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COMPANY CONFIDENTIAL
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7 May 1997
CHIEF EXECUTIVE’S REPORT - May 1997
1. Overview
Progress is being made on many fronts. The first quarter
performance was ahead of budget but we were still in. loss.
winning new business GRO
message of ICL “one Company" - customer focused and have further
strengthened the management team with the arrival of Fiona Colquhoun
- Director, Human Resources.
Financial performance improvements will be achieved by increased
sales energy and aspiration, driving my value pricing activity,
controlling costs (staff and purchase) and redeploying staff behind
higher value revenue earning opportunities.
We may still be addressing too many opportunities despite the
refocusing we have already done. I am reassessing this.
2. Political
The recent UK election has clearly had wide coverage. My view is
that there will be no shortage of business opportunity. I have
already had a meeting with Frank Field - Minister of State for
Social Security - on the Pension and Social Security Reform. The
opportunity to accelerate our re-engineering proposition for DSS is
improved. Also, the opportunities in the Education market are
likely to increase as a more pro-active stance is taken by the
Government on teacher retraining and exploiting the educational
benefits of the new technologies. We are well placed to benefit
from this.
3. Market
The business environment is still strong but we are seeing delays in
the UK Government business, partly due to the Election, but more
significant is the transformation of all major capital projects to
PFI. This is causing initial delays in the procurement activity but
also leads to contracts where revenue is spread over several years.
This will, in the longer term, put ICL business on to a more
predictable basis.
The "real" sales activity on Year 2000 projects and the Euro is
increasing. The value of the business is small in the short term
but will lead to larger contracts later this year. UK businesses
appear to be waking up to the implications of the Euro!
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4. Competition
There is no significant change to the competitive environment. Our
Retail business software offerings - global store and precision
retailing - are particularly strong.
EDS has. reported a weak set of results and have been receiving poor
press in the UK for the increased ‘cost’ of the Inland Revenue
contract and the volume of UK business they have won.
There are an increasing number of major PFI activities which will
result in contract awards in 1998. These are time consuming and
costly to lead, but we are well placed to be successful as a
credible alternative to EDS for these outsourcing contracts.
Estimated Contract Value
6. Financial Performance
Quarter 1 Half Year Full Year
Act -B(W) B(W) F’est B(W B(W) F’est B(W) B(W)
Budg LY Budg- LY Budg LY
Revenue* 576.0 (12.1) 0.6 I 1198.1 (19.1) 51.3 I 2692.2 (1.3) 310.4
PBT (15.3) 7.4 (7.4)] (28.9) (1.9) 4.2 25.0 - 27.6
Borrowings 83.8 74.9 91.2 174.6 (6.8) (120.7)I 258.1 7.8 (167.2)
*note: 1996 figure represents Systems and Services business only
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The first Quarter’s performance was £7.4M better than budget -
primarily due to increased shipments of large systems from HPS.
Financial Services, Enterprises (Western & Central Europe),
Retail, Pathway, ICL Interactive were ahead of budget in the
quarter. We also benefited from one time profits and the
amortisation of the UK Pension fund surplus.
The financial performance of TeamWARE, Tplc, Enterprises North,
Services, Sorbus and South Africa were behind budget.
Compared to last year the High Performance Systems profit is down
£7.3M. Shipments) of SX systems are lower than last year in the
quarter, as the new SY product release (now named Trimetra) will
not be on general release until Q4.
Overall the performance was achieved by a tightening of costs
control. There was no overall revenue growth. Tple and Services
did achieve good growth, but we are achieving less ‘Book and Ship’
revenue due to transition to long term contracts and as pilot
phases of contracts are undertaken.
Although the divisions are not yet forecasting achieving the half
year budget I expect the budget for the half year and full year to
be achieved. The ‘modus operandi’ is, tight control of cost while
driving additional revenue opportunities.
Specific Issues
IRRELEVANT
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‘IRRELEVANT I
7.2.
IRRELEVANT
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7.4. Services
The Outsourcing activities of ICL Sorbus and ICL CFM have
been combined. This will produce a clearer focus for our
capability. The education and consultancy activities have
also been consolidated under David Wimpress. The financial
performance is behind budget but the sharpened focus and
market opportunity will produce increased revenue and profit
this year.
The value added network service strategy has been discussed
with Fujitsu and the business plan will be produced by June
and presented to the July Board.
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7.5. Pathway
The latest release of the Pathway software has gone live
(release 1b) last Friday. On schedule, however a significant
amount of time was required to eliminate "software bugs",
which meant that resource that was working on release lc and
1d due in July had to be diverted to resolving the software
issues. This additional work has an adverse impact on the
development costs.
We have advised the customer that there could be a six week
delay in the next release. The customer is appreciative of
the open approach. Actions are in place to mitigate the
consequence of delay i.e. National roll out starting in
January 1998, rather than November 1997.
Although this delay is disappointing we do not see any issues
ahead of us that cannot be resolved. The relationship with
the customer, DSS, and Post Office is good, but they are
concerned about the potential delay.
7.6
IRRELEVANT
8. Conclusion
To conclude, there is a lot of activity - there is no doubt about
the opportunity to establish ICL as a leader in Systems and
Services business in the new Information Society. Delivering the
1997 budgeted profit, and continuing to improve our long term
prospects, is critical to building shareholder confidence and
achieving the relisting in 1999.
Keith Todd
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