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ICL PLC
International Computers Limited
ICL Global Investments Limited
Minutes of the Investment & Strategy Committee
Held at 1 pm on Wednesday 12" May 1999
26 Finsbury Square, London, EC2A 1DS
Present
In attendance
Mr T K Todd (Chairman)
Mr M Naruto
Mr T Sekizawa
Mr R Christou (item 21) .
Mr H Kurokawa
POH -
Mr T Yurino
Sir Michael Butler (item 21)
MrR F Scott (Secretary)
Mr M Aida
Mr Y Katsuya
Mr Y Sumida
Mr A Downing
Ms M Faull (item 19)
Mr M N Owen (item 20)
Mr J H Bennett (item 21)
Mr D A Wimpress (item 25)
Mr G Hall (item 21)
Apologies for absence were received from Mr Sakai.
Action by:
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99/18
99/19
Minutes of Previous Meeting
The Minutes of the meeting held on 3" February 1999 were
approved as a correct record for signature by Mr Todd.
Chief Executive’s Report, May 1999 PLC/99/5
Financial Performance, borrowings/cash flow PLC/99/6
Recapitalisation of Subsidiaries ISC/99/18
Mr Todd expanded on his report then Mr Downing and finally
Ms Faull presented. Points noted:
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a) Mr Todd referred to the Business Transformation
Campaign, including a recent event involving 500 ICL
managers plus some Fujitsu secondees for three days of
briefing/coaching.
b) Mr Todd referred to five areas of discussion with the
business managing directors, to improve profitability and
increase the overall growth rate in order to underpin
sustainable profit growth over the next two years.
These were; operating cost reductions (target £50m) price
increases (2% on average, target £56m), improvement in
utilisation of skills (target £25m) elimination of bad
projects (target £25m) and growth of 20% and net
contribution of 10% (target £56m). There was thus a
potential improvement in operating profit of over £200m.
The plans to reach these targets were the basis of the
management confidence that by year 2000/1 6% operating
profit on revenue was possible.
c) ICL’s proposed flotation was briefly discussed.
The flotation decision was for ICL’s shareholder but
Mr Todd saw ICL contributing by achieving the necessary
profitability, and putting together the final business plans
and strategy. ICL was working on the plans and would
present to the Fujitsu group appointed to assess whether to
approve an ICL flotation, before the July ICL Board
meeting. After discussion with Fujitsu it was hoped a
formal decision on the float plan would be proposed for
the July Board meeting. In emphasising that flotation was
a shareholder decision Mr Naruto added it could only
receive full attention after Pathway project issues had been
resolved. Fujitsu would decide on the financial advisor for
the flotation and pay the fees.
d) Mr Todd referred to the acquisitions and divestments set_
out in hi i ing progress with the I
ropositions. He also referred to
where ICL was considering the
g stake. Mr Todd said he believed
'} might be taking legal action against
Fujitsu in regard and added that this would result
in an end to ICL working wit Mr Naruto said
Fujitsu would defend itself against any legal threat.
The Committee discussed Camelot where the competition
for a new licence to operate the UK National Lottery
would be announced in the near future. The Camelot
shareholders and iwere considering the situation.
There was a possibility the Post Office might join Camelot
as a shareholder and ICL did not intend to reduce its
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Camelot shareholding in the process. The other
shareholders would wish ICL to bear its proportion of any
discount involved in a share sale to the Post Office.
Cash was at present held in Camelot and could not be
released, for example paid out by means of dividends as a
result of the licence provisions. This would be a factor in
ICL’s decision whether to participate in Camelot in the
long term as a shareholder.
e) Mr Downing presented on ICL’s performance for the
12 months to December 1998. Revenue had increased by
9.4% and Profit before Tax had been £63.1. For the
3 months to end March 1999 revenue had increased 11.9%
on the comparable period and PbT had been £0.2m —
a series of adjusting items had reduced the budgeted level
of £5m. Mr Downing explained several of these “one off”
items including an additional write-off of spares of £12m
and the final cost of provisions on the va
It was of course intended that “one off” items would not
recur with the result that gross margin for the year 1999/01
should improve.
f) The Committee noted the results translated into “Euros” at
1.48 to £1. ICL was a Sbn Euro turnover company.
g) The Committee noted revenue growth by industry and in
several of the horizontal businesses including significant
increases in Multi-vending Computing and Operational
Services. The breakdown of business by geography was
also discussed.
h
In expanding on the difficulties over the spares situation,
Mr Todd said he believed it was not necessary to keep a
stock of spares particularly through flotation and Mr Palk
was looking at alternative ways of reducing the liability,
for example by establishing a joint venture with
competitors with the same need for access to spares.
ICL would focus on a core group of PC and server
products, thus reducing the spread of items on which
spares would be needed. Other issues in the Operational
Services business were noted including the need to
increase prices, and utilisation of capacity in the
Outsourcing business.
i) Figures for the final quarter of the accounting period
ending 31* March 1999 were reviewed in detail.
The Committee then considered the budget and forecast
for 1999/00. Mr Todd explained the opportunities for
increased growth and profitability in most of ICL’s
businesses. Globalstore from ICL Retail was discussed
and Mr Sekizawa referred to the level of development cost
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and the apparent need for considerable development/
enhancement of the product for each new customer.
Mr Todd replied that although Globalstore was a clear
winner in the marketplace, relatively few large retail
customers were changing their systems at present.
The Globalstore commercial model was being
reconsidered in order to improve profitability.
j) The Committee then considered the “non-linear”
opportunity to increase profitability in ICL, particularly as
regards the Operational Services division and how it was
organising to achieve in this area.
k) Ms Faull presented on ICL’s cash movements and
borrowing requirements. Forecast cash outflow for 1999
considerably exceeded ICL’s commitment to Fujitsu
although most of the increase in borrowing was for the
Pathway project, where different financing arrangements
might be put in place. Ms Faull went through plans to
reduce borrowings and improve liquidity including
possible use of a short term loan of up to £100m from
Fujitsu International Finance to be repaid before end
December 1999. Other initiatives were noted.
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Ms Faull referred to the borrowing limit established under
the ICL PLC Memorandum and Articles and explained
that proposals to change this limit would be proposed at
the July meeting of the Committee and ICL PLC Board.
The approach was likely to be, in line with the way banks
and analysts tended to look at such matters, to “carve out”
— ie. exclude from the definitions of borrowings in the
Memorandum and Articles, some items such as flexible
finance and segregated funding. Mr Todd added that a
change to the Memorandum and Articles could
conveniently be considered as part of the revised business
plan for ICL, for flotation, i.e. as a structural matter in the
move to float. He added that ICL had been improving its
cash management but there was still work to do in
improving forecasting and ensuring that the businesses
met their commitment on cash.
Se os
1) Ms Faull explained the proposal to recapitalise ICL Italia
S.p.A. This was approved.
m) Mr Todd said the quarter ending 31“ March 1999 had been
unnecessarily difficult and it would be necessary to
achieve a better “beat rate” of quarter by quarter
profitability for ICL’s business on a continuing basis.
As he saw things at present, he believed April and May
might also be disappointing.
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99/20 Statutory Accounts for:
ICL PLC PLC/99/7
International Computers Limited ICL/99/1
ICL Global Investments Limited IGIL/99/1
together with ICL PLC Company only Profit and Loss
account (PLC/99/15) and ICL PLC Ordinary Dividend
paper (PLC/99/8)
The Statutory accounts in draft and the other papers were
grouped together under ISC paper ISC/99/12. The Committee
noted the draft accounts and papers, which would go for
review to the Audit Committee the following day. The Audit
Committee would be asked to recommend adoption of the
accounts and dividend to the appropriate Boards of Directors
and Committees appointed by those Boards to finalise the
accounts. Mr Todd requested that any questions on the
accounts occurring after the meeting be passed to Mr Owen.
It was noted there would be no immediate change to the
structure of the investment held by ICL in Fujitsu Computers
Europe. The result of this was likely to be a write-down in
the ICL accounts, as dictated by the relevant accounting
standards, although discussions with Fujitsu were not yet
concluded. This would of course affect the ICL PLC profit.
Mr Naruto would discuss this with Mr Takaya.
99/21 ICL Pathway Project Update PLC/99/10
Sir Michael Butler, Mr Christou, Mr Bennett and Mr Hall
joined the meeting.
Mr Bennett presented on progress with the programme
including good progress with preparation for the national roll-
out and the status of acceptance activities. The programme
was going well and on Monday next an additional 100 post
office outlets would begin to be introduced to the live trials.
National roll-out was targeted for 20 August 1999 and
completion thereof in April 2001.
This matter is more fully covered in the attached report
marked (A) which summarises the present state of “without
prejudice” negotiations with HM Government.
99/22 Other current PFI projects ISC/99/13
The paper was noted. Mr Todd said that in any of its
contracts, ICL would prefer to supply Fujitsu or Fujitsu
Computers Europe PC, Notebook and Server products.
However the decision would have to be made on commercial
grounds, particularly price competitiveness and could not be
taken for granted by FCEL. The Committee agreed, with
Mr Sekizawa saying that what was most important was for
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ICL to win the bid and succeed in its business although of
course if Fujitsw/FCEL products were competitive it would be
hoped that ICL would include them. He added that feedback
Mr Todd to Fujitsu/FCEL of instances of non-competitiveness would
be useful and helpful.
99/23 Major Bids Report ISC/99/14
The Committee noted the paper and continued the
authorisation to Mr Todd/Mr Christou to sign/approve any
contracts of more than £50m arising prior to the next meeting
of the Committee.
99/24 Market Update PLC/99/12
The presentation was postponed on this occasion.
99/25 KnowledgePool ISC/99/19
Mr Wimpress reported on progress with the KnowledgePool
business and the Committee considered whether to endorse a
move, by the end of 1999 to the next stage in the
KnowledgePool plan, namely to form a single corporation to
bring together the parts of the business from Fujitsu, ICL and
Amdahl.
oS cm wm cee oh le
In discussion Mr Sekizawa said he felt that despite the
strength of its internal training Amdahl was not particularly
strong in selling training services in the US market. Fujitsu in
Japan and ICL in Europe had stronger positions. More study
and experience and discussion in Tokyo was needed before
the Fujitsu family could decide how and when to advance the
KnowledgePool plans. Mr Naruto added that the training
services business throughout the world was moving very
quickly, particularly through on-line training offered over the
Internet. Therefore geography might be less important when
compared to language and the US and UK considered one
market.
c=] cy
After discussion Mr Wimpress and his team were
congratulated on the progress being achieved and asked to
concentrate on improving the business results within the
present structure. The Committee would review the situation
Mr Todd in 12 months time to consider then how best to develop the
business further, possibly through the creation of one
corporation. In parallel, we would keep in touch with the
Mr Todd discussions in Tokyo. The Committee agreed
KnowledgePool was a good example of FujitswICL and
Amdahl working together and Mr Wimpress emphasised the
need to establish one brand for the global business which
would be of value to ICL as an asset, particularly at the time
of flotation.
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99/26 Approvals and Confirmations
a) ICIM
The position was noted.
b) Acquisitions & Disposals update ISC/99/15
The Committee noted the situation and endorsed the
recommendations. Mr Christou was authorised to
continue to progress with potential divestments in
particular subject to bringing detailed proposals to the
Committee when necessary.
c) Fujitsu Australia
Mr Todd said he hoped by the July Committee and Board
meetings to be able to propose a revised way of working
together for ICL and FAL. He expressed concerns (which
he had passed to Mr Kojima) about the possibility that a
new CEO might be brought in for FAL who would have
his own views on strategy and direction which might
potentially conflict with the views of ICL and Fujitsu.
e) Healthcare in Holland ISC/99/20
It was noted ICL sought to dispose of this business,
possibly without a profit on sale but avoiding liability to
support the software in future.
f) Half Yearly Preference Share Dividend PLC/99/13
The paper, for the Board, was noted.
g) Chairman and Managing Directors of
Trading Subsidiaries ISC/99/21
The paper was noted and new appointments since the last
meeting were endorsed.
h) Board Committee Minutes: Pensions Policy Committee
18 January 1999
Noted.
i) Documents signed and sealed PLC/99/14a
PLC/99/14b
The papers, for the Board, were noted.
99/27 Dates of Next Meetings
20" July 1999
24" November 1999
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Privileged
Made in contemplation of litigation
(contains without prejudice material)
Report (A) —- ICL Pathway
for May 1999
The Committee considered the project against the increasing hostility of the
Benefits Agency and in the light of communications received from the Public
Sector following the review by HM Treasury. Possible courses of action,
including litigation and timing thereof, were discussed, in the light of ICL’s belief
that the Benefits Agency customer no longer wanted the magnetic stripe benefits
card element of the project to proceed.
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