Here are my notes from the webcast to analysts last Thursday. The cast was tied to the article in question.
My summary of Perez' comments:
- Restructuring is complete
- Strength in science: Materials Science and Digital Imaging
- Developed a sustainable traditional business model
- 50% growth in digital products
- Future digital model based on 'annuities' revenue generated by their output products
My summary of Mary Jane's comments:
- Traditional business is poised for sustainability - KEY message
- Solid profit outlook in the entertainment imaging business is critical to sustainability
- Profitability is strong, but will drive even stronger numbers
- Focus on cost reduction will continue - application of Lean and Six Sigma - expand to Dead Link Removed value stream
- Beat declining revenue forecast with cost reductions
- Book value in all film assets will be written off in the near future - $3.1 billion to $700 million to virtually zero
- Sensitizing locations from 10 to 2, warehousing locations from 25 to 4
- Success in variablizing Dead Link Removed costs for film capture business which was once very much a fixed cost business
- Confidence in forecasting market and profitably manage declining business
Current state
- Traditional photofinishing - $1.2 billion, high single digit revenue decline
- Entertainment - $1.1 billion, low single digit revenue decline
- Film capture - $500 million business - significant revenue decline - but a very small part of the overall traditional film portfolio - was the largest segment in Kodak, now one of the smallest
- Other film products - $300 million, mid single digit revenue decline
- Total top line 12-14% decline in revenue, but each area contributes strong cash (I assume she means profit), year over year for foreseeable future
Focus on margin expansion and profitability in the traditional photofinishing business
- In 07 largely driven by cost reductions
- Reduced employment by 35%, reduced footprint, sold off assets
- Focus in future is on growing mix of the business - what is most profitable
- Step up marketing and growth on the professional markets which includes products - papers like Ektalure will be heavily marketed, photochemistry, moving beyond 4x6 prints to photobooks
- Asia and Latin America have higher margins
- Selective innovations - products with lower production costs
Entertainment business continues to lead this division
- 2% revenue decline last year, over half can be directly correlated to writer's strike
- Entertainment industry continues to enter multi-year contracts
Print business is driven by
first run cinema screen
- First run cinema screens are those that are sent out ahead of the actual cinema release
- Less than half are in the US and Canada - broadly distributed in Europe and Asia
- Penetration of digital is fastest in US and Canada - 11% year over year
- Industry structure is cause for high digital penetration - in US chains of upwards of 1000+ screens that they own versus foreign countries where cinema may be still regulated and / or independently owned with fewer screens per owner - high cost for digital conversion is prohibitive
- 3.5% growth in new screens distributed evenly throughout US, Asia and Europe
- In Asia, 85% of new screens are film screens, 55% in Europe, in US and Canada all new screens are digital - reason why traditional film is still being produced at a measured declining pace
- Impact of digital remains small - 7% worldwide of first run screens have been converted to digital
- In total the colour film impact was 1% decline
- Quarter to quarter volatility is matched to release patterns and churn rates by the industry into the theatres
- Planning number matches Screen Digest forecast which is the standard bearer
- Dead Link Removed is embedded in the sustainability model
Film capture is highly segmented category - characterized by strong digital displacement
- 15% digital displacement mostly due to TV segment and commercials (ads)
- Episodic dramas and motion picture releases are nearly 100% film
- Innovation will be in motion picture film - recently introduced Vision 3 film
Redirecting Kodak Park capacity to third party business
- Absorb fixed costs and generate revenue
- 27 current external tenants
- Plan is to create an industrial campus
Kodak display business
- Will continue to invest in OLED technology
- Generated 105 patents
- Strengthen relationships with backplane display companies - LPL and Samsung are examples
- Choice not to manufacture backplane technology but to partner with leading companies
- A couple new products in the works for release in the near future
Final Summary
- Continue to reduce costs
- Expand Lean and Six Sigma initiatives
- Drive profitability improvements in photofinishing business
- Maximize margins and profitability in all product areas
- Increase revenue generation in Kodak Park facilities and partnerships
My comments:
As I have stated and/or implied in many threads, Kodak is a complex business and those that think film is 'easy' or can be 'sold off' easily are kidding themselves. The business is heavily tied to the entertainment industry and essentially, still film is a by-product. I hope Kodak's forecasts are accurate in that they can conservatively manage their film products in a heavily declining market. If that's the case, we (still film photographers) will continue to have products for the long run.
Regards, Art.