ICL sets its sights on £5bn return to market

ICL, once a British computer industry stalwart but for the last decade a division of Fujitsu, the Japanese conglomerate, yesterday unveiled more than £1bn of asset sales and flotations ahead of an expected £5bn relisting in the autumn.

By the summer, ICL will float KnowledgePool, a leading non-proprietary IT training group, in London and on Nasdaq with an expected price tag of £400m. ICL plans to sell between 25 and 49 per cent.

It also confirmed plans for an initial public offering of shares in its Finnish arm, ICL Data Oy, in which it sold a 16.8 per cent stake last month for £141m. The £900m flotation in Helsinki is expected to occur by June.

In a further move to position itself as an e-business systems and solutions supplier, ICL will close its computer distribution business, which last year had sales of £60m. It will also sell its European spares logistics division to 3i.

"A line in the sand has been drawn," said Keith Todd, chief executive. He termed the floats, spin-offs and development plans as "phase one" of unleashing shareholder value to reinvest in new areas.

The plan's success will depend on the market's appetite for £1bn or more of group shares when it relists. If ICL is far removed from its earlier manufacturing focus, it has not transformed itself in the effective manner of industry giant IBM - the company ICL used to be compared with during the 1980s when its name was synonymous with main frame computers.

With the float likely to be one of the largest of 2000, analysts were loathe to risk a piece of the advisory fees bonanza to comment directly on ICL's prospects. But one long-time industry watcher compared Mr Todd's penchant for internal reorganisations with that of Sir John Birt, the controversial former director-general of the BBC.

It also remains to be seen how anxious UK investors will be to take a minority stake in business ultimately controlled by little-known managers at Fujistu's Tokyo headquarters. Japanese conglomerates, inflexible and unimaginative in their response to the IT sector's torrid evolutionary pace, have proven a poor investment in recent quarters, Fujitsu being no exception.

Aside from fears of the dead hand of Fujitsu, ICL's business mix is far from convincing. Billings in the retail, government and "other" sector divisions, which accounted for 52 per cent of 15 month to March 1999 sales of £3.36bn, were below year-earlier levels.

In fast-growing sectors like telecoms, IT and utilities, ICL has shown decent revenue gains, but it is debatable whether a conglomerate can build operations of scale quickly enough to keep pace with more specialised competitors like Logica and fast-expanding upstarts.

What is more, despite a toehold in Scandinavia, including a services contract with Nokia, ICL has little presence in France, Germany or the Benelux countries. That puts it at a disadvantage to rivals like CMG and Sema, which have diversified revenue sources.

Mr Todd is unfazed. He believes European business is just getting on board with the internet and that ICL can ride that wave. "There really has been a wake-up call across Europe," he said. "I believe you will see a revolution in the way [European] business uses the internet."

If ICL's evolution during the late 1990s into an IT services and solutions provider marked a step change for the company, it cannot not be assumed that becoming a leading e-business solutions provider will proceed so smoothly. Internet protocol technology has initiated IT standardisation, making smaller, quick-to-adapt solutions providers extremely competitive with giants like IBM or Bull.

ICL can, however, take credit for managing the implementation of the BBC's successful transition to becoming a key portal and one of Europe's biggest sources of Web content. Yesterday it announced a clutch of high-profile deals, including a collaboration with the UK division of German software heavyweight SAP to develop WAP solutions as well as a deal with Affinity Internet to roll out branded internet access.

To further emphasise its internet credentials, ICL will divide into three units: e-Innovation, e-Applications and e-Infrastructure. It will also set up an incubation division to nurture start-ups and hopes to profit from retaining stakes in spin-offs, while maintaining close technology relationships.

It all adds up to a radical departure for a company that just 11 months ago had egg on its face when it lost a lucrative opportunity to secure long-term recurring revenue after the Government scrapped a £1bn private finance initiative contract to automate social security benefit payments. The failure led to a one-time charge of £180m.

Mr Todd is adamant clients are pleased with ICL's new direction. "They're very happy with what we're doing," he said. "I don't think there's any issue about leaving our [existing] customers behind."