Leica's Half-Year Business Numbers

[marknorton]

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It's interesting to look at Leica's business numbers for the half-year to the end of September, right up to the point where the new cameras were launched. It's where they split the "Operatives Ergebnis" (Operating Profit) by product segment that you gain an insight into their business.

 

So, ball park, rounded numbers in millions of Euros:

 

Company: Sales 52, Profit -3.2

Cameras: Sales 25, Profit -8.3

Sport Optics: Sales 16, Profit -2.4

Other Sales: 10.4, Profit +7.6

 

Bottom line:

 

- It's costing them €4 for every €3 they receive in camera sales and €9 for every €8 they receive in sport optics sales.

 

- But for the Other Sales (which I take to mean consultancy and IP licencing), they would have lost €12.7m on sales of €41.5m

 

- The numbers highlight just how much film camera sales (and sales of lenses) have declined, how little profit there is to make from the Panasonic cameras and how little opportunity there is to add value to those cameras.

 

It's a common complaint on this forum that the M8 is over-priced, especially from people in the US who have the difficult Euro-Dollar exchange rate to contend with. Any suspicion, though, that Leica is fleecing its customers is not born out by the reality of their business numbers. They are charging what they need to.

 

Right now, the Leica manufacturing business is being propped up by Leica's knowledge based activities. If the M8 - a product in a market segment which has next to no competition - fails to deliver the turnaround the camera making business needs, at some point, someone will say, "Enough!"

 

Does make me wonder where the R is headed. By my estimate, making R cameras and lenses is an €8 - €10m a year business and the question is whether that can justify the development cost of an R10 and filling the gaps in the lens range.

[Guest flatfour]

Interesting but without prior year info these figures are not much help. I should like to see the last two years to see the trend.

[adan]

I suspect the "Other Sales" also include non-warranty repairs, unless that's pulled out in some other form.

 

My local Leica reps got multi-6-figures in orders their last trip through Denver (after the M8 faults were known) - market area 2.5 million population. It will be interesting to see the combined effect of the new product lines vs. the M8-debacle expenses on Q3/4.

 

Funny that sports optics slipped so much - that was in the black last year, wasn't it?

[marknorton]

Here are the last 5 half years:

 

Leica.pdf

 

2006/2007 H1 is the first report I can find with profit by sales line, so there's only two sets of figures. Still suggests though there is a growing and profitable market for Leica expertise and that the costs of bringing the M8 to market weigh heavily on the camera profits. The downturn in sport optics was put down to the Euro/Dollar exchange rate.

 

The latest figures for which it was reported separately suggest Parts and Service is a €3.3m/year business.

[elansprint72]

Will "other sales" not include things like laser theodolites, etc? These seem to be proliferating on every construction site in the UK.

 

Pete.

[wattsy]

Will "other sales" not include things like laser theodolites, etc? These seem to be proliferating on every construction site in the UK.

 

Pete.

 

No. That kind of stuff (including microscopes) are made by companies other than Leica AG.

[marknorton]

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Will "other sales" not include things like laser theodolites, etc? These seem to be proliferating on every construction site in the UK.

 

Pete.

 

Reminds me of the people who go to the AGM of Rolls-Royce plc and ask "And how is the car business doing?"

[Riley]

leica laser theodolites are world renowned and must be priced by the M8 sales dept

 

pricing new products (M8) is always an issue

when backlog orders are filled the price will fall i suspect

 

one thing about the pana relationship is it keeps leicas brand 'out there'

that in itself is worth something, or a lot of somethings

 

im still hoping against hope theres another D2 like camera on the menu

but my best guess now is the 'R' will get the treatment first

 

Riley

[jrc]

From what I can tell, the direct cost to Leica of fixing the M8 will be relatively small, since only relatively few of them got out. As far as I can tell from the way the offers have been made, they will actually make money on the lens coupon (if that occurs) while losing some on the filter and repair offers. I doubt that they would have as much as $100 net cost, and if we're accurate in guessing that 1500 cameras were distributed, that would only be $150,000. 1500 cameras would have generated about ~$7m, although a chunk would go to distributors.

 

JC

[ho_co]

Mark--what is the source of these data, if not a private contact? Thanks.

[marknorton]

Howard, it all comes from financial reports posted on the Leica web-site under "Corporate" though not everything stays around indefinitely, so I download anything new immediately. No secrets here, all in the public domain.

[marknorton]

From what I can tell, the direct cost to Leica of fixing the M8 will be relatively small, since only relatively few of them got out. As far as I can tell from the way the offers have been made, they will actually make money on the lens coupon (if that occurs) while losing some on the filter and repair offers. I doubt that they would have as much as $100 net cost, and if we're accurate in guessing that 1500 cameras were distributed, that would only be $150,000. 1500 cameras would have generated about ~$7m, although a chunk would go to distributors.

 

JC

 

I wish I shared your optimism that the costs to Leica will be as low as this.

 

Leica told me at Photokina they make no money out of coding a lens. At €95/$125, how could they? Admin, labour, parts, shipping...

 

My estimates for the camera are 3 hours per camera (based on 1 hour to fix it, 2 hours for a full QA check); Geman labour costs at least €50/hour including overheads, add the same for plant/machinery, and the labour cost would then be €300. Add €100 for parts and the same for admin/packaging/shipping and I think the cost per camera is more like €500, $650. A couple of filters will add €50 at cost, €550, 1500 cameras, €800k+.

 

As for the lenses, it's true they will likely cover their production costs but there's still the opportunity cost of not selling the lenses at full price. If 1000 of those buyers buy a lens and get €800 off, even if only half might have bought a lens at full price, that is still another €400k of revenue that is not going to accrue to the dealers.

 

All in all, it's a €1m+ exercise, IMHO. To put that in perspective, the launch costs of the M8 and the other cameras were said to be €2m.

[Dominic Morris]

As for the lenses, it's true they will likely cover their production costs but there's still the opportunity cost of not selling the lenses at full price. If 1000 of those buyers buy a lens and get €800 off, even if only half might have bought a lens at full price, that is still another €400k of revenue that is not going to accrue to the dealers.

 

Just a thought Mark but I understand the lenses will be coming directly from Leica & therefore buyers will be paying at least the wholesale price (at least cost-neutral). If dealer markup is 100% then buyers will be paying more than wholesale but less than retail and will be revenue-enhancing for the company.

[carstenw]

100% markup is quite an assumption though. Most retailers make 15% in good times, but then, Leica retailers aren't most retailers either. I imagine that the truth is closer to cost, but I don't know how to find out if this is true.

[ho_co]

I don't know current dealer margins exactly, but in the US they are far less than 30%. As Carsten said, most retailers are happy with 15%.

 

But in this scenario, the retailers are cut out of the chain completely.

 

In addition, if Leica sells directly from Solms, the distributors as well are losing *all* possible profit on the lenses. Better might be that they work out a formula with the distributors by which Leica and the distributor both take a hit on the sale. Even so, as Mark implied above, the distributor would likely still see this as a loss. ("My costs stayed the same, but Solms took €100 out of my pocket.")

 

It is an ugly situation for everyone but the people smart enough to have scooped up an early M8.

 

On the other hand, it keeps those early adopters happy, and they'll be buying additional lenses, and the word of mouth from these satisfied souls should help spread the joy. I hope. (Didn't Reagan say something about 'trickle-down economics'? )

 

--HC

[steve_l]

Actually, Leica retail markup is similar to other retailers. At least for normal retailers, I assume B&H and other big guys have a special deal. Over the years, I've occasionally seen a dealer price list now and then.

[ho_co]

Actually, Leica retail markup is similar to other retailers. .

I worked for Leica some years ago, when their margin was quite a bit shorter than that of other photo companies. Even though they have changed pricing structure since then, no dealer makes 30% on a body or lens.

 

But whereas some clothing, perfumes and musical instruments have a several-hundred-percent markup, that isn't the case in the photo business. "Similar to other retailers" is correct if you mean others in the sector.

 

--HC

[Asher Kelman]

What is the difference between Leica prices in Europe and the USA?

 

I'm wondering whether it might be avaliable in Florence, Italy, in January?

 

Asher Kelman

 

The Open Photography Forums Initiative

[marknorton]

What is the difference between Leica prices in Europe and the USA?

 

The big difference in quoted Leica prices in Europe is that they include local sales tax, whereas US prices are exclusive of sales tax which you can avoid (as i understand it) by buying mail order. If you remove the tax from the European prices, they pretty much follow the exchange rate, though the US Dollar has taken a bit of a further pounding just recently, resulting in hoardes of Brits descending on NYC for Christmas shopping and warnings from the Inland Revenue (~= Internal Revenue Service) they will be on the lookout to charge duty and sales tax on their return.

 

The tax exclusive price of an M8 in the UK is £2544 against $4795 which suggests an exchange rate of $1.88 = £1; currently it's about $1.97 = £1. Depending on what Leica have done to hedge foreign currency rates, they're getting 5% less Euros back for every M8 they sell than they expected. Expect a price rise near you soon - there's a new price list coming out on 1 Janary to conincide with the increase in German VAT rates.

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Hallo,

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[marknorton]

I'm wondering whether it might be avaliable in Florence, Italy, in January?

 

As for buying an M8 in Italy, I think you would find it rather more expensive than buying one in the US, even if you were able to claim back the VAT on leaving the country which is an administrative nightmare in any EU country and the Italians have bureaucracy down to a fine art. Add the currency conversion on your credit card and it's a no-brainer to wait to buy in the US.