Kodak tries to picture a future selling nothing to consumers; The year 2013 should have marked a glorious milestone for Kodak as it emerges from 18 months of bankruptcy to focus on commercial printing and the manufacture of imaging sensors

Kodak tries to picture a future selling nothing to consumers

The year 2013 should have marked a glorious milestone for Kodak.

By Matt Warman

8:30PM BST 21 Aug 2013

Celebrating 125 years since it sold the first consumer camera, the grand old American brand ought to have been basking in a world where more photographs are taken than ever before and where its history entitled it to vast profits built on a fine heritage. More than a century ago, George Eastman developed a pioneering method for photography, then introduced the original Kodak camera in 1888. His company went on to invent film, allowing Thomas Edison to develop the motion picture camera, and created the ubiquitous Brownie cameras and the Kodachrome film that shaped generations of memories. Perhaps most galling of all for the company, it might be said with hindsight, it invented the digital camera.So, by rights, Kodak ought to have “owned” the photography sector today, just as much as it did back in the 1970s.

Yet the reality could not have been more different. Eastman Kodak Company has finally gained permission from a US judge to emerge from the purgatory of 18 months in bankruptcy.

Creditors will receive just 5pc of what they are owed and shareholders will be at the back of a long queue. Two business units – film and photo printing – were sold to placate the needs of its UK pension fund alone. The Rochester, New York-based company’s losses since 2008 had exceeded $1.76bn (£1.13bn).

The Kodak that is now emerging from that mess will be very different from the firm making strips of film for the professional industry, which is a market predicted to contract by a third by 2017, or the one making expensive consumer printers that claimed to be better because the ink was cheaper.

Instead, the new, leaner Kodak will focus on commercial printing and the manufacture of imaging sensors. Ironically, by focusing on sensors, it is pinning almost all its hopes on the digital technology that in large part killed it. Worse still, it will sell nothing to consumers – Kodak, the brand that popularised photography by making the idea a mass market proposition is now a brand that today’s young consumers will simply never encounter.

According to Antonio Perez, its chairman and chief executive, the company will soon be resurrected “as a technology leader serving large and growing commercial imaging markets – such as commercial printing, packaging, functional printing and professional services – with a leaner structure and a stronger balance sheet”.

It is a firm with $4.1bn less debt. The judge who oversaw the bankruptcy exit procedures, Allan Gropper, affirmed the move away from cameras, film sales and consumer photo developing, and said the business is “in many ways a new operation”. That explains, in part, why many ex-employees lost retirement benefits, while creditors will recover what Gropper called “a minute fraction” of what they are owed. He found shareholder hopes that Kodak was worth more than it claimed were without foundation and that, even if it were, the money would go to creditors.

The story of Kodak’s decline from global brand to commercial printer could scarcely be more painful: even before it entered bankruptcy protection, it had spent $3.4bn on attempts to turn the company around and had shed 47,000 employees since 2003. It had closed 13 factories that made film, paper and chemicals and 130 photo laboratories. It had just 17,000 employees remaining and today has just half that.

The new Kodak will issue 85pc of its stock to raise $406m and will enter a fiercely competitive landscape, funded by the creditors whose unsecured bonds are now worth precious little. It’s a final roll of the dice but one with support from creditors for a business that could be valued at up to $1.4bn. Not bad for a firm some had assumed would simply never exist again.

However, analysts remain sceptical about the potential value of Kodak. Commercial printing is neither its area of greatest traditional strength nor one where customers are loyal out of a sense of history.

“Kodak is one of the best-known names of American business,” Judge Gropper declared. “Its decline in bankruptcy is a tragedy of American economic life. I’ve reviewed dozens of letters from Kodak shareholders asking how the company in which they invested fell so far.”

It’s a chastening story – not of hubris but of the world changing around a stagnant brand. Whether the brand is Xerox, Sony, Nokia or Microsoft, all the world’s technology giants face the same risks. Whether it rises again or not, Kodak will stand for generations to come – as a cautionary tale.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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