Help interpret Leica financial plan

[skimmel]

I just got the most recent Leica newsletter and would like those who are more financially savvy (that is: I am clueless!) to help interpret what this means:

"The Supervisory Board of Leica Camera AG, Solms, unanimously and jointly with the Company’s Board of Management, proposes measures to restore the capital base of the Company and to finance a restructuring. A simplified capital reduction by € 10.0 million to € 1.5 million will be proposed to the shareholders of the Company. Each three no-par-value shares are to be combined into one no-par-value share. Simultaneously, the capital reserve amounting to € 4.2 million will be released. Both measures will be implemented in order to offset depreciation and other losses totalling € 14.2 million.

Following the capital reduction it will be proposed to the Extraordinary General Meeting to increase the share capital to up to € 15 million by issuance of up to 13.5 million new no-parvalue bearer shares. The new no-par-value shares are to be issued at an issue price of € 1.70 per no-par-value share and to be initially offered for subscription to the shareholders at a ratio of 1:9. In addition, an authorised capital is to be created."

Thanks.

 

[jlw]

Sounds as if Leica and their banks feel their shares are too diluted (too large a number of shares relative to the company's net worth.) This can depress earnings-per-share and other measures analysts use to evaluate a company's financial health. So, they want to combine current shares into new ones at a rate of 3 old to 1 new, with the new combined shares being worth a total of 1.5 million euros.

They're also taking their 4.2-million-euro reserve out of the mattress and putting it into the working capital.

Once they've done that, they want to issue new shares to bring the company's total working capital to 15 million euros.


I'm certainly no stock-market analyst, but this sounds like a prudent financial restructuring, not like the death throes of a foundering company.

Note that 'way back when Leica first announced that it would be working with its banks to rework its credit lines in light of lower earnings, its spokesman alluded to the fact that Leica considered the adjustments to be fairly routine, and that the only reason they were making an announcement at all was that it's required by German financial-reporting laws. In other words, I don't think they're in nearly as much trouble as some of the Internet speculation would indicate.

 

[MCTuomey]

Healthy companies have sufficient equity as a result of retained earnings over the course of time. Unhealthy companies require devaluations of existing shareholder capital, in certain cases. Leica is devaluing the existing capital, accessing an "emergency" capital reserve, and then asking for new shareholder capital to replace what they have devalued.

These actions only "fix" the balance sheet, temporarily.

What is needed is a credible business and operating plan that will result in favorable future cash flow and earnings. Right on the heels of these equity actions Leica needs to address revenue and costs. That's the real issue, IMHO.

 

[Jarvis]

This means that (useually) this is the beginning of the end. The companies putting this to practice reach for the last grain, trying to achieve a wonder .... this will not work in todays business environment.
Solvedability of a company has very little to do with their financial means, much more with the manner of doing business, in Leica's case providing a market with price worthy quality products which can live up to their market opponents. Obviously Leica has never done this and will not be able to this now. Most Leica fanatics are second, third, fourth hand buyers, a very small percentage will buy new leica products. This is good for the leica Name but meaningless for providing the company with funds so that they can actually develop something new.
A leica MP for 3300€ euro's, a 35mm asph. lens for 2300€ ... might be good but not that good. 50 years ago professional bought leicas because at that time they had the best cameras available..... nothing has changed with leica in these 50 years (camera-wise) they still build good cameras, low on specs, but sound cameras. Take Nikon and Canon for instance how they have progressed their products over the last 50 years. If it comes down to speed, controlabilty combined with qualtiy the M series, 5, 6, 7, or MP bite the dust compares to F6 for instance....
You might even want to call the Leica company arrogant for passing this by ....
Anyway Leica will not last long .... will be sold by hermes to Panasonic or similar and develop Japanese cameras with a red dot ....

 

[mad_boy]

I agree with Mike,

Basically the whole stock and capital reserve deal is not important, The only item that makes a difference it that they will issue new stocks, that will bring in new money.

However, they intend to raise about 20 Million Euro in shares (13,5 Million shares at 1,70 Euro). With their current loss of about 10 Million per year this will buy them 2 years, in which they will need to find a source of income. Continuing business as usual will not do this. I figure that they have a number of options:

- Utilize their strength making the worlds best lenses. To so so would require to start offering leica lenses for Nikon, Pentax, etc (like tamron and sigma do).

- Utilize their lens designs for others; extend the co-operation with Panasonic and generate more money that way.

- Go heavily into digital. There is a massive market opportiunity in developing a retrofit kit for existing M camera's. Look at your M camera; imagine removing bottom (standard operation) and the back panel (not too difficult). and replace these with a digital insertion module. the new back panel can hold the buttons and a small screen; at the position of the film-rol one can store the electronics. one could switch any time back to film by re-loading the old back and bottom.
With the sheer amount of old M camera's around, this is a massive opportunity. It even gets better, because people who modify their camera to digital, for sure will want at some point in time a second body for film (i.e. more camera sales).
I doubt however if they can crack it in 2 years!

Mad_boy

 

[aizan]

They said the digital M would be out in 2006. Whatever their track record for meeting deadlines, I think they need to put out a Digilux 3. In my dreams, they'd replace the EVF with an optical zoom viewfinder with LCD brightlines and LED display, make the usual improvements, and price it competitively at $1100.

 

[mad_boy]

Azian,

The digital M is a different ball-game. That will be a brand new camera, selling for thousends of Euros (dollars). They will only sell a few.
The retrofit kit I propose is simpler (all the 'camera stuff' like shutter speed, light metering, etc is already in the M camera) and has a much larger market potential.

Mad_boy

 

[Socke]

Azian,

The digital M is a different ball-game. That will be a brand new camera, selling for thousends of Euros (dollars). They will only sell a few.
The retrofit kit I propose is simpler (all the 'camera stuff' like shutter speed, light metering, etc is already in the M camera) and has a much larger market potential.

Mad_boy

A digital back for the M won't be cheaper then the DMR.
And a digital sensor has less dynamic range then slide film and so an inacurate shutter will be deadly to image quality.

Think about it, you buy a 5 to 6000 $ digital back to find out that you get blown out highlights after installing ot on your beater M3 which did well for half a century..

 

[aizan]

I know the digital M will be prohibitively expensive. That's why it'd be nice if Leica made a more affordable digicam. A Digilux 2 melded with the Hexar AF/Fuji GA645(zi) viewfinder design concepts. Replacing the EVF would greatly enhance its usability both in low light and fast shooting situations, as far as traditional rangefinder techniques go. The now common rear screen extends the rangefinder/viewfinder camera's functionality to things that formerly required SLRs, namely macro, telephoto, DOF preview, and precise framing. All without a blinkin' mirror, prism bump, and larger lenses. They just gotta put the optical viewfinder back in.