Kodak is planning to sell its growing flexo plates division to reduce overall borrowings and to concentrate on inkjet, litho plates and software.
It has appointed UBS Investment Bank to conduct the process and this has so far resulted in strong interest from “multiple, potential and financial buyers”. At the same time Kodak has secured a $400 million 18-month loan which will allow the company to carry out the sales process in a way to maximise the value of the division rather than in a rush to bring in cash to ease the financial strains.
The flexible packaging division has previously been one of Kodak's future stars. The Flexcel NX plate and platesetter is one of the leading hard top flexo plates for high quality printing with a matched imaging system making a closed eco system of equipment and consumable. It has received good reports from repro houses and converters where the plate has a wide tolerance of press conditions which is not always the case for flexo plates.
The division generates sales of $150 million, with a growing proportion coming from the Flexcel plate. Ebitda revenue are $33 million. This is growing at 9% in revenue terms, 18% in contribution, faster than the 3-4% growth in the packaging market overall. A new plate production line will come on stream in the US next year, making an attractive package for prospective buyers, Kodak believes.
There are no statements published of what Kodak anticipates receiving for the division, though CEO Jeff Clarke anticipates being able to improve the company’s capital structure by paying back debts and so concentrate on Sonora, enterprise inkjet and software divisions. The company had previously put the inkjet operation on the block with Prosper and Ultrastream as the attractions. The strategy failed and Kodak withdrew the division from sale at the point that its revenues were growing and the division moved into profit.
This is unlikely to happen this time around. Growth has been steady rather than spectacular and it is unlikely that the flexible packaging division can become the $1 billion business that Clarke has previously envisioned for some of Kodak's product areas. Now he talks about Kodak building the business for sale. “This business is an excellent example of Kodak incubating and bringing disruptive technology to the marketplace. We believe this is the right tie to monetise this valuable asset.”
In a presentation to analysts, he says: “FPD has performed exceptionally well for the last five years and is an excellent example of Kodak bringing disruptive innovation to the marketplace. FPD is demonstrating continued strong growth and we believed is the right time to monetise this valuable asset.”
In the second quarter of the year overall revenues were $372 million, down from $381 million in the same period in 2017 and operational Ebitda fell to $9 million ($12 million). This is attributed to a $7 million increase in the cost of aluminium, reductions in revenue from legacy mono digital, consumer inkjet and the Versamark second generation inkjet presses. When this is taken into account, Clarke says, Kodak proved its operating profits by £$5 million.
The printing system division contributed $227 million in revenue, down 7% and blamed on competitive pressures and falling unit sales. However, the roll out of Sonora X continues. Testing has been extended to 315 companies and 100 are now live accounts.
The Nexfinity, its new colour digital press platform, has taken 30% of sales in the toner press division, albeit from a low base while revenues in enterprise inkjet slipped $3 million as sales to the legacy business fell away as expected. Annuity revenue from Prosper was flat while investment continues in the Ultrastream platform.
Evaluation kits are available for the continuous inkjet system and availability of the printheads in commercial quantities on course for 2019. A year on, Kodak anticipates the first revenues creating a meaningful impact.
Kodak is planning the sale of its flexible packaging division despite having earlier declared that the Flexcel NX plate would be a future driver of growth. However, the need to ease financial pressures means Kodak is cashing in on the asset as packaging is enjoying a moment in the spotlight.