ICL confirms float as doubts grow over PFI contract

ICL, the computer services company owned by Fujitsu of Japan, yesterday said it was pressing ahead with a stock market flotation despite indications its pounds 1bn contract to automate the benefit payments system is on the brink of collapse.

Analysts estimate that the flotation, scheduled to take place in 2000, could value ICL at between pounds 1.5bn and pounds 2bn. The company returned to the black in 1997 after several years of heavy losses caused by its withdrawal from computer manufacturing.

Announcing a turnaround from operating losses of pounds 6.6m in 1996 to profits of pounds 32.5m last year, Keith Todd, ICL's chief executive, said a flotation was "very definitely on" and set a target of increasing profits to pounds 180m a year on sales of pounds 3bn.

Mr Todd also denied that ICL had encountered problems with the benefits contract. The scheme to automate payments at 19,000 Post Offices by replacing order books with smart cards is the largest IT scheme awarded under the Government's Private Finance Initiative and ICL's biggest single project.

A leaked memo from the Social Security Secretary Harriet Harman has warned that ICL is seeking "significantly more money" to complete the project. The memo to Margaret Beckett, President of the Board of Trade, was written in February and said: "ICL and senior officials here suggest that ICL is going to press for significantly more money before making any further investment in the project after the end of this financial year and that, if we keep stalling, it will bring matters to a head, for example through a media campaign or through the courts."

However, Mr Todd rejected reports that the project was in danger of collapse or that ICL Pathway, the subsidiary which is running the project, was in danger of being dropped from the contract.

"The customer loves this project and the software is world class. I only have one problem and that is working through the number of international opportunities we have to install this type of network.

He said that both Denmark and Australia were interested while ICL would decide in the next three to four weeks whether to proceed with a big benefits automation project elsewhere in Europe.

John Bennett, the managing director of ICL Pathway, said that no changes in the contract or any possible penalty payments for late delivery were being considered.

Asked about reports that the project might have run into difficulties, he said: "It is rumour and speculation. It is just not true. The commitment from us, the Benefits Agency and the Post Office is undiminished. The contract covers the terms on which we start and finish the project. They are pretty normal terms for PFI projects."

ICL has so far spent pounds 125m in the contract and its total investment is expected to reach around pounds 600m before its starts to earn significant revenues from 2000 onwards. ICL receives a payment each time the card is used. It has estimated revenues from the contract at pounds 1bn but its franchise expires in 2005, when it will have to tender to renew the concession.