target groups and fans the best products possible. A few highlights for 2014 will be the re-launch of the griffix® “learn to write” assortment Pelikan International Corporation Berhad 015

Chairman & CEO’s Statement

with new details and designs to the ‘SmileyWorld’ series, a new venture into 4-step concept such as the conversion the notebook market with the launch of the single wax pen into a set of 8 in of my.book Flex as well as calendars a plastic box, substitution of the lead and diaries for 2014. We are also pencils with a new, easy to handle push pleased to continue the success of our mechanical pencil, and improved grip “Back to School” campaigns for both sections and colours to the existing Pelikan and Herlitz brands with new writing instruments. In the field of marketing taglines “Experience New youth writing, Twist continues to be Worlds” and “Cool@School”. We hope the focus product in 2014 with more that these new products and marketing mature colour combinations to target activities for 2014 will boost sales and the tween market. Other re-launches brand awareness in all major markets include Style and Happy Pen with new and open up further opportunities for colours and designs to strategically new distribution channels in growing capture the key accounts business markets. in the target price ranges. For office products, the strategy remains to offer basic assortments in the 5 core TAN SRI ABI MUSA ASA’ARI assortments: Writing, Marking, Gluing, BIN MOHAMED NOR Correcting and Stamping/Duplicating. Chairman On the basis of these core assortments, further product launches are needed LOO HOOI KEAT to support further growth of the office Chief Executive Officer segment as sunset products such as Selangor Darul Ehsan carbon paper, stamp pads, and printer Malaysia ribbons will soon see a decline in usage and availability.

For fine writing instruments, Special Editions that proved to be both unique and successful last year will continue to be introduced in 2014. A new product that we just launched was the anticipated Classic fountain pen with ink cartridge, P200 and P205, as well as the accompanying Edelstein ink cartridge collection. There are many new Herlitz and Susycard products in the pipeline, amongst them new designs for school bags and be.bag collection, more stationery assortments in the my.pen family, new design collections ‘Color Blocking”, ‘Kisses’ and 016 ANNUAL REPORT 2013

Board of Directors’ Profile

TAN SRI ABI MUSA ASA’ARI BIN MOHAMED NOR Chairman & Independent Non-Executive Director Chairman of Remuneration Committee Chairman of ESOS Committee

Tan Sri Abi Musa Asa’ari Bin Mohamed Nor, a Malaysian aged 64, was appointed as a Non-Independent Non-Executive Chairman of Pelikan on 27 July 2012 and redesignated to Independent Non-Executive Chairman on 30 July 2013.

He started his career with the Malaysian Government as a Civil Service Officer in 1973 holding the post of Assistant Director in the Public Service Department. In 1977, he was seconded to the National Bureau of Investigation (now the Malaysian Anti Corruption Commission), and later to INTAN as Programme Coordinator for Public Enterprises Training before serving as Deputy Director of Petroleum Development in the Prime Minister’s Department.

He also served as Deputy Director of Budget in the Ministry of Finance from 1995 to 1998, following which he was appointed Director General of FAMA in the Ministry of Agriculture. In 2001, he was appointed Secretary General of the Ministry of Agriculture and Agrobased Industry, a post he held until his retirement in 2006.

Currently, he is a Director of Heitech Padu Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad, Board of Sultan Idris Education University (UPSI), Platinum Nanochem Sdn Bhd and a Member of Herlitz AG Supervisory From left Board, a subsidiary of Pelikan listed on the Frankfurt • Loo Hooi Keat Stock Exchange. • Tan Sri Abi Musa Asa’ari Bin Mohamed Nor • Yap Kim Swee He does not have any family relationship with any Director and/or major shareholder, nor any conflict of interest with Pelikan. He has no convictions for any offences within the past 10 years other than traffic offences, if any. Pelikan International Corporation Berhad 017

Board of Directors’ Profile

LOO HOOI KEAT YAP KIM SWEE President/Chief Executive Officer Independent Non-Executive Director Member of ESOS Committee Chairman of Audit Committee Chairman of Nomination Committee Loo Hooi Keat, a Malaysian aged 59, was appointed as Member of Remuneration Committee an Executive Director of Pelikan on 22 April 2005 and Member of ESOS Committee thereafter as an Executive Chairman on 26 April 2005. Subsequently, he was re-designated as President/ Yap Kim Swee, a Malaysian aged 67, was appointed as Chief Executive Officer of Pelikan on 14 November 2007. an Independent Non-Executive Director of Pelikan on 22 May 2006. He is a certified Public Accountant and a member of the Malaysian Institute of Certified Public Accountants He is a Chartered Accountant and a member of the (MICPA). He received his training in accountancy from Malaysian Institute of Accountants (MIA) and a Fellow a reputable international accounting firm where he of the Association of Chartered Certified Accountants obtained his Certified Public Accountant accreditation. (ACCA). Since then, he has gained experience in various He started his career in Hanafiah Raslan Mohd & Partners international companies in Malaysia, namely as Group in 1969. In 1972, he joined Coopers & Lybrand, a legacy Accountant for the Sime Darby group of companies from firm of PricewaterhouseCoopers as an audit senior 1982 to 1985 and Lion group of companies from 1986 to and was thereafter appointed as a Director in 1987. He 1989. He was the Group General Manager for Business was admitted as a Partner in 1991 and retired from the Management of United Engineers (Malaysia) Berhad from partnership in PricewaterhouseCoopers in 2002. With 1990 to 1992. He then joined Konsortium Logistik Berhad, his many years of experience in audit and business a logistics service provider company as an Executive advisory services, he has extensive knowledge of the Director until 2010. operations of companies in various industries that include Presently, he is the President and Board member of manufacturing, finance, insurance, telecommunication, Pelikan Holding AG, a subsidiary of Pelikan listed on the housing development and plantation. SIX Swiss Exchange and is also a Board Member of Herlitz He does not have any family relationship with any AG, a subsidiary of Pelikan listed on the Frankfurt Stock Director and/or major shareholder, nor any conflict of Exchange. interest with Pelikan. He has no convictions for any Except for certain recurrent related party transactions offences within the past 10 years other than traffic of a trading or revenue nature which are necessary for offences, if any. the day-to-day operations of the Group for which he is deemed to have interest, there are no other business arrangements with the Group in which he has a personal interest.

He does not have any family relationship with any Director and/or major shareholder, nor any conflict of interest with Pelikan. He has no convictions for any offences within the past 10 years other than traffic offences, if any. 018 ANNUAL REPORT 2013

Board of Directors’ Profile

DATUK ROZAIDA BINTI OMAR Non-Independent Non-Executive Director Member of Audit Committee

Datuk Rozaida binti Omar, a Malaysian aged 51, was appointed as a Non-Independent Non-Executive Director of Pelikan on 21 November 2008.

She is a Chartered Accountant of the Malaysian Institute of Accountants (MIA) and a Fellow of the Association of Chartered Certified Accountants (ACCA).

She started her career as a Financial Accountant at FELDA in 1986. From 1990 to 1991, she was a Credit Manager at Citibank Berhad. She then joined Guthrie Trading Sdn Bhd as a Finance Manager until 1993. In 1994, she joined Glaxo SmithKline Consumer Healthcare Sdn Bhd as Finance Director until 2003.

Currently, she sits on the Board of BIMB Holdings Berhad and Syarikat Takaful Malaysia Berhad. She is also the Group Chief Financial Officer of Lembaga Tabung Haji.

She does not have any family relationship with any Director and/or major shareholder, nor any conflict of interest with Pelikan. She has no convictions for any offences within the past 10 years other than traffic offences, if any.

From left • Datuk Rozaida Binti Omar • Dato’ Afifuddin Bin Abdul Kadir Pelikan International Corporation Berhad 019

Board of Directors’ Profile

DATO’ AFIFUDDIN BIN ABDUL KADIR Independent Non-Executive Director Member of Audit Committee Member of Nomination Committee

Dato’ Afifuddin bin Abdul Kadir, a Malaysian aged 60, In April 2008, he was promoted to the post of the Deputy was appointed as an Independent Non-Executive Director Director General II and subsequently to the Deputy of Pelikan on 1 August 2012. General I of MIDA in June 2008, a post he held until his retirement on 14 September 2011. He joined the Malaysian Industrial Development Authority (MIDA) in 1979 as a Technical Professional Currently, he sits on the Board of Lion Corporation Berhad Officer in the Industrial Studies Division. He was attached and UMW Oil & Gas Corporation Berhad. to MIDA Sabah from 1982 to 1985. He does not have any family relationship with any From 1986 to 1990 he served as Deputy Director in MIDA’s Director and/or major shareholder, nor any conflict of branch in London. Later he was attached to the Transport interest with Pelikan. He has no convictions for any and Machinery Industries Division as a Deputy Director. offences within the past 10 years other than traffic From 1996 to 2001 he served as a Director in MIDA’s offences, if any. branch in Paris, following which he served as the Director in MIDA’s branch in London.

In early 2005, he was posted back to MIDA’s Headoffice as Director of the Electronics Industries Division. In late 2005, he was given the task to head the Foreign Investment Promotion Division in MIDA’s Head office. His responsibilities included overseeing the overall planning, implementation and co-ordination of investment promotion strategies to attract foreign direct investments into Malaysia.

In March 2007, he was promoted to Senior Director, Investment Promotion and responsible for the overall investment promotional activities particularly with regard to promoting foreign and domestic investments as well as cross border investments. 020 ANNUAL REPORT 2013

Board of Directors’ Profile

NORMIMY BINTI MOHAMED NOOR Non-Independent Non-Executive Director

Normimy binti Mohamed Noor, a Malaysian aged 44, was appointed as a Non-Independent Non-Executive Director of Pelikan on 12 September 2011.

She is presently the General Manager in the Office of the Group Managing Director and Chief Executive Officer of Lembaga Tabung Haji, a position she has held since 2009. Prior to that, she was the Assistant General Manager of Bank Islam Malaysia Berhad, Director of Private Banking/Financial Services, Societe Generale Bank & Trust, Singapore and was responsible for the acquisition and management of High Net Worth Individuals (HNWI) and institutions, providing advisory services to HNWI clients in estate planning, trust and investment services as well as providing total financial solutions to HNWI through offshore offerings.

Puan Normimy has also served as Vice President of Private Banking/Financial Services, at Clariden Leu, Credit Suisse Group Singapore and was with the Maybank Group for 14 years.

She does not have any family relationship with any Director and/or major shareholder, nor any conflict of interest with Pelikan. She has no convictions for any offences within the past 10 years other than traffic offences, if any.

From left • Normimy Binti Mohamed Noor • Dato’ Lua Choon Hann • Dato’ Mohamad Norza Bin Zakaria Pelikan International Corporation Berhad 021

Board of Directors’ Profile

DATO’ LUA CHOON HANN DATO’ MOHAMAD NORZA BIN ZAKARIA Independent Non-Executive Director Independent Non-Executive Director Member of Nomination Committee Member of Remuneration Committee

Dato’ Lua Choon Hann, a Malaysian aged 37, was Dato’ Mohamad Norza bin Zakaria, a Malaysian aged 47, appointed as an Independent Non-Executive Director of was appointed as an Independent Non-Executive Director Pelikan on 1 April 2013. of Pelikan on 1 April 2013.

He obtained his Bachelor of Law degree from the He is a Chartered Accountant of the Malaysian Institute University of Cardiff, United Kingdom and started his of Accountants (MIA) and a Fellow of Certified Public professional career in the legal practice with the Attorney Accountants (CPA Australia). General’s Chambers as a Prosecutor in the Republic of Singapore. He started his career with Arthur Andersen & Co./ Hanafiah, Raslan & Mohamad in 1988. In 1990, he was With his years in practice, he gained a substantial and an Executive, Bank Regulation Department with Bank broad expertise, knowledge and experience in advising Negara Malaysia until 1991. He then joined Petronas as on legal matters, amongst others, pertaining to corporate a Senior Executive, Finance & Administration in the Gas affairs, finance and commercial matters. With his & Petrochemical Development Division until 1994. After professional legal experience, business acumen and that, he became a Group Financial Controller with SPK commercial know-how, Dato’ Lua became an entrepreneur Sentosa Corporation Berhad till March 1995. in 2003 through various business ventures in Malaysia involving various sectors, including the provision of He was with Mun Loong Berhad until 1997 as Group corporate consultancy and solution services, property General Manager – Audit and Chief Executive Officer of development and other related businesses. Gabungan Strategik Sdn Bhd from 1998 until 2004.

Currently, he is a Director of Furniweb Industrial Products He was the Political Secretary to the Minister of Finance II, Berhad, a public listed company on the Main Market of Ministry of Finance, Malaysia from April 2004 until March Bursa Malaysia Securities Berhad. 2008.

He does not have any family relationship with any Currently, he is a Director of Bintulu Port Holdings Berhad Director and/or major shareholder, nor any conflict of and TH Heavy Engineering Berhad, public companies interest with Pelikan. He has no convictions for any listed on the Main Market of Bursa Malaysia Securities offences within the past 10 years other than traffic Berhad, and President & CEO of Citaglobal Sdn Bhd. offences, if any. He does not have any family relationship with any Director and/or major shareholder, nor any conflict of interest with Pelikan. He has no convictions for any offences within the past 10 years other than traffic offences, if any. 022 ANNUAL REPORT 2013

Group Management Team

1 2 3 4 5

PELIKAN INTERNATIONAL 3. lOO SEOW BENG • Appointed Board Member of CORPORATION BERHAD Malaysian, 56 Herlitz AG in January 2014 Head of Procurement 1. lOO HOOI KEAT • BSc in Business 5. JENS KOLLECKER German, 38 Malaysian, 59 • Over 17 years experience Finance Director of Herlitz AG President/Chief Executive Officer with Pelikan Group • Certified Public Accountant • Graduate in IT and information • Pelikan Singapore-Malaysia Pte Ltd • Over 30 years experience management (1995) • Group Accountant, Sime Darby • Diploma in Economics • Pelikan Holding AG Group of Companies (1982-1985) • Joined Pelikan Group in 1998 and • Group Accountant, Lion Group of held several positions in Controlling Companies (1986-1989) HERLITZ MANAGEMENT and Finance (1998-2011) • Manager of manufacturing plant • Group General Manager, United 4. FRAUKE WANDREY at Vöhrum, Germany (2011-2014) Engineers (Malaysia) (1990-1992) German, 45 • Executive Director, Konsortium Board Member of Herlitz AG • Appointed Finance Director of Logistik Berhad (1992-2010) • Degree in Law (State Exam) Herlitz AG in February 2014 2. HO MING HON • Attorney in an international Malaysian, 39 law firm PELIKAN EUROPE Senior Vice President, Head of • Joined Pelikan Group as Head of 6. TORSTEN JAHN Group Finance and Corporate Services/ Legal Department in March 2000 German, 39 Company Secretary • Appointed Company Secretary C.E.O. of Europe • Certified Public Accountant and General Counsel Pelikan • Diploma in Economics • Practised in a big four audit firm Holding AG in 2004 • Certified German Tax Consultant • Specialised in corporate finance • Appointed Board Member of • Certified Valuation Analyst (CVA) in an investment bank Pelikan Holding AG/Managing Director of Pelikan PBS- Produktionsgesellschaft mbH & Co KG and Pelikan GmbH in June 2011

6 7 8 9 10 Pelikan International Corporation Berhad 023

Group Management Team

• Member of International • Over 25 years experience in PELIKAN ASIA, MIDDLE EAST Association of Consultants, production operations & AFRICA Valuators and Analysts Germany • International production transfer 13. AZUMA IKEDA • Joined Pelikan in 2003 projects Japanese, 60 • Plant Manager of PHPAG 7. SVEN VERGAUWEN Head of Sales and Marketing • Joined Pelikan in 1987 Belgian, 42 Japan and South Korea European Sales Director • BA in Commerce (ex Germany & Austria) PELIKAN AMERICAS • Masters of Business Administration • Masters in Marketing Management • Finance Manager, Pelikan Japan 10. clAUDIO ESTEBAN SELEGUAN • Product Manager, Key Accounts K.K. (1990) Argentinean, 52 Manager, and Marketing Manager • Managing Director, Pelikan Japan CEO Pelikan Americas at Geha Benelux N.V. (1996-1999) Managing Director, Pelikan Mexico K.K. (1995) • International Sales and Marketing • BA in Business Administration • Board member of Japan Imported Manager at Agfa-Gevaert N.V. • Over 21 years experience with Pen Association (1999-2002) Pelikan Group 14. WILLIAM LIU • Joined Pelikan Benelux N.V. as • Manager of Pelikan Costa Rica Chinese, 56 Business Development Manager (1989) Head of Sales and Marketing in 2002 People’s Republic of China, 11. MATHIAS SHAW • Managing Director of Pelikan Hong Kong and Taiwan Argentinean,38 Benelux N.V. (2004) • BA in Agriculture (National Chung Senior Vice President, Sales and Marketing, Hsing University, Taiwan) 8. elISABETH GEBLER Latin America German, 46 Managing Director, Pelikan Argentina • Over 20 years experience in the Head of European Marketing • Degree in Marketing (UCES Taiwan consumer market • Degree in Economics (University Business School) • Pelikan Taiwan Co. Ltd. (2007) of Hannover) • Marketing Manager of Pelikan 15. NASSER AL ATRASH • Over 16 years experience in Mexico (2002) Jordanian, 47 stationery business Head of Sales and Marketing 12. YAMIL VALENCIA • Regional Marketing Director Middle East and Africa Colombian, 45 of Newell Rubbermaid • BSc in Business Administration Managing Director, Pelikan Colombia SAS • Joined Pelikan in 2010 • BA in Industrial Engineering (Yarmouk University) 9. FLAVIO MONTI • Diploma in International Business • Over 22 years experience in Swiss, 54 (University of California at strategic business planning, Managing Director, Pelikan Hardcopy Berkeley) finance, operations, sales and Production AG (PHPAG) • Over 10 years experience with marketing • Technical education, BA in Business The Coca-Cola company in Central Economics America • Joined Pelikan in 2009

11 12 13 14 15 024 ANNUAL REPORT 2013

BEING 175 YEARS

It has been 175 years full of inspirational, fun-loving, and colourful happenings for the Pelikan Group. Pelikan Group has embarked on a transformative journey in terms of operational, managerial, and structural changes as well as the significant evolution in the brand, the products, the marketing and promotional activities, the channels, the markets and the customers. In the last decade, the Group faced various challenges in every aspect of the business that has led to resolutions in some and opportunities in others, and the Group is inspired and grateful for the many valuable experiences over the years.

In 2013, another year of global market uncertainties, the Group was again tasked to steer and complete its restructuring projects as swiftly as possible in order to merge the Pelikan and Herlitz brands under the same team to enable the Group to be more business savvy, cost efficient, and revenue driven.

Group Operations Review 2013 Pelikan International Corporation Berhad 025

GROUP CORPORATE SERVICES America region, and 234 were from offices in Asia and Middle East regions. 891 employees or 31.2% of the total Corporate Planning workforce were employed in the production facilities, 342 employees (12.0%) in warehousing, while 458 On 22 November 2013, the Board of Directors of employees (16.1%) were in sales and 214 employees (7.5%) Pelikan announced that its 70.92% subsidiary, Herlitz in marketing. The reduction in headcount was the result Aktiengesellschaft (“Herlitz AG”) will undertake a merger of restructuring exercises that began in 2012 particularly with its 100% subsidiary company Herlitz PBS AG Papier-, in the Pelikan subsidiaries in Germany. The Group retained Büro- und Schreibwaren (“Herlitz PBS”) (“Proposed the best and most suited employees to ensure that the Merger”). The Proposed Merger was undertaken to operations and businesses of the Group continued to simplify the existing corporate structure and involved the perform and grow. transfer of Herlitz PBS’ entire assets including all rights and obligations pertaining thereto by way of a merger The Group strives to maintain a healthy and stimulating including dissolution effective from 31 December 2013 environment for employees to engage and excel in their (date of merger) to Herlitz AG in its capacity as transferee work. Employees are continuously trained in skills and in the merger. The Proposed Merger had no effect on the qualifications to fulfil the requirements of their jobs as share capital, substantial shareholders’ shareholdings, well as to motivate them to meet the key performing net assets, earnings and gearing of the Company. indicators set by the respective head of departments at country and regional levels in order to gain internal On 27 December 2013, Pelikan Holding AG (“PHAG”) promotions. During the year, the top mangement team in entered into an agreement to purchase the German and Americas was also sent to business schools as participants Austrian stationery business from Herlitz PBS with effect of MBA programmes to update their management from 1 March 2014. The transaction was completed on knowledge and skills. 28 February 2014 and the completion saw the effective merger of the Pelikan and Herlitz core businesses under one management. 8.2% ■ Europe 2,021 Human Resource and Employees 20.9% ■ Americas 597 Pelikan Group had a total headcount of 2,852 employees ■ Asia, Middle East & Africa 234 (2012: 3,179) by the end of 2013, a decrease of 10.3% from the year before. Out of this total, 2,021 or 70.9% of the Group’s employees were based in Europe, 597 in Latin 70.9%

No. of Employees by Department 891 800

600 458 400 342 254 232 214

200 155 134 49 49 54 9 11

(IPC) Sales Finance Product Product Technical Marketing Production Purchasing Warehouse Department International International Research and Research Development Development Administration Human Resource Shipping/Logistics Procurement Centre Centre Procurement 026 ANNUAL REPORT 2013

Group Operations Review 2013

GROUP PRODUCTION, PRODUCT DEVELOPMENT In terms of management structure change, Mr. Flavio AND RESEARCH AND DEVELOPMENT (“R&D”) Monti has taken over the position as head of PHPAG, and the head controller has been replaced by Mr. Pavel Group Production manages 10 manufacturing plants Zastresek last year. and 956 manufacturing related employees across three continents. In 2013, Group Production continued on the In 2013, PHPAG worked mainly on the restructuring of restructuring programme that began in March 2012, the R&D for inkjet cartridges as new processes were with focus on simplifying the production complexities, necessary. The focus of the R&D for inkjet cartridges targetting core competencies and production units was the development of IP (“Intellectual Property”)-free that will bring about profitibility, and elevating compatible cartridges till the prototype phase. The tooling competitiveness in order to set up an economical and and manufacturing equipment were prepared at the sustainable manufacturing process. The restructuring plant in Glenmarie, Malaysia. There were fewer projects programme has been completed and Group Production carried out in 2013 than 2012, 90 instead of 97, due to the shifted its focus to R&D strategies now that the restructuring exercises implemented at the technology production facilities have more capacity to facilitate centre in Wetzikon, Switzerland, which resulted in the expansion in product assortments. centre scaling down in terms of space and activities for the ink production and inkjet cartridge R&D. The In the printer supply manufacturing facilities under technology centre focused on the toner R&D and project Pelikan Hardcopy Production AG (“PHPAG”), the main pipelines while the toner module projects were fully challenge was to execute the extended restructuring processed in the plant in Kyjov, Czech Republic. projects in order to create a lean steering unit for the remaining printer consumables business and to Another major focus for Group Production in 2013 was reshape the structure of the toner plant. These projects to expand the industrial sales direct business of laser included the reduction of toner powder formulations toner cartridges to commercial channels that target to only monochrome and coloured toners; winding private labels and “Prime Printing Technologies” branded down of activities that were not in the Group’s core competencies in the sales, production and R&D units; and the implementation and adjustment of the new structures post merger. During the transformation, PHPAG retained and selected key personnel to ensure activities were continued, and managed to reduce total costs and personnel expenses as the rationalisation of non-core business units resulted in a reduction of product lines that decreased operational shifts; termination of external warehouses; and overall reduction in rented offices and laboratory spaces. Overall, these restructuring exercises prepared the printer supply manufacturing facilities to perform and operate as an independent printer consumables business unit. PHPAG met all the cost reduction targets set in accordance to the restructuring plans in 2013, as well as strived to meet the challenges of maintaining the industrial and private label businesses despite the reduction in resources in order to prepare a lean framework for the business unit from 2014 onwards. Pelikan International Corporation Berhad 027

Group Operations Review 2013

products. The Group product. Puebla plant also reduced its consumption of has since assembled materials by USD$340,000. a dedicated European sales team based For the Herlitz production in Falkensee, Germany, in the Netherlands, the restructuring exercise came in the form of the where they are ideally positioned restructuring of its paper production. The production to serve international key accounts such as office capacity in Falkensee was consolidated with the supplies wholesalers and large end-user groups, namely production in Poland and now under the directive of the governments and administration departments. As clones same management team. New products were produced and counterfeits of toner cartridges flooding the market in the manufacturing facility in Poland, namely the will have an impact to sales, the Group is well prepared my.book flex and new exercise book collection. In terms to rectify the issues by placing value on respecting of cost savings, Herlitz production also reduced its fixed intellectual property of others as well as customer assets through sales of its machines while investments service and satisfaction. As private label business is a in new machines such as the wrapping machine were fiercely competitive market, PHPAG follows a clear and made to improve efficiency and quality of current product sustainable strategy in regards to products to avoid any assortments. The industrial sales business from these risks for the Group. In 2013, the UV-inkjet department was production facilities grew about 12% in 2013 and Herlitz sold to a third party. However, the focus of industrial sales production also collaborated with several paper producers on the development and production of coloured toner and printer offices to improve capacity. The increased powder, made in the production facility in Switzerland turnover in both production facilities for Herlitz proved for the global recycling industry, was successful last year. that the strategies to minimise costs and maximise The turnover with coloured toner powder nearly doubled utilisation through synergies and closer cooperation had in 2013 compared to the previous year, and this strategic worked in our favour. decision to focus on toner and standard inkjet cartridge In 2013, all of the Group’s production plants and locations business will continue in 2014 and beyond. were recertified as ISO 9001 and ISO 14001 management In 2013, the action plan for the production plant in systems by the Swiss Certification Institute (“SGS” Puebla, Mexico was to focus on the optimisation and SOCIETE GENERALE DE SURVEILLANCE SA). In relation improvement on production costs related to product to health, safety and environmental standards, Group assortment with inks and paints. Reduction of production Production conducts annual risk assessment and costs will lend more support to the product assortment instructions for all work places. The Group also promotes in terms of competitive prices in the markets. Though health, safety and environmentally initiatives such as skin on average only 60% were implemented in 2013, most protection awareness and campaign for bowel cancer of the projects planned during the year were targeted check-ups for production workers, waste separation and to improve technology and productivity. Last year, the recycling of reusable materials, reduction of power and Puebla plant recorded cost savings of USD$250,000 water consumption, usage of renewable energy for plant through improvements in operational strategies such heating, usage of energy-efficient printing and copying as implementation of better supply chain, optimisation machines, investments in energy-efficient LED lighting of wax crayon and PVC free eraser formulations, for the injection moulding department, and gymnastic optimisation of energy savings by substituting gas instead classes for staff in Switzerland. In the Puebla plant, of petroleum to generate steam power, optimisation implementation of environmentally friendly processes of using own produced bottles and caps for endorsing particularly energy, water and hazardous waste schemes ink, using washable inks for fiber-tip markers, and had saved the plant over USD$35,000 in 2013. optimisation of new bottles usage for the ‘Aquafluid’ 028 ANNUAL REPORT 2013

Group Operations Review 2013

Product Development and R&D Fine Writing Instrument (“FWI”)

Pelikan Group invested a total of RM21.1 million The year saw the launch of many new products to much (2012: RM12.78 million) in fixed assets for the R&D of success, particularly the M800 tortoiseshell brown and new products, machinery in production, and sales and M605 marine blue which were immediately sold out. marketing divisions last year. The R&D strategy in 2013 Despite market saturation and economic uncertainties, was to strengthen and improve the market leadership of FWI continue to perform due to the introduction of Pelikan’s product lines particularly in the school segment. many Special Editions in the market which piqued the The chemical department focused on the research of new interests of current and new FWI users as well as intensive inks and ink formulations for the development of better marketing efforts through advertising and social media and improved products. Under the technical development activities. department, the use of state-of-the-art laser technology was transferred to the product development for the R&D of school and office products.

In Vöhrum, Germany, the total investment in fixed assets for 2013 amounted to €1.82 million. This included machines for new products such as the Fine Writing Instruments (“FWI”) Special Editions, Twist youth writing instruments and the new K12/K24 school paintboxes, new machines such as tablet press and handling system, injection moulding machines, and 3-axis miling machines for production. The plant in Puebla, Mexico invested USD$406,000 in machinery for R&D of new products.

There were many new products launched in 2013. These projects were initially rated in the ‘New Product and Innovation’ stage gate process and every project was continually monitored with regards to revenue, profitability and strategic fit before getting approved by the Product Innovation Management team. The Twist youth writing instruments and Fine Writing Instruments Special Editions were rated highly and performed especially well. Pelikan International Corporation Berhad 029

Pelikan School

In 2013, the newly developed range of Twist fountain pens and rollerball pens were launched successfully. The eye catching twisted design in 4 attractive combination colours met the demands of the 9 – 13 year olds’ and opened new opportunities for Pelikan. The pens are equipped with ergonomically shaped soft grip sections for relaxed writing. Another major product for the Pelikan school range in 2013 was the paint box K12, of which 1.6 million pieces were sold. The new products of the school assortment listed were mainly inspired by regional market demands. The usual periodical renewals in terms of designs and face lifts were also market driven. Product designs have mainly been developed by European designers. Regarding product safety, all school products fulfill legal requirements such as EN 71 or ISO 11540. All directives are steadily controlled by product safety and quality assurance departments. Pelikan’s quality management system is certified by ISO 9001 and 14001.

Pelikan Office

In 2013, the most successful product in the office range was the assortment of lower priced ballpoint pens. The turnover of this range showed an increase of 21.2% in comparison to 2012. The growth was also supported by the launch of new products in this range and Pelikan was able to secure important orders from key accounts for promotional blister cards with lower priced ballpoint pens in Europe. In April 2013, Pelikan launched a complete family of new writing instruments called energy®, power® and figurine® which are three different models but have common design elements. Thus, the products are recognisable as a group and the focus for the products is on ballpoint pens and gel pens. The launch of energy®, power® and figurine® in Europe was supported by a key visual and the slogan “Pelikan’s writing instruments – suitable for all occasions” and was used for several marketing activities such as sampling cards, web banners, and online advertising templates. 030 ANNUAL REPORT 2013

Group Operations Review 2013

Herlitz School & Office

Herlitz had a good year in 2013 in terms of successful new product launches as the products were well received by the trade and end users. Herlitz also participated in many fairs and exhibitions throughout the year to promote these new products and create brand awareness. Pelikan International Corporation Berhad 031

Group Operations Review 2013

Printer Consumables of 84 projects (2012: 88) in different product categories and sales regions. The global economic conditions had In 2013, the strategy for printer consumables remained affected the business of most suppliers particularly in focused on offering printer supplies that have the same China as the constant increase of raw materials, continual or even better quality and yield as the OEMs, but at a hike of minimum labour wages, and the appreciation of better price for the end users and higher margins for the Chinese remimbi currency had significant impacts on the distributors. The focus was also to further grow the exports. As with previous years, the costs of raw materials market share in B2B channels as well as developing the increased in 2013 but IPC managed to achieve cost down business in online distribution channels. A key factor for through consolidation of global order quantities and online channels is the compatibility search tool, which better negotiations in terms of prices and minimum order was optimised and updated to a version that could also quantities (MOQs). IPC recorded sales of USD$17 million in run on mobile devices. Pelikan Group plans to invest more 2013. effort to improve the visibility of its printer consumables on the internet and improve web distribution as the In 2013, there were 99 active suppliers, a major increase online channel becomes more important. A specialised of 57.1% (2012: 63), due to the transfer of the sourcing team focusing only on printer consumables was created and procurement management for Herlitz products within the Group to service the market in Europe with and the handling of Herlitz’s order fulfillments. Every full force. Last year, Pelikan launched over 40 new year, suppliers are audited through the Group’s Supplier remanufactured toner cartridge models for use in Brother, Assessment and Survey Form as well as factory audits HP, Lexmark, Kyocera, Dell and Samsung laser printers of conducted by IPC. To the best of the Group’s knowledge, which many are coloured toner cartridges – a growing IPC enforces its “Code of Ethics” which audited that market. As the toner cartridge models are driven by the suppliers must adhere to the strict policies stipulated as new product launches of OEMs, the more recent printer the Group does not tolerate forced or child labour or any product launches naturally recorded a higher turnover other violation towards human rights. IPC also enforces whereas older toner cartridges are continuously losing suppliers to agree to the “Declaration of Conformity” turnover as the demand for the printers declined. to ensure that materials purchased and used do not contravene any European protection laws.

GROUP PROCUREMENT For 2014, IPC expects to handle more projects as both Pelikan and Herlitz have expanded their businesses, The International Procurement Centre (“IPC”) is a global product assortments and markets. Despite the recovering support function with responsibilities including managing global economy, IPC foresees a challenging work the regional product development projects of new and environment in terms of huge costs and price volatilities, developing markets, ensuring product quality, competive frequent changes and updates in the EU legal and safety price and service levels of global standards, and constantly requirements, and more stringent requirements and monitoring product costs. In 2013, the IPC team of nine documentations across the regions. IPC will nonetheless staff continue to emphasise on product knowledge, continue its focus on sourcing for the right products at the reduced turnaround time for sourcing activities, right price and fulfil its customers’ product requirements. consolidation of global product demands from all sales and marketing offices, expediting customers’ orders, and mitigating cost impacts. In 2013, IPC handled a total 032 ANNUAL REPORT 2013

Group Operations Review 2013

GROUP COMMUNICATIONS Herlitz also utilised the internet to communicate its “Back to School” “Cool@School” campaigns. Between June Every year, the Group launches a “Back to School” and September 2013, Herlitz teamed up with ‘Dertour’, campaign between March and September as the school a travel agency and ran a raffle contest for schools on its business represents an important product segment for microsite, www.herlitz.de/klassenfahrten, and Facebook Pelikan. Last year, the Pelikan campaign “Discover your page challenging school children to paint, draw, write, Future”, which was the follow up to “Live your Dream” sing, film and express themselves on why their class from 2012, was rolled out simultaneously in 14 countries should win a 4-night-stay trip to Berlin. The prizes were and was available in English for the international 3 school trips to Berlin worth €30,000 packed with tours communities as well. The campaign was adopted in and activites. To communicate this amazing contest, Europe, Latin America and Middle East during their “Back Herlitz printed 1.5 million school timetables which were to School” seasons using indigenous languages, product distributed in youth magazines ‘Bravo’, ‘Mickey Maus’ and highlights for school children, marketing materials and ‘Wendy’, as well as Dertour’s family catalogues. At Herlitz local promotional activities. The significant new product point-of-sales in the mass market channels, eye-catching launches last year such as the Twist fountain pen and new displays in the form of a cool school bus carried not just Pelikano Junior colours were well received in the markets Herlitz products but the communication materials for the thanks to the publicity generated from Pelikan’s websites and social media networks. Using Pelikan’s website as the means to communicate our “Back to School” message globally was also successful as page impressions for www.pelikan.com/kids increased by 34% to 650,000 in 2013 and our fans from all corners of the world could join in on the online activities no matter where they were. Pelikan International Corporation Berhad 033

Group Operations Review 2013

we asked fans from all over the world to define the colour and name on www.pelikan.com/color2015 and within 48 hours, the page attracted 1,000 proposals. Another similar project was also for the new Twist colour selection whereby Pelikan fans submitted their favourite colour via a questionnaire on Pelikan’s Facebook page where finally Petrol emerged as the chosen favourite colour for the new Twist fountain and roller ball pen colour in 2014. Pelikan Group felt that ‘crowd sourcing’ efforts such as these were wonderful because we could interact and engage our global fans to actively contribute to the product development process as well as create a buzz via blogs, social media and word-of-mouth. The Group appreciates the loyalty of our fans and regards their participation and efforts as truly invaluable. For Herlitz products, ‘crowd sourcing’ has also become a favourite way of engaging its loyal fans to participate in creating new designs for their existing product assortments. One such product is the raffle contest as well. The raffle contest was announced my.pen style rollerball whereby fans were asked to submit with press releases and advertorials in specialised their fashionable designs through a Herlitz microsite and publications. Facebook page. The winning designer received two VIP tickets to the Mercedes Benz Fashion Week in Berlin that For FWI, the internet and social media play an increasingly took place on 2 – 5 July 2013. Herlitz was one of the official important role in communicating the latest updates in sponsors for the event (more details on page 36). terms of new product launches and exclusive advertising campaigns to all pen collectors. As evident from the web statistics, www.pelikan.com/exclusive, a webpage dedicated for all things FWI, proved to be the most popular and visited Pelikan site with a 24% growth to 6.1 million page impressions in 2013 as end-users have high interest in the luxurious FWI and rely on the webpages to feed their curiosity. In 2014, FWI was further highlighted through a global marketing campaign called ‘Wanderlust’ which depicted the adventures of three Edelstein ink bottles that travelled throughout the globe from one pen lover writing their story to another over a six-month journey. Read more about the charming ‘Wanderlust’ campaign and how it united Pelikan writers and pen lovers together in this amazing quest on page 35.

Through social media as well, Pelikan Group strives to engage the followers and fans of FWI to contribute their creativity and ideas via ‘crowd sourcing’ efforts. One such project was the Edelstein Ink of the Year 2015 whereby 034 ANNUAL REPORT 2013 No Twist, No Fun

In 2013, the launch of the Twist youth writing instruments (fountain pen and roller ball pen) was the major marketing activity in Germany. Targeting 9 – 13 year olds, Pelikan Germany had the opportunity to appoint the winner of the ‘German Idol’ competition, pop-star Luca Hänni, to become the brand ambassador for the Twist writing instruments campaign. Throughout the entire launch period, Pelikan Germany organised numerous advertising and promotional activities on the internet, social media, TV, as well as the print media. Twist writing instruments along with Luca Hänni’s testimonial were featured in a large photo spread advertorial in cooperation with the hey! magazine in June and July.

Pelikan Germany also cooperated with Duo to publicise Twist XXL banners from July to October, Twist on TV commercial spots on Nickelodeon in July, and Twist on city light posters in August. Twist writing instruments were also intensively featured on Pelikan Germany’s Facebook page, where Twist pens were given away to the loyal fans. A contest was created to entice fans to win tickets to one of Luca Hänni’s concerts and a chance to meet and greet the young pop-star. The response was phenomenal as Luca Hänni appealed to the targeted teen market. This resulted in an overwhelming response to the Twist launch activities and subsequently led to high turnover for the Twist range as fans of Luca Hänni also became fans of the Twist writing instruments. There was also extensive value-added coverage in the press and media about the Twist campaign with the pop star, and widespread promotional materials and displays at the point-of-sales in all traditional and key account channels throughout Germany, which ultimately reinforced and made a huge positive impact on the brand and its turnover. Pelikan International Corporation Berhad 035

Borderless networking via the Internet, coupled with one of the oldest and most beautiful means of communication, the hand-written letter – this unique combination formed the basis for ‘Wanderlust’, a new awareness campaign by Pelikan.

It was creatively executed by having an ink flacon from the Pelikan Edelstein Ink Collection travel around the world, repeatedly stopping over to stay with a selected number of fountain pen fans. All participants were required to use the same ink, from the same ink flacon. Thus, the thought of travel, which always occurs to us when we write by hand, is communicated over and over again, across continents and around the world.

One condition for participation was an agreement by all candidates to write a handwritten letter, using the Pelikan Edelstein ink, and to upload a photo of the letter onto Pelikan’s Facebook page. The letter was then placed inside the carry case containing the ink flacon, which then continued its long journey around the world. Public response to the project was overwhelming and within just two weeks of the launch, 330 people registered to participate.

A total of 60 fans were chosen for the tour. Pelikan sent three Edelstein ink flacons on this trip around the world. The colour Amber started out from Hawaii in September 2013; Ruby began its journey in Malaysia, and Jade set off from Hanover, Germany where the Pelikan Edelstein ink first originated and continues to be manufactured.

The ‘Wanderlust’ campaign managed to raise global consumer awareness of the Edelstein Inks and kept Pelikan’s Facebook page buzzing with hits. It also created significant buzz on the internet as enthusiastic fans shared and commented on Pelikan’s new adventure. The amount of beautifully written letters received was astounding and even the manner whereby fans uploaded the photos of their handwritten letters were pieces of art by themselves. 036 ANNUAL REPORT 2013

Herlitz: Mercedes Benz Fashion Week Berlin 2013

In July 2013, Herlitz was one of the main sponsors for the ‘Mercedes Benz Fashion Week Berlin 2013’ in which an estimated 25,000 visitors and representatives of press from all over the world attended the event. In the run up to the event, Herlitz held a raffles contest to create and design a ‘Fashion’ version of the my.pen style rollerball pen, whereby the winner would receive a VIP Fashion Trip to the Mercedes Benz Fashion Week in Berlin worth €5,000 including two overnight stays at a 5-star luxury hotel for two persons, two exclusive VIP invitations to a runway show during the Fashion Week, complimentary make-over for two persons from a top stylist, shopping vouchers worth €500 and a stylish Sony digital camera. The contest was promoted European- wide on the microsite www.herlitz.eu/mbfashionweek, Facebook page, and on the eye-catching displays and stickers on the my.pen style products in all major point- of-sales in the mass market channels. Participants of the contests were required to submit their my.pen style rollerball pen creations via post or upload onto the microsite. The response was overwhelming with many great submissions from Germany, Austria, Spain and Romania. The jury panel, comprising the Director of Global Production, IMG Fashion Events & Properties, Mr. Jarrad Clark, a famous Berliner fashion blogger, Ms. Lara Maria Gräffen, and our very own Global Head of Marketing for Herlitz AG, Mr. Oliver Windbrake, chose the winning design, which is now featured as a new product in the Herlitz assortment for 2014 along with matching lever arch files, notebooks and wallet folders.

During the Mercedes Benz Fashion Week Berlin, Herlitz made an impact in terms of branding and marketing presentation. Prior to the event, Herlitz requested the designers featured during the fashion week to draw a fashion silhouette of their new collection using the my.pen style roller ball pen, and the results were so amazing that Herlitz put up a ‘Wall of Fashion’ gallery in the Mercedes Benz tent to showcase and inspire the visitors. Together with DHL, Herlitz produced postpaid postcards with the visual of one of the designer drawings that were distributed to visitors during the event so that they could post their greetings to friends and family from the location of the event for free. Furthermore, Pelikan International Corporation Berhad 037

Herlitz: Mercedes Benz Fashion Week Berlin 2013

the drawings from designers Kilian Kerner and Marcel Ostertag were used to produce exclusive t-shirts that were offered for sale in the fashion and lifestyle magazines featuring the event. Throughout the event, Herlitz made its presence with a stylist booth in the tent with the focus being the my.pen style rollerball pen collection. At the Herlitz booth, two artists were at hand to draw fashion silhouettes of those who visited the Herlitz booth. On top of that, Herlitz produced an exclusive giveaway for the VIPs of the event: a notebook with words “Das kleine Schwarze” and a special edition of the my.pen rollerball pen in black and white with golden print that were included in the 1,800 VIP goody bags.

The publicity and press releases garnered from the Mercedes Benz Fashion Week Berlin event were sensational as the people in the industry raved about Herlitz activities in many top fashion and lifestyle magazines, blogs, and social media such as Facebook, Instagram and Flickr. For the second round of Mercedes Benz Fashion Week Berlin in January 2014, the new my.pen style fountain pen was launched and presented to the audience of the event. Herlitz also requested the designers from the Fashion Week to draw their new collection with the new my.pen style fountain pen in coloured ink for the ‘Wall of Fashion’ gallery held in the Mercedes Benz tent. Herlitz and DHL continued to produce postpaid postcards with the visual drawing by one of the designers. As with the Fashion Week in July 2013, Herlitz also had a stylish booth featuring a 2-meter model of the new my.pen style fountain pen as well as the artists who drew the visitors of the Fashion Week as fashion silhouettes, this time around using the my.pen style fountain pens.

The immense exposure of the Herlitz brand through sponsorship of the Mercedes Benz Fashion Week significantly increased the public relations value and brand image of Herlitz after the event. Herlitz Group managed to display attractive point-of-sales materials all over Europe during the promotion of the event and contests, and built a connection between the my.pen style products and top events in Berlin. 038 ANNUAL REPORT 2013

Group Operations Review 2013

Pelikan Germany also managed to maintain its leading market position in the K12 paint box and drawing paper ■ Germany 54.47% against competitors and despite the decreasing number of pupils, the quantity sales of the K12 remained stable. ■ Switzerland 7.10% Apart from Twist, other writing instruments such as ■ Rest of Europe 20.57% Pelikano and th.INK fell short of expectations due to the ■ Americas 13.65% aggressive competition within this market segment. Printer consumables also performed lower than budgeted ■ Asia, Middle East & Africa 4.21% due to missing toner cartridge models in the market. For the office segment, the promotional blister cards were a successful marketing activity particularly for the EUROPE key account channels. In terms of distribution, sales in the mass market key account channels grew as Pelikan Germany Germany concentrated on extending listings into drug stores, customised office products for dedicated customer In 2013, Pelikan Germany’s revenue was RM785.47 million, accounts, and increased e-commerce activities. representing 54.47% of Group’s total revenue. Successful products for the German market were the FWI Special Pelikan Germany’s “Discover your Future” campaign for Edition models and Twist youth writing instruments. the “Back to School” season was again a major marketing Along with strong marketing campaigns through media, event which was successfully implemented due to a print and online advertising and promotional activities, a well executed combination plan that included strategic strong distribution network, and high acceptance by the advertising and promotional activities for the “Back to trade and end users in terms of design and price points, School” related products, placements and shop displays these products performed better than budgeted and that were visually attractive with high brand visibility, recorded significant turnover for Pelikan Germany. integrated publicity and social media programmes that The Twist campaign featured German Idol winner, tied back to the on-ground activities, and well received Luca Hänni, who was the ambassador for Twist writing competitions carried out for key account customers. instruments and his high profile celebrity status resonated Switzerland with the 9 – 13 year olds who were immediately introduced to Pelikan’s Twist range. The focus for Pelikan Switzerland was the expansion of distribution channels, including online dealers for printer consumables, while building brand presence and awareness for the FWI and Porsche Design writing tools. In 2013, Pelikan Switzerland recorded a turnover of RM102.38 million (2012: RM103.76 million), which represented 7.1% of the Group’s revenue. Pelikan Switzerland managed to secure listings with several new customers for stationery products, and achieved good cooperation and strong development with printer consumables distributors. In terms of products, Pelikan Switzerland also launched the new Twist writing instruments along with its “No Twist, No Fun” campaign, Pelikan International Corporation Berhad 039

Group Operations Review 2013

Pelikano and Pelikano Junior in new colours, Herlitz’s stationery, and printer consumables fall into this category my.pen style as well as ‘SmileyWorld’, ‘Fresh Fruits’ series, and the main challenge for Pelikan Italy was to establish the school bags and be.bag collection. Pelikan Switzerland its position as a reliable and professional partner for also introduced Porsche Design ‘Tec Flex Black’ and ‘Laser the trade and to increase brand awareness and visibility Flex’ into the market. As for trade marketing activities to at point-of-sales towards the end users. The biggest support customers, Pelikan Switzerland teamed up with efforts in terms of dedicated resources for advertising one of its business partners to launch an online activity and promotional activities were given to the launch of called ‘7 reasons’; distributed 10,000 copies of printer Twist youth writing instruments. Pelikan Italy strategised consumables flyers with a Pelikan Textmarker 490 in to list Twist into the traditional trade and mass market every shipped customer parcel with ‘Alltron Brack’; and channels to surpass the sales of ‘Grand Prix’. The results organised sales incentives for the team at ‘Also’ where were higher turnover but slightly below expectations the sales crew won meals for 20 of their employees as a due to the sell out level into the markets. Overall, result of achieving their targets. For 2014, the focus will Pelikan Italy performed lower than budgeted because of be on the toner cartridge business as well as an inkjet shrinking consumer demand and end users turning to cartridge supplier to the market with a target to supply cheap compatibles and refills that were widely available the top 10 best selling OEM inkjet cartridge models. As in the market as alternatives to printer consumables. Pelikan Switzerland will officially take over the control Sales in northern Italy fell because of stiff competition and distribution of Herlitz products post-merger for 2014, in writing instruments business affecting the sales of the focus will also extend to listing and selling Herlitz ‘Grand Prix’, ‘Super Pirat’ and ink cartridges, while the assortments to their key accounts channels. southern part of Italy performed better due to higher volumes of gluing products and erasers. Apart from Twist Italy writing instruments, Pelikan Italy also launched the mass writing instruments energy®, power® and figurine®, Italy was hit hard by the economic crisis and in 2013, an Pelikano black, Herlitz’s licensed series (‘The Hobbit’, increased unemployment rate, declining consumption ‘Transformers’), Pretty Pets series, my.pen Neon and and purchasing power compelled people to choose stationery, school bags, easy orga to go green and spiral very low priced basic everyday goods. School and office notebooks. The Herlitz products were well received by the trade and end users, and the revenue compensated for the loss in sales from writing instruments. Herlitz products also received good customer feedback during its presentation at the ‘Big Buyer’ fair. For Pelikan Italy, the biggest achievement in 2013 was to maintain market share in the price-sensitive and aggressively competitive market and to perform better in line with the market trend. In 2014 and beyond, Pelikan Italy will undertake an internal restructuring to optimise resources, minimise expenses and increase overall margins. Pelikan Italy’s focus is to increase brand and product visibility at point-of-sales particularly with the new Herlitz product launches, to drive consumer demand and sales while developing a better online presence to reach the target groups. 040 ANNUAL REPORT 2013

Group Operations Review 2013

France School” orders from the trade. Pelikan France managed to reference new products and participated in the supplier In 2013, the focus for Pelikan France was to develop fairs of its main wholesalers. Pelikan France continued commercial B2B channels for printer consumables as to show its support to online channels and developed consumer demand was driven by low prices and Pelikan additional turnover with new e-commerce distributors France had to be price and service level competitive such as the Vente-privee.com website in 2013. Pelikan against the other compatible private labels and brands. France also reinforced its listing on Amazon.fr with over For school and office stationery as well as FWI, Pelikan 384 SKUs of products distributed. France defended its market shares with listings and partnerships with the right distributors; however, the Pelikan France managed to achieve the prestigious award development of channels and products proved difficult “Trophées du Stylographe” with the novelties launched given the price points and aggressive competition from for FWI last year. The awards were rewarded to the M101N other brands. Limited Edition Jubilee pen “Lizard” in the category “Trophée de la Memoire” (Memory Trophy) and the second To increase turnover for printer consumables, Pelikan one for the school product, the Twist fountain pen in the France developed new solutions in accordance to market category “Graine d’écriture” (seeds of writing trophy). trends. Together with the partnership of a maintenance specialist, Pelikan France proposed its smart cost per Belgium page solution to companies that want to optimise their printing, reduce their costs and maintain a high level As with 2012, the European economic crisis negatively of after sales service. Pelikan France provided sales of affected the performance of Pelikan Benelux and overall, printer consumables along with a flexible solution that GDP growth was 0.2%. Similar to other European markets, was simple, less expensive than the OEM solutions, the consumer buying behaviour trended towards low and available for all printers. The companies pay for priced goods and with the surge in private label business what they print and for Pelikan resellers it was an easy particularly in the key account channels. Pelikan Benelux solution to sell which assured recurrent incomes and faced challenges in maintaining listings and market customer loyalty. This solution provided Pelikan France shares of its product categories such as printer supplies, many opportunities and partnerships with distributors erasers, and ink eradicators as more and more end users who were interested in the offer. In order to support switch to the lower priced private labels. The retail mass and communicate the smart cost per page solution, market channels had a difficult year with the decline in Pelikan France advertised on the media, print, online as well as participated in the most important IT trade fair “IT Partners” in France to promote the offer. To further promote Pelikan branded printer consumables, Pelikan France carried out an offer whereby for every minimum purchase of 10 toner cartridges, end users were given a Porsche Design Shake Pen as a complimentary gift.

Concerning the school and office product range, Pelikan France sent out promotional “Back to School” brochures and flyers to over 1,500 distributing contacts to promote the school product range and to generate “Back to Pelikan International Corporation Berhad 041

Group Operations Review 2013

school and office businesses at 2% on average. A major For 2014 and beyond, Pelikan Benelux is initiating plans indication was the overstocks of “Back to School” products to grow revenue by concentrating on new channels from 2012, which influenced the purchase orders for the and customers, increase visitations to small retailers, remaining year. With non-food retailers and discounters focusing only on core products for listings, maintaining attacking the markets with their low priced private label margins through price adjustments, and taking over the goods, suppliers and mass market retailers were affected school and office business in France. Pelikan Benelux also in terms of volume and sales. proposes to re-launch the “ikleerschrijven.be”, a website for teachers with practical learning and teaching related Nonetheless, to maintain brand awareness and market topics, as well as continue to develop new point-of-sales shares, Pelikan Benelux had to introduce new products materials and “Back to School” floor displays in order to and packaging to attain interest from trade and end increase revenue, listings and improve brand image. users. Pelikan Belgium focused on the launch of Herlitz’ my.pen and Pelikan’s Twist writing instruments which Greece had successful listings in the key accounts and retail channels. The sell out figures forTwist particularly for the The economic crisis in Greece has led to cutbacks in fountain pens met expectations. As for the my.pen family expenses from public and private sectors, and reduced products for “Back to School” season, Pelikan Benelux purchasing power and consumption demand. In 2013, secured 37 displays standees with distributor ‘Dreamland’, Pelikan Greece had to face challenges such as a drastic a toy store chain. Pelikan Belgium also launched the drop of demand, pressures from trade regarding price blanco® correction roller promotional package 2+1 in the policy, customers’ bankruptcies, competitively low prices, key accounts to compete with other competitors. This and continuously changing consumer market trends. managed to generate high sales volume. Other highlights The stationery market in Greece shrank by 20% compared included creating its own “Back to School” shop displays to 2012, however, Pelikan Greece performed better last to increase sales, realise new listings and improve brand year due to new listings and growth in Herlitz sales. visibility and awareness. A total of 184 floor displays and All in all though, 2013’s revenue was still below 496 countertop displays were sold during the “Back to expectations due to the missing turnover in printer School” season, as well as 72 Twist writing instruments consumables as end users preferred the cheaper floor displays. Pelikan Benelux participated in the compatibles to branded printer consumables. “Teachers Fair COV” in order to reach and inform teachers about new Pelikan and Herlitz products. Pelikan Benelux also successfully utilised social media networks such as Facebook to carry out promotions and contests for end users to participate in the 175th Anniversary activities and product launches. Many “Back to School” catalogues highlighting the key products were also promoted and distributed in the key account and retail channels, which worked well as publicity materials for the brand. The Special Editions of Pelikan’s FWI launched in 2013 such as the M800 tortoiseshell brown, M101N Jubilee Pen “Lizard” and the M1000 Limited Edition ‘Sunlight’ resulted in growth of 17% compared to 2012. 042 ANNUAL REPORT 2013

Group Operations Review 2013

AMERICAS which then raised market demand for Pelikan products. Pelikan Americas, which manages the sales and marketing The process of engaging end organisations in Mexico, Argentina and Colombia, users from young and at the has focused on targeting end user and expanding the educational level took years of distribution channels for the past five years. In 2013, intensive planning and hard work Pelikan Americas continue to apply the “360 degrees” but so far, the programme has yielded good results for the communication strategy to engage and connect end users brand. Pelikan Americas also extended its social media to the brand. The biggest challenge was to apply the same popularity. The fans on its Facebook pages increased from concept on the different tools and actions implemented. 9,000 to 60,000 by the end of 2013. Efforts were focused on rotating the product assortments of the channels to continuously generate demand for Pelikan Americas will continue to strive for higher brand the brand and products (push and pull strategy). Due to awareness by investing more resources into the market the difficult economic situation in Colombia and Mexico, for future generations. The biggest challenge in the Pelikan America’s results were lower than budgeted and market would be to compete with growing powers in regional sales growth was 3.6% compared to 7.7% in 2012. terms of negotiation and purchasing of the top retailers The successful implementation of “360 degrees” helped and key account customers as smaller companies mitigate the sales losses and Pelikan Americas managed have closed down over the years due to price wars and to obtained positive sales growth in Argentina, Costa Rica, competition. Hence the focus for Pelikan Americas was Ecuador, El Salvador, Paraguay and Peru. For the rest of also to concentrate on servicing the top customers in Latin and South America countries, other major brands the region, ensuring strong inventories for customers’ were aggressive in their sales and market tactics proving products and achieving a 95% fulfilment rate within a it difficult to make significant revenue growth. Pelikan 48-hour delivery. Americas recorded RM196.87 million in turnover for 2013, which represented 13.65% of the Group’s revenue. ASIA, MIDDLE EAST & AFRICA

As far as new product launches go, the most interesting Japan were the Herlitz school bags and toner cartridges marketed in Argentina and Colombia with positive Pelikan Japan, which only markets FWI, faced depreciation results. As for marketing activities, the “Back to School” of Yen by 30% against the Euro currency in 2013, resulting television campaigns in the Disney Channel, Disney Junior, in higher FWI imports. The biggest challenge was to Disney XD and Discovery Kids promoted in the region maintain retail prices of FWI while minimising operational were the highlights and most effective in reaching the costs to compensate for the lower profit margin. Overall, target market groups. Pelikan Americas also conducted Pelikan Japan still performed better than expected due promotional activities on Facebook and microsites, to the launch of Special Editions FWI such as the M101N visited thousands of schools to promote the brands Jubilee pen “Lizard” and Souverän M800 tortoiseshell and products to pupils, teachers and parents, while brown which were very successful in the market. Despite implementing trade marketing plans at point-of-sales in the discontinuation of the Porsche Design franchise mass market channels. As a result, Pelikan gained support business, Pelikan Japan managed to sell a total of 11,157 and recognition from many private and public schools in pieces of high end writing instruments. It has been a the various countries and Pelikan products were included slow but steady process over the past years to increase in many school lists. Parents and end users who were brand awareness and improve brand image of Pelikan’s introduced to Pelikan through the school lists in turn FWI in the Japanese market. Pelikan Japan advertised in a requested for Pelikan products at the retail channels, leading business magazine ‘Diamond’ last year, which led to more interests and sales from the businessmen group. Pelikan International Corporation Berhad 043

Group Operations Review 2013

Furthermore, the Pelikan advertisements in magazines were well received by the trade. Another boost in terms received a third place award from the Japan Advertising of revenue was from Geha’s shredders and laminators Association, after the brands Louis Vuitton and Hermes that performed well in the market thanks to the products’ which won first and second place in the category of quality, price attractiveness, after sales service, and good fashion and branded products. This award was a huge trade margins. honour for Pelikan Japan as well as the FWI team who have put in much effort in the advertising and marketing Middle East & Africa materials to reflect the high quality and luxurious Pelikan Middle East & Africa (“PMEA”) faced another products of FWI. challenging year as the region experienced political Malaysia instability, high unemployment and inflation rates, and economic uncertainties hindering businesses and growth Primarily known in the market for its office supplies such in the region. Total regional sales achieved in 2013 was as inks and printer ribbons, Pelikan Malaysia’s strategy approximately USD$6.5 million. The sales improved in was to develop its distribution channels while carrying United Arab Emirates (“UAE”), Jordan, Bangladesh and out marketing and promotional activities that will build North Africa nations. However performance was poor in up brand awareness amongst the trade and end users. Iran, Iraq, Lebanon, Syria, Pakistan, India and Afghanistan In order to introduce and list more products into the mainly due to these countries’ economic and political market, Pelikan Malaysia focused on strengthening the issues that were beyond PMEA’s control. Nonetheless, product assortment in its traditional channels while PMEA managed to achieve a net profit and maintain a increasing new listings and product availability in the key healthy cash flow for 2013. accounts and retailers. Pelikan Malaysia also strived to build up its corporate customer base and B2B businesses. In 2013, PMEA launched many new products such as In 2013, Pelikan Malaysia introduced the th.INK writing the Twist and th.INK writing instruments, Pelikano and instruments, Pelikano in new colours, wax crayons Pelikano Junior in new colours, energy®, power®, figurine® aquarelle, new glue sticks designs as well as Herlitz range mass writing instruments, jumbo coloured pencils, of school bags and accessories, ‘Fruits’, ‘SmileyWorld’, sharpeners and ink eradicators. PMEA also launched the my.pen family, and notebooks. In the key account Special Editions and novelties by Pelikan and Porsche channels, Pelikan Malaysia promoted the blister packs for Design, whereby the M605 Marine Blue and Edelstein mass writing instruments, blanco correction rollers, glue Ink of the Year ‘Amber’ were particularly well received. sticks and stationery sets at suitable price points during The marketing and promotional activities carried out for the “Back to School” seasons in the ‘Mydin’, ‘Aeon Big’ and 2013 had a positive impact for the region which varied ‘Giant’ outlets. Pelikan Malaysia also launched all the new by country and channel. The business partners in many Special Editions for Pelikan and Porsche Design which countries implemented the promotions for “Back to School” seasons in their selected retail stores and key account channels. PMEA also achieved new listings for Pelikan and Porsche Design FWI such as ‘Pen House’ in Riyadh, ‘Avenir du Livre’ in Morocco, and online channels in UAE and India. PMEA managed to list school and office products into Carrefour channels in Qatar during the “Back to School” season, ‘Text Book Centre, a retail channel in Kenya, B2B business with schools in Ghana and ‘Safricom’ in Kenya, and modern market channels in Tanzania. 044 ANNUAL REPORT 2013

Diary of Events

175TH ANNIVERSARY CELEBRATION (GERMANY)

Pelikan Germany kicked off its 175th Anniversary by going all out on the marketing front. Star products such as th.INK and Twist were promoted “BACK TO SCHOOL” ON TV by a German celebrity (ARGENTINA) pop-star and tie-ups with other big Pelikan Argentina advertised their brands. “Back to School” campaign through FEB four television channels, Disney Channel, Disney Junior, Disney XD and Discovery Kids. Pelikan JAN commercials were aired 608 times from 13 February to 3 March across the four channels.

ASIA PACIFIC SCHOOL THE 14TH MITSUKOSHI WORLD FOUNTAIN COLOURING CONTEST PEN FAIR (JAPAN) (MALAYSIA) P’3115 ‘LASER FLEX’ Pelikan Japan participated in the 14th Mitsukoshi -PAPERWORLD’S Pelikan Malaysia participated in World Fountain Pen Fair held at Mitsukoshi “PRODUCT OF THE YEAR” the Asia Pacific School’s Open Department Store from 13 – 18 March. The fair (GERMANY) Day on 2 March by organising showcased all kinds of fountain pen ranges from Porsche Design P’3115 ‘Laser Flex’, a colouring contest for primary the major brands and Pelikan Japan has, without made by Pelikan, was crowned as the and secondary school students. fail, participated in every edition of the fair. Pelikan “Product of the Year” by Paperworld Themed ‘Colourful’, the contest products were highly sought after in the fair, and 2013 in the ‘Writing Instruments’ attracted 57 participants, with ten pieces of M800 Tortoiseshell Brown were sold category. The ballpoint pen was chosen students from Primary 1 – 3 on the first day alone. after impressing with its quality, making up the majority of the innovation, price, numbers. Pelikan Malaysia also design and had a booth offering a wide sustainability. variety of Pelikan and Herlitz products. MAR Pelikan International Corporation Berhad 045

TEACHERS FAIR COV (BELGIUM)

Pelikan Belgium participated in “Teachers Fair COV”, organised by the Organization of the Christian Educational Institutions in Flanders, in four regions from 3 – 20 April 2013. The “Teachers Fair COV” brings together primary school teachers and school suppliers of the regions. It is the perfect platform to introduce the new products and to get feedback from the schools. Pelikan Belgium gave away writing instruments, crayons, ink eradicator and cartridges for free so that the school teachers and students could try the products out themselves. 19TH INTERNATIONAL ISTANBUL STATIONERY EXHIBITION (TURKEY)

FEB Pelikan Turkey through our partner Pensan participated in the 19th International Istanbul Stationery Exhibition held from 3 – 7 April. The world’s third largest stationery exhibition was held at the Istanbul Expo Centre. APR Pelikan Turkey joined in with over 200 companies displaying school, office and fine writing products to around 20,000 visitors of the exhibition.

NATIONAL INDEPENDENCE AND CHILDREN’S DAY CELEBRATION (TURKEY) FUN KIDS HOUSE ART CLASS (MALAYSIA) Pelikan Turkey together with ING Bank Turkey held a special event to celebrate On 6 April, Pelikan Malaysia National Independence and Children’s sponsored colouring Day on 23 April. The event was held at the materials for “Fun Kids ING Bank’s office and involved colouring House”, an art learning SAIF EXCELLENCE AWARDS (UAE) activities using Pelikan products such as centre. The products oil pastels. sponsored were coloured Pelikan Middle East & Africa (“PMEA”) was pencils, oil pastels and paint awarded the “2012 SAIF Excellence Awards boxes. The class was for (SEA) – BIG 3” for outstanding achievement in children aged 4 to 12 years the quest for business excellence. The award old and was attended by which was held on 24 April was organised by 30 children. the Shajah Airport International Free Zone Authority to reflect its commitment towards companies operating in the free zone. The SEA BIG 3 award recognizes companies that show market leadership, innovative strategies, operational efficiency and eco-conscious measures. 046 ANNUAL REPORT 2013

Diary of Events

EKIDS CHILD DEVELOPMENT CENTRE’S SPORTS DAY (MALAYSIA)

Pelikan Malaysia was one of the sponsors for Ekids Child Development Centre’s “Sports Day – Amazing Race” that was held on 1 May. Pelikan Malaysia handled two checkpoint stations and took the opportunity to introduce Herlitz’s Gel Crayons to the parents and children aged 3-6 years old who took part in the amazing race. Pelikan Malaysia also sponsored the door gifts for the event.

BABY & KIDZ FAIR 2013 (MALAYSIA)

Pelikan Malaysia sponsored the ‘Shoe Painting Competition’ for “Baby & Kidz Fair” held in Penang city MAY on 25 May. Pelikan Plaka paints were used for the competition and Pelikan Malaysia sponsored the prizes for the winners. The fair was promoted heavily by the local media in Penang.

ANNIVERSARY CELEBRATION WITH BUSINESS CHAMBER OF RETAIL BOOKSTORES (ARGENTINA)

Pelikan Argentina celebrated Pelikan’s 175th anniversary together with its 80th year in Argentina during the ANNUAL Business Chamber of Bookstores of Argentina’s annual GENERAL dinner. At the dinner, Pelikan was given a special slot to MEETING 2013 celebrate the anniversary. Games were organised for the (MALAYSIA) guests and Pelikan products were given away as prizes. Pelikan Malaysia took the More than 500 people attended the annual dinner. opportunity during the Pelikan International Corporation Berhad’s annual general meeting (“AGM”) to display the latest Pelikan and Herlitz products. The displays featured th.INK and Twist writing instruments, Edelstein ink collection, as well as Herlitz’s Neon range. Pelikan Malaysia’s product JUN team was present to introduce the products to the shareholders who attended the meeting. Pelikan International Corporation Berhad 047

MY COLOURFUL FUTURE (ITALY)

On 11 May, Pelikan Italy organised a fun colouring and art activity themed “My Colourful Future” in Northern Italy, one of the most important markets for Pelikan. Parents and their children were invited to use Pelikan and Herlitz products to create their drawings and artworks, under the watching eyes of professional art JUL tutors. About 500 people took part in this event.

“DISCOVER YOUR FUTURE” COLOURING CONTEST (OMAN)

PMEA was the main sponsor in a colouring contest organised by Shah Nagradas in Oman. “Discover your Future” was selected as the theme for the contest with an objective to enhance creative skills of the children and create brand awareness. PMEA sponsored exclusive gifts and certificates for the winners.

CHILDREN’S DAY – TODOS X CASA CUNA (ARGENTINA)

Pelikan Argentina celebrated “Children’s Day” in Argentina by sponsoring colouring products for Hospital Elizalde’s patients. Located in Buenos Aires, the products were used during an art activity where the children spent the day enjoying some AUG creativity and fun.

PELIKAN FWI DISPLAY (JAPAN)

Pelikan Japan displayed its fine writing instruments in Itoya, a famous bookstore. A yearly affair, this ‘mini’ Pelikan Fair for 2013 was held from 20 August to 2 September. This time around, the products were displayed in three glass racks with one of them showcasing Pelikan’s 175th Anniversary Celebration. 048 ANNUAL REPORT 2013

Diary of Events

“BACK TO SCHOOL” EXHIBITION (UAE)

PMEA participated in a “Back to School” exhibition held at the Dubai World Trade Centre. The exhibition is an event THE WONDER OF for students, parents and families to ‘WANDERLUST’ (GERMANY) prepare for the new academic term, and this year’s “Back to School” joins the In September, Pelikan Germany started Dubai Calendar roster of events as part ‘Wanderlust’, a campaign to promote the of ‘Summer is Dubai’ campaign. PMEA art of handwriting in today’s digital world. participated and gained high mileage in Pelikan Germany sent three Edelstein Inks terms of branding, sales and marketing on a journey all over the world to be used among students, teachers and parents. by selected fountain pen fans to write Many interactive activities such as SEP handwritten letters. Taking off in Hawaii with colouring competitions and fun games Amber, Malaysia with Ruby and Germany particularly the treasure hunt hosted with Jade, this unique campaign ended in by PMEA made the exhibition more fun February 2014 with a huge success story and and exciting. many beautiful letters received.

BIZZ AWARD FOR PELIKAN MIDDLE EAST & AFRICA (UAE)

Another award gained by PMEA was the Bizz Award. The award is given to companies that have gained success for their high standards in corporate leadership, management systems, the quality of their goods and/or services, innovation and creativity, CSR, and others, thus demonstrating their good business practices. Mr. Nasser Al Atrash was present to receive the award for PMEA.

SIN CHEW SARAWAK COLOURING CONTEST (MALAYSIA)

Pelikan Malaysia sponsored the colouring contest for “Sin Chew Carnival 2013” held in Kuching, Sarawak on 24 November 2013. Pelikan products were used for the colouring contest and as the prizes for the winners. The carnival and the contest attracted OCT huge coverage by the local media in Sarawak. Pelikan Malaysia also took the opportunity to promote some products during the event. Pelikan International Corporation Berhad 049

PORSCHE FESTIVAL 2013 CLUB DE LA PLUMA FUENTE (ARGENTINA) DINNER (ARGENTINA)

Pelikan Argentina Pelikan Argentina took part in participated in the ‘Porsche HEART LINE PROJECT the “Club de la Pluma Fuente Festival 2013’ held at the 2013 (JAPAN) Dinner”, an exhibition where all Autodromo de La Plata on 1st the main fine writing instruments Pelikan Japan took part in November. Pelikan Argentina distributers got together to admire the ‘Heart Line Project’ on participated by sponsoring the latest products from all the 14 November, organised a stand and a two-luxury- brands. Held in Salón Los Cedros, by the Japan Imported piece gift. Porsche owners Buenos Aires, Pelikan Argentina Pen Association. It was the attended the event and attracted the visitors with its display 10th edition of the event several race competitions of fine writing products including where five top celebrities took place amongst them. the M101N Jubilee Pen “Lizard”. were honoured for their contributions. Mr. Ikeda from Pelikan Japan K.K. presented the Special Edition M910 Toledo to Mr. Kei Yamamoto, a hugely respected actor in Japan. The event received huge publicity from the media in Japan. DEC NOV “BACK TO SCHOOL” (MALAYSIA)

Pelikan Malaysia celebrated the “Back to School” season by launching the “Discover your Future” promotions at all major hypermarkets. The promotion included introducing the new ‘PeliFun pack’ and ‘My Writing Set’ “Back to School” season stationery sets, along with its own “Discover your Future” floor displays to highlight the campaign. TRADE FAIR BIG BUYER (ITALY)

Pelikan Italy participated in Trade Fair Big Buyer from 20 – 23 November in Bologna. This fair is the biggest fair for Italy’s stationery industry where all the biggest brands display their best and latest products for the biggest retailers there. Pelikan Italy focused on the 175th Anniversary of Pelikan as its main theme. 050 ANNUAL REPORT 2013

Statement on Corporate Governance

The Board of Directors (“Board”) of Pelikan International Corporation Berhad (“Pelikan” or “the Company”) is pleased to report to shareholders on the manner in which the Pelikan group of companies (“the Group”) applies the principles as set out in the Malaysian Code on Corporate Governance 2012 (“the Code”) and the extent to which the Group has complied with the best practices of the Code and also complies with relevant chapters of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”) throughout the financial year ended 31 December 2013.

THE BOARD OF DIRECTORS

1. composition

The Group is led by an experienced Board under the leadership of Independent Non-Executive Chairman, Tan Sri Abi Musa Asa’ari bin Mohamed Nor and President/Chief Executive Officer, Loo Hooi Keat, supported by four (4) Independent Non-Executive Directors and two (2) Non-Independent Non-Executive Directors. This is in compliance with paragraph 15.02 of the Main Market Listing Requirements of Bursa Securities (“the Listing Requirements”) which requires at least one-third (1/3) of the Board to comprise of Independent Directors.

The roles of the Chairman and Chief Executive Officer are separate and each has a clear accepted division of responsibilities to ensure that there is a balance of power and authority. The Chairman is responsible for ensuring Board effectiveness and conduct whilst the Chief Executive Officer has the overall responsibilities over the Company’s operating units, organisational effectiveness and implementation of Board policies and decisions. The role of the Senior Independent Non-Executive Director is held by Mr Yap Kim Swee to whom concerns may be conveyed.

The Board is satisfied that its current composition fairly reflects the investment in the Company, and that its current size and composition are effective for the proper functioning of the Board.

2. Independence

The Independent Non-Executive Directors are independent from the management and are free from any business or other relationships that could materially interfere with the exercise of independent judgement. The Independent Directors provide a broader view and an independent and balanced assessment. They do not participate in the day-to-day management of the Group and do not engage in any business dealing or other relationship with the Group to ensure that they are capable of exercising judgment objectively and act in the best interest of the Group, its stakeholders and shareholders, including minority shareholders. The Board has adopted a Policy of Independence of Directors in order to ensure that a structured manner of how the Board assesses the independence of Directors.

There are no Independent Directors serving the Board for a cumulative term of nine years. Pelikan International Corporation Berhad 051

Statement on Corporate Governance

3. Board Charter and Responsibilities

The Company has in place a Board Charter that sets out, among others, the responsibilities, authorities, procedures, evaluations and structures of the Board and Board Committees, as well as the relationship between the Board with its management and shareholders. The Board Charter is reviewed and updated where necessary and is published on the Company’s website.

To enhance accountability, the Board Charter also sets out specific functions reserved for the Board and those delegated to Management. The principal functions of the Board are as follows:

(a) ensuring that the Company’s goals are clearly established, and that strategies are in place for achieving them;

(b) establishing policies for strengthening the performance of the Company including ensuring that Management is proactively seeking to build the Business through innovation, initiative, technology, new products and the development of its business capital;

(c) input into and final approval of major corporate strategy and annual budget;

(d) monitoring corporate performance and implementation of strategy and policy;

(e) approving and monitoring the progress of major capital expenditure, capital management and acquisitions/divestments;

(f) monitoring the performance of senior Management and implementation of strategy and policies, including assessing whether appropriate resources are available; and

(g) reviewing and ratifying systems of risk management and internal compliance controls, code of conducts, continuous disclosure, legal compliance and other significant policies.

4. Board meetings

The Board meets at least four (4) times a year with additional meetings being held as and when required. During these meetings, the Board reviews the Group’s financial statements where results are deliberated and considered. Any other strategic issues that may affect the businesses or performance of the Group are also deliberated. The deliberations at the Board meetings and the conclusions are minuted by the Company Secretaries.

During the financial year ended 31 December 2013, the Board met six (6) times, where it deliberated and considered a variety of matters affecting the Company’s operations including the Group’s financial results, business plan and the direction of the Group. 052 ANNUAL REPORT 2013

Statement on Corporate Governance

The Directors’ attendance for the Board meetings held in 2013 was as follows:

NO. OF MEETINGS TOTAL ATTENDANCE NAME OF DIRECTORS ATTENDED (%)

Tan Sri Abi Musa Asa’ari bin Mohamed Nor 6 out of 6 100 Loo Hooi Keat 6 out of 6 100 Dato’ Afifuddin bin Abdul Kadir 6 out of 6 100 Yap Kim Swee 6 out of 6 100 Datuk Rozaida binti Omar 6 out of 6 100 Normimy Binti Mohamed Noor 5 out of 6 83 Dato’ Lua Choon Hann (Appointed 1 April 2013) 5 out of 5 100 Dato’ Mohamad Norza bin Zakaria (Appointed 1 April 2013) 4 out of 5 80

5. Supply of information

All Directors have access to the advice and services of the Company Secretaries who ensure that the Board receives appropriate and timely information for its decision-making, the Board procedures are followed and that the statutory and regulatory requirements are met. The Board also has direct access to the senior management officers on information relating to the Company’s business and affairs in the discharge of their duties.

In addition, the Board may further seek independent professional advice at the Company’s expense on specific issues to enable the Board to discharge its duties in relation to the matters being deliberated. Procedures for obtaining such professional advice are contained in the Board Charter.

The Company Secretaries, who are qualified, experienced and competent, advises the Board on any updates relating to new statutory and regulatory requirements pertaining to the duties and responsibilities of Directors and their impact and implication to the Company and Directors in carrying out their fiduciary duties and responsibilities.

6. Appointments to the Board

The Board has established a Nomination Committee who is responsible for making recommendations to the Board on the composition of the Board and review of the effectiveness of the Board and its committees.

The Nomination Committee had assessed the effectiveness of the individual Directors, the Board as a whole, the Audit Committee and the Remuneration Committee. All the assessments have been properly documented in compliance with the Code.

As and when a new Director is appointed to the Board, the new Board member provides assurances to the Board that sufficient time can be devoted to carry out his/her responsibilities as a Board member. In addition, should any new Board member accept new directorship appointments, they are required to notify the Chairman and inform the time spent on such new directorships.

The Nomination Committee is satisfied with the size of the Company’s Board and that there is appropriate mix of knowledge, skills, attributes and core competencies in the composition of the Board. Pelikan International Corporation Berhad 053

Statement on Corporate Governance

7. Re-election of Directors

In accordance with the Company’s Articles of Association (“the Articles”), all Directors who are appointed by the Board during a financial year are subject to retire at the following Annual General Meeting (“AGM”). The Articles also provide that at least one third (1/3) of the Directors for the time being, or if their number is not three or multiple of three, then the number nearest to one-third (1/3) shall retire from office provided always that all Directors shall retire from office at least once every three (3) years but shall be eligible for re-election.

At the forthcoming AGM, Yap Kim Swee, Datuk Rozaida Binti Omar and Normimy Binti Mohamed Noor are due to retire pursuant to Article 127 of the Articles. Yap Kim Swee, Datuk Rozaida Binti Omar and Normimy Binti Mohamed Noor have offered themselves for re-election at the forthcoming AGM.

8. directors’ training

All the existing Directors have attended and completed the Mandatory Accreditation Programme as prescribed by Bursa Securities. During the financial year ended 31 December 2013, all Directors and some senior management officers had attended training on “Goods and Services Tax (“GST”) and other Tax Updates” for a broad understanding of the GST which will be implemented on 1 April 2015.

In addition, some of the directors also attended other trainings such as, “Taklimat Pemerkasaan Agenda Bumiputera”, “Conventional & Islamic Reitz Conference” and “MIA conference”.

The Directors are kept abreast with general economic, industry, regulatory and technical developments by the senior management or Company Secretary from time to time.

The Board will continue to evaluate and determine the training needs of its Board members to ensure continuing education to assist them in discharging of their duties as Directors.

9. Board Committees

The Board has established four (4) main Board Committees, which are Audit Committee, Nomination Committee, Remuneration Committee and Executives’ Share Option Scheme (“ESOS”) Committee, to which it has delegated certain of its responsibilities. Each Board Committee has its own terms of reference that clearly defines their operating procedures and authorities that have been approved by the Board.

Each Board Committee will submit their respective deliberations and recommendations to the Board and all the deliberations and decisions taken will be minuted and approved by the respective Board Committee.

(A) Audit Committee

The terms of reference of the Audit Committee are in compliance with the Listing Requirements and the best practices as set out in the Code. The report of the Audit Committee for the financial year ended 31 December 2013 are presented on pages 066 to 069 of this Annual Report. 054 ANNUAL REPORT 2013

Statement on Corporate Governance

(B) Nomination Committee

The Nomination Committee was set-up to ensure business continuity of the Group by having in place a succession plan for the Board and senior management.

The Nomination Committee was established on 6 June 2001 and comprises exclusively Independent Non-Executive Directors as follows:

NAME OF NOMINATION COMMITTEE MEMBERS

Yap Kim Swee Chairman, Independent Non-Executive Director Dato’ Afifuddin bin Abdul Kadir Member, Independent Non-Executive Director Dato’ Lua Choon Hann (Appointed on 24 April 2013) Member, Independent Non-Executive Director

The Nomination Committee met once during the financial year ended 31 December 2013 and the meeting was attended by all the members of the Nomination Committee.

The duties and responsibilities of the Nomination Committee are as follows:

(a) to review the structure, size, and composition of the Board;

(b) to develop, maintain and review criteria for the appointment of new directors;

(c) to do an annual assessment on all Directors;

(d) to review formal succession plan in identifying and mentoring potential Executive and Non-Executive Directors and senior management personnel;

(e) to propose and recommend new appointments of potential candidate to the Board; and

(f) to propose and recommend to the Board, the retirement and re-appointment of existing Executive and Non-Executive Directors, in accordance with the Articles.

Fundamentally, new appointments to the Board are made by the whole Board and potential Directors are proposed by any Director and reviewed by the Nomination Committee before any approach is made to the candidate. New appointment is made by the Board only after a recommendation from the Nomination Committee. In view of the essential requirement for potential Directors to understand the nature of responsibilities of the Board and the extensive operations of the Group, it is vital for the Chairman to take part in the briefing of any nominees to the Board. Accordingly, the Nomination Committee is structured as a sub-committee of the whole Board so that all Directors can participate in the nomination process.

(C) Remuneration Committee

The Group operates in a competitive environment and it is essential that part of its strategy is to attract, motivate and retain the highest achievers who are able to deliver the business objectives. The level of remuneration and benefits that the Company offers is the key to support the objectives and maintaining the Group’s market position as an employer of choice. The Company provides competitive salaries and benefits for all its employees, consistent with its business strategy and performance. Pelikan International Corporation Berhad 055

Statement on Corporate Governance

The Remuneration Committee was established on 6 June 2001 and comprises exclusively Independent Non-Executive Directors as follows:

NAME OF REMUNERATION COMMITTEE MEMBERS

Tan Sri Abi Musa Asa’ari bin Mohamed Nor Chairman, Independent Non-Executive Director Yap Kim Swee Member, Independent Non-Executive Director Dato’ Mohamad Norza bin Zakaria (Appointed on 24 April 2013) Member, Independent Non-Executive Director

The Remuneration Committee met once during the financial year ended 31 December 2013 and the meeting was attended by all the members of the Remuneration Committee.

The duties and responsibilities of the Remuneration Committee are as follows:

(a) to recommend to the Board, the remuneration and compensation of the Executive Director in all its form, drawing from external advice where necessary; and

(b) to establish a formal procedure for developing policy on Executive Director’s remuneration and compensation package.

The Remuneration Committee recommends to the Board the reward framework to allow the Company to attract and retain its Executive Director giving due regard to the financial and commercial health of the Company. The Remuneration Committee’s approach reflects the Company’s overall philosophy that all employees should be appropriately rewarded.

The Company aims to align the interests of its Executive Director as closely as possible with the interests of shareholders in promoting the Group’s strategies. Total remuneration comprises salaries, performance related bonus and benefit-in-kind. Salaries and benefits are competitive and reviewed annually. In making recommendations on the framework for retaining and rewarding senior management, the Remuneration Committee reviews the total reward package, making use of internally and externally published information. The salaries of the Executive Director is set by the Remuneration Committee and reviewed annually after consideration of the Company’s performance, market conditions, the level of increase awarded to employees throughout the business and the need to reward individual performance.

(D) eSOS Committee

The ESOS Committee was set-up to ensure the ESOS is fairly and properly administered in accordance with its approved By- Laws and other applicable rules and regulations.

The ESOS Committee was established on 29 April 2010 and comprises a majority of Independent Non-Executive Directors as follows:

NAME OF ESOS COMMITTEE MEMBERS

Tan Sri Abi Musa Asa’ari bin Mohamed Nor Chairman, Independent Non-Executive Director Loo Hooi Keat Member, President/Chief Executive Officer Yap Kim Swee Member, Independent Non-Executive Director 056 ANNUAL REPORT 2013

Statement on Corporate Governance

The duties and responsibilities of the ESOS Committee amongst others, are as follows:

(a) to determine the eligibility of the person for participation in the ESOS;

(b) to decide on the number of shares to be offered to eligible persons, the subscription price for the shares and such other terms in relation to the offer;

(c) to enter into any transactions, agreements, deeds, documents or arrangements, and make rules, regulations or impose terms and conditions or delegate part of its power relating to the ESOS subject to the provisions of the ESOS By-Laws; and

(d) to take all other actions within the purview of the ESOS Committee pursuant to the ESOS By-Laws, for the necessary and effective implementation and administration of the ESOS.

DIRECTORS’ REMUNERATION

The Directors’ remuneration is linked to experience, scope of responsibility, seniority, performance and industry information. Directors’ fees are paid to Non-Executive Directors and these are approved by shareholders at the AGM. The details of the Directors’ remuneration for the financial year ended 31 December 2013 are as follows:

DEFINED CONTRIBUTION BENEFIT- FEES SALARIES PLAN IN-KIND TOTAL NAME OF DIRECTORS (RM) (RM) (RM) (RM) (RM)

Executive Director Loo Hooi Keat – 1,320,000 158,400 35,200 1,513,600

Non-Executive Directors Tan Sri Abi Musa Asa’ari bin Mohamed Nor 120,000 – – – 120,000 Dato’ Afifuddin bin Abdul Kadir 60,000 – – – 60,000 Yap Kim Swee 70,000 – – – 70,000 Datuk Rozaida binti Omar 60,000 – – – 60,000 Dato’ Lua Choon Hann 45,000 – – – 45,000 (Appointed on 1 April 2013) Dato’ Mohamad Norza bin Zakaria 45,000 – – – 45,000 (Appointed on 1 April 2013) Normimy Binti Mohamed Noor 60,000 – – – 60,000

Total 460,000 1,320,000 158,400 35,200 1,973,600 Pelikan International Corporation Berhad 057

Statement on Corporate Governance

RELATIONS WITH SHAREHOLDERS AND INVESTORS

The Board recognises that a key element of good corporate governance is the effective communication and dissemination of information to the Company’s stakeholder. The Board adopts various methods of communication to the respective stakeholders and has adopted a corporate disclosure policy to ensure that any communications made are transparent, timely, coherent, consistent and accurate.

1. The Annual General Meeting and Communication with Stakeholders

The AGM is the principal forum for dialogue with shareholders. At the Company’s AGM, shareholders have direct access to the Board and are encouraged to participate in the deliberations of the resolutions. The Chief Executive Officer of the Company in the AGM often presents to the shareholders, the Company’s operations in the financial year and outlines the future prospects of the Group. Questions raised by the shareholders are answered by the Board.

Further, the Group’s Company Secretaries could provide shareholders and investors with a channel of communication on which they can provide feedback to the Group. Queries regarding the Group may be conveyed to the Company Secretaries at the Company’s registered address.

The Company has appointed Mr Yap Kim Swee as the Senior Independent Non-Executive Director where stakeholders can contact him to seek any clarifications or raise any concerns on the Group.

The contact details of the Company Secretary and the Senior Independent Non-Executive Director are as follows:

COMPANY SECRETARY SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR

Pelikan International Corporation Berhad Pelikan International Corporation Berhad c/o Mr Ho Ming Hon c/o Mr Yap Kim Swee 9, Jalan Pemaju U1/15, Seksyen U1 9, Jalan Pemaju U1/15, Seksyen U1 Hicom Glenmarie Industrial Park Hicom Glenmarie Industrial Park 40150 Shah Alam, Selangor Darul Ehsan 40150 Shah Alam, Selangor Darul Ehsan Tel: +603 5569 5511 ext 205 Tel: +603 5569 5511 ext 140 Fax: +603 5569 2299 Fax: +603 5569 2299

The Annual Report also plays an important part in disseminating information related to the Group’s financial performance and operations and activities throughout the financial year. It also describes how the Board and the Management instil corporate governance and corporate social responsibilities principles in running the operations of the Group.

Other than the above, all public announcements are made via Bursa Securities website and the Company also maintains its website (www.pelikan.com) to disseminate additional information on the Group’s operations.

2. dialogue between the Company and Investors

The Group values dialogue with shareholders and investors as a means of effective communication that enables the Board to convey information with regards to the Group’s performance, corporate strategy and other matters that affect shareholders’ interest. The Company holds discussion with analysts and institutional shareholders regularly. Presentations based on permissible disclosure are made to explain the Group’s performance and major development plans. However, price sensitive information about the Group is not discussed in these exchanges until after the prescribed announcement to Bursa Securities has been made. 058 ANNUAL REPORT 2013

Statement on Corporate Governance

ACCOUNTABILITY AND AUDIT

1. Financial reporting

The Board takes responsibility for ensuring that the financial statements of the Group and the Company give a true and fair view of the state of affairs of the Group and the Company as required under Section 169(15) of the Companies Act, 1965 and Malaysian Financial Reporting Standards, International Financial Reporting Standards in Malaysia.

The Board also ensures the accurate and timely release of the Group’s quarterly and annual financial results to Bursa Securities.

The Audit Committee reviewed the quarterly and year-to-date unaudited financial results of the Group and the reports and the audited financial statements of the Company and the Group together with external auditors prior to tabling to the Board for approval. The review was, inter alia, to ensure compliance with:

(i) Provision of the Companies Act, 1965;

(ii) Main Market Listing Requirements of Bursa Malaysia Securities Berhad;

(iii) Malaysian Financial Reporting Standards, International Financial Reporting Standards in Malaysia; and

(iv) Other legal and regulatory requirements.

2. directors’ Responsibility Statement in preparing the annual audited financial statements

The Directors are responsible for ensuring that the annual audited financial statements of the Group and the Company are drawn up in accordance with the provisions of the Companies Act, 1965 and Malaysian Financial Reporting Standards, International Financial Reporting Standards in Malaysia so as to give a true and fair view of the state of affairs of the Group and the Company at the end of the financial year and of the results of their operations and cash flows for the financial year.

In preparing the financial statements, the Directors have:

(a) selected suitable accounting policies and applied them consistently;

(b) made judgements and estimates that are reasonable and prudent;

(c) ensured that all applicable accounting standards have been followed; and

(d) prepared financial statements on a going concern basis as the Directors have a reasonable expectation having made appropriate enquiries that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future.

The Directors have the duty to ensure that the Company keeps accounting records which disclose with reasonable and accuracy of the financial position of the Group and Company and which enable them to ensure that the financial statements are in compliance with the Companies Act, 1965.

The Board has the overall responsibility to take all steps as are reasonably open to them to safeguard the assets of the Group to prevent and detect frauds and other irregularities. Pelikan International Corporation Berhad 059

Statement on Corporate Governance

3. Internal Audit Function

In line with paragraph 15.27 of the Listing Requirements, the Group has its own internal audit function following the adoption of its Internal Audit Charter by the Audit Committee. The internal audit review of the Group’s operations encompassed an independent assessment of the Group’s compliance with its risk management policies and internal controls and makes recommendations for improvements.

The Group has established an Internal Audit and Risk Management department as an independent appraisal function. This is to provide the Audit Committee and the management with independent and objective advice on the effectiveness of the Group’s business and operations. It recognises that it is management’s responsibility to analyse the risks and to devise and implement an effective system of internal control. The fulfilment of the above objective is achieved by providing reasonable assurance through an effective and efficient programme of independent review across the Group to the management, the Audit Committee and the Board on an on-going basis. This is not confined to but includes:

(a) appraising the adequacy and integrity of the internal control and management information system of the Group;

(b) ascertaining the effectiveness of operating management in identifying principal risks and to manage such risks through appropriate system of internal control set up by the Group;

(c) ascertaining the level of compliance with the Group’s plan, policies, procedures and adherence to laws and regulations;

(d) appraising the effectiveness of administrative and financial controls applied and the reliability and integrity of data that is produced within the Group;

(e) ascertaining the adequacy of controls for safeguarding the Group’s assets;

(f) conducting special reviews or investigations requested by management or by the Audit Committee; and

(g) consultation with management, reviewing operations as a whole from the viewpoint of economy and productivity with which resources are employed and making cost effective recommendations to management.

4. external Audit Function

The Company’s independent external auditors fill an essential role for the shareholders by enhancing the reliability ofthe Company’s financial statements and giving assurance of that reliability to users of these financial statements.

The external auditors, Messrs. BDO have continued to report to members of the Company on their findings which are included as part of the Group’s and Company’s financial reports with respect to each year’s audit on the statutory financial statements.

In doing so, the Group and the Company have established a transparent arrangement with the external auditors to meet their professional requirements. As an independent measure, the external auditors meet with the Audit Committee at least twice a year to discuss the audit plan findings and audited accounts without executive board members present. 060 ANNUAL REPORT 2013

Statement on Risk Management and Internal Control

BOARD RESPONSIBILITY

The Board of Directors (“Board”) of Pelikan International Corporation Berhad (“Pelikan” or “the Company”) is responsible for maintaining a sound and effective system of risk management and internal controls of Pelikan group of companies (“the Group”) and for reviewing its effectiveness. Such system is designed to manage the risk of failure to achieve corporate objectives. It aims to provide reasonable but not absolute assurance against material misstatement, loss or fraud.

The Board has delegated to executive management the implementation of processes for identifying, evaluating, monitoring and reporting of risks and internal controls, while the Board through its Audit Committee oversees and reviews the adequacy and effectiveness of relevant financial, operational and compliance controls and risk management procedures that have been in place. Qualified personnel throughout the Group maintain and monitor these systems of controls on an on-going basis.

For purpose of disclosure, this Statement is guided by the “Statement on Risk Management & Internal Control: Guidelines for Directors of Listed Issuers” pursuant to Paragraph 15.26(b) of the Listing Requirements of Bursa Malaysia Securities Berhad.

RISK MANAGEMENT FRAMEWORK

The Group has in place a formal risk management process to identify, evaluate, mitigate, monitor and review risks impacting the Group. The Board has extended the responsibilities of the Audit Committee to include the work of monitoring the Group’s risks and internal controls on its behalf, including identifying risk areas and communicating these risk areas to the Board. Risk management is firmly embedded in the Group’s key processes through Pelikan’s Risk Management & Control Environment Framework, in line with the Malaysian Code on Corporate Governance (the “Code”).

PICB Group

Pelikan Risk Management & Control Environment Framework

Product Group Policies & Group MIS Internal Control Business Plan & Development Procedures, Pelikan Reporting & Weekly System (ICS) or Budgetary Review and R&D Best Practices Sales Reporting ERM Framework

Country Country Country Country Regulatory Strategic Risk Operational Risk Financial Risk & Compliance Risk

Market Segmentation

Germany Switzerland Rest of Europe Americas Rest of the World Pelikan International Corporation Berhad 061

Statement on Risk Management and Internal Control

The process is supported by a Group Enterprise Risk Management (ERM) policy which sets out details of the procedures, methodologies, evaluation criteria and documentation requirements to ensure clarity and consistency of application across the Group. For ease of communication and to achieve a coherent structure of risk management throughout the Group, the risks are structured under four main categories:

(a) Strategic Risks;

(b) Operational Risks;

(c) Financial Risks; and

(d) Regulatory and Compliance Risks.

The Group Internal Audit and Risk Management department reviews the adequacy and effectiveness of risk management and internal controls and their corresponding risks mitigation steps. Findings are reported to the Audit Committee and thereafter to the Board on an annual basis. Periodic updates on the risk assessment are done when necessary, including identifying changes to risk or emerging risks, action points taken and reported to the Board via the Audit Committee.

KEY ELEMENTS OF INTERNAL CONTROL SYSTEM

The key elements of the Group’s systems of internal controls are described below:

(a) Clear organisation structure of the Company and its subsidiaries has defined level of accountability and authority for all aspects of the business;

(b) Training and development programmes to ensure that staff are kept up to date with the necessary competencies to carry out their responsibilities towards achieving the Group’s objectives;

(c) Code of ethics are established and adopted for all employees to ensure high standards of conduct and ethical values in all business practices;

(d) Regular and comprehensive information provided to management, covering operating and financial performance and key business indicators such as resource utilisation, cash flow performance and sales achievement;

(e) Detailed budgeting process where operating units prepare budgets for the coming year, which are approved at both the operating unit level and the Board;

(f) Monthly monitoring of results against budget, with major variances being followed up and management action taken, where necessary;

(g) Clearly documented standard operating procedure manuals set out the policies and procedures for day to day operations to be carried out. Regular reviews are performed to ensure that documentation remains current and relevant;

(h) Regular visits to operating units by members of the Board and senior management; and 062 ANNUAL REPORT 2013

Statement on Risk Management and Internal Control

(i) The Internal Audit and Risk Management department independently reviews the control processes implemented by the management from time to time and periodically reports on its findings and recommendations to the Audit Committee. The duties and responsibilities of the Audit Committee are detailed in the Terms of Reference of the Audit Committee. The Audit Committee, by consideration of both internal and external audit reports, is able to gauge the effectiveness and adequacy of the internal control system, for presentation of its findings to the Board.

ADEQUACY OF RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM

The Board is of the view that the Company’s overall risk management and internal control system is operating adequately and effectively, in all material aspects for the year under review and up to the date of approval of this statement, and have received the same assurance from both the CEO and CFO of the Company.

This Statement is made in accordance with a resolution of the Board dated 23 April 2014.

REVIEW OF THE STATEMENT BY EXTERNAL AUDITORS

As required by Paragraph 15.23 of Bursa Malaysia Securities Berhad’s Main Market Listing Requirements, the external auditors have reviewed this Statement on Risk Management and Internal Control. Their limited assurance review was performed in accordance with Recommended Practice Guide (RPG) 5 (Revised) issued by the Malaysian Institute of Accountants, which does not require the external auditors to form an opinion on the adequacy and effectiveness of the risk management and internal control systems of the Group. Based on the procedures performed, nothing has come to their attention that causes them to believe that this Statement on Risk Management and Internal Control has not been prepared, in all material respects, in accordance with the disclosures as required pursuant to the “Statement on Risk Management and Internal Control – Guidelines for Directors of Public Listed Issuers”. Pelikan International Corporation Berhad 063

Statement on Internal Audit Function

In line with Appendix 9C, paragraph 30 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”), the internal audit function of Pelikan International Corporation Berhad (“the Company”) group of companies (“the Group”) is performed in-house, in which the Internal Audit Charter had been formally adopted by the Audit Committee. The internal audit review of the Group’s operations encompassed an independent assessment of the Group’s compliance with its internal controls and makes recommendations for improvements.

1. PURPOSE

In accordance with the Main Market Listing Requirements of Bursa Securities, the Group Internal Audit and Risk Management (“IARM”) department is established to ensure not only the effective implementation and compliance of good corporate governance, but also to ensure that effective risk management and system of internal control are in place. Such examination and evaluation of all departments’ activities serves as a service to corporate management and it’s Board of Directors (“Board”) across all companies under the Group’s management control. It is an internal control that functions by measuring and evaluating the effectiveness of other controls.

2. TERMS OF REFERENCE

The Group IARM department is responsible for providing the respective country’s management with information about the adequacy and the effectiveness of its system of internal control and quality of operating performance when compared with established standards. To accomplish this responsibility, all corporate activities are subject to audit. It is the responsibility of the Group IARM department to serve the Group in the manner that is consistent with the “Standards for the Professional Practice of Internal Auditors” and the professional standards of conduct such as the “Code of Ethics” of the Institute of Internal Auditors.

3. POLICY GUIDELINE

3.1 Organisational Status

Whilst the Group IARM department is an integral part of the Company and functions in accordance with policies established by its Senior Management and the Board, it is essential for the Group internal auditor to be independent of the activities audited. To enhance and ensure this independence, it is authorised to access all relevant records, personnel and physical properties.

In view of the fact that its organisational status and support accorded to it by senior management are major determinants of its range and value, the Group IARM department reports to the Audit Committee, whose authority is sufficient to ensure a broad range of audit coverage and an adequate consideration of effective action on internal audit findings and recommendations.

The Group IARM department has an independent functional responsibility to the Audit Committee, which is made up of majority Independent Non-Executive Directors of the Company for the adequacy and effectiveness of the system of internal control. The Head of Group IARM department shall meet with the Audit Committee on a quarterly basis. 064 ANNUAL REPORT 2013

Statement on Internal Audit Function

3.2 Objectivity

Objectivity is essential to auditing. Thus, the Group IARM department should not normally develop or install accounting procedures or controls, prepare records, or engage in activities that its personnel would normally review and appraise and that could reasonably be construed to compromise its independence. Objectivity need not be adversely affected by the determination and recommendations of standards and techniques of control to be applied in developing systems and procedures under its review nor lending its technical assistance to management in systematic analysis of operations or activities.

3.3 Scope

The scope of internal auditing encompass examining and evaluating the adequacy and the effectiveness of the Company’s risk management and system of internal controls and the quality of operating performance against established standards in carrying out assigned responsibilities. The scope of the examination and the evaluation performed in areas of the Company includes the review of:

(a) the reliability and integrity of financial and operating information and the means used to identify, measure, classify and report information;

(b) the systems established to ensure compliance with policies, plans, procedures, law and regulations that could have a significant impact on operations and reports including determining whether the organisation is in compliance;

(c) the means of safeguarding assets and verifying their existence;

(d) the economy and efficiency with which resources are utilised and employed; and

(e) operations or programmes to ascertain whether results are consistent with established objectives and goals and whether the operations and programmes are being carried out as planned.

The audit will be conducted in such a manner as the Head of Group IARM department considers necessary to fulfil his responsibilities and will include such tests of transactions and of the existence, ownership and valuation of assets and liabilities as the Group IARM department consider necessary. The nature and extent of the audit tests will vary according to the internal auditor’s assessment of the Company’s accounting system, system of internal controls and cover any aspect of the business operations. The Group IARM department shall report any significant weaknesses in or observations on, the Company’s risk position and system of internal controls which comes to its notice and which the Group IARM department thinks should be brought to the attention of the Board and/or the Audit Committee.

The responsibility for the prevention and detection of irregularities and fraud rests with the operating management. However, the Group IARM department shall endeavour to plan its audit so that it has a reasonable expectation of detecting material misstatements in accounting and operational records resulting from irregularities or fraud, but its examination should not be relied upon to disclose irregularities and frauds which may exist. Pelikan International Corporation Berhad 065

Statement on Internal Audit Function

4. ADDITIONAL INFORMATION RELATING TO THE INTERNAL AUDIT FUNCTION

4.1 Internal Audit Administration

The Head of Group IARM department is generally responsible for the administration of this policy and functionally directing internal audit activities throughout the Company.

Group corporate management and operating management are responsible for providing the Group IARM department with relevant and timely access to all records, personnel and physical properties and for making sure that appropriate actions are taken to address audit recommendations.

4.2 Internal Audit Function Costs

The total costs incurred by the Group internal audit function in respect of the financial year 2013 amounted to RM571,977. 066 ANNUAL REPORT 2013

Audit Committee Report

The Board of Directors (“Board”) of Pelikan International Corporation Berhad (“the Company”) is pleased to present the following report of the Audit Committee for the financial year ended 31 December 2013.

MEMBERSHIP AND MEETINGS OF AUDIT COMMITTEE

The Audit Committee comprises two (2) members who are Independent Non-Executive Directors and one (1) member who is Non-Independent Non-Executive Director. The Chairman of the Audit Committee is an Independent Non-Executive Director, who is also a member of the Malaysian Institute of Accountants. The Head of Internal Audit and Risk Management was invited to all the Audit Committee meetings to present the Internal Audit and Risk Management reports. The representatives from the external auditors of the Company were also invited to attend the Audit Committee meetings in three (3) meetings out of five (5) held.

The Audit Committee members’ attendance record is as follows:

NO. OF MEETINGS TOTAL ATTENDANCE NAME OF AUDIT COMMITTEE MEMBERS ATTENDED (%)

Yap Kim Swee (Chairman) 5 out of 5 100 Independent Non-Executive Director Dato’ Afifuddin bin Abdul Kadir 5 out of 5 100 Independent Non-Executive Director Datuk Rozaida binti Omar 5 out of 5 100 Non-Independent Non-Executive Director

AUTHORITY

The Audit Committee shall, in accordance with a procedure to be determined by the Board and at the expense of the Company and the Group:

(a) have explicit authority to investigate any matter within its terms of reference, resources to do so, and full access to information. All employees shall be directed to co-operate as requested by members of the Audit Committee;

(b) have full and unrestricted access to any information, records, properties and personnel of the Company and of any other companies within the Group;

(c) have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity;

(d) obtain independent professional or other advice and to invite outsiders with relevant experience and expertise to attend the Audit Committee’s meetings (if required) and to brief the Audit Committee;

(e) have right to ensure the attendance of any particular Audit Committee meeting by other Directors and employees of the Company shall be at the Audit Committee’s invitation and discretion and must be specific to the relevant meeting; and

(f) in instances where matters reported by it to the Board has not been satisfactorily resolved resulting in a breach of the Bursa Malaysia Securities Berhad (“Bursa Securities”) requirements, the Audit Committee must promptly report such matter to the Bursa Securities. Pelikan International Corporation Berhad 067

Audit Committee Report

DUTIES AND RESPONSIBILITIES

The duties and responsibilities of the Audit Committee are as follows:

(a) to assess the suitability and independence of the external auditors before considering their appointment, the audit fee, re-appointment and any question of resignation or dismissal;

(b) to discuss with the external auditors before the audit commences, the nature and scope of the audit, and ensure co-ordination when more than one audit firm is involved;

(c) to review with the external auditors his evaluation of the system of internal control and his audit report;

(d) to review the quarterly and year-end financial statements of the Company and the Group, focusing particularly on:

(i) any change in accounting policies and practices;

(ii) significant adjustments arising from the audit;

(iii) the going concern assumption; and

(iv) compliance with accounting standards and other legal requirements;

(e) to discuss problems and reservations arising from interim and final audits, and any matter the external auditors may wish to discuss (in the absence of management where necessary);

(f) to review the external auditor’s management letter and management’s response;

(g) to do the following, in relation to the internal audit function:

(i) review the adequacy of the scopes, functions and resources of the internal audit function, and ensure that it has the necessary authority to carry out its works;

(ii) review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit function;

(iii) review any appraisal or assessment of the performance of the members of the internal audit function;

(iv) approve an appointment or termination of senior staff members of the internal audit function; and

(v) take cognizance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning; 068 ANNUAL REPORT 2013

Audit Committee Report

(h) to consider any related party transactions that may arise within the Group including any transaction, procedure or code of conduct that raises questions of management integrity;

(i) to consider the major findings of internal investigations and management’s response;

(j) to determine the remit of the internal audit function;

(k) to consider other topics as defined by the Board;

(l) to report its findings on the financial and management performance, and other material matters to the Board; and

(m) verification on allotment of shares under Executives’ Share Option Scheme (“ESOS”) is in compliance with the basis set out in the Bursa Malaysia Listing Requirements and ESOS by-laws.

SUMMARY OF ACTIVITIES OF THE AUDIT COMMITTEE

During the financial year 2013, the Audit Committee carried out its duties as set out in the terms of reference. Other main activities carried out by the Audit Committee during the financial year included the following:

1. Financial Results

(a) Reviewed the quarterly and year-to-date unaudited financial results of the Group before tabling to the Board for consideration and approval; and

(b) Reviewed the reports and the audited financial statements of the Company and the Group together with external auditors prior to tabling to the Board for approval. The review was, inter alia, to ensure compliance with:

(i) Provision of the Companies Act, 1965;

(ii) Main Market Listing Requirements of Bursa Malaysia Securities Berhad;

(iii) Malaysian Financial Reporting Standards, International Financial Reporting Standards in Malaysia; and

(iv) Other legal and regulatory requirements.

In the review of the annual audited financial statements, the Audit Committee discussed with management and the external auditors the accounting principles and standards that were applied and their judgement of the items that may affect the financial statements as well as issues and reservations arising from the statutory audit.

2. external Audit

(a) Reviewed the external auditors’ scope of work and audit plan for the year and made recommendations to the Board on their appointment and remuneration;

(b) Reviewed and discussed the external auditors’ audit report and areas of concern highlighted in the management letter, including management’s response to the concerns raised by the external auditors; and

(c) Discussed on significant accounting and auditing issues, impact of new or proposed changes in accounting standards and regulatory requirements. Pelikan International Corporation Berhad 069

Audit Committee Report

3. Internal Audit

(a) Reviewed the Group internal audit plan, resources planning requirements for the financial year and assessed the performance of the Group Internal Audit and Risk Management department;

(b) Reviewed the internal audit reports which highlighted the audit issues, recommendation and the management’s responses and directed actions to be taken by the management to rectify and improve the system of internal control;

(c) Monitored the implementation programme recommended by the Group Internal Audit and Risk Management department arising from its audits in order to obtain assurance that all key risks and controls have been fully dealt with; and

(d) Reviewed the performance of members of the internal audit function. 070 ANNUAL REPORT 2013 Statement on Corporate Social Responsibility Pelikan International Corporation Berhad 071

175 years on and childhood development continues to be the heartbeat of Pelikan’s Corporate Social Responsibility (“CSR”) initiatives. This has been an unwavering focus since Pelikan first began supporting schools in Germany. Today, Pelikan Group’s CSR touches the lives of children all around the world, while also committing to community programmes, employee welfare and good environmental practices.

In Malaysia, Pelikan Malaysia continued to In 24 October, PMEA supported Red support University Malaya Medical Centre’s Crescent in Dubai by donating school (“UMMC”) annual party for children with bags filled with Pelikan school and office cancer. The pediatric cancer unit UMMC products for poor and needy children organises the party to bring together in Dubai. This was done in conjunction current and ex-patients so they can share with Eidul Adha, a Muslim celebration. their experiences. This was an event which brought great cheer to the children In Greece, due to the financial crisis, undergoing cancer treatment as well as Pelikan Hellas saw it fit to contribute their families. Held on 27 April, Pelikan products to schools so that students Malaysia contributed materials for the could start the school season fully colouring contest. equipped with all the necessary stationery.

In Dubai, Pelikan Middle East & Africa Meanwhile Herlitz AG continued their (“PMEA”) contributed products for the support for BildungsCent e.V., a non-profit Dubai Autism Center in UAE. A Father’s Day organisation which implements sustainable contest was held at the autism center and and educative programmes at schools. PMEA sponsored prizes for the children. BildungsCent e.V’s “Aktion Klima! Mobil”, a campaign to raise awareness on climate change and environment protection amongst school children, was partly funded by Herlitz AG. 072 ANNUAL REPORT 2013

Statement on Corporate Social Responsibility

SUPPORTING GOOD CAUSES AG, Pelikan Germany donated school PMEA sponsored the ‘Office Wellness product packs with school bags, pencils, Workshop’ which was organised by The Group also shows its support for colour boxes, brushes, folders and more. Sharjah University in collaboration with selected public causes. The staff of Pelikan Germany in Hanover SAIF Zone in Dubai. The objective of the also came together to contribute to a programme was to enhance awareness On 27 November 2013, PMEA supported petrol fund for the truck that delivered among office employees and the the “AIDS Awareness Project”, in the donations to the victims. management that ‘More Healthy equals collaboration with UNICEF, UAE- to More Productivity’, as well as to Ministry of Health and Sharjah create Pelikan brand awareness. PMEA University. His Highness Dr. Sheikh FOR OUR EMPLOYEES sponsored the workshop materials and Sultan Bin Mohammed Al Qasimi, The National Kidney Foundation (“NKF”) held a sampling of ‘Stick Pro’ pens. The Member of the Supreme Council once again organised a health screening workshop had great impact and created and Ruler of Sharjah, were present for Pelikan Malaysia employees in 2013. excellent brand awareness. to sign with Pelikan markers for the Formally known as ‘The NKF Lifecheck HIV awareness program declaration Over in Switzerland, employees at Health Screening’, it is a subsidised designed by PMEA. Pelikan Holding Production AG’s health screening which checks blood (“PHPAG”) plant are offerred gym Pelikan Germany and Herlitz AG pressure, body mass index, waist sessions every Tuesday, from 5pm worked together on 21 June 2013 to circumference, random blood glucose, to 6pm. This is part of the plant’s give donations to the victims of the random blood, total cholesterol, urine health maintenance programme for floods that hit Eastern Germany and test and provides health counseling. its workers. Meanwhile, Pelikan’s Bavaria at the end of May 2013. Houses Held on 14 November, 62 Pelikan plant in Vöhrum, Germany promoted were destroyed and the victims were in Malaysia employees participated in the a skin protection campaign and financial distress. Together with Herlitz screening on the iconic NKF mobile bus. organised bowel cancer checkups for its employees. Pelikan International Corporation Berhad 073

Statement on Corporate Social Responsibility

POSITIVELY IMPACTING OUR staggered starts to optimise electric guidelines. Made from climate-friendly SURROUNDINGS powered machinery and generation of materials, these products bear the ‘Blue steam with new boiler using natural Angel’ seal or the Forest Stewardship Pelikan Group operates around the gas instead of petrol to eliminate air Council’s logo (FSC® licence code FSC®- globe in many countries, and wherever contamination. At the same time, C014510, certification of Herlitz PBS AG, it has a presence, it aims to leave a good Pelikan’s plant in Vöhrum, Germany Berlin). Herlitz is also committed to footprint. uses energy efficient printing and copy reducing and offsetting CO2 emissions machines and invests in energy efficient released during the manufacturing and Pelikan Group’s manufacturing LED lightning for the injection moulding transportation of its articles, and an plants are ISO certified to make sure department. ever-growing number of its products the Group runs its business within are manufactured in a climate-neutral environmental regulations. PHPAG’s Herlitz AG takes its responsibility as manner. plant in Switzerland has been ISO a manufacturer of office supplies 9001, 14001 and 1800 re-certified for and school stationery very seriously. a new 3-year period. Pelikan’s plant in Every year, Herlitz AG ensures that Vöhrum, Germany is ISO 9001 and 14001 sustainability plays a major role in certified. its business activities. Sustainability means awareness when using resources Pelikan Group’s plant in Puebla, Mexico as well as ensuring its customers and has implemented environmental stakeholders alike can rely on the friendly programmes such as separation outstanding quality of its products and of waste (plastic, cardboard, wood, processes. rags); a PET bottles collection campaign; and “Recycle of collective” packaging. Its A large number of items from the environmental initiatives also include Herlitz range of school and office products already adhere to green 074 ANNUAL REPORT 2013

Financial Calendar

27 FEB Board Reviewed and approved the financial results for the th4 quarter ended 31-12-2012 2013 Audit Remuneration Reviewed the remuneration package of Executive Director for year 2013 Nomination Reviewed the composition of the Board of Directors 24 APR Board Approved the Audited Financial Statements for the financial year ended 31-12-2012 Audit Reviewed the statements and reports to be included in the Annual Report 2012

28 MAY Board Reviewed and approved the financial results for the st1 quarter ended 31-03-2013 Audit 25 JUN 31st AGM Received the Audited Financial Statements for the financial year ended 31-12-2012 Approved the Directors’ fees and re-appointment of External Auditors

28 AUG Board Reviewed and approved the financial results for the nd2 quarter ended 30-06-2013 Audit 27 SEP Board Discussion on the restructuring of Herlitz Group

25 NOV Board Reviewed and approved the financial results for the rd3 quarter ended 30-09-2013 Audit Presentation of Audit Plan for year 2014 Discussion of Proposed Meetings Calendar for year 2014

25 FEB Board Reviewed and approved the financial results for the th4 quarter ended 31-12-2013 2014 Audit Remuneration Reviewed the remuneration package of Executive Director for year 2014 Nomination Reviewed the composition of the Board of Directors 19 MAR Remuneration Reviewed the Executive Director’s remuneration package in the new contract Nomination Reviewed the Executive Director’s new contract 23 APR Board Approved the Audited Financial Statements for the financial year ended 31-12-2013 Audit Reviewed the statements and reports to be included in the Annual Report 2013

29 MAY Board Review and approve the financial results for the st1 quarter ended 31-03-2014 Audit 18 JUN 32nd AGM Receive the Audited Financial Statements for the financial year ended 31-12-2013 Approved the Directors’ fees and re-appointment of External Auditors

27 AUG Board Review and approve the financial results for the nd2 quarter ended 30-06-2014 Audit

25 NOV Board Review and approve the financial results for the rd3 quarter ended 30-09-2014 Audit Presentation of Audit Plan for year 2015 Discussion of Proposed Meetings Calendar for year 2015