On August 6, Fujifilm Holdings announced its first-quarter results for fiscal 2027 and disclosed that it had begun examining strategic options, including a partial spin off, with a view to separating and publicly listing its wholly owned subsidiary, Fujifilm Business Innovation (FFBI). This marks a reversal of course seven years after Fujifilm made Fuji Xerox, FFBI’s predecessor, a wholly owned subsidiary in November 2019.
Although first-quarter revenue reached a record high for the period, healthcare, a priority business, posted an operating loss of ¥12.7 billion, while Business Innovation (BI), the company’s largest business, recorded an operating loss of ¥1.4 billion. Operating profit in each of these businesses fell by ¥17.0 billion compared with the previous year.
Investors appear to have reacted negatively both to these results and to the consideration of separating FFBI, which operates the BI business, into an independent company. On August 7, Fujifilm shares remained untraded at the opening of the Tokyo Stock Exchange as sell orders dominated. The first trade took place 27 minutes later at ¥3,200, down ¥678 from the previous day. The share price changed little for the rest of the day and closed at ¥3,236.
Fujifilm’s BI business is its largest segment, accounting for 35% of revenue in the previous fiscal year and 33% in the first quarter of the current fiscal year. Within BI, business solutions revenue increased in the overseas business for enterprise systems sales and implementation support, while graphic communication benefited from higher inkjet printhead sales. Office solutions revenue, however, declined because of lower exports to Europe and reduced demand for equipment replacement in China.
As a result, total BI revenue was ¥273.2 billion, broadly unchanged from a year earlier. Nevertheless, the segment posted an operating loss of ¥1.4 billion. Contributing factors included the absence of overseas BPO revenue recorded in business solutions in the prior-year period, lower gross profit resulting from the decline in office solutions revenue, initial costs associated with the renewal of core business systems, and increased costs for structural improvements.
In response, Fujifilm plans to restore profitability and achieve its full-year forecast by introducing new AI-equipped office products beginning in the second half of the fiscal year and continuing to realize the benefits of price increases.
What’s to become of Fujifilm BI by 2029?
Fujifilm also outlined a policy of examining strategic options, including a partial spin off, to enable more agile decision making in the BI business. The aim is to further enhance corporate value by making full use of the business’s solid earnings base and strong cash-generating capacity.
In Japan, revisions to the tax rules for partial spin offs in fiscal 2023 allow a parent company to retain a stake of less than 20% when removing a subsidiary from consolidation and, provided certain conditions are met, receive tax exemptions for the parent company and its shareholders on gains or losses from the transfer and on dividends. With the parent retaining a stake below 20%, the separated subsidiary can strengthen its independence while continuing to use the parent’s brand, maintain business collaboration with group companies, and operate autonomously. The parent, meanwhile, benefits from tax exemptions on transfer gains or losses and dividends associated with the spin off, allowing it to reinvest the tax savings in its growth strategy and making business restructuring easier.
Fujifilm aims to implement the separation in two to three years, including a public listing of FFBI using this framework.
Looking back, however, Fujifilm’s acquisition of full ownership of Fuji Xerox, now FFBI, in November 2019 originated as a settlement following a dispute with Xerox shareholders. In January 2018, Fujifilm had reached an agreement with Xerox management to acquire control of Xerox, but some Xerox shareholders opposed the deal. The eventual settlement included Fujifilm’s acquisition of Xerox’s 25% stake in Fuji Xerox, the continuation of medium- to long-term product supply from Fuji Xerox to Xerox, and a total payment of $2.3 billion from Fujifilm to Xerox. At the time, Fujifilm Chairman Komori said at a press conference, “This is a better way to resolve the issue, and it is a win-win for both companies.” Fujifilm also said it would strengthen collaboration with Fuji Xerox within the group and accelerate the creation of synergies beyond previous levels.
For nearly 60 years, FUJIFILM’S Business Innovation subsidiary was known as the Fuji Xerox partnership. Fuji Photo Film owned 75% and Xerox Corp. owned 25% of the joint venture, which was dissolved in 2019.
Now, Fujifilm has begun examining strategic options, including a partial spin-off, as it advances the BI business’s transformation into a solutions business, drawing on the customer base and technological capabilities developed over many years. As the business enters a new stage of growth through initiatives such as the use of AI, Fujifilm considers it important to establish a structure that can swiftly implement measures supporting sustained growth and expansion.
