BEIS0000315
BEIS0000315
SECRETARY OF STATE’S MEETING WITH MR AKIKUSA (PRESIDENT
OF FUJITSU) AND MR NARUTO (VICE CHAIRMAN OF FUJITSU AND
CHAIRMAN OF ICL) TOKYO, 13 JUNE AT 1800.
Horizon: Post Office Automation Project
POINTS TO MAKE
© I welcome this opportunity to discuss the Horizon project with Fujitsu.
© The past six months were very difficult for the UK Government - for
Government Departments and for the Post Office. I very much appreciate how
difficult they were for Fujitsu and for ICL as well. The UK Government is
grateful for the support which Fujitsu itself continued to give to the project even
during the dark days of a few weeks ago; and I wish to thank Naruto-san and his
many colleagues here for that commitment.
© Accept that the outcome may not have been what ICL /Fujitsu had been hoping
for, but given the delays and difficulties a reconfiguration of the project had
become essential. What is now important is that the parties should work closely
together to make a success of the project.
© Very pleased that it has been possible to reach an agreement in principle on the
way forward for the project and look forward to finalisation of the agreement.
e We now have a three month period to see how we can make sure that the project
proceeds. I shall be giving this matter my personal attention.
e It will be particularly important to ensure that there is no slippage in the
timetable to roll-out of automation to all post offices by the end of 2001.
JAPAN2.DOC
BEIS0000315
BEIS0000315
Automation is important for post offices to attract new business and provide
better service to customers.
Successful completion of the project is key to realisation of UK Government’s
objectives for modernisation of the post office network and benefit payment
methods in post offices.
Confident that post office network given its extensive reach and popularity will
be well placed once it has an automated banking facility both to retain existing
benefit customers and attract new customers.
Post Office also needs to develop other new business. Hope that a constructive
partnership with ICL will help the Post Office to develop new business
exploiting the automated platform, such as delivery of electronic Government.
JAPAN2.DOC
BEIS0000315
BEIS0000315
Restricted - Policy And Commercial
BACKGROUND
1. You met with Mr Sekizawa (Chairman, Fujitsu), Mr Naruto (Vice Chairman,
Fujitsu and Chairman, ICL) along with Keith Todd , Richard Christou and George
Hall from ICL on 14 May against a background of negotiations which had been
taking place between HMG and ICL led by HM Treasury on a compromise solution
involving removal of the benefit payment card.
2. At that meeting, Mr Sekizawa stressed that unless an unconditional
agreement could be signed by 17 May, Fujitsu would have to accept a £306m
provision in their consolidated group accounts. If that happened he would find it
very difficult to justify to shareholders and analysts any course of action other than
to walk away from the project and seek to recover the £300m development costs
already incurred. The damage to ICL and to the prospects of its flotation next year
would be substantial. You undertook that the Government would convey its
decision to Fujitsu within that timescale.
3: Later that evening, Steve Robson wrote to ICL with a counter proposal
requiring ICL to accept a loss estimated by ICL to be £250m. There is no doubt
that when news of this offer reached Mr Sekizawa and Mr Naruto on their arrival in
Japan there were strong feelings that the company had been betrayed by the British
Government.
4. In the tense negotiations over the following days we know that it was your
letter to Keith Todd of 21 May confirming the Government's wish to proceed with
the project, and later the personal appeal to Mr Naruto by the Deputy Ambassador
on your behalf that persuaded Fujitsu not to abandon the negotiations.
5. In the event, the agreement reached in the early hours of Monday 24 May
enabled Fujitsu to avoid taking the full provision of £306m, but because of the loss
which ICL are now expected to make over the life of the project as a whole
Fujitsu's auditors insisted on a lesser provision of £150m. The final Fujitsu
year-end result was a loss of Y13.6bn (£70m).
6. The calls by Mr Sekizawa and Mr Naruto will enable you to cement this
important relationship but also to stress to Fujitsu that we now expect them to work
constructively with the Post Office to finalise details of the agreement and to
deliver the restructured project without further delays or difficulties. Fujitsu are
clearly anxious to see a public/ private partnership develop between ICL and the
Post Office to exploit the commercial potential of the Horizon platform since it is
this hoped for 'upside' that could offset their loss on the basic project. The Post
JAPAN2.DOC
BEIS0000315
BEIS0000315
Restricted - Policy And Commercial
Office however will not wish to commit themselves too far at this stage, since ICL
may not prove to be the optimum partner for the full range of possible applications.
DTI/Postal Services Directorate
4 June 1999
JAPAN2.DOC