Fuji Xerox put its New Zealand subsidiary up for sale, talking up profit growth from government contracts, one month before it was reinstated as a supplier of office equipment.
A presentation put together by Deloitte in March this year called for expressions of interest to acquire Fuji Xerox NZ and Fuji Xerox Finance, which was described as a "trusted global brand" with significant product portfolio growth opportunities.
Fuji Xerox should have informed the government of the process because any change of ownership could have a material impact on the company's eligibility to be on the All-of-Government panel of suppliers.
However, managing director Peter Thomas said the company did not, and only did so yesterday following Herald enquiries.
Fuji Xerox NZ was reinstated as a government contractor in mid-April despite being under investigation by the Serious Fraud Office in relation to a $355 million accounting scandal.
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Thomas confirmed that the company's Japan-based parent had been considering a sale process earlier this year.
"As part of the Fuji Xerox New Zealand turnaround plan, our shareholders actively explored a wide range of strategic options regarding the future of the New Zealand business — including a possible sale.
"However following this review, Fuji Xerox New Zealand's shareholders have determined that it will continue to operate as a wholly-owned subsidiary and Fuji Xerox remains committed to the New Zealand market."
Asked if the company had informed the Ministry of Business, Innovation and Employment of the sale option, he said:
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"To date, we had not informed MBIE of this review, as there was nothing material to disclose. Under our contractual obligations re public disclosure, we have informed MBIE of the historical process today."
The Deloitte document talked about the opportunity to expand the business and recover market share lost due to the negative impacts on reputation from the accounting irregularities.
The turnaround plan included a $25m lift in earnings with price increases, inventory reduction and headcount reduction.
It forecast earnings before interest and tax of $15.1 million for the 2019 financial year, a dramatic turnaround from the company's $10.1m loss in 2018.
The presentation highlighted some $6.4m of additional earnings could be derived from separating from Fuji Xerox Asia Pacific, which supported the New Zealand business with technical support and machine triage, IT systems and infrastructure and corporate services.
Detailed financial statements broke down the standalone benefits to include the ability to reverse out a management fee or "logistics hub fee" currently recorded at $4.2m.
A side note on this said:
"Management believe they receive limited value for service contract on a standalone basis."
The presentation also noted that Fuji Xerox management believed a new owner could replicate these functions for a substantially lower cost than the "transfer price between Fuji Xerox New Zealand and Fuji Xerox Asia Pacific".
A Deloitte spokesman declined to comment.
Other "Standalone benefits" included a $1m Ebit saving from changing the company's call center location from Malaysia to New Zealand and also $1.4m from additional headcount reduction.
The company has already significantly reduced headcount following the accounting scandal and has spoken publicly about improving ethics, governance and compliance.
"FX NZ believes there are FTEs [full time staff] focused on head office reporting and compliance functions that would no longer be required," the March presentation said.
The pro-forma standalone adjustment assumes a reduction of 15 FTEs.
According to the information memorandum, Fuji Xerox's investment highlights included key government clients despite the company at the time being suspended from the all-of-Government panel.
"Government suspension lifted from May 19. The focus now is to maintain and grow our Government customers after being suspended for 18 months," the March document said.
"FX New Zealand sells an existing product to a wide range of high value blue chip customers. A new owner could expand this product portfolio and leverage the existing customer base to drive sales growth."
Fuji Xerox's "inappropriate accounting" over a six-year period from March 2011 to March 2016 culminated in parent company Fujifilm booking losses of $473m, including about $355m from the New Zealand company.
The root of the cause, according to an independent report, was a "sales first at any cost culture" to meet sales targets, and commissions that saw photocopier sales staff making more money than Cabinet ministers.
The independent audit found Fuji Xerox NZ consistently exaggerated sales revenue, including through double recording of sales, recording fictitious sales and fictitious recording of expenses.
Lavish bonuses were handed out while holidays to senior executives and their wives were later costed at up to $25,000 a head.
Fuji Xerox NZ, Fuji Xerox Finance and Fuji Xerox Asia Pacific have since filed joint civil proceedings in the Auckland High Court against three former senior executives – Neil Whittaker, former FXNZ managing director Gavin Pollard and former chief financial officer Mark Allright.
The SFO reopened an investigation after initially dropping it.