*NEWS*WHERE IS IKON HEADED ?

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*NEWS*WHERE IS IKON HEADED ?

 user 2005-10-18 at 11:41:00 am Views: 62
  • #14034

    Where is IKON Headed?
    October
    2005 — IKON Office Solutions continues to restructure as it works to
    bring its costs in line, most recently reducing the size of its
    marketing department. The company has stated that its goal is to bring
    its Sales, General & Administrative (SG&A) expenses into
    alignment with competitors in the marketplace and to position itself
    for improved earnings and revenue. A closer look at IKON’s performance
    reveals:
        * A steady decline in revenues from a high of $5.6 billion in September 1998 to its 2004 level of $4.6 billion.
        * In that same period, IKON has gone from a high of nearly 43,000 employees to approximately 26,000 employees.
       
    * While IKON’s gross profit margin was at 37.6% in 2001, it had
    declined to 36.9% by the end of its fiscal year in September 2004.
        * Both revenues and gross profit margins have continued to decline during the current fiscal year.
       
    * In its third quarter earnings call, the company reported that total
    revenues were $1.1 billion, down 4% year over year, primarily due to a
    decrease in net sales and continued transition out of the captive
    leasing business in North America. The company reported that targeted
    revenues declined 1%. Gross profit dollars decreased by 8%.

    On a
    positive note, IKON has significantly beefed up its professional
    services offerings, particularly to serve mid-market customers, many of
    whom do not have robust IT resources and look to vendors like IKON for
    turnkey services. Targeted professional services had a strong third
    quarter, up 15%, with improvements in all key metrics including systems
    analyst utilization, document strategy assessments, and hardware
    enablers. Additionally, the company reported record third quarter
    placements of the IKON CPP 500, the IKON branded version of Konica
    Minolta’s 50 ppm color printer. This product is now a top
    revenue-producing color product for the company. In the U.S. office
    color segment, IKON grew placements by 75%, and across all segments of
    color, copy volumes were up 47% from the prior year.
    IKON reports
    that it is committed to reducing costs across the organization, and
    that early 2005 expense actions are now delivering positive results,
    with SG&A expenses down 7% year over year. At the same time,
    average equipment sale prices continue to decline due to a combination
    of new product introductions and lower price points, as well as
    increased competition.
    As part of its cost reduction commitment, in
    March of this year, IKON exited its Business Document Services (BDS)
    business unit and most of its operations in Mexico. BDS, at one time a
    hub-and-spoke print production operation that consisted of 34 sites in
    North America that was ultimately reduced to some 11 sites, represented
    a $5 million after-tax loss for IKON. While on the surface, BDS
    appeared to be a natural companion service to IKON’s on-site facilities
    management business to accommodate overflow work and complex
    production, the company had difficulty finding a way to make the
    business profitable.
    In addition, in July of 2005, IKON completed
    the sale of its French subsidiary to NRG France S.A.S., a subsidiary of
    NRG Group PLC. Stating that Europe was an important growth area, the
    company indicated it would continue to serve pan-European customers
    through an ongoing presence in Paris, as well as its 50 other locations
    across Europe.
    In February of 2005, a BusinessWeek article reported
    that Steel Partners, a company that has a history of buying big stakes
    in companies, pushing to maximize their value, and then putting them in
    play, had acquired a 5.4% interest in IKON. SEC records reflect that
    that stake was upped to 6.4% in March and now stands at about 10%. The
    article states, “In its filing with the Securities & Exchange
    Commission, Steel Partners explained that, with IKON so undervalued, it
    may seek board seats, buy additional shares, and propose ways to boost
    earnings.”
    What does all of this mean for IKON’s future?
    WhatTheyThink
    interviewed Dan Murphy, Vice President of Investor Relations, and Mike
    Kohlsdorf, Senior Vice President of IKON Enterprise Services and
    Information Systems, to get their perspective on IKON’s cost reduction
    initiatives, as well as prospects for growth. According to Murphy, “We
    recently had a meeting with Steel Partners and shared with them
    publicly available information about our progress and plans going
    forward. As near as we can tell they are a very satisfied investor.
    They are very supportive of the management team, the strategy and the
    direction we are taking the company. We are comfortable with the
    relationship we have with them.”