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ICL PLC
Minutes of the Meeting of the Board of Directors
Held at 10.15 am on Thursday 7 February 2002
At 26 Finsbury Square, London, EC2A 1SL
Present Mr M Naruto (Chairman)
Mr N Akikusa
Mr R Christou (Chief Executive)
Vicomte Davignon
Mr S Gillibrand
Mr Y Hirose
Mr H Kurokawa
Mr H B Thompson
In attendance (Secretary)
Mr D Courtley
Mr P Earl
Mr T Okada
Mr T Adachi
Mr H Hirata
Mr T Yurino
Mr Y Katsuya
Mr K Onuma
Mr J H Bennett (Item 8)
02/01 Chairman’s Remarks and Board Membership PLC/02/11
Action by:
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The Chairman said that the IT market continued to be
difficult and Fujitsu companies were struggling. However
under Project Fuji ICL would have a new start — a new name
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(Fujitsu Services) a new Board and transfer of parts of its
business to DMR (Fujitsu Consulting). He went on to say
that Vicomte Davignon, Mr Gillibrand and Mr Thompson will
be standing down from the Board at this meeting and as a
result of redundancy Mr Scott would be replaced as
Company Secretary by Mr R Allnutt (who would undertake
the post in addition to his existing duties as group counsel.
He praised the contribution to ICL’s business of the three
directors and praised the work of the Company Secretary.
He then asked the Board to join with him in thanking all four
for their services to ICL.
The Chairman then proposed that Mr Hirata and
Mr T Adachi join the Board and that Mr R A J Allnutt replace
Mr Scott as Company Secretary with Miss Rachel Moseley,
Mr Scott's assistant, appointed Assistant Company
Secretary.
Vicomte Davignon and Mr Gillibrand will be leaving the Audit
Committee and Mr Gillibrand would also stand down from
the Directors’ Remuneration Committee.
In respect of the Board changes referred to and also to
consequential changes in committee memberships, the Board
RESOLVED
i) THAT the resignations from the Board of Vicomte
Davignon, Mr Gillibrand and Mr Thompson be and are
hereby accepted, with effect from the end of the meeting.
ii) THAT Mr H Hirata be and is hereby appointed a Director
of the Company with immediate effect.
iii) THAT Mr T Adachi be and is hereby appointed a Director
of the Company with immediate effect.
iv) THAT Mr R F Scott be and is hereby replaced as
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Company Secretary by Mr R A J Allnutt, with effect from
the end of the meeting.
v) THAT Miss R H Moseley be and is hereby appointed
Assistant Company Secretary.
The Board noted that, following the appointment of Mr Hirata
and Mr T Adachi to the Board each of Mr Akikusa, Mr Naruto,
Mr Hirose, Mr Kurokawa, Mr Hirata and Mr T Adachi would
appoint the others as his alternate director to attend and vote
at Board Meetings in his absence and the Board
TO RESOLVE
vi) I THAT the above mentioned appointments of alternate
Directors be and are hereby approved.
The Board also noted that Vicomte Davignon and
Mr Gillibrand would leave the Audit Committee and
Mr Gillibrand will leave the Directors’ Remuneration
Committee.
Minutes of Previous Meeting
The minutes of the meeting held on 31st October 2001 were
approved as a correct record and signed by Mr Naruto.
Chief Executive's Report — February 2002 PLC/02/01
Mr Christou commended his report to the meeting and made
some additional remarks. The UK economy appeared to be
weathering world economic difficulties more successfully
than continental European economies although there were
still significant job losses occurring. It was hoped that the
difficulties of the IT Services Sector were “bottoming out”
and that after a flat 6-9 months, growth would resume. It
was hoped that ICL would be able to benefit early from any
up-turn as a result of the significant cost reductions we were
achieving through re-structuring. The Board noted that ICL
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had made a profit in the month of December although
Mr Christou said he was disappointed with the forecast for
the full year (which had fallen) and the businesses, directed
by Mr Courtley, were working to improve it. He went on to
explain that evidence was increasing that the re-branding of
ICL as Fujitsu Services was what the customers wanted as
was the. significant re-structuring and the organisational
changes being made, including de-layering the structure so
that the Company would be more responsive to customer
issues.
Mr Christou referred to three significant concerns — first, to
complete the re-structuring programme mentioned at the last
Board meeting and then to invest to make’ the business
grow, ICL would require more capital ~ second, issues about
EMEA and third, the remained risk in the mid-term plan
certainty on the need to retain the cost savings coming out
of this year’s restructuring spend but also to grow revenue
whilst managing a significant expected decline next year in
VME sales. He referred to the good relationship with DMR
and how he was visiting appropriate customers/prospects
with Mr Poehner of DMR.
ICL would not at present close the French business — it
would be managed as break-even as soon as possible.
On Invia, a buy out of the minority shareholders and a
purchase from Invia of the Scandinavian businesses
previously sold by ICL were under consideration. EMEA
would be divided into strategic/ principal countries, with
which ICL would continue and non-strategic countries with
limited activity and possible closure/ sale in due course.
Vicomte Davignon suspected the “new start” for ICL as
Fujitsu Services would be a good opportunity to approach
the minority Invia Shareholders to ask them to sell and’
Mr Christou will consider this.
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In conclusion Mr Christou said that business at present was
very hard for ICL and managers were being pressured to
improve operating profit. Morale was not as low as it might
be in the light of the re-structuring and staff were
appreciating the firm action being taken on re-structuring, on
the organisation and on cost cutting.
Financial Performance PLC/02/02
Mr Earl reported and the following points were noted:
a)
b)
c)
Revenue for the period to end December was £1,577m,
slightly less than forecast and the second half budget
and significantly less than last year (by 10.5%). The full
year revenue forecast was £2,186m, 9.6% less than last
year.
The operating loss for the period to end December was
£17.1m and the loss before tax, £48.8m. The full year
forecast was for break-even at the operating level,
compared to the October Board meeting forecast of
£13.7m profit and the second half budget of £13.6m.
Branding costs had been held at £3.5m, and amongst
other items rationalisation spend in the full year would
be around £110m. In all, loss before tax for the year
was forecast at £133.4m, slightly worse than the
October Board meeting forecast and the second half
budget, but (because of the rationalisation spend)
significantly worse than last year’s loss before tax of
£56.6m.
Mr Earl then reviewed the figures in more detail which,
amongst other matters showed that after allocating the
costs of the headquarters across the divisions, only
Infrastructure Services and Large Projects would be
profitable for the full year. The detailed divisional
information including proposed management action, was
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noted.
Cash flow continued to deteriorate, due mainly to losses,
the working capital requirements of the large projects
and restructuring expense. Mr Earl explained the
accounting treatment of large projects, in response to a
question from Mr Thompson. Until profits could be
recognised, a reserve was built up on the balance sheet,
which was “unwound” later as profits were taken. On
the balance sheet, net borrowings at the year end were
forecast at £378.5m and shareholders’ funds at £84.5m.
These were below the bank covenant levels and would
be referred to later in the meeting.
Mr Courtley commented on the operational
performance, saying that it was generally disappointing
and mentioning EMEA (where the effect of the economic
conditions in most countries were unhelpful) and in
Africa where there were additional problems. However
he and Mr Christou were determined to improve the
year-end out-turn.
Mr Thompson referred to the consistently bad
performance in the EMEA countries. Mr Christou
replied that this was disappointing but that competitors
(e.g. Synstar) appeared to suffer in the same way.
Also, EMEA countries did suffer from lack of focus from
senior management (who of course had other matters
to attend to) and from the fact that as small operations,
that country’s best managers were not usually attracted
to work in them.
Mid-Term Plan PLC/02/03
Mr Christou took the Board through the slides in the papers,
emphasising amongst other matters that ICL as Fujitsu
Services was in a business area where estimated growth
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was expected to be significantly more than in hardware.
He referred to the current organisation and strategic
direction (Mr Courtley would explain the organisation
changes in more detail, later in the meeting). On
Multivendor Computing, there were several reasons why a
disposal was probably the best way forward. These
included the low margin business model, which differed from
the rest of ICL and also the possibility that trends in the
market place might move against it such that it was “a
wasting asset”.
Mr Christou continued, referring to the removal of multiple
headquarters in the centre and in the divisions and the
“de-layering” of the organisation which along with the other
organisation changes, would greatly improve customer focus
and sales growth. It was intended to spend £65m in the UK
in the final quarter of the year to remove approximately
1,400 people (by voluntary and involuntary redundancy) who
on the whole were of higher cost and with out-dated skill
sets. In addition some 700/800 could go to DMR/Fujitsu
Consulting.
Mr Earl referred to the financial projections in the Mid-Term
Plan and it was noted that revenue growth from the year
2001/02 to 2002/03 was expected to be 5.2% (which would
convert ICL’s loss before tax of around £130m in the present
year to a profit of around £20m next year). Mr Christou and
Mr Courtley agreed that this was challenging. However it
was thought the market would grow by at least this amount
and that if ICL could manage the decline in VME revenues
and hold on to the significant savings made by re-structuring
whilst achieving revenue growth, then it would be possible.
The full pack of Mid-Term Plan financials was noted by the
Isc.
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New Organisation from 1s April PLC/02/04
At Mr Christou’s request, Mr Courtley explained the new
organisation structure emphasising the objectives, including
a simpler integrated organisation with clearly accountable
roles, revitalised sales focus and emphasis on growth,
improved customer focus and re-energising and motivating
the company’s employees. In particular there would in
future be customer facing business units with P&L
accountability and including sales, account and programme
management. There would be separate units aligned and
managed horizontally for core services including customer
dedicated service-delivery and shared capabilities such as
data-centres and call centres. Much of the headquarters
cost would be eliminated from HQ and_ the
divisions/business units. Mr Courtley explained that activity
in EMEA would focus on principal countries; in particular
France, Germany, Netherlands, Italy, Belgium, Portugal,
Republic of Ireland, and Switzerland (including Austrian
branch) for retail only. He concluded by mentioning that the
sales force, at present numbering about four hundred would
be reduced significantly to perhaps one hundred who would
be based in the customer focused business units and
managed to aggressive targets.
The Board discussed the new organisation and also the mid-
term plan.
The Chairman referred to previous confusions (before
Mr Christou and Mr Courtley began to change matters) over
ICL’s offerings to the market and.lack of a clear organisation
and responsibilities. The new plans appeared to simplify
matters considerably.
Mr Gillibrand supported the changes, in part believing them
the inevitable result of ICL’s recent actions to eliminate its
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problems. It was necessary now to give the employees and
customers the assurance that this was the “final” position
(except for some further EMEA changes) as regards
strategy, organisation and the management team. Further
uncertainty should be avoided.
Mr Thompson hoped that the changes would form a basis
for Fujitsu Services to “grow into success”. Also ICL should
take the opportunity in the present financial difficulties of
some companies, to seek out outsourcing opportunities.
He questioned how the new organisation would be able to
address certain customers and Mr Courtley and Mr Christou
explained how they saw Fujitsu Services’ Global “reach”
(as part of the Fujitsu Group) in future. Mr Christou would
be devoting more time in future to customer liaison at a
senior level.
Vicomte Davignon saw it as important to make clear that
Fujitsu Services was not simply a re-organisation of ICL but
a deliberate choice, within the Fujitsu Group, for the future.
He felt it was important to ensure the reliability of the figures
in the plan such that in the next few years there would be
“no surprises”. He also urged a global response through
Fujitsu to customers who would want their problems dealt
with in whichever country they occurred. After discussion,
the Board agreed it wauld be vital for Fujitsu as a whole to
work out an approach to customers which would fully utilise
all Fujitsu's strengths and maximise the synergy possibilities.
Mr Akikusa thanked the Board for their comments and gave
some examples of how Fujitsu Group coordinating through
the world, was dealing with the kind of multi-national
customer situations which had been discussed. He referred
to growth in the software and services market place and the
position of competitors. He spoke of the difficulties of
undertaking large projects with a long pay back period and
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Christou
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the cash needs of the company in this situation. Referring to
ICL’s cash requirements, he said he favoured sale of
Multivendor Computing as soon as practicable. He also
spoke of the need for a particular Fujitsu unit to be seen as
part of the whole, with virtually instant communication of
customer issues to the relevant point in the group where
they would be solved. Mr Kurokawa referred to the way ICL
was tackling global customers such as the approach to
Nokia.
ICL PLC Capital Injection at 31 March 2002 PLC/02/12
The paper set out that at 31st March ICL’s shareholders’
funds were expected to be £80.7m. The existing bank
covenants set out that shareholders’ funds at that point must
exceed £225m and gearing (which was net borrowings
divided by shareholders’ funds) must be less than “1.5
times”. Consequently ICL was making the case to its
shareholder, Fujitsu to increase equity investment in ICL
prior to 31stMarch 2002 by around £160m. Mr Christou,
Mr Earl and Mr Adachi would progress this matter.
Update Report — Project Fuji PLC/02/06
Mr Bennett joined the meeting and updated his written report
particularly mentioning briefings of analysts and journalists
which were resulting in reasonably favourable press
comment. The transfer of the people and the businesses
from ICL to DMR/Fujitsu Consulting under Project Fuji
remained a critical issue as did the associated staff briefings
and explanations. ICL and DMR were devoting much time
and attention to these matters.
Mr Naruto said both Fujitsu Services and Fujitsu Consulting
must ensure that no customer issues/sales opportunities etc
were missed in the transition of the part of ICL’s business
going to DMR. Nor should the staff, particularly those
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moving employer, be allowed to become disaffected.
Large Projects Division Update
Mr Courtley made some general remarks on the large
projects then referred to the review in the paper of each of
the five - Pathway, Libra, HMCE, Sirius and DTI Elgar
He referred to past concerns and the need to improve the
projects. He felt that they were improving ‘but there was
further to go. On management matters, each project now
had a specific business director reporting to Mr Courtley.
This flatter organisation enabled customer concerns to come
through to senior management very quickly. There was also
a regular review programme now instituted with himself and
Mr Hirata involved. Mr Courtley added that the financial
state of the projects reported at the last ISC meeting had not
changed.
On Libra in particular, negotiations with the UK government
were difficult. The additional work the customer required
totalled more than £400m in future costs to ICL but only
about £300m had been anticipated in the memorandum of
understanding — financial model, the basis of the present
negotiations. However the customer did at least understand
the reasons why the estimated cost had reached the higher
figure (mainly the high level of functionality he required on
the desk top).
Quarterly Manpower Report PLC/02/08
The report was noted.
Acquisitions and Divestments
The Board noted the report and Mr Christou confirmed that
the Prospero disposal had completed.
Approvals and Confirmations PLC/02/10
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The documents Signed and Sealed papers and the last
minutes of the Audit and Pensions Policy Committees were
noted and approved.
Chairman's Closing Remarks
The Chairman said this was the last Board meeting under
the present arrangements (note: since November 1990
when the arrangements were instituted, there have been 46
meetings). Future meetings and/or contracts activity for ICL
PLC would be subject of discussion between ICL
management and Fujitsu.
The Chairman again thanked those leaving and wished
them well. They in turn wished the company, the
shareholder and the management team, e.g. success in the
future.
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