‘We’ve got so many irons in the fire now’
Monday, July 22, 2019
Having notched up more than 20 years with Kodak, Print Systems Division president John O’Grady, has lived through the well documented highs and lows of the firm.
However, with the ‘new’ Kodak finally free of the shackles of the old, Chapter 11 a distant, albeit painful, memory and new revenue streams starting to come on line, speaking earlier this year he said he was giddy with excitement for the future of the business that has defined his career.
Well, strictly speaking he said he was cautiously optimistic, but for anyone that knows him, giddy is probably a fair translation of the understated Irishman’s brogue.
Darryl Danielli Let’s kick off with the plate side of the business: in some respects it’s similar to paper, in that its exposed to volatility of raw material prices and it’s dominated by a handful of suppliers, but unlike paper, where the manufacturers have combatted falling margins by stripping out capacity to force up prices, the same doesn’t seem to have happened in plate supply?
John O’Grady I can’t speak for the other manufacturers, but since 2009 we’ve probably pulled out 30%-40% of our [plate] capacity. The industry has moved on, we’ve seen the impact of digital, the shift away from printed media. There is an ongoing effort to make some sense of the market and the path we’ve taken is to innovate. Yes, we can leverage our expertise in material and imaging science, but the Sonora story is about giving the printer a real option. It’s not just about taking out the processor and the chemistry and being more environmentally conscious, that’s a part of it, but we can’t let the other parts down. That’s why we innovate to maintain integrity, minimise risks of remakes and all the other stuff when we go direct from CTP onto the press and maintain the continuity all the way through to the finished product – that is what modern printing is all about – taking out any unnecessary steps that drive variability in the process. So, being able to do that and save money, save power, water, chemicals – that’s the whole story.
But Sonora’s been around for a while now though?
It’s not new, we’ve been working at that for many years, just look at the amount we invest in research on plates over the years and that continues. We launched Sonora X last year. I used to call it X, but I’m now back to talking about it in numerals, because I know what Sonora 11 and 12 will look like. We made some fairly significant redesigns [for X], because we converted around 4,000 customers worldwide, but a lot of these were smaller customers that had under-utilised processors and [the switch] made great financial sense, but as we moved to larger customers they had issues more with handling and making sure they had a plate that could handle a wider gamut of their workload. The early plates had limitations that meant they were limited to around 30% of applications based on run lengths and UV, but with Sonora X we looked at the handling capabilities, and tweaked performance in various UV environments and increased run lengths. Now we’re looking at around 70%-80%, sometimes even 90% of applications that can be satisfied – so now we’re having wins in large commercial operations.
How many users are there now?
This year we expect that close to one in every three plates we sell will be process-free worldwide, last year it was one in four.
And in different regions the take-up will be different?
Exactly. And some people love their processors, because they know and trust them. That’s part of the service we have to offer, because it’s not just about launching a product and saying ‘here you go’. That’s why for every three people in sales we have one plate specialist to help the customer make the transition, and that’s part of the service we have to offer. We have another group of specialists that are focused on workflow, because that’s another area that has had to respond to the changing needs of printers. Do printers really need to maintain their own IT infrastructure to the level required by many workflows, or can they do it through the cloud on subscription model? The tenets of cost management are the same and if you look at Prinergy now and where it’s heading in the future – it’s now about and will continue to be about, cloud-based solutions with more analytics. The benefits of workflow, not just Prinergy, are well understood, but I think they can be optimised further and the printers that have taken that on board have really done well from it. But that needs to be explained to all printers, that’s part of the work we need to do and that’s why we’ve maintained the organisation that we have.
I suppose that’s one of the challenges, the days of those commodity sales, even for things like plates, have gone – it’s now about relationships, the tails on the deals are that much longer because people don’t just want to understand what the product is today, but what it will be tomorrow, and talking to other users to find out how it worked for them?
Exactly, and how it made a difference. I think that other printers, as long as they’re not direct competitors, can offer great advice on what to do and what not to do and where to look for savings. We can explain that, of course, but when it’s printer to printer there’s a different dialogue that happens. That’s one of the dynamics that has changed, years ago there used to be huge amount of trade shows out there that were well supported, but as the industry has gone through some tough times everyone is trying to figure out how to do things differently. There’s still a very active community in printing.
But the big shows like Drupa are still important?
Absolutely, there’s still a guiding principle that your R&D teams need to have something special for Drupa.
And if you’re not there, it raises a question?
From a Kodak perspective obviously there’s been a lot of speculation about our financial position and what we’re doing to work through our transformation. But the conversation with our customers is largely about our products, what we’re bringing to market and what we’re doing to support them. I think that across the board, from workflow, plates, NexPress and inkjet, we still continue to innovate and bring new products to market. Obviously we’ve completed the sale of the flexo packaging division and those funds have gone towards paying off some of our debt, which was a major step toward strengthening our financial position. Of course, we won’t have the EBIT that was generated by flexo, but then we’ve got some new products and Sonora is a huge business, and we’re seeing growth in workflow, we’re right at the cusp of commercialising Ultrastream and seeing the effects of that, the partnership with Uteco Group [on the Sapphire Evo hybrid packaging press] is the first manifestation of that. If that’s the first one and as exciting as it is, producing print at those kinds of speeds and that kind of quality, the possibilities are mind blowing. This could be another Sonora for us.
But then wasn’t that being said of Prosper a few years ago?
With Prosper, it’s a great product, but we had to take on the financial load of placing a press and waiting to see the [page] volumes come up to see the ROI. Obviously when we’re supplying components to other manufacturers then we’ll see the benefit of our [R&D] investment quickly.
Are you talking to other potential partners then?
Absolutely, it’s constant. Ever since the last Drupa there’s been a huge amount of interest in the technology, seeing what it looks like and making development kits available. This is 2019 now and this was the year we wanted to start commercialising and we actually have, which is great. It’s great, in our world, to see a technology commercially manifest itself in the year we said it would [laughs]. We nailed it, well it wasn’t just us – but we played our part.
Do you think you will unveil some new partners this year?
I’m not sure about this year, but it’s an ongoing dialogue. But back to the original point, we’re on a good path to improve the financial position of the company this year. The commercialisation of Ultrasteam, the ongoing growth of Sonora, we’ll continue to invest in R&D, in our factories, drive cloud workflow development and in addition to all that we’re now starting to see the some other developments we’ve been working on, like light blocking technology [Kodalux] becoming commercially available.
Light blocking tech?
We’ve made some announcements already, it’s a process that enhances the light blocking qualities of textiles, like curtains. Rather than having a light blocking curtain that needs a specific light blocking material, our [coating] technology allows light blocking characteristics to be integrated with the material. That’s the first manifestation. What’s that got to do with Kodak? Well it’s about commercialising our understanding of material science and imaging.
But surely with the financial challenges, wasn’t R&D the first part of the business to feel the pinch?
You could ask that, but from my perspective, and I run the PSD business and I’ve been very closely involved with all the other businesses in my  years at the business, I think we’ve had to just pivot in certain situations. For example on Prosper presses we realised that if we wanted to place another 50 presses that was going to involve a huge capital investment, so when we looked at the Ultrasteam platform we looked at the partnership approach and only focusing on what we do best: the head technology, the writing technology, the ink. Thinking that maybe that is what we do best, and, guess what, it is. On Sonora, I’m not sure we could have advanced that any further, any faster – because the commercialisation process is intrinsically linked with our customers. Of course, you could argue that if you had an endless R&D budget then things would develop faster, but we have worked really hard even through the lean years. In 2012 we were in the midst of the financial rigour [Chapter 11] and we still announced, I think, 12 new products at that Drupa and they all delivered on time and we continued with that mindset of innovation.
I suppose, not that you would ever wish yourself in Chapter 11, but in a way it puts a gun to the heads of the R&D development to develop and deliver new products. Gone are the days of an endless budget, with unlimited time to tinker with no deadline to deliver…
…It’s been a while since we had those kinds of conversations [laughs], but they did happen. But you’re right, it does sharpen the mind.
But couldn’t you, as a business just say: I tell you what, let’s just sell plates – they’re the cash cow, they generate the profits…
No. We’re Kodak we take our responsibility seriously. We’re soup to nuts. We offered these services, we’ve convinced customers to buy into our vision of imaging, CTP, digital – whatever happens we’re here to support them. Printers need to know they’re not alone and there’s someone there to support them.
You mentioned earlier that the customers rarely ask about the financial side of the business, but surely when you talk to them about long term deals then they might wonder if Kodak is even going to be here in 12 months’ time because they want long-term partnerships?
Of course, again we’re seeing most parts of our business grow this year and that’s in a market that is seen as declining. It would be naive to think that our financial position doesn’t bear some discussion with the customers. But that’s the graphics industry today isn’t it? Many of them are living it themselves and I think as long as we continue to keep them informed of what we’re doing and the changes we’re making. Then they understand there’s a part of life that we need resolve, improving the financial side of the company, and that’s all being taken care of.
Are you that confident it will all be sorted?
Absolutely, I’m as confident as I can be without getting into the specifics [the interview took place in one of Kodak’s financial ‘quiet’ periods]. I’m confident that we’ve got a very strong direction in terms of where we’re going and we’ve taken the right steps. And I suspect your next question will be what happened with Jeff [Clarke, Kodak’s chief executive who stepped down with immediate effect February]…
Funnily enough, it was.
Jeff had been with us for five years and essentially the board just decided at that point in time, after talking to Jeff, that it was time to make a change. Jeff had taken us a certain amount of the way there, but with Jim Continenza [executive chairman], who has been chairman since 2013, it was seamless transition. He’s visionary, very direct, operationally very strong – and he’s got a track record of getting businesses like ours – that need that final push to get them back to growing sustainably – over the line. We’ve done incredibly well under the financial clouds that we’ve had, so just imagine how strong we’ll be now the clouds are clearing.
And I suppose you’re a very different business from the one that exited Chapter 11 six years ago?
Absolutely. I’m not trying to reset history here, the peak of film was 2001 and after that we had to change the whole structure, we had to go from 80,000 people to nearer 10,000, we’re around 6,000 now, the whole landscape changed. We had 13 mega sites at that time, and we were incredibly fair to our people during that period. We’ve worked to repurpose the sites we had, for example we’ve welcomed around 70 new companies to Eastman Park and they’ve created around 7,000 new jobs and we’ve tried to do the same thing in Chalon. Of course, as we dismantled the company, that put a huge strain on the business, scaling back the infrastructure to what we are now. And then we had to figure out what kind of business we were going forward. The business had to be unwound in effect, but I believe we did that in a way that was as fair and as balanced as possible on the employees that had to leave.
It must have been hard on the people that remained too though?
Absolutely, it was very difficult for them – but then you look around and see the great enthusiasm that remains. Wherever you look, you see people that fully believe in the products and the company – that’s in our DNA, from the George Eastman days. Everything’s great when a business is growing, but it’s when your backs are against the wall that you see how committed people really are.
And it must have been challenging for the management team too? Unravelling that old business must have taken an awful lot if the focus away from what you want to concentrate on – growing the business?
True, but that’s one of the areas that Jim wants us to focus on now: customers. The past is the past. I spend a lot of time with customers, and some of them do have questions about the financial side – but that’s normally handled in the first 10 minutes, after that they want to talk about what’s in it for them, what’s new, is it any good. I visited one of our largest Sonora users in the world recently and all they wanted to know was what does the next version of Sonora look like. They know we’ve got plans in place and we’re operating at a level of trust with our customers that they want to shift the conversation to how we can keep them productive, how we can help them going forward. We can talk about Kodak P&Ls and cashflows, and those conversations need to be had, but what they really want to know is are we continuing to innovate and how will we help make them a better printer, a better business.
How’s the new Nexfinity going?
So far, really well. The customers that have them are really happy. The competition in EP [electrophotographic] is really tough though, we’re attacked from all sides – fast plastic through to litho on the other. It’s a product that is there to complement offset, in fact the underlying NexPress technology is offset, but that’s married with the latest digital writing system. The deal we announced last year is another exciting example of the strength of that technology.
Sorry, the partnership with Evolve [Additive Solutions, with investors that include Lego and Stanley Black & Decker] where they have taken the top half of the NexPress technology, the imaging system, to offer 3D printing on a commercial scale – something that would sit alongside injection moulding. We signed a five-year deal with them last year and they’ve already put the first units into the market.
Interesting, because I wondered if the Nexfinity was the last throw of the EP dice for you guys?
Have a look at Evolve.
You still see EP as part of Kodak’s future though?
Well certainly that part of it and obviously we’ve got thousands of units in the market and we’ll continue to service and support those, from the Digimaster 9110 through to the Nexfinity. Another testament to the strength of the design of the NexPress platform is that all but the very first units are fully upgradeable to most of the technology that’s available today. The Nexfinity is different because of the new writing system, but people that might have started with the 2500 many years ago have been able to upgrade as their business grew.
So essentially it’s not like the Prosper business, where it’s largely about the annuities rather than new machines?
There are still opportunities, just look at Evolve and how the technology is finding its way into new areas.
Wouldn’t it be more fun to just be a technology firm then? You invent new technologies and let someone else worry about manufacturing and selling them?
But then we wouldn’t have all the fun with the customers [laughs]. And the brand licensing business continues to play on the strength of the brand. Overall though, I’m not trying to paint a picture that all is rosy in the garden, I don’t think your readers think that all is rosy in print, and we share a lot of the same challenges – but we will continue to drive innovation and develop solutions that help them drive up value and drive down costs.
Back to the plate business though, Fuji restructured its European plate business earlier this year, Agfa is partnering in China and went through its own restructuring and has been courted in the past – you guys are the big three in plates, but do you think there will be three in the future?
It’s difficult to comment, because I don’t believe there is a big three today – there’s a huge amount of capacity in China. For the developed markets there’s the big three, sure, but it’s important for us to work locally – we have Osterode and that serves most of Europe and Columbus the US and Latin America and then we have a facility specifically for Japan and in Xiamen [China] and we have worked hard over the years to align our capacity with sales – we’ve been more proactive than most – like I said, we’ve probably pulled out 30%-40% of our capacity in the past decade. In our situation the challenge is a little more complex as we have growth in Sonora and that requires a different manufacturing process, so we’ve invested in our facilities to make that work.
Growth at a top line level, or do you mean that Sonora is taking over from your other products?
Exactly, we are looking, from a worldwide perspective, at modest growth across the overall business this year from a volume perspective on plates.
But in declining market, that can be significant?
Exactly. Again, it’s difficult to estimate because we’re at the beck and call of the market, if printers don’t have the work they won’t need the plates, right. Again it’s about facing the same challenges as our customers, what happens with Brexit if no deal goes through in October, are printers going to see better conditions on paper pricing – all that being said, we’re cautiously optimistic. We have this great product [Sonora] that enables us to optimise our business so that we don’t have to carry the same number of families of products – if you can do more with one family, then over time you can retire others and that drives operational efficiencies, less SKUs, less inventory.
So are you excited about the future?
Oh yes, but my nature is to be cautiously optimistic [laughs]. But I am very enthusiastic right now. I see some of the great developments across the product range and that really excites me: Ultrastream is a great product, Sonora X is a killer, some of the workflow developments are fantastic, the next stage products such as light blocking and Evolve make me giddy.
Final question then: What will Kodak look like in five years’ time?
We will still have a strong heritage in printing. I still see a very strong offset business, inkjet and the growth in packaging will be a significant part of our business. Workflow will have morphed as a result of huge developments in cloud-based solutions. We’ve got so many other irons in the fire along the same lines as light blocking and Evolve that they would have taken off by then too. We will still be very print centric, but we will have a strong influence in myriad businesses that have imaging and material sciences at their core.
And most importantly, in five years it will still be here as a business?
Oh yes, absolutely. I don’t think any of us internally think about that, it’s the furthest thing from our minds – we’re trying to understand how we can grow our business, organically and inorganically.
So M&A may be on the horizon?
I think it’s always a consideration, we have active projects online and have a dedicated M&A team.
Exciting times then?