Xerox Outlines the Next Three Years of the

Company’s Corporate Strategy and Plans

On February 5, 2019 Xerox senior executives spent a few hours in the
morning telling investors and, by extension, the world how the company
plans to spend the next few years. The company also unveiled its latest
corporate slogan: Made to Think. All of which made us think it was time
to share the latest on Xerox with readers of this newsletter.

In this article we present highlights from the various presentations made

that day along with a summary of how the company’s stock price has been
doing, how various analysts have reacted to the company’s latest plans,
how the legal fight with Fujifilm Holdings over the failed 2018 merger is
going, and, of course, an Our Take.

The Investor Day presentation lasted about three hours and 17 minutes.
Xerox recorded it and has made it available online as a Webinar. To ac-
cess the recording, please visit https://webinars.on24.com/xerox/Inves-
tor2019.

The Latest Slogan: Made to Think

The press release for the Investor Day in February explains the origins
of the new slogan thusly: “With a history of designing breakthrough tech-
nologies, Xerox is ‘made to think.’ We are taking a disciplined approach
to creating the next generation of innovative technologies and intelligent
work solutions to meet our clients’ evolving needs,” says John Visentin,
Xerox’s Vice Chairman and CEO.

“By simplifying our operations, instilling a culture of continuous improve-

ment, investing in growth areas, and capitalizing on new and adjacent mar-
ket opportunities, we anticipate we can achieve flat to growing revenue
by 2021, while driving continued annual adjusted earnings per share ex-
pansion, including at least four dollars of adjusted earnings per share in
2020, and delivering over three billion of cumulative free cash flow over
the next three years,” Visentin adds.

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The Pitch
During the three or so hours the Xerox executives talked they followed
an agenda designed to update investors on what the company plans to do
during the next few years to improve its market position and stock price.
Here are some of the major points the executives made:

„„ expected annual improvements in its revenue trajectory that

result in flat to growing revenue by 2021;

„„ expected adjusted operating margin expansion of more than 200

basis points during the next three years;

„„ expected adjusted earnings per share (EPS) expansion of at least

seven percent each year annually, including at least four dollars of
adjusted EPS in 2020;

„„ expected cumulative free cash flow in excess three billion dollars

during the next three years; and

„„ deliver of more than 50% of free cash flow back to shareholders

through dividends and share repurchases in each of the next
three years.

Project Own It
Steve Bandrowczak, Xerox’s President and COO, took the wraps off a
new initiative the company is calling Project Own It. He described the
project as an “enterprise-wide transformation program to simplify its
business and drive greater operational efficiency while establishing a cul-
ture of continuous improvement.”

From a review of the slides, such as those included at right, the project
sounds more like a retrenchment plan designed to allow Xerox to cut
costs dramatically during the next few years. Indeed, the top line take-
away from Project Own It, seems to be a corporate promise to cut $640
million in spending this year alone followed by two more years of slower
blood letting with a few hundred more in costs cut in 2020 and 2021.
How Xerox plans to cut costs was explained in other presentations.

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It was tempting to try to put all of Xerox’s plans into words, but we thought it would be more effective and efficient all around to show the slides from the various presentations that say the
most of what Xerox’s plans are and the company’s time lines. Accordingly, on this page and the next we present those slides; our article continues on page six.

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The full slide deck from Xerox’s February 5, 2019 Investor Day presentations has more than sixty slides! Here we have presented a fraction of them, the one we chose present the highlights
from the material which merit the most attention. The full slide deck is, as we go to press on this issue, available online on Xerox’s Web site on the Investor Relations page.

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That Pesky Asterisk
Readers who look closely at the slides in this article will see a small as-
terisk which directs attention to the Forward Looking Statements on the
second slide of the slide deck. Such asterisks are commonly found in slide
decks and presentations of all types made by executives of publicly held
companies about their company’s financial health and well being.
The language of the slide in this deck says the usual types of things, all of
which boil down to a general statement about how the company and its
employees should not be held liable if the prognostications and promises
made in the presentations do not come to pass. As we said, this is boil-
erplate language, but we wanted to make sure readers of this newsletter
who wonder about the asterisk know where it leads.
Market Reaction
On the day before Xerox’s latest Investor Day, the company’s stock
closed at $28.68 with a volume of 2,912,520. At the close of Investor
Day, February 5, 2019, the stock price closed slightly higher at $29.98, but
the volume was higher: 5,402,735. Since then, and as we go to press on
this issue, the stock price has jumped a dollar or so and volume remains
above the three million mark.
The biggest day for Xerox stock activity in recent months was January
29, 2019 when 10,591,930 shares changed hands, and the stock closed
at $27.07. That was the day Xerox announced its fourth quarter and full
2018 fiscal results. Here are a few highlights from the announcement that
day, all figures presented are on a year-over-year basis:
„„ Total Revenue: $2.53 billion in the quarter, a decrease of 7.8% or
6.1% in constant currency; $9.83 billion full year, a decrease of
4.2% or 4.9% in constant currency.
„„ Cash Flow: Operating cash flow of $415 million in the fourth
quarter, an increase of $564 million, or $83 million on an
adjusted basis, and $1.14 billion full year, an increase of $1.32
billion, or $168 million year-over-year on an adjusted basis.
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„„ Full 2019 year guidance includes delivering operating cash flow of
$1.15 to $1.25 billion and free cash flow of $1.0 to $1.1 billion
„„ Xerox also announced the board had improved an incremental
share repurchase authority of a billion dollars; the company
expects at least $300 million of share repurchases in 2019.
All in all, then, the market reaction to Xerox in recent months is appar-
ently more closely tied to the company’s decrease in total revenue in
2018 than to its promises delivered on its latest Investor Day.
Analysts’ Reactions
As we were going to press on this issue, we checked various stock market
Web sites to see what they have been saying about Xerox. The upshot,
for what it is worth, is Xerox (like many major United States companies)
may find itself at the mercy of forces way beyond its immediate control.
Bloomberg.com summed up the forces situation this way,“Caterpillar Inc.
trucks, Xerox Corp. machines, and Samsonite International SA luggage
are among United States that would face retaliatory European Union tar-
iffs should President Donald Trump follow through on a threat to impose
automotive duties against the bloc, according to a senior EU official.” We
refer readers, again, to the section of this article about that pesky asterisk.
As for industry watchers outside the Joss Group collective, perhaps
the most thought provoking and perceptive take came from the pen of
Louella Fernandes, an analyst at Quocirca. In an article published on the
company’s Web site on February 15, 2019, Fernandes says Xerox faces a
daunting challenge: reinvention.
“As the print industry continues to face digital disruption, all vendors are
undergoing transformations. Xerox may have had a few false starts, but
the company is emerging with a clear and strong vision to recapture its
iconic status. Backed by an executive team experienced in the transfor-
mations of other major IT companies, Xerox now has the potential to
drive more effective transformation.”
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“While it may not end up with the same footprint it once had in an
increasingly commoditized print market, its focus on innovation in new
areas could offset declines elsewhere. However, while the leadership is
clearly committed to a continuous improvement culture, this new start-
up mind set must permeate through Xerox. With 32,400 employees,
many of whom may be resistant to change and have long tenures, this is
no easy task.”
“Perhaps the biggest challenge for the new executive team is to change
the corporate culture to avoid the inertia many large businesses like Xe-
rox face. Only then will an oil tanker such as Xerox be able to change
course, transform its business and return to its pioneering roots to be an
innovative force in the future workplace.”
To read the full text of Fernandes’ article on the Quocirca Web site,
please visit https://quocirca.com/content/can-xerox-reclaim-its-iconic-
status/.
Fujifilm Holdings Won the Latest Legal Round
Regarding the major legal issue Xerox is facing currently, here is a brief
recap: in early 2018 Xerox and Fujifilm Holdings were talking about com-
bining the two companies, but some of Xerox’s shareholders were not
happy with their potential profits (see TSR 18.3, February 12, 2018, Fujifilm
Makes a Multi-Billion Dollar Bid for Xerox). Xerox backed out of the deal, or
tried to, and Fujifilm filed suit.
Fast forward a year, and here is the latest on the progress of the law suit:
Fujifilm seems to have concluded it will not be able to force a deal to
obtain Xerox, at least at the moment. Xerox had filed a motion to have
the court throw out Fujifilm’s attempt to at least get some money (say a
billion dollars or so) out of the failed deal.
On February 15, 2019, a judge threw out Xerox’s bid to end Fujifilm’s suit
against the company. Legal360 reports, “In clearing the way for discovery
to proceed, United States District Judge John Koeltl said much of the
case hinged on disputed facts, such as whether changes to the financial
statements of the parties’ joint venture were material enough for Xerox
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to justify calling the deal off. But, he singled out Xerox’s argument it was
more convenient to litigate at the state courthouse next door as ‘thor-
oughly unpersuasive,’ especially now a state appellate court dismissed
Fuji from that case and threw out the April 2018 decision that froze the
merger.”
To read more of Legal360’s take, please visit the company’s page on this
lawsuit: https://www.law360.com/cases/5b27de35a701e7770f000001.
Our Take
Fernandes uses the term “oil tanker” to characterize the Xerox of today.
It is a big company with lots of history, some good, some bad, on board.
Should Xerox seek again to marry itself off with another company? Giv-
en the world economic realities today perhaps Xerox would be happier
marrying itself off to a prosperous spouse. Perhaps such a union is easier
wished for than accomplished. Time will tell, but clearly Xerox needs to
take some time out to make itself think about its future and options. All
the business jargon in the world will not save the company from having
to take this necessary step.
A final thought: at some point Xerox is going to have to come to terms
with Fujifilm Holdings in some financial way. Probably, very probably, part
of the terms of an agreement will mean a packet of money makes its way
from Xerox to Fujifilm. Until that happens (an agreement acceptable to
all parties), Xerox is not in a position to entertain other possible suitors.
A little flirting, yes, maybe, but nothing substantial will take place until the
company comes to terms with Fujifilm. TSR
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