Half Year 2014 G4S PLC Earnings Presentation
Aug 13, 2014 AM BST
GFS.L - G4S PLC
Half Year 2014 G4S PLC Earnings Presentation
Aug 13, 2014 / 07:30AM GMT
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Corporate Participants
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* Ashley Almanza
G4S Plc - CEO
* Himanshu Raja
G4S Plc - CFO
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Conference Call Participants
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* Rob Plant
JPMorgan - Analyst
* Kean Marden
Jefferies & Company - Analyst
* George Gregory
Exane BNP Paribas - Analyst
* Rory McKenzie
UBS - Analyst
* Sylvia Foteva
Deutsche Bank Research - Analyst
* Paul Checketts
Barclays Capital - Analyst
* Gideon Adler
Redburn Partners - Analyst
* Stephen Rawlinson
Whitman Howard - Analyst
* Ed Steele
Citigroup - Analyst
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Presentation
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Ashley Almanza, G4S Plc - CEO [1]
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Good morning, ladies and gentlemen, and a very warm welcome to G4S' half-year results presentation. I'm joined, as usual, by our Group CFO, Himanshu Raja. I'm pleased to say we also have in the audience today Mel Brooks. Mel is our newly appointed Group Commercial and Strategy Director.
For those of you who don't know Mel, until recently Mel led our Indian business, which went through a pretty significant transformation, and massive improvement delivered in the performance of that business over the last two years, I think.
Some of the fruits of that legacy have not yet shown themselves, Mel, but we welcome Mel to the team. He's providing real focus to our sales, business development and commercial efforts, and we'll talk more about that later in today's presentation.
Before we get started, the customary legal disclaimer, which I think you've seen before, and if you haven't I'm going to ask you to read it afterwards, please.
Our agenda is as set out here. We'll touch on the results; we'll look at each of the regions in a business review; and then we'll provide a brief update on progress we're making with our strategic plans that we outlined in November.
There's a full update coming again this November, but we'll provide a preview on some of the areas that we're working on. I'll then hand over to Himanshu who'll take us through the numbers in a bit more detail. We'll wrap up and there'll be plenty of time, as usual, for questions.
So first half results: hopefully, by now, you will have seen our statement. Revenues were up 4.1%; particularly strong again in emerging markets with revenues up 12.1%.
Profits benefiting from improving operational leverage were up 6.3% at GBP185 million. The profit improvement came, quite importantly, in businesses where we have either 100% ownership or a high equity stake. And that meant that that benefit dropped down to earnings translated into a 13.2% improvement in earnings.
Operating cash flow, after one-off corporate items relating to the Olympics and electronic monitoring, came in at GBP212 million, which was down 5% on the same period last year.
Excluding those two corporate items, the Olympics and EM, the cash flow from our operating businesses, business units below corporate level, came in at GBP185 million, which is up 25% year on year.
Net debt was GBP1.68 billion, and that included GBP109 million, plus about GBP6 million or GBP7 million own costs for the electronic monitoring settlement.
It also reflects the normal seasonal pattern, or shape, to cash flow where our cash flows in the second half of the year are stronger than in the first half of the year. And we would expect, as in previous years, that seasonal effect to unwind through the balance of the year.
Quite exceptional performance with pipeline conversion. New contract sales with a total contract value of GBP1.2 billion; very, very pleased with that. An annual value of about GBP600 million.
So all in all, good progress with our plans, satisfactory financial performance, but a lot to go for and much more still to do.
Turning to each of the regions: in Africa we saw, again, strong top-line growth. Revenues up 12.7%, and quite clear benefits from our operating leverage, profits up 22%.
We've introduced, in most of our regions, a program known as accelerated best practice. We'll talk more about that in a few minutes. It builds on one of the strategic priorities we identified last year, which was cost leadership.
In Africa, we have got three strands to this program: direct labor efficiency, vehicle route planning, and organizational efficiency, with the near-term emphasis on direct labor efficiency, given that we employ over 100,000 employees in Africa.
Good growth in our technology sales in Africa in both cash and secure solutions. It must be said we're starting from a low base, but we're very pleased with the progress that we're seeing there. We've got a lot more to do in Africa in this area.
To that end, we've been strengthening, as we said we would do, our sales and operations capability in a number of key vertical segments in Africa: mining, oil and gas, risk services and security technology.
Asia Middle East, revenues up 11.5%, and again, the benefit of operating leverage taking profits up 23%. These results include three months of the Manus Island contract which ended in the first week of April. And on a rolling 12-month basis, that contract generated revenues of GBP60 million to GBP70 million.
In the Middle East, we've set up our technology team. Again, this was something we identified in our strategic review last year, that this was a market with what we saw as strong potential for technology and system sales. But we didn't have technical sales capability or operational capability.
We started this process last year. I'm pleased to say the team is now in place, it's up and running. I visited with them not long ago. They're establishing their credentials in the market, and we're beginning to see some flow in our sales pipeline. Very early days, but pleased with the work that Dan, Chris and the team down the Middle East have been doing on that.
Accelerated best practice, shorthand ABP, is also being rolled out in Asia Middle East. The same three strands are being focused on, but with particular emphasis on direct labor efficiency. We employ over 200,000 people in Asia Middle East.
And organizational efficiency, looking at the number of layers that we have in the organization; looking to shorten lines of communication, and improve our commercial and operational agility.
In Latin America, revenues up strongly, 12.8%, and this was broad-based growth across all our markets and our key customer segments. But as you can see, profits were down by 11%, and this is attributable to legislation, which prescribed a pay increase for security workers in Brazil. That was, in the half-year, a hit of about GBP4 million, which we expect to partially recover in the second half of this year.
Our team in Latin America has got a structured program of engaging with our customers to adjust for the statutory increase in pay.
Of all our regions, this region has seen the greatest change in our leadership, our management team. We've substantially strengthened our management capacity and our capability.
This follows the appointment of a new regional president, which we talked about in November, Martin Alvarez, who's an American Cuban, who's worked in America, but also he's worked in eight countries over 15 years in Latin America.
He's based in Latin America, and we've been working with Martin to build a team around him. And you will have seen, I hope, that we separated the Americas regions into two distinct regions, North America and Latin America, giving proper priority to what we see as two fundamentally very important, very attractive markets.
Martin's been working to build a strong management team around him: a finance director, sales; we now have, for the first time, a senior sales leader based in Latin America, operations and so on.
We're only just getting started with our program of accelerated best practice in Latin America, given the other priorities, and the only recent establishment of this as an independent region.
We're about six months behind the rest of the Group in Latin America with our accelerated best practice, and we're recruiting subject matter experts to work in Latin America, for Martin, on some of these programs.
We're also investing in sales and business development, not only the new regional sales director, but in each market, focusing on attractive vertical segments, we're bringing new people into the organization, as we said we would.
Europe, revenues down by about 1%, in line with our expectations; profits down by 2%. I think everyone knows that, about this time last year, in fact May last year, the Dutch Government decided to end its program of private supply for public prisons.
That Dutch prison contract has been progressively unwinding. It unwound more slowly than we expected, but that contract has now more or less ended.
We've consolidated our management team in a regional HQ in Amsterdam. This is for the first time. For many years, we've had a geographically dispersed management team in Europe, and this has been consolidated under new leadership.
We announced the appointment of Graham Levinsohn. And, much like we've been doing in Latin America, we've been building a new team, with Graham, based in Amsterdam, and very pleased with the progress that we've seen there.
There is a tangible change in the performance management rhythm and routine in this business now. It's very focused; it's very systematic; it's very disciplined. And I'm confident that, over the next 12 to 18 months, we're going to see real benefits flowing from this much improved performance management discipline.
Graham has accelerated the restructuring of our businesses in the Netherlands, Belgium, and Finland. This, again, is being done in a disciplined and systematic way, and we've put project managers in to support Graham in these efforts.
Here, too, we're investing in sales and business development. Much to our surprise, when we conducted our business review last year, we found countries without sales directors and we didn't have a regional sales director.
We now have a regional sales director, and we're systematically going through our portfolio to make sure we've got the right capability, on the ground, in each of our core markets.
North America, I think one of the standout performances of the first half. Revenues up 4%, principally in our largest business, commercial security, but also in compliance and investigations, which is a small, but rapidly growing, part of the business. And our care and justice business, which focuses on youth services, also did very well.
Great operational leverage, profits up almost 27%. Very focused efforts now on improving and maintaining direct labor efficiency, and also a program now beginning to show some improvement in overhead efficiency.
Our US Government solutions business remains in a sales process. You will remember we stopped the process last year, changed the package of assets, re-launched the process. We had good buyer interest. We've now down selected to a single buyer, and we're in detailed negotiations.
However, I'm going to say again, there'll only be a deal if we reach satisfactory terms, and we're not there yet.
The reason for selling this business, the principal reason, is it's operated under a proxy management structure. But it's a good business, and if we don't achieve satisfactory terms, we'll hold on to the business, confident that, at some point, the asset market will be ready to receive this business.
The US business is actually a very, very strong franchise. When you go there and you meet the team, and meet the customers, it's a strong franchise in the world's biggest security market.
We have a strong pipeline, and we're very pleased, quite excited, to see some early signs of market recovery. Too early to break out the champagne, but we can see early market recovery in -- or early signs, I should say, of market recovery in North America.
UK & Ireland, again as expected, revenues down, as the EM contract came to an end at the end of March this year. But conversely, profits were up.
This is the net effect of, on the one hand, starting to extract some benefits from our restructuring program, but at the same time, reinvesting some of the proceeds, as we said we would do, of those efficiencies, back into the business.
This is a business that needs strengthening in sales, business development, contract management, risk management, and some of our core functions. All of which we've been pursuing, I'm pleased to say, with great energy and with some success.
Pleased, also, that our cash solutions business is now showing improving performance, particularly in the UK, as we rationalize the branch network, rationalize the vehicle fleet, and start to embed some performance management disciplines, progressively which, to be fair, had been started already.
There's a lot more to do, particularly in our Irish business. Our Irish business had been, I would say, under-managed for some time, and we have replaced our management team in our Irish cash business. We went out into the marketplace and got a seasoned executive who's worked for a long time in the cash space.
Our UK shared services program, we announced this last year. This is taking nine accounting systems and six IT systems and rolling them together in one single platform. Phase 1 goes live at the end of 2014, and then 2015 will be all about extracting the benefits through improving our business processes that the new technology will facilitate.
Our sales pipeline remains strong in the UK. I'm pleased to see some positive momentum in outsourcing and FM once more.
I'm going to move now on to an update on the strategy we outlined in November last year. As I said earlier, we're going to give you a comprehensive update in November, so this is just a preview, looking at some of those areas that we identified as strategic priorities.
I'm going to start with organic investment. You'll recall that, when we completed our review, we identified, as I mentioned earlier, that we'd been underinvesting; given the strength of our market positions and the potential in those markets, underinvesting in the organic growth opportunity. As a result, we decided to invest an incremental GBP15 million to GBP20 million per annum, off the bottom line in the first year and then, as we roll forward, to be progressively funded by cost efficiencies.
I'm pleased to say we've been making good progress with that program, starting with new sales leadership. Mel Brooks, who I introduced earlier, is our new Group Commercial and Strategy Director. We have appointed new sales leaders in three of our six regions, that is Europe, Africa and Latin America, meaning all six of our regions now have a senior experienced sales executive leading our sales executives in the region, rather than just centrally.
We revised our sales incentive structures in three regions: Africa, Latin America and North America, and our European region is being reviewed at the moment. This is something we're going to keep under review annually. It doesn't mean we'll change the structure each year, but we want to just be a bit more explicit and more focused about ensuring that our sales objectives are matched by our sales incentive plan. And essentially, what we're doing is we're increasing variable pay or performance-related pay.
Under Mel's leadership, we've established a global sales forum. This brings together our sales leaders from across the global business several times a year, both physically and virtually; enables our sales leaders to share best practice in areas such as sales operations, global account management, global opportunities, and also product and service innovation.
It also provides a neat, powerful forum for us to sponsor the work that we're doing to take proven products, which are commercially successful in one market but totally absent in another market where we can see latent demand, and export them into those markets. This forum gives us the senior sponsorship that we need.
We need to do a bit more work on our senior management incentives below the executive committee to ensure that this collaboration is incentivized, that there's a good reason on both ends of that transaction for people to engage and chase a commercial objective.
There's undoubtedly increasing rigor in our sales performance management, our sales processes. We've gone from a quarterly and monthly, at best, sales routine to a weekly sales rhythm now. This is not uniformly the case everywhere across the business, but where we've appointed the three new sales leaders, you can see, within months, an immediate impact as Mel and the team work on establishing a weekly sales rhythm to track sales performance. A lot more work to do there.
We're embedding sector specialists, I referred to this in the case of Africa, focusing on strong vertical segments, financial institutions, mining, oil and gas, critical national infrastructure, energy, aviation, ports, and so on. We're embedding those in the regions.
Previously, these were held centrally. That was necessary at the time to get the sector specialism going, but we really need that capability on the ground in the markets where the demand exists and we're doing that now. One of those examples is the technology team I referred to in Asia Middle East, and I've already described what is happening there.
Over the past 12 months, we've hired 263 people into sales, business development and sales support, including operational support or technical support for sales globally.
All this investment, all these efforts, is designed to achieve one thing and that is maximize our organic growth potential.
Our pipeline at July 1 stood at GBP4.9 billion; that compares to GBP4.7 billion at the beginning of the year. But that's only half the story, of course, because we had very strong pipeline conversion, I would say quite exceptional; it's not something we can take for granted as being in the bank every six months.
But certainly in the first six months, we had, as I mentioned, GBP1.2 billion TCV on an annual basis just over GBP600 million pipeline conversion, which depletes the pipeline. At the same time, our global sales teams, we have to give credit to our colleagues around the world for this, were successful in replenishing the pipeline. So we still have a diverse pipeline, and I'm pleased to see not only strong conversion but strong replenishment.
Now accelerated best practice. This started out as cost leadership and, as we've gotten into cost leadership, we've identified six distinct areas for best practice, we call it internally accelerated best practice: direct labor efficiency, vehicle route planning, vehicle telematics, organizational efficiency, IT and procurement.
Those are the six areas. They're clearly defined now; we have leaders for each of those programs and we're progressively resourcing them and pushing them out into the regions.
Direct labor efficiency: 39 countries in the initial scope covering 376,000 employees. We have 14 country reviews underway at the moment. These combine subject matter experts from our service excellence centers, SEC, and experienced line managers from within the country that's being reviewed.
We bring those teams together and the objective is quite simple, and that is to optimize our internal supply chain for labor to ensure that hours on the payroll equals hours contracted, hours billed, hours collected. Easy to say; in a very large business that takes real discipline and a systematic approach.
To aid this, we're building capability in regions. That is to say, we're taking subject matter experts which were previously held centrally and deploying those into regions. This, we hope, will give us additional pace with this program, but it'll also ensure that, when the initial phase of the program is over, and the subject matter expert returns to their normal job, we've retained subject matter expert capability in the region to ensure that the program is sustained.
Route planning and telematics: we're initially focused on 9,000 cash vehicles and all of these we plan to bring into a route planning regime by the end of 2015. Telematics, which focuses, as you know, on fuel efficiency and driver behavior, we've started this program already. We're up to 2,300 cash vehicles that have telematics and our plan is, over the next 12 months, to have another 2,000 vehicles fitted with telematic devices.
Putting the devices in is just the first step. Embedding that into the management routine, management learning how to use that tool, will take a little bit longer, but we're confident that this will bring significant benefits.
IT we've talked about before; we're spending over GBP120 million per annum on IT. I continue to believe that that number is light. I think, like most large organizations, there is what I call shadow IT spend. I think we have that in our Company.
We appointed a Chief Information Officer earlier this year, Martin Taylor, experienced, seasoned IT executive, reporting to Himanshu. Martin has quickly taken stock of our IT estate and has come forward with clear plans, which we are now resourcing.
I'll describe just a few of the strands. First of all, we're globalizing our IT organization; it was a federated structure, highly balkanized structure that we had before. That will bring significant organizational efficiencies.
We're rationalizing our infrastructure. We've got a vast infrastructure in this Company. That will include telecommunications, fixed, mobile, voice, data. And we're also rationalizing a number of development, internal development projects we have. Martin Taylor, as part of his stocktaking, has identified over 600 IT development projects in our Company. He's working with his team to rationalize that down to a more manageable and sensible number.
But the most important thing is, we're now putting in place governance processes to ensure that, before an IT development project is launched anywhere in the world, there's a proper business case and it has the appropriate executive sponsorship.
In all of these areas, we think the opportunity over the next three years, three to five years, is very significant, to not only take cost out, but to improve the quality of what we have, upgrade the functionality of the IT systems that we have.
We talked also in November about procurement, the absence of any global procurement function in our Company when we have non-payroll spend of approaching $2 billion. We appointed, earlier this year, Shaun Carroll, an experienced procurement executive, again, reporting in to Himanshu to bring procurement and financial and operation benefits closer together.
Shaun has undertaken a baseline study and identified addressable spend of GBP1.3 billion, which confirmed the ballpark estimate that we identified last year. And this addressable spend, 70% of it is spread across eight categories. We're appointing new category managers, as we speak, to go after this. This is a very significant prize for us, again over the next three years.
Finally, our portfolio management: you'll remember we went through the portfolio looking at materiality, current performance, future prospects. In the last 12 months, we've sold six businesses at attractive exit multiples. We've raised proceeds, in aggregate, of around GBP160 million. That doesn't include the US Government solutions business, which I mentioned a moment ago.
And we've taken the decision to discontinue a further 15 businesses. These are smaller businesses where they're challenged for reasons of materiality, market structure, performance. In aggregate, they represent less than 1% of turnover and, in a good year, they break even. This is not a good use of our scarce management, capital or shareholder funds.
That brings us to the end of the strategy update, and I'd like to now hand over to Himanshu, who'll take us through the numbers in a bit more detail. Himanshu.
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Himanshu Raja, G4S Plc - CFO [2]
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Thanks, Ashley. Good morning. Before I take you through the numbers, you'll have noticed, for the first time in our release this morning, that the results have been reviewed by our auditors, KPMG. That wasn't our historic practice, but it's common practice across the FTSE.
So to take you through the results: as Ashley said, it's a solid progress in the first half of the year. You'll have seen, from Ashley's presentation, that we've continued to break out the segments, just as we did last year, to show you that continuity of disclosure.
We've also provided you with a roll-forward in the results for IFRS 10, for discontinued operations, as well as for the impact of the strengthening sterling. And you'll see, in the appendix to the charts this morning, we've shown the FX impact by region as well to help you.
The underlying results, therefore, on this chart really show the performance on a like-for-like basis at constant exchange rates. Revenues were up 4.1% to GBP3.4 billion. PBITA was GBP185 million, up 6.3% from GBP174 million in 2013, resulting in an operating margin of 5.5% for the first six months, up 10 basis points on the prior year.
You'll also see that that PBITA performance is after corporate costs of GBP28 million, which are up GBP8 million year on year. This relates to the investment that Ashley referred to in our corporate functions, in finance, in risk management, in IT and in procurement of around GBP2 million, and GBP6 million, which is largely non-cash items. It's the non-cash items related to pensions and to LTIPs.
Total cash generated was GBP212 million, which compares with GBP224 million in the prior year. We have made good progress in driving cash flow improvement. At the operating level, we generated GBP185 million, compared with GBP148 million last year.
You'll recall, this time last year, we had the benefit of the GBP76 million Olympic receivables, which affected the year-on-year comparative. And this year, we had GBP27 million inflow following the settlement of our electronic monitoring settlement with the UK Government.
So good underlying improvement in cash generation, but there remains much more to do on cash. And I'm going to come back to the theme of cash management and working capital and what more we're doing.
On our PBITA growth of 6.3%, we saw improved operational gearing with earnings up 13.2% year on year. This arises because the profit improvement that we saw really comes from entities where we either have wholly owned or majority owned ownership, which means that the earnings grew faster than the profits. And if you look at that the other way, from a minority's perspective, it meant the minority interest was GBP7 million constant year on year.
Earnings per share were 5.6p against 5.4p this time last year, an increase of 3.7% after the dilution effect of the share placing.
Finally, let's turn to FX. With the relative strength of sterling, FX movements continue to have a significant impact on our reported results. You'll recognize, of course, that in terms of foreign exchange effect, [on] a transactional level our revenues and costs are in local currency. So there typically isn't a transactional foreign exchange exposure, but clearly there is a translation one.
If I apply the average 2014 exchange rates to the prior year, the revenue impact would have been around 8% and the profit impact around 9%. And that's the slide in the appendix which shows you the breakdown by region.
Let me just now turn to the total results. Again, on a like-for-like basis adjusted for IFRS 10 and 11, and discontinued operations, or on constant currency, total and underlying revenues were GBP3.4 billion, up 3.8% year on year. Total PBITA was GBP179 million, reflecting a net GBP6 million specific charge. And the GBP6 million relates to two items: a GBP2 million credit and a GBP6 million charge.
The GBP2 million credit simply relates to the successful settlement of a legal claim in Europe. And notwithstanding the impairments we took last year, we continue to pursue outstanding receivables or legal claims where we believe there's a reasonable prospect of recovery. And in line with our policy, that flows through specific items, what we call the middle column.
The restructuring of GBP8 million relates mainly to our businesses in the UK and Europe, where we see an opportunity for further cost reduction. The point really on restructuring is, we continue to rigorously monitor the progress on all our restructuring, plan by plan, program by program. And where there's a strong economic case to improve competitiveness, or to reduce the overheads, we'll continue to look at these.
Moving to earnings: total earnings were GBP78 million, a significant improvement on the GBP196 million loss last June, resulting from the balance sheet review and other charges taken.
Total EPS was 5p, compared with a loss per share of 14p last year. The interim dividend is maintained at 3.42p.
Let me just turn to the bottom half of the income statement. Keying off the underlying PBITA of GBP185 million, our interest charge was GBP61 million, in line with last year, and this includes a non-cash charge of GBP10 million for the pension interest under IAS 19.
On tax, the GBP31 million charge represents an effective tax rate of 25%. That's a 1% increase from last year and it arises from the adoption of IFRS 10 and 11. It's important to note, the effective cash tax rate is unaffected by this.
Underlying earnings after tax were GBP86 million, an increase of 13.2%. And as I explained, the minority interests of GBP7 million were in line with last year, reflecting the fact the profit improvement came from either wholly owned or majority owned entities.
And just by the way of a footnote before I leave this slide, you'll see from the release this morning we showed a GBP30 million profit on disposal from the sale of our Canada cash business and our businesses in Norway. Again, consistent with the policy change we made last year, this goes through specific items in the middle column. In other words, we no longer regard profit on disposal as part of underlying performance.
Turning now to net debt. If I start with the net debt at the end of the year of GBP1.5 billion, there's an IFRS 10 and 11 impact of GBP19 million where we deconsolidate the cash in entities that we now equity account for. And this gives a restated net debt of GBP1.55 billion at December 31.
Cash generated from continuing operations comprises GBP185 million from our operating businesses, and total cash, therefore, was GBP212 million; overall a satisfactory performance, but much more remains to be done here.
In terms of investing activities, a net GBP2 million, comprising CapEx, restructuring and disposal proceeds. During the half we invested GBP57 million in capital expenditure and leases.
I just want to talk about and remind you of the enhanced capital disciplines we talked about at the end of the year.
Really, the CapEx number reflects just a more rigorous approach to make sure all CapEx spend is supported by a strong internal business case, strong internal rates of return.
But it also is reflective of taking a Group-wide approach. Ashley talked about, for example, some of the work we're doing in IT programs where we're pooling IT programs and looking to see where there is common spend, pooling that together to do it once, and, therefore, you see some degree of deferral from Q1 and H1 to H2. So GBP57 million isn't the normal run rate that we'd expect. We continue to invest in the business where we continue to see we have good business cases.
The restructuring of GBP20 million outflow was from the 2013 restructuring we announced. And we received disposals of GBP79 million, together with the settlement of lease liabilities of GBP10 million, which gives you the GBP89 million total cash from Canada and Norway that I talked about.
So net, net GBP2 million investing activities against cash generated of GBP212 million. And if I just adjust for continuing operations, you'll see an almost doubling, therefore, of the net cash inflow from last year to this year.
In terms of use of funds, interest paid of GBP66 million, tax of GBP39 million and pensions of GBP21 million. And we paid dividends of GBP90 million, including the dividends to our minority interests.
Of course, we had the out payment of GBP109 million which, together with advisors' fees was GBP116 million, and, therefore, we finished the year at net debt of GBP1.68 billion.
In terms of net debt to EBITDA, net debt to EBITDA, therefore, at June, was 3.1 million (sic - see press release, "3.1"), and the comparator was 2.8 million (sic - see press release, "2.8"). We do expect net debt to EBITDA to come down in the second half as first half cash is always seasonally lower than the second half.
Let me just finish by talking about financing cash flow. The Group remains soundly financed. Our funding profile remains robust with GBP955 million of unutilized and committed facilities, and we have no material maturities until 2016.
We have a strong focus on working capital management, and we've changed our weekly rhythm, just like Ashley talked about, on the sales front. It's also true on the cash flow, and we no longer monitor cash on a monthly basis, but we monitor it and track progress on a weekly basis. And I talked about putting in place plans at the end of the year to move to that.
We've also moved to make sure that cash is not just a matter for the finance organization and, therefore, operational management are engaged in engaging with the customer and going after that cash flow.
The finance function [traditionally] is involved in -- focused on the event to billing cycle. And what that will do, over time, is it will result in more timely billing and, therefore, start the whole collection cycle earlier.
We're also working on our upfront contracting in terms of cash terms with customers and suppliers, so focus on cash really at all levels of the business. And overall, we expect our net debt to EBITDA to continue to come down in the medium term, and within our desired range of 2.5 times.
With that, let me hand you back to Ashley.
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Ashley Almanza, G4S Plc - CEO [3]
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Thanks, Himanshu. Right, just one slide to wrap up. In conclusion, as we set out last year, we're executing against a clear and focused strategy.
We have a diverse and growing sales pipeline, but we're not complacent. We're investing heavily in sales and business development, as you heard from what I said and Himanshu touched on it as well.
We're investing beyond sales and business development in some of our core functions: operations, finance, HR, and so on.
We're embedding performance management, capital management and cash management in our monthly reporting and performance management cycle, and, in some cases, weekly.
I'm very pleased to see that some of the initial opportunities that we identified last year, as we've gone into those and worked them up, what has emerged is a stronger array of opportunities that we can get after. And we're defining those programs in a very structured way, resourcing them and getting after them.
So in summary, good progress. I think we can say satisfactory financial performance, but a lot to go for still; much more to do before we realize the full potential of the Company strategy.
Thank you very much. We're going to go now to Q&A.
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Questions and Answers
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Ashley Almanza, G4S Plc - CEO [1]
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(Conference Instructions).
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Rob Plant, JPMorgan - Analyst [2]
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Rob Plant, JPMorgan. In terms of organic growth it was 5% in Q1, it looks like it was 3% in Q2, you've mentioned Manus Island around GBP60 million, so perhaps 2% from Manus Island. Now, Manus Island will have an annualized effect for the rest of the year, but would you expect the second half organic growth to improve?
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Ashley Almanza, G4S Plc - CEO [3]
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Thanks, Rob. There are several things going on in the contract portfolio. I'll start by prefacing my answer with the observation again that this is a very large business; global sales approaching around $10 billion. We have thousands of contracts.
It is the case that we have some big contracts. Sometimes big contracts come into the portfolio; we celebrate. Other times, big contracts leave the portfolio and we work hard to ensure that we are replenishing the portfolio.
What we have in the first half of this year is Manus Island, as you say. On a rolling 12-month basis that's about GBP60 million to GBP70 million. We also have the Dutch prisons contract rolling out, and as I said, that came out progressively rather than suddenly as we initially anticipated and that's a similar size, actually, to Manus.
And then lastly, we have electronic monitoring dropping out of our portfolio at the end of March, and that was a contract of about GBP40 million to GBP45 million per annum.
So clearly, those three together are significant. We're neither complacent nor alarmed by this. These are as expected. We don't expect the investment that we're making in sales and business development to have an immediate effect.
As you know, even with strong pipeline conversion, what comes after conversion is mobilization. So we won't see the benefits of all of the success that our sales team has had in converting the sales pipeline in the first half of this year, in this year, so I think steady as she goes, really.
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Kean Marden, Jefferies & Company - Analyst [4]
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Kean Marden, Jefferies. Can I ask a similar question? So if my math is correct, the emerging markets like-for-like rates slowed from about 16% in the first quarter to 8% in the second. Clearly, tagging and the Dutch prisons don't affect that number, but Manus does. So which elements of the business saw the slowdown in Q2? Maybe you can give a bit more color around that.
And I've got a second question, but maybe if you want to deal with that one first?
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Ashley Almanza, G4S Plc - CEO [5]
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Thanks, Kean. Emerging markets, Manus obviously, we had a quarter impact in there. I think I was quite -- hopefully, everyone in the room remembers that, when we posted 16%, I said, don't put this in the bank or in the model in a linear fashion.
Our business, like a lot of global businesses, simply won't grow in a linear fashion. And, apart from Manus Island, we saw our global secure logistics business slow down somewhat, and this was a function of a quite sharp drop in bullion movements.
In no small part that was due to regulatory changes in India which make it more expensive to import and put a quota cap on the imports, and if you want to import more you also have to export. So there's no question that we had some effect, and that is in our emerging markets segment as well.
Beyond that, there's nothing specific I would call out other than to say the business just won't grow in a linear fashion. We will have periods where we're growing at 8%, below 8%, above 8%. I don't know if you want to add anything to it?
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Himanshu Raja, G4S Plc - CFO [6]
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No, I think that was right. There isn't anything exceptional apart from the G4S gold bullion and Manus.
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Ashley Almanza, G4S Plc - CEO [7]
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Second question?
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Kean Marden, Jefferies & Company - Analyst [8]
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It just touches on ICT because, obviously, you've had the initial scoping exercise. I think there's the intention to go to market with a number of packages in the second half. Can you just help us with the timeline around that and how those evolve?
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Himanshu Raja, G4S Plc - CFO [9]
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Sorry IT or ICT? From a procurement standpoint or go to market, Kean?
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Kean Marden, Jefferies & Company - Analyst [10]
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Yes, the ICT. I think you're outsourcing -- you're bundling together some requirements and then looking for suppliers.
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Himanshu Raja, G4S Plc - CFO [11]
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Yes, the IT program actually has got a number of dimensions. One of those is, as Ashley mentioned, telco data and voice. The intention is not to go a big bang because, actually, as we've done the detailed work, we have more than 320 providers on a worldwide basis. So it's about systematically going through those --
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Kean Marden, Jefferies & Company - Analyst [12]
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That's just telco?
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Himanshu Raja, G4S Plc - CFO [13]
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Just telco contracts.
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Ashley Almanza, G4S Plc - CEO [14]
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There's over 2,000 suppliers in IT.
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Himanshu Raja, G4S Plc - CFO [15]
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So just the telco fixed voice and data contracts, over 320 suppliers. The devil is in the detail because, on each of those, you've got to understand what the remaining term is, what the volumes are, are there volume thresholds?
And then, it's about striking framework deals such that, at the point of expiry, we can wrap those contracts expiring into the framework. So there's some hard yardage to go really through the second half of this year and into next year.
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Ashley Almanza, G4S Plc - CEO [16]
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I think, if I may add to that, the program that is now emerging, so first step was to go out and get a CIO, bring him in. He's done really a terrific job of getting round the business, taking stock of the IT estate, identifying the opportunities.
It's a three- to five-year program. Now, I'm pushing as hard as is reasonable to do so for that to be a three-year program. But I have to listen to the expert here, because you've got to do this right rather than just quickly.
But I think the point really to make is that, as you would expect, the benefits are going to be progressive, again not linear, if I may use that phrase again. It won't be the size of the prize divided by five. We'll make some progress in year one; I would expect to see that accelerating in year two and year three and so on.
But I think it's quite right for Martin Taylor, our CIO, to insist on the programs being well structured, well resourced and delivered in a disciplined fashion and to resist my attempts for him to accelerate. But it's a three- to five-year program.
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George Gregory, Exane BNP Paribas - Analyst [17]
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George Gregory, Exane BNP Paribas. Two questions, if I may? Firstly, Ashley, you talked about the secure logistics business. Could you just clarify first that that business was previously held within your UK business; is that correct? And second, how big is that in rough terms?
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Ashley Almanza, G4S Plc - CEO [18]
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Since I've been here, it's not been in the UK business. That business is being managed out of Asia Middle East and part of that emerging market segment.
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George Gregory, Exane BNP Paribas - Analyst [19]
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[I thought that it was].
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Ashley Almanza, G4S Plc - CEO [20]
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Okay, maybe historically it could have been and at some point it changed, but certainly for the time I've been here.
The size of the business --
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Himanshu Raja, G4S Plc - CFO [21]
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Around GBP100 million.
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Ashley Almanza, G4S Plc - CEO [22]
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Yes, around GBP100 million, so I think actually quite small, given the size of the market, the size of the opportunity, and the fact that we should be a natural player in that market. We have so many of the ingredients that are necessary to be successful.
One of the pilots that I referred to when we talked about the global sales forum is looking at -- is what Mel calls the white space in our portfolio. We seemingly have market-winning products and services in some markets. And you look across our portfolio, there are white spaces all over the place where we're just not leveraging their capability into those markets.
And one of the pilots we're running is on global secure logistics to see whether we can take what has worked successfully in a small number of markets and trial them in markets where we think there's lots of potential. For example, in Africa, we have quite a narrow footprint; it's a good little business, but the footprint is quite narrow. There's more we can do.
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George Gregory, Exane BNP Paribas - Analyst [23]
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Thank you. And a second question, in terms of your sales incentives, which you've restructured for three regions, could you talk a little bit about whether you've brought some of the KPIs around that? How are people actually being incentivized to try sales? Is it purely sales or what other metrics are you looking at?
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Ashley Almanza, G4S Plc - CEO [24]
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Yes, we are, indeed, addressing KPIs as well. So we're looking -- and it isn't, by the way, one size fits all. It's market by market and even within a region, there are variations depending on the mix of business in a country and local market practice.
But we're looking not only at sales. In some markets, we're looking at gross margin. We're also looking at sales efficiency. And we will introduce other KPIs which really address the degree to which, certainly sales management, is managing the sale process effectively.
This is new ground, which is why I've said we're going to keep this under annual review. Mel and his global sales leadership team are really starting to get under the hood of it around things like sales efficiency, and using what are quite expensive tools that we have in our toolkit to manage sales that we think are underutilized.
We're not unique. Sales people don't like, necessarily always, to be doing what they regard as admin and, to a large degree, I agree with that. You want them talking to customers and pursuing leads. But we've got to do that with some discipline and some structure, so there will be KPIs which deal with that as well.
So I expect, as we roll forward, we'll get more of a balanced scorecard in our sales management program, George.
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Rory McKenzie, UBS - Analyst [25]
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Rory McKenzie, UBS. First question on the balance sheet; do you think you can get down to that 2.5 times target by this year? Will that require much progress on the disposals including the US Government business, for example?
And secondly, on the procurement opportunity, could you give a bit more detail around the eight areas you've identified, which ones you think are first and whether that's a three- to five-year program or whether the savings there are sooner, if not linear again?
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Ashley Almanza, G4S Plc - CEO [26]
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Okay. Let me make a few introductory comments and then I'm going to ask Himanshu to add to those. On gearing, you won't be surprised to hear me say, we're not going to give a profit forecast and give an endpoint number for the end of the year.
Himanshu pointed out that our cash flow is seasonal. We see normal seasonality; we would expect that to unwind. I think, typically, it's about 45% of our cash flow in the first half of the year, so a normal pattern there.
We do have a disposals program, but the disposals program is not designed to get gearing down. It's one of the effects, but the principal purpose is to bring real strategic focus, particularly in the long term. And in the case of the US Government business, it's about the proxy management structure really.
So I'll ask Himanshu to comment and put a bit of color around our net debt in a moment. You're going to have remind me again about the -- I should have made a note, I apologize.
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Rory McKenzie, UBS - Analyst [27]
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CPO procurement (multiple speakers)
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Ashley Almanza, G4S Plc - CEO [28]
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CPO, that is also a three- to five-year program. Shaun, our Chief Procurement Officer, is getting the same degree of attention and encouragement to move that program forward with real energy and purpose. But, again, we have to respect his expertise. And we're more interested in getting something which is solid and sustainable rather than a quick fix.
I'll Himanshu talk about the categories, the category management. And the third area, forgive me? That was it, two areas. Himanshu.
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Himanshu Raja, G4S Plc - CFO [29]
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Just an additional point on the net debt to EBITDA, I can't stress enough this journey that we're on to change the culture to a cash matters culture. So as Ashley was talking about gross variable pay, in one of the regions they put cash in as one of the variable common measures, because they wanted to change the behaviors within that particular region.
So in every facet of our business, we've got a real focus on. It's not just about revenue and profit; it's profit we must convert to cash, and we're starting to see some of the benefits of that.
On procurement, Shaun's been on board less than 90 days; he's done a great job in base lining the spend. He's now taking that to another level, which is to now build the capability and bring on experienced category managers, as well as just in the same way as with ICT, go to that next level of detail.
So the next big task for him will be to suck the information from the disparate ledgers and information systems we have, really start to get down to supply level detail, and then build the procurement programs.
In terms of categories, the top five are vehicles, unsurprisingly. We have big insurance costs, because of the nature of our cash business. In particular, the property estate, and systematically making sure we anticipate and address the property portfolio, not only in the branch networks, but also in the various administrative offices.
And then it's usual things like just the travel. We don't have global contracts with airlines or travel providers, and things like professional fees. So those are the top four or five.
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Rory McKenzie, UBS - Analyst [30]
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Thank you.
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Sylvia Foteva, Deutsche Bank Research - Analyst [31]
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Sylvia Foteva, Deutsche Bank. I wanted to ask two questions, please. Firstly, on the savings and the investment, can you just update us on how much you've achieved during the first half? I believe you mentioned that Q1 saw savings of about GBP5 million.
And then secondly, on the new wins, sorry I think the GBP616 million number compares to the GBP440 million, if I'm not mistaken. Can you just talk about which regions perhaps, and when the contracts will be due to start? Thank you.
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Ashley Almanza, G4S Plc - CEO [32]
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Okay, thank you. I'll start with the sales question, and ask Himanshu to comment on our savings program.
On sales, actually the pleasing thing is it's quite broad based. So we've seen, for example in Latin America, new customers come into the portfolio, big new customers. And for the first time in our history in Latin America, get a pan-Latin American contract with a science-based company in Latin America.
In Europe and in Africa, we had two very good contract wins in the cash management space. A large cash utility in Benelux and a pan-African contract with a major financial institution in Africa. In the UK, very pleased to see some very large government contracts coming back into the portfolio.
North America, I said earlier, for me is one of the standout performances of the first half. Six months, it's not all about six months, but I think it was really a very impressive performance out of North America.
The sales team and the general management team work very closely together in North America. We haven't perfected it, but it's quite impressive when you go and spend time to see how they work together.
If anything, we have too much opportunity in North America. Our big challenge is prioritizing our sales effort. We had some big wins in North America, particularly in wholesale distribution, new contracts, growth of existing or doubling up of capacity in contracts in North America.
So yes, broad based, which is always good to see. What I would call ultra large contracts in our portfolio accounted for about one-third of that GBP1.2 billion. I think we really want a balanced approach to the market, so that we don't, over time, develop a narrow base comprising only ultra large contracts.
And then if you add large contracts to that, you start to get up to 50% to 60% of the total win. And then the rest is what I would call solid bread and butter business across our contract portfolio. Cost savings?
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Himanshu Raja, G4S Plc - CFO [33]
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Yes, morning, Sylvia. We don't break out, as you know, cost savings by program or individual line item. But you'll see from today's results, the going forward of the business is all four of the regions out of six.
You've got growth in profit that's faster than the growth in revenue, and Ashley's talked about ABP, the six core programs that we run. But over and above that, there are always local initiatives going on to get after discretionary costs and always to optimize the operation. And where you'll see the benefit is, progressively, in the improvement of operating leverage, region by region.
What we will do is update you with more details in November, when we meet, and flesh out the detail on those programs much more, as well as help you track our physical progress, for example, on vehicles or on labor efficiencies in the number of countries that we're covering.
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Paul Checketts, Barclays Capital - Analyst [34]
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Paul Checketts, Barclays Capital. I've got two; I think we just knocked one off. The first one is on the gross margin. It's been trending downwards for some time; you've been in the business for a bit longer now. I wonder if you could give us some thoughts on why that's happening, how much was market, how much was G4S. And equally whether you think you can now arrest that.
And the second one is on the UK pipeline. You said it's an encouraging situation at the minute; can you give us a bit more flavor on how much of that's in the public sector, and maybe if it's in the private sector, which parts, please?
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Ashley Almanza, G4S Plc - CEO [35]
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Okay, I'll ask Himanshu to comment on gross margin in a minute. The only comment I would make is that, obviously, if you look at what's happened in Brazil, that would have had an impact on the LatAm gross margin, we'll partially recover some of that. I'm talking about the statutory pay increase.
UK pipeline, it's again broad based. The large contract wins were, as it happens, in the public sector, the largest of that being in DWP, where our what I call, welfare to work, but employment services is the proper term, is a very effective business.
Actually it's, I think not only by our assessment, but by other people's assessment, more importantly, it's probably the leading employment services outsource provider in the UK. So that was a big win there.
Beyond that, I wouldn't call out any single contract. It's spread across customer segments, financial institutions. Less retail, which we're comfortable with, than perhaps in previous years. Some new infrastructure projects that have been built, we've been successful. Our eventing business is continuing to be very successful at winning new contracts.
I think that's another area, notwithstanding what happened at the Olympics, which I regard as exceptional. I think you take that aside, not to diminish the issue, but our eventing business is quite impressive. It has a good reputation in the marketplace, so we've seen good contract wins there as well. Gross margin?
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Himanshu Raja, G4S Plc - CFO [36]
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Gross margin, you will appreciate there are a large number of moving parts, so let me make a couple of observations. The first is there's a systematic focus, particularly on PI price increases, to then capture the labor indexation that we experience, typically, at the beginning of the year.
Again, we track that in our performance management, country by country, not region by region, but country by country, and we track what the labor indexation was, what the price recovery was. And we don't really talk about it in terms of one of our accelerated best practice, but it is something that we systematically do everywhere.
Actually, when you look at the gross margin performance through the first half, three of the regions had reasonably good progress on gross margin, and they were Asia and the Middle East, North America. And in the UK, we saw the benefits of the restructuring we initiated last year.
If you recall, we talked about, particularly in the cash business, it was about addressing the branch network, and we're, over a three-year program, rationalizing the branch network and improving the competitiveness. And you see that flow through; Ashley mentioned it in his slides.
We do see some pricing pressure; LatAm, that LatAm effect, is exclusively down to what we saw happening in Brazil with the legislative danger pay. And we see in really a couple of markets, two or three markets in Africa. But actually, there's a decent amount of focus on gross margin as there is on cost.
Of course, when you think about the accelerated best practice, route planning, telematics and direct labor efficiency all play into the gross margin line. And when we think about IT procurement and organizational efficiency, that will have a mixture of gross margin and G&A. So overall, a decent performance on gross margin, but much more to do in that area, like others.
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Paul Checketts, Barclays Capital - Analyst [37]
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Thank you.
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Gideon Adler, Redburn Partners - Analyst [38]
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Gideon Adler, Redburn. I've got two questions. The first on portfolio; Himanshu, you mentioned that actually divestment program is more around tapering the tail of your portfolio than reducing your debt pile, but the disposal of Sweden is probably towards the front end of your portfolio by absolute materiality. I'm just wondering whether we should expect further disposals from the front end of the portfolio, going forwards.
And the second question is more of a cultural one. Obviously, you're instituting a lot of change across the business. In a service-led industry and particularly for a Group like G4 with over 600,000 employees, I wonder how you go about mitigating the risk of disruption from these changes. And also what the broad level of feedback's been from your employee base for all the changes going on across the business? Thanks.
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Ashley Almanza, G4S Plc - CEO [39]
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Thanks, yes, very good questions. On Sweden, that we wouldn't class as a small tail-end business but neither would it, I think, qualify as a business that has been making a material contribution to the Group.
Sweden, if you go back to what we said in November, we applied a number of lenses to the portfolio, and one of the things we look at is market structure and we try and form a view and, ultimately, we do. Right or wrong, we form a view as to whether or not that market structure needs some sort of fundamental change, typically consolidation, and if so, whether we're a buyer or a seller in that process.
And it is our view that the market in Sweden requires consolidation in order for the industry to be sustainable, viable, in that country. And we think that this transaction will create a more sustainable business that brings benefits to customers and employees, but clearly, it realizes value for our shareholders.
So we'll continue to apply those lenses, but I think I stand by the comments we made earlier; a lot of what we are doing is really about bringing focus to our efforts, strategic focus. For businesses that -- as I said, 15 businesses are less than 1% of turnover and barely break even in a good year, so it's not a good use of our scarce management capacity.
Cultural change, this is necessarily a subjective reply to your question. It's a very, very important question; it's one that we talk about a lot at the Group executive. We engage with our global leadership team on this.
It's not static, so to your point about employee response, I think the initial response was extremely positive. Broad-based response in the fourth quarter of last year was that employees felt we were standing up and we were saying, this is who we are, this is what we do and this is what we're trying to achieve; that we were putting in place a program, we were creating a common vision and giving people a sense of optimism.
As the executive team travels around the world on business, we always try and put into our schedule what we call town hall meetings. It varies quite a lot, actually, and quite surprisingly, you learn quickly the cultural stereotypes are exactly that, they're stereotypes. You can go to a country where you expect not very many questions, or not very many forthright questions, you can be quite surprised.
So I think that optimism, or that positive sentiment, is still there. People understand what we're trying to do. We invest quite a lot in communication but, frankly, we probably need to do more on communication. There's really no limit to what you can do in terms of staying connected with employees, colleagues, across the Group.
We're also acutely aware that you can kill an organization with change, and we talked last year about, for example, not going for a big bang approach on IT. It's very clear; you don't have to spend more than five seconds looking at our IT estate to know that a lot of it needs to change. To change it all at once would be a huge mistake. So very structured program phased over time. Ditto on procurement. And we're constantly balancing change program against keeping employees focused on the marketplace, customers, competition and on operational delivery.
Part of the answer to your question is about getting more people in. So we're hiring people into sales and business development. We have hired project managers, for example, in IT, because if you roll out a change program and you explain to a management team, this is what we're trying to do, these are the benefits, everyone can buy into that. There's not a lot of -- in fact there's no push back on that; people can see the clear case.
What becomes more difficult is when you say to somebody, by the way, you have to do it with what you have already. So do this after hours, keep your day job going, and we won't do that. We're certainly asking more of our employees, but I think they're willing to give that. But at the same time, we're putting more resource in so we talked quite a bit in the presentation about putting subject matter experts into regions, sales specialists into regions, but we're also putting program managers in to deal with things like procurement, IT, hiring category managers.
It's a balance. It doesn't feel like a big push at the moment; at least I don't feel like we're pushing water uphill. There's quite a lot of pull from the organization. I think people feel energized by having clarity about what we're trying to achieve. Everyone wants to work in a place where you feel good about what you're doing, and I think we're getting there.
We're not there yet; it's a gradual -- cultural change, in my view, is impossible to define, and certainly impossible to set a precise timetable against. To use my favorite phrase, it won't be linear, the rate of progress.
Anyway, I'll stop there. I think it's right at the top of our list in the executive team, keeping the balance right.
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Stephen Rawlinson, Whitman Howard - Analyst [40]
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Stephen Rawlinson, Whitman Howard. Just on that issue, following on from that last question, it would be helpful if you could provide just a few metrics, on this occasion, with regards some of the [softer side]. But in particular one of the ones that I remember from last year was health and safety, and that may be one that is probably quite easy for you to recall from various Board meetings and statistics that you've got to hand.
In addition to that question there's two others; one with regard to global customers. Much of what you talked about today is addressing the customers on a regional basis, so if you're able to give a sentence or two, please, on how you address global customers?
And finally, just on win rate; it would be helpful to know what, historically, the win rate was, how you're going to improve it and to see how much of that GBP4.9 million might convert into orders.
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Ashley Almanza, G4S Plc - CEO [41]
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Okay, quite a lot there, Stephen, thank you. Health and safety first. I think I've said it in this forum before, but if I haven't you'll hear it for the first time. In a safety change program, you simply have to focus on input-based measures in the first instance.
Many companies have tried before, certainly in the natural resources space, and this is an industry which I think, in many ways, is leading the world in health and safety, to focus immediately at the start of a change program on output. And you can't really do the -- you have to get everyone on the team, particularly in our Company, with a very large team, focused on input measurement. So by that I mean, defining clear action plans, things you're going to do. It's quite hard to draw a straight line between doing this thing and getting a result out at the other end, in the beginning.
So, for example, it is mandatory this year for our global leadership team all to go on personal safety training [and] as standard; that includes us. And on this occasion, we've gone and got outside help from a specialist who I've worked with before in the oil and gas industry. Our global leadership team have gone on a safety training program for the first time; that's about mindsets as much as anything else, and creating greater awareness, creating a sense that all incidents are avoidable.
Now that's quite a hard thing in this industry for people to accept, not least because many of our incidents are attack-related. That's quite unique to this industry. There's not many industries where your employees go to work and face the prospect of being attacked.
So we've got a series of input measures. We've got a defined program for each region in each country to have a health and safety management system, a standard health and safety management system; safety leadership training; road safety programs; golden rules of safety. So these are things we can measure on an input basis. We can say everyone had to be trained by this date. You had to have a health and safety management system by this date and we will audit some of those. So we have about 110 health and safety professionals spread across the Group.
We're making some changes to the composition of that group and how we manage that group. We're giving them more teeth. So we've created, again, more senior positions in each region that have a direct line of communication, if not a reporting line to the regional president in each region. And we're going to audit this as we go along to make sure this is happening.
Another input-based metric is what we describe as the 24-hour report. Any incident above a certain severity level has to have a 24-hour report produced and sent to the Group executive committee. It sounds bureaucratic; there's an aspect of it which is necessarily so. But what it does is it changes the perception in the organization about the importance of what's happening.
When a country manager hears, or gets a phone call, on a Sunday to say what happened, from the chief executive or another member of the executive committee, it does, over time, start to change the understanding in the organization of the importance that's attached to it.
I think I've said before that everyone on the Group executive committee has a proportion of their bonus attached to execution of our input-based health and safety improvement plan this year. That range can be up to 30% of total bonus. It's somewhat experimental. I think, typically, it's going to be 15% of bonus that we're going to put in play.
It's an opportunity for people to really get after something. And I think it's more than just a financial incentive or penalty, whichever way you look at it. It's about, as I say, changing mindsets.
We do track, what I think you're referring to, hard KPIs or output-based KPIs, incidents. Our data record is not yet what it needs to be, so typically, what you would expect to see in a large organization is a pyramid of health and safety incidents; everything from near misses through to HPIs, high potential incidents, and actual severe injuries and, sadly, fatalities as well.
And you'd expect to see a representative relationship between those things, and business by business, the near misses are, of course, a leading indicator. And again, we're not breaking new ground; we're doing what other industries have done. But as we pointed out in the previous question, we have 600,000 employees spread across more than 100 countries so, again, we have to be disciplined and patient. But first and foremost, it's about changing mindset; getting the leadership into the right place.
We measure, on a monthly basis, our incidents. We certainly measure serious incidents, and of course, we measure fatalities. Unfortunately, we've had 26 fatalities in the first six months of the year. I hesitate to say that's an improvement; it's not really. Statistically, numerically, it is, but it's not really an improvement; the number is far too high. Each and every fatality is now investigated. It always was, but I would say the rigor and the speed of the investigation is greater now. We report those to the Board, both the corporate social responsibility committee and the main Board.
And I'm really very pleased to have, in Clare Spottiswoode, somebody chairing our CSR committee who's got a genuine passion for the subject, and she certainly assists us, when, from time to time, we ask Clare to travel to different parts of the business. She's a very good promoter of our health and safety campaign. I'm afraid I could talk for far too long.
Your point is well made. We put in our annual CSR report some hard KPIs. For the next few years, our efforts are focused on -- of course, we're going to keep track of the outputs, but we have to start the change from within by changing behaviors, and that's got to be done in a systematic way and so we're getting some external help. I don't think there's anybody on the executive committee, or on a regional executive committee or in the global leadership team, 100-plus people, who have any doubt about the importance of this.
If they do have any doubts, they only have to look at their performance contract to be reminded that this is going to be something that we discuss as part of our performance appraisal, in a positive constructive way. But we will have a change in the way we manage this for sure. I can't predict what the results will be.
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Stephen Rawlinson, Whitman Howard - Analyst [42]
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And the global customers and win rate?
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Ashley Almanza, G4S Plc - CEO [43]
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I beg your pardon; I talked for so long on there. Global customers, good point. It's an area of increasing focus. I mentioned that one of the things that the global sales forum is doing is exactly that; looking at how we're managing global accounts. We do have now some quite senior experienced dedicated global account managers; in some cases they're dedicated to one or a small number of global accounts.
I think we're learning to be a bit more effective in anticipating the needs of our global customers. A bit more joined up globally in making sure that the global account manager based in London or New York or Johannesburg is aware if something happens in Delhi or Kuala Lumpur which might affect.
So we're not quite there yet, but our internal communications process around global customer management does need strengthening. We've got some, I think -- again, I'm going to quote North America. Each region I visit, this is one of the things we talk about, global account management, customer service, customer satisfaction measurement and so on. I think we're probably most advanced in the UK and North America. It's not to say there aren't some very good examples of global account management in the other regions, but we're probably slightly ahead there.
So more to do. One of our strengths, as we go to the marketplace, is we're one of the few, if not the only security company in the world, that can say to a global customer or potential customer: where you are, we are, or where you are we can be. And that's quite a powerful proposition.
So I think we've probably, again this is another area -- when I talked earlier about the review we did last year, coming to the conclusion we're under-investing in the organic growth opportunity, this is one of those areas, global account management.
Typically, the way we approach global account management has been to focus on one or two service lines with a global customer. We're now asking the question all the time, well what about the other service lines we offer. Why would this customer not benefit from having those service lines delivered by a single provider. We're getting some traction. I don't think there's a consistent picture across the globe.
And then win rate; why don't I give you a break from my voice and, Himanshu, do you want to --
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Himanshu Raja, G4S Plc - CFO [44]
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I'll have to come back to you actually on run rates, after that long wait, on the trending.
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Ashley Almanza, G4S Plc - CEO [45]
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It is -- the only thing is it again --
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Himanshu Raja, G4S Plc - CFO [46]
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It varies region by region I think, so --
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Ashley Almanza, G4S Plc - CEO [47]
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Yes, country by country, sector by sector.
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Himanshu Raja, G4S Plc - CFO [48]
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We'll give you some better insight offline, because an aggregate win rate is meaningless because the richness of the pipeline varies region by region, as does the replenishment. So I'll come back to you with some more richness.
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Ed Steele, Citigroup - Analyst [49]
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Ed Steele, Citi. Two questions, please. The first on this GBP1.2 billion of new sales wins, or GBP616 million annualized, obviously that was up one-quarter or so year on year, so it looks very impressive. Could you give us more context around how impressive it is? So was last year's first half a normal one, or was it a bit soft? Can you just help us understand what this really means in the context of the last few years of your level of wins, please? That's the first question.
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Ashley Almanza, G4S Plc - CEO [50]
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Okay. So first question, I think on a like-for-like basis it is up. It would be stretching it to say we have a perfect record going back, but as best as our record shows, it is, as I said, an exceptional performance. And I stress, we're not now sitting back assuming that the sales machine is well oiled, and every quarter -- sorry, every six months GBP1.2 billion will roll in, and nor should you there, please, assume that either.
But when you look at GBP1.2 billion in the context of our sales book, then I think that's a very satisfactory performance, and beyond that, I don't think we can comment. I don't think we've been at this long enough to say it's going to be GBP1.1 billion or GBP1.4 billion for the second half.
As we sit here today, I would regard it as an exceptional performance. Clearly, the amount of -- it's a bit like the industry I came from; the more successful you are at producing, the harder you have to work at replenishing. So the front end of the funnel has got to keep feeding. Well, in a way, it's a nice problem to have; we welcome that problem. But I'd sort of tie this to one of the earlier questions about the scale of change in the Company.
We're bringing a lot of new people into sales and business development; we're appointing new sales leaders. I think that does mean that this won't all fall into place, like a row, it just won't be a domino effect. We're going to make progress more quickly in some quarters, and then we're going to be consolidating as new sales leaders try different things.
The market won't always be out for the same level of business, so there is a degree of what the market's doing as well. I commented on North America; really hard to know whether what we've seen in North America in the first half of this year is a trend, or just a good six months. Time will tell.
So I'm sorry I can't be more precise now, but I think it is the like-for-like comparison with GBP440 million, and I think it, probably against even a long run historical data set, is an exceptional performance.
Second part of the question?
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Ed Steele, Citigroup - Analyst [51]
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You talked a lot about health and safety today, and also in the past; obviously that's a break with your predecessors, and it's obviously a great thing. Do you think you'd go as far as pulling out of countries if you can't get health and safety [good track records], I think maybe like South Africa cash, for example?
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Ashley Almanza, G4S Plc - CEO [52]
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That's a very, very good question. I don't think we're going to need to pull out of any countries, Ed, but what we will do and have done in the last six months is terminated some services. It's very interesting this, because what's the riskiest business activity we have when it comes to personal health and safety? By some distance its Afghanistan and Iraq.
Think about what's happening in Iraq today; we have near enough 3,000 people in Iraq, as it happens based in the South. We're an important part of the security at Baghdad International Airport; we have a secure business park outside of Baghdad; we have not had a single fatality in the past 12 months in Afghanistan and Iraq. Now either attack, or non-attack, the after attack-related fatalities are our highest source, root cause of fatalities is road traffic accidents.
So in relation to attack, there are services that we will terminate. The first thing we do is we engage with the customer and say, can we deliver this service in a different way so that our people, and your people and your customers and everyone, can be safer. And in most cases, the customer agrees to that.
In some very rare cases in the last six months, just because it's not been possible, I would say logistically, for that change to be made, we have terminated the service. I don't expect that to happen frequently. Safety is one of those things where you think you've got the answer, you look again and you find suddenly that there's a better answer to something that you thought was the best answer. So we can keep -- I don't think we'll need to withdraw from any countries, touch wood, just yet.
Ladies and gentlemen, thank you very much for coming along. Thank you so much for your active engagement; we really appreciate the interest. Himanshu and I, and the rest of our management team will be remaining behind, so if you have time, please stop for a refreshment and we'll be happy to continue the conversation.
We look forward to seeing you on November 13. Thanks very much.
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