Creo Inc.

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Creo Inc.

3700 Gilmore Way
Burnaby, British Columbia
V5G 4M1
Canada
Telephone: (604) 451-2700
Fax: (604) 437-9891
Web site: http://www.creo.com

Public Company
Incorporated: 1983
Employees: 4,000
Sales: $656.5 million (2001)
Stock Exchanges: NASDAQ Toronto
Ticker Symbols: CREO; CRE
NAIC: 334610 Manufacturing Magnetic and Optical Recording Media; 511210 Software Publishers; 334410 Semiconductor and Other Electronic Components Manufacturing

Creo Inc. and its principal operating division, CreoScitex, is a world leader in creating solutions for the graphic arts industry. CreoScitex manufactures more than 300 products. Its offerings include professional digital cameras; inkjet proofers; thermal imaging devices for film, plates, and proofs; color and copy dot scanning systems; and prepress workflow software. CreoScitex is also a supplier of on-press imaging technology and components for digital offset presses. CreoScitex products are available through direct and indirect sales channels managed by distribution units in the U.S., Belgium, Hong Kong, and Japan.

Beginnings in the 1980s

In 1983, Creo was incorporated in British Columbia. The name was derived from the Latin word meaning, “I create.” Creo was situated in Burnaby’s Discovery Park, an area that the Vancouver Sun described as, “a nesting ground for high-tech companies that have ideas, expertise and enthusiasm but lack capital or marketing experience.”

Creo was founded by Dan Gelbart and Ken Spencer. Spencer was an electrical engineer born and raised in Greater Vancouver. He obtained an MBA before settling in to work for high tech companies, including MacDonald Dettwiler and Associates in Richmond, British Columbia. Gelbart, also an electrical engineer, emigrated from Israel in 1973. Gelbart met Spencer when he was working for a branch of MacDonald Dettwiler. According to the Vancouver Sun, Spencer described British Columbia’s high tech industries as “incestuous,” saying, “We’ve all worked for one another at one time or another.” Spencer and Gelbart laid the foundations for a company that has shown steady and impressive growth over the years.

In the early years, Creo started out as a small electro-optical developer. For the first few years, Spencer and Gelbart dabbled in several projects, many of which were profitable. In it’s first year, Creo received funds from grants from the Science Council of B.C., the National Research Council and a $2.4 million contract under Supply and Service’s, Canada’s unsolicited proposals program.

Before long, Creo honed in on developing an optical tape recorder. Following three years of Research and Development, the product’s prototype was ready for unveiling. The optical tape storage system was able to store a terabyte or one trillion bytes of information in a single reel. That amount is loosely the equivalent of two million 500-page books or 5,000 magnetic computer tapes. Creo anticipated that their typical customer would be companies, libraries, and hospitals—in other words, entities that collect and store huge amounts of data.

The recorder required 1,200 working hours to build and resembled a compact storage box. It used two lasers to blast data onto a reel of 35-mm optical tape that was roughly a kilometer long. The data could be accessed in seconds. At that point, no one else in the world was thought to be doing the type of work that Creo was doing. Their product was the only one of its kind.

In March 1988, the federal government allocated a $325,000 grant to Creo to purchase computer-related design equipment for production and testing of the optical tape recorders. Creo anticipated going into production in mid-1989. The aim was 200 units a year, selling at about $200,000 per unit. Sales were to be concentrated in the U.S. The Vancouver Sun quoted Spencer as saying, “We’re the only company in North America going after the big market. With those years of R&D behind, and with a handful of patents on their product, we’re not overly worried about competition.”

In 1989, Creo received its first award—the Electronic Manufacturer’s Association of B.C.’s “Most Innovative Product” award for another one of its projects—the 32-Beam Laser Photoplotter. In 1991, Creo again won this award for its Optical Tape Recorder. It was also listed in R&D’s “Top 100 Most Innovative Products.” In 1992, the Optical Tape Recorder won the Science Council of B.C.’s Gold Medal for “Most Innovative Product.” In the years to come, Creo products were to receive many more awards from various organizations and in various categories.

In January 2, 1990, the North American Free Trade Agreement, with its proposal to remove tariffs on computers and equipment, proved a boon to Creo. Spencer said that the agreement provided his company better access to a market ten times the size of the Canadian market. He predicted that the agreement would either allow Creo to lower its prices or to retain the tariff price and earn more profits. The anticipated result would be either increased sales volume or company growth—with a corresponding need to hire more employees in both cases.

By 1992, Creo employed 100 persons. In that same year, they signed a major contract with the billion-dollar Japanese firm Dainippon Screen Manufacturing Co. Ltd. The $8 million dollar contract covered research and development and first year’s production to manufacture a plotter engine. Dainippon built products for graphic arts and semiconductor industries. They used a plotter, costing $300,000, to create a printing plate from a piece of film. Under the contract, Creo produced the “guts” of the plotter—the engine. It took a few hundred hours to make each unit.

This established Creo with two major products: the optical tape recorder and the plotter engine. By now, the recorder was being sold to U.S. defense and intelligence markets, the European Space Agency, and the Canada Centre for Remote Sensing. The company also attained annual sales of $10 million and had been profitable since receiving grants in its first year. Majority ownership rested with Creo’s employees and management, with the Federal Business Development Bank owning 12 percent of company shares.

1993: A Change of Focus

In 1993, Creo focused its efforts and technological innovations on the multi-billion dollar graphic arts industry. According to the company web site, “Precision mechanics, electronics, and optics specialists developed hardware that used laser technology to reproduce high-resolution images on film.” This film was then used to expose printing plates. With these early hardware innovations, Creo gained a reputation for high-quality workmanship and reliable equipment.

In 1994, Webcom Ltd., the big Canadian book manufacturer announced its intent to use a digitized computer-to-plate system developed by Creo Products Inc. The Creo 3244 Platesetter was capable of creating a full-sized aluminum plate in three minutes from PostScript digital files, at a dpi (Dots Per Inch) of 2,400. The time increased to four minutes at a dpi of 3,200. (PostScript is a page description language developed by Adobe Systems Inc. It is used in many printers, pagesetters, and display systems.)

The Creo 3244 was designed to be operated unattended in full daylight and could function in either the prepress area or adjacent to the press. This allowed for just-in-time plate making and quick plate remakes controlled by the press operator. Webcom found that once a book was published in hard cover, it was much easier and cheaper to reformat the book for publication in soft cover after they had moved to a digital format. Furthermore, once digitized, a book could be moved readily to another storage medium, such as a compact disc. The Vancouver Sun quoted Webcom President Warren Wilkins as saying, “Creo offers a system that now works and works better than other systems in the market. This machine allows us to store 50,000 plates online and you might need 12 plates for a book.”

Creo anticipated that sales of its large-format Platesetters, selling for under $1 million, would triple in 1995 from $15 million to $45 million. Employment had risen to 270 people and was expected to reach 350 in the coming year. The Platesetter was being marketed in the U.S. and in Europe. When R.R. Donnelly & Sons co. in Chicago began ordering substantial numbers of the product, Creo became the leading supplier of computer-to-plate systems.

Next, Creo attempted to make the prepress process better and faster. (Prepress refers to the preparation and assembly of text and pictures). They wanted to reduce the time involved in the cycle and eliminate inconsistencies associated with film work.

Company Perspectives:

It is important to us that Creo be a place where strong values and solid management philosophies hold true. The innovative technology of Creo is supported by the company’s unique business philosophy. Several simple principles guide Creo employees around the world: Our priority is to provide unique and sustainable value to our customers. 1. All decisions must be based on sound economics. 2. Key decisions are made in consensus, with full team agreement to accept and implement the decision. 3. We believe that people are most effective when self-managed. 4. Compensation is based on contribution, gauged largely by an annual peer review. 5. All employees share the wealth created by their hard work and innovation.

Creo’s first Computer-to-Plate (CTP) technology was based on visible light technology. In 1995, the company introduced a new thermal imaging technology that used heat rather than light to image infrared-sensitive materials such as proofing media and thermal plates. With this technology, they were able to offer higher resolutions and eliminate the challenges associated with working with light sensitive plates. Printers had additional process control in presswork and could produce consistent, high quality output while reducing prepress costs. The product was thought to be environmentally friendly, given that it uses no film and therefore has no metal contaminants. Creo’s web site reports that, “Creo’s innovations have secured patents and won awards, but most importantly they have helped printers worldwide succeed and meet their daily business objectives.”

The Vancouver Sun reported, “If you read mass-market U.S. magazines such as Sports Illustrated, Glamour or Scientific American, chances are you’ve already seen the end-product of Creo’s CTP technology.” By August 1998, Creo’s workforce hit 1,023. Vice-President and CEO Mark Dance anticipated a continued growth of 25 to 30 percent per year.

In 1999, Creo reported that eight out of ten of the largest North American commercial printers used its products. Under the terms of a joint venture with the German printing press maker, Heidelberger Druckmaschinen AG, Creo’s technology was being distributed worldwide. However, Creo was not well-known. “Creo has a puny public profile,” wrote the Vancouver Sun, “largely because it is privately owned.” At that time, employees and founders owned more than 50 percent of the firm, and Goldman Sachs owned 13 percent, thanks to a $27 million investment in Creo in late 1995.

In July of that same year, Creo filed for an initial public offering (IPO) of five million shares. At that time it had an implied market value of C$666 million. The Company planned to use the monies raised from the IPO for working capital and for other general corporate purposes. Sales in the last quarter of 1999 were the best in Company history. Shares hit a new high. In the meantime, the company continued to pursue its stated objectives: to expand its sales base and product line, while pouring millions of dollars in research and development.

Formation of CreoScitex: 2000 and Beyond

During the first quarter of 2000, Creo’s shareholders approved the acquisition of a major competitor, the Israel-based Scitex Corporation Ltd.’s preprint division. The share transaction was valued at just over $500 million. This made Scitex the largest single Creo shareholder with a 27 percent stake. The acquisition gave the Creo and Scitex combination as much as 20 percent market share for preprint equipment. Analysts reported that nine out of ten of the largest commercial printers in North America had adapted Creo systems by then, and the company had twice the number of installed systems of any of its competitors. The Vancouver Sun quoted Tobias Fischbein, an analyst at Ilanot Batucha Investment Ltd., as saying, “The transaction seems like a good one for both sides. It creates an absolute leader in the area of digital prepress and cancels competition that was very intense in recent quarters.”

In April 2000, the print-on-demand initiatives of Creo Products Inc. and Scitex were united to form CreoScitex. CreoScitex became the principal division of Creo Products. Revenue in the second quarter grew by 50 percent and net earnings increased by 66 percent. Because of the acquisition, Creo ended its longtime joint venture with Heidelberger Druckmaschinen AG. When the two companies were unable to agree on modifications to the joint venture contract, Creo opted out and instead negotiated a original equipment manufacturer (OEM) agreement with Heidelberger.

In June 2000, Creo Products paid $24 million in cash and stocks for Intense Software. Also based in Vancouver, Intense Software developed software for graphic designers, business users and printing professionals. It also custom engineered software under contract. The acquisition gave Creo exclusive rights to technologies and products that complemented CreoScitex, as well as giving the Company access to Intense Software’s network of 50 software distributors and resellers in North America, Europe, Asia, Japan, and Latin America.

By this time, Creo had 4,000 employees worldwide, had expanded its product line, and extended its global reach. It had three research and development and manufacturing centers: one in Vancouver, one in Israel, and one in the United States. In November 2000, despite a healthy period of growth, Creo shares dropped $7 a share to $38 in one day. The Province reported it as “a day of high tech bloodletting in the North American markets.”

In January 2001, Creo increased its share of Nihon CreoScitex to 81 percent. This subsidiary had been minority owned. The increase was expected to allow Creo to further penetrate the Graphic Arts Industry in Japan.

In February 2001, Creo was named one of the best ethical stocks for Canadians. The first quarter of 2001 was positive. Creo’s adjusted earnings were $10 million, compared to $5 million in the first quarter of 2000.

Key Dates:

1983:: Creo is incorporated.
1989:: The company wins Electronic Manufacturers’ Association of British Columbia’s Most Innovative Product Award.
1990:: Creo develops first large-format Postscript imagesetter engine.
1993:: Creo redirects its focus to automating the prepress phase of the printing industry.
1994:: The first true production Computer-to-Plate (CTP) system is delivered to customers in the United States.
1995:: The first thermal system is introduced at the trade fair DRUPA 95; the first CTP system installed in Asia.
1999:: Creo goes public on the Toronto and NASDAQ exchanges.
2000:: Creo acquires the assets of the digital prepress business of Scitex Corporation Ltd. and forms CreoScitex.
2002:: Creo Products shortens its name to Creo Inc.

In 2002 Creo appeared poised for a continued period of profitability and growth. In addition to its core product lines described earlier, CreoScitex is also an OEM supplier of imaging technology for on-press imaging equipment, while a global network of sales and service offices, dealers, resellers, and OEM partners offer international sales and customer support.

Principal Subsidiaries

Nihon Creoscitex (Japan; 81%); CreoScitex Europe S.A. (Europe); CreoScitex Corporation Ltd. (Israel), CreoScitex Asia Pacific (H.K.) Ltd. (Hong Kong); CreoScitex America, Inc. (U.S.); CreoScitex Middle-East-Africa; Printcafe Software Inc. (U.S.; 30%).