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Edited Transcript of GFS.L earnings conference call or presentation 9-Aug-17 8:00am GMT

Thomson Reuters StreetEvents

Half Year 2017 G4S PLC Earnings Call

London Aug 12, 2017 (Thomson StreetEvents) -- Edited Transcript of G4S PLC earnings conference call or presentation Wednesday, August 9, 2017 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashley Almanza

G4S plc - CEO and Executive Director

* Helen Parris

G4S plc - Director of IR

* Tim P. Weller

G4S plc - CFO and Executive Director

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Conference Call Participants

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* Allen David Wells

Exane BNP Paribas, Research Division - Research Analyst

* Andrew Charles Grobler

Crédit Suisse AG, Research Division - Analyst

* Nicholas Edward de la Grense

BofA Merrill Lynch, Research Division - VP and Fundamental Equity Research Analyst

* Paul Checketts

Barclays PLC, Research Division - Director

* Rajesh Kumar

HSBC, Research Division - Analyst

* Robert Plant

JP Morgan Chase & Co, Research Division - Research Analyst

* Sylvia Pavlova Foteva

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Ashley Almanza, G4S plc - CEO and Executive Director [1]

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Good morning, everyone, and welcome to our half year results presentation. My name is Ashley Almanza, I'm the Chief Executive at G4S. And I'm joined by Tim Weller, our Chief Financial Officer. We have a presentation for you this morning, and there will be plenty of time for Q&A.

So before we get started, can I draw your attention to our customary disclaimer and ask that you read it carefully when you have a moment.

Now our agenda for this morning is highlights first, and then I'll ask Tim to come up and take us through the numbers in a bit more detail. And then we'll look ahead to the next stage of our transformation program.

So beginning with the highlights, for the first 6 months of this year, we posted revenue of GBP 3.7 billion from our continuing operations, which is growth of 6.2%, and that means that for the last 18 months, we've posted average revenue growth from our continuing businesses of over 6%.

Our earnings were up by 7.6% at GBP 128 million, that's after investing in continuing growth, sales, business development, new products, new services. Operating cash flow is GBP 192 million, which was down by about 31% on the same 6 months last year, and this was in line with the guidance that Tim gave us in March of this year when we reported on the full year, with cash flow being weighted to the second half of the year, and we still expect good cash conversion for the full year. Tim will take us through that in a bit more detail.

Net debt-to-EBITDA continued to improve, came in at just below 2.7x, and that compares with 3.3x at 30th of June last year. So we're well on track to achieve our target of 2.5x by the end of the year. The board has declared a dividend -- interim dividend of 3.59p per share and this is consistent with the guidance that we set out on our dividend for so long as our net debt-to-EBITDA is about 2.5x.

Now a quick word on health and safety. This is something -- for those of you who followed our story for a while, this is something that we have invested a lot of time, effort and, indeed, money into improving. Health and safety is a huge challenge for our industry, not least because of the work that we do. I'm pleased to say that for probably the first time in 3 years, we can see significant progress in our health and safety culture and our health and safety performance.

There's not only an ethical dimension, which is the first and the most important dimension to the work we do in health and safety, but we believe deeply that, ultimately, it conveys a competitive advantage in our business. In the first 6 months of this year, we saw our fatality rate -- we're in an industry where, I'm afraid, fatalities are a reality. Our goal is 0 harm, but we saw our fatality rate fall by 50%, and that's 6 months.

And you can't read too much into that, other than to say, I think, it's the first time that we've seen a step-change in our safety performance. We know as a management team, there's a lot still to do to reach our goal of 0 harm, but of one thing I'm absolutely certain: Everyone on the management team is wholeheartedly committed to that goal. And we look forward to telling you more about that when we report our full year results.

Now turning back to the financials, let's take a look at the regional performance. As you know, we are organized into 7 geographic regions. And in the first 6-months of this year, all of our regions, with the exception of Middle East/India, posted both revenue and profit growth.

For some time now, we've been highlighting the risk to the downside in Middle East/India region, not least because of the prolonged period of low oil and gas prices. And indeed, that is what we have now seen coming through in our business in the first 6 months of this year, with revenues down 7.8% and profits down 24%.

Elsewhere, though, we saw good growth. Africa, we were pleased to see continuing recovery of the economic conditions and in our business, and 6% revenue growth translating into 9% growth on the bottom line. Asia Pacific and Latin America, we saw modest growth, 2.8% and 4.5%, respectively. In both of those regions, we set in motion last year productivity programs, and we are starting to see the benefits of those come through with each of those regions posting growth of over 15% at the PBITA level.

In Europe, we posted good growth again. 4.1% I think is a very respectable growth rate in this market. And I will continue to be optimistic about the medium- to long-term prospects in Europe. Our business now is on a much stronger footing, and I think the sales and marketing team are doing a terrific job of getting our new products and services into the marketplace. Here, too, we put in place a productivity program last year, and profits grew very strongly over 26% for the first 6 months.

In North America, the standout growth region again. Top line growth of over 20%. We grew both our security business and our cash business. Clearly our cash business has been growing faster, but our security business grew at 5%, and that was a constrained growth rate. And what do we mean by that? Well, we remain committed to pursuing growth in a disciplined fashion.

In some of the markets in which we're operating in North America, there is undoubtedly a tight labor situation. And so I think you have to be very selective about the contracts that you bid for. You need to be confident that not only can you win the contract, but that you can deliver the service that you've promised to the customer and make a proper return. And so we're quite happy with 5%, but that is a constrained growth rate.

U.K. and Ireland, we saw revenues grow by 1.9% and profits up by 3.9%. When we look at our diversified business overall, we continue to be optimistic about the prospects for the group as a whole. We're cautious about the prospects in the near term in Middle East and in the U.K. because in both of those markets, there's elevated uncertainty. But elsewhere, we continue to see real strength in our pipeline and good prospects to continue to grow the business.

And taking a look at our pipeline, it now stands at GBP 7 billion annual contract value. That is after converting GBP 700 million of new contracts wins in the first 6 months. The pipeline, much like our business, is diversified by service, market and customer segment, which gives it additional resilience. And we believe that this pipeline continues to support average growth rates of around 4% to 6% over the medium term.

Very importantly, the quality of our pipeline is improving. There's no question that when we look at our pipeline today versus even 12 months ago, it's a better quality pipeline. There are several reasons for that, the most important is that I think we're getting better at qualifying our pipeline. That is to say screening opportunities and early stage of entry into the pipeline, deselecting those that we don't and we're going to carry through to [therefore] bid and focusing our resources on those where we think, as I said earlier, we cannot only win but we can deliver and deliver profitably.

I think the other reason is that our new products are changing the shape of our pipeline. We've got some very exciting prospects with our new products in both Secure Solutions and Cash Solutions.

So on that note, I'm going to hand over to Tim, who'll take us through the numbers, and then I'll return to look ahead to the next stage of our transformation program. Tim?

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Tim P. Weller, G4S plc - CFO and Executive Director [2]

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Thanks, Ashley. Morning, everyone. As Ashley has outlined, we reported a very good set of first half results this morning. We continue to manage the legacy contract portfolio effectively, and we've made significant progress delivering on that portfolio strategy during the 6 months.

So let me now turn to the results, starting, as usual, with the statutory numbers. Statutory revenues for the half year were 4 billion, up 12.5% at actual rates. This reflects good growth from our continuing businesses of 6.2% at constant exchange rates and 17% at actual rates. PBITA grew by 16.7%, reflecting the performance in our continuing businesses, coupled, once again, with favorable exchange rate movements.

Specific and other separately disclosed items, including investments in restructuring, profit on disposal of businesses and amortization with respect to historical acquisitions, resulted in a net gain of GBP 37 million, after last year's charge of 35 million, with the main reason for the year-on-year swing being the 68 million profit on disposal of businesses, which we recorded in this half.

As a result, statutory earnings improved from 69 million in the first half of 2016 to 150 million this year, with EPS increasing from 4.5p per share to 9.7p. Whilst cash generated from operations decreased in line with our expectations to GBP 170 million. Net debt is reduced by 175 million over the last year, resulting in a net debt-to-EBITDA ratio of 2.7x at the end of June 2017 compared at 3.3x at June 2016.

Turning now to the bridge from continuing businesses to our statutory results, as set out on Page 3 of today's release, the presentation here is consistent with the component analysis that we adopted a year ago.

I'll take you through the continuing business results in a minute. But first, looking at the other components. We continue to manage effectively the onerous contract portfolio. Related cash outflows were 6 million, with operational improvements [enabling us] to keep the spend at the lower end of our expected range. We've increased the onerous contract provision by 4 million after tax on one of our contracts in anticipation of high delivery costs going forwards.

Our portfolio of businesses generated revenues of 200 million, and PBITA of 2 million [in the half], with revenue down significantly as a result of disposals completed in 2016 and the year-to-date. In the first 6 months, we closed 5 businesses and completed the sale of a further 6 [relating to] net cash proceeds of over 150 million.

Since the 30th of June 2016, 7 businesses previously included as portfolio have been reclassified as continuing businesses. Management focus and changing market conditions have resulted in an improved performance, and we've formally concluded we will retain them. As we did at the last year end, we provided a full reconciliation of the impact of these movements on the prior half year in the back of today's release and analyzed the effect on the prior full year in the appendices to these slides.

Restructuring costs of 11 million after tax relate mainly due to [strategic efficiency] programs in the U.K. & Ireland and Europe. And finally, acquisition-related amortization and other of 38 million after tax reflects the 68 million pretax profit on disposal of businesses, which I mentioned earlier, offset mainly by provisions of 6 million for subcontracted claims and a 6 million noncash charge for amortization of acquisition-related intangibles. The latter is sharply down on the 19 million charge in the first half of 2016 as certain intangibles held in a number of the acquisitions were fully amortized in that year.

So turning now to the performance of our continuing businesses. Overall, group revenues grew by 6.2%, slightly ahead of our medium-term expectation of 4% to 6%, reflecting good growth across all regions, except Middle East and India. PBITA was 235 million, up 5.9%; and our resulting operating margin was 6.3%, broadly unchanged on the same period last year with a strong performance in most regions offset by weaker trading in the Middle East and India.

The interest charge was 54 million, 5 million higher than the first half of 2016. The increase is mainly a result of a temporary step-up in gross borrowings [to fund] the EUR 500 million bond issued in November to prefinance the March and May 2017 debt maturities. We continue to expect a full year interest charge of around 100 million. The effective tax rate for the half year was 24%, and earnings were up 7.6% to 128 million, with earnings per share of 8.3p.

Operating cash flow after pension deficit repayments of 20 million, was GBP 192 million, down around 30%, in line with our expectations. Operating cash flow in the first half of 2016 was particularly strong reflecting the beneficial impact of better terms and conditions negotiated with a large number of suppliers and the recovery of weak cash flow performance in the last few months of 2015. As I mentioned at the full year results in March, this meant that the working capital profile in 2016 was somewhat unusual from a seasonality perspective, and as expected, 2017 has reverted to the more normal pattern, with cash generation significantly weighted towards the second half.

And this slide looks in more detail at the cash flow trends in the first half, where we saw an 83 million working capital outflow compared with the unusually strong inflow of 53 million in the first half of 2016, which I just talked about. In the first half of 2015 and 2014, we saw working capital outflows of between 60 million and 70 million each year, so you can see that we've [reverted to] our typical seasonal working capital profile in 2017.

Receivables movements resulted in a working capital outflow of 52 million, primarily reflecting the year-on-year growth in revenues. Whilst the 30th of June 2017 day sales outstanding is slightly better than the 53 days we saw in June 2016 and 2015, we continue to focus on cash collection. We're pleased to see overdue receivables as a proportion of annual revenue falling from 4.1% to the current half year's 3.3% over the last 2 years. Nevertheless, we continue to believe there is scope for further improvement in our overall receivables management operation.

A decrease in payables over the first half of 2017 resulted in a working capital outflow of 38 million, mainly a result of payments in the first half of this year to suppliers or equipment, which was purchased in the run-up to the 2016 year-end. Our resulting OCF conversion was 82%. We continue to manage working capital tightly and given the typical seasonality profile we anticipate for the remainder of 2017, we expect OCF conversion to be in the normalized range of around 100% to 125% for the full year.

Our ongoing portfolio program continues to benefit the group in terms of strategic focus and balance sheet strength. To date, we sold 35 businesses and have raised proceeds of over GBP 0.5 billion, of which some 150 million arose during the first half of this year, including the completion of the sale of G4S Israel, U.S. Youth Services and our U.K. children's homes business.

So let me now turn to cash flow and net debt. The full movement of net debt is shown on this slide. Starting with the year-end 2016 net debt of 1.67 billion, operating cash flow was 192 million. In terms of investing activities, we invested 44 million in CapEx and finance leases. We expect this to be in the range of 100 million to 120 million for the full year.

The GBP 13 million restructuring outflow is mainly in respect of strategic restructuring initiatives in our Europe and U.K. & Ireland regions. We received net cash consideration of 151 million from disposals and made no significant acquisitions.

Looking at the use of funds of 208 million, we paid net interest of 48 million, cash tax paid was 41 million in line with expectations and the dividends paid to equity minorities were 103 million. After small foreign exchange movement, we finished the year with net debt of 63 million lower at 1.61 billion.

And on the financing front, we have very strong liquidity, with access to unutilized but committed funds of 930 million, from our GBP 1 billion revolving credit facility, which was recently extended to 2022. Our recent 6-year EUR 500 million bond, which we launched in June this year, was heavily oversubscribed and matched the November 2016 bond with a coupon of 1.5%.

Our net debt-to-EBITDA finished the year at 2.7x compared with 3.3x at the last half year. We remain on track to reduce that further to our target of 2.5x or lower by the end of this year.

And with that, I'll now hand back to Ashley.

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Ashley Almanza, G4S plc - CEO and Executive Director [3]

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Thank you, Tim. And we're going to take 10 minutes or so to look ahead. Now not only is the company soundly financed, as Tim has presented to us a few minutes ago, but without question, today, the company stands on much stronger foundations than we did 3.5 years ago. And as we look forward to the next 3.5 years, the next stage of our transformation program, we've got plenty of good reasons to have an increasing confidence in our ability to deliver strong earnings and cash flow growth.

Well, why is that? We see an opportunity in our business to not only grow revenues but to improve our revenue mix and to extract further productivity benefits. Revenues, there is undoubtedly good demand for security services right across our global footprint. Revenue mix, we've been investing in technology-enabled solutions in both our cash business and our Secure Solutions business. And we've been building the resourcing capability that enables us to offer these new products and services on a stand-alone basis, all together with our traditional services as an integrated offering. And that is undoubtedly starting to find favor in the marketplace.

It also offers us the opportunity to earn a higher margin on integrated services. So we believe that this business -- our pipeline, our geographical market positions, not only give us the opportunity to grow the business at between 4% and 6% over the medium term, but that our products and our growing capability give us the opportunity to improve our revenue mix.

And finally, productivity, we've learned a great deal about productivity in our company over the last 3, 3.5 years. And applying what we've learned to our plans over the next 3.5 years on a prudent basis, we believe we can extract another GBP 90 million to GBP 100 million per annum recurring benefit by the time we get to 2020.

And if you put all of these things together, you can see the basis of our increased confidence in our ability to grow earnings and operating cash flow over the next stage of our transformation. All of this will be done within a financial framework with net debt-to-EBITDA of 2.5x or less.

So we'd like to take a moment to dig a bit deeper into the sources of growth and productivity in the business plan, starting with our Secure Solutions business.

This is a chart that we showed you in March. And just to recap, what it shows is data produced -- or is based on data produced by Freedonia, a research organization that covers or specializes in the security industry, and it shows a projection of growth out to 2025 in demand for security services, security and related services, in all of the regions in which we operate.

This is broadly consistent with our own internal assessments of the potential in the markets in which we operate, with the exception that we see more balance between the opportunity in developed markets and emerging markets. As you know, over the last 18 months, our developed markets have grown very strongly, and we continue to believe that they hold great potential. So we see more of a balance than in the picture presented here by Freedonia. Nevertheless, the overall background is positive.

On the right-hand side, you can see a picture which describes the supply side of our industry. And really, the key point here is that there are only a small number of very large players. As we said earlier this year, we believe that plays to our advantage and to other large companies in the industry. Well, why is that? Well, because the needs of our midsized and large clients, security needs, are changing. They are becoming more complex.

This is another slide that you've seen before, and it's based upon a survey that we conducted but also that external research has provided us with. And this shows a picture of what a typical chief security officer or security director will be looking at in a medium to large enterprise, private or public. And the picture is much more complex than it was even 5 years ago. That means our clients need more sophisticated solutions to address a more complex security landscape.

We believe that larger players and of course, from the previous graph you saw that G4S is the largest player in the security industry, have the resource and the capability to address the clients' needs in a more effective way than perhaps many of the smaller players in our industry.

And so for the last 3.5 years, we've been investing in growing the resourcing capability, which enables us today to not only help our clients assess their risk profile but to work in partnership with clients to develop, design, build and integrate solutions that meet more complex security needs. And in some cases, we go beyond that and we manage the security infrastructure on behalf of our clients.

In the past, we've shown you examples -- recent examples of how this investment over the last 3.5 years has begun to pay dividends. We've got a couple more for you this morning. This is a very large redevelopment project in Manhattan. It's the largest multiuse residential, commercial and retail redevelopment program in the United States. I was visiting the client in April this year, it truly is very impressive development. We have been working with that client from very early on in this project to assess their needs, assess the risk profile of this development not just during construction, but when it's fully operational.

We've developed and designed in partnership with the client an integrated solution, and we're now in the process of building that solution. And ultimately, we will operate both manned security and security systems, fire systems and a security operations center. I think this is just another example of our new approach to developing security solutions, integrated solutions for our customers, finding real traction in the marketplace.

Closer to where we are today, here in London, for those of you who are here, not dialing in, we have another example, the Thames Tideway project, which is one of the largest infrastructure projects in the U.K. today. Here, again, we started at a very early stage working with the client to identify security, fire and other risks, not just during construction but over a 10-year period, what will be the changing risk profile of this asset through construction, commissioning and operation.

And we have designed and we are building today an integrated security solution combining third-party technology, G4S proprietary technology, SecureTrax, RISK360 and manned security services. And again, here, we're not just going to design and build, but we ultimately are going to operate the security operations center on behalf of the client over a 10-year period. We're absolutely convinced this is going to be a growing feature of our business over the next 3, 3.5 years, and we can see clear signs of that in our pipeline.

If you take that and you apply it to our global footprint, I think you can understand why we are fundamentally positive about the growth prospects for this business. These integrated solutions today are being delivered largely in our developed markets in North America, the U.K. and in Europe. But increasingly, we're starting to market the same solutions in our emerging market businesses, and we are finding traction. In fact we -- I think we showcased one at the full year results, which was a project in Indonesia, and we're seeing more of that interest starting to develop in emerging markets.

So applying our growing resource and capability, our traditional services and our new products and services across a broader geographical footprint gives us great confidence that we can continue to grow and grow profitably in our Secure Solutions business over the next 3 to 3.5 years.

Turning now to Cash Solutions, our other principal business segment, and starting again with a general market picture. This is updated data. We showed you some data at year-end, it's moved on since then. This is a more recent study by RBR. And it looks at ATM cash withdrawals, which is a proxy for activity levels in the industry. It drives volumes in our industry.

Each national market has distinct characteristics and each national market is different. But you can draw a broad general conclusion, which is to say that when you look ahead the next 5 years, we expect volumes to continue to grow in emerging markets. And in the more mature, developed markets, volumes to be flat, in some cases, down in some cases, marginally up.

That's very, very interesting data point for us because if you look at our Cash business over the last few years, our developed markets have grown faster than our emerging markets. And I think this just reemphasizes the lesson that's been learned many times in business. It is possible, with the right strategy and the right resourcing capability, to grow very, very strongly in a mature market, and that's what we're doing in our mature cash markets today. And when we look at our pipeline, it's what we expect over the next stage of our business plan.

We also, of course, continue to invest in emerging markets and seek to capitalize on the top line growth in those markets. Our strategy focuses on 2 things: reducing the cost of using cash, cash handling, for our customers and, in some cases, for their customers; and increasing the ease of use. We're looking to reduce the absolute cost on a unit basis of handling cash and also the relative cost, relative to other forms of payment. That makes cash not only more competitive today, but it extends its longevity as a payment instrument.

And in very simple terms, there are 3 ways that we're going about this. Aggregation, we're constantly looking to aggregate volumes onto existing infrastructure. Utilization, rationalizing our networks, which we have done in the U.K. and in Ireland and to a lesser extent in Europe, rationalizing those networks to get the utilization up and produce better economics. And innovation, bringing new products, new solutions to our customers which make it more cost effective and easier for them to handle cash.

Looking at some of the more specific sources of demand in our business. Again, looking not only what's happened over the last few years but looking at our pipeline, some of the early-stage and more advanced opportunities in our pipeline. We can see a number of specific sources of demand that we intend to benefit from over the next 3 to 3.5 years.

First is retail, making it cheaper and easier to handle cash in retail settings. I think this is now becoming well understood on the back of the success we've had with CASH360, principally in North America, but now bringing that to the U.K. and building on our small box format in Europe. We're starting to see a growing interest, strong interest actually, in our CASH360 products in other markets.

So I think we'll continue to see very good growth. The growth won't be linear. You saw that this morning, in the first 6 months we grew 20%. We are not promising 20% growth every 6 months, that is not sensible. But we do think that this part of our business will continue to grow very, very strongly.

Bank branch automation. Along with bank branch outsourcing, it's something that the industry has been talking about for a very long time. Indeed, it predates my involvement in the industry when I look back. And certainly, it's something that we've talked about and have been working a lot -- working on, I should say. And that is now very clearly moved off the drawing board into the pipeline, and we're now actually in full commercial operation in one of our markets. That is to say, Africa.

And really, what this does is it seeks to automate processes inside the bank branch, which reduce the cost of handling cash and free up bank staff to focus on their customers and improve the customer experience. We have 2 principal products: Deposita, which is a business that focuses on safe deposits, retail recyclers and bank branch automation in our emerging markets, and we're looking to bring that in the other direction towards developed markets; and CASH360, we have a version of CASH360 that can operate in bank branches.

Bank branch outsourcing, banks are looking to reduce their bank branch networks in developed economies. But at the same time, ensure that their customers still have access to banking services not only online but physical access to banking services. Again, this is something that the industry and we, in particular, have been talking about for a very long time.

We have a number of solutions. We're piloting bank kiosks. Mobile branches are now in commercial operation in the U.K. on a small-scale at the moment, but there's no doubt in our minds that we'll see more of that. And then multibank branches. We think, ultimately, banks will cooperate. And certainly, we are having tangible, very meaningful conversations with customers in some of our markets about moving to a multibank branch operation where G4S provides many of the services and, indeed, some of the systems.

And then network consolidation. This is really about[pulling] incremental volumes, particularly in mature markets, from smaller players on to our network and rationalizing our network. And we've had great success with that in our U.K. & Ireland market. We think that will happen also in Northwest Europe. We started to see that in our -- some of our businesses in the Benelux countries.

So in our pipeline today, we have a number of very clear and substantial opportunities to grow our business. I want to just touch in a bit more detail on some of those. This is a familiar slide on the left-hand side. We showed you this a very powerful economics that we're able to offer as part of our customer proposition when we're selling CASH360, Retail Cash Solutions, both in the large store format and in the small store format.

An update on the right-hand side of this graph. We continue to see a rapidly growing customer base, both the customer base that we have, but very importantly our pipeline. We're extending our market coverage. So we are now taking some of our small-market formats into Africa, Middle East and Asia, and we're seeing strong interest, particularly in Asia.

And we're further developing our products. So we now have a mid-market solution. So we had large retail format and small retail format, we now have a mid-sized format. And we were successful in the second quarter winning a large contract, 5-year contract, to supply our new mid-market solution to a large retailer in North America. And we will be rolling that out in the second half of this year, the back end of the year, 640 stores. And we'll start to see the benefit of the revenue and profits from that contract next year.

We have many more of a similar size or larger in our pipeline. We know that we won't win them all, but today, we're in an advantaged position, which I think gives us great confidence in our ability to win more than our fair share. So we have an excellent pipeline in this part of our business.

Bank branch automation, I mentioned that we've moved off the drawing board into the marketplace. This is a depository solution that we've been developing over the last few years. It reduces, as I said earlier, the costs of handling cash, improves customer service. We provide hardware, software, real-time banking integration, same-day value for the clients of our bank customer. And service and support, service in the branch or support in the launch stage of this product, and then remote service and support.

It was launched this year, and we are already installed and established and operating in 160 branches of this major bank in Africa, and we expect that to continue to grow in the second half of this year with that client. It's much like our experience with Retail Cash Solutions in North America. We want to prove this concept definitively in a commercial setting. And as we're doing that, we're growing our sales and marketing resource and taking this product and the solution to other customers in the same market and, in time, other markets.

Which leads me onto our next slide. When you look at our global footprint, we are #1 or #2 in terms of market position in 41 out of 43. That was 44 for the Eagle Eye. We sold our small very small cash business in Peru in the first half of this year. So 41 out of 43 countries, we're #1 or #2, and that puts us in a great position to take products that are finding real commercial favor in some of our larger markets and to extend our coverage right across our global footprint.

So moving from growth onto productivity. Like most organizations, we learn by doing. And there's no question that the organization today is much more capable at both identifying ways to become more productive, but also at capturing and converting those opportunities. And we have today a structured program that will carry us through the next 3, 3.5 years of our transformation plans. And it has several key components.

First of all, organizational efficiency. We're a very, very large organization. As you know, the history of our company -- and it's a positive history, I should add, is one of entrepreneurial growth. We were essentially a federation of many companies spread across some 140 -- many companies, as I should say, spread over 140 countries or so. We have refocused, consolidated. And we're now into the next stage of standardizing our operating processes, standardizing the way in which we organize and operate. And that, we think, will continue to bring very significant benefits.

One of the advantages of being a large global company is that you can get very good internal benchmarking data. In some cases, better, richer data than you can get from external benchmarking. We do both. We benchmark our businesses externally, but we now have a database that we are maintaining that gives us up-to-date benchmarking data. In other words, a lead table telling us which of our businesses are most efficient in terms of operations and support services. And then we can look at the top quartile of those businesses, take the way in which we're running those businesses to other parts of the world and generate the same benefits. So it's a very powerful way to make our organization more efficient.

We put all of this under an internal banner, if you like, called One G4S, and it's about standardizing our operating and support processes and standardizing the organization. After all, if you're delivering security services in the U.K., many of the components of delivering that security service are not going to be very different in Europe or North America.

We are also streamlining our IT and seeking to automate our operating and support processes. And ultimately, in time, under Tim's leadership, we're going to move these support processes into shared service centers. And again, that offers very substantial productivity benefits.

We've gained a great deal from procurement, property -- procurement and property programs. And as we look ahead, we think we can get more out of procurement, property and indeed financing. And a proportion of these gains undoubtedly will be reinvested in the business. That's consistent with our view that our pipeline, our market positions and the market for security and cash services is fundamentally positive given our market positions.

So in summary, on a prudent basis, management believes that we can deliver GBP 90 million to GBP 100 million per annum recurring benefits by the time we get to 2020.

So to wrap up, looking ahead to the next 3, 3.5 years, we can do so with much greater confidence than we had, frankly, 3.5 years ago when we're starting out on this transformation program. There's fundamentally positive demand for security services. We have a much stronger organization, growing capability, a better lineup of services and solutions, so we cannot only grow our revenue but improve our revenue mix, and there's undoubtedly a significant opportunity to capture material productivity gains.

Bring those all together, and that's the basis of our confidence that we are in a position to grow our earnings and our cash flow strongly over the next 3.5 years or within a conservative financial framework.

And on that note, we will move to questions and answers. Tim and I will be happy to take any questions that you have. Could I ask you, since we have people joining this by conference call, when you ask a question, could you please give your name and your affiliation. Thank you very much. We have roving microphones. And can we go to the gentleman in the third row. Thank you.

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Questions and Answers

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Allen David Wells, Exane BNP Paribas, Research Division - Research Analyst [1]

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It's Allen Wells from Exane. A couple from me, please. Maybe can I first just touch on just the exceptional charges? I think that increased to 25 million from about 8 million. Obviously, you're partway [you have cut a way] into your restructuring turnaround plan strategy. I guess the expectation was these would be falling not going up. Maybe you can talk a little bit about what's going on there. And maybe specifically, I was looking at the 5 million increase in delivery costs on contracts. Maybe you could talk exactly what that is. Is it related to OCP contracts? Or is it something else? Secondly, maybe the CASH360 business. If I look at the North American growth and margins, the incremental margin on that revenue growth looks about 5%, [so it is off] 50 basis points below North American. Is that the right way to think about CASH360 margins? Or is there some sort of impact from the procurement exercise on the initial part of the Walmart contract? And then, maybe finally, on the broader market. I mean, I think we heard from Securitas recently talking about integrated technology solutions. I think at the first half call, they sort of talked about the main guarding business coming under a bit of pressure, and that's offsetting some of the margin performance improvements that they're seeing from the integrated technology solutions. Maybe if I can get your view on that. Are you seeing some pressures, some offset, and how you see that playing out?

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Ashley Almanza, G4S plc - CEO and Executive Director [2]

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Thanks very much. I will ask Tim in a moment to comment on the specifics of the exceptional charges. But on the broader point of restructuring, I think it was quite reasonable for people to think that, at some point, you're going to run out of things to do in making a company more efficient. And certainly, over a 3-year period, you could take that view. I think it's 2 things. One is it's a very large company, and you have to look at the history of the company and the way in which this company has come together. Very entrepreneurial and, as I say, a federation of many companies spread over a very large footprint. I think the pleasing thing for us is that we continue to see very material opportunities to make our business more productive. I mean, if you just look at SG&A, of course, we're looking to grow the S part over time, sales and marketing, but we have GBP 1 billion of SG&A. If you look at our operations, our operations still -- they've gotten better. We attended on a triage basis to those businesses that have become very clearly uncompetitive. So we did, if you like, the obvious things first. But if you look at our operations, there's a great deal of variety in the way that we run our operations. So we still see significant opportunity to make the business more productive. Some of that will be through restructuring. But there are many strands to our productivity program, it won't all be restructuring. And in some parts of the business, we're growing headcount. Which brings me onto your second question, and we'll come back to the detail on the exceptionals. The second part of your question, the margin in CASH360. We look at this a bit differently. We now have well over 100 -- about 120 people in our operations center for our CASH360 business in North America. So what we're seeing alongside the growing sales -- and you can see this in the results, revenue was up 20%, profits were up 18% in North America. We won a lot of new business in North America, both in our Cash and our Secure Solutions business over the last 18 months. We've got a terrific pipeline. So we've got 2 priorities. Firstly, to invest in the operations that give us total confidence that we're going to deliver outstanding service. And it's really, really important to us that we don't have a great start followed by a not-so-great 12 months. We want to build confidence in the marketplace with what we're doing. And so we've invested very heavily in sales, marketing and operations. Tim and I visited our operations center in Florida, we have about 120 people there now. That costs money and that affects the margin in that Retail Cash Solutions business. We're quite happy with that. It's the right thing to do at this stage. Over time, as we build our contract portfolio, guess what, we're going to have an opportunity to optimize that business and we think we'll get a better margin out of it in time. And that's true not just in North America, we see the same thing as we set up now in Asia. We're having a real push with our Deposita, which is a smaller version of CASH360, recycling a real push. And the way to do that, of course, is to hire, train sales and marketing people, get them into the marketplace. We have appointed a dedicated regional president to drive our Cash Solutions business in Asia. All of that is investment, which will affect our margin in the short run, but we're very, very confident that this will pay rewards down the track. Manned security services and pressure, I'm afraid I didn't see Securitas' comments so I don't know which markets they're referring to. I think it depends on what you mean by pressure. So you may have seen from our release that our Secure Solutions business in North America, for example, and I think that's probably what Securitas was talking about, grew at 5% in the first 6 months of this year. And as I commented, that was a constrained growth rate. It's definitely possible for us to grow faster not just in North America, in many of our markets. There is work that you can bid for and win. But we think it makes more sense for us to grow in a commercially disciplined way and not chase every piece of the market. It's a very big market. There are parts of the market in North America where the supply side, the labor side of the market, is undoubtedly tightening. I think unemployment in North America is now at a 15, 16-year low. That's affecting all industries. It's quite regional in our business. There are some markets where, frankly, we don't have a problem mobilizing. And there are other markets where you have to, when you're bidding for business, take into account not just what the labor market is today but what you think it's going to be in 12 months. And so I think we are -- I don't want to say we're conservative or too cautious, we just want to keep one eye on that at least and be commercially disciplined. So we see that. And frankly, we -- manned security service, we don't think of it as one business under pressure, go and invest in another business. Actually, our manned security business is still our biggest asset by a very long way, not just because of its revenue and profit contribution, but because it gives us relationships in the marketplace. If you service a customer well with manned security services for 10 years, it follows, in most cases, that you have the relationship and the trust to sit down and have a conversation about how you can use technology to make security more efficient. So wherever I go around the company -- because there is -- of course, there is in our company is a buzz about the new things, there is a buzz about CASH360 and about integrated secure solutions. I never fail to remind our colleagues around the company. We have got a terrific manned security business and it's our biggest intangible asset in the company, and that's what we're trying to exploit. So anyway, I don't know if that answers your question, that or it is consistent with the comments that [Alf] or someone else made. Tim, exceptionals?

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Tim P. Weller, G4S plc - CFO and Executive Director [3]

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Right, Allen. Just on the specific items, we recognized a 14 million charge, for restructuring costs that I talked about in the slides. Most of that was for restructuring in the U.K. and the Europe businesses. We then took a further 11 million charge for subcontractor claims and, as you say, for delivery costs, anticipated delivery costs on our long-term contract. Both of those relate to the onerous contract portfolio. Full year expectation of cash flows from the onerous contract portfolio, somewhere between 15 million and 20 million. So 6 million in the first half, then 15 million to 20 million reflects that step-up in both the settlement and the costs going forward. Of course, you recognize with the long-duration of some of those onerous contracts you have to make assumptions about long-term costs and long-term trading environment. And therefore, there can be times like this when you revisit those estimates and you have to recognize all of the effect upfront because they are onerous.

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Ashley Almanza, G4S plc - CEO and Executive Director [4]

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I think Helen will correct me, I think when we first set out guidance on the cash cost of onerous contracts, we said 20 million to 30 million. We've invested, we've got more people on those contracts, and there's no doubt that the cash cost of seeing those contracts through to their conclusion has improved. Tim's been on the executive not as long as I have. I've not been on very long but my definition of long-term and Tim's definition is slightly different. So when I look at our onerous contracts, I get a growing sense of relief that some of these -- look, I don't want to make light of it but we're going to do a good job on these contracts and see them through to their conclusion. But we can start to see the beginning of the end on some of these contracts. And those will roll off inside the next 3 years. And it's not just about the money, of course, that's important. It's about management, focus and attention. So they're being well-managed, and we'll see them through to the end and then we move on to other things. Next question, please? Can we come to the front row, please, not the front row, the second row, beg your pardon. [Pablo], you don't want to answer a question, do you?

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Nicholas Edward de la Grense, BofA Merrill Lynch, Research Division - VP and Fundamental Equity Research Analyst [5]

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Nick de la Grense from Merrill Lynch. Just 2 questions on the cost savings that you mentioned, please. In the press release this morning, the 90 million to 100 million was mentioned to include the benefit from refinancing? That wasn't mentioned in the slide, so I was just wondering if you could clarify and perhaps give a little bit of detail on the magnitude of the refinancing savings within that 90 million to 100 million. And then the second point is you talked about reinvesting some of those savings. How should we interpret that? Is it if you see opportunities to grow in excess of the 4% to 6% guidance range, you will reinvest some of those savings or do you need to reinvest some of those savings in order to remain within the 4% to 6% growth range?

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Ashley Almanza, G4S plc - CEO and Executive Director [6]

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So I'll ask Tim to comment on the refinancing, some of which has already started paradoxically, although we were able to refinance at very good rates because we grossed up. We actually paid a bit more in the first 6 months. But I'll leave Tim to talk us through the refinancing benefits that he and the team are penciling in. On the reinvestment, for us, it's also about quality. So -- and I said earlier, we can grow faster, it's definitely possible. We could've grown faster in the first quarter, second quarter of this year. There is business that we could go after, and one of the difficult balances that we have to achieve with our sales teams around the world is of course you want sales teams to be getting up in the morning and going after sales and they're motivated by growing that number. And we have to moderate that by qualifying the pipeline early on and saying, that's not an opportunity that we are going to carry through to maturity. So it's definitely possible to grow at 4% to 6% without increasing the investment in sales and business development. What that comment is intended to signal is that we know that from the past, we saw opportunities to invest in new products, new solutions or existing solutions in new markets. And that we had to take the charge, if you like. We had to take the hit in the P&L in order to create something valuable down the road. I believe and the management team believes that that sort of flexibility is very, very important. We ought not to get into an opportunity where we simply chase this half year or the next half year's revenue growth number or margin number. Those are important metrics, but we want to retain the flexibility to invest in new markets and new products and services, which could increase the growth rate or increase the quality of the growth, that is to say, for the same amount of risk, a better return or slightly higher risk for a much higher return. So that's really what that's about. If you look at what we did in November 2013, I think we said 20 million to 25 million. And we've invested that and I think it's paying good dividends. It will depend on the quality and the scale of the opportunity. I mean frankly, we'd be -- I would be delighted if we were back here in 2 years saying, we're making great progress in these 5 markets and we've got a fantastic pipeline. We've got to invest it to grow it. But frankly, and that's not by the way, a clue, I don't know if that's the position we're going to be in. So it's about quality as well as top line. We can grow at that rate or more without putting more money into sales and marketing. Refinancing, Tim?

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Tim P. Weller, G4S plc - CFO and Executive Director [7]

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Refinancing. On Page 10 of the release is a helpful table that sets out the maturity profile of debt over the next few years and in particular, we kind of identified the post hedging average interest rate that that debt is currently subject to. So between '18 and '19, you've got about GBP 1 billion worth of refinancing taking place. You can see from that table, there's 3 tranches of particularly high interest rate debt that are maturing over the next couple of years. From the experience we've had with the 2 most recent refinancing, the bond issues, we've seen significant appetite for our debt. And that is the principal trigger for the anticipated financing. It's just replacing that higher cost debt with anticipated cheaper cost debt. Of course, in the background is the expectation of the ongoing deleveraging that we're clearly seeing during the course of the current year and anticipate going beyond the end of the current year.

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Nicholas Edward de la Grense, BofA Merrill Lynch, Research Division - VP and Fundamental Equity Research Analyst [8]

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And so when we think about that 90 million to 100 million in terms of (inaudible), roughly about maybe 30 million of that would be from refinancing and the rest from operating...

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Ashley Almanza, G4S plc - CEO and Executive Director [9]

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That would be nice. Tim?

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Tim P. Weller, G4S plc - CFO and Executive Director [10]

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That might be a bit punchy, but you're in the right ballpark. Our treasurer is sitting in front of you so he just twitched a bit when you...

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Nicholas Edward de la Grense, BofA Merrill Lynch, Research Division - VP and Fundamental Equity Research Analyst [11]

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And the final question just in terms of the 90 million to 100 million, that is incremental cost savings from today as opposed to including anything that you've done up until this point?

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Ashley Almanza, G4S plc - CEO and Executive Director [12]

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Right, that's right. Thank you, Nick. We've got to keep it simple. Andy.

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Andrew Charles Grobler, Crédit Suisse AG, Research Division - Analyst [13]

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It's Andy Grobler from Credit Suisse. Just a couple, if I may. You talked about -- on the CASH360, you talked about bringing it to the U.K. How do you balance the opportunity for that business with the potential to cannibalize your cash and transit operations you already had? Secondly, also on CASH360, you mentioned earlier about investing in that business to grow it and prepare it for the future. If we look back over the last year or so, the margin that you're able to generate, how was that balance between procurement effectively selling your kit into the client versus the ongoing profitability of that operation?

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Ashley Almanza, G4S plc - CEO and Executive Director [14]

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So the U.K. first. We take the view -- first of all, we don't have all of the market so we don't have to cannibalize our own volumes, if you like. It would be nice if we did have all of the market, we don't. But we have the opportunity to take our new products and solutions to the whole market. And clearly, we're offering it to our existing customers. It would be wrong not to. So we're offering it to our existing customers. We look at the capital, and the capital intensity of the existing business over time. And if you take a medium- to long-term view, I think we do see, for the industry as a whole and this would be reflected in our business, capital shifting from some of the traditional forms of cash management into the newer forms. And so you might see fewer armored trucks in the future and more recyclers. So we don't necessarily see it as cannibalizing. There is a degree of substitution, for sure, if you've got an existing market footprint. But we think that's neutral to positive for existing business. And certainly, if we look at extending the capability of our growing CASH360 solution and Deposita, it's something that has application not only in retailers but also in bank branches. So there will be a degree of substitution, Andy, but net-net, we still see it as a source of growth for the business. In terms of the balance, between -- I think you called it procurement, the hardware and software service. Each client is different. Some clients, particularly with our smaller solutions, don't want to own the hardware and so we provide the hardware, software and service under an annuity service agreement. In some cases, we sell the hardware to the customer and we provide the software and the service on an annuity basis. I think it's right to say, of course we've got colleagues who do a brilliant job in designing and bringing to market using third-party as well as our own technology, bringing to market the hardware components of that. And whilst acknowledging the good work they do, I think it is right to say that we are very interested in the long-term annuity business, i.e. the software and service part of this for 2 reasons. First of all, it's an annuity business, we like that. It gives a stickiness in our relationship with the customer. But secondly, because we think that we can grow and by grow, I mean we draw a distinction between get and grow, if this makes sense. So get is winning new customers and with our software and service business, we see the opportunity to grow the business with the existing customers. So I talked briefly about further developing the solutions that we have not only to bring to the market a -- let's say, a mid-market solution in North America but we're also looping back to some of the larger contracts that we have to say there are additional things that we can do to make this more cost effective and better for you as a customer. And most of that is in the software and service part of the contract rather than the hardware bit. So it will be different in different markets. I think in Asia, we will see great appetite for annuity contract, could be wrong about that. But that's the sort of early market soundings that we're getting. We're getting very strong interest in Southeast Asia. Some of it is from customers who want to own the kit and some want a 5-year rental agreement.

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Andrew Charles Grobler, Crédit Suisse AG, Research Division - Analyst [15]

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Because your U.S. business is dominated at the moment still by 1 very large client, which drove some of the growth through last year, in terms of CASH360. Just trying to think -- because growth was better than profit growth last year. Is that partly an element, as you mentioned, of the investment but also because the services you provided in hardware services last year, some of that will fallout into future years because they've already gotten the hardware?

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Ashley Almanza, G4S plc - CEO and Executive Director [16]

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No, I think if we look at Retail Cash Solutions last year and this year, the difference is the investment that we've made in sales, business development and operations. That's the principal difference. We are not -- I don't think there's a fundamental difference in the offering that we're giving to the market, and that is to say more hardware, less service. And the business is perhaps more diversified than we have highlighted, and perhaps that's reason for us to make better effort of highlighting that. Certainly, in the small box, I want to say we have now over 1,000 outlets spread across a growing diversified base of customers. And there's really very strong interest in that part of the business. But there's no doubt that on the point of diversification, we're getting a lot of [reverse] inquiry right now because people can see the effect it's having. I mean, interestingly -- slightly digressing back to an earlier question you asked about cannibalization, I don't think we've yet to see the effect on CIT of Retail Cash Solutions. I think our customers quite rightly want to get this thing running on rails before we see the full effect of that. So that will be interesting. I'm not sure, you're giving me a quizzical look, I'm not sure I've really answered your question but no, I think the fundamental difference in our Retail Cash Solutions margin from last year to this year has been the investment that we've been making rather than a change in sales mix. Yes. Thanks, Andy. We're going to go over there and then we'll come to -- you're being very patient. Can we go to Rob, please?

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Robert Plant, JP Morgan Chase & Co, Research Division - Research Analyst [17]

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Rob Plant from JPMorgan. Looks like growth was around 3.5% in Q2, and the statement talks about broadly coming in at the 4% to 6% for the year. What do you think are the upside and downside risks to that figure?

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Ashley Almanza, G4S plc - CEO and Executive Director [18]

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I think the -- clearly, the risks to that figure is in the Middle East and India, and we are perhaps slightly cautious on the U.K. only because of the elevated uncertainty, not because we see anything specific in our business. But there's undoubtedly sort of an elevated level of uncertainty in those, in both of those markets, the Middle East, India and the U.K. On the upside, the rest of our business. I mean, we have 7 regions, all of the regions apart from the Middle East, grew in the first 6 months of the year. I think if we looked solely at our pipeline, we would say, well, the risk is to the upside. But I think selling integrated solutions, selling Retail Cash Solutions, selling more sophisticated products and services has a number of implications. The first is one that I referred to earlier. We have sold a lot of new business, and we really have to make sure that we attend first to those customers. And so a lot of our management effort at the moment is on getting the operational support for those new contracts, running well to the point where we're satisfied we can deliver outstanding service. And the other thing is converting the pipeline. So I made several comments. The pipeline today is in better condition than it's ever been in the time since I've been in this company and probably in our history. But I think it's just -- it's in our style, it is in our nature to be cautious about the rate at which we convert that. We -- I'm sure you're bored by now of hearing me say growth is not linear, disciplined growth is not linear. We can certainly, as I say, we can grow faster and we can probably tend towards linear growth. So we're going to concentrate on converting in a disciplined way and on making sure that the operations support our existing business. So it's balanced, Rob. I think there's risk to the upside and downside. Over the medium term, my view is that the risks are to the upside. I just struggled to say that but we are -- I think in nature, we're just -- I and the management team tend to be, prefer to be cautious in this area. But there are a lot of very good things going on in our business, and we have a strong pipeline. And we've got much better resource and capability today than we had even 12 months ago. So there's no doubt we feel increasingly confident about our ability to grow earnings and cash flow over the next leg of the planned period. And I think we feel very good about it. Whether we can do that in a linear fashion, that's another matter. Can we go to the gentleman at the back of the room. You've had your hand up for a while.

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Rajesh Kumar, HSBC, Research Division - Analyst [19]

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Rajesh Kumar from HSBC. Just following up on the earlier question on CASH360, the hardware component. Obviously, the Walmart contract had a big hardware component to it, which was a sale rather than giving them the item. If you take that out, the incremental margin looks quite attractive in terms of the drop through margin. Would it be fair to assume similar drop through margin? And I'm assuming the hardware contracts are a 5%, 6% margin, not more. But if you look at the rest, it looks like it has a decent margin, which is consistent with what your peers have been reporting in North American retail cash handling kind of businesses. So do you see the incremental margins despite sales investment to be healthy in that space?

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Ashley Almanza, G4S plc - CEO and Executive Director [20]

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Short answer is yes, we know we had to pre-invest in sales, business development, operational support and that that will dilute the margin in the short run. But as I said in my presentation, the investment that we are making in technology-enabled solutions in both our secure solutions business and our cash solutions business offer the opportunity to earn a higher margin. These are more sophisticated solutions, and they convey bigger benefits to our customers so there's room to earn a higher-margin. So yes, we do see that over time, as we get scale in these businesses that the margin will improve.

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Rajesh Kumar, HSBC, Research Division - Analyst [21]

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Does that factor in the -- if you look at Bureau of Labor Statistics data on security wage inflation, that's running anywhere between 8% and 11%, depending on which line item you look at, security investigation, alarms movement. So wage inflation in that market seems to be quite high and some of your competitors have quite a big churn. Some of your competitors are struggling to find staff to man their -- so does that healthy margin outlook factor in all these headwinds?

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Ashley Almanza, G4S plc - CEO and Executive Director [22]

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So I mean, I think the first thing I'd say is that I think, I mean don't know to which competitors you're referring, but I think many of the comments that we see relates to very specific locations. A competitor operating in 1 part of a market seeing scarcity of resource and that affecting their ability to grow or to deliver an acceptable margin. We're a global business, and we're operating across many, many markets. At any given time, there will be some locations around the world where we see tight labor markets. It's not new to us. So we're accustomed to seeing it and to managing through that. And in other parts of our business, we continue to recruit, train, develop people without substantial difficulties. So yes, I mean, I think when we look at the potential to grow our margin, improve our revenue mix, we recognize that there will be things that we have to contend with in particular locations. But taken as a whole, we still think that bringing these solutions to the marketplace will improve our revenue mix and our margin.

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Rajesh Kumar, HSBC, Research Division - Analyst [23]

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I was specifically asking you about the U.S., that's where the wage inflation figures and scarcity is building up. So...

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Ashley Almanza, G4S plc - CEO and Executive Director [24]

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So again, even in -- the U.S. is a vast market and it's location-specific. There are some locations where we do see labor market tightness. And as I said earlier, that -- what that -- in the first 6 months by applying commercial discipline in those markets, we had a constrained growth rate of 5%. We're quite happy to operate. That's one of the responses that you can have. It's not the only response. Of course our colleagues in HR, our colleagues in the line, are looking to find other ways of bringing resource to those markets so that we can continue to bid for more opportunities. So there are parts -- look, there's no -- it's very clear. Unemployment is at a 10, 15-year low in North America. So I think that tells its own story. But we know that and we factor that into our plans.

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Rajesh Kumar, HSBC, Research Division - Analyst [25]

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I promise, this is the last one. The portfolio business, it is -- are you now comfortable with what [is the] portfolio and what is continuing or...

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Ashley Almanza, G4S plc - CEO and Executive Director [26]

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Yes, so I think most of the portfolio work has been done. There's still more to do. We've got businesses which are clearly noncore, they're not security, they're not cash management. Their time has not been right up to now to sell those businesses. We'll keep looking for the right opportunity to get them into the marketplace. And as I think we said -- well, I'm sure we said in November 2013 and we've been consistent in this view, portfolio management is the flip side of capital discipline. All of the businesses in our portfolio have to earn their keep. And we manage those businesses for value. So the broad answer is yes, we're comfortable with the shape of our portfolio program. There's a bit more to do. But the overall shape of it, we're comfortable with, and the caveat is we manage for value. Okay, can we go to the lady at the -- in the back row, please. It's a bit dark so I'm afraid I cannot see if that is Sylvia. It is. Okay.

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Sylvia Pavlova Foteva, Deutsche Bank AG, Research Division - Research Analyst [27]

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It's Sylvia Barker from Deutsche Bank. I've actually just got 2 follow-ups on, I'm sorry, CASH360 again but just in terms of the shape of U.S. retail solutions. So Q3, did you have any revenue from the Walmart contract in Q3 last year or kind of what is the phasing exactly of that? And then Q4, do you have the midsized contracts starting in Q4 already? It wasn't quite clear from the presentation.

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Ashley Almanza, G4S plc - CEO and Executive Director [28]

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So we've never, I think, confirmed who the very large retailer is.

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Tim P. Weller, G4S plc - CFO and Executive Director [29]

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Someone else did.

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Ashley Almanza, G4S plc - CEO and Executive Director [30]

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Oh, someone did? Well, we'll leave that to them. But yes, we did have revenues from our largest customer in North America last year, we did. And yes, we would expect to get some revenues from our mid-sized retail contract or rather large contract, mid-sized retail format, in the second half of this year. The way -- I mean, I'm sure you know this, forgive me for telling you what you know. But the way it works in retail in North America, you have to get everything done before Thanksgiving and then retailers don't do anything that might interfere with the shopping season in between. So we'll get as much of it in before Thanksgiving. Of course, during that period, we're incurring commissioning costs, ramping up costs. So we'll start to see the revenue, but the real benefit to the bottom line will flow in 2018 from that contract, and we hope some others as well.

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Tim P. Weller, G4S plc - CFO and Executive Director [31]

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But just to be clear on the last year impact of the Walmart contract, it was in ramp up phase in Q3 and then was at full run rate in Q4. So the Q4 is the one where there was a higher level of revenue [than] the Q3 so that's kind of how the comps worked for the second half of last year.

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Sylvia Pavlova Foteva, Deutsche Bank AG, Research Division - Research Analyst [32]

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Okay, so just for that business it's reasonable to assume that you will probably be down year-on-year just within that cash business Q3 and then maybe a little bit more in Q4.

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Ashley Almanza, G4S plc - CEO and Executive Director [33]

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We'll have to wait and see.

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Sylvia Pavlova Foteva, Deutsche Bank AG, Research Division - Research Analyst [34]

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Okay. And then just going back to the portfolio businesses. So you've moved 7 again. So it looks like they were -- the shape of their profits were -- they were actually more loss-making last year and then improved this year. So it looks like your margin was flattish versus where it would've been down if we didn't kind of adjust for that. When do you actually just stop kind of moving them around so that we can have kind of a continual basis because presumably, they're not in discontinuing operations, they're just split out and then sometimes they move back in. Are we going to lock it in at some point?

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Ashley Almanza, G4S plc - CEO and Executive Director [35]

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So they move when either we terminate a sales process in the market or when we have managed those businesses to a position where actually, the whole value is greater than the market value. And as we've said before, we own these businesses until we don't, or rather our shareholders, until we don't. And so we have to look after them in the same way as we do the other businesses, and that's what we do. And we incentivize our managers in the same way and indeed, all of the businesses in our portfolio are in our compensation plans. We have to keep performing in all of those businesses. And so yes, you're right, some of our businesses did improve in the first half of this year. And they improved to the extent that we think the whole value, not just today but in the future, is going to be better than the disposal value. It might be though, that where we've improved a business, somebody comes along and says, look, that's a small business, it's in a market where that market will always be small. And we end up selling a business that's moved into continuing operations. So I don't think we should be too rigid in terms of creating value. On the accounting, I'll let Tim comment, but I think what we endeavor to do is to lay it all out clearly so you can see very clearly what's happened and you can -- you can make whatever judgments are appropriate to make. And that's what we'll continue to do.

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Tim P. Weller, G4S plc - CFO and Executive Director [36]

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Yes, I mean, the restatements, as Ashley said, are to get things very clearly on a [like-for-like] basis year-on-year. So where we conclude something should go into portfolio we adjust both comparators and clearly, they're in the existing numbers for the current year and vice versa when they move back the other way. Factually, the profits adjustment to the last half year, so I think the first half of last year, for that reclassified from portfolio to continuing, was a couple of million and the businesses in the current year are at a couple of million. So it doesn't actually have an impact on margins year-on-year in terms of the -- that particular restatement. And as Ashley says, you've got the analysis of the effect on the half year in the pack on a region by region basis and in the slides, we put the impact on the last full year. So you can populate the starting point for the models very clearly on a regional basis reflecting where we are with the portfolio program and also the onerous contracts as well.

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Sylvia Pavlova Foteva, Deutsche Bank AG, Research Division - Research Analyst [37]

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Okay, so these are my 2 follow-ups. I've just got 2 quick ones. Just on the cash business, can you just talk a little bit but the strategy. So it seems like you're moving your retail solutions out into the markets where you actually have kind of an on the ground CIT business as well. So obviously we're now -- Brink's has obviously come out with a new strategy. Loomis are kind of out with a new strategy and obviously you've got possibly a cash lease to sell. All the players are talking about integration and everyone's kind of very keen to bulk up in the markets of interest. So how do you see your strategy longer-term because obviously you are #1 or #2 in 41 countries but the market share itself is maybe not dominant or you might need to invest if you were to kind of keep all of those markets. How do you think about that?

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Ashley Almanza, G4S plc - CEO and Executive Director [38]

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So I think as I said, we focus on the customer actually and we try and improve the offering to the customer, and we think that that is the best strategy for our business. In terms of markets -- sorry, that is about lowering the cost of handling cash and increasing the ease of use. In terms of markets, we do want to concentrate in markets where we're #1 or #2, which is most of what we have today. And those markets where we're not #1 or #2, we can see potentially a path to getting to that position. And so our strategy is to pursue that to aggregate volumes and use new products and services to get into a #1 or #2 position. I'm not sure, Sylvia, if this is what you were alluding to, but certainly, one of the things that we are looking at is our ability to grow in markets where we don't have a traditional CIT and cash processing business. And we know that can work because we've done it, and the question is where else can we apply that? This is a question of priorities, really. We're faced on the one hand with a truly very exciting pipeline in the markets where we are already established and finite resource. And so that is our #1 priority, to grow that. Certainly, where we have an advantage, I'm sure everyone says they have an advantage, but ultimately, I think the numbers tell a story. Where we have an advantage, our strategy is to invest in sales and business development and press that advantage as hard as we can. And I think that in the markets where we're already established the other part of our strategy, of course, is to incentivize outsourcing by customers and incentivize switching by customers. So to switch to our services because they're lower cost and easier to use and to outsource some of their services or some of the work that they do. And as I have said during the presentation, it certainly feels like the conversations we're having with our customers today are very different. They're at a different level in the organization and they're very specific. So the phrase I used is we've moved from the drawing board into the pipeline. We're talking about very specific opportunities to outsource more cash handling volumes. So I'm not really sure that I've answered your question. Happy to try again, if I didn't.

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Sylvia Pavlova Foteva, Deutsche Bank AG, Research Division - Research Analyst [39]

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I guess [to summarize your strategy] is a little bit different because you're pursuing kind of specific contracts rather than necessarily just after kind of increasing the density of your networks in the markets where you're in, which is...

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Ashley Almanza, G4S plc - CEO and Executive Director [40]

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Yes, both -- I think I said aggregation, utilization, innovation and the aggregation and the utilization is about driving network density. I think our competitors, it's not for me to say it, but when I look at what's happening in the market, there seems to be a lot more interest in M&A and their strategies. I think our strategy in cash is fundamentally an organic strategy, and we feel confident about that. We feel that we can grow strongly through -- with our organic strategy. So I think that is a very -- that's a -- I won't name all the players but there's certainly 2 players where I think that's a quite a prominent feature of their strategy and it's clearly not in ours.

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Sylvia Pavlova Foteva, Deutsche Bank AG, Research Division - Research Analyst [41]

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Sorry, just last one. On Europe, we didn't have kind of the regional breakdown quite as much. Can you just talk a little bit about kind of which countries did particularly well and how much of the margin improvement was maybe mix.

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Ashley Almanza, G4S plc - CEO and Executive Director [42]

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I have to defer to Tim on the mix effect. We may need to come back to you on that. Actually, we saw very good growth in Northwest Europe in the first half of this year, which is a bit different from what we've seen. The growth is more evenly spread. And I think 18 months ago, we were doing well in Southern Europe, which is a smaller business for us. Southern and perhaps Eastern Europe. We've seen some good growth also in countries like Romania but most of the growth was Northwest Europe. Some of it did come from our systems businesses. So I think as you know, we have a very strong systems business in Denmark and that business is performing well. But just generally, to reiterate the point, generally, we see a more optimistic or we have a more optimistic view on the outlook in Continental Europe. I don't know precisely how much was margin mix, it's perhaps something we can come back to on this issue.

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Tim P. Weller, G4S plc - CFO and Executive Director [43]

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No, just in terms of the beneficial impact year-on-year in terms of profit and the improved margin, Ashley mentioned in his slides talking about the impact in Europe, in particular, of some of the restructuring initiatives we pushed through. And that clearly benefited our secure solutions business in terms of their profitability year-on-year. So actually, secure solutions showed a margin improvement in Europe as a result of that, and that was quite a heavy driver of the overall profit increase in Europe itself. But as Ashley said, in terms of overall revenue growth, we actually saw Northern Europe growing strongly in both business lines.

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Ashley Almanza, G4S plc - CEO and Executive Director [44]

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Thank you. I think that's Paul, but...

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Paul Checketts, Barclays PLC, Research Division - Director [45]

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It's Paul Checketts from Barclays Capital. I've got 2 questions, please. The first relates to -- it's actually -- at the full year results, you talked about you had some trials and discussions ongoing in North America with customers about adoption of CASH360. I wonder if there's -- if any of those trials have concluded and the customers elected not to adopt the solution, that's my first question. And the second is, can you give us a sense for the phasing of the cost savings, excluding finance charges over 2017, '18 and '19?

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Ashley Almanza, G4S plc - CEO and Executive Director [46]

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So trials, I don't think so. Potentially some of the smaller trials won't go through to a full deal typically because the commercial terms -- the customer or a customer is not ready to make the change in their operating environment. That's usually one of the big things that -- it's not just about them being convinced that our solution is the right solution, it's making the changes to the way they run their operations in store and getting the timing of that right. But no, most of our larger pilots are still running. We and the customer alike, and particularly the customers, like to run them for a good period. So we are confident that we can deliver and we can deliver and -- we get a lot of good data from the pilots, particularly around cost of service, cost to support that service. And that gives us greater confidence when it comes to the final contract, and of course, the customer gets confidence that the thing is going to work. So I can't think offhand, Paul, of any large pilots that have terminated in that way, but there might be some smaller ones, and there are some new pilots, which we are starting. So hopefully, when we get to full year, we won't -- we'll have some more to talk about apart from pilots. We celebrate every time we win a new pilot. It's a very good thing because almost always, it's just us. It's not -- there's no one else in that pilot, and that's a very good sign that that opportunity has got a better chance of being converted in the pipeline because the customer has to commit resource, time, money to those pilots. So yes. Phasing, Tim can give us the detail but I think broad shape, I think we have to think again about investing, as well as harvesting productivity gains in the near term. So we'll, for sure, continue to get some productivity gains this year from the programs that we put in place last year. But for the next leg of the journey, the programs that we're now starting up, we're not counting on any benefits this year. We'll get benefits next year, some of those will be reinvested. Somebody asked earlier to either Nick or Andy about how we should think about the reinvestment. I think the way to think about that is we will do more of the reinvestment early, but in broad terms. That's what we're looking to do if possible. That is to say we want to bring the growth opportunities forward and apply the investment to the growth early in the next 3, 3.5 year plan period. And so if you're thinking about bottom line, it's going to be more heavily weighted towards '19 and '20. That will -- although we will undoubtedly get some benefit in '18.

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Tim P. Weller, G4S plc - CFO and Executive Director [47]

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Yes, if you're looking for kind of pictorial representation of how the non-finance cost savings flow-through, I would just do something like that. Inevitably, it's lower to start with and as the different initiatives come through, it will be higher the further out you get over the 3-year period. And if you think about the drivers behind those savings that Ashley was talking about, with things like benchmarking flowing through into focusing on how we run our business and then IT enabled change. In that order, those will flow-through. So the benchmarking will wield the earlier benefits and then the process reengineering is the longer duration one. Clearly IT enabled will take even further. So that's why it is that sort of profile.

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Ashley Almanza, G4S plc - CEO and Executive Director [48]

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For the people at the webcast, you're going to have to have a go describing that motion with your hand. I think...

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Tim P. Weller, G4S plc - CFO and Executive Director [49]

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It starts slow and ends up high.

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Ashley Almanza, G4S plc - CEO and Executive Director [50]

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It is broadly consistent with I think the narrative that I gave about the phasing. Thank you, Tim. And thank you, Paul. We have a question from the webcast?

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Helen Parris, G4S plc - Director of IR [51]

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Yes, I think it's a follow-on. Thank you very much. Really so to follow on there's a question from Kean Marden at Jefferies saying what proportion of cost savings over the past 3 years have been reinvested and is this a sensible guide to the future?

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Ashley Almanza, G4S plc - CEO and Executive Director [52]

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I'll ask Tim to address the first part of that question. As to it being a sensible guide to the future, not really because as I said, it's going to be driven by the scale and quality of the growth opportunities. I think we said in November 2013 that we would invest 20 million or so in the end -- in sales and business development. In the end, we invested more than that, closer to 30 million. And what we also did was we invested in risk management and controls because as you will recall, in 2013, and I think Kean is referring to the program that we set up back then, one of the issues that we had was we weren't satisfied with our controls around particularly contracting and we've put in place better controls around contracting and capital appraisal, investment appraisal. So that was another area where we invested very heavily. And we've invested in some of our next stage productivity programs. So we talk about lean processes and IT. Well, that investment has already started. So now, I think we would in proportionate terms, hope to do slightly better. Of course I'd be delighted to be wrong on the basis that the growth opportunities are so compelling. But we'll see that first in the pipeline. That's what will drive the rate of investment.

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Helen Parris, G4S plc - Director of IR [53]

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And can I just follow-up with some of the other questions that have come in as well. So a question from Nigel Hawthorne saying can we expect to see an increased dividend for the full year?

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Ashley Almanza, G4S plc - CEO and Executive Director [54]

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So I think no change in the guidance that we've given before. This is something that the board looks at every 6 months, and as we both indicated, we expect our financial metrics to continue to improve. And so we'll be looking at that after the year end. And it's a balance between the opportunity to invest, the opportunity to reduce debt, and of course, we always look to distribution as well. So we'll make, I think -- I don't want to prejudge what the board is going to decide, but I think that we can see that the company's getting progressively into better shape to address that question.

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Helen Parris, G4S plc - Director of IR [55]

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And one more from Jeff Kessler, Imperial Capital. Just asking really about the pipeline for more integrated solutions involving both manned and electronic security saying really to are you -- is there greater demand for those types of solutions in certain markets using all aspects of manned security and so on? And is it too early to talk about improved margins for these contracts? So just a bit more color really about where you're seeing -- how you're seeing the demand for those.

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Ashley Almanza, G4S plc - CEO and Executive Director [56]

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So yes it's -- Jeff's question is a really good question about is there more demand in some markets than others. And the question -- the answer to that is undoubtedly yes. In markets where effectively the arbitrage between technology and labor is greatest, there's greatest demand for this. So I think we do see fundamentally a positive picture for demand for integrated security solutions in our developed markets today because that's where the technology wage arbitrage is greatest, and indeed, that is what we have seen. Some of the examples that we've shown in the last, I think, 2 or 3 results presentations, most of those have been in developed markets. I think we showcased 1 in Indonesia at the...

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Unidentified Company Representative, [57]

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(inaudible)

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Ashley Almanza, G4S plc - CEO and Executive Director [58]

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It's in the annual report on the website. So we're starting to see traction even in markets where perhaps there isn't the same strong arbitrage between those 2, let's call it, input factors. And yes, the second part of the question, I think we have seen our margin improve in recent years. As ever, and those of you who have been following this for a little while will know that we say we don't fly with 1 dial. And what that means really is that we are continuing to invest. I know Jeff is particularly interested in the North American market. We have definitely been investing in not only sales and marketing capability, but in engineering capability and design capability and risk assessment capability, and we have teams that simply didn't exist 4 years ago. And so it's just -- all of that means you won't see all of the new contracts drop through to the bottom line straight away, but you will over time, we believe, see an improving revenue mix, which will support the stronger margin.

Anymore, Helen? No, all done? Well, thank you very much for joining us today and for your interest. We look forward to providing you with a further update at the full year results. Thank you very much, and have a good day.