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ICL PLC
International Computers Limited
ICL Global Investments Limited
Minutes of the Meeting of the ICL Investment & Strategy Committee
Held at 1.00 pm on Wednesday 6" February 2002
At 26 Finsbury Square, London, EC2A 1SL
Present
In attendance
Mr R Christou
Mr N Akikusa
Mr M Naruto
Mr D Courtley
Mr P Earl
Mr H Hirata
Mr Y Hirose
Mr H Kurokawa
Mr T Yurino
(Chairman)
Mr R F Scott
Mr Y Katsuya
Mr K Onuma
Mr T Okada
Mr H Kodama
Mr K Tanaka
Mr Y Sumida
Mr R Leek
Mr P Lush
Mr J H Bennett
(Secretary)
(Item 9)
Mr Christou welcomed Mr Adachi, Mr Leek and Mr Lush to their first meeting of the
ISC.
Action by: 02/01 Minutes of Previous Meeting
The minutes of the meeting held on 30" October 2001
were approved as a correct record and signed by
Mr Christou.
02/02 Chief Executive’s Report — February 2001 PLC/02/01
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Mr Christou commended his report to the meeting and
made some additional remarks. The UK economy
appeared to be weathering world economic difficulties
more successfully than those on continental Europe. It
was hoped that IT services sector growth might begin
again within the next nine months and that ICL, to be
Fujitsu Services from 1% April, would be able to benefit
early from any up-turn as a result of the significant cost
reductions we had achieved through re-structuring. ICL
had made an operating profit in the month of December
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although Mr Christou said he was disappointed with the
forecast for the full year and he and Mr Courtley were
working to improve it. Re-branding of ICL as Fujitsu
Services and the new customer focussed organisation
(see minute 06 below) appeared to be what the customers
wanted.
Mr Christou referred to three significant concerns — first to
get enough capital to complete the re-structuring
programme mentioned at the last ISC and Board meetings
and then to invest to make the business grow — second,
issues about EMEA and third, the amount of risk in the Mid-
Term Plan which particularly centred on the need to retain
the cost savings from the restructuring but also to grow
revenue, all whilst managing a significant expected decline
next year in VME sales.
ICL would continue to manage the French operation and
Mr Christou said that signs were more encouraging that
break-even could be achieved in the medium term.
On EMEA, the country operations would be divided into
two sections — strategic in which ICL would continue to do
business for the long term, and secondly a list in which ICL
would close or sell. KnowledgePool and the African
operations were also listed for disposal as soon as
practicable. There were a significant number of buildings
where ICL had vacant space and ICL needed to work out
an approach to try to eliminate this cost.
In conclusion Mr Christou said that business at present
was very hard for ICL and managers were being pressured
to improve operating profit. Morale was, he believed,
holding up with staff appreciating the firm action being
taken on re-structuring and re-organisation.
In answer to Mr Naruto, Mr Christou said it did not appear
possible at present to achieve a merger of Invia with a
suitable partner so that ICL/Fujitsu would keep a majority.
There were possibilities that the minority shareholders
shares could be bought back (at a lower price than ICL
had obtained for them) and that the Scandinavian
operations, not well managed by the Invia team, could also
be brought back into ICL. Mr Christou was proceeding
cautiously with the Invia Board and minority shareholders
on these issues and Mr Kurokawa referred to Fujitsu’s
Mr Christou interest in the moves. Mr Christou, Mr Courtley and Mr
Kurokawa would discuss this. The next Invia Board
meeting would begin to discuss the topics. Mr Lush was
arranging for a paper to be prepared on the background to
the original sale of the minority shares.
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02/03
02/04
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Financial Performance PLC/02/02
Mr Earl reported and the following points were noted:
a)
Revenue for the period to end December was
£1,577m, slightly less than forecast and the second
half budget and significantly less than last year (by
10.5%). The full year revenue forecast was £2,186m,
9.6% less than last year.
The operating loss for the period to end December
was £17.1m and the loss before tax, £48.8m. The full
year forecast was for break-even at the operating
level, compared to the October Board meeting forecast
of profit of £13.7m. Branding costs had been held at
£3.5m, and amongst other items, rationalisation spend
in the full year would be around £110m. In all, loss
before tax for the year was forecast at £133.4m,
slightly worse than the October Board meeting
forecast and the second half budget, but (because of
the rationalisation spend) significantly worse than last
year’s loss before tax of £56.6m.
Mr Earl then explained performance in more detail.
Amongst other matters he showed that after allocating
the costs of the headquarters across the divisions,
only Infrastructure Services and Large Projects would
be profitable for the full year. The detailed divisional
figures were noted.
Cash flow continued to deteriorate, due mainly to
losses, working capital requirements of large projects
and restructuring expense. On the balance sheet, net
borrowings at the year end were forecast at 31° march
2002 at £378.5m and shareholders’ funds at £80.7m.
These were below the bank covenant levels and would
be referred to later in the meeting.
Mr Courtley commented on _ the operational
performance, saying that it was generally
disappointing and mentioning EMEA (where the effect
of the economic conditions in most countries were
unhelpful) and in Africa where there were additional
problems. However he and Mr Christou were
determined to improve the year-end out-turn especially
as regards the ISD and P&PS businesses.
Mid-Term Plan PLC/02/03
Mr Christou took the ISC through the slides in the papers,
emphasising amongst other matters that ICL as Fujitsu
Services was in a business area where estimated growth
was expected to be significantly more than in hardware,
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that ICL would as an IT services company design, build,
operate and manage IT Infrastructure and not invest in
propriety software or bespoke software development (with
the exception of VME, still a very important part of ICL’s
business but set to decline significantly next year, and
retail software, for example Global Store and ISS 400).
He referred to the current organisation and _ strategic
direction (Mr Courtley would explain the organisation
changes in more detail later in the meeting).
On Multivendor Computing, there were several reasons
why a disposal was probably the best way forward.
These included the low margin business model, which
differed from the rest of ICL and also the possibility that
trends in the market place might move against it such that
it was “a wasting asset”. Mr Akikusa added that the
business should be disposed of reasonably quickly,
emphasising the cash-flow effects of keeping it. Mr
Christou said that as soon as the year had finished he
would turn his attention to this and would talk to the
appointed advisors, Morgan Stanley.
Mr Christou continued, referring to the removal of multiple
headquarters in the centre and in the divisions and other
aspects of the “de-layering” of the organisation which,
along with the other organisation changes, would greatly
improve customer focus and sales growth. It was intended
to spend £65m in the UK in the final quarter of the year to
remove approximately 1,400 people (by voluntary and
involuntary redundancy) who on the whole were of higher
cost and with out-dated skill sets. Mr Leek added that in
addition some 800 individuals would go to DMR/Fujitsu
Consulting so by the end of March 2002 ICL’s headcount
would come down from around 19,000 by approximately
2000 people. Mr Christou added his aim was that ICL
should have around 15,000 employees as he felt that was
the right figure for the business going forward. Therefore
further re-structuring action, particularly outside the UK,
was advisable.
Mr Earl referred to the financial projections in the Mid-
Term Plan and it was noted that revenue growth from
2001/02 to 2002/03 was expected to be 5.2% (which, if
achieved, would convert ICL’s loss before tax of around
£130m in the present year to a profit of around £20m next
year). Mr Hirose questioned whether ICL could achieve
this and Mr Christou and Mr Courtley agreed that it was a
challenge. However it was thought the market would grow
by at least this amount and that if ICL could manage the
decline in VME revenues, retain the significant savings
made by re-structuring and achieve overall revenue
growth, all at the same time, then it would be possible. Mr
Akikusa emphasised the importance to ICL and Fujitsu of
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achieving this. It was noted that if we could not achieve it,
further falls in headcount would be needed. Mr Courtley
added that ICL would need further capital to grow.
Mr Akikusa referred to Fujitsu’s difficulties with the stock
market. He said that analysts appeared to conclude that
ICL was Fujitsu’s main problem area as they could not see
with any certainty what was happening within our
business. He emphasised that if an investment of a further
£160m in equity was to be made, Fujitsu would have to be
sure that a significant return could be achieved on it. On
no account should the advantage of the £110m re-
structuring fund allowed by Fujitsu be wasted. Mr Adachi
added that ICL’s plan would be again reviewed here and
there would be presentations in Tokyo at the end of
February. Mr Akikusa referred to past difficulties in ICL on
the profit and loss account mainly, he believed from HR
costs and purchasing ineffectiveness. There was further
explanations of ICL’s improved attention to HR and Mr
Christou and Mr Lush referred to new monitoring of the
purchasing effort.
The full pack of Mid-Term Plan financials was noted by the
ISC.
02/05 ICL PLC Capital Injection at 31 March 2002 ~=PLC/02/12
The paper set out that at 31S' March shareholders funds
were expected to be £80.7m. The existing bank facilities
contained covenants that ICL’s shareholders’ funds at that
point must exceed £225m and gearing (which was net
borrowings divided by shareholders’ funds) must be less
than 1.5 times. Consequently ICL believed it had to make
a case to its shareholder, Fujitsu, for an increase equity
investment in ICL prior to 31%March 2002 by around
£160m. MrChristou and Mr Earl would speak to Mr
Kurokawa and Mr Kodama to progress this matter.
02/06 New Organisation from 1* April PLC/02/04
At Mr Christou’s request, Mr Courtley explained the new
organisation structure emphasising the objectives,
including a simpler integrated organisation with clearly
accountable roles, revitalised sales focus and emphasis
on growth, improved customer focus and re-energising and
motivating the company’s employees. In particular there
would in future be customer facing business units with P&L
accountability and including sales, account and
programme management. There would be separate units
aligned and managed horizontally for core services
including customer dedicated service-delivery and shared
capabilities such as data-centres and call centres. Much
of the headquarters cost would be eliminated from HQ and
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the divisions/business units. Mr Courtley explained that
activity in EMEA would focus on principal countries;
France, Germany, Netherlands, Italy, Belgium, Portugal,
Republic of Ireland, and Switzerland (including Austrian
branch) for retail only (although at Mr Akikusa’s request
Portugal would be re-considered). He concluded by
mentioning that the sales force, at present numbering
about four hundred would be reduced significantly to
perhaps one hundred who would be based in the customer
focused business units and managed to aggressive
targets.
Mr Christou
The ISC discussed the new organisation. In answer to
Mr Hirose it was emphasised that headcount would
continue to be very carefully controlled within ICL, with
recruitment centralised - each business unit would not be
able to go its own way. Mr Hirata emphasised the
importance of cost control and improving productivity in the
service delivery areas and Mr Courtley confirmed this was
one of his main priorities. Mr Christou, Mr Courtley and
Mr Leek emphasised the care presently being taken with
communication (including meetings of groups of managers
and employees and email communications)
Mr Courtley emphasised that he thought this organisation
and our simplified offerings would allow ICL to do more
with other members of the Fujitsu family.
02/07 Changes to the ICL PLC Board on 7" February
These were noted by the ISC
02/08 Large Projects Division Update PLC/02/07
Mr Courtley made some general remarks on the large
projects then reviewed each of the five — Pathway, Libra,
HMCE, Sirius and DTI Elgar.
He referred to past concerns and the need to improve the
projects. He felt that they were improving but there was
further to go. On management matters, each project now
had a specific business director reporting to Mr Courtley
and this flatter organisation enabled customer concerns to
come through to senior management very quickly. There
was also a regular review programme now instituted with
Mr Courtley and Mr Hirata involved. Mr Courtley added
that the financial state of the projects reported at the last
ISC meeting had not changed.
Mr Naruto enquired on the situation of ICL/Fujitsu Services
in regard to its competitors. Mr Courtley replied that
whereas EDS appeared to have more profitable contracts
than ICL, some of their performance was not good and
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their public sector customers were in general not happy.
IBM’s involvement in the UK PFI/Public Sector market had
not been particularly successful of late. Mr Courtley felt
that ICL’s strengths were coming through and were being
recognised by the customer. On the large projects there
was significant further business which ICL was pursuing,
together with opportunities for re-financing.
02/09 Update Report — Project Fuji
Mr Bennett joined the meeting and updated his written
report particularly mentioning briefings of analysts and
journalists which were resulting in reasonably favourable
press comment. The transfer of the people and the
businesses from ICL to DMR/Fujitsu Consulting under
Project Fuji remained a critical issue as did the associated
Mr Christou staff briefings and explanations. ICL and DMR were
devoting much time and attention to these matters.
Mr Okada mentioned particular concerns relating to HR
costs especially pensions and ICL would review the work
in these areas carefully.
It would also be necessary to undertake a programme of
customer liaison as the brand changed from ICL to Fujitsu
Services. This should include customer visits at a senior
level and Mr Christou referred to visits ICL and he and
Mr Poehner of DMR would be carrying out to potential joint
customers. There was also the possibility of seminars and
other activities including visits to Japan. Mr Christou
referred to the likely need in future for major customers to
visit the home of Fujitsu and Mr Akikusa encouraged this.
Mr Akikusa added that Fujitsu of course had many other
significant businesses through Europe in addition to
Fujitsu Services and Fujitsu Consulting and it would be
Mr Christou necessary for greater communication to take place
between all of the Fujitsu interests, for example particularly
in relation to handling sales enquiries.
02/10 ICL France Re-capitalisation 1SC/02/04
The proposal was approved.
02/11 ICL Hungary Re-capitalisation ISC/02/05
The proposal was approved.
02/12 Quarterly Manpower Report PLC/02/08
The report was noted.
02/13 Major Bids Report 1SC/02/01
The ISC noted the report. Mr Christou mentioned a major
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bid to FTEL — a BT operation intending to introduce a
cable TV down telephone lines. This was a significant
opportunity and ICL was one of the last two bidders
however MrChristou said that there were concerns
whether BT would continue with the project given its
present business difficulties.
Mr Courtley referred to proposals by different units of
Fujitsu working together for Nokia.
02/14 Acquisitions and Divestments PLC/02/09
The ISC noted the report and Mr Christou confirmed that
the Prospero disposal had completed. The ISC continued
its delegated authority to Mr Christou to progress the
opportunities mentioned in the report.
02/15 Property — West Gorton, Manchester ISC/02/02
Mr Christou referred to the West Gorton ICL site, an old
building with many risks including health and safety ones
emerging as our occupation continued. The proposal
represented an arrangement with the Manchester City
Council which would allow ICL to move from West Gorton
on favourable terms into new buildings which would be
much more suitable for re-letting if ICL found it had surplus
space in the area in future. Mr Christou therefore
proposed the project to the ISC and it was agreed.
02/16 Chairmen and Managing Directors of Subsidiary
Companies
1SC/02/03
The list was noted and approved.
02/17 Approvals and Confirmations
The documents Signed and Sealed papers and the last
minutes of the Audit and Pensions Policy Committees were
noted, on their way to the Board of Directors on the
following day.
02/18 Dates of Next Meetings in 2002
It was noted that with changes to be made to the Boards of
Directors and governance matters within ICL, further
discussions would take place between London and Tokyo
on the constitution of future meetings and their frequency.
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