COMPAI
fee)
NY SECRET DRAFT FUJITSU
FUJITSU SERVICES HOLDINGS PLC
FUJITSU SERVICES LIMITED
FUJITSU SERVICES (INVESTMENTS) LIMITED
(the “Companies”)
Minutes of a Meeting of the Fujitsu Services Management Committee
of the Boards of Directors of the Companies
Held at 9.00 am on Tuesday, 20'" August 2002
At Fujitsu Limited, 77 irrelevant. I
Present:
Mr. H. Kurokawa (Chairman)
Mr. R. Christou
Mr. D. Courtley
Mr. T. Adachi
Mr. H. Hirata
Mr. H. Kodama
In attendance: Mr Okada
Mr B Harris
Mr Tokuda
Mr Katsuya
Ms. R Mizusawa
Mr. E Tsuyuzaki
02/112
02/13
02/14
Minutes of Meeting held on 29" May 2002
The Minutes of the last meeting held on 29 May 2002 were
approved as a correct record.
Matters Arising FSMC/02/11
Mr Christou ran through the matters arising. He assured the
Committee that the majority of the actions had been completed but
that the cost reduction plan and head count plan were being
continually monitored and would be covered in more detail by
Mr Adachi in the CFO Report. It was noted that the Strategic Plan for
outsourcing in EMEA was being continually reviewed and that
Mr Courtley would cover this in his report.
CEO’s Report FSMC/02/12
Mr Christou commented on his report and highlighted a number of
points.
The current market is very difficult and most analysts do not predict
recovery in the near future. This view has been supported by
discussions with industry leaders over the last few months and it
{ FILENAME \p }
ACTION
FUJ00003534
FUJ00003534
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
cannot be emphasised enough how difficult things are, the industry as
a whole was in a loss position.
However, despite these conditions, Fujitsu Services broke even at the
operating profit level last fiscal year, therefore performing better than
many IT companies in the UK. Further we are planning a PbT and
Operating level profit this year, therefore our performance will be
sensible in relation to other IT companies in the UK. Further that
Fujitsu Services is in the right sector, public, outsourcing and
infrastructure, which is the sector that is showing some, if only
modest, growth. However, public spending will increase and there
will be opportunities that we are well placed to take advantage of.
Additionally, we reduced costs last year and were quicker to act than
other UK companies, which are now starting to take the actions we
put in place last year. Our cost savings are now coming through and
helping our bottom line, although revenue is still causing problems.
Mr Christou did not feel optimistic but was reasonably confident that
Fujitsu Services had been positioned correctly and performance this
year would improve. However he stressed that did not mean that
there were not more costs to be taken out or carefully controlled.
Looking to the future he anticipated the long-term problem would be
the consolidation taking place in the European IT sector. Fujitsu
Services is finding it increasingly difficult to find partners for the
transformation part of our infrastructure services business.
Sadly Fujitsu Consulting does not have sufficient strength to be
credible as a partner, while it is suitable for smaller projects, it cannot
replace the likes of PWC on deals such as DVLC. Mr Christou
recognises this as a weakness and acknowledges that it gives cause
for concern.
Mr Christou went on to raise the question as to whether we should be
looking more at business process outsourcing as opposed to simply
IT infrastructure services. This was something to be considered in
the future, alongside examining partnering possibilities, not just by
Fujitsu Services but also by Fujitsu in Europe.
Summing up, Mr Christou felt reasonably confident despite the hard
market but recognised that Fujitsu Services faced medium term
challenges.
Mr Christou then moved on to consider specific areas for concern and
made the following points:
¢ With regards to EMEA. We are working very hard to shut down
African operations, other than South Africa, and EMEA non-core
countries. EMEA as a whole was suffering from the same market
issues as the rest of the world and the UK. However, the
Committee could take comfort from the fact that our businesses
are very small and the margins are so low that the effects do not
impact on the bottom line as much as they might. France
appeared to be stabilising, and a possible disposal would be
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
covered in detail in a later paper. Generally EMEA was not
causing excessive concern, Tim Escudier has stabilised the
situation but it is making a loss so the situation is not satisfactory.
e The current year performance would be covered in detail by the
CFO. Although actuals to date are showing that cost savings are
dropping through to the bottom line we still need to be concerned
about revenue. Mr Courtley would outline what we are trying to
do to address this. It was important to note the very good work by
Fujitsu Services staff, including that done to enable the LIBRA
contract to be signed. A significant effort has been made and we
have managed to turn our problems around.
e In Invia we have bought back the majority of shares from the TA
minority shareholders and we are currently going through the
legal process to ensure that by the end of this calendar year and
any that remain will be squeezed out. It was noted that
Mr Christou had spent time with Henry Ehrstedt to stabilise the
situation and agree incentive packages. In short, Finland was
doing well but Scandinavia was doing badly, especially Denmark,
which should be disposed of immediately. Mr Christou was
reluctant to begin the process to dispose of Invia until an advisor
had been formally appointed, it was noted that even if Invia was
not sold it would still need to be rationalised. Henry Ehrstedt had
been asked to start putting together a business plan, including
rationalisation, which would be reviewed by Mr Adachi and his
team.
e The sale of MCD was progressing and would be covered in more
detail by Mr Adachi. It was unlikely that it would be disposed of
before the half year end and it was possible that there would be
some write-off which would be better taken in the second half.
¢ KnowledgePool was progressing and a number of opportunities
were outlined in Mr Christou’s paper.
¢ Zensar shares continued to fall. It was noted that we were trying
to arrange a sale to another shareholder or a venture capitalist.
¢ A separate meeting had been arranged to discuss pensions,
however Mr Christou stressed that the issue must be handled
very carefully or it was liable to cause major disruption to the
business and trigger trade union and employee involvement.
In response to questions Mr Christou went on to say, that a modest
recovery could be expected in the next fiscal year and by the end of
the first quarter of 2004 the situation should have improved.
Mr Christou explained that there was business to be won, but there
was likely to be only 6-7% growth, but that this would be won at the
expense of the competition. As far as new projects were concerned,
they would not start coming through until 2004.
{ FILENAME \p }
COMPANY SECRET DRAFT
02/115
There would not be time for a separate meeting to look at Invia but
Mr Adachi informed the Committee that over the next two weeks the
Invia business plan would be reviewed, potential investors
approached and professional advisors sought.
Mr Tokuda was most optimistic about the value of the online billing
business. Mr Christou informed the Committee that it had been
valued at 90million euro in the days when dotcom businesses were of
value, however in the current market we would be lucky if it was worth
10 or 20 million euro. It was noted that this business was not closely
connected to the rest of Invia and the sale could be made public
without damaging Invia. Hewlett Packard had been identified as the
most likely buyers and would be approached.
Moving on to MCD, Mr Adachi warned that it would take time to
arrange a sale and pressure was being applied to Morgan Stanley,
the advisors, to ensure that it was sold as soon as possible
It was stressed that care must be taken to ensure that Pension
liability was not increased further.
CFO’S REPORT FSMC/02/13
Mr Adachi commented that there had been a good start to the Q3
budget, the result being effected by the sale of Beaumont House,
which had impacted on the profit and loss by £8.6 million. However,
it should also be noted that the summary profit and loss assumes the
sale of MCD in Q2.
Net Opex had fallen this year when compared to the previous year
which was largely as a result of the HR rationalisation programme.
It would continue to fall in the second half because of the assumed
sale of MCD which would cause a £12 million reduction.
The operating profit for the first half, although negative, was an
improvement on last year especially when the VME issue was taken
into consideration. However despite the improvement ratio looking
poor it was not so bad as appearances may first suggest.
It was noted that the budgeted first half profit before tax included the
sale of MCD in Q2. It had been anticipated at Q2 budget that MCD
would generate £8 million operating profit in the second half however
they didn’t materialise and consequently this accounted for the
negative figures in the Q2 budget and Q3 budget.
Within UK Services, there was an aggressive 20% increase in sales
between the first and the second half. With regard to the separate
businesses within UK Services, Large Projects had been the only
area to improve revenue on last year. Given that targets were
optimistic Mr Adachi explained that he had included a Task/
Contingency to reduce the full year by £34.7 million.
Moving on to the operating profit for UK Services, it was noted that
the expected £12.1 million was considerably less than last year
{ FILENAME \p }
o
FUJITSU
FUJ00003534
FUJ00003534
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
largely due to the VME within Integrators. Aside from the UK all other
businesses were making a loss and their disposal was the key to
improving the overall profit and loss situation. A judgement of
£33.8 million had been added to the operating loss, this has to come
from a reduction in operating expenses within the businesses.
Mr Adachi went on to discuss the judgement further in relation to UK
Services. It was noted that he considered it to be achievable.
The probability of signing new business contracts was raised and
Mr Adachi admitted that of the £30.8 million, £8.4 million would
probably not be achieved.
Discussion of the revenue analysis for each business followed.
An explanation of the judgement figures and probabilities were
attached to the potential new businesses and judgements imposed.
Turning to gross costs Mr Adachi pointed out that Q3 budget costs
had decreased from Q2 budget and from last year, however, it was
noted that within these figures was the proposed sale of MCD.
While external costs had been successfully reduced it was still
necessary to reduce internal costs further, although there had been
an improvement from the original budget. Payroll costs had been
kept below the original budget as a result of deferring April and
October pay increases. However, if Q3 budget is met then staff
would be given a 5% bonus, resulting in a higher reward than if they
had been awarded a pay rise and would serve as a motivator.
Moving on to disposals, Mr Adachi outlined the impact on the profit on
loss throughout the year. When all the disposals had been taken into
account the budget was to break even at the end of the year.
Mr Adachi then drew attention to the Headcount Bridge. Members
noted that quarterly movements were indicated by the black and grey
bars, black indicating decreases and grey increases in the head
count. Employee headcount had dropped from 19,748 at the end of
last year to 16,072 and would drop again in the second half to 14,951.
The two main reductions were accounted for, firstly by the transfer of
staff to Fujitsu Consulting and secondly by the sale of MCD.
Moving on to the balance sheet, it was noted that at March 2002
borrowing stood at £119 million but that would drop to £67.3 million at
the end of the year. Without Flexible Finance borrowing would have
dropped further. When running through the inventories Mr Adachi
drew members’ attention to the breakdown on page 18, which gave
more detail. He also and pointed out that fixed assets had dropped
considerably and reminded them that the sale of MCD was reflected
in these figures.
To conclude Mr Adachi turned to the cash flow. He informed the
Committee that the disposal of Invia would have a considerable
impact on the cash flow. He went on to talk about the impact the
disposals would have on the cash flow.
Mr Adachi invited questions from the Committee.
{ FILENAME \p }
COMPANY SECRET DRAFT
02/16
Mr Adachi was asked why the operating profit in the Q3 budget
deteriorated by £2 million in Q2 budget. In response he informed
members that the emphasis had been changed to bring it in line with
target profit before tax.
Mr Kodama then asked how the £33.8 million contingency would be
allocated across the businesses to make the savings.
Mr Christou responded that he was keen to change the culture of the
company and ensure the current management was more focused on
the tasks they faced. He assured the committee that he was
confident the savings could be made, he, Mr Adachi, Mr Courtley and
Mr Harris had discussed how this amount could be achieved and not,
simply, plucked it out of the air.
How Does Fujitsu Increase Its Revenue FSMC/02/14
Mr Christou spoke of concerns regarding culture and communication
with employees but stressed that equally important were the tasks of
growing revenue and moving the company forward. He asked
Mr Courtley to outline plans for addressing these issues.
Mr Courtley took the Committee through his slides and drew
particular attention to the new organisation model. The model would
be essential to achieving greater focus on sales, it had been in place
since the start of April 2002. It was noted that members should not
under estimate the problems that arose from the old model, where
responsibilities were unclear and a reliance on maximising revenues
from existing customers, instead of developing and maintaining new
customers had developed. Essentially the organisation culture was a
problem and this was now being addressed.
The new model separated the approach to existing customers and
new target customers. The start of the year had seen the introduction
of a single, co-ordinated point of responsibility for customers.
Account managers were now responsible for developing and
protecting relationships and Mr Courtley had introduced a
measurement scheme to ensure suitable rewards. There were
approximately 100 account managers who had been selected from
the existing employee base for this essential and demanding role.
Other changes included the introduction of a standard set of Terms of
Reference for account managers, a prescribed format Account Plan
which would be produced annually and updated regularly to help
develop objectives and relationships. Account managers would be
encouraged to share information with customers where appropriate.
A review process was in place which ensured that each customer
account would be looked at regularly to examine how we can better
serve them. Results would not be immediate but over time the way
we think and the way our customers perceive us should change.
Proactivity and the speed of response still need to be improved to
counter our bureaucratic image. To help achieve this it was important
{ FILENAME \p }
o
FUJITSU
FUJ00003534
FUJ00003534
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
to empower account managers and for those at the top of the
organisation to support them to do their job speedily and
responsively.
« Backlog
Currently there is a great dependence on back log and new business
from existing customers and in these areas the account managers
are essential. However we need to look at new target customers and
how we tackle them.
Historically there has not been a coherent approach and business
has been won by chance or referrals. Changes were being made to
the sales force, head count had been reduced from 500+ to
approximately 120 people. We have, where possible, kept the better
people, however we do not have the very best people in all respects,
but circumstances dictate that we work with what we have and they
are rising to the challenge and developing their territories. A list of
target customers that we believe we can develop a relationship with
has been compiled. Fujitsu Services have introduced a new incentive
scheme for the sales force based on commission and this appears to
have gone down well with the employees involved. The business unit
directors’ main focus is sales to new customers and they have P&L
responsibility, but their real challenge is to support and help the sales
team develop business.
It has been noted that customers like dealing with senior members of RC
Fujitsu Services. They appreciate that they are valued and that they Dc
are dealing with the people able to make decisions, hence it was
important that Mr Christou and Mr Courtley continue to make
themselves available along with their direct reports.
+ Pipeline
The paper showed that the backlog business declines over time but
that new business is increasing. We do have a reasonable pipeline of
business from existing customers. We have taken a factored view of
opportunities and we can see where revenue from new customers
comes from. Mr Courtley proposed that the use of this form of
representation continue in order to draw comparisons and see
developments in the future.
Mr Courtley then proceeded to take the Committee through his
presentation, looking at the business by vertical sector. It was noted
that business with Central Government and the Ministry of Defence
was beginning to improve in comparison to a year ago. A solution to
the Libra problem was imminent and Government relations were
improving. We would be able to continue to grow and exploit
relationships when Government expenditure began to increase.
The Retail sector had been strong for ICL in the past, there was a
good customer base and it was important that we did not undervalue
them. Although traditionally they were difficult customers, we still
need to ensure we protect our position. Fujitsu Services also has a
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
strong retail customer base in Europe but on a smaller scale,
however we must connect what happens in the UK with Europe to
give a coherent strategy. We are at a turning point in Retail where we
are now talking to customers properly about forward strategy, helping
them to retain customers and being innovative in the future.
In the past we have had a very strong relationship with Local
Government, born out of the traditional ICL hardware base. However
we have now arrived at a point where we have good business across
the UK but have begun to lose ground and be seen as a legacy
supplier. New entrants such as Capita and ITnet were seen as more
exciting and with more solutions. We have examined our strategy
and are offering a strict, standard set of solutions that allow us to
compete on price and offer consistent service levels. This approach
will not suit all local government departments but we are known to
this sector and we are hopeful that we will succeed. It is a more
proactive approach and already, two or three local councils have
signed up.
Moving on to the Financial Services sector it was agreed that ICL was
well known in retail banking. The current strategy needed to be
examined and someone had been allocated to the task. It has been
recognised that customers were not moving forward with new projects
in the volume experienced in previous years, consequently the aim is
to be easier to do business with and more sympathetic to customer
needs.
It was noted that there were a few high spots of activity within the
Utilities sector. However, historically there had not been a coherent
strategy in place. There was room for improvement in this sector and
this could be achieved when we improve our understanding of the
industry.
The Telecoms sector was currently difficult and confused. In the UK
many businesses were going into liquidation and it had been decided
that our best approach would be to develop partnerships with
companies such as Cable & Wireless and BT.
The Manufacturing and Energy Sectors were areas where we had not
been strong in recent years and these areas would have to be
examined.
Mr Courtley then went on to outline the competitive landscape.
We are aware that companies such as EDS, IBM and CSC are
pushing to enter the BPO area and we understand the implications of
this. These companies are recognised as genuine global players,
companies who are seen as top quality suppliers, a label to which we
aspire.
Competition from the consultancy companies is exemplified by that
which we face from Accenture. These companies rely on the quality
of their staff and relationships, their strength lies in managing the
process element for business which is an area where we are weak,
hence we have partnered these companies in the past. However,
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
consultancies are being bought up and are cutting off avenues
previously open to us.
Systems Integrators, e.g. Atos, Logica and CMG are public
companies which are in or just out of FTSE 100, they are strong in
project management and the areas covered by Fujitsu Consulting.
They are currently beginning to branch out into our traditional markets
and will emerge as competitors in the next few years.
Smaller outsourcers, such as Capita and ITnet, have a reputation for
being cheap and ruthless and are also looking to expand into the
commercial market place.
Telecoms companies are trying to enter the outsourcing sector via the
provision of networks. We are optimistic that they will not succeed
but they are very determined and are investing a great deal of effort
to compete with traditional suppliers.
If we were not seen to be a global supplier we also run the risk of
losing contracts to re-sellers such as Computacentre and Dell.
Mr Courtley stressed that the members should not be depressed, but
that they must understand that we have vigorous competitors and it is
essential that we understand them and what they are doing.
Mr Courtley then went on to outline why we lose business. It is
questionable as to whether we are systematic in the way we look at
loss analysis but even so it is evident the reasons are various.
Although price is a factor, it is not an overriding factor. We are not
particularly expensive and we do not necessarily win business on
price compared to the competition but we need to be careful. Cause
for greater concern are the times when business is lost as a result of
the wrong relationship or our not meeting requirements. These
elements are within our own control and we must make sure we do
not allow these failings to reoccur.
It was also noted that we had lost our sales culture and therefore
need to look at the quality of the sales people, the support they get,
and ensure we know who is winning the deals. Mr Courtley also felt
that traditionally there had been a problem with the support functions,
legal, commercial, financial and technical. If these functions saw
themselves as policemen we would not win business. It was vital that
the functional staff support the sales teams and that there was a team
approach. It was noted that Mr Christou and Mr Courtley were
determined to lead by example in the future.
¢ Key Issues and Actions to Address
Mr Courtley admitted that the brand was not fully understood.
Surveys show that the brand is recognised and there are helpful
associations with regard to peoples perceptions, but IBM are still way
ahead of us in peoples perception. On a positive note we are
pressing ahead with a new ad campaign for Fujitsu that should help
both Fujitsu Services and Consulting to ensure customers realise
what we stand for.
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
Our own knowledge of commercial customers needs to be improved
along with our strategic relationships and understanding of the
relevant sectors of the industry. We also need the right references
and enthusiastic customers who will sell on our behalf, such as the
DTI who will happily eulogise on our behalf, but we need more like
this. We have to continue working on customer satisfaction and
account managers have been given targets to make their customer
relationship referencable within a short space of time.
We are weak in EMEA and the US. In Europe we struggle to
convince customers that we are a global player and Fujitsu Services
have to accept this weakness. In the US our representation is weak,
but we can demonstrate our capability. However it is difficult to
demonstrate how we join with the UK.
The market is tired and companies do not have much spare cash.
They have seen that big initiatives have not delivered the value
promised so they are reluctant to indulge in huge future expenditure.
However, while this is a problem, there is also an advantage in that
customers cannot afford to move away from the technology they have
invested in and we are trying to understand how we can take
advantage of this and preserve and increase VME sales.
Finally, we do need to take a fresh look at the market strategy with
regards to Business Process. This market will not disappear and we
cannot ignore it. It merits further examination as to what we should
do, rather than do nothing.
Mr Courtley stressed the importance of being able to demonstrate a
relationship with Fujitsu Ltd and thanked Mr Hirata for his help to
date. The days when ICL was a separate part of the Group had gone
and he wants to work closely with Fujitsu colleagues at all levels and
target Japanese customers operating in Europe. He also hoped to
find opportunities to work closely with other companies in the Fujitsu
Group and exploit any competitive advantages.
e Major Bids Report
Mr Courtley commented on the report circulated prior to the meeting.
The Report looks at bids over £50 million but there are many bids
between £10 and £50 million that are not mentioned. It was noted
that the closure of the network banking deal with the Post Office was
a great success for us, work was going well, it was on time, within
budget, and a profit should be made in due course. Further there
was a large opportunity to extend and expand the contract for a
further 8 years, important discussions were ongoing and Mr Christou
and Mr Courtley were personally involved.
The contract with Lloyds TSB had suffered as a consequence of the
customer delaying decisions. Talks were ongoing with Nokia
regarding Project White Bear however Nokia are reluctant to make a
decision but Fujitsu Services are still hopeful of a favourable
outcome.
10
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
The Lattice Group is an existing customer, if we won this contract we
would double the business that we do with them, however they are
vulnerable to takeover and hence there have been delays. In view of
the threat of a takeover we also have to question who we build
relationships with.
BMI has approached us and asked us to look after all their IT
requirements, the deal would be closed within the next few weeks.
This presented a great opportunity that we need to learn from.
Mr Courtley reported that there were two significant opportunities
from the large projects arena coming through. If these deals could be
closed quickly they would help the year end results.
Despite not being awarded the Inland Revenue “Aspire Project” the
Company was carrying on discussions with the remaining bidders and
was likely to win business from whoever ultimately won the Project.
Mr Christou went on to add that, with regard to increasing sales,
challenges were faced on two levels. Firstly, we must consider what
we do over the next six to eighteen months with regard to getting new
and existing business. Secondly we will have problems if we do not
come to grips with the Business Process Outsourcing area. We must
examine the bigger picture and not only concentrate on being
profitable. In the long term Mr Christou believed that companies such
as Logica, CGN and Atos would be bought by larger companies.
In the short term Mr Christou expressed confidence in meeting these
challenges.
The Chairman thanked Mr Courtley and members discussed the
points he had raised. Those members based in Tokyo agreed that
cost cutting alone would not be sufficient. The Chairman asked on
which of the sectors, within the vertical sectors mentioned, the most
emphasis would be placed. Mr Courtley stressed the need to focus
on those sectors in which Fujitsu Services was strong and where
additional business was available. We would double our efforts in
relation to the Government, Retail and Local Government but
historically the other areas were not ones in which we were strong
and while we would look for opportunities, they were not areas on
which we would concentrate. Other areas in which we had been
successful in the past were Utilities and Financial Services, typically
with companies who did not want to go the whole outsourcing route
but were prepared to embrace partial outsourcing. This is an area in
which we are strong and where we would invest time and effort.
Mr Courtley was asked where Fujitsu Services fell with regard to
competitive landscape. He said that Fujitsu Services aspired to be
within the top category of the global Tier 1 service suppliers. In the
UK we were almost there as a consequence of history and the recent
turn around. However Fujitsu Services needs to maintain its profile
and the attention it has been receiving. If we failed to maintain this
position we would become a medium size player, under threat, with
no direction. With this in mind it was agreed that it was necessary to
prioritise and identify actions.
11
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
EMEA and the US were two problems that needed to be examined
and issues needed to be addressed urgently from a global
perspective. Mr Kodama’s Group were looking at this and at the
contribution from Fujitsu Consulting.
When asked to expand on the Global situation Mr Courtley explained
that with regard to the provision of desktop services, companies such
as BOC require a consistent approach. They see themselves moving
globally and need consistency so that their people can work at a
desktop anywhere in the world, and all at a reasonable cost. The
availability of a consistent universal service would also be attractive
for other customers. For instance BP need a global desktop services
model and are looking for suppliers to provide it with consistent
pricing. All elements of the service required technical and delivery
consistency.
Mr Christou added that those in a position to make the decisions with
regards to buying, look at reference sites and when dealing with
customers in the US we need to increase the number of sites we
have in order to win business. It was noted that CSC had
considerably more reference sites within the US than Fujitsu Services
and that our lack of a credible presence in the US had contributed to
our losing the BT Concert contract. Hence it was accepted that while
global capability was important it was also essential to have reference
sites and capability in the jurisdictions where the decisions are made.
After discussion it was agreed that it was necessary to provide
consistent services across the world and it was suggested that a main
site as a central point of access could be established in the US.
This would be discussed in more detail and considered globally with
Mr Kodama. Mr Christou supported this decision and emphasised
the need for concrete decisions to be made as soon as possible.
Mr Courtley went on to outline the strategy with regards to
Datacentres. All those present agreed that this was important and
noted that we were close to reaching a solution which would allow the
consolidation of the older centres. Costs were being examined as a
key part of our commitment to the future for the company.
Mr Christou was asked to give his opinion of the Datacentre strategy
and the shared services provided by it. Mr Christou explained that
this depended on what was in the Datacentre and its size. If the
Datacentre was large enough it could provide services for the other
Fujitsu centres throughout Europe but the charging would have to be
correct.
The call desks/help centres were slightly different and their needs
throughout Europe were also different, but there were cases where
they could be combined. Our internal help desk deals with the needs
of employees throughout the company and Richard Reed is
considering expanding the service to other companies throughout
Europe.
12
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
Mr Courtley added that our call centres had won awards so it is
feasible to think about extending the service they provide. In terms of
capability, the Datacentre approach would give some limited capacity
of high quality that could be utilised throughout Europe.
Mr Hirata explained that building a Datacentre was not the aim, it was
a tool to make us profitable. However, if the parent wanted to invest
in, buy, or lease an element, that would be possible and was a valid
idea. It was agreed that further discussions should be arranged to
look at the situation in the US in relation to what is happening in the
UK.
Mr Courtley was then asked to expand on the new incentive scheme
and clarify when a deal is considered closed.
Mr Courtley explained that the contract was considered closed once it
had been signed.
The sales man who won the contract was responsible for it up until
the point that it was signed, after that he would be available and
involved to a lesser extent but on signing the primary responsibility
was passed to the account manager. Half the commission was paid
at the time the contract was signed and the other half a year later.
This helped ensure continuity and that we passed from sales to
delivery smoothly. It also prevented us making payments, as had
happened in the past, and then discovering problems and being
unable to fulfil the contract as had been anticipated.
The sales team has now been selected, it was crucial that this was
done quickly and a great deal of work was done from January through
to March. The HR teams and business leaders assessed the people
available based on job title, set terms of reference, on our experience
of them and their behaviour, potential and past performance.
The process was methodical, recorded and documented fairly.
Initially it was hard to select people but we now have a process in
place to identify more candidates for the future.
Mr Courtley confirmed that account managers are responsible for
existing customers and the sales force will approach new customers.
The sales team are paid commissions on the business they close and
the account managers are paid on the profit contribution and
customer satisfaction contributions they make.
It was noted that they were areas which were being focused on,
however the question was raised as to what were the obstacles to the
revenue being increased.
Mr Courtley countered a comment that revenue from Central and
Local Government and Retail were all in decline and explained that,
with regard to Central Government when large projects were included
revenue was increasing. It is an area in which we are strong and
which we must continue to exploit.
13
{ FILENAME \p }
COMPANY SECRET DRAFT
02/17
With regard to Local Government, we have a great opportunity as a
result of our existing base however we have seen a decline. Fujitsu
Services have introduced a more dogmatic method for doing
business with these customers which involves a ‘take it or leave it
approach” which has worked. We have improved our performance
and are offering a standard solution which is low risk and low cost.
It is a differentiating strategy and it will attract customers.
We can go forward in the Retail market. We have done a great deal
of work in this area in the past but not made much profit. Our current
approach is that we need to persevere and work with our partners in
a profitable fashion to take us forward. Lastly, we must not
underestimate what the potential for business with the Utilities
companies, including the Post Office and Centrica.
Mr Christou added, that looking at ICL’s history, it has been active in
all these areas but not in the outsourcing business. In order to meet
this challenge we are changing the way we look at the verticals and
not continuing as we have done in the past.
It was noted that meetings would be held that week to look at tackling
the Japanese market, looking both at companies in Japan and their
European offices. It was agreed that everyone should work together
to look at customer requirements and find the best possible solution.
Relationship with the UK Government
Mr Christou reported that the Government was our biggest customer
and it was essential that we had a good relationship with them.
Renegotiating Libra had been very stressful and all the permanent
secretaries were aware of the negotiations that had taken place.
During the last year we had, again, been a topic of conversation as
the Pathway and HMCE contracts were being renegotiated.
While these negotiations were ongoing it was important not to be too
friendly or else we risked weakening our position. However, we were
now able to build on relationships. Mr Christou had visited all the
permanent secretaries and he had also joined them on a training
weekend. Consequently, although there was room for improvement
we are on good terms with them and they are, by and large, all
satisfied with the service Fujitsu Services provide.
Mr Christou added that the relationship with the DTI was good.
He was having talks with representatives, both in his capacity as
a member of various DTI Committees, and also as a service provider.
Relationships with the Treasury were also being rebuilt, and on the
whole, compared to last year, we hold a reasonably good position,
however we can’t afford to be complacent. It was noted that work was
also being done with the MOD.
The Chairman thanked Mr Christou for all his work with the
Government and asked for his support when he visited the UK in
October to visit customers. Mr Christou assured the Chairman of his
support and that the meetings would give him the chance to meet
14
{ FILENAME \p }
o
FUJITSU
FUJ00003534
FUJ00003534
COMPANY SECRET DRAFT
02/18
02/119
customers and see that concerns raised in the past had been
addressed.
Pension Fund — Current Status and Future Strategy
It was noted that issues regarding the pension fund would be covered
in depth in a separate meeting. However it was emphasised that
accounting issues and the effects on the company accounts were
taken into consideration. It was noted that actions to reduce future
liabilities on accounts had already been taken. Mr Christou and
Mr Adachi were working with the actuaries to ensure the right
decisions were taken.
Items for Noting and Questions
Minor Acquisitions and Disposals
There would be a small profit from the disposal of the Smartcity
business in Ireland but otherwise there was nothing to add to the
report.
EMEA - Withdrawal from non-core countries
An Information Memorandum has been circulated and it was
anticipated that responses would start arriving shortly. However it
was noted that Mr Christou had spoken to Paul Stodden from
Siemens and he was interested in looking at what is available.
Mr Christou had agreed to send him the Information Memorandum
and hoped there would be co-operation. It may be expensive to get
rid of the non-core countries in relation to the loss they contribute so
we have to be careful that it is the right decision to dispose of them.
Mr Adachi and Mr Christou were looking at the pay-back period and
also considering whether there was more risk in these countries than
we are aware of. When responses to the Information Memorandum
have been received we will then take a final decision based on the
potential outcomes.
EMEA - Restructuring of Core Countries
Mr Christou explained that the drastic measures discussed earlier this
year could not be taken without affecting the budget very badly.
Mr Escudier had tight control over the countries and was working
closely with Mr Courtley to keep things running and consequently the
risks faced last year had been reduced. In brief, Holland was doing
well; Italy would be shut down; Portugal could be sold but was doing
well for the time being; Germany was doing better with new
management; in Switzerland we are closing down operations but
leaving a customer support base. Finally, Belgium would be very
expensive to dispose of but this was necessary. It was suggested
that the Toyota headquarters in Belgium could be targeted to
generate more business in Belgium or that it could be run as a branch
from Holland. Mr Courtley and Mr Hirata agreed to explore the
possibility of a management buyout, but if all else failed, it would have
to be kept running for the time being in order to minimise losses.
15
{ FILENAME \p }
o
FUJITSU
RC
Dc
HH
FUJ00003534
FUJ00003534
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
The question remained as to what to do with the mobile engineering
work force in the Republic of Ireland. The Irish Smartcity business
was being sold and we would merge our Irish operation back with
Fujitsu Consulting.
Fujitsu Services France
It was clear from the report that performance was still poor, despite
having improved. We had contained losses at the price of further
restructuring, but if we could sell or close at the right price we should
do so. Discussions were ongoing with Specialist Computer Holdings
(SCH), they had questioned us extensively but had not given a formal
response.
Mr Adachi stressed that consideration was being given to a number of
options in order to find the most sensible solution. Although the sale
of the French business was being talked about and investigated, the
sales people were not aware of the situation and continued to work
on their leads. We continue to pursue profitable contracts, for
instance with Cannon and Honda, until we are sure we can sell the
business and do not have to lay off staff.
Mr Hirata added that the aim was to minimise risk and losses and not
hire new people.
Mr Christou commented that if revenue could be doubled in France it
would start to become profitable. New business could not be refused
and existing business must be preserved. The same was true for
Germany, and we should look hard at Japanese multinationals for
new business.
The Chairman suggested that Fujitsu Services needs to develop
areas in which it could add value in the areas of ERP, Supply Chain
Management and CRM in order to be considered by any Japanese
multinational. He agreed to investigate this further on behalf of
Fujitsu Services.
Africa - Disposal of Operation
Disposal of non-South African operations was underway and
progressing well. We would continue operations in South Africa until
the other operations were sold off.
Large Projects
The important elements had been covered earlier but it was noted
that things were now on an even keel and in a good state.
Capital Structure- Redemption of Preference Shares
It was noted that this had been completed and Mr Adachi reported
that the dividend coupon rate was 6.15% for 3 years.
16
{ FILENAME \p }
FUJ00003534
FUJ00003534
fee)
COMPANY SECRET DRAFT FUJITSU
Internal Capitalisation
The paper was noted and no objections were raised.
Banking Arrangements
Borrowing stood at £410million, half of this would have been enough,
but now we have plenty of head room.
Major Disputes
The Committee was aware of the situation with Transys and Unisys
and that it would be ongoing for a very long time, there was nothing we
could do, except carry on as we have been.
HR Manpower Report
The reported was noted and it was agreed that Roger Leek had the
situation under control and was doing a good job.
Documents Signed and Sealed
The paper was noted and approved
Minutes of the Pension Policy Committee
The Minutes were noted.
Chairman’s Closing Remarks
The Chairman stressed that the biggest issue now was the budget
and if it was met, Fujitsu Services would be turned around. Alll issues,
such as pensions, had to be addressed in order that we are well
prepared for any new problems. He stressed the need for people to
talk openly and frankly.
Concerns were expressed regarding Invia and the detail needed to be
considered carefully on a one to one basis to find solutions. Referring
to Mr Courtley’s presentation, the Chairman acknowledged that
incentives were important but stressed that revenue needed to
improve. He asked that members in Tokyo were given frank
information in order that they could give support.
There being no further business, the meeting ended.
Chairman
17
{ FILENAME \p }