G4S PLC Interim Management Statement Conference Call
May 07, 2014 AM BST
GFS.L - G4S PLC
G4S PLC Interim Management Statement Conference Call
May 07, 2014 / 07:00AM GMT
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Corporate Participants
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* Helen Parris
G4S Plc - Director of IR
* Ashley Almanza
G4S Plc - CEO
* Himanshu Raja
G4S Plc - CFO
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Conference Call Participants
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* Robert Plant
JPMorgan - Analyst
* Kean Marden
Jefferies & Co. - Analyst
* Sylvia Foteva
Deutsche Bank Research - Analyst
* Allen Wells
Morgan Stanley - Analyst
* Andrew Ripper
BofA Merrill Lynch - Analyst
* Laurent Brunelle
Exane BNP Paribas - Analyst
* Paul Checketts
Barclays - Analyst
* Gideon Adler
Redburn Partners - Analyst
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Presentation
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Operator [1]
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Good morning, ladies and gentlemen and welcome to the G4S Plc 2014 interim management statement. (Operator Instructions).
I will now hand you over to your host, Helen Parris, to begin. Thank you.
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Helen Parris, G4S Plc - Director of IR [2]
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Thank you, and good morning everyone, and welcome to our interim management statement conference call. In a moment, Ashley Almanza, our CEO, will comment on overall trading and progress for the plans we laid out last year. Himanshu Raja, our CFO, will then take us through the numbers in a bit more detail, after which we can open up the call for Q&A.
I'll now hand over to Ashley.
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Ashley Almanza, G4S Plc - CEO [3]
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Thanks, Helen. Good morning everyone, and welcome. I hope that by now you've had the opportunity to read our interim management statements.
We were pleased to report that trading for the first three months of this was in line with our plans, and organic revenue growth was up by 5% year on year. Profit before interest, tax and amortization and earnings were slightly higher than the first quarter of 2013.
Now, as you know, our aim is to create shareholder value through the consistent delivery of excellence in customer service, operational performance and financial management. We believe that there are material opportunities to improve our performance in all of these areas, and that doing so will deliver sustainable and profitable growth.
The strategy and business review, which we conducted last year, identified the need for wide-ranging changes in our business which we captured in the form of a number of strategic priorities. I'm pleased to say that since our last update only two months ago we've continued to make progress with these priorities.
We're now clearly moving out of our initial planning and review phase into execution across a very broad front. And I'd like to take just a moment to highlight a few areas of progress.
When we reported our year-end results, our portfolio management work had already begun to deliver results. We had divested four businesses at attractive exit multiples, and we'd taken the decision to close, or consolidate, a further five businesses.
Since then, we've concluded reviews on a number of other businesses and will exit five small businesses this year. They make no real contribution to our financial performance today, and they have limited growth prospects.
Separately, the potential disposal of our US Government solutions business continues to attract buyer interest, following the revision and relaunch of our marketing process in the second half of last year. As we've said before, we will only transact if we achieve acceptable terms.
Last year we also identified the need to reinforce our organic growth. As announced last year, we're now investing in additional GBP15 million to GBP20 million per annum to strengthen sales and business development, capacity and capability across the Group.
We have added, and continue to add, significant capability in Africa, Asia, Latin America, the UK, Europe and the Middle East. And we're also embedding a consistent approach to sales operations and sales performance measurement across the Group.
Our growing capability in sales is also enabling us to bring together senior sales and business development executives from each region to transfer best practice, ranging from sales operations to customer relationship management and service innovation.
With respect to sales, we had a positive start to the year, winning new business with annual revenues of GBP440 million.
In April, the UK Government gave a positive assessment of our UK Corporate Renewal Program, enabling us to now focus on serving this strategic customer.
We have, as you know, considerable experience and capability in delivering cost effective services to the UK Government, and our contract wins and retentions in recent months include a number of significant UK Government contracts. Our UK Corporate Renewal Program is now being implemented in earnest, and there is more to do to build confidence and trust with this customer.
Reinforcing customer trust and confidence matters greatly in all of our markets and all of our businesses; and to that end we have this month relaunched our corporate values across the Group with strong sponsorship from the Group Executive Committee.
Now, alongside our investment in people and values, we've continued to review the effectiveness of our organization.
Last year we created a separate regional organization for Africa, recognizing its growing importance to the Group. We also began to strengthen our management capacity in Latin America.
And, last month we formally separated our Americas region into two regions: North America and Latin America. These changes reflect the scale and the quality of the opportunities that we see in both of these markets.
Now, as you also know, during the second half of last year, we established major restructuring programs to strengthen the competitiveness and the profitability of a number of key businesses, principally in the UK, Ireland and Europe.
These programs are being implemented in line with the detailed plans that we developed last year. And in addition, we've integrated the secure solutions business in Ireland into our UK secure solutions business, to improve the combined performance.
Our cost leadership program has gathered momentum, with strong executive sponsorship, clear support for our service excellence centers, and the appointment of key functional leaders.
We're now deploying experienced subject matter experts to lead efficiency reviews in our larger operating businesses, with a very sharp focus on direct labor efficiency, organizational efficiency, vehicle re-planning, IT standardization, procurement.
And I should say, our new Chief Procurement Officer started employment with us this week, and will be helping to drive our procurement process. And of course, we have a shared services program, which is being led by our Group CFO, Himanshu Raja.
We're also reviewing our UK property estate and we see opportunities to rationalize our existing footprint.
Now, just a bit more detail on some of these initiatives. Direct labor efficiency; we've focused on the top 30 manned security businesses, ranking these by revenue and manpower. And what we've established is that in 25 of these 30 businesses, we do not reconcile contracted, paid and build labor hours in a consistent and effective manner.
During the balance of this year, we will deploy experts from our service excellence center to assist each of these businesses to embed effective labor management processes. And in parallel, our IT leadership will be working on a phased approach to implementing labor scheduling software in our larger businesses.
Now, route planning also provides an opportunity. Much like direct labor efficiency, we have now completed a detailed benchmarking exercise across all 66 of our cash businesses, where on any given day, we have approximately 10,000 cash vehicles on the road.
Our detailed benchmarking indicates that there are opportunities for improvement in scheduling and route planning, across about 80% of these businesses. And at least 25% of these businesses would benefit from enhanced software implementation.
Again, during the balance of this year, our subject matter experts from the OTC will visit around 20 businesses and we will be building our scheduling capability.
The benefits of better re-planning in the cash business can, in time, be applied to our other businesses, where we have a fleet of approximately 28,000 vehicles. We've launched a piece of work to better understand the scale of the opportunity in these other businesses.
In telematics, we see a similar opportunity in our cash fleets. We have telematics installed in five businesses now, and we have recently completed a tender process, which will reduce the unit cost of telematics per vehicle. And this will help to drive the rollout of telematics, to the majority of our European businesses, and to South Africa, this year.
We talked at the year-end about IT footprint. We conducted a baseline assessment in the fourth quarter of last year, which established that we have been spending around 20% of Group operating cash flow, on IT.
Since the recent appointment of our Group CIO, we've embarked upon a program defining a detailed IT roadmap that will address organizational efficiency; the number and scale of our suppliers, currently we have over 2,400 IT suppliers; equipment standardization; telecommunications; network infrastructure; shared service centers; and a number of approved applications and projects across the Group.
You can tell that there is a rich opportunity set in IT. This is a phased, multi-year program, which I believe will deliver material benefits in both efficiency and effectiveness.
I'll close now with a reference to one of my opening comments, and that is that we have clearly moved beyond the initial review and planning phase, and have entered the execution phase, with real purpose and energy.
The transformation of G4S is only just beginning, and we have a long way to go. Our progress will not be linear, but I believe it will be determined and successful.
I'll now hand you over to Himanshu, to comment on the first quarter trading, in a bit more detail. Himanshu?
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Himanshu Raja, G4S Plc - CFO [4]
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Thanks, Ashley, and good morning everyone. Let me add my thank you for joining the call this morning.
Before I take you through the headlines for the quarter, I'd just like to cover three points on the basis of preparation of the results.
Firstly, all the figures in the release are on a constant currency exchange rate basis.
Secondly, and as many of you know, we've adopted three new accounting standards, which are effective on January 1, 2014: IFRS10, 11 and 12. We showed the impact of these in the recently published annual report and accounts.
As a reminder, it removes around GBP30 million of PBITA, from 2013 and 2014 results. Instead, this is equity accounted for in a single line.
To remind you, it's an accounting change and therefore has no impact on earnings or earnings per share. Helen and the team will be able to offline help if you need support in applying the effect of these to your modeling or analyses.
As part of the ongoing portfolio review, outlined by Ashley, we're also looking at how we can optimize our economic value, in some of our joint ventures and controlling interests. This may reduce the impact of IFRS10, 11 and 12 going forward. Of course, I look forward to updating you each quarter, on our progress there.
Thirdly, if recent sterling strength continues for the rest of the year, this will have an impact on our reported results. You will recall at the prelims, I said underlying PBITA of GBP442 million for 2013, would have been GBP20 million lower, using the December spot rate rather than the average 2013 rates.
If I then apply the Q1 spot rates at the end of March, PBITA would have been GBP25 million to GBP30 million lower. Clearly, the impact of exchange rates will have an impact on our full-year results, but I'll leave you to do the crystal ball gazing as to the full-year impact, and, of course, I'll provide you an update each quarter on our progress.
Let me now turn to trading. Organic revenue grew by 5%. Total revenue was lower, at 4.8%, due to the disposal of the Colombian business, which we sold in August last year, and which was not in discontinued businesses and, therefore, affects the year-on-year headline number.
Emerging markets revenues grew by 16%, with double-digit growth across all our emerging markets regions.
Our developed markets delivered a solid performance. Organic growth was flat. It's early days, but we are starting to see some early signs of recovery in the sales pipeline in continental Europe and North America, compared to the fourth quarter of last year. And our UK business continues, with its restructuring program, to drive future growth and improve competitiveness.
Turning to operating profits; overall, underlying operating profits and earnings were slightly ahead of the same period in 2013, after adjusting for IFRS 10, 11, and 12 and currency movements.
In terms of the Group's financial position, as Ashley mentioned, we're pleased to see S&P reaffirm the BBB minus credit rating.
Our focus remains on driving cash generation and bringing net debt to EBITDA below 2.5 times. Cash flow is always stronger in the second half of the year than in the first half, due to the completion of project-based work towards the end of year, and Q1 cash flow reflects this. We continue to expect net debt to EBITDA to continue to improve by the end of the year.
I'll now pass you back to Ashley.
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Ashley Almanza, G4S Plc - CEO [5]
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Thanks, Himanshu. That concludes our comments and we'll be happy to take your questions. When asking a question, please give your name and the affiliation of the organization that you work for. Operator, we're ready for questions.
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Questions and Answers
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Operator [1]
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Thank you. (Operator Instructions). Robert Plant, JPMorgan.
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Robert Plant, JPMorgan - Analyst [2]
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You've said that the emerging market business had double digit growth in all of the regions. I wondered how much benefit was there from Manus Island and, secondly, quite high inflation in Latin America. Thank you.
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Ashley Almanza, G4S Plc - CEO [3]
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I'll ask Himanshu to cover that in a second, Robert. Thanks for the question.
Manus is about GBP25 million a quarter, and, as you know, that contract came to an end at the end of the first quarter, which we signaled with our full-year results. So the effort that has gone into building our pipeline has been all the more important, and we were very pleased with the first quarter performance of GBP440 million of new revenues. I shouldn't say revenues -- sales. Obviously, that won't all hit the P&L this year. We'll start mobilizing those contracts through the balance of this year.
Himanshu, do you want to comment on Manus further, and also inflation?
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Himanshu Raja, G4S Plc - CFO [4]
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I think you've covered Manus, Ashley. On inflation, Rob, good morning. If you think about some of the markets where you've got hyperinflation, they're not material to the overall result. Countries like Argentina in Latin America, so they don't materially affect the headline overall performance.
What we did see was particularly strong continued growth in Asia and in Africa, as well as consistent growth in LatAm, which is why we referenced this morning that it was double-digit growth across all regions. But not a major impact from hyperinflation.
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Ashley Almanza, G4S Plc - CEO [5]
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I think the breadth of the growth is quite important, Robert, so that we're not -- as we said at the end of last year, we're not dependent upon a single contract. Even though Manus is a big -- was a big contract, the scale of our sales portfolio means that we're not dependent on single contracts. And I think, also, the fact that we're growing across a broad front, not in any one market or any one sector, gives us some confidence in the ability to sustain our growth.
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Robert Plant, JPMorgan - Analyst [6]
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Thank you, Ashley. Thank you, Himanshu.
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Operator [7]
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Kean Marden, Jefferies.
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Kean Marden, Jefferies & Co. - Analyst [8]
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I wonder if I could, first of all, ask a couple of questions on balance sheet. Could you confirm, first of all, that you've received all disposal proceeds related to small divestments that were made during the second half of last year?
And then, secondly, on balance sheet, I'm wondering whether Himanshu's greater focus on cash conversion has led to any improvements in DSO. Or are there any other elements that he'd like to pull out. Obviously, your statement mainly focuses on the P&L rather than the balance sheet today.
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Ashley Almanza, G4S Plc - CEO [9]
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Yes, I think we certainly -- and Himanshu will confirm, I'm looking at Himanshu.
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Himanshu Raja, G4S Plc - CFO [10]
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Yes, cash is all received.
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Ashley Almanza, G4S Plc - CEO [11]
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We've got the money.
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Himanshu Raja, G4S Plc - CFO [12]
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All received and good, Kean. Good morning. On the cash flow and DSO, I think I've reported before, there's definitely room for cash flow improvement. I'd say there's been a patchy performance across the Group through the first quarter; some improvement in certain territories, others not where I'd like to see them. But overall, cash is, broadly, in line with last year.
It is seasonal, first half to second half and, therefore, second half, we always see project-based work deliver improved both revenue and cash. When I think about net debt to EBITDA, again, on trajectory to bring that down, year on year, compared with December 2013. But more to do, I'd say, Kean, on driving DSO down.
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Kean Marden, Jefferies & Co. - Analyst [13]
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Okay. The market's obviously very preoccupied, given events elsewhere at the moment with, obviously, trajectory of net debt to EBITDA. So are you willing to extend your comments regarding reducing net debt to EBITDA at the year-end to the June test as well?
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Himanshu Raja, G4S Plc - CFO [14]
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Well, I say it's seasonal, so we look at it on a rolling 12-month basis. So, if I look at June to June, June to June has a similar profile 2013 to 2014. But year-end to year-end, we are definitely looking to drive an improvement December 2013 to December 2014. Seasonality is something that, ongoing, we have to work through as we seek to contract better and drive improved cash performance.
We do see this first half/second half dynamic going on in the business.
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Kean Marden, Jefferies & Co. - Analyst [15]
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Then, secondly, and I think I know the answer to this question, but just to check. You don't day adjust so, therefore, the additional trading day from Easter in a number of countries around the world wouldn't have been adjusted in that organic number.
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Himanshu Raja, G4S Plc - CFO [16]
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No, that's right. We work to calendar cycles, not working days.
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Kean Marden, Jefferies & Co. - Analyst [17]
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Okay, thanks very much.
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Operator [18]
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Sylvia Foteva, Deutsche Bank.
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Sylvia Foteva, Deutsche Bank Research - Analyst [19]
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Two questions, if I may. Firstly, on total revenues and profit growth, could you please comment? Obviously, all the figures in the statement were at constant exchange rate terms.
And secondly, can I just confirm the net debt to EBITDA post the adjustments, Himanshu? Was that standing at 2.8 times at the end of the year, as previously suggested? Thank you.
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Himanshu Raja, G4S Plc - CFO [20]
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Sylvia, if I understood your question correctly, all the figures are, yes, at constant exchange rates for both revenue -- (multiple speakers).
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Sylvia Foteva, Deutsche Bank Research - Analyst [21]
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Could you disclose the total with the FX impact, please?
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Himanshu Raja, G4S Plc - CFO [22]
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Yes, the actuals, like I say, if you recall back to the impact in December, it was around GBP20 million on the prior year number. And then I've tried to help you to say the strengthening of sterling through March means the FX impact on the prior-year comparison of GBP442 million is closer to between GBP25 million and GBP30 million. So you do see an impact, year on year, from the impact of the strength of sterling, but it's hard to call, really, what the impact, full year will be.
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Sylvia Foteva, Deutsche Bank Research - Analyst [23]
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But sorry, in Q1, was the profit -- obviously you're commenting profit was up slightly, was it down slightly against --?
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Himanshu Raja, G4S Plc - CFO [24]
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On constant currency, we were slightly ahead. On the impact of FX, we were slightly down on an actual basis.
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Sylvia Foteva, Deutsche Bank Research - Analyst [25]
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On an actual basis, okay, thank you.
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Operator [26]
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Allen Wells, Morgan Stanley.
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Allen Wells, Morgan Stanley - Analyst [27]
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A couple from me. On the margins, I don't know to what extent you can comment, but you talk, obviously, about PBITA being up slightly but, obviously, revenues, organic revenue growth is up almost 5%. Does that imply that margins are down slightly year on year in the first quarter? That's my first question.
Secondly, you've seen some of your competitors, both Securitas, Prosegur, talk about -- or it looks like in the numbers there's quite a bit of weakness still in the Spanish market. I wonder to what extent -- obviously, it's smaller for you guys -- but to what extent you can comment on what you're seeing there.
And then, thirdly, you highlight the GBP400 million of new orders you've received in the first quarter, but I couldn't remember what that number would have been in 1 quarter last year. I wonder if you could put some context on that as well, please. Thank you.
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Ashley Almanza, G4S Plc - CEO [28]
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Allen, Himanshu and I will divvy that up. Just on margins, I think you may have heard me say before that what we're trying to do here is grow profit, earnings, cash flow, and, ultimately, dividends in the business. And what we've seen in the fourth quarter, constant exchange rates, revenues up, profit up, earnings up; it doesn't imply, actually, that margins are down.
We've got a number of levers, when we think about the profitability of our business; sales mix, operating efficiency, overheads. And the transformation program that I described in my comments earlier on this call, those things are all designed, ultimately, to strengthen the business, grow earnings and grow dividend. Some of them will also underpin the margin.
At the same time we are investing, and will continue to invest, in the organic growth opportunity and that fits the P&L. It doesn't get put on the balance sheet, as you know, like acquisitions. So, there's a balance there. But I don't think you can take from our comments that the margin is down in the first quarter.
What I said last year was as we started to step up the rate of investment in sales, business development, operations, all of which would be expensed, we would at the same time drive very hard on the various initiatives to improve the efficiency and effectiveness of the business so that in time we would expect the investment in organic growth to be self-funding from the P&L point of view.
So there is a balancing act here. I'm keen to stay away from trying to manage the business, the margin, on a 12-week cycle. I don't believe it's a healthy way to grow this business ultimately.
So, for example, we've made appointments in Latin America, senior appointments; appointments in the Middle East to drive our secure solutions business and cash businesses there; and we've made a number of appointments across Europe where we had a -- fundamentally an underweight sales organization; very, very light sales organization. Those things are good investments for us to make but they affect the P&L.
But the -- I think the -- to round off before handing over to Himanshu, net net we're also harvesting efficiencies and so we haven't seen anything in the first quarter or even in the last six months that suggests our net margin is structurally weaker than before.
So, there's a long answer but I think important to keep reminding everybody that we've got several things going on here as we grow the business. Himanshu, do you want to pick up --?
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Himanshu Raja, G4S Plc - CFO [29]
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Do you want to answer the question on Spain?
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Ashley Almanza, G4S Plc - CEO [30]
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Spain, it's not -- it just really doesn't register on the radar for us. We don't have a permanent establishment there. So we see what you see, Allen, which is that our competitors appear to be having a tough time of it in that market.
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Himanshu Raja, G4S Plc - CFO [31]
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I think, Allen, your last question was the comparator to the GBP440 million, which I don't have to hand but we can provide offline. Just to remind you, I think it was last year we rolled out Salesforce.com systematically everywhere but Helen and the team can help you with the comparator number offline.
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Helen Parris, G4S Plc - Director of IR [32]
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Yes, I think we've given net new business for the year. I think that, as I say -- because in terms of how we're measuring now, I'm not sure that we're comparing exactly like for like if you go back a year ago; but I think we're confident that we've had a positive start to the year compared to last year.
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Allen Wells, Morgan Stanley - Analyst [33]
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Okay, thanks, guys.
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Operator [34]
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Andrew Ripper, BofA Merrill Lynch.
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Andrew Ripper, BofA Merrill Lynch - Analyst [35]
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I just wanted to start -- in terms of the restructuring actions which are going to impact over the next 12 months, can you give us a sense of what you've done in the year to date?
I'm aware you talked, I think, about taking out 3,300 heads out of the organization and on the initial reorg, Himanshu, that you flagged -- I think you talked about GBP35 million of the GBP68 million with a one- to two-year payback.
Maybe you can talk about physically what you've done in the first four, five months of this year, please.
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Himanshu Raja, G4S Plc - CFO [36]
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Sure. Overall, Andrew, our restructuring plans are on track. We saw in the Q1 results about a GBP5 million P&L benefit coming through from those restructuring actions.
The headcount number is an annualized number and, yes, that is also progressing. I don't want to comment on individual headcount by country but on a global basis, again, the headcount reductions are going to plan as well. But about a GBP5 million benefit in the quarter into P&L.
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Ashley Almanza, G4S Plc - CEO [37]
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On the headcount -- remember, this restructuring was focused quite heavily on operations in the UK and also in Europe; a big part of what we're looking at was our care and justice business in the Netherlands. In broad terms the headcount reduction is phased evenly across the year. There's a slight weighting to the second half.
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Andrew Ripper, BofA Merrill Lynch - Analyst [38]
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Yes, okay. And then on the top line, it's obviously a good start for you in the emerging markets business. Do you expect for the full year to be in your 5% to 8% range, despite the impact of Manus over the next three quarters?
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Ashley Almanza, G4S Plc - CEO [39]
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I think, Andrew, it's really too early to say where we're going to end up for the full year. Again, we are taking a slightly different approach to how we've done things in the past.
We've turned down some business in the last six months and I expect over the balance of the year we will decline to bid for some business in other areas. But I think that 5% to 8% growth potential that we see over the long term, I think we can just -- at this stage all we can say is we're pleased with the start.
We're very encouraged with the start that we've had but we're not complacent. We know that every big bid is a competitive process and we can't assume that we're going to keep, get, grow our portfolio across the patch.
I think we'll have a better view on that at the half year; but I think all we'd say at this stage is pretty pleased with the way that the year has started.
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Andrew Ripper, BofA Merrill Lynch - Analyst [40]
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Yes, okay. And then just on Australia. The bidding process has started for the onshore immigration detention centers. You guys used to run that in the past. Can you confirm whether you're bidding in this round, please?
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Ashley Almanza, G4S Plc - CEO [41]
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We haven't taken a final decision to bid in this round.
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Andrew Ripper, BofA Merrill Lynch - Analyst [42]
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Okay. And then, finally, just in terms of capital structure, Himanshu, obviously I'm conscious you're running with quite high levels of gross cash and gross debt.
I think your initial take on it was that the early redemption penalties were too onerous in terms of, for example, paying down USPP early. Is that still your view?
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Himanshu Raja, G4S Plc - CFO [43]
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Yes, I think that's the case. I think we've said before that the balance sheet is not where we'd like it to be and hence the focus on cash and cash generation.
But early redemption has to make economic sense and it just doesn't today. But if we continue to focus on cash and cash generation, that clearly gives us choices as we go forward.
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Andrew Ripper, BofA Merrill Lynch - Analyst [44]
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Yes. And then in terms of the timing on the US disposal, Ashley, actually you said you were pretty close on the final results two months down the line. Do you think it could happen in this half?
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Ashley Almanza, G4S Plc - CEO [45]
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Well, I think what I said was that the process had gathered momentum, was quite advanced. It's never done until it's done, Andrew. One of the reasons we relaunched the process at the back end of last year was, firstly, to take the RSS business out, which is a good business; but secondly, I think we had just gotten to an unsatisfactory place in terms of buyer expectations and by that I mean an expectation of buyer-friendly terms.
I think we're in a better place now. All I can say with certainty is that we will only transact if the terms are satisfactory. It's never done until it's done.
If buyer expectations are still for excessively buyer-friendly terms and conditions, we won't transact. We will continue to manage this business for value and when the market is right, then we will return to the market in the long term or, hopefully, in the short term. But ultimately, I don't think it's sensible for us to have a proxy business in our portfolio.
So, we will realize value for shareholders at some point; it's just a question of when.
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Andrew Ripper, BofA Merrill Lynch - Analyst [46]
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Understood. Thank you.
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Operator [47]
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Laurent Brunelle, Exane BNP Paribas.
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Laurent Brunelle, Exane BNP Paribas - Analyst [48]
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Three questions from me. First, on trading, could you give us some color on your UK performance? Are you still suffering from the ongoing reorganization?
Secondly, regarding the sale of your US Government business, is there something new to say? I have understood that, obviously, you will keep it if you don't get any acceptable terms but can you update us on it, please?
And, finally, a follow-up on ForEx. Given what you said, is it fair to say that you are -- the ForEx impact on top line is, let's say, minus 7% in Q1? Thank you.
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Ashley Almanza, G4S Plc - CEO [49]
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So I'll ask Himanshu to comment on ForEx, Laurent. UK reorganization is ongoing. I mentioned earlier that the restructuring was weighted towards operations. So two-thirds of the headcount reduction lay in operations in this phase of restructuring. What that means, of course, is we have to go carefully because as we restructure, we want to make sure that customer service doesn't suffer.
So, that program is ongoing. It has been historically -- at least in the last few years, the UK cash market has been a tough market, but the whole idea here is to get lean and fit to compete. And there's no doubt that we've got a plan to get there; we've got a team to deliver that plan. Yes, the market -- I think we will be in a better position to compete in the market by the end of this year.
On the US, the only thing I'd say is, as I said in my prepared remarks, we continue to get buyer interest. We continue still to get approaches, people wanting to join the process. They -- we're keen that we don't waste their time or our time and so they have to -- we go -- take them through a prequalification period before they can enter the process. In the last little while, we've seen, well, I'd say renewed interest, people coming and knocking on the door.
But I'd just reiterate what I said a moment ago; these things are never done until they're done. The devil's in the detail and we want to make sure that we do a good transaction. And if not, then we'll do one later.
ForEx, Himanshu?
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Himanshu Raja, G4S Plc - CFO [50]
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Just on the FX, I think Ashley talked about earlier, if you reflect on really the global and geographic nature of the business and the different movements in currencies, we've got -- dollar-denominated represents about 30% of the business; euro and sterling is about 35%; and therefore, that leaves around 35% which is in the other category.
As we've all seen, what you see is that the Asian and LatAm currencies are no longer following the US dollar, so there's more volatility there. So in terms of headlines, that means that from a revenue perspective, it's really, I think you said, minus 7%, it's more like low single digits down. And on PBITA, rather than slightly ahead, it's slightly down.
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Laurent Brunelle, Exane BNP Paribas - Analyst [51]
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Okay, great. Okay, coming back to the UK, can you give maybe a number? I guess you are getting [sales obviously] negative in the UK overall; is it fair to say that?
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Himanshu Raja, G4S Plc - CFO [52]
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We don't go into commenting on region-by-region performance, Laurent, on a quarterly basis.
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Laurent Brunelle, Exane BNP Paribas - Analyst [53]
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Okay. Thank you.
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Operator [54]
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(Operator Instructions). Paul Checketts, Barclays Capital.
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Paul Checketts, Barclays - Analyst [55]
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Can I ask a couple of questions? First, on the sales pipeline, you mentioned you've seen some signs of improvement in continental Europe and the US. Can you talk a bit more about how much it's changed, the size of some of those things that have come into the pipeline and the timing of them?
Then secondly, could you give us a number for the annual revenues that will fall out from contracts that you know that will end? What's the headwind there?
And lastly, I guess the Q1 organic growth numbers from last year have changed from what were disclosed. Do you happen to have those comps to hand please?
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Ashley Almanza, G4S Plc - CEO [56]
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Could you repeat the last question please?
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Paul Checketts, Barclays - Analyst [57]
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Yes, the Q1 organic growth numbers from last year; we obviously have what was disclosed in the Q1 IMS in 2013, but I guess with some of the reassessments and the IFRS, they may have changed. Do you happen to have the comparatives for organic growth one year ago, please?
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Helen Parris, G4S Plc - Director of IR [58]
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I think we'll have to come back to you on that, Paul, because it's obviously -- there'll be some adjustments in the portfolio as well as IFRS and so on, I think.
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Paul Checketts, Barclays - Analyst [59]
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Fine.
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Helen Parris, G4S Plc - Director of IR [60]
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We'll obviously -- what we'll be doing as well is in the next few weeks, certainly ahead of the half 1, is to give you the updated H1 2013 numbers adjusted for IFRS 10, 11 and 12, to make sure that people are in the right place in terms of their first half 2014 assumptions.
So we'll obviously have a look then at the organic growth for the first half. That maybe will help you. I'm not sure that we'll do that for the quarter, but we'll certainly do it for first half.
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Paul Checketts, Barclays - Analyst [61]
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Okay.
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Ashley Almanza, G4S Plc - CEO [62]
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On the contract wins, you asked, I think, Paul, about the -- a bit more color on what we were seeing in Europe and the US. In Europe, we had a particularly strong start in our cash business with two big customers, two big wins. The annual scale of those combined would be about GBP30 million across the two.
And then in the US, it was spread across quite a broad front. The larger contracts were in the range of GBP15 million to GBP20 million and these were in the retail and distribution space.
You asked about contracts dropping out. I think the obvious one is Manus and that was about GBP25 million in the first quarter. And then, obviously, electronic monitoring and that was, full year, in the range of GBP40 million. Yes, so those are the two standout contracts that we can see dropping out. I think everything else is in play.
Plus we've got a strong pipeline of new opportunities that we're going after. I think there was another part to your question on sales. I'm sorry --
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Himanshu Raja, G4S Plc - CFO [63]
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Organic growth from last year, which, as Helen said, we'll make available, coming up to the half year, the post-IFRS comparatives, so that you have those in preparation for the half-year results.
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Ashley Almanza, G4S Plc - CEO [64]
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Did that answer your question, Paul?
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Paul Checketts, Barclays - Analyst [65]
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Yes, mostly. The only thing I would ask is maybe on the timing of the pipeline; any big deals we're expecting in the next few months and results on bid processes?
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Ashley Almanza, G4S Plc - CEO [66]
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I would say certainly by the half year, there will be some big contracts that we'll know one way or another whether we're going to be winning. At this stage, I'm not going to identify which contracts are being chased down, I'll put it like that. But no, I think the pipeline is, more or less -- we've got a few big ones that we'll know where we stand at the half year; and then after that, I would say, it settles down to a more even run rate.
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Paul Checketts, Barclays - Analyst [67]
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Great, thanks.
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Operator [68]
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Gideon Adler, Redburn.
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Gideon Adler, Redburn Partners - Analyst [69]
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A couple of questions. The first one is on UK Government pipeline. You mentioned a couple of significant new wins there; I was just wondering whether you can give us a sense of how that pipeline looks now, and whether there's any expectation of contract wins banked into your current guidance, including UK Government.
And the second one's on disposals, in a broader sense. They're now down to 21 businesses left in that portfolio under assessment. I'm just wondering, given the urgency around balance sheet, whether you might view disposal outside of that core. Or should we expect any future divestments to be just limited to that group of 21?
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Ashley Almanza, G4S Plc - CEO [70]
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Gideon, on the first part, UK Government pipeline, I think we're still -- we still take the view that we have everything to prove with this customer.
We're, obviously, delighted that we've had some good wins in the last month, two months, but I think we just have to continue to assume that we're in repair mode with the Government. Even though they have affirmed, or confirmed, that our renewal plan is sufficient/adequate, my view is we have to -- we've got more work to do there.
So we can see things that we could potentially go after, but I think at this stage we're not banking anything. We're taking a pretty cautious view on what we're going to win. It does mean we have to carry business development capability, bid teams, and put those teams to work, so we're not going to leave them on the touchline for the remainder of the year.
But I suppose all I'm saying is that it wouldn't be right for us to presume that the pipeline will immediately go back to where it was. I think we have to choose carefully those contracts that we're going to bid, and that uppermost in our mind is our ability to deliver, and to deliver at a satisfactory risk/reward balance.
So I'm afraid it's not a very precise answer at this stage. But I think to sum up, we're encouraged by the direction of travel; we're cautiously optimistic, but we're stepping through this one quite carefully. We really, really need to put solid foundations down with this customer and go after business that we know we can deliver, and deliver at a satisfactory margin.
On disposals, I don't think we should take a view that that 35 is a fixed number. Over time, we're investing in new management teams in some of those businesses. Some of them we will turn around; some of them will get promoted into the league above where they currently sit; and we may in time add other businesses.
But the critical thing, I think, for us is to continually manage our portfolio as a component of capital discipline, and to be satisfied that everything in the portfolio is earning its place, in terms of its current performance and its future prospects. But that's not driven by, to come back to your question, it's not driven by balance sheet considerations.
One of the reasons we raised capital last year was to avoid being in a position where we felt we needed to sell assets to shore up the balance sheet. S&P, as you've seen from our trading update, has reaffirmed our rating. I think our position is quite satisfactory, balance sheet-wise. That's not to say that we don't want to be stronger; we do. But I think that that's a -- that's not a driving factor in our decision as to whether or not a business should be sold.
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Gideon Adler, Redburn Partners - Analyst [71]
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Okay, thanks.
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Ashley Almanza, G4S Plc - CEO [72]
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Okay.
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Operator [73]
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(Operator Instructions). We have no further questions coming through.
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Ashley Almanza, G4S Plc - CEO [74]
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Thank you. Thank you, ladies and gentlemen, for joining the call today. The business has had a good start to the year, and we have growing momentum in the transformation program at G4S.
We look forward to seeing you at our interim results, on August 13. Thank you and goodbye.
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Operator [75]
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Thank you for joining today's call. You may now replace your handsets.
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