Present
Company Secret
ICL PLC
Minutes of the meeting of the Board of Directors
Held at 13.30 am on Wednesday 1* August 2001
At Fujitsu Limited, 1-1 Kamikodanaka 4-Chome,
Nakahara-Ku, Kawasaki 211-8588, Japan
Mr M Naruto
Mr N Akikusa
Mr R Christou
Vicomte Davignon
Mr Y Hirose
Mr H Kurokawa
Mr HB Thompson
Mr S Gillibrand
(Chairman)
(Chief Executive)
In attendance
Mr RF Scott
(Secretary)
Mr D Courtley
Mr P
Earl
Mr T Okada
Mr H Hirata
Mr Y Katsuya
Mr K Onuma
Mr T Matsuoka
Mr M Stares
(Item 44)
The Chairman welcomed the Board and attendees to Fujitsu and to Japan. In the
morning of the day of the
meeting there had been a visit to “net Community” to see
Fujitsu’s approach to the Japanese government’s plans for internet related activities
including government to business and government to citizens initiatives. The Fujitsu
laboratories had been visited and state of the art technology seen, including broadband
and mobile developments.
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Minutes of Previous Meeting
The minutes of the Board meeting held on 9° May 2001 were
approved as a correct record and signed by the Chairman.
Committee Membership
The Chairman proposed new members for the Investment and
Strategy Committee, and this was approved by the Board.
Accordingly
RESOLVED
THAT D Courtley, P Earl and H Hirata be and are hereby
appointed members of the Investment and _ Strategy
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Committee.
Chief Executive’s Report July 2001 PLC/01/15a&b
Mr Christou gave a presentation and referred to items in his
written report, followed by questions and discussion.
Points noted:
a)
b)
The European IT market had worsened. Factors
contributing to this included that there had been no
boost to business comparable to Y2K, the US downturn,
un-profitability of pure e-Commerce projects, difficulties
of the “Telcos” (although Telcos were not large
customers of ICL) and no exciting new technologies.
Dot com companies and e-consultancy companies had
had a particularly difficult time. I§ Mr Thompson
commented that consultancy companies usually
prospered when things were good and when things were
bad as they benefited from strains in the market place.
Mr Christou agreed with this saying that he felt this
particularly applied to “high end” activities pursued by
ICL and others including DMR who he believed were
doing reasonably well in the deepening economic gloom.
Mr Christou went on io say that now most of the IT
sector was affected although established companies with
a strong customer base were faring better whether in
e-business or in the more established IT areas,
ICL hoped to be one of the winners, with a strong base
of established customers and a good presence in public
sector IT and outsourcing/managed _ services.
Nevertheless the market was generally expected to
weaken further - the annual growth of European IT
companies had slowed to below 10% and cost cutting
continued to be essential.
ICL would concentrate on infrastructure services,
de-emphasise pure e-business activities but sell e-business
offerings and systems integration as part of large
infrastructure projects, exploit our position in the public
sector, sell more to existing customers and search for
compelling new technologies.
In answer to Mr Thompson, Mr Christou explained that
ICL’s core competence was .management of the
infrastructure and systems integration of the underlying
platforms. Further cooperation with DMR, who had
significant consultancy expertise and with other Fujitsu
businesses would be likely in the future as ICL
concentrated on its core.
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°)
d)
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Mr Christou referred to divisional performance.
On infrastructure services, revenue was on budget but
profit impacted by deferral of the EDS software
commutation/technology refresh deal. Mr Christou and
Mr Courtley would push the division to over achieve on
budget to meet deficiencies elsewhere.
Multivendor Computing were suffering, especially with
falls in the Sun distribution business. However they were
positive about their action plan to achieve budget
operating profit for the full year. Projects and
professional services were around budget though loss
marking in the-first_hal€..Qn.Laree Proiects.nerfarmance.
was on budget;
and there were plans to obtain additional business with
the customers. Negotiations had begun for a five year
extension to the Pathway contract.
Invia was having a difficult time and measures such as
stopping e-business in Scandinavia were being taken.
Discussion took place subsequently on the value of Invia.
Mr Christou would examine the possibility of a joint
venture of Invia but only on the basis that Fujitsu/ICL
would have the majority.
EMEA (which included France) was ICL’s problem
business with infrastructure businesses across Europe
suffering from e.g. lack of critical mass set against high
cost bases. Also e-Business sales were not materialising
and development spend in this area was being cut back.
Mr Courtley would be critically examining the EMEA
plans as he felt more ruthlessness was needed.
Africa suffered from depressed market conditions
including lack of government businesses. An action plan
was in place. KnowledgePool, not now saleable in
present circumstance had not been included in this year’s
budget but was to be brought back to break-even for the
year. HQ costs had been significantly reduced but an
allocation to the businesses demonstrated (through the
size in reductions to business profitability) that they were
still too high. Headcount was falling within the
constraints of redundancy spend.
Mr Christou referred to progress with three groups of
measurement now put in place to monitor the businesses:
headcount, sales productivity and customer satisfaction.
Mr Thompson referred to the distortions of a headcount
freeze — as in place at {CL at present - good people who
left could not always be adequately replaced by those
who were surplus in other parts of the organisation.
ICL had taken this point on board and Mr Courtley said
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Mr
Christou
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that limited recruitment might be allowed in critical areas
such as Infrastructure Services as prospects improved.
Mr Gillibrand asked the size of the contractor workforce.
This was at present around two thousand people and this
was felt to be a manageable number in regard to the
company’s activities. Mr Akikusa gave his view that in
the past ICL had too many Headquarters staff compared
to revenue earners. Mr Christou agreed and also said
that there were too many “middle managers.” Action
would be taken within the constraints on restructuring
spend available, e.g. through performance appraisals and
other means, to reduce.
e) Mr Christou concluded by saying that despite the market,
ICL’s strategy was right and with hard work and nerve,
we would succeed. The Chairman commented that pure
e-Business projects had not been a success at ICL but that
he agreed with Mr Christou that e-business/internet
related offerings would be a necessary part of ICL’s core
infrastructure and systems integration activity.
The Chairman asked Mr Christou and Mr Courtley to
meet as many customers as possible before the next
Board meeting and report their views on ICL to the
Board. Mr Akikusa added that this should be an
opportunity to seek more revenue and to find whether
ICL’s people were serving the customers properly.
Unsatisfactory performers should be exited.
Vicomte Davignon said as a result of this exercise the
Board would in October understand the situation better.
ICL should also do some work on the opportunities for
its people which would exist in the future as the other
side of the headcount reduction activity taking place.
This should be within the context of Fujitsu’s global
strategy and the possibilities for opportunities within
this. Vicomte Davignon felt that these items could be
dealt with as an informal free discussion at the Board.
Financial Performance PLC/01/16a&b
Mr Ear! gave a presentation on the quarter 1 results and the
first half year. forecast. The full financial performance
commentary (paper b) was noted.
a) In Q1, performance had been disappointing with revenue
8.6% below budget and operating loss of £14.7m against
budget £0.2m. Gross margins were under pressure.
Free cash-flow had been in line with budget. Detailed
management plans were in place in all divisions to
improve Q2 and the full year result.
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b)
°)
d)
e)
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Allocation of HQ costs (still acknowledged to be too high
and subject of further action) to the ICL businesses
showed that only two — Infrastructure Services and Large
Projects (which were mainly in Infrastructure contracts
also) were profitable.
The forecast for the first half year showed revenue 5.9%
below budget and an operating loss of £16.4m against
budgeted profit of £2.2m. Action plans were in place to
get closer to budget. Pre-tax loss of £38.2m was better
than £49.2m budgeted but only because of deferral of
French re-structuring spend.
Cash-flow for the first half year (£200.8m) was: better
than budget of (£220.2m) - mainly due to deferred
rationalisation spend in France. Shareholder funds
forecast for 30 September 2001 were £193.4m compared
with £225m needed in 31 March 2002 to meet the bank
covenants. Mr Earl said that ICL would be working on
actions to deal with this, which might include disposal of
non-core activities, and discussing with Fujitsu the nature
of their support to ICL.
The Chairman noted that performance was bad, covering
revenue profit and cash-flow. He appreciated that ICL
was struggling in the current market conditions and he
asked the executives to make the company stable,
balanced and going in the right direction for the future.
He expressed high hopes for Mr Courtley’s appointment.
The Chairman went to acknowledge that it would not be
possible to sell KnowledgePoo! at the moment mainly
because of problems in the IT sector and he referred to
the brand change, to structural developments and the
global perspective as ICL fitted within the global brand
and global strategy of Fujitsu. He noted that discussions
were taking place with DMR.
Mr Akikusa referred to the proposed improvements in
revenue and operating profit in particular from quarter
one to quarter two as forecast by ICL. He said that it
was very important for Fujitsu to understand the level of
confidence ICL had that this improvement would
happen. Mr Earl referred to the work done in ICL on
the action plans for each division and the downward
trend in HQ costs. It was also noted that ICL had
significant sales opportunities listed and being monitored
and cost reductions underway. Mr Earl did however
mention that the EMEA forecast did not give complete
confidence and further investigations were taking place in
this over the next two weeks. Mr Akikusa said that if
ICL was not able to hit its objectives there would be
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significant impacts on Fujitsu and on its reporting and
accounts. He asked specifically that ICL meet the first
half year forecast, come what may.
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01/44 France Recovery Plan PLC/01/19
Mr Christou said the decision had been taken at the last
meeting to produce a plan which would seek to show how the
French operation could continue on the basis of a turn-round
in its results. Mr Stares, in whom Mr Christou expressed
confidence, had been appointed to this task and had given it
his full attention for some time.
Mr Stares then made a presentation. Points noted:
He said that ICL France had made losses for many years and
in the last ten, a total of £100m. It had been badly managed,
had no vision and no direction. His baseline for the plan had
been that there was no fundamental reason why ICL should
not make profits in France - the business had a number of
large Infrastructure projects like other ICL operations (where
they were managed successfully).
The objective of the plan over the next two years was to
transform the-business and move into profit. It involved re-
organisation of the business and elimination of elements which
were loss making of non-core. Headcount would be reduced.
The presentation looked at the French market — there were no
fundamental factors about France which meant ICL could not
trade profitably there. The presentation divided the France
business, identified the major issues, the basis of the recovery
plan and asked for approval. Part of the approval required
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Mr Christou
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would be re-capitalisation of the French company for which a
separate paper could be provided to the Investment and
Strategy Committee, re-capitalisation being necessary for
several reason including improvement of employee morale
and avoidance of any moves to bankrupt the company (which
was insolvent at present). Mr Stares emphasised that the plan
would reduce revenue in ICL France, but to profitable core
activities, numbers of people would be reduced particularly
outsourcing of the field engineering/mobile workforce and
there would be a focus on major contracts within IT
Infrastructure as the core activity. Mr Stares was thanked by
the Board for his excellent presentation and his detailed
analysis of the French situation.
It was noted that the business would continue to lose around
£12m per annum if nothing was done and that the estimated
costs of an exit from France (which would be in the form of
the sale or transfer of the business to another undertaking
which would either attempt a reconstruction or a run down)
was £60m. If the plan went ahead and was successful then the
cost required in the period to the end of 31 March 2002
including reconstruction costs and trading losses was £25m,
foliowed by further costs subsequently as the French company,
it was hoped, moved to break-even then into ‘profit.
Mr Christou said that he would ascertain whether full legal
advice had been taken on the relevant issues including whether
the ICL France company was insolvent, there was a risk of a
third party putting the company into bankruptcy or action or
penalties under the law.
The Board discussed the proposal and the ICL France
situation. In regard to the series of losses over many years, the
point was raised that remedial action had been tried
frequently and had been unsuccessful. The executives agreed,
although it was noted that in recent years at least the business
had been supervised in a streamed or fragmented way by
several UK based individuals usually responsible for various
streams or parts of the ICL business. There had not been a
coordinated plan like the present for overall improvement. Of
course there had been management failures, both within and
outside France and one of the requirements of the plan would
be a new “PDG” to implement recovery in the country.
It was pointed out that the plan represented considerably less
cost than the exit charge of around £60m, but against this
there were risks in the plan including in particular whether we
could grow revenue as predicted through IT Infrastructure
Services and focusing on the large customers. Also whether
the outsource of the field/mobile engineers would be achieved
on time at the cost stated, Other issues included the extent to
which costs could be cut (this had always been very difficult in
France) and employee morale/industrial action etc. Mr Stares
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referred to other matters such as poor IT systems, lack of
management depth and the “Logicom” cross-charge by ICL
for spares (which as an assistance to the recovery plan could
be allocated elsewhere in the ICL management accounts).
Overall however the ICL Executives believed that achievement
of the plan was possible and recommended it.
In discussion, directors expressed significant misgivings over
the situation, whether the plan could be achieved and even if
we did achieve it, would it be worth the considerable
resources and effort and the risks which would have to be run
including the risk of significant failure and as yet
un-quantifiable provisions going to the ICL and Fujitsu
accounts? It was also pointed out that for a UK company a
proposition of this nature might be achievable within the UK
but France could often bring particular difficulties to foreign
companies operating there. The situation was seen as
extremely difficult.
After further discussion the consensus of the Board was that
the recovery plan should not continue and that there would be
an exit from France. However a final decision was not taken
and it was agreed that during August there would be a final
review (the Investment and Strategy Committee had discussed
the matter and specified at some length the questions to be
answered in this review).
ICL Brand Migration PLC/01/24
Tt was noted that an announcement was likely from Fujitsu
during August and that changes would be implemented in ICL
on 1 April 2002. Working parties, including one from ICL,
were preparing information for Fujitsu for the August
announcement. Mr Thompson commented that when he had
been addressing ICL managers at a millennium event there had
been some concern that the brand change was taking too long
and should proceed more quickly. It was noted that Fujitsu
were working on this and the August announcement would be
made as soon as possible.
Quarterly Manpower Report PLC/01/21
The paper was noted.
KnowledgePool PLC/01/23
The paper was noted and it was accepted that there would be
no disposal for the immediate future.
Acquisitions and Divestments PLC/01/22
The paper was noted.
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Change of Auditors PLC/01/20
It was reported that PWC having resigned, KPMG had been
duly appointed as auditors for ICL PLC and the major
subsidiaries. The remaining subsidiary companies would make
the change at the appropriate time, usually at the time of
approval of the 2000/01 accounts.
Matters from Previous Audit Committee PLC/01/25,16c
The Board noted the papers prepared to answer matters
arising from the last meeting of the Audit Committee,
Documents Signed and Sealed PLC/01/26
The Board approved:
Signing of the documents dated 11 April 2001 to 4 July 2001
inclusive set out in the Register of Documents signed Under
Hand.
The Sealing of documents 77700 to 77704 between 11 April
2001 to 4 July 2001 inclusive set out in the Register of
Documents Sealed.
Minutes of Audit Committee 9 May 2001 and of the Pensions
Policy Committee 17 July 2001
The Board noted and approved the minutes.
Dates of Next Meeting in 2001
31 October 2001
At the close of the meeting, Mr Thompson took the opportunity on behalf of the
Board and UK attendees to thank Mr Akikusa and Fujitsu colleagues for the kind
invitation to Japan for the excellent programme of events arranged, and for their
personal attention during a busy time for Fujitsu.
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