The Number of Shares We’ll Receive from Creo Hasn’t Changed

“The Number of Shares We’ll Receive from Creo Hasn’t Changed”By Avishai Ovadia

Congratulations to Scitex. After seven years of crisis, the company’s fortunes are improving, at least as far as investors are concerned. We would like to remind you that it all started with a profit warning that triggered a 27% fall in the price of Scitex shares, which plummeted to $28. The share is currently traded at $15.

Scitex is picking itself up largely thanks to Amos Michelson, Creo’s general manager. It was his idea to merge Scitex’s preprint division with Creo.

Following the merger, Scitex became a kind of holding company investing in preprint, digital printing, wide format, and Internet ventures. In return for its preprint division, Scitex received 27% of Canadian company Creo, which is traded on NASDAQ. Creo is considered a world leader in manufacturing and marketing CTP (computer-to-plate) systems for the preprint industry. The company also sells other preprint products, such as scanners, and cooperates with the world’s biggest printing manufacturer, Heidelberg.

After close of trading on Wall Street yesterday, Scitex published its financial statements for Q4 1999, posting record sales and a significant increase in profits. Yet it appears that the decisive factor for Scitex at present is the fall in Creo’s shares, which plummeted 40% since its deal with Scitex. (Could it be possible that the market didn’t like the deal?) The fall shrank the value of the deal by $610 million to about $390 million.

“Globes”: Will Scitex demand a larger number of Creo shares, now that their price has fallen?

Yoav Chelouche:“The number of shares we’ll receive is still the same: 13.25 million. The deal was based on a price similar to the present one. Following reports on the deal, the share rose, and now it’s falling – apparently because six months have gone by since Creo first issued its shares. The blocking period is over, and some people want to sell off their shares. This is a natural development. When we signed the deal we discussed roughly today’s sums. We’re not really disappointed over the fall in price.”

You haven’t succeeded in recovering and regaining your technological supremacy since that notorious profit warning seven years ago. The sale of the preprint division to Creo is tantamount to an admission that you failed to position yourself at the cutting edge of preprint technology.

“I’m stunned by your question,” said Scitex’s CFO Eyal Desheh, who was present at the interview. “Nobody has the benefit of hindsight at the time things happen. We believe that no one who saw Scitex’s Q4 results, with profit going up 70%, and the strategic sale deal, would use the word ‘disappointment’. We’ve just announced our greatest quarterly results ever, the highest operating profits in five years, and record sales.”

And the share is still treading water?

“The share almost doubled relative to its trading price last summer. It’s impossible to draw parallels between this and our peak of several years ago. We had a company in need of a serious overhaul and that’s what we did. From the investors’ point of view, the results are very strong in terms of growth and profitability.”

The preprint division grew and sales reached a record $135 million. But what about the division’s profitability?

“We never present profits by division. We can say that profit levels improved greatly. This division was part of Scitex’s problem, and management took on a massive commitment in order to fix it. A good part of Scitex’s improvement stemmed from this division, which makes up two-thirds of the company.”

Is it possible to say that a major portion of this quarter’s profits came from this division?

“The division, overall, represents two-thirds of Scitex.”

What about other divisions? Sales for the digital printing division dropped, as compared with the previous quarter, to $39 million.

“This year was one of great technological changes in the digital printing field. There was no growth. We presented and based our products on a new technology, VersaMark. This system has attracted a lot of attention in the market, and already represents 40% of sales. We have a good feeling about this field; today we announced a $10 million contract to provide British Telecommunications with eight VersaMark high speed laser printers for their telephone bill printing centers.”

And what do you foresee for this division in 2000?

“We don’t forecast numbers. But we can say that we considering expanding our markets and applications.”

In 1998, Scitex entered wide format printing, now considered one of the most rapidly expanding divisions in your company. What do you intend to do in this field?

“The wide format printing division, which is based in Israel, increased quarterly sales to $17.8 million. The company has over 250 installations, each one of which yields $350,000- 450,000. This is a growth field and we’re in a good position.”

In the past, there were rumors that Scitex was in negotiations with Nur Macroprinters.

“We are not in contact with Nur or anyone else. But we think, in general, that in such rapidly changing fields it’s very important to be open. We’re open to dialogues about mergers. But, as I said, there are no negotiations of this sort right now.”

Is there any news regarding your new Karat printers?

There’s a lot going on in the Karat field. This technology is starting to enter the field – although this is still the beta-site stage. Six of these systems were released in the fourth quarter, five in Europe and one in the US. I assume that when beta site testing is over, around mid-year, the final product will be released on the market.”

What about Scitex’s other activities?

“VIO, our joint venture with British Telecom, contributed a great deal in the fourth quarter. We set up a website intended to allow users to familiarize themselves with VIO’s service and technology.”

“The service enables print-quality graphics to be transferred rapidly and inexpensively. For example, UK concern Reed already uses the VIO network to transfer half its graphics from its system to print. It’s a sort of e-mail for pictures and graphics; information that requires a great deal of bandwidth and memory.”

Published by Israel’s Business Arena on February 3, 2000.