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Kodak Unveils Digitally Oriented Strategy
Kodak will present to investors today a broader strategy for growth that will harness the power of digital technology to expand into a range of commercial businesses, resulting in a more diversified business portfolio with the potential to generate $16 billion in revenue by 2006and $20 billion by 2010. "We are acting with the knowledge that demand for traditional products is declining, especially in developed markets," Carp said. "Given this reality, we are moving fastas digital markets demandto transform our business portfolio, with an emphasis on digital commercial markets. The digital world is full of opportunity for Kodak, and we intend to lead it, as we have led innovation in the imaging industry for more than a century."
Kodak Unveils Digitally Oriented Strategy to Accelerate Growth
Revenue Targeted to Reach $16 Billion by 2006 and $20 Billion by 2010
NEW YORK CITY, Sept. 25Eastman Kodak Company will present to investors today a broader strategy for growth that will harness the power of digital technology to expand into a range of commercial businesses, resulting in a more diversified business portfolio with the potential to generate $16 billion in revenue by 2006and $20 billion by 2010.
At an investors meeting in New York City, Kodak's new leadership team will detail its plans to build on its foundation in consumer, medical and professional film imaging products and services to become a more balanced, diversified company that is a leader in the digital markets it serves. Those plans include leveraging its significant presence, and strong growth, in commercial markets and health imaging; refocusing research and development dollars on bigger, bolder ideas; accelerating investments in commercial markets; and acquiring other companies and technology to broaden Kodak's portfolio of digital products and services. Kodak anticipates spending as much as $3 billion on investments and acquisitions to achieve its 2006 revenue goal, including the transactions already announced this year.
Each of the company's key business areas is now headed by leaders with experience in digital products and services, knowledge of both consumer and commercial printing markets, and a history of creating successful businesses throughout their careers. Since the start of 2002, Kodak Chairman and Chief Executive Daniel A. Carp has recruited a team of leaders, including President Antonio Perez, whose digital experience will allow the company to thrive in a time of structural change in the imaging industry.
"We are acting with the knowledge that demand for traditional products is declining, especially in developed markets," Carp said. "Given this reality, we are moving fastas digital markets demandto transform our business portfolio, with an emphasis on digital commercial markets. The digital world is full of opportunity for Kodak, and we intend to lead it, as we have led innovation in the imaging industry for more than a century."
At sales of $16 billion by 2006, and in the absence of special charges that cannot be estimated currently, Kodak's earnings per share potentially could exceed $3.00 that year.
Kodak will center its growth efforts on three broad markets: Commercial, Consumer and Health.
The Commercial initiatives include developing commercial imaging services for business customers, such as on-demand digital color printing, led by James Langley, Kodak's new President for Commercial Printing. As with Perez, Langley formerly was an executive at Hewlett-Packard Company.
The Consumer initiatives include accelerating the growth of Kodak's successful EasyShare digital camera business and increasing the printing of pictures at home, from home or at retail. Bernard Masson, formerly an executive at Lexmark International, is leading this effort, supported by, among others, Yusuke Kojima, formerly of Olympus Optical Company, Ltd.
The Health initiatives involve gaining more market share in the digital capture of medical images and building an information services business that takes full advantage of the convergence of images and information technology. Dan Kerpelman, who joined Kodak last year from General Electric Co., will continue to lead this effort.
The path to Kodak's revenue goals features short-, medium- and long-term objectives. In the short termthe next 2 yearsthe company will reinforce its foundation by cutting costs and by managing the consumer film and paper businesses for cash and manufacturing share. In the medium term2 to 5 yearsKodak will use the cash generated by the traditional businesses to strengthen the three market segments: Commercial, Consumer and Health. In the long termafter 5 yearsKodak will expand its reach by using its brand and technology to build new businesses in such markets as commercial workflow management, mobile imaging and flat-panel and flexible film displays, among others. Willy Shih, who in the past five years has created a $1 billion business from Kodak's consumer digital assets, is leading the display effort.
"I am committed to ensuring that we execute on our growth strategy," Perez said. "We have the technology, the brand and the cash flow from our traditional business to help take advantage of these opportunities, and we intend to compete aggressively for market share."
Achieving the revenue goals requires that the company maintain financial flexibility while taking advantage of the cash-generation capability of its traditional businesses. To that end, Kodak's management has recommended to the board of directors that the dividend be reduced to a semi-annual payment of $0.25 per share ($0.50 annually) from the current semi-annual payment of $0.90 per share ($1.80 annually). Acting on this recommendation, the board voted yesterday to declare a cash dividend of $0.25 per share, payable Dec. 12, 2003, to shareholders of record as of the close of business on Nov. 3, 2003.
"Becoming a growth company demands that we invest money to harness the opportunities afforded by digital markets," said Robert Brust, Kodak's Chief Financial Officer. "As a result, we've reduced our dividend payout to a level that's about in line with the average payout of the companies in the S&P 500. This reallocation of cash will help us achieve our revenue targets while carrying an amount of debt that's appropriate for the goals we intend to pursue."
To complete the transformation to a digital-oriented growth company, Kodak will create new businesses through a mix of internal growth and acquisitions, which will be funded through aggressive cost and balance-sheet management.
"We have a goal of becoming a $20 billion company by 2010, reflecting a healthy mix of businesses that are commercial and consumer, traditional and digital, new and establishedand all of them taking advantage of the opportunities available in the $385 billion infoimaging market, Carp said.
"Today, we are experiencing a structural shift in our traditional film and paper business in developed markets," Carp said. "To address this shift, we've begun a transformation that is pragmatic and bold. We are determined to win in these new digital markets, and we are creating a Kodak that is geared for success."
Certain statements in this press release may be forward looking in nature, or "forward-looking statements" as defined in the United States Private Securities Litigation Reform Act of 1995. For example, references to the Company's revenue, earnings, cash flow expectations and future focused cost reductions are forward-looking statements.
Actual results may differ from those expressed or implied in forward-looking statements. In addition, any forward-looking statements represent our estimates only as of Sept. 25, 2003, and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. The forward-looking statements contained in this press release are subject to a number of risk factors, including the successful:
- Implementation of product strategies (including category expansion, digitization, OLED, and digital products);
- Implementation of intellectual property licensing strategies;
- Development and implementation of e-commerce strategies;
- Completion of information systems upgrades, including SAP;
- Completion of various portfolio actions;
- Reduction of inventories;
- Improvement in manufacturing productivity;
- Improvement in receivables performance;
- Reduction in capital expenditures;
- Improvement in supply chain efficiency;
- Implementation of future focused cost reductions, including personnel reductions;
- Development of the Company's business in emerging markets like China, India, Brazil, Mexico, and Russia;
- Development of efficient manufacturing techniques for new products.
The forward-looking statements contained in this press release are subject to the following additional risk factors:
- Inherent unpredictability of currency fluctuations and raw material costs;
- Competitive actions, including pricing;
- The nature and pace of technology substitution, including the analog-to-digital shift;
- Continuing customer consolidation and buying power;
- General economic, geo-political, public health and business conditions.
- Other factors disclosed previously and from time to time in the Company's filings with the Securities and Exchange Commission.
Any forward-looking statements in this press release should be evaluated in light of these important risk factors.