Pay for Performance? Hah!

This morning, I noticed an article posted on printceo.com, and, after I make a couple of wise-guy comments, I’m going to give you the link to that article.

This is the title of that article:

“Investor firm petitions for sale or turnaround at Kodak”

In the article, it says that Kodak’s CEO’s compensation has “averaged” approximately $6.5 million over the past 5 years. That's right, I said $6.5 million!

I went to Google Finance, right after I read the above-mentioned article, and found that, over just the past four years, Kodak’s sales have declined by around 30% and have declined sequentially each year. On the “operating income” and “net income” lines, all I see is “red ink.”

So, in the spirit of the phrase, “pay for performance,” what’s up at Kodak? Heck, I’d take the CEO job at Kodak for only $50k a year, provided my “perq” package includes HEALTH INSURANCE coverage!

I’d probably not make any brighter decisions than Kodak’s current CEO has been making, but, at the very least, some of the red ink would go away, even if only because they’d be paying me a LOT LESS than the current CEO is earning.

Here’s the link to that article:

http://printceo.com/2011/03/investor-firm-petitions-for-kodak-turnaround/

Stronger together: Canon and Océ present Managed Print Services at CeBIT

Well, as to the subject of "managed print services"....

Mülheim an der Ruhr, Germany, 17 January 2011 - Under the slogan "Stronger together", Canon and Océ will have a joint presence in the Managed Print Services Park in Hall 3 at CeBIT in Hanover (1-5 March 2011). By doing so, Canon and Océ are drawing attention to their strengths in office and printroom output management. In Hanover, they will be documenting their consulting experience and in particular targeting companies wanting to save time and money via managed contracts.

“Managed Print Services (MPS) will be one of the biggest growth areas for Canon Germany over the next two years. We expect a large number of companies with a headcount of over 500 to opt for a MPS approach during this period. The European market currently has the potential to be worth around 15 billion euros, growing to an estimated 28 billion euros by 2013. Due to its expertise in multifunctional printing systems and software solutions, Canon is ideally positioned to offer consulting and services to large customers,” says Marcus Nickel, country manager for MPS at Canon Deutschland. Canon is using its appearance in the MPS Park to showcase its latest customer solutions and to gain new customers. “We are not exhibiting any hardware,” announces Nickel. “Instead the focus will be on our consulting competence.”

Mathieu Peeters, Marketing Manager Document Printing at Océ Deutschland GmbH: “It all starts with customer requirements. From assessing the existing situation to consolidating multi-vendor fleets, document solutions, process optimization or automating document-intensive workflows, Canon and Océ have a portfolio of effective MPS service modules. Océ’s roots are in the printroom and enterprise segment. In conjunction with Canon, we are able to implement any customer requirement. And Océ brings the benefit of more than ten years of customer-driven experience with a solution delivery process that is specifically defined for our industry.”

Canon and Océ will be demonstrating their five-pronged approach at CeBIT. This includes financial aspects such as savings safeguards over the duration of a contract, as well as technical solutions focusing on security, monitoring and reporting. In addition, international service organizations and consulting services in the field of workflow optimization will be presented and the issue of environmental sustainability addressed. The trade show stand will also explain exactly what managed print services and managed document services are, as well as the benefits of business process outsourcing, enterprise fleet management and more.

Managed Print Services takes three clearly defined forms. The first is about managing the printer fleet. This includes hardware and servicing together with toner logistics, monitoring and reporting. Level two involves optimizing the fleet in an ongoing process of improvement. Customers have access to a dedicated contact person, in some cases on-site, who is actively responsible for print management, carries out analysis and adapts the print process to change. The third step is to enhance business processes, which covers all aspects of document lifecycle management from drafts through to distribution and archiving. Customers can either manage this aspect internally or outsource it, which is where business process outsourcing comes in. Canon and Océ have been active and successful at all three levels for many years.

Press contact

Canon Deutschland GmbH
Britta Giesen
Europark Fichtenhain A10
47807 Krefeld
Germany
Tel.: +49 (0)2151 345 156
Fax: +49 (0)2151 345 63357
E-mail: britta.giesen@canon.de
www.canon.de

Reprographers; are you incurring increased costs?; are you passing along those increased costs?

It has been my observation, over the many years I've been in and around the reprographics industry, that most reprographers are "very shy" when it comes to "price increases."

One of my reprographics industry friends mentioned, in an e-mail to me today, that it is highly likely that the industry’s material suppliers will increase their prices for the materials they sell, considering the fact that they, the material suppliers, will be incurring increased costs. One could go further with this and assume (and I think this would be an accurate assumption) that virtually all reprographers who pay for the “shipping costs” associated with materials shipped to them - - and that all reprographers who operate “delivery” cars and trucks will incur, if they are not already incurring, increased costs for operating their delivery cars/trucks.

I can easily remember “days gone by” when we used to “give away” pick up and delivery services. “FREE PICK UP, FREE DELIVERY.” Most reprographers, if not all, use to advertise that. Well, I guess that, when gas was $.35 / gallon, we (reprographers) were not all that concerned about what we were giving away for free. But, later, most reprographers “wised-up” and began charging for delivery and some reprographers even implemented charges for pick up.

When business is “down”, and that certainly applies “today”, given the ugly recession virtually everyone in the industry is experiencing, “demand” is down and reprographers, quite naturally, would approach “price increases” very gingerly, if consider them at all. Here’s how that would go, “OMG, I need to increase my prices because my costs are increasing, but, if I do, the competition might take my customers away from me!” I’m only sharing with you the same thought that ran through my mind, many years ago.

Certainly, there are sometimes differences between “theory” and “reality.” Theory would cause a reprographer to think that, if he/she raised prices to offset costs, that, by doing so, he/she would risk having his/her customers “picked-off.” Reality-wise at least in my opinion and experience (in other words, I’ve been there, done that, so to speak), if you are doing a great job servicing your customers (if your company excels in providing superior customer service and quality and is reliable and dependable) seldom will customers leave you over a minor change in (an increase in) price. How do I know that (or, maybe I should say, how can I form such an opinion)? Well, like I said, “I’ve been there, done that.”

The other way a reprographer might want to look at this is to consider that “all” reprographers, across the board (even the big guys/gals) are already, or will be, hit with cost increases. YOU ARE NOT ALONE! My experience with this “tells” me that when one starts, others will quickly follow (at least the ones that have an ounce of brain.) So, when you increase your prices, whether those price increases be for reprographics services you provide, or for delivery/pick-up services you provide, or, better yet, for both, don’t worry yourself to death about doing it; as Nike would put it, “just do it.” You AND your competitors will benefit from it. For the reprographics industry to remain alive, and for your business to survive and be profitable, you need to constantly reassess what you are charging, and when cost increases impact you, you had better figure out how to pass those increased costs along and then “implement that.”

Standard & Poor’s assigns “BB-“ corporate credit rating to American Reprographics Co (ARC)

I found this on Reuters.com the day before yesterday….

Feb. 28, 2011--Standard & Poor's Ratings Services today affirmed its 'BB-' corporate credit rating on Walnut Creek, Calif.-based reprographics and printing company American Reprographics Company (ARC).

“We removed this rating, along with all related issue-level ratings on the company's debt, from CreditWatch, where we placed it with negative implications on Oct. 22, 2010. The rating outlook is negative.”

“At the same time, we assigned our 'BB-' corporate credit rating to parent company American Reprographics Company.”

"The 'BB-' rating reflects our expectation that ARC's revenue and cash flow will remain highly cyclical and could take some time to recover from the current protracted real estate downturn," said Standard & Poor's credit analyst Tulip Lim.”

“We estimate that revenue will decline at a mid-single-digit percentage rate and EBITDA will decline at a low-double-digit to low-teens percentage pace. We regard ARC's business risk as weak given its dependence on U.S. construction spending. We view the company's financial risk profile as aggressive, given its somewhat high debt leverage.”

“ARC has a leading market position in the fragmented reprography market and has significant cost advantages from its nationwide presence. However, we consider its business profile to be weak because its end markets are highly concentrated (more than 75% of net sales are derived from printing for the architectural, engineering, and construction (AEC) segments) and the company has a high geographic concentration in California. ARC's operating performance is linked to the U.S. construction market, particularly that of nonresidential construction (approximately 70% of ARC's total revenue is nonresidential related), which we expect to remain weak over the near term.”

Just a quick comment:

As most reprographers, who follow ARC, know, ARC successfully refinanced its debt sometime around Dec 1, 2011. ARC issued $200 million in unsecured notes. (It also entered into a new secured-debt arrangement with Wells Fargo for (I think it was) an additional $50 million in financing. The notes ARC sold were rated BB- (which I previously pointed out is “junk bond” status), and the interest (coupon) rates on those notes was somewhere around 11%. Just my own personal opinion about this, but that’s a pretty high interest rate for a company that well-manages its operations and cash flow. And, knowing the people who run ARC, it is very unlikely (at least it is to me) that anyone who bought these notes will have a problem getting paid. I checked with a broker to find out if I could buy some of those notes; he could not find them listed anywhere (he said I need the “CUSIP” number for him to find them). I’d trust Suri, Dilo and Jonathan to pay me back; how about you?

Comments/thoughts about Service Point Solutions’ Results and a few comparisons with ARC’s Results

First, let’s take a look at SPS’ Sales for 2010 vs. 2009, country-by-country:

				Using EUR/USD exch
Service Point Solutions				rate on Jan 1 (1.34)
Sales by Country	2010	2009	% change	2010	2009
Spain	12.291	14.057	-12.56%	16.470	18.836
United States	16.428	19.201	-14.44%	22.014	25.729
United Kingdom	54.113	54.538	-0.78%	72.511	73.081
Netherlands	62.841	67.927	-7.49%	84.207	91.022
France	12.744	14.336	-11.10%	17.077	19.210
Germany	10.763	12.712	-15.33%	14.422	17.034
Norway	33.566	31.017	8.22%	44.978	41.563
	202.746	213.788	-5.16%	271.680	286.476
	MIL Euros	MIL Euros		MIL USD	MIL USD

On February 28, 2011, Service Point Solutions, apparently, issued “guidance” for 2011. If my interpretation (translation) of the Spanish language document (that put forth these projections) was accurate, then here’s what SPS evidently said about 2011:

· Service Point projected Sales between € 216m and € 220m (Euros)

· EBITDA between € 18m and € 20m (Euros)

In that same document, Service Point said that the acquisition of Holmbergs (Sweden) is expected to, in 2011, contribute (I guess approximately) € 15m (Euros) to SP’s overall Sales and will contribute (I guess, approximately) € 2m (Euros) to SP’s overall EBITDA.

So, if we take into consideration what Service Point said about the incremental sales that the acquisition of Holmbergs will generate for SPS in 2011, it looks like SPS, where it projected that total SPS sales for 2011 will range from € 216m to € 220m, is projecting that its 2011 total sales, without taking Holmsberg into account, will range from a decline of 1.746m Euro (a decline of less than 1%) to an increase of 2.254m Euro (an increase of slightly more than 1%). So, continuing this wordy paragraph, SPS is, apparently, projecting that its 2011 Sales, without considering Sales added by the Holmsberg acquisition, will be pretty much flat, when compared to its 2010 Sales.

Apparently (and I say ‘apparently’ only because it is not easy to translate the Spanish to English), SPS incurred a “Net Loss” in 2010 of € 14.151m (Euros). For 2009, SPS incurred a “Net Loss” of € 8.429m (Euros).

So, comparing SPS’s results for 2010 compared to 2009, SPS’ Sales declined € 11.042m (Euros), only a 5.2% decline, but SPS’ Net Loss increased € 5.722m (Euros).

In SPS’s Income Statement, SPS does point out that certain expenses incurred in 2010 are “non-recurring” expenses. SP also said that about certain of its expenses in 2009. All I have to say about that is that ‘whatever the case’, those expenses cost SPS money, whether or not they were non-recurring or not.

Okay, let’s take just a minute to compare ARC’s results, 2010 vs. 2009 with SPS’ results, 2010 vs. 2009.

	in $USD	In $USD
	ARC	SPS
Sales -2010	441.639	271.680
Net Income (Loss) - 2010	(27.502)	(14.151)
Sales - 2009	501.549	286.476
Net Income (Loss) - 2009	(14.885)	(8.429)
Change in Sales, Y-O-Y	-11.94%	-5.16%
Change in Earnings (Loss)	$12.617	$5.722
adjusting for only
"Goodwill Impairment"
- Net Income (Loss) - 2010	($27.502)	($14.151)
Add: Goodwill Impairment	$38.263	$0.000	Note
Approx Net Income, adjusted*	$10.761	($14.151)
- Net Income (Loss) - 2009	($14.885)	($8.429)
Add: Goodwill Impairment	$37.382	$0.000	Note
Approx Net Income, adjusted*	$22.497	($8.429)
*Not giving effect to income
tax changes

Note – I did not see any “Goodwill Impairment” charges on SPS’ Income Statement, but that does not mean that SPS financial results were not impacted by “goodwill impairment” charges; it just means that I could not find any goodwill impairment charges on SPS’ Income Statement. If someone can correct me on this, I will update this post to reflect SPS’ goodwill impairment charges.

Without the substantial “Goodwill Impairment” charges ARC took in both 2010 and 2009, it looks like ARC would have earned a bottom-line (“net income”) profit in both 2010 and 2009. That does not appear to be the case for SPS. SPS, evidently, incurred a bottom-line (“net loss”) in both 2010 and 2009.

As to the Sales numbers and changes – ARC’s Sales are more reliant on reprographics services revenues from A/E/C customers. SPS is not as reliant on A/E/C business as ARC is. SPS’ operating companies’ customer bases are more diverse than is the case with ARC’s operating companies’ customer bases. This difference likely accounts for most of the reason why ARC’s Sales declined 11.94%, whereas SPS’ Sales declined only 5.16%.

However, in spite of the fact that ARC’s Sales decline (%age-wise) was more than double the Sales decline that SPS experienced, ARC, excluding the impact of the “Goodwill Impairment” charges, would have reported a bottom-line (net) profit for 2010, whereas SPS reported a fairly substantial bottom-line (net) loss for 2010. This must have something to do with operating margin differences and changes, and, considering the fact that both companies implemented “right-sizing” changes to reduce costs, the only thing I can reasonably conclude is that SPS has been more aggressive on pricing than has been the case with ARC.

It is certainly possible that I’ve made a few errors in copying and compiling the numbers I saw in both companies’ financial statements. Admittedly, it was not easy for me to understand SPS’ financial statements, since I only had Spanish-language versions to work with. Anyway, for the “real” numbers, please refer to the financial statements that both companies issued.

Reprographics 101 had a record number of visitors, past 24 hours

Yesterday’s announcement by Xerox generated a lot of traffic for “Reprographics 101”.

Google Analytics (which compiles statistics for visits to Reprographics 101), reported the following:

(Note: names of “service providers” are “in quotes”)

· 17 visits to the blog from “OCE USA Inc”

· 11 visits to the blog from “Xerox Corporation”

· 5 visits to the blog from “Fuji Xerox Australia pty”

· 4 visits to the blog from “International Paper”

· 4 visits to the blog from “alco capital resources” (this is probably IKON / Ricoh)

· 3 visits to the blog from “imagistics international”

· 2 visits to the blog from “OCE technologies, b.v”

· 2 visits to the blog from “shaw communications”

· 1 visitor to the blog from “Exxon mobil corporation” spent more than 26 minutes on his/her visit

· All in all, there were 213 visits from 12 countries

· Of those 213 visits, 158 were “unique” visitors (meaning that occasionally someone visited more than once yesterday)

· Yesterday’s blog-visitor activity set a record for “one day” activity for Reprographics 101!

· Reprographics 101 has still not had a visitor from South Dakota, but, by now, has had visitors from all other states in the U.S. (and from Washington, DC.)