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ICL PLC
Minutes of the meeting of the Board of Directors
Held at 14.00 on Thursday 25" November 1999
26 Finsbury Square, London, EC2A 1SL
Present
In attendance
Mr M Naruto (Chairman)
Sir Peter Bonfield (Deputy Chairman)
Mr T K Todd (Chief Executive)
Mr S Gillibrand
Mr H Kurokawa
Mr JJ Ollila
Mr H Sakai
Mr T Sekizawa
Mr A Gibson
MrR F Scott (Secretary)
Mr T Yurino
Mr Y Katsuya
Mr Y Sumida
Ms M-A van Ingen (item 30)
Mr A King (item 31)
Mr D Palk (item 32)
Mr A Rowley (item 32)
The Committee welcomed Mr Sakai back to ICL.
Apologies for absence were received from Vicomte Davignon.
Action by:
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99/27 Minutes of previous meeting
The Minutes of the meeting held on 21" July 1999 were
approved as a correct record and signed by Sir Peter.
99/28 Board Committees PLC/99/24
Mr Todd confirmed Mr Gibson had been appointed Executive
Director, Operations and Finance. Because of the importance
of this role it was agreed he would join the ISC and
accordingly the Board: nm
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RESOLVED
THAT Mr A Gibson be and he is hereby appointed a member
of the ICL Investment and Strategy Committee.
The Board noted:
Mr D Teague had left the Executive Management Committee
(EMC) on his move to the new Fujitsu-Siemens joint venture.
Mr W J Davison had left the EMC and would retire in 2000.
Mr T Vieth was retiring from ICL having left the EMC some
time ago.
99/29 Chief Executive’s Report November 1999 PLC/99/25
Financial Report and Half Yearly Accounts PLC/99/26
Approval of Fujitsu Global Commitment
Borrowing Line PLC/99/28
Amendment to Borrowing Authorities PLC/99/29
Half Yearly Preference Share Dividend PLC/99/30
Authorities for Banking and Treasury
Transactions PLC/99/36
Mr Todd expanded on his report then Mr Gibson presented.
Points noted:
a) Mr Todd said the management team was not happy with
the operating loss during the first half year, despite some
improvement between Q1 and Q2. ICL was working hard
to deliver the £65m PbT budget for the full year by
achieving £86m operating profit budget through improving
trading profitability. Much was being done to improve the
company’s infrastructure and although this increased costs
at present, costs should markedly fall on the completion of
the programmes,
b) ICL Pathway was now making satisfactory progress.
Mr Christou, Mr Bennett and the team were congratulated
on reaching the milestones which enabled ICL to receive
payment on the first invoice of £69m and submit and
second invoice for £90m. There were however some
difficult points to be resolved before roll-out could
re-commence in January, but Mr Christou was now
hopeful these could be resolved in time. r%
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c) Mr Todd referred to the press conference last week about
ICL’s prospect in electronic business which had generated
good publicity.
d) Mr Todd and Mr Takaya had had a discussion on flotation
matters and agreed that operational improvement in ICL’s
profits was number one priority. They would meet in
February to discuss the way forward on this topic. It was
likely the Board would be asked to consider flotation
prospects in May.
e) Mr Gibson presented on trading performance and other
financial matters, amplifying and extending his written
Teport.
For the first half year revenue had only grown by 7.5%.
However the Q2 performance had been significantly better
than a slow Q1. Gross margin for the half year had been
around 4% worse than last year. There had been a loss at
the ongoing operating level of £17.6m at the half year.
This was very much worse than budget and significantly
worse than last year. With the help of profit from the sale
of the remaining shares in Softbank in Poland, and write
back of £10m of the provision taken last year on Pathway,
following successful negotiations with sub-contractors,
the half year had reached a small profit before tax,
although this was still below budget and last year.
The Board noted Mr Gibson’s explanations for the
performance issues including that changing mix of
revenues contributed to lower margins, and business
difficulties inthe Retail and Operational Services
businesses in particular.
The Committee noted the changes in revenue growth and
operating profit by industry, by horizontal business and by
geography.
The figures shown for ICL’s “go to market” areas showed
Customer Relationship Management, Electronic Business
and Applications as unprofitable in the first half year and
profit coming from the IT Utility with, on this occasion a
contribution from Pathway. Work continued on
understanding the figures and increasing margins.
Mr Ollila praised ICL’s abilities and approach in
e-commerce. ICL had a track record and was “state of the
art” in ability. Mr Todd referred to the investment going
on in this area. On defence, Mr Todd explained that
following ICL’s successful CHOTS — Ministry of Defence
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desktop project, ICL felt it may have to review its
presence in this market, depending on the terms of the
CHOTS follow - on bid process, as our resources could,
itwas expected, be more profitability employed in
e.g. e-commerce.
f) Mr Gibson referred to the forecast and budgeted Profit and
Loss for the full year 1999/2000. Despite a significant
improvement forecast in gross margin for the second half
compared to the first, PbT for the full year was forecast at
the relatively low figure of £35m which included a third
quarter profit of £17m from a major contract (not yet
signed) with EDS. There was thus still risk in this new
PbT forecast which was itself £30m below the budget
recently negotiated with Fujitsu.
Mr Gibson commented that he still felt there was risk in
the aggressive revenue growth foreseen in Q4 and that
there was also risk in the increased margins being forecast,
whilst some action had been taken to support this being
possible there was still some way to go. He also
commented that whilst there was risk here there may also
be opportunity in cost. The unpredictable nature of the
Y2K influence on sales made it difficult to be certain.
Sir Peter pointed out that ongoing operating profit based
on this latest forecast was only 1.6% of revenue.
g) Mr Gibson referred specifically to cash and borrowings
including the good relations he was achieving with the
company’s bankers and new sources of liquidity for ICL.
Borrowing in Euros rather than Sterling for some of the
funds needed were reducing interest costs. Total forecast
cashflow now for the year 1999/2000 was negative £74m -
a considerable deterioration from the positive £100m
budget previously produced for Fujitsu. Analysis was
taking place to explain this situation and Mr Gibson felt
that changes in ICL’s business from a product business
where cash could be obtained immediately on sale to,
essentially, a people business with significant PFI
contracts and payment over a longer period was the main
contributing factor. Forecast net borrowings at the year
end were £468m, according to the October forecast from
the businesses.
h) Mr Gibson went on to explain that ICL’s borrowings were
limited by the net worth and gearing covenants agreed
with the banks and by the limit in the Memorandum and
Articles of Association. Based on the new forecast of
£35m PbT the net worth covenant was predicted for
31° March 2000 to be £222m, below the minimum value
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of £225m in the banking agreements. The gearing
covenant at 1.45 would be within the range acceptable to
the banks. There was borrowing head room under the
Articles of Association limit, assuming the proposed
change to the Article referred to below, was approved.
Mr Gibson said that directors and auditors could be
expected to have concerns over whether ICL was a “going
concern” and whether there was adequate liquidity for the
company’s business, based on the present situation.
However ICL had been offered £75m from the new Fujitsu
Global syndicated facility and this would improve the
position significantly. Mr Todd said that although it was
appropriate for these matters to be considered he fully
intended ICL to exceed the £35m PbT forecast such that
these concerns would not become “live”.
i) Mr Todd and Mr Gibson referred to the proposal to go to
the ICL PLC Board for amendments to the borrowing
limits set out in the company’s Articles of Association.
This had been agreed at the last meeting of the Board in
July but amendments had been made to the proposed
shareholder resolution, in Tokyo, after the Board had
agreed it, which were considered by specialised legal
advice to be ineffective for the purpose ICL and Fujitsu
were trying to achieve by amending the Articles. The
newly proposed resolution in the Board papers
incorporated clarificatory changes and the Board now
agreed it, recommending the shareholder consider this
proposal as soon as possible.
The Board agreed to enter the Fujitsu Global Commitment
Borrowing Line and the necessary authority was signed by
the Board (attached to these minutes).
On the Half Yearly Preference Share Dividend payment:
RESOLVED
a) THAT a net dividend of £3,921,614.09 exclusive of
associated tax credit in respect of the period ending
3 January 2000 on the Company’s 83,655,600 9.15%
net Cumulative Convertible Redeemable Preference
shares be declared on 4 January 2000 to the holders of
the said shares registered at the close of business on
19 December 1999. Such dividend will be paid on
4 January 2000.
b) THAT a net dividend of £3,921,614.09 exclusive of
associated tax credit in respect of the period ending
3 January 2000 on the Company’s 83,655,600 9.15%
net Cumulative Redeemable Preference shares be
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declared on 4 January 2000 to the holders of the said
shares registered at the close of business on
19 December 1999. Such dividend will be paid on
4 January 2000.
The Board agreed to amend the Banking and Financial
Authority resolutions passed previously in 1996 to amend
the titles of several of the signatories and
RESOLVED
To insert in the authority resolutions the titles of those
individuals which have changed since the 1996 resolution
was passed — namely (Mr Gibson) Operations and Finance
Director and (Ms Faull) Director, Group Tax and Treasury
in place of the Finance and Business Planning Director and
the Group Treasurer.
The un-audited Profit and Loss Account and Balance Sheet
for the half year ended 30" September 1999, attached to
Mr Gibson’s paper were approved and Mr Todd was
authorised to sign them on behalf of the Board.
99/30 Presentation on ICL Multi-Vendor Computers
and Key Customers PLC/99/31
Ms van Ingen explained the progress of Multi Vendor
Computers (MCD). For 1999/2000 MCD’s revenue was
forecast to be 27% of the ICL total. PbT was forecast at
£19m but the business was working hard to produce £25.6m,
as asked by the centre. The revenue forecast at around £850m
for the year continued a strong growth record (from £520m
last year) as did the profit forecast, which compared to £12m
last year. PbT would be just over 2% of revenue and the goal
was 3%. MCD hoped to persuade many more of its
customers to trade with it electronically.
Ms van Ingen then referred to the opportunities available now
that ICL had taken a group wide approach to its customer
base. There were 500 strategic customers identified and she
was developing ICL’s approach - a dedicated sales channel
for the next group, key customers.
99/31 _ Presentation on Retail Systems Division PLC/99/32
Mr King explained progress with ICL Retail including recent
successes such as the completion of the roll-out of 320 Marks
and Spencer’s stores with Globalstore. Customer satisfaction
ratings had improved over the last 2-3 years.
For the year 1999/2000 revenue was expected at £450m
operating loss £1.5m and loss before tax of £5m. /t
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A substantial series of actions was underway to improve
profit and re-align the business including a massive reduction
in staff such that the division would retain only people for
industry specific marketing and systems architects.
Other resources would be bought in from elsewhere in ICL,
where it was hoped, when not used by Retail, they would be
used elsewhere in the Group.
Globalstore and the other software products were considered
very strong and would be exploited. However all new
development of the software would be specifically paid for by
customers. Mr King’s team were making sure Fujitsu
colleagues were aligned with Retail’s plans.
99/32 Contingency Planning — Year 2000 PLC/99/33
Mr Rowley, with Mr Palk (who was responsible for Y2K
contingency planning on behalf of the management team)
explained the situation.
From the overall Y2K Compliance Programme Summary,
there were still some projects to be completed before the year
end. 41 were still considered “at risk” but were being
progressed. Contingency planning, including virus protection
and communications to employees was _ explained.
Staff Health and Safety considerations during the period was
a principal objective and early warning (of millennium effects
in Australia, Japan) was being arranged. The Board expressed
satisfaction with the work done and the plans.
99/33 UK Lottery Re-bid
Mr Todd said that Camelot was preparing to re-bid, early next
year for the UK lottery licence. Camelot did not yet know
what competition it would face. Corporate and personal
declarations similar to the previous ones would be required
from ICL and its shareholders.
99/34 Acquisitions and Divestments and Major Contracts
Mr Todd referred to several planned divestments. The largest
was the possibility of outsourcing the provision of spares for
ICL Operations especially Operational Services Division.
Potential partners were interested in this and ICL hoped a
premium could be obtained on the business as we might lead
the market on something which would become standard.
However we would have to buy spares from the new
organisation. Other divestments mentioned were sale of the
remaining shares in Softbank in Poland, and the US Repair
business. Potential transactions included sale of the MAX
and Kainos investments. {
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Most of the present major contract successes and possibilities
had been mentioned in Mr Todd’s report but we were
discussing possibilities with Centrica and we had won an
outsourcing contract worth £50m with the UK company
GKN.
99/35 Market Update PLC/99/34
The update was noted.
99/36 Documents signed and sealed, and Board
Committee Minutes PLC/99/35a/35b
The signing of the documents dated 1" July to 31 October
1999 inclusive set out in the Register of Documents signed
Under Hand.
The sealing of the documents numbered 76514 to 77455,
between 1" July to 31" October 1999 inclusive set out in the
Register of Documents Sealed.
The Minutes of the Pension Policy Committee meeting held
on 16" July were noted.
99/37 Dates of meetings in year 2000
24 February
10 May
19 July
30 November
99/38 Event at the Dorchester Hotel
In the evening there would be a major dinner for ICL
customers and friends of Fujitsu and ICL, hosted by
Mr Naruto with Mr Sekizawa, Mr Todd, Sir Peter and other
members of the Board present.
Note: The Board are reminded that under the UK Companies Act procedure all
Directors have given notification of the other interests (for example other
directorships) which they have, so that ICL and its Board are aware that
Directors are “interested” in a contract between ICL and those other interests.
As well as Fujitsu the interests include BT (Sir Peter) and Nokia (Mr Ollila).
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