Half Year 2015 G4S PLC Earnings and Strategy Update Call

GFS.L - G4S PLC
Half Year 2015 G4S PLC Earnings and Strategy Update Call
Aug 12, 2015 / 08:00AM 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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   *  Robert Plant
      JPMorgan - Analyst
   *  Paul Checketts
      Barclays Capital - Analyst
   *  Ed Steele
      Citi - Analyst
   *  Andrew Grobler
      Credit Suisse - Analyst
   *  Julian Cater
      Numis Securities - Analyst
   *  Gideon Adler
      Redburn Partners - Analyst
   *  Daria Fomina
      Goldman Sachs & Co. - Analyst

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Presentation
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 Ashley Almanza,  G4S plc - CEO   [1]
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 Good morning, everyone. A very warm welcome to G4S' half-year results announcement to everyone in the room and to everyone joining us by webcast this morning.

 Before we get started, I need to draw your attention to the customary legal disclaimer and ask you to please read it in your own time.

 We have a straightforward agenda this morning. We're going to review the Group and regional highlights for the first six months. And we're going to provide you with an update on the progress that we're making with our strategic plan.

 I'll then hand over to Himanshu Raja, our Chief Financial Officer, and he'll take us through the numbers in a bit more detail; and he'll also talk about the progress that we're making with our productivity programs, and also embedding our financial and contract risk management in our business processes.

 We'll wrap up and there will be plenty of time for Q&A.

 So without further ado, let's turn to the Group results. I hope by now you've seen the statement that we put out this morning.

 Starting with revenue, we saw good growth in our emerging markets, up 5.7%. You will recall that our Manus Island contract came to an end at the end of the first quarter last year, and excluding that impact, the rest of our businesses in the emerging markets grew by 8.7% year on year.

 Continued strong performance in North America, revenues up 5.4%. In the UK, as anticipated, our revenues were down year on year, and this reflects the ending of the government electronic monitoring contract in 2014.

 Europe, we saw a return to revenue growth in our businesses for the first time in a while, and that was after absorbing the impact of the Dutch prisons contract which also came to an end in 2014.

 So we had three very large contracts all coming to an end last year. Those now roll out of our quarterly comparatives going forward, but they'll obviously still be there in the full-year comparatives.

 Total Group revenues were up 2.8%; on an organic basis 2.2%. And again, that's after absorbing the impact of those three large contract terminations.

 We were very busy in the first half of this year mobilizing the contract wins that we enjoyed the back end of 2014 and early 2015. We saw increasing build up of our mobilization through the first half. That gave us a good exit rate and gives us good momentum into the second half of 2015.

 We also saw good progress in our sales and pipeline. New contract sales were about GBP700 million ACV, annual contract value; and about GBP1.4 billion total contract value. Our pipeline continues to grow. It's a healthy diversified pipeline standing at GBP6 billion at June 30.

 Now as you know, we have a broad suite of productivity programs covering operations, organizational efficiency, procurement, IT and property. And as I mentioned, Himanshu is going to cover those in a bit more detail, but we're making good progress with those. And the combination of revenue growth and improved productivity saw our operating profits rise by 4.9%.

 We had lower interest charge, which again Himanshu will cover; and our earnings came in at GBP95 million, a 10.5% increase on the same period last year.

 Cash flow was GBP195 million from our operating businesses. That's an increase of 5%, building on an increase of 25% that we posted the same time last year. So we continue to work on our cash flow, making steady progress. There's more to do there.

 The Board has declared an interim dividend of 3.59p per share. That's an increase of 5%.

 And the combination of our strategy, our people, our market positions, our mobilizations of contracts already won, and our productivity programs, gives the Group a positive outlook as we move into the second half of 2015.

 We're going to go through each of the regions now starting as usual with Africa.

 Against a background of prolonged weak commodity prices, we've seen softness in the mining and oil and gas sector, and against that background, our revenues in Africa grew by 3.9%.

 As you know, Africa is a relatively new organizational entity in G4S; it did not exist as a standalone region until two years ago. And we have continued to invest in strengthening our organization across Africa, improving our operating capability, and building our sales pipeline.

 Our Accelerated Best Practices, ABP, that's the name that we give to our productivity programs, they are at a very early stage in Africa, and what that means is that the cost of investing in our organization, our operating capability and our pipeline build, drops through to the bottom line. And so profits came in at GBP17 million versus GBP22 million for the same period last year.

 Of course, we plan to invest through the cycle to take advantage of our very strong market position in a continent which we regard as fundamentally attractive over the long term.

 In Asia Middle East, our revenues were GBP657 million. That's an increase of 4% year on year. Again, excluding the Manus effect, the rest of the business grew at 9.4%.

 We continue to invest heavily in sales and business development across a number of our key service lines, including systems and technology, risk management, facilities management, and care and justice services.

 As you will have seen I hope from the announcement this morning, we're making good progress with our portfolio rationalization program, and Asia Middle East has made particularly good progress in the last six to nine months.

 We've started our Accelerated Best Practice program in Asia Middle East, but we have still a long way to go. The combination of top-line growth and improving productivity saw profits rise to GPB56 million. That's just under a 10% increase year on year.

 In Latin America, we saw also the effect of weaker commodity prices and generally weaker macroeconomic conditions. Notwithstanding that backdrop, revenues grew by 11.8%, with growth across all of our markets and key sectors.

 This is also a new region. It's about 18 months old as an organizational entity within G4S. We've been building a regional management team, strengthening our country management teams, building operational capability and building our pipeline in Latin America.

 And here too, our Accelerated Best Practice programs are at a very early stage. As a result, our profits were unchanged year on year, with cost of investment in these programs offsetting the revenue gains. Profits came in a GBP14 million. Here too we will invest through the cycle to take advantage of what we regard as very strong market positions in a fundamentally attractive continent.

 In Europe, as I mentioned, we saw a return to growth in our businesses, revenues up 2% after absorbing the Dutch Prisons contract termination. Here too we've been investing in sales and business development. Europe was one of our weakest sales organizations two years ago, and it's come on in leaps and bounds. We're starting to see that benefit in our pipeline.

 We made a bolt-on acquisition in monitoring and response in the Netherlands. These are small acquisitions that we were able to absorb and integrate very quickly, and they can become earnings accretive very quickly.

 Profits were GBP2 million lower in Europe coming in at GBP32 million versus GBP34 million last year, and this was our growth offset by the cost of heavy mobilization programs on large contracts in the Netherlands in the first half, and lower profits from our Belgian cash business. We continue to strengthen our pipeline and invest in our business here.

 North America, as I mentioned, another good performance. Revenues up 5.4% across the US and Canada; broad-based progress across markets and sectors. Another area where we're investing in sales and business development, and particularly in service innovation, and we'll talk more about that later in the presentation.

 We had very significant mobilization activity in the first half of this year on the back of wins in 2014. Combination of growth and operational gearing saw our profits in North America rise by 13.9%.

 We have a large growing and diversified pipeline of opportunities in North America. We're very excited about the franchise we have there in the world's largest security market.

 UK and Ireland, as expected revenues were down year on year. This principally reflects the electronic monitoring contract coming to an end in Q1 2014. We're making very good progress with our Accelerated Best Practice programs; restructuring financial shared service centers. Again, Himanshu will cover that in more detail. And these are delivering benefits. So notwithstanding lower revenues, our profits were up 1.8%.

 Our focus in this region is disciplined business development and improving our productivity.

 So that brings us to the end of our regional business reviews and we're going to move on to strategy update.

 As you know, our strategy and our plan draws on multiple sources of value which are summarized on this slide, and these are growth programs, productivity programs, active portfolio management, and disciplined financial and risk management.

 Those programs are underpinned by detailed plans which we set out in November 2013, and they're shown on this slide here.

 Now some are moving ahead faster than others, some of these programs, and some regions are moving forward faster than others. Some of these programs are attracting more resource than some of the later programs. Overall, I'm pleased to say that the Group is making good progress and our plans are on track.

 In previous presentations, I've spent quite a lot of time talking about productivity and financial and contract risk management. Today I'm going to focus on our growth programs and on our portfolio management. And Himanshu's going to spend a bit of time talking about productivity and financial and risk management.

 Now when we set our plans out in November 2013, I think we were quite careful to explain that the gains that we would harvest from our productivity programs would be reinvested; these would be reinvested into our growth program, into improving financial and risk management, and indeed, back into further productivity programs. And that has been happening.

 What we also said in November 2013 was that as we got into 2015 and worked through 2015 and beyond, these programs would become progressively self-funding, and that is beginning to happen.

 So whilst most of the benefits are being reinvested, and have been for the last two years, some of the benefits are beginning to drop through to the bottom line; and we expect that as we move through the plan period in 2015 and 2016, that trend will continue.

 Let's turn for a moment to portfolio management. So this chart hopefully is very familiar to you. Again, it comes from our presentation in November 2013. It was the result of a bottom-up review of all of our businesses in the portfolio.

 On the vertical scale, you have cumulative profit; on the horizontal scale, you have number of countries. And we applied a consistent set of criteria to all of the businesses in our portfolio, looking at materiality, profit, cash flow, growth prospects, cash generation, market value and risk profile of those businesses. And what we found is that around 60 countries contributed almost all of the current and future profit, and indeed, cash flow of those businesses.

 We knew that we wanted to invest in some of the smaller businesses and grow them for the future, but we also understood that we needed to clear out the portfolio in a measured way.

 And I'm pleased to say that we've made very good progress, which has substantially improved our strategic focus; our management focus, because in a very diverse portfolio, we were in 126 countries with five or six businesses per country, and that can impose heavy management dilution on any business.

 We've made very good progress, and this table on our next slide summarizes that progress.

 We have either completed the sale of, or are in the process of selling or closing 46 businesses across the portfolio. In aggregate, they account for around GBP1.1 billion of revenue and GBP3 million of profit. We've raised aggregate proceeds of GBP263 million on the 16 businesses that we've sold already. So I think very satisfactory progress, and we have undoubtedly got a much sharper focus in our business today.

 We said at the time that portfolio management was not a one-off exercise. We regard it as the flipside of capital discipline. Every asset, every business, has to earn its keep in the portfolio.

 That remains the case, and we will continue to manage our portfolio actively. However, the intense level of activity that we've seen over the last two years we don't expect to see over the coming two years.

 Let's now turn to our growth agenda. This slide shows the programs that we set out in November 2013.

 We committed to investing in our sales and business development resource and capability across the Group, an incremental GBP20 million, and we've been doing that.

 We said we would extend proven services from one market into another market where we weren't selling that service; and moreover, we would innovate to create new services in existing markets that we could offer to current and prospective customers.

 We've invested in sector sales specialists, global account management, and heavily in our sales operations. Our sales operations are vastly improved today. There's a much better understanding of where our sales teams are performing, where they need additional resource and support, and how our pipeline is developing, which enables us to far more efficiently allocate resource and go after the best opportunities. We're also qualifying our pipeline, I think, far more stringently.

 So broad progress in all of these areas, and nowhere I think is this more evident than in our sales performance and the development of our pipeline.

 This slide shows our pipeline at June 30 this year, and in brackets you have the comparable figures for December 2014. And what you can see is that our pipeline has grown by 10% in six months.

 You can also see that most of the growth has been at the sharp end of the pipeline; that is to say in the bidding and negotiation stage of the pipeline. And that, I think, provides good support for our future sales and revenues.

 I find this performance quite satisfactory really because the pipeline has grown despite the fact that we've been depleting it heavily. We've been depleting it heavily by converting pipeline opportunities into contract wins. We had GBP700 million of contract wins depleting that pipeline over the same period; GBP1.4 billion total contract value.

 So the pipeline, I think, is healthy; it's diversified and it's growing. It's growing by region, not just in aggregate. You can see it's growing at different speeds.

 On the slide here we show growth since January in the pipeline. This is annual contract value. As you would expect, one of the strengths of G4S is our geographical diversity, and some regions perform when others are going through a quiet period, and vice versa.

 Now we're not only diversified by geography, we're diversified by service line. G4S is, of course, synonymous with manned and mobile security, and indeed, we're proud of that heritage. It's a fantastic platform on which to build the rest of our business. And manned and mobile security accounts for just over 50% of our total pipeline today.

 On that platform, we are building our pipeline in our other service lines: care and justice, cash solutions, facilities management, risk consulting, systems and technology; and other services including utilities services. So I think we've got healthy diversity by service line as well as geography.

 Now our aim is not only to grow the pipeline in a diversified way, but it's to innovate and create new services that we can offer to current and prospective clients. And again, I'm pleased to say that we're making good progress in this area as well.

 What this chart does is it shows schematically incremental value added on the vertical scale, and integration, and indeed complexity on the horizontal scale.

 On the right-hand side of the chart, you have the number of countries in which we are offering each of these service lines, and these service lines build on the solid foundation of manned and mobile security.

 I think the value of that service line, manned and mobile security, apart from the profitability and cash generation it provides our business, is that it gives us a global footprint and an unrivalled client base. And we can use that to build new services and offer those, either on their own or in an integrated way, to our clients. And we're delighted to be able to share with you today some of the examples of the new things that we're doing across our business.

 Systems design, installation and maintenance, it's not new. We offer that in 81 countries across the Group. However, we offer this in depth and breadth in only a few markets, and so there is clearly an opportunity for us to transfer knowhow and capability to some of the markets in which we already operate.

 And the same is true of monitoring and response, which we offer in 75 countries.

 As you work up the right-hand scale, you see that we offer these services in far fewer countries. We're just getting started really. And this presents, I think, a huge opportunity for the Group.

 Consultancy services, software solutions. These are not theoretical; we have now developed them. We're starting to market them. And customers are paying for the value that they get from these products, and we'll look at some of them in a moment.

 And risk and intelligence services. I think G4S is uniquely placed amongst global security companies to harvest what is really a tremendous intelligence database that we possess by having over 600,000 employees across the world; 580,000 in the field every day. And we're building systems to harvest that asset and offer it to our clients.

 So we're going to take a look at three examples of new services that we have deployed in our business.

 The first is to a customer called the Gem Tower. Some of you may know it. It's a building in, I think, midtown Manhattan, New York, in the US. And here, we've combined our capability in manned and mobile security with systems design, installation, maintenance and operation, monitoring and response; and also provided the client with a software solution that integrates all of the building's security risk information into one control room.

 We're going to take a look at a short video which shows you what we've done. This solution was delivered towards the back end of last year. It's up and operating. It's delivering significant benefits for our customer, as I think you will see on this short video.

 (video playing)

 So this is one example of G4S' capability to bring together diverse service lines in an integrated form.

 We have other examples of customers in North America, UK, Europe, where either in the government space or commercial space, we are providing integrated solutions.

 I want to stress though that we're at a very early stage. This has got a lot more running room to develop.

 And we're going to take a look at two more examples. Our next example is a G4S proprietary product.

 We've invested significantly in this particularly over the last two years. It's a product called RISK360. It's a software solution. And it combines again our manned and mobile security capability with software, as I mentioned; and we were also able to integrate it with an intelligence tool. And we'll have a look at the intelligence tool as our next example.

 So what is RISK360? What does it do? This schematic explains it. It's a software solution developed by us that provides advanced incident and case management capability for our clients.

 What does that mean? It means that at any point in time, whether you're a medium sized or large client, you're able on your database to see where all your people are, where all your assets are, where your security assets are deployed, and where events are occurring real time.

 So for example, we have 200 offices in a global account. Each of them can have a hand-held device which communicates with the control room. And this software integrates all of the information that they collect. It could be proof of presence, proof of duty; it could be them either taking photographs or videoing an incident real time, or filing an incident report.

 And this has numerous benefits, including the ability of the control room to monitor what's going on across its organization at any given time, but also to build up friend information.

 So we have analytical tools that enable chief security officers to over time develop mitigation strategies. You can see patterns in incidents. It's not just security but also safety that you can track.

 So this is something that we have launched in the UK and in the US. Very early days, but we're getting a positive response from the market, and we have another short video clip to showcase RISK360.

 (video playing)

 You can see we're combining our sales collateral with our investor presentation materials, so you're all invited to call the number (laughter).

 Look. We have a well developed and fully functional product here, but I want to stress our marketing of this is at a very early stage. We can measure the number of corporate clients that are currently using this in the dozens rather than in the hundreds.

 We take heart from the positive feedback we're getting from those customers who are starting to use this product, and we think that we are able to integrate this with another software product that provides intelligence beyond just safety and risk management; and we're going to take a look at that product next.

 So this again combines manned and mobile security, consultancy services, software solutions, and risk and intelligence. So it can be either G4S qualified intelligence; i.e., it's been vetted by a qualified or specialist analyst; or it can be open source intelligence; or more likely both. We combine both of these to feed into our intelligence tool.

 The tool that we've created is called GIS, Global Intelligence System, and this too is fully functional, but we're only just getting started with the marketing. We're offering this today only -- we're able to deliver it in two countries. But I think it's eminently scalable.

 (video playing)

 So that was the third and final example of product development service innovation in our secure solutions business.

 This product as well you can measure the number of corporate customers that have it today -- we've only just launched it -- in the dozens. It's available today in the UK, and we're looking to promote this across the world.

 So it's not only in our secure solutions business that we've been investing in product and service innovation. We've been doing the same thing in cash solutions. And before we look at an example of service innovation and cash solutions, I'm going to take a moment just to recap some of the key trends in cash markets around the world; cash handling, I should say.

 As you know, I think at the back end of last year, we completed a piece of primary research sending teams into 14 countries around the world, interviewing banks, retailers, central banks, and we complemented that with third-party research. This built on a study we'd done the previous year, and we saw similar themes and trends emerging from the study.

 The first is that there remains a sharp, a very clear distinction between cash handling in emerging markets and cash handling in developed markets.

 And the other point to stress is each market is unique. Whilst there might be common themes in developed markets and emerging markets, you really have to look at this on a market-by-market basis.

 In emerging markets, the themes are that cash continues to grow; it remains the dominant payment instrument. It is a very high unbanked population, and governments are promoting financial inclusion which in many cases is promoting also the use of cash.

 There are very high volumes of manual cash handling in bank branches, and cash is often seen as an anchor service by banks or an important payment option by retailers. We know that there are mobile payment mechanisms operating in emerging markets. Typically, these have cash at each end of the payment chain.

 In developed markets, great variation in policy, practice and trends market by market. Cash, as you know, is largely sourced from ATMs and remote ATMs. Both retailers and financial institutions are actively looking for improved efficiency and enhanced ease of use when it comes to cash. CIT competition is strong, and scale matters in that service line.

 Financial institution branch costs currently account for between 50% and 60% of retail banking costs. So you can see why there's a sharp focus on improving efficiency of branch networks and cash handling.

 There's growing interest in developed markets in digital payment technology. You see it all the time. Market penetration is quite measured. There are some exceptions, Scandinavia being the obvious one. And often, new digital payment technologies cannibalize previous non-cash payment technologies. Nevertheless, we expect that digital payment methods will become an increasing proportion of the overall payment mechanisms in developed markets over time.

 What is common across both of these markets, whether you're in emerging markets or developed markets, is our major clients, be they financial institutions or retailers, are constantly looking for innovation in order to make cash handling more efficient and easier for their customers to handle.

 And in G4S, we have a product and a service that addresses both of those objectives: efficiency and ease of use. It's a product that you will have heard of before. However, we've been investing in a concerted and quite focused way over the last two years to really promote this product.

 It was developed in the UK, and frankly, didn't get a lot of traction to begin with. And that was principally, I believe, due to a lack of funding and real focus on promoting that product.

 The way it works is that it reduces cash handling time by providing secure devices at the point of sale. Those secure devices reduce cash losses in large retailers; large or small for that matter. It enables the retailer to plan CIT more efficiently, because we also alongside the physical device provide a software solution that monitors cash levels and enables you to plan deliveries in a more rational way; provide either same-day or next-day credit to the retailer; and provides real-time management information to the customer's treasury department.

 So that, in summary, is the product.

 Over the last two years, we've made great strides actually in deploying this. Two years ago, we had around 4,000 devices, and that was largely concentrated in Europe and in Southern Africa. We now have 8,000 devices installed globally across five regions.

 Where we've made the greatest progress, actually, is in North America in terms of development and innovation. Two years ago, we had no business line in CASH360 in the United States. Through really focused investment in adapting the UK product to the US market and enhancing the software tool, we were able to conduct the successful pilot in 2014, and the product has started to take off in 2015.

 We now have firm commitments to deploy this across 350 retail outlets. We have an order book of $126 million total contract value. And hereto, I want to stress we're at a very early stage of marketing this solution to customers, and we believe it's got the potential to grow quite significantly, not just in North America, but in all of our markets.

 So that brings us to a handover to Himanshu. I've covered growth and portfolio management. Himanshu is going to take us through the results in a bit more detail, and then he's going to talk about productivity and financial and risk management.

 Himanshu.

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 Himanshu Raja,  G4S plc - CFO   [2]
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 Fantastic. As Ashley said, I'm going to take you through the financials for the half. And really, what the financials show for the half year is the progress that we've made on revenue earnings and cash flow, which is fundamentally what we're about, whilst as Ashley has pointed out, continuing to invest in growth and continuing to invest in the productivity programs that I'll cover in some more detail.

 Hopefully, you've seen from this morning's release that we've also simplified the presentation of our results so you can see much more clearly the relationship between the underlying results and the total results.

 So we just start with the underlying results. These show the performance of our continuing operations on a like-for-like basis and at constant exchange rates.

 In the first half, revenues were up 2.8% at GBP3.3 billion; and we saw continued growth in our emerging markets which overall grew at 5.7% in headline terms, and after the effect of the Manus contract, grew by 8.7%.

 Our developed markets continue to show real growth, and whilst the UK was down as we expected, North America grew at the fastest rate, 5.4%, and Europe returned to growth posting a 2.2% increase on the same period last year.

 Our PBITA was GBP193 million, up 4.9% year on year. And our resulting operating margin, I know an important and key measure for many of you, was 5.9%, up 10 basis points year on year. And really, overall what you see in these results is how the diversity of the Group in terms of geography, service line and customer segment, gives us real resilience in our profit before interest, tax and amortization.

 If we just move down to below PBITA, our underlying interest charge was GBP51 million, GBP7 million lower than last year, benefiting from lower IAS 19 pension interest.

 You will also have seen in the release that since June 30, we've also paid down $150 million of higher cost debt bearing interest rates 6.5%, and that will also flow through and benefit the full year. So I expect the full-year interest charge to now be coming in at around GBP100 million.

 On tax, our effective tax rate for the half year was 25%, and I expect around the same rate for the full year.

 On non-controlling interests, our non-controlling interests were GBP11 million. And during the half, we successfully renegotiated a number of our shareholder agreements which increased our economic control and our economic interests at no additional cost, which really resulted in a higher non-controlling interest charge. And for the full year, I therefore expect that to be at around GBP27 million.

 Earnings were up 10.5% to GBP95 million, and earnings per share was 6.1p against 5.6p this time last year, an increase of 8.9%.

 Cash from our operating businesses was GBP195 million. And if you recall this time last year, we increased our cash by 25% year on year. So to see and to post a further 5% increase this time was very pleasing indeed. However, there remains much more to do on cash, and I'm going to spend a little bit more time on cash in a few moments.

 Let's now turn to the total results.

 This slide mirrors the presentation on page 3 of today's release. Total PBITA was GBP184 million. And the only difference to underlying PBITA are the results of our portfolio businesses, which we identified for sale or closure and therefore are presented on a like-for-like basis.

 On specific items, as part of our normal half-year processes, we review and update the assessment of assets and liabilities and contracts. In the half, we record a GBP17 million charge from this review on re-measurement of assets, liabilities and contracts. And it's a net number, so within that number, we add debits as well as credits, but there's no individual item or legacy contract that really warrants calling out.

 We continue to invest in restructuring. The GBP16 million relates mainly to investment programs in our UK and Ireland businesses. But also, I talked previously about how we take lessons from one part of the Group, apply benchmarking, and then extend those to other parts of the Group. And in the half, we also saw, therefore, the benefits of organizational efficiency and restructuring being applied in other parts of the world, principally in Latin American, around organizational efficiency, and also in the US. And again, I'm going to give you more detail on the progress on our restructuring plans in a later slide.

 Finally, moving down the P&L, we record a profit on disposal of subsidiaries of GBP12 million, principally from the sale of our international parcel services business in the AME region.

 And finally in the half, you see the normal non-cash amortization of acquisition-related intangibles of GBP19 million, and a non-cash goodwill impairment of GBP21 million, again in respect of the portfolio businesses that are in the process of being sold or ceased.

 Let me now turn to cash flow and net debt.

 This slide shows the movement of net debt from December 2014 through on your right-hand side to the net debt at June 2015.

 Starting with the net debt at year end of GBP1,578 million, we generated the cash from continuing operations of GBP195 million.

 In terms of investing activities, we invested GBP43 million in capital expenditure and in finance leases. The GBP17 million restructuring outflow is in respect of the previously announced [2014] restructuring, and some outflows in respect of the [2015] restructuring.

 We see gross proceeds of GBP15 million from disposals, and we invested GBP8 million in the bolt-on acquisitions in Europe and LATAM, really modest bolt-ons that drive contribution and are accretive to earnings.

 Let's look at the use of funds.

 We paid interest of GBP50 million, and the cash tax paid was GBP76 million. On the cash tax, the increase in tax paid compared with the same period last year was largely due to the payment on account of GBP20 million to mitigate interest and penalty on a longstanding tax dispute that will run for some time. The balance of the tax [out-payments] largely relate to timing differences on payments in certain jurisdictions.

 Our pension deficit payments were GBP22 million for the half, and the contribution for the full year will be around GBP44 million.

 Our dividends paid to equity and minorities were GBP98 million, and we therefore finished the half-year with net debt of GBP1.68 billion.

 Our net debt to EBITDA was 3 times, down from 3.1 times this time last year. As you saw in the second half last year, we'll see the same dynamic in the second half this year. Net debt to EBITDA I expect to come down in the second half.

 On financing, we remain soundly financed, and have access to unutilized and committed funds of around GBP800 million. As I just said, in July 2015, we also repaid GBP150 million (sic - see slide 39, "$150 million") tranche of debt bearing an interest rate of 6.43%.

 And as you know, earlier in the year, we refinanced our revolving credit facility, extending maturity to 2020, with improved pricing, terms and conditions.

 And in the half, S&P confirmed our investment grade credit rating and reaffirmed their assessment of our business profile as strong.

 Together with the continued focus on driving operating cash flow, we expect our net debt to EBITDA to continue to come down in the medium term to within our comfort range of less than 2.5 times.

 So let's just turn to cash flow. I presented this slide last October, and it really speaks to the multiple levers that we can pull on working capital. And I talked about developing a systematic program that we could begin to roll out across the Group.

 The yellow boxes highlight our current areas of focus. We have made progress in the half, with end-to-end reviews of the order-to-cash cycle [completed] in North America, which generated significant process improvements and a resulting improvement in cash flow.

 In the UK and Ireland, we've made considerable process changes as a result of our move to shared services. This is giving greater visibility of working capital and collections to front-line managers, allowing them to pursue collections on a more timely basis.

 Also in the UK and Ireland, and in certain key markets in the Middle East and India, we're bringing process change, and in particular, lean process design to our end-to-end processes around collection. And where appropriate, we're introducing more effective dunning policies and more effective dunning practices.

 On the supplier side, we've signed eight global deals through our procurement initiatives, 23 regional deals, and renegotiated nearly 200 in-country supplier agreements. Each drives lower cost, and each drives improved working capital.

 And, of course, we'll continue to roll out these initiatives. As we do so, it will release more of the tied up working capital, as well as improve our ongoing order-to-cash and procure-to-pay cycle.

 So let me now just turn to the second part of my presentation and provide a brief update on the financial framework principles we outlined in November 2013 around contracts, capital discipline, IT, shared services and restructuring.

 Starting with contracts, you are now familiar with our story. We have new processes around the risk management and governance of our contracts. Every quarter, we perform an analytical and financial review of over 200 contracts, with an annualized contract value of GBP2 billion.

 We then perform deeper dives on those contracts that warrant closer inspection using our Contract 360 processes. And you can see the trend here. You also see the benefits of this in the numbers, with no new contracts identified as onerous.

 On capital, we operate a single pool of capital where all investment opportunities, including revenue and restructuring spend, need to deliver a greater than 10% post-tax internal rate of return. And for restructuring, additionally, they must also pay back within three years or less.

 On CapEx, the new and more rigorous processes are also coming through in the numbers. Business cases that don't meet the criteria are not approved. And wherever we do see capital requests, we try to bring them under common capital umbrellas, for example, in our IT programs. So we seek to spend once and get the operating leverage and the benefits of being part of the large Group.

 On IT, just to remind you, our strategy is one of progressive change, first tackling infrastructure, then operations, and then applications. And we've adopted an industry standard model called IT service management, which really defines what good looks like in the IT space.

 Beginning with infrastructure, productivity refers to our email and collaboration platforms. If you recall, we talked previously about there being 47 legacy email platforms, and the change in infrastructure there is to move to one platform based on Google technologies.

 We have completed the transition in North America and in Europe, and we're halfway through that transition in Latin America. And in the process, we've decommissioned 27 legacy email platforms. And in addition, the users get the benefit of one platform that covers email, video, voice communications, collaboration, unlimited data storage. And then from a compliance and risk management perspective, we get greater control over that.

 On end-user computing, I talked last time about the standardization of desktops and laptops which can now only be purchased through one vendor portal with HP.

 On telecoms, we've made substantial progress in the rollout and rationalization of our telco network in the UK and Ireland, saving single -digit millions in the procurement cycle. And we're in the advanced stage of completion tenders in Europe, AME and Latin America on our telecom infrastructure, with projects starting the second half of the year.

 And finally on IT operations, during the first half of 2015, we've completed an inventory of all our critical front-line IT systems, and have implemented a more rigorous global support model so that if we see outages, a customer affected anywhere round the world, we can bring the right skills to bear. And over time, this will lead to lower operating costs as we can then rationalize those operations on a global basis.

 The next stage of the IT journey will be about the applications [state] where our initial focus will be on clearly nailing down scope and on lean process design.

 Let's take a look at shared services. Starting with the UK, I am pleased to report that we've now gone live on Wave II of our UK shared service center as planned, with 91% of the UK by revenue on the shared service center, bringing improved processes and productivity.

 And just to remind you; in the UK alone, we had nine different accounting locations and six different systems all coming together in one shared service center and on one platform. This has delivered cost reduction as well as enhanced visibility of receivables, working capital and supply management. We now have the opportunity to begin to rationalize the UK supplier base of around 9,000 suppliers.

 Elsewhere, we've completed the transition of Canada into the US shared service center, and we've also now begun the establishment of a shared service center for Asia and the Middle East in the first phase, bringing together five countries into India on a [lift-and-shift] basis. So region by region, really beginning to consolidate our operations and to drive benefit in a very risk-managed way.

 Let's move to restructuring.

 We are extremely rigorous in following up and ensuring that the benefits of our restructuring are delivered. Since November 2013, we've made substantial progress in tackling inefficiency and overheads, principally in the UK and Europe. And as I said earlier, we've now taken the lessons learned on these programs and performed benchmarking across the Group.

 And in this half, we have some modest restructuring in other parts of the world; in Latin America, in the US and in Malaysia. And we've also cracked on with the rationalization of our property estate. Some of you will know we've consolidated our UK plc offices with the UK region in [Victoria].

 We'll see the benefits of some of these programs coming through in the second half. And it is these benefits that have enabled us to recycle capital into sales and BD, IT procurement, financial and risk management, that Ashley talked about earlier.

 So turning to my final slide, we are beginning to see the net benefits of these combined investments drop to the bottom line. We did say that we'd report on our margin performance at every reporting period, and you can see on this chart the progress has been steady, with improving margins since the first half of 2013 from 5.6% to 5.8% in the first half of 2014, and a further 10 basis points improvement in this half. And these are all on a like-for-like basis where we exclude discontinued portfolio businesses.

 Margin of course is the outcome of our efforts. Our focus remains on sustainable growth in earnings and in cash flow.

 With that, let me hand you back to Ashley.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [3]
------------------------------
 Thanks, Himanshu. I'll just take a moment, if I may, to wrap up, and then we'll go to Q&A.

 So first-half results we see building on the progress that we made in 2014. The Group is delivering an improving financial performance. We have a growing and diverse pipeline, and our contract mobilizations through the first half, combined with our productivity gains, give us confidence that we're going to see improving performance through the balance of this year.

 Our strategy and our plan is on track. We're investing, as we said we would, in growth, and those investments are starting to bear fruit in the form of a strong pipeline and good sales performance.

 We're investing in innovation and technology, developing new services that add value to our clients. We're at a very early stage, but we're encouraged by the response that we're getting in the marketplace where we've started to promote these new services.

 Our productivity programs, as Himanshu mentioned a moment ago, are now delivering benefits, and some of those are dropping down to the bottom line. And as I mentioned earlier, as we move through the plan cycle, we expect that trend to continue.

 Very satisfactory progress, I think, with our portfolio management program that we announced in November 2013. We have much improved management and strategic focus and a stronger business.

 Financial and risk management processes that Himanshu described are being progressively embedded in the business. This is not an overnight change program, but they are being embedded progressively. I have no doubt this is improving the quality of the business that we're writing today, which will also improve the quality of the business that we have in one/two/three years time.

 Our strategy, our very strong market positions, our people, all provide, I believe, a positive outlook for the Group and underpin our goal of sustainable and profitable growth.

 That concludes our presentation, ladies and gentlemen. We'll now take questions.

 Can I remind those of you who are joining us by webcast, you can send your question in --? There's a facility on the webcast to send your question in, and we'll put that question into the room.

 When asking a question,, please may I ask that you give your name and your affiliation? If you raise your hand, we have a roving microphone, and we'll bring it to you so that you can ask your question.

 Could we take the first question, please?

==============================
Questions and Answers
------------------------------
 Robert Plant,  JPMorgan - Analyst   [1]
------------------------------
 Robert Plant, JPMorgan. A couple of companies mentioned that passing through the increase in the UK minimum wage with the UK living wage could be tricky. You're quite a big employer in the UK. How do you think you're going to manage it?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [2]
------------------------------
 Thanks, Rob. So the question is: how do we manage the UK Government's announced living wage legislation?

 I think the first thing to say is that the vast majority of our employees in the UK today are already paid the living wage or above, and so more than 70%; substantially more than that. It's very early days, and I don't think the industry or we know how this is going to play out.

 What do I mean by that? Well, we would expect firstly the Government, where we deploy our people on government contracts, we're assuming that the Government not only wants to pay civil servants the living wage, but also contractors who work for the Government. That's a discussion that we've yet to have with all of the government departments to whom we provide services.

 We think our large corporate clients will also want to participate and see people providing services in their headquarters and operations the living wage. That's a trend we've seen already, by the way, before this program was announced by the Government.

 So we're engaging now with our customers. We're working through the analysis. And we'll have to give you an update, I think, with the full-year results.

 Of course, the UK is one part of our global business, an important part, but you can tell from my comments that we expect that many of our customers will want to ensure that they too are paying the living wage, either directly or indirectly.

 Do you want to add anything to that, Himanshu?

------------------------------
 Himanshu Raja,  G4S plc - CFO   [3]
------------------------------
 No.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [4]
------------------------------
 Thanks Rob.

------------------------------
 Paul Checketts,  Barclays Capital - Analyst   [5]
------------------------------
 Paul Checketts, Barclays Capital. I've got three questions, please. The first is on the exit rate which you described as positive. Could you --? Does that mean better than the first half? And are we talking about ex the three contracts? And is it possible, at least qualitatively, to say how that's looking by region? Because you flagged for one Africa being more tricky.

 And then if you want me to run through them, the second one is on the technology side, more broadly, you've got a new head of technology. I'm interested in your thoughts of technology's future in the security market and what your strategy is more precisely to target that.

 And then the last one is: there are lots of different cost initiatives that you talked about, Himanshu. Are you in any position to quantify the savings that we should expect from now you're further through that process?

 Thanks.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [6]
------------------------------
 Thanks, Paul. Exit rate, yes, it's certainly significantly stronger than the average for the first half.

 Our contract wins in 2014 were good in the second half of 2014, so we're mobilizing a lot of contracts through the first half of 2015. And as we mobilized, we saw our revenue pick up through the end of the quarter, and we expect that to continue into the full year. So I think significantly better exit rate than the average, by twice the average. In fact, more than twice the average.

 By region; Africa, obviously being sustained, depressed commodity prices. And a lot of economies in Africa depend upon earnings from commodity exports, and that's undoubtedly providing a softer macroeconomic backdrop.

 I think we saw quite a few mining and oil and gas companies hit the pause button. Some of them are coming back to the market, but I think it's too early for us to say it will all pick up again. We're just going to have to wait and see.

 Latin America surprised us on the upside. It's also exposed to commodity prices. Macroeconomic backdrop is undoubtedly weaker there than it was a year ago. But our business has continued to perform well in Latin America, and certainly so far, I think it's exceeded our expectations.

 North America, just very pleased with the progress that we've made there. I think we've got a strong brand, a good team, good service offering. We'll have to see whether the economy continues to support that level of growth rate, but I think we draw confidence from our pipeline and from our conversion rate now, our contract mobilization in North America. But if we sustain that growth rate, that will be two very strong years in North America.

 Canada. US growing quite a bit faster than Canada. Canada again affected by commodity prices, obviously.

 UK. We're seeing good traction in our small but growing local government business. We had good wins in utilities, energy, health, police services. Central government, we're waiting to see what program emerges. The austerity program may or may not provide additional opportunities for us. I don't think that's particularly clear at the moment. We've got a good business and we're focused on improving the performance of that business.

 We're going to be quite disciplined about the contracts that we go for in the UK. I think we've got good reason to be disciplined if you look back over the last five or six years.

 And Europe, I think we're cautious. It's great to see the new leadership and the new sales team really starting to make progress building the pipeline, getting revenues growing again. There again, I think we just have to be patient in Europe and build steadily and in a disciplined way.

 I think Himanshu talked about contract reviews. We also spend a lot of time and effort at the front end of that process; it's not only after the contract started. So we have certainly been over the last 12/18 months more selective in the contracts that we ultimately qualify in the pipeline and put a bid in on.

 Some very large contracts have failed at the pre-bid stage to get through our investment committee. And I think we have to hold to that approach because we could easily post -- could have posted much better revenue numbers by signing up to big contracts, two very large contracts last year which would have given us great revenue this year, but I think would have given us a few other things as well that we decided we weren't best to handle.

 Overall, the pipeline I think is in good shape. Particularly pleased that it's growing at the bidding and negotiation end of the pipeline. We've undoubtedly got better sales and business development capability on the ground.

 In some markets, actually, our challenge is now our operational capacity. We actually can't get enough people to the work face in some cases, so we're having to in some markets-- not everywhere; it would be great if it was everywhere -- we're having to pass on opportunities because we're not confident we can get the capacity to the work face.

 So it's a mixed picture, but I think the great strength of this business is its diversity. When one market is softer, another market is moving ahead. And we're not exposed to any one customer or market, or indeed industry segment. So -- over-exposed, I should say.

 Technology -- I'm going ask you to do cost initiatives [in fact], Himanshu.

 Technology. I think you're referring to our Head of Technology in the US as opposed to globally. John joined us in October/November time last year; hit the ground running. I think really great fit with the team. Knows the North American market really well; has worked in technology all of his career. He and I and the rest of the executive team spent a lot of time talking before he joined about our technology strategies to make sure it was a good fit.

 I think just a few simple points really. We know for sure that technology will play a much bigger role in the provision of security services 10 years from now; probably 5 years from now.

 Today in aggregate, we have about $750 million of what I would call systems and technology in all its forms in the business. The pipeline behind those business lines is growing. We are going to invest not only in hardware; so intrusion detection, access control, where we have good capability in some markets. But we're also going to invest in software solutions that integrate risk information, security information, and then overlay that with our security expertise.

 We talked about RISK360 and Global Intelligence System. These are very new products for us. And whilst I would praise the team for developing a fully functional product that customers are buying and paying for, that is real progress, I have no doubt that we will continue to invest and improve those products.

 More and more, I think large companies, and particularly global companies, want to know at any given time where are my assets, my people, my physical assets, and what is the security context in which those people and those assets are operating. And if you can provide effective and efficient solutions that not only tell them real time what's happening in their business, but enable our customers to build up a database, a history, so that you can start to understand the significance of an event whereas you might not have before, because you've seen the history, you see how things develop, you've got trend data. And we can overlay that with consultants.

 We are indeed overlaying it with consultants and intelligence analysts at the moment. So we have -- with GIS, we have customers who are using it who come back to us and say: well, we're looking at GIS and we see that the threat level is elevated in country A and B, and we're -- our executive is planning to visit; can you arrange close personal protection and can you give us a detailed report of conditions on the ground in this part of the country for this week?

 It's really small at the moment, but I firmly believe that this is going to become a very important part of not just our Company, but the way in which the industry delivers security in the future.

 In the same breath, I want to acknowledge the importance of our bedrock business line, which is NAND and mobile security. That will, I think, continue to be a very important part of our service, and we have to constantly upskill what we make available to the market. So we are now starting to make in a small way mobile security which is internationally mobile and can be called on by clients for a short period to be deployed in a particular area where there's either an elevated threat level or increased exposure because the client has more people or physical assets in that location.

 So we could talk a lot, but I think we are going to continue -- we have been investing. We've been investing more in the last two years than we have done historically. We know that that weighs on the P&L. But we firmly believe that it's really vital for this Company as a leading global security Company to invest in systems, technology, software and new services, and we're going to do that.

 Himanshu, can you answer Paul's question on cost initiative, please?

------------------------------
 Himanshu Raja,  G4S plc - CFO   [7]
------------------------------
 It's a good segue really from where you finished, Ashley, because the oxygen to invest really comes from those cost-reduction programs.

 You're familiar with the menu that we now have. Ashley's tried to give real color by region on where we are in the maturity of our Accelerated Best Practice programs. Relatively immature and starting to get going; early stages in Africa, in Latin America. Beginning to see some benefits in Asia and the Middle East, but much more to do. And then you have to break them down to more granular levels by way of what is happening on route scheduling versus direct labor efficiency.

 And then there are the global programs, which are IT, procurement; the financial shared services region by region, and eventually globalizing. We are going to be seeing progressively much more of those dropping to the bottom line. And of course, we quantify them as part of our ongoing trading and budget processes and make that trade off with what gets reinvested.

 So we have a good line of sight. It's not a number that we give out, not least because we want to make sure that we get that balance right of investing, as well as making sure we deliver progress on earnings and on cash flow.

 So not going to give you a number, sorry, Paul. Obviously that (multiple speakers).

------------------------------
 Ashley Almanza,  G4S plc - CEO   [8]
------------------------------
 The other way to look at this is, to build on what Himanshu said is we invested slightly more than GBP20 million incremental into sales and business development. If you look at additional investment in product and service innovation, additional investment in finance, assurance, contract risk management, you're comfortably through GBP30 million of additional costs in the business, which is being more than offset by efficiency gains.

 So that gives you a progress report, a quantified progress report [as we are]. Those numbers are broad, as Himanshu says. We don't put in our release the pin point month by month. But that, I think, gives you a broad feel for it.

 Thanks, Paul.

------------------------------
 Ed Steele,  Citi - Analyst   [9]
------------------------------
 Ed Steele, Citi. Two questions. First of all, do you think that on a left-alone basis, so excluding all the pushes and pulls and your self-help efforts, your margin was up or down year on year in the first half for the retained business, please?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [10]
------------------------------
 I think there are lots of puts and takes. You're quite right. I will ask Himanshu to comment in a moment, but when you look at what we're doing, there's a combination of investment in growth, investment in and gains out of productivity, portfolio rationalization, improved contract risk management.

 By the way, that has, we believe, overwhelmingly positive effects, but one of the effects is fewer things get through the pipeline qualification process, so that ultimately in the short run shows up in revenue numbers.

 So lots of moving parts. Not sure -- on a like-for-like basis, I think of course we would say it's clear that the business has improved. On a left-alone basis, in other words undo everything we've done for the last two years, what it would look like, I think that's one for you, Himanshu (laughter).

------------------------------
 Himanshu Raja,  G4S plc - CFO   [11]
------------------------------
 Ed, the reason we show the like for like is because of the portfolio rationalization we've done. We've taken out, as Ashley said, GBP1.1 billion of businesses; generated GBP263 million.

 If I look at the multiples that we generated, we on average received around 16 times PBITA multiples on those businesses and, therefore, generated real value. And, therefore, I'd just invite you to focus on the continuing businesses.

 It's a sharper business, more agile business; gives us real strategic focus to really consolidate and build on our market positions with the revenue growth story that Ashley talked about. And it's very clear that you see in those continuing businesses, notwithstanding investments that we've made -- margin I know is very important to you and many of you -- that we've made steady progress half on half on half.

 You know we also historically see a stronger second half, and it will be the same this year. We'll see a stronger second half in 2015 with the momentum that we have and the exit rates that we have going into the second half.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [12]
------------------------------
 And just to add to that, Ed, I think the important thing for us really is that all of the things that we're doing were things that we put into our plan and took to our shareholders in November 2013. So we're not able to unscramble it and tell you what the world would have been like had we not done all of that.

------------------------------
 Ed Steele,  Citi - Analyst   [13]
------------------------------
 I'm just [trying to find] your view of the underlying market dynamic.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [14]
------------------------------
 Okay. Well, I think there, I would point to the comment I made in response to Paul's question. We're a globally diversified business. Some markets are doing better than others. Pipeline is growing faster in some regions than others. So it's a mixed picture because we're just a globally diversified business.

 There's no doubt in North America our business is doing far better than it was doing two years ago. However, we've invested in strengthening our management team. We've invested in sales and business development capability; sector specialists, service line innovation.

 In North America, we're growing faster than the market, so would we be doing that without all of the investment we made over the last two years? I'm going to say, no.

 So on an undisturbed basis, would have been better in North America but not as good as it is today, and I think that's probably true across the board.

------------------------------
 Ed Steele,  Citi - Analyst   [15]
------------------------------
 Okay. Thanks very much. And the second question, you stripped out GBP300 million or so of revenue from last year, which is going to be closed or sold across 30 businesses, which in aggregate made GBP11 million of losses. Looking back to -- I know you weren't around, but I'm sure you've seen the numbers. Looking back a few years ago when the Group was consistently making about 7% PBITA margin, was that GBP300 million equally loss-making then, or was it in aggregate a profitable group of businesses, please?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [16]
------------------------------
 So I think I would have to go back to August and November 2013 when we set out all of the changes that we're going to make to the way we account performance in this business. So I think in a roundabout way, we said, well, if you recast prior years on the new basis of accounting performance, you wouldn't get 7%. And I think the further back we go, the harder it is for us to recast the Group, let alone individual businesses.

 So we can't, I think, hand on heart answer the question what the true underlying performance would have been because we're comparing a different approach to measuring performance today versus the way it was measured before.

 What we can say is that we've worked through this portfolio review carefully; that we didn't want to just rush out and hack into the thing. We wanted to really understand the potential of the business to make a --

 Even if a business is loss-making, it doesn't mean it leaves the portfolio. It depends upon its potential to add to the overall business. And so we've just gone about this very patiently.

 So [Helen] or Himanshu may be able to answer that question, either now or [fly-in/fly-out, certainly]. I don't think we're comparing even like-for-like measurement methods in terms of performance. There was quite a significant change in the way we accounted for our business from November 13 forwards.

------------------------------
 Ed Steele,  Citi - Analyst   [17]
------------------------------
 Thanks very much.

------------------------------
 Andrew Grobler,  Credit Suisse - Analyst   [18]
------------------------------
 Andrew Grobler, Credit Suisse. Just three, if I may, firstly, on organic growth or growth during the period. Could you explain the difference between the 2.2% organic and the 2.8% that you talked about?

 Secondly, and on a similar theme, at the beginning of the year, you talked about 5% to 8% growth in the medium term, and you expected to be in the postal code of that for this year. Is that still the case given what we've seen in H1?

 And then thirdly, a bit more specifically on the COMPASS contract. There's been a lot of news flow about immigration in the UK and various parts of Europe through the year. How is that contract performing and what are the risks to that?

 Thank you.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [19]
------------------------------
 Thanks, Andy. On COMPASS, actually, the contract is performing better than it was before. We're working very closely with the Home Office, and indeed, collaborating across three suppliers where it makes sense, with the full blessing, I should say, of the Home Office.

 The contract's performing better. You'd have to look on the Home Office website to see immigration numbers. We have not seen, certainly yet, the news flow that you see in the Mediterranean and in France affecting -- touching lots of wood -- the COMPASS contract at this stage.

 Revenue, I'll ask Himanshu to please explain the difference between the 2.2% and the 2.8%.

 Full year, we did say in the postal code. I think we've got good momentum in our sales conversion and mobilization, and there's no reason for us to change our view at this stage.

 2.2% to 2.8%?

------------------------------
 Himanshu Raja,  G4S plc - CFO   [20]
------------------------------
 Yes. On the organic revenue growth versus total revenue growth, we have two things going on in that movement. The first is the modest bolt-ons that we made, which are small in the overall scheme of things.

 And then I explained that one of the things we did in the half year was renegotiate our controlling economic interests in a number of entities in the Middle East and the Far East. And the way one is required to account for that is it flows through as an acquisition for accounting purposes and, therefore, affects the [distance] between organic and inorganic growth.

 You see the opposite effect also when you look at the detail on page 4, Andy, in the Africa region, where there we had change in economic interest going the other way and, therefore, that's required to be accounted for as a divestment. That's the way the new accounting standards IFRS 10 and 11 work. That's all that's going on in there.

 The real thing really that we've tried to point you to today is what are the exit rates that you should be thinking about, and on an X amount as a basis for the Group as a whole, that's why we shared with you that number on the front page around 4.2%, and a strong exit as we exited the first half.

------------------------------
 Andrew Grobler,  Credit Suisse - Analyst   [21]
------------------------------
 Thank you.

------------------------------
 Julian Cater,  Numis Securities - Analyst   [22]
------------------------------
 Julian Cater, Numis Securities. Two questions, please, the first on the movement in the pipeline. I wonder whether you could give any detail on the velocity with which contracts have gone out between December and June so we can get an idea of what your win rate is in the context of the GBP700 million you've talked about.

 And then my second question really picks up on Ed's earlier question on the margin. If I look at the [Note 3] to the accounts, it looks like the gross margin percentage has actually gone down 100 basis points in spite of some of the initiatives that you've talked about. So I wonder whether you can say is that a function of mix, greater competition in certain markets, etc., please.

 Thank you.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [23]
------------------------------
 So I'll ask Himanshu to comment on gross margin in a moment, although I think, again, you have to recognize that some of the investments we're making or going in to cost of sales as well as head office, if you like.

 And indeed, one of the things we talked about last year was our desire to build operating capability out in the regions and deploy some of the capability that we have in the center out to the regions so that we're not operating on fly-in/fly-out basis for operational expertise. So that's undoubtedly added some cost.

 And the other thing to keep in mind is that when a business is winning new contracts and mobilizing, has a heavy mobilization program, as we have had in the last six to nine months, that does affect our gross margin because you're not efficient really as an --

 I don't know anywhere I think in the business where you can stand up a new contract, particularly a large contract, efficiently on day 1. So for example, you have to rely more on overtime; you have to sometimes transport security officers, or whatever the services, transport employees to the work site until you recruit locally. And that can take months; sometimes the best part of six to nine months to get a stable operation where you then get back up to your stable gross margin.

 So one of the features of growth is that you incur additional costs, mobilization cost and somewhat inefficient operations for the first part of contract startups. But I'll let Himanshu comment further on gross margin.

 On the pipeline, your question was the philosophy --?

------------------------------
 Julian Cater,  Numis Securities - Analyst   [24]
------------------------------
 The velocity with which contracts are going through the pipeline to get an idea of what your win rate has been in the first half.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [25]
------------------------------
 So our win rate obviously varies quite a bit across service and segments, and is also varied greatly depending on whether you're re-bidding or bidding for new work. And the GBP700 million is related to new contract wins, so in other words new work, either grow or get. And we'd have to get back to you with the precise number, but I'm going to say our win rate is in the 30% to 40% category.

 Velocity, how often we're churning and re-stocking, I don't have that number to hand, Julian.

------------------------------
 Himanshu Raja,  G4S plc - CFO   [26]
------------------------------
 So to come back on the gross margin, the gross margin at a country and a regional level does jump around, and you'd expect that for the reasons that Ashley touched upon. When you're growing in a market, you've got the mobilization issues that Ashley talked about.

 In each market, particularly in emerging markets, we also get the normal wage increase at the beginning of the year. There are a number of contracts where you have the right to automatically pass that on. There are others where there's a time lag between the wage inflation coming in and then passing on those price increases. And we're very rigorous about making sure we trap that, and there are programs at a country and a regional level to make sure we achieve that.

 You've then got the investments that Ashley was talking about that we're making, as well as the investment in restructuring to make those operations efficient. So gross margin does jump around, but it's a function of the rich mix of things that are going on in there, and I wouldn't read anything into that Note 3.

 That Note 3 contains movements in some of the specific items. As well, there's a list of the narratives that are below it.

 As you know, what we're focused on is making sure that we drive to profitable growth on a country-by-country business and for the Group as a whole. So when we're evaluating through the Group investment committee, we look at the risk-adjusted margin and say what do we think the risk adjusted margin for this contract is.

 If it's a manned or mobile security contract where we know we can knock the ball out of the park every day of the week, it might be a relatively lower margin in a particular market. But if it's good business and we know how to deliver it, it speaks to core strength, then that's good business that we'll sign off as opposed to more complex outsourcing type arrangements where we'll take a harder look.

 So the key message really is about year-on-year growth in profit earning from cash flow. That's what we're focused on.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [27]
------------------------------
 Thank you, Himanshu. I think the other aspect, Julian, of your question, was about competitive intensity. I think it's absolutely the case that competitive intensity in some markets is greater than the others that we operate in. And in very broad terms, competitive intensity is greatest in our developed markets: Europe, UK and North America. And that is evident in the gross margin in those businesses.

 And I think our response has to be -- firstly, to be very rigorous in the business that we choose to participate in, in the investment committee, as Himanshu has described. Secondly, we have to use our scale to progressively develop, if you like, a unit cost advantage. And that's what our productivity programs aim to do, to give us a cost advantage in the marketplace, so that where the risk is acceptable, the price is, say, lower than emerging markets, we've got the cost base to go in and compete and still make a decent return for our shareholders.

 And the third thing we have to do is to innovate. We have to keep investing in developing services which add incremental value to customers and for which our clients are prepared to pay, if you like, a higher price and, therefore, generate better returns. But as you can imagine, it's not something that will happen overnight, but we are committed to progressively investing in and growing that part of our business.

 So undoubtedly, real competitive intensity in developed markets, and less so in emerging markets where we have, today anyway, a natural advantage because of our market position.

------------------------------
 Julian Cater,  Numis Securities - Analyst   [28]
------------------------------
 Thanks very much.

------------------------------
 Gideon Adler,  Redburn Partners - Analyst   [29]
------------------------------
 Gideon Adler, Redburn. I've got a question on the UK and a question on cash. On the UK, could you tell us whether, ex the Tesco and electronic monitoring contract losses, the UK business grew underlying in the first half? And also, what's driving the strong pipeline growth in the UK; whether that's in the core manned guarding business or in other parts of the portfolio?

 And on cash, which is down 4% across the business, there's been some contract losses in the UK and in Belgium, if that assumption is, as you were just saying, increased competition in developed markets, or have you perhaps been distracted slightly by some of the restructuring going through those businesses? And cash seems like quite a small part of the forward-looking pipeline. How much of that is in developed versus emerging markets?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [30]
------------------------------
 Quite a lot in there. I might have to come back and ask you to remind us of some of the nuances in your question.

 In terms of Tesco and Belgium, different reasons really. I don't think it particularly was affected by our restructuring activity. Belgium was just a renewal where the customer was determined that they were going to introduce another player into their supply chain.

 It wouldn't have mattered what we did; there was going to be another supplier, and that happens. Our advantage is that we have a large diversified business and one customer on its own will make a difference in a quarter or a half year, but ultimately, if we continue to win in the marketplace more broadly, we can absorb that and continue to grow.

 I think in the UK, it's a bit more complex. I think the customer came to the market with significantly revised terms and conditions and we'll have to see. We don't actually know whether that was a good piece of business to lose or a bad piece of business.

 Clearly, we don't like to lose business ever, don't like to lose anything, but at some point, you have to say these are the terms on which I can do business and these are the terms on which I can't. And we'll have to see how that contract plays out over time and whether we would have done things differently.

 [Cap], UK ex, Tesco and ex?

------------------------------
 Gideon Adler,  Redburn Partners - Analyst   [31]
------------------------------
 The monitoring contract.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [32]
------------------------------
 Yes.

------------------------------
 Himanshu Raja,  G4S plc - CFO   [33]
------------------------------
 It's still modestly down by around 1% after [EM], Tesco. And to again compensate in dynamics in there, during the second half, or during -- throughout 2014, again, we were quite rigorous with weeding out contracts within our UK Secure Solutions business that were just not sustainably profitable. And you see the effect of some of that, really, offset by the progress we're making in local government that Ashley referred, in healthcare, in police and other local government services. So that's really the other driver in the UK.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [34]
------------------------------
 Two other things. So back to -- the point I should have mentioned on UK cash, I think one of the issues that we acknowledged 18 months ago was that our UK cash business was not competitive in the marketplace; i.e., our cost structure was uncompetitive. So I think that probably also played a part in the Tesco bid.

 In terms of pipeline, we continue to grow our cash business in emerging markets. We talked about our CASH360 product which has really started to get traction in the marketplace.

 The pipeline is there for that sort of service. In emerging markets, the pipeline continues to grow in our cash business. In developed markets, I think we're in a steady state environment in the pipeline.

 However, that might change, because I think our customer in developed markets want -- the way in which cash handling is delivered today, they want/need it to change. And part of what we're doing when we're investing in service development is looking at not only CASH360, things like bank branch automation. And ultimately, I think we may see some big changes in developed cash markets where banks outsource a lot more of what they do.

 If you think -- you all know banks well, but retail banking in particular, a core activity for a bank is not replenishing an ATM, or delivering ATM engineering, or cash balancing on a daily basis, or cash transfer on a daily basis. That's not core business. Core business, we think for banks is selling mortgages, savings products, insurance products, and so on.

 So conceptually, when we think about developed markets, the branch of the future and how our pipeline might develop, we think it's entirely possible that banks will start to think about branches in a front office/back office way where they outsource all of the ATM replen, ATM engineering, daily cash balancing, and focus entirely on serving their customers and selling products which are a core part of their business.

 Frankly, I still find it surprising that we don't have that system in some of our developed markets, and we are doing quite a bit of work on developing proposals that could change our pipeline in the future.

 Too early to say whether or not that's going to get traction in the marketplace. My view is at some point it has to change. It's just not -- if you look at 50% to 60% of retail banking cost is in that branch network. And you can see banks are closing down branches where there's not sufficient volume of business.

 But ultimately, I think there's still a need for banks, retail banks, to have a branch network, to have a high street presence, to have their brand in the marketplace. And if they can do that more efficiently, and if we can persuade them to outsource it all, then I think our pipeline in cash will change significantly.

 We're piloting actually in Africa an automated bank branch. So we tend to think of transferring best practice from developed markets to emerging markets in all our businesses.

 Actually, sometimes it's the other way. We've got customers in Africa who are growing their branch networks; they're not closing -- taking advantage of the big banks exiting and they're opening branches. What that means is that the cost of running a branch network is going up in their business and they are utterly focused on making that more efficient. And so we're doing some work with a large bank in Africa, regional bank, to see if we can automate their bank branches. So actually, emerging markets might get there before some of our developed markets, oddly enough.

 So it's a bit of a cook's tour of the pipeline of the future in our cash business, but I think it's going to change fundamentally.

 We have one more question, and I'm being told we're coming to the end.

------------------------------
 Daria Fomina,  Goldman Sachs & Co. - Analyst   [35]
------------------------------
 Daria Fomina, Goldman Sachs. I have a question on CapEx intensity with GIS360 -- CASH360, and with growth in technology, do you feel that, at least for [DM], the CapEx intensity of the business is changing and we will see higher CapEx requirements in the longer run?

 And second question on your receivables collection. Would we see benefits of your receivables collection effort in the second half of the year, or more will come through in next -- in 2016?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [36]
------------------------------
 Thank you very much. I'll ask Himanshu to comment on receivables in a moment.

 Capital intensity. Actually, a lot of the investment we're making in product innovation in CASH360 in our technology business, a lot of that gets burnt through the P&L today.

 With CASH360 specifically, it rather depends on how the customer wants that service delivered. So they have the option of owning the infrastructure, and we deliver the software and the integration service. So we manage -- we help them choose the devices, we integrate the devices into our software, and we manage the overall CASH360 cycle for them. In other cases, they prefer us to own the CapEx, in which case we will invest, so it's going to be demand driven.

 If it does require more CapEx, our requirements are that we have a long-term contract that underwrites that investment so that we recover not only our capital, but make our return through a long-term contract. So we won't put capital into this on a merchant basis and hope it works out okay.

 In technology typically, at least at this stage, the customer pays for the technology. So if we install intrusion detection, access control, a control room, customer pays for and owns that infrastructure.

 There might be examples in the future where they'd prefer us to own that infrastructure, and if -- again, if it was underwritten, if it was a credit worthy customer underwritten long-term contract, I don't see why we wouldn't consider that.

 But I don't see today that our capital intensity will necessarily change because we don't know whether customers are going to increasingly want us to own the capital or whether they would prefer to own the capital. It's too early to tell, I'm afraid.

 Receivables, Himanshu.

------------------------------
 Himanshu Raja,  G4S plc - CFO   [37]
------------------------------
 On receivables, the first half is always weaker than the second half. And one of the principal reasons for that is that we get, in particularly our European markets, 13th month holiday pay. So bills often accrue during the 12 months and we pay 13 months in the first half. So second half is always naturally stronger, and that will be no different in 2015.

 When I reflect on the programs that we're running, what we're seeking to address really is the structural effect on our cash flow which is that we deploy manned security, mobile security. Of course, we then pay wages; billing takes place, and collections is 30 to 60 days. So there's a natural inbuilt, structural profile for cash flow, and that is exacerbated when you're growing.

 So in the half, you saw working capital increase by GBP54 million, and that's partly a function of growth and the structural nature of the business. And what the programs are seeking to do is really begin to initially at contracting ensure that collection terms are part and parcel of the negotiation and not just price and service and SLAs, as well as really be disciplined therefore about our processes so that the paper trail from the clients' purchase orders through to all of the things we talk about in direct labor efficiency around the time sheet, the labor hours deployed, all come through our process time and, therefore, the collection cycle starts quicker.

 And then lastly, during really last year, we changed the entire engagement model such that it's not just a back office finance activity. Front-line business leaders are much more integrated in the collections effort together with finance and, therefore, we're simply engaging with the right stakeholders to collect that cash.

 So we'll see an improvement in the second half. We always do. And then just ongoing process efficiency on that whole orders cash cycle will yield benefits over time.

------------------------------
 Ashley Almanza,  G4S plc - CEO   [38]
------------------------------
 Thank you. You've got a question from the webcast.

------------------------------
Unidentified Company Representative   [39]
------------------------------
 I've got a few, if we can go through them very quickly. The first one is: when should we expect to get any news on the outcome of the potential de-listing in Copenhagen?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [40]
------------------------------
 That one, I think we'll have an update by year end.

------------------------------
Unidentified Company Representative   [41]
------------------------------
 Could you comment on the implied organic sales growth of the contract wins in the first half?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [42]
------------------------------
 If I understood the question, I could definitely comment on it. The organic growth rate of the --?

------------------------------
Unidentified Company Representative   [43]
------------------------------
 [GBP700 million]?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [44]
------------------------------
 Oh, I see. I beg your pardon. Look, these contracts don't all start on July 1. I know everyone knows that, but I'll say that. They mobilize. They start on different dates and they ramp up over time.

 Typically, a contract win you would expect to see 20% to 25% of that materialize in the six months after you win the contract. So I think people have to do their own math.

 We had a question earlier about the postal code, and I think the postal code gives us enough latitude to say we'll be there or thereabouts for the full year.

 I've also said that we screen contracts more rigorously, so it's not just about the contracts we've won but the contracts that are in bidding and negotiation today when it comes to the full-year organic growth.

------------------------------
Unidentified Company Representative   [45]
------------------------------
 And then there's a follow-on from that. One of the questions from Iain Armstrong at Brewin was: have you seen any improvement in how you mobilize those contracts through the various initiatives that happened at the Group, particularly in the first half (multiple speakers)?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [46]
------------------------------
 Yes. That's a really good question. And direct labor efficiency, which really from order to cash and also from employment to -- deep screening in employment to deployment, is a multiyear project, as we've said before, and it has to be supported by proper systems. And Himanshu talked during his presentation about now getting to the stage where having sorted out the infrastructure and the operating model in IT, we're starting to look at applications.

 One of those core applications is direct labor efficiency which would affect the efficiency with which we mobilize or are able to mobilize. And we're really at a very early stage there in defining what lean process looks like and what the scope of that process is going to be before we start cutting code and developing an IT solution.

 So that is a multiyear project, and I would say we are in some places better at mobilizing. I think for very large contracts we're better now at mobilizing, because we just insist on more planning effort going into mobilization of large contracts.

 It doesn't mean that we mobilize faster or more cheaply. Sometimes, it actually means we take a bit longer to mobilize and we spend more money during the mobilization phase.

 One of the lessons from the last five or six years on big contracts is that we mobilize too quickly in some cases and without sufficient planning, and that generated significant contract penalties later on.

 So it's a very good question. We're certainly putting more rigor into contract mobilization, but at the moment, it's probably adding cost and time to our mobilization rather than the opposite. In the fullness of time, we think that our end-to-end employment and deployment process will enable us to mobilize more efficiently.

 A final comment on this is it also depends on where you're mobilizing. So if you win a big contract in a new area of the market, then mobilization necessarily costs more and takes longer, but you establish a new beachhead in a new part of the market; and the next contract you win, it becomes easier to mobilize.

------------------------------
Unidentified Company Representative   [47]
------------------------------
 And maybe if I can just ask the last question on behalf of George Gregory at Exane, which is: do you think there will be a point in this journey when the margin improvement trend will accelerate, or rather there will always be a need to reinvest cost savings to stay ahead of the game and grow?

------------------------------
 Ashley Almanza,  G4S plc - CEO   [48]
------------------------------
 Another very good question. I would say firstly that, of course, our gross margin, or net margin, it would have been very easy to produce a higher net margin, actually. Just cut back on investment. It's not -- one of the easiest things to do in this business or any other business is just stop investing, and guess what, your net margin goes up.

 So we could do that, and it is a judgment, and it's a constant balance between reinvesting not only in productivity gains to stay ahead of the game, as George puts it, but also in the long-term health of the business.

 There's no question that our investment in sales and business development is starting to pay dividends; no question that our investment in building our general management capability, establishing two new regions, introduced more overheads into our Company. It's going to pay dividend.

 So that's the balance that we're striking. How much do we reinvest and how much do we let flow through to the bottom line? Will it accelerate? George and all of us are going to have to wait and see.

 I think there will be periods where things are not linear, so there will be periods where we collect benefits and make gains more quickly than we reinvest, and vice versa. So the margin progression won't be linear either.

 Sorry, George. That's the best I can do.

 Ladies and gentlemen, you've given us two hours of your time. Thank you very much for your interest and your engagement, and we look forward very much to seeing you when we present our full-year results.

 Thank you very much.




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