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ICL PLC
Minutes of the Board of Directors
Held at 08.30 am on Thursday 4" February 1999
Observatory House, Slough
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Present
In attendance
Mr M Naruto (Chairman)
Sir Peter Bonfield (Deputy Chairman)
Mr T K Todd (Chief Executive)
Mr T Sekizawa
Vicomte Davignon
Mr S Gillibrand
Mr H Kurokawa
Mr JJ Ollila
Mr H Sakai
Mr R F Scott (Secretary)
Mr M Aida
Mr T Yurino
Mr Y Katsuya
Mr N Hartnell (Item 3)
Sir Michael Butler (Item 4)
Mr R Christou (Item 4)
Mr J Bennett (Item 4)
The meeting followed by a discussion over lunch with Mr J Sacher of Marks & Spencer,
an ICL customer, principally on E-Commerce.
Sir Peter assisted Mr Naruto with the meeting.
Action by:
ielplc/mins030299
99/1 Minutes of previous meeting
The Minutes of the meeting held on 26 November 1998 were
approved as a correct record and signed by Sir Peter,
99/2 Chief Executive’s Report — February 1999 PLC/99/1
Financial Performance PLC/99/2
Mr Todd explained certain of the matters covered in the
papers and there were discussions. Points noted:
a) Mr Todd referred to recent work to refine the ICL
business plan and particularly to the four “go to market
areas” which comprised the offerings ICL was taking to
the marketplace. These were the IT. Utility, specific
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b)
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intellectual property rights applications e.g. ERP systems
or Globalstore, and two offerings representing areas of
corporate advantage namely electronic commerce and
customer relationship management.
He reminded the Board that the present financial period,
for the ICL PLC accounts, ended on 31% March 1999 and
the company was at present in the Sth quarter of the
fifteen month period.
Profit before Tax for the 12 months to end December
1998 was £63m, the target or commitment to Fujitsu for
the Sth quarter was £5m and for the 12 months ending
31% March 2000, £95m. ICL’s own internal commitment
on profit was substantially higher at £15m for the
5" quarter and £185m for the 12 months. Mr Todd
mentioned the functional alignment exercise to reduce the
cost base which it was hoped would increase profits by
£40m (as part of £5m/£95m or £15m/£185m).
Total ICL revenue for the year to December 1998 was
£2.67bn, an increase of 9.7% on the previous year.
PbT of £63m had been struck after some “exceptionals”
such as disposal of the shares in ECRC at a profit of
£23m, provisions and other exceptional charges.
The Board noted the profit and loss figures translated into
Euros for the first time and Mr Todd said that the annual
report and accounts for the 15 months to end March 1999
would show Euro comparison for key figures.
The Board noted the performance of the individual ICL
businesses including High Performance Systems and
Multi Vendor Computing in particular. The Board saw
the global business picture for the year to date end
December, the ICL “Cube” which reported the business
in three dimensions: verticals (i.e. businesses such as
Retail, Financial Services etc) the business offerings, and
by geography (countries). This was proving a useful
means of management control of ICL and would be
shown at future Board meetings. Mr Todd referred to the
businesses in France (which were going into profit) and
Denmark (where there had been a disappointing
performance of £3m loss in 1998. It was expected that
this business would be improved by adhering to ICL’s
global strategies). The position in the Travel and
Transport businesses was noted where, on crew
scheduling, matters were improving with British Airways
but not yet with Singapore Airlines.
The Board noted the “public presentation” of figures slide
which showed a breakdown between..continuing and
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discontinued businesses in the manner in which it was
expected analysts and markets would expect when ICL
was preparing for listing. In discussion it was agreed to
be vital that ICL reached a consistent and defensible
position on the treatment of exceptional items — for
example there might be some, such as a provision for the
BBC contract, which would be in the course of business
and should effectively be “above the line” versus others
such as sales of businesses which would always be
“exceptional” items. Vicomte Davignon believed that the
Audit Committee should discuss this treatment and agree
the way forward.
g) There was a discussion on the approach ICL would take
to flotation and it was agreed at this point that the essence
of ICL’s position should be the strong revenue growth
experienced and the prospect of more after listing.
Mr Ollila commented this should be demonstrated in ICL
without the benefit of exceptional items such as disposals.
Mr Gillibrand said he remained concerned over the high
dependence of ICL of HPS’ profits and added that the
other businesses did not seem to be performing well.
Mr Todd said that he would arrange for the next Board
meeting to have a presentation/explanation on where the
improvements in the other businesses were coming from
and how their potential for high revenue growth was
emerging. Mr Gillibrand added that ICL needed simple
and succinct explanations on such issues, which could be
briskly and confidently presented to analysts.
ICL’s Listing
Mr Hartnell then joined the meeting and gave a presentation
covering reasons to float, ideas on positioning ICL, questions
to be answered in the process, companies with which
ICL could be compared, where ICL should be listed
(the recommendation was in London with a subsidiary listing
in New York), whether there should be a fully marketed
international offering (the recommendation at this stage)
as opposed to a traditional UK offer and the advisors ICL
would pick including a global co-ordinator who would be
advisor and lead distributor. Mr Hartnell also referred to
structure considerations for the offer, valuation matters and
timing (a first estimate of this was June/July 2000 or
November 2000). There was a discussion, points arising:
a) Mr Todd referred to the choice of the financial advisor/
global co-ordinator. He had been extremely unhappy that
Schroders had let ICL down sharply because they
perceived a conflict of interest with their Post Office role
and could not help ICL on Pathway., Fortunately
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Hambros had stepped into the breach. The Board had no
issue in moving from Schroders and Mr Todd would
continue with the work to assess which advisors to
appoint. However it was felt that ICL should be very sure
on the kind of listing it would be seeking and what its
strategy was, before the advisor was appointed. Vicomte
Davignon commented there could be a conflict of interest
if the advisor was involved in this decision (“why to
float’) and they should be confined to “how to float”.
It was however acknowledged that some expert advice
would be needed before ICL could reach its initial
position on why to float.
ICL would be likely to depend on the story of revenue
growth being experienced and to be experienced in the
future and Mr Ollila said this strategy would be seen by
the market as only a step towards stable earnings growth.
Markets, particularly in the US could be unforgiving if we
could not sustain the revenue and earnings growth
anticipated. Sir Peter referred to the obligations of a US
listing including quarterly reporting, time commitments
and Mr Ollila added that the US shareholders were
litigious and the market there tended to be obsessed with
strategy for and performance in the US, to the exclusion
of the rest of the business, even when the US was a small
proportion of the company’s activity. He added that the
decision on questions of UK and/or US listing should
determine the advisor(s) to be used.
Vicomte Davignon commented that since 1990 when ICL
was explained as an independent Fujitsu business in
Europe, the landscape had changed. Now, ICL was
global and fitted into Fujitsu’s global business.
At flotation there would be much detailed questioning on
the strategy of Fujitsu and where ICL fitted in. It was
important to get the Fujitsu family global integrated story
straight at the beginning and ensure that all the main
elements, Fujitsu, ICL and Amdahl and DMR would hold
to the same explanations and emphasise the same matters.
Mr Naruto thanked the Board for their advice and emphasised
the need to decide fundamental issues initially. Mr Todd
added his thanks and said that ICL would take the opportunity
to talk to Directors individually. It was agreed that a
substantial proportion of the next Board meeting on 13 May
would be devoted to a detailed consideration of flotation
particularly including strategi
figures, businesses, etc.
_issues and treatment of the
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ICL Pathway
Mr Todd, Sir Michael Butler, Mr R Christou and Mr J H
Bennett reported on the “without prejudice” negotiations
which have taken place with HM Government to resolve the
project dispute. The contents of the “without prejudice”
negotiations since the last meeting of the Board are briefly
summarised in the attached report marked (A). This report is
to be submitted to Masons as part of the continuing process of
obtaining legal advice on issues pertinent to litigation, in the
event that without prejudice negotiations fail.
Major Contracts
Mr Todd referred to the contract wins of the DTI Elgar
project and the Magistrate Courts PFI. Also the contract with
the Ministry of Agriculture, Fisheries and Food. Two large
bids were nearing fruition, for the Customs & Excise and the
Home Office Departments of the UK Government.
Vicomte Davignon added that substantial Government
contracts were likely to be let by the French and German
Governments in particular in the near future, to the private
sector and ICL should prepare to take advantage of the
possibilities.
Approvals and Confirmations
a) Audit Committee Minutes of 26" November 1998.
The Minutes were confirmed.
b) Documents Signed and Sealed PLC/99/4a
PLC/99/4b
The Board agreed:
The signing of the documents dated 9 November 1998 to
20 January 1999 inclusive set out in the Register of
Documents signed Under Hand.
The sealing of the documents numbered 76422 to 76458,
between 15" October 1998 to 20" January 1999 inclusive set
out in the Register of Documents Sealed.
Changes to the Executive Management Committee
Mr Todd said certain changes were being proposed and it was
agreed that the Directors’ Remuneration Committee would,
on behalf of the Board consider and if thought fit, approve the
changes,
Dates of Next Meetings
26" April 1999 (for special Audit Committee)
13" May 1999
21" July 1999
25" November 1999 :
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Report (A) — ICL Pathway
for February 1999
Introduction
This is an updating report on the without prejudice negotiations between ICL Pathway
and the Government in order to resolve the project dispute. This report has been
created for the purpose of seeking further legal advice from Masons’ on various
questions arising in relation to potential litigation in the event that without prejudice
negotiations fail.
Without Prejudice Negotiations
a)
b)
qd)
e)
It is noted that the base contract of installing the Post Office infrastructure could
lose £200m but under delivery of ICL’s new proposals, to help implement
“Government Direct” and “Citizen Centric Government” in partnership with the
Post Office, the situation could be converted into a £200m profit over the life of a
new contract. It is noted that Mr Kurokawa’s team from Fujitsu had audited the
project and reported to Tokyo. Cash requirements of the base contract alone were
now estimated at approximately £600m over the life of the contract.
Following submission of ICL’s offer of 18" December 1998 it was understood that
there were hopes of a way forward with customers. Unfortunately this was
delayed or frustrated by the change in Secretary of State for Trade and Industry.
It was understood that the attitude of the Department of Social Security (DSS) was
still one of opposition to continuance of the project.
More recently Mr Robson of HM Treasury had contacted ICL and said that
Ministers had not reached a consensus. In particular the DSS did not wish to
proceed on the basis of ICL’s offer of 18" December. However he said his stance,
in order to find a satisfactory way forward, was to try to preserve the Post Office
network and also satisfy the desire of the Benefits Agency to go quickly to
automated credit transfers, i.e. to reconcile these two objectives.
In response ICL had said that we were not proposing to put in new proposals and it
was agreed that ICL would help with the Treasury’s own proposal referred to
above. Mr Robson informed ICL that he spoke with the authority of the Prime
Minster to reach a solution satisfactory to and accepted by all parties.
ICL had then worked on modifications to HM Treasury’s idea, making comments
on a draft brief for Ministers, on the understanding that if, in a week to ten days an
understanding could be reached, the parties would sit down to try to turn this into
commercial reality.
The HM Treasury solution now - “Option B” or the new proposal - was to scrap
the magnetic benefit payment card and roll out the Post Office “Horizon”
infrastructure minus this card providing an automated platform for the POCL
services. All the Post Offices with the Pathway installation on this basis
represented the new “core system”. GRO i
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f) ICL had pointed out to HM Treasury that the parties had to work on the basis of
the new core system to make the changed proposals commercially viable and
secondly as the second stage to consider how they could help the Post Office with
automated credit transfer work to enable the Post Office to retain Benefits Agency
business to preserve its revenue.
So, for the second stage new proposals based on “Horizon” had to be brought
forward. The second stage included that the Post Office would open bank
accounts for claimants on the DSS book based system of the first stage and the
Benefits Agency would make automated credit transfers into these accounts to pay
benefits. For this the Post Office needed to have a link with a commercial bank for
accounts, like, for example, the old Post Office Savings/Deposit accounts (there
would be no current account facilities). Then, each account holder would be given
a payment card (a “smartcard”) enabling withdrawal of benefits from the account.
The advantages of this included that it would help the Government’s “Better
Government” proposals.
g) ICL had pointed out that the new second stage development based on Horizon as
described would need a definitive specification before we could proceed and that
ICL would have to re-examine and revise all its business plans from beginning to
end as present plans would not be relevant.
h) A new conciliatory attitude had been noted in Government and it was thought that
the views of the British Ambassador in Japan may have been taken into account.
HM Treasury had commented that ICL was seeing the worst of Government
arising out of disagreement between two departments/agencies, the Post Office and
the Benefits Agency. Mr Todd said he had commented to the Treasury that he
personally had lost credibility with his Board and shareholder because of this
dispute and Government delays. In asking ICL, Board and shareholder for more
patience, Mr Robson had commented that we might see an example of something
which had been impossible becoming possible.
i) Sir Michael commented on the changing relations with Government and how he
believed that Mr Robson and HM Treasury would be in a position to commit to a
way forward. He felt our legal position had been strengthened as time had gone
on. The new way forward, first and second stage, was in effect a better deal than
the original Pathway plan, provided we could negotiate successfully on the details.
However we could not proceed to negotiate details until we had a firm assurance
on the financial side, then the details could follow. Mr Bennett added that this was
another new initiative, he was hopeful but not too optimistic.
Following the reports the Board discussed the situation and commented as follows:
j) It was noted that if a framework, not necessarily a renegotiated contract, with
HM Government was agreed before the end of ICL’s present period of account,
Pathway would not be likely to have a significant effect on those accounts, as the
business case was likely to be profitable over the life of a new contract.
However if assurances, as mentioned by Sir Michael, could not be received by end
March then the question.of qualification or provision in ICL’s accounts would
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have to be considered. It was noted that the auditors had been kept informed and
would be further consulted. For example, they had to be sure that the wording in
the Government assurance was acceptable to them to avoid provision or
qualification.
The Board was extremely upset and concerned with the continuing refusal of
Government Ministers to enter serious discussions on the way forward, and
considered that the credibility of the Chief Executive had not yet been restored.
Another Board meeting may be scheduled to discuss progress.
Amongst other comment, it was considered that the new potential way forward
could work for the UK. Although it would involve opening bank accounts for
individuals who had not wanted them previously, the proposed smartcard would be
a simple method of using those accounts and would of course be secure and
confidential to individual claimants.
m) Mr Ollila commented that he was concerned that there was no pressure pushing the
politicians to make a decision for example no clear cut penalties in the contract.
However it was noted there were political pressures arising out of the need to
protect the Post Offices and the need to modernise Government, for example by
use of smartcards. The proposal to allow ACT to be used to pay DSS benefits
should limit their objections. Also it was felt HM Government would not want an
embarrassing public argument with ICL Pathway - this was another pressure
towards a conclusion.
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