Good morning, welcome to G4S's half-year results presentation. I'm Ashley Almanza, Chief Executive, and I'm joined by Tim Weller, our Chief Financial Officer, and Helen Parris, our Director of Investor Relations. We're going to begin today's presentation with a short film that highlights G4S's growing capability in delivering Integrated Security Solutions to our customers around the world. I hope you enjoy the film. The security and risk operation centers that you saw in that short film have been commissioned by G4S in recent years, and it's now clear to us that these solutions are delivering significant incremental benefits to our customers. As a result, we're investing in growing our skills, capability, and resources to deliver more of these solutions across all of our key markets, and we believe that will drive growth and profitability in the coming years.
I'd like to now turn to our presentation. We start as usual with the customary disclaimer. I'd ask you please to read it carefully in your own time. Our agenda for today starts with a recap on our vision and strategy to put into context the results for the first six months of this year. When we announced the separation and ultimately the disposal of our conventional cash businesses, we also set out our vision and our strategy for the new reshaped G4S Group. Our vision is clear. We are today the leading global integrated security company. Our aim is to sustain, indeed, extend our leadership in the industry. We aim to do this by being the trusted partner everywhere we operate. Trusted to deliver innovative, industry-leading solutions that protect and add value to our customers' organizations.
We're achieving this by investing in technology and innovation, in our people and our values, and of course, in building strong and enduring customer relationships. G4S is today at a strategic and financial inflection point. With the disposal of the majority of our conventional cash businesses, we are now a much more focused company, focused on delivering Integrated Security Solutions in 85 markets around the world. In the first six months of this year, our Secure Solutions business delivered revenues of GBP 3.1 billion, which is exactly in line with last year, notwithstanding the severe impact of the coronavirus pandemic in our key markets, particularly Europe and the Middle East. Our profit rose slightly in our Secure Solutions business, again underlining the resilience that comes from having a globally diversified security business.
As you saw in the film, we're growing our capabilities in delivering integrated Secure Solutions, and that, we believe, will help us to change our revenue mix, drive growth, and improve profitability in the years to come. You can see from this slide that Secure Solutions comprised 93% of global revenues in the first six months of this year. Our conventional cash business contributed 4% and Retail Technology Solutions 3% of revenues. Whilst our conventional cash business was impacted by the pandemic and margins reduced to 2%, our revenue and our margins held up very well in our Secure Solutions business and our Retail Technology business. We intend to continue investing in the skills, resources, and capabilities that enable us to grow Technology-Enabled Solutions and Integrated Solutions.
You can see that we are recording higher margins in those segments today and that those segments offer higher growth potential going forward. That is where our strategy is focused. In March this year, we set up three strategic priorities: growth, profitability, and free cash flow. In relation to growth, we continue to drive organic growth in our established Conventional Security Services. Alongside that, we're accelerating the growth in Technology-Enabled Solutions and Risk Consulting. That changing revenue mix supports our second objective of improving profitability. We're offering higher value services to our customers and having the opportunity then to earn higher margins. Alongside our top-line initiatives, we've also set out in March this year a program to reduce costs this year by around GBP 30 million. Finally, free cash flow has become critically important to our business as we transition to a global security company with lower capital intensity.
Our aim is to not only support our investment in our growth program, but to reduce leverage and support our progressive dividend policy. I'd like to now turn to the performance of the business in the past six months and compare that with these objectives. Revenue for the group as a whole was just under GBP 3.4 billion, which was 1.5% lower than the prior year. That was driven entirely by the effect of the pandemic on our cash business. Profit before interest and tax was GBP 187 million, compared with GBP 196 million last year, again, driven by the impact of the pandemic on our cash business. Operating cash flow was very strong indeed, coming in at GBP 364 million, compared with GBP 164 million last year. We did benefit in the first six months of this year from tax deferrals of around GBP 152 million.
Even after stripping out that benefit, the underlying operating cash conversion was very strong indeed. That flowed through to our free cash flow, which came in at GBP 178 million, compared with an outflow of GBP 51 million last year. Earnings per share were GBP 0.063 per share, which is exactly in line with earnings last year. Now, the board has carefully considered whether to pay an interim dividend. Notwithstanding the resilient performance of the business in the first six months of this year, the board is mindful of the uncertainty that still surrounds the development and the rate of progress of the global pandemic. In the face of that uncertainty, the board has concluded that we should prioritize the financial strength of the business, and we will therefore not be paying an interim dividend this year.
I want to emphasize that there is no change to the company's dividend policy. That policy is to pay a progressive dividend with a cover of two times, and it is the board's intention to resume paying dividends when the uncertainty surrounding the pandemic has reduced to an acceptable level. This is something that the board is going to keep under close review for the remainder of this year, and something that we will again carefully consider at year-end.
I'd like to now turn to the first of our strategic priorities and add a bit more color to the growth that we saw in the first six months of this year. Now, although the global pandemic has undoubtedly affected customers in all of the markets in which we operate, I'm pleased to say that our Secure Solutions business has held up very well indeed, and that has been driven by continued growth in the Americas and in our Asia Pacific markets. That growth has helped to completely offset the impact of the pandemic that we've seen in our Europe and Middle East markets. In our Cash Solutions business, we saw what has been seen across the cash industry as a whole, and that is to say that the pandemic has severely impacted cash volumes in circulation.
As a result, our conventional Cash Solutions business saw a sharp fall in volumes, especially in our U.K. business, as a result of which we have announced a major restructuring program in our U.K. Cash Solutions business. Retail Technology Solutions continued to attract strong interest from customers in North America, Africa, and Asia. It's never been more important to have an efficient, automated cash handling process, and of course, in our Retail Technology Solutions business, we have a market-leading solution. Although we continue to see interest, and indeed, we continued to make sales in the first half of this year in our Retail Technology Solutions business, mobilizations of contracts that we won at the end of last year and the start of this year were put on hold as a result of the COVID-19 pandemic. That means we now have a substantial backlog of confirmed orders.
We're working closely with our customers to relaunch the mobilization of those contracts as soon as our customers are ready to push the button. Turning now to profitability and free cash flow. Our profitability program has three key elements. The first, of course, is to continue to grow our established and proven security services. The second is to grow our Integrated Security Solutions, affording us the opportunity to improve our sales mix in return for offering higher value to our customers. The third element is to improve the productivity of our company. Earlier this year, we established a productivity program that set as a goal GBP 30 million of savings this year. With the onset of the pandemic, we took swift action to set a much more ambitious program, and we're now targeting GBP 100 million of direct and indirect savings this year.
In relation to our organic growth and integrated Secure Solutions objectives, we know that we have more to do, but we can certainly take encouragement from the progress that we've seen in some of our key markets, which has underpinned the 5% growth in Technology-Enabled Solutions that we saw in the first six months of this year. Now, on free cash flow, as we saw a moment ago, in the first six months of this year, the group delivered a strong underlying improvement in both operating cash flows and free cash flow. When thinking about free cash flow G4S, it's important to recognize that over the past five or six years, the group has had to bear a heavy cash burden to settle legacy litigation and claims, to clear up onerous contracts, and of course, to restructure and reshape the group.
As we look ahead, of course, we understand that for a group of our size, it's likely that from time to time there will be exceptional cash costs. With the onerous contracts now largely dealt with the legacy litigation substantially reduced, and with the restructuring and reshaping of the group mostly behind us, as we look ahead, we're confident that the cash cost for these items over the next five years will be substantially lower than it has been over the past five years. To reflect the increased focus on free cash flow, we've amended our executive incentive scheme, and that was approved at the recent annual general meeting of shareholders. This now incentivizes management to deliver positive free cash flow to support ongoing investment in the business, to reduce leverage, and to support our progressive dividend policy.
I'd like to wrap up before handing over to Tim. G4S today is at a strategic and financial inflection point. We have a highly focused global Security Solutions business. We have a growing capability to deliver Integrated Security Solutions. Those solutions are delivering substantial incremental value to our customers, which in turn drives our future growth and profitability. Alongside this, we have a small, rapidly growing, highly profitable, and market-leading cash technology business. Our growth plans are also supported by a strong productivity program designed to deliver GBP 100 million of cost savings this year. That program is underway and on track. We have an intensified focus on free cash flow. Ladies and gentlemen, G4S today has a focused strategy and a focused execution plan.
With that, I'd like to now hand you over to Tim, who will take us through the financial performance in a bit more detail.
Thanks, Ashley. Morning, everyone. As Ashley's outlined, we've reported half-year results with resilient revenue, earnings in line with the first six months of 2019, and a strong cash flow performance. Turning to the underlying results. Overall, group revenues were down by 1.5% to GBP 3.35 billion, reflecting revenue maintained overall in the Secure Solutions businesses, driven by strong growth in North America, resilient performances in Africa and Asia, and a 6.5% reduction in Europe and the Middle East, the region most impacted by the COVID-19 pandemic. Cash Technology revenues were down 10%, reflecting the rollout of recent contract wins having been deferred to the second half. Conventional cash declined 22% due to lockdown restrictions, leading to Cash Solutions revenue declining by 16.5% overall.
EBITDA was GBP 187 million, down 4.6%, with Secure Solutions 1.5% higher and a 33% decrease in Cash Solutions, principally reflecting volume reductions in the U.K. conventional cash business. In Secure Solutions, a strong profit performance in the Americas and Asia regions, helped by revenue mix and ongoing efficiency programs, more than offset the impact of profits being GBP 23 million lower in Europe and the Middle East due to COVID-19. The interest charge was GBP 50 million, GBP 5 million lower than the first six months of 2019 as a result of the refinancings we've effected over the last couple of years and the receipt of disposal proceeds from Brink's. Given the phasing of receipt of those proceeds and the ongoing benefit of low-cost borrowings, we'd expect a further reduction in interest costs of around GBP 5 million in the second half. The effective tax rate was 27%, in line with previous guidance.
Earnings after minority interest were in line with the comparable period in 2019 at GBP 97 million, with earnings per share of GBP 0.063. Operating cash flow was GBP 364 million, GBP 200 million higher than the first half of 2019, reflecting an underlying improvement in working capital performance across the group, together with COVID-related payroll and income tax deferrals of GBP 152 million. Excluding the beneficial impact of those tax deferrals, operating cash conversion was 113%, compared with 84% in the first half of 2019. Given the unprecedented impact of the pandemic over the last quarter in particular, we thought it'd be helpful to provide more granularity on revenue trends than would be customary. This slide shows our regional organic year-on-year revenue growth profile for the first two quarters of the year with a further month-by-month breakdown for the second quarter.
As you can see, with year-on-year revenue declines of 5.8% and 7.5% respectively, April and May were the months most impacted by the lockdown restrictions across our markets. With the restrictions easing, we started to see activity levels picking up in our main regions and in the Cash Solutions business in particular as we moved into June. Turning now to the bridge from underlying to our statutory results. We continue to manage effectively the onerous contract portfolio, which, as anticipated, now has a much less material impact on the group than has been the case over the last few years.
As at 30th of June, the remaining GBP 22 million onerous contract provision relates to a very small number of U.K. contracts that have remaining life of between seven and 18 years, and as such, the annual cash flows are not expected to be significant in the context of the group results. The conventional cash businesses sold to Brink's generated revenues and earnings of GBP 160 million and GBP 3 million respectively in the half. As previously reported, we're implementing restructuring and cost-saving measures to reflect the disposal of the conventional cash businesses. These initiatives have been stepped up in response to COVID-19, and we've identified direct and indirect cost reductions of around GBP 100 million in 2020, including the acceleration of previously announced efficiency programs.
In the first half of the year, we invested GBP 9 million in this strategic restructuring program and anticipated full-year restructuring costs of GBP 35 million as we step up the pace of these initiatives. The first half also saw the final GBP 16 million of costs on the cash separation project. Acquisition-related amortization and other separately identified items include a profit of GBP 171 million arising from the disposal of conventional cash businesses to Brink's, offset by the cost of the Deferred Prosecution Agreement entered into with the Serious Fraud Office announced on the 10th of July, and a GBP 13 million write-off of U.K. cash branch assets as we restructure the business in light of the step-down in volumes experienced over the last few months and, in particular, in recognition of the potential medium-term impact of COVID-19. That was the bridge, and now to the statutory results themselves.
Statutory revenues for the half were GBP 3.5 billion. As we already said, underlying revenues showed a 1.5% decline in the half, and the 7.4% reduction in the statutory revenues reflects this underlying revenue decline, the impact of foreign exchange movements, coupled with a reduction of GBP 144 million in revenues from disposed businesses. There was also a GBP 48 million onerous contract revenue reduction relating to the Birmingham and COMPASS contracts in the U.K., which ended in May and August 2019, respectively. EBITDA declined by 15%, reflecting the impact of business disposals and the underlying 4.6% half-on-half reduction. Specific and other separately disclosed items, mainly including disposal profits, SFO DPA charge, and investment in restructuring and cash separation, resulted in a net gain of GBP 72 million after last year's charge of GBP 67 million.
Net interest costs of GBP 54 million were GBP 5 million lower than the same period of 2019, and tax was GBP 8 million higher at GBP 47 million, with the increase mainly being attributed to the relatively modest level of taxes that we expect to incur on a conventional cash disposal. Overall, statutory earnings were GBP 108 million higher at GBP 167 million or GBP 0.108 per share. Let me turn now to cash flow and net debt. The full movement in net debt for the current and prior year first halves is shown on this slide, together with a pro forma free cash flow analysis for the continuing businesses in the group. As I noted earlier, operating cash flow in the first half benefited from GBP 152 million of deferred payroll and indirect taxes.
We expect a net reversal in tax deferrals of around GBP 50 million in the second half of this year, with the balance in 2021. Given that restructuring and separation costs in the first half included GBP 18 million of cash separation project costs, in the pro forma analysis we've only included the GBP 6 million of continuing business efficiency program investment. Continuing business capital investment of GBP 64 million included GBP 31 million of new lease commitments capitalized in accordance with IFRS 16. I recognize that IFRS 16 has introduced some complexity when it comes to comparing statutory cash flow statements with movements in net debt, and we've included a supplemental analysis in today's release which hopefully goes some way to simplifying things. Net interest cash costs at GBP 60 million or GBP 59 million on a pro forma basis are weighted to the first half. We'd anticipate full-year interest cash costs of around GBP 90 million.
In the first half, the GBP 433 million net debt reduction arising from acquisitions and disposals reflected the conventional cash disposals completed in the first half, which yielded net cash consideration of GBP 522 million, less the GBP 87 million net cash in the businesses at their respective completion dates. Looking to the second half, the remaining conventional cash disposals are expected to generate further disposal proceeds of around GBP 135 million, and we will of course be settling the financial penalty and costs of GBP 44 million agreed with the SFO as part of the Deferred Prosecution Agreement. The net debt reduction arising from the conventional cash disposal, together with the strong free cash flow performance in the first half, has enabled us to reduce the net debt to EBITDA leverage ratio from 2.9x to 2.58 x half-on-half.
In the first half, we canceled a GBP 200 million undrawn bridge facility and reduced the revolving credit facility by GBP 100 million to right-size that facility in the wake of the conventional cash disposal. The RCF now matures in two tranches in 2024 and 2025. We also took the opportunity to issue GBP 300 million of one-year commercial paper under the Bank of England's COVID Corporate Financing Facility and reduced the drawn amount under the RCF to zero. As at 30th June, we had net cash balances of GBP 1.1 billion and a fully unutilized revolving credit facility of GBP 650 million, giving overall liquidity of GBP 1.78 billion, a level which we believe to be appropriately prudent in light of the pandemic-related economic uncertainty. I'll now hand you back to Ashley.
Thank you, Tim. Ladies and gentlemen, before we move to Q&A, I'd like to take a moment to pay tribute to the 535,000 employees at G4S who have continued to deliver reliable and effective services to our customers around the world. Without their efforts, the results that we've seen today would not have been possible, and on behalf of the board and the executive team, I extend my thanks and congratulations to each and every one of them. We'll now move to Q&A, and may I ask that you give your name and your affiliation when asking a question. Operator, we're ready to take the first question.
Thank you. As a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as I will retrieve your name and you will be advised when to ask your question. Alternatively, you may also submit your questions via the webcast platform in the viewer below. Thank you.
Courtney, I think while we're waiting for the people to poll for questions, we have a question that's been emailed in from Robert Plant at Panmure. Thank you, Rob, to get us going. His question is: Given the recent good news in the U.K. prison market, does this change your view about the long-term future of Care and Justice within G4S Secure Solutions? Thank you.
Thanks, Helen. Thanks, Robert, for your question. Obviously, there hasn't been a firm announcement about the prison market, at least not that we're aware of at this point. To take your question anyway, I think the way that we think about Care and Justice hasn't changed. As I think most people will recall, what we set out to do was create a much more focused business and to manage that for value. That involved cleaning up onerous contracts, settling legacy claims, and importantly, exiting a number of contract areas where we felt we didn't have the skills to manage the risk. That has now been done, and what we have today is a much more focused, both operationally and commercially, Care and Justice business that I think delivers value not just for G4S, but also for the customer. The business is quite compact.
It's 5%, 7% of revenues if you include Australia. It is our view that our Secure Solutions business will grow faster over the planning horizon, and that therefore this will remain a compact business that we manage for value. We'll continue to apply, I think, commercially stringent criteria when thinking about new contract opportunities. As I say, the focus is on managing what is now a commercially, operationally, financially sound business, managing that for value. Our view hasn't changed. Thank you.
Thank you. We do have a question coming through via the audio lines. The question comes in from the line of Sylvia Barker calling from JP Morgan. Sylvia, please go ahead.
Thank you. Hi, good morning, everyone. Could I firstly check on margins, how you think about the second half? Obviously, very good performance in the first half, very strong in Americas and Asia. If we think about furloughs, cost savings, and then operating leverage, how do you think about the second half? Can you maybe give us some detail around how much you're actually scoring cost savings in the first half, and then how that might look in the second half? I've got another couple of very quick ones. Thank you.
All right. Thanks, Sylvia. I'll ask Tim to comment on cost savings first half, second half. Just addressing your broader question, in terms of furlough, our plan very much is to be ready and able to bring staff out of furlough as quickly as possible and back into employment. We're seeing some of that at the moment. It's gradual. I think we still believe that there's quite a bit of uncertainty out there. At least for now, we are seeing staff come out of furlough and back onto chargeable duties. As I say, all of our planning is to be ready to do that, and as and when customers call for service. Difficult to say, but when we talk to our colleagues around the world, at the moment, our aim is to get pretty much everyone off furlough by September, that sort of timeframe.
We have continued to see good demand in the Americas, especially North America. Clearly, the pandemic and the path of the pandemic in the U.S. right now is ebbing and flowing, and just at the moment, there's an increase in infection rates. Our business has continued to stand up well in the U.S. At the moment, we don't see any sign of that changing. It's not to say it couldn't change, but we think the business will continue to hold up well in the U.S. I think the big question for us when we think about margins and operating leverage is Europe and the Middle East. I think it would not be prudent or sensible for us to try and forecast how that is going to evolve.
I think the best way for us to respond to that question is to say, I think we're taking all the actions, we're taking them early enough to be positioned to manage through a number of different scenarios. If demand remains muted, I think the action that we took in the first half will stand us in good stead in the second half. If on the other hand, as we hope, the initial pickup that we're seeing, and I want to emphasize it's very gradual and it's modest at this stage, if that continues, equally we're ready to respond to that. I think the fundamental point here is in the current environment, we have to be ready to operate in a number of different scenarios. I'm afraid I'm not giving you a forecast on margins.
Only to say that I think we're doing all of the things that we can do to be prepared, either to manage soft demand or to respond to a pickup in demand. Tim, could you comment on cost savings first half, second half, please?
Morning, Sylvia. We highlighted in the announcement the GBP 100 million direct and indirect cost savings. We clearly worked very hard in the first half in light of everything that's been going on. Broadly speaking, of the GBP 100, just around 40% has actually been delivered in the first half. Therefore, it's 40/60 first half, second half. The nature of what has been delivered in the first half is much more in the non-payroll cost area, so working hard on cash costs such as travel and subsistence, training and recruitment, vehicle costs, et cetera. Quite naturally, given the restructuring phasing, the second half will see more beneficial impact in terms of cost reduction in the headcount area.
Thanks, Tim. Sylvia, you said you had a few follow-ups.
I did. I might sneak just one more in there. Just out of the 40 in the first half, does that include the furloughs or no? It doesn't sound like it does. Just the other two, on July, if you can just comment, kind of the - 2.9 in June, if you can comment directionally or at least any momentum within the different regions in July. Finally, just on the CCFF. In order for you to be able to announce dividends, do you need to have repaid that GBP 300 million first? Thank you.
Sylvia, I'll ask Tim to come back on the cost point. On the CFF, we don't have a condition. Our facility was put in place, I think, before the government introduced conditions. July, I would just say, for now, steady as she goes. We're not calling a change in the trend one way or another at this stage. As I said, I think the business in the Americas is holding up particularly well, and the landscape in Europe, Middle East remains uncertain. We wouldn't call it one way or the other.
On the, did the 40% of the 100 include any furlough? The answer is no.
Great. Thanks very much.
Thanks, Sylvia.
The next question comes in from the line of David Roux calling from Bank of America. David, please go ahead.
Good morning, everyone. I've got three questions from my side, probably the first for Ashley, then the following two for Tim. Ashley, despite the big margin improvements in the Americas division, it still remains the lowest in Secure Solutions and also below competitors. Can you perhaps give us some color as to what the reason is there and if there is further upside to that margin? The following two are both on cash flow. Tim, if I look at the remaining provision liabilities on the balance sheet and exclude COMPASS contracts and the SFO claim provision, there's still about GBP 160 million of other provisions there, which is fairly much the same as last year. What gives you confidence that we will see less impact on free cash flow from these sort of legacy cash costs if provisions are still fairly elevated?
Just leaving on that and sticking with free cash flow, as the group ramps up technology capability across the regions, should we expect any pickup in CapEx levels? Thanks very much.
Good morning, David. Thank you for your questions. I will ask Tim to answer question two and three as you suggested, and let me respond to the question on margins in Americas. Americas in our accounts, of course, encompasses both North America and Latin America, and there is a quite stark difference in the way that markets function in North America and Latin America. The structure of the markets is much more fragmented supply side in Latin America and I would say on the whole, a different customer mindset to the way that security services are procured and priced. In North America, our margins, I'm sure, compare well with our competitors. I think it's right to say that the sort of competitors that you might be thinking of don't have a significant exposure to Secure Solutions in Latin America.
Equally, if you look at other companies, large companies in our sector who do have exposure to Latin America, most of what they're earning comes from Cash Solutions. We are, though, able to unpick that in Latin America and look at our margins relative to competitors. The simple fact is that in the security industry, Latin America globally is the lowest margin geographic region when it comes to Secure Solutions, and it's been persistently a low margin region, certainly for as far back as we have data, the last 10 years. I think for us, the critical question is can we transition away from Conventional Security Services to Integrated Solutions in Latin America in a way which provides a margin that's comparable with what we earn in North America? The answer to that, I'm afraid, is not straightforward.
At the moment, we know that in some countries we have been able to do that. For example, in Colombia, we've built a nice business with Risk Consulting, Integrated Solutions, and conventional services all alongside each other. Unsurprisingly, the margins in that business look a lot more like the margins that we earn in North America and in other markets around the world. You put your finger on an important point. As we move forward through the plan period, we simply have to find a way to transition away from services where the margins have historically been very low and are likely to remain low. Tim.
Morning, David. On the GBP 159 million of claims provisions at 30th of June, GBP 50 million of that relates to the Serious Fraud Office. We needed to put the charge through in the first half, and as I said in the presentation, that will be settled early in the second half. Putting that to one side, that leaves about GBP 100 million, which is principally the provisions we established in respect of our self-insurance programs around the world. Utilization in respect of those self-insurance programs in the first half was around GBP 9 million, and the income statement charge was a similar amount. Broadly speaking, that will be the ongoing level of cost and charge. Now to be clear, all of that self-insurance cost and cash flows we put through in our underlying EBITDA. We don't pull it out separately in terms of any of the specific items.
You then asked about the level of CapEx spend as we move more into the technology space. We've actually kind of talked about this a number of times. We don't necessarily see a big increase in CapEx. Given our focus on large enterprise customers, in terms of the technology equipment and technology spend, it is likely to be funded by our customers rather than by us. Having said that, we continue to invest in software and technology capability, and that spend is included in the CapEx numbers we've recorded in the first half.
Just to add briefly to Tim's comments, we have been investing now for five years in Secure Solutions and technology. I think the only thing to keep in mind is it's not that this will be a completely new investment. There has been and there is already within our CapEx, a reasonable level of investment, and also in our P&L. David, thanks for your questions. Operator, we're ready for our next question.
Thank you. Our next question comes in from the line of Steven Goulden calling from Deutsche Bank. Steven, please go ahead.
Hi there. Thanks for taking my question. Apologies if this has already been clarified, but just on the furlough impact. You were saying that COVID had a GBP 20 million-GBP 25 million negative impact at EBITDA, but there was a GBP 30 million benefit from furlough. I was slightly confused as to what extent that impacted the margins and to what extent some of that went direct to employees. If you could clarify that'd be great. My second question, if you don't mind, if we're thinking about the sort of recently announced restructuring in the U.K. cash division, can you just give us a bit of clarity on the timing of that, what impact that's likely to have on the income statement, what the associated restructuring costs are likely to be, and similarly, when that would come out of the cash flow?
If you don't mind, I've got a couple of very quick follow-ups.
Thanks, Steven. Let me start with your question around furlough and then invite Tim to add any comments around that, and then also, Tim, if you could take the income statement question.
Yeah
On restructuring. Look, just I think to take the clearest example in the U.K., we had about GBP 10 million of furlough payments that were paid to employees. In the round, the way this has worked is jobs or roles that would have otherwise been at risk have been kept on where there is no work available for those employees. They have not been billed to customers. We have paid them, and the government, as they have for many other companies, has agreed to cover a portion of those wages. There isn't a net benefit of any amount in the company. What we've received, we have more than paid over or otherwise incurred costs in the form of wages for employees who are not being billed to customers.
Incremental operating costs, accommodation, transportation, health and safety, PPE, all of those things have introduced additional cost into the business. Of course, we've not had the gross margin on those contracts that customers have turned down or terminated. In a nutshell, whatever we've received, we've paid out and more. Tim, do you want to add anything?
I guess the other point to note about is it's heavily weighted towards the U.K. in terms of the governmental support, and you can see the impact in terms of our trading profits in the U.K., notwithstanding that government support. The GBP 20 million-GBP 25 million that we're talking about is net of any benefit or otherwise coming from the furlough support.
Yeah, that's an important point. It's after the furlough. Yeah. Sorry.
There was restructuring.
Yeah.
The U.K. Cash restructuring is actually picked up in the very last note in today's statement, note 20. In early July, we announced the intention to effect the restructuring in the U.K. Cash business. The cost of achieving that restructuring is GBP 17 million in terms of redundancy and other cash costs, that will be incurred in the second half. That means that our estimate of full-year restructuring spend is around GBP 35 million, of which GBP 17 million from U.K. cash falls in the second half on top of the GBP 9 million that's been incurred in the first half. This is part of the reason why, in my answer to Sylvia's question, I was talking about a greater weighting in the second half to staff costs in terms of the GBP 100 million saving, the U.K. cash is clearly a significant element of that benefit in the second half.
Thanks, Tim. Thanks, Steven. Did you say you had some follow-ups?
If you wouldn't mind, just a couple of very quick ones. You originally said that you were looking at about GBP 100 million of tax deferral, obviously there's GBP 152 million announced today, which I think you said included some Social Security payments. Just wondering why that's a little bit higher than originally said. The last one, just on the Retail Cash Solutions business. Are you at all concerned internally about the prospects of structurally lower cash usage post-COVID and some of the numbers that we've been seeing out from the payments companies in terms of greater likelihood to use contactless, for example, and more use of e-commerce, et cetera? Is this something that you think might have had a permanent impact on that business or still feeling fairly confident? That's it. Thank you very much.
Steven, on your second question around cash volumes, I think in relation to conventional cash handling, I think there may well be, in some markets, an impact. Very hard to judge the scale of that impact, and I don't think anybody knows for sure. We'll find out as and when we return to whatever the new normal is as to how much cash is used. We do know, though, that even in relation to conventional cash handling, in developed markets, the authorities, the government and central bank authorities are taking, I believe, a more nuanced view of this and recognizing that there is value in maintaining access to cash. I think that's been very explicit in the U.K., in the Netherlands, and so on.
I think there's been lessons learned from countries where cash has been, if you like, squeezed out too quickly, or the use of cash is reduced too quickly. For a number of reasons, financial inclusion and so on, there may also be regulatory or government action to support access to cash. Difficult to call how it will land. I think from our point of view, obviously, we have substantially reduced our exposure to conventional cash handling, and your question was more directed at retail cash. We don't see that at the moment because, in fact, it's probably never been more important for retailers to have very efficient automated cash handling. In big cash markets, we still see customers and end customers using a lot of cash.
Through the first half of this year, although undoubtedly, the rollout of contracts that we had already won was inevitably delayed as retailers adjusted to operations under the social distancing and various other precautions. The rollout was put back. All of our customers are talking to us about how to restart that rollout. Over and above that, we have continued to see good interest from new customers to buying our software and service solution, particularly in North America, but also in Africa and Asia. We've got a healthy backlog. We've got continuing interest. Customers are still issuing RFIs and requests for service, and we're still having bilateral negotiations with customers. I don't think we're going to see the opportunity go away in Retail Cash Solutions. That's certainly not what we're seeing at the moment. There will undoubtedly, as I say, be an effect of delaying rollout.
We hope that we will get back to rolling out those contracts that we've already won in the second half. For now, our view is that, if anything, the need to have a solution like Retail Cash Solutions is greater than it was before because of the importance of efficiency and automation.
On the tax deferrals, Steven, the GBP 152 million tax deferrals at the half year, that is payroll taxes and indirect taxes or VAT. About 2/3 of it is payroll taxes, quite naturally, given our employment base. That is the bigger opportunity in terms of tax deferrals. The half year position is higher than we expected because we have been working very hard over the last couple of months on those tax deferrals. Having said that, I think that the original GBP 100 million guidance we gave in terms of potential tax deferrals was actually a year-end position rather than a half year position. Actually, of the GBP 152 million we got at the half year, a net GBP 50 reverses in the second half. We still expect to have tax deferrals by year end of around GBP 100 million.
Great.
Thanks, Tim. Thanks, Steven. Operator, we'll take the next question, please.
The next question comes in from the line of Andy Grobler calling from Credit Suisse. Please go ahead.
Hi. Good morning, everybody. Three from me as well, if I may. Firstly, central cost was higher at GBP 31 million in the half. You noted insurance and legal cost. Do you think that cost is now here to stay for the foreseeable future? Secondly, just picking up on the previous question and answers on Retail Solutions, could you unpick and add a bit of granularity to the businesses between the U.S. and the rest of the world in terms of where revenue stood for the period and momentum into the second half? Thirdly, again on a similar theme, from a cash perspective within the strategy you have zero growth for conventional cash in the longer term. At this point, do you think that looks a bit optimistic?
Andy, thanks for the questions. I'll ask Tim to comment on insurance and legal costs and also revenue split, and I'll comment on momentum in Retail Solutions and conventional cash. We have two large or largish conventional cash businesses that represent the most of the 4% of our conventional cash revenues. One is obviously the U.K. and the other is the business in South Africa. In South Africa, we still see strong volumes in cash handling, and we still see an opportunity by differentiating ourselves in the marketplace with technology to make that business. Now in South Africa, we've got an integrated conventional and technology business. In effect some of those revenues are in the 3% as well.
That business, I don't think it is optimistic for us to assume that for the foreseeable future there will be good demand for cash and that we can remain very competitive with the technology that we're bringing to that marketplace. In the U.K., it rather depends on what happens with the Bank of England study on access to cash. I would just reiterate briefly my earlier comments that I think regulators have looked with some interest at what's happened in countries where perhaps the cash infrastructure has been withdrawn or otherwise eliminated too quickly. There are legitimate concerns from government legislators and regulators about that.
On balance, I think that in the U.K. it's likely that the Bank of England, obviously I don't want to prejudge their analysis, but let's just say regulators, legislators, and government will want to see a careful evolution of cashless payments versus the retention of access to cash. In that scenario, I think we have a lot to offer both retailers and commercial banks. It is our view, and we've demonstrated this where commercial banks and retailers have taken the step of outsourcing to us, that we can do it more efficiently. Obviously as cash volumes have come down, the unit cost of cash handling for retailers and commercial banks will go up and that's our opportunity. On the whole, I think it's a sensible assumption, going forward. Time will tell. On Retail Solutions, just breaking it down in terms of momentum.
I don't think there's been much change in terms of the split between Retail Cash Solutions in North America and deposit.
About 2/3 of the Retail Technology Solutions revenues are in North America.
Yeah. No change on that front. In terms of momentum, I'd say probably slightly stronger in North America at the moment. Tim.
Are insurance and legal costs here to stay? Well, to a degree they are. As part of the overall program around the efficiency of this organization post cash separation, patently we are looking at costs right across the organization. I guess the broader question is, are those group costs going to remain at that level into perpetuity? That is just one of the many parts of the study we are doing and the work we are doing to improve the efficiency of the business, seeking to reduce those group costs to the extent that we can.
Thanks, Tim.
Thank you.
Thanks, Andy.
Just one quick follow-up if I may. You mentioned earlier about the change in the remuneration scheme, in terms of free cash, which is a very good move. Within that, you also reduced the allocation to free cash from 30% to 20%. Why make that change?
Could you.
It's as a result of shareholder consultation. Think basically the split between EPS-
I couldn't hear Andy's question.
It was the proportion had gone because it was operating cash flow.
Oh.
Yeah. The proportion that was cash flow went from 30 to 20 to free cash flow. The component changed.
Right. Okay.
It was basically as a result of shareholder consultation that we did.
Okay. Sorry, Andy. Apologies. The line was very faint, I couldn't hear your question, but I understand the question now. In a nutshell, it was, as Helen said, TSR went up. That was the reason for the change in allocation, and that was just very clear feedback from our shareholders.
Thanks very much.
Okay, Andy. Thank you. Operator, could we take the next question, please?
Of course. The next question comes in from the line of Neil Tyler, calling from Redburn. Please go ahead.
Yeah, good morning. A couple further questions, please. Firstly, going back to the tech Risk Consulting and Data Analytics type sales, are there any new sales initiatives underway to promote these services in the new environment? Following on from that, any change in the rate of adoption that you're seeing from your customers in any segments or regions in particular? I suppose to be clear and touching again on the investment part of this, do you need to expand the sort of physical infrastructure you have in place before this can happen? That's the first question, please.
Neil, thanks for the question. There is a proactive sales and marketing campaign. We've certainly stepped up our marketing in North America, and Europe in particular, around both Risk Consulting, and RISK360, which is our data analytics and intelligence platform. We have seen a pickup in interest and demand for Risk Consulting and Data Analytics in North America in particular. We've also promoted bolt-on services, again, using our operation centers that we've already put in place. Some of these bolt-on services are, for example, offering automated screening. Where we already have a security contract with access control, we've added, for example, thermal imaging so that we can automatically screen our customers, employees, and visitors as they come through.
Yes, there has been a step up in our marketing activity to promote the use of technology solutions and also to promote the use of remote monitoring as a means of maintaining business continuity. If, for example, there's an issue getting in-house security teams to the workplace during the pandemic. At this stage, what we'd say is there's certainly elevated level of interest in these services. We're having some conversion, but at this stage I'd say we're early in the process. It will change potentially at the mindset of, for example, chief security officers, in our larger client base. The pandemic has probably highlighted the importance of having business continuity, redundancy arrangements. If a customer's got their own operation center, to perhaps also have a fallback using our operation center.
I think it will have some lasting effect on the way people think about technology, and we're pleased about that. Obviously, that's what we're trying to promote. In terms of capacity, we do have spare capacity, so when we put these operation centers in place, we oversize them at the start. There is an element of, if you like, build it and they will come. We do have spare capacity in some of our markets, but we hope that the demand pickup enables us to build more capacity as we move forward.
Thank you. That's very helpful.
Okay.
Second question relates to some comments you made, I think at the full year update, around the balance between wage inflation, and pricing in the different regions. I know it's an ongoing debate, but whether you can offer any perspective on whether this balance has shifted meaningfully recently. I understand it's relatively early days in the sort of post-pandemic employment market, and also if you can update us on the level of, I think you talked about in North America particularly, sort of above average mobilization costs taken last year. Could you just remind me what that was and how you expect that to develop? Thank you.
Thanks, Neil. In terms of wage inflation, I think the most important thing for us to say is it's highly localized. In some markets we have seen a ready supply of new applicants when we advertise for jobs. For example, we're recruiting in the U.K. at the moment, for now at least, we're able to recruit in a fairly straightforward way. If I think about the U.S., it isn't a single market. There are some locations in the U.S. where we are able to get a good response to recruitment campaigns. There are other cities where, for a variety of factors, could be that local law enforcement or other emergency services are also recruiting, or fulfillment centers are recruiting. If there is buoyant demand for labor in those city locations, we continue to see upward pressure on wages.
In the current environment, we've just had to have a very proactive communication program with our customers and spend the time needed to really lay out and explain to customers what's going on in the local market, and therefore, why we need to pay a higher wage in that market, and why in turn, we need a higher price to make the service viable. I think, as a general comment, what we have seen during the pandemic is customers being far more receptive to those sorts of conversations, understanding readily that, not only competing recruitment, but also the effect of the pandemic on available workforce, has meant that you simply have to pay if you want the service. I'm afraid there isn't a simple answer. It's literally location by location.
In some markets, we're seeing abatement or easing of inflationary pressures, and in other markets we continue to see upward pressure on wages, which so far at least, customers have been willing to consider covering. The second part of your question, I'm afraid, you're going to have to.
It was on mobilization.
Thank you. Yeah.
Mobilization costs. The two areas that we highlighted in the year-end results announcement where we saw high mobilization costs were Africa and North America in particular. In both cases, clearly we are doing a lot of mobilization of work. The reality is that in the first half of this year, incremental mobilization costs didn't have a material impact on margin, unlike the case in last year's results.
Thanks, Tim. Thank you, Neil.
Thanks very much.
Okay. Operator, could we have our next question, please?
The next question comes in from the line of Chirag Vadhia calling from HSBC. Please go ahead.
Good morning.
You've talked a little bit about how you see Care and Justice within the portfolio of your group. Could you give us a little bit more detail on how you see then Retail Cash Solutions then over the longer term?
Look, thanks for the question. I think in answering the question about the longer term, I should first address the here and now, which is we've got what we believe is an industry-leading solution in retail cash handling. Certainly, in the big box space, we have been the clear market leader, and we now have a very competitive product in the small box market segment. The business is profitable, it has been growing very quickly, and offers above-average margins. That's quite unusual in a new business for it to be both growing and profitable and cash generative. All of that goes to say, right now what we're doing is pressing home that advantage as hard as we can. We do not want to let up and leave room for others at the moment. This business, we believe, is creating a lot of value for our shareholders.
Altogether, our cash technology is 3% of global revenues, and I think it's reasonable to say this is not going to become the center of gravity of the company. We recognize that there are many ways to realize value. At the moment, though, it's very, very important that as our teams press home this advantage in the commercial market, that we give them our full support and that we don't equivocate on that. I think everybody recognizes that the job that we are here to do is to manage these businesses for value, and we recognize that there are many ways to achieve that value. For now, I don't think it's the right time to talk about the longer-term options. It's a small but valuable part of the group today and adding a lot of value.
Thanks. Given you also mentioned that you're seeing the next five years of having less onerous contracts and a bit of a turning page, how do you see the progression of that? Could you give any context or updates on things such as the Belgian Competition Authority inquiry and recent claims that have come through over the past two years?
Yeah, certainly. Dealing first with the Belgian Competition Authority, we've probably said all that we're able to say in the release. There's quite a bit of detail in the release. This is an inquiry launched by the authority. It's an industry inquiry, not just G4S. We're part of the industry, obviously, and we are giving the authority our full and complete cooperation. It's early days, and we're really not able to say more than that other than we treat these things very seriously and we're giving it our full cooperation. More broadly, I think there's no doubt that when we look at the picture that we had five years ago in terms of onerous contracts, claims, litigation, and so on, we have put a lot of those to bed.
Some of them, as you know, very substantial, very material matters which go back as far as 20 years in some cases. I think we can say with confidence that we have substantially reduced the onerous contracts, claims, and litigation drag that the company faced. We've put in place, I think this is the key point, we've put in place procedures, processes, and controls which reduce the risk of those recurring. A company of our size, any company of our size, I think can reasonably expect that there will be, from time to time, exceptional cash costs.
I think given that we have dealt with a lot of the history, and at the same time put in place new people, new processes, new controls, it's reasonable for us to assume that the burden going forward, or the cost I should say, going forward, is likely to be much lower than the historical burden.
Thanks. My final question is just on the order book, which you mentioned you won and retained GBP 1.4 billion. Could you give us any understanding about how that may have changed under COVID-19 or if there'll be any impact perhaps on the future?
There have been some changes. I don't know that we would call them at this stage structural changes that will persist into the future, but we have seen stronger demand in some verticals. Healthcare, fortunately, in recent years, that's been a focus area for our sales and marketing campaigns. We've built up a good franchise in some markets. Undoubtedly, we benefited from incremental demand over the last six months in healthcare. Another important vertical for us has been technology services. For example, data centers where we are providing both Conventional Security and Integrated Solutions, Technology Solutions. Demand has been strong through the pandemic. That part of the economy has done rather well, I think, during the pandemic, and we've seen strong ongoing demand from our larger customers there. In some of our bigger markets, demand in financial services has been, I would say, surprisingly resilient.
Whether that will persist or not, we don't know. I think what's more likely is the point that we made earlier is that all of our large customers, and even in, I would say in the mid-market, our customers are just looking at the way that security is delivered and looking at that in a new light, given what's happened over the last six months. Our opportunity is to step forward and point out the virtues of Integrated Technology-Enabled Solutions going forward. It's really too early for us to know how strong the uptake is going to be. I would be very surprised if there isn't some sort of structural shift in the way that security is procured over the next three to five years.
Thank you very much.
You're welcome.
Okay, it's Helen here. I am just going to ask a couple of questions that came in through the webcast. I know there are still a few more calls on the phone lines as well. Thank you everybody that has been very patient. Firstly, from Andy Brooke, his question is, I think for Tim, can you remind us of when the next actuarial review is due and your expectations at this point?
The next review is scheduled for April next year. Then the last one was clearly in 2018. I think it was the middle of last year that we resolved the 2018 one. Actuarial valuations do seem to take a glacial pace to actually get resolved. Whilst the official triennial valuation date is April next year, I suspect in terms of the final outcome about what the contribution rate would be going forwards will take a while to emerge and may not be resolved by the end of next year, although clearly it would be nice to get there. You might have spotted in the half-year accounts that actually there's been a fairly significant reduction in the pension deficit from the year-end position. Two things that have happened there.
One is as part of the Brink's transaction, we have sold our Netherlands cash business, and that had about a GBP 50 million pension deficit attaching to it. The other thing is that there's been a change in the spread between corporate bond rates and gilts that's actually resulted in an increase in asset values for accounting purposes in the pension schemes ahead of the increase in liabilities of over GBP 100 million. That doesn't necessarily flow through into a full-blown triennial actuarial valuation. Therefore you shouldn't necessarily factor that benefit into how the scheme funding might change going forwards.
The other point to note on pensions, as I highlighted in the presentation, once we have completed the Brink's disposals in the second half, there is an agreement with the trustees that we will make an additional pension contribution that I estimate to be around GBP 25 million in accordance with the mechanism set out in the deed of undertaking with the trustees.
Thanks, Tim. Thank you, Andy.
I just have a couple more if that's okay. From Danie Pretorius at Coronation Asset Management, to what extent is the margin improvement in the Americas due to mix changes versus higher margins embedded in new contracts?
Thank you, Helen. Thank you for the question. There's several factors at work in the margin improvement in the Americas. It's mostly coming from North America. I think that's the first thing to say. There are two clear benefits. One is operating leverage. I think some of our participants on today's call will remember that about 18 months ago, we carried out a operational excellence program and improved our cost profile in North America. As volumes have picked up, we've benefited from operating leverage. There is a mix effect. We have seen a pickup in demand for Risk Consulting, Data Analytics, and Integrated Solutions. That has a number of important effects. For existing customers, I believe it undoubtedly helps us to retain the services that we deliver to those customers, retain the contract. It also helps us to grow the contract with existing customers.
For new customers, clearly where we are providing software Data Analytics, Risk Consulting, those are not at the same margin as conventional security services. We are seeing some mix effect. To sum up, it's a combination of operating leverage and beneficial change in mix. Thank you.
Thank you. Operator, we will now take the next question on the phone line, please.
Thank you. The next question comes in from the line of Rory McKenzie calling from UBS. Rory, please go ahead.
Morning all. Rory here. Just two please. Firstly, can you quantify any short-term contracts you've won during the crisis? I think about things like guarding of vacant buildings or queue management, and whether you've already started to see those kind of short-term wins start to fade. Secondly, what's the difference between the GBP 50 million SFO charge you've taken and the GBP 44.4 million announcement that the SFO made about the penalty plus legal fees, please?
Rory, thanks for your question. I'll ask Tim to provide numbers on both of those questions, but just as a sort of precursor to the answer. In terms of short-term work, I think the color we can provide is that, for example, in the U.K. we're supporting the government in COVID testing. We have 15 test sites at the moment, and we're rolling out 60 mobile testing sites. I regard that as temporary work. The revenue is in the single millions of GBP, that sort of level. In North America, it's harder to judge what is going to be, with hindsight, temporary work and work that will stick. Vacant buildings, for example, when the customer returns to occupy those buildings, there'll still be a retention of some level of security. I think it is right to say that there probably is some temporary demand out there.
Quite difficult to quantify. Tim might have a go at that, but I don't think, in fact, I'm sure it is not the primary reason for the growth that we've seen in our Americas business and our North American business. The reason we can be confident about that is, our business in North America grew very strongly last year and the fundamental reasons for that growth are still in place today, which is a very competitive service offering for our customers. That, I believe is the reason that that business has continued to grow. There'll be some effect, but don't think it's material. Tim.
On the SFO charge, the GBP 50 million versus the GBP 44 that the SFO were talking about. The GBP 44 includes both the financial penalty of about GBP 39 million, and the SFO's costs of the investigation. Outside that amount we have incurred our own legal and other advisory costs in managing what has been a seven-year process of the SFO's investigation, and that is the balance between the GBP 44 and the GBP 50 we provided for.
Thanks, Tim. Thank you, Rory.
Okay. I've got two questions from the webcast. I think these may be our final questions. Probably the operator will now poll for any other questions. The final two. The first one from Johan at Kepler Cheuvreux is, you mentioned that you finished the main cleanup and streamlining of the company. However, you have a very patchy geographic coverage in Europe. Is that not hampering your offering to large global customers, and what can you do about it?
Thank you, Helen. Thank you, Johan. I am hopefully not sounding too defensive, but we wouldn't regard our position in Europe as patchy. We've got, I think, a very strong position in Europe. You are right that there are some, of course, there are some markets where we have chosen not to build our own franchise. In those markets, typically we have a strategic alliance with a local provider, and that has worked well for us and has not stopped us from growing our global account business, for example, in North America. Could we consider building out into those markets? Potentially, but it's not a priority right now. I think we've been able to manage quite well without entering those markets.
Thank you. I think our final question, also from Johan, is on Retail Cash Solutions, it's 7% of EBITDA, and then you said cash positive. How big a share of the operating cash flow was from Retail Cash Solutions in the first half?
Put simplistically, it's pretty proportionate to the EBITDA, so probably around 7%.
Great. Thank you. Courtney, can you confirm that there are no more questions?
There are no further questions in the queue.
Thank you, Courtney. Thank you everyone for joining and participating in the call today. We look forward to announcing our full year results and talking to you then. In the meantime, please take care. Thank you and goodbye.