Earnings Call: H1 2019

Aug 1, 2019

Robert, a couple of minutes late. So we'll kick off. Good morning, everyone. I'd like to offer a warm welcome to the people here in the room. And also to everyone watching, this morning via the webcast and thanks again for your interest in Capitec. Before we begin, have to, as always, of course, draw your attention to the legal text on the screen and also on page 3 of the pack, we've handed out this morning. Over the last 18 months, we've undertaken significant work to re engineer capita, We're improving the operational and financial performance of some legacy contracts, something I'll come back to. We're investing in the systems and processes necessary to better run our business model. We're strengthening relationships with key public and private sector clients and we're investing in propositions and in our growth function. I want to emphasize that we are not taking a short term view, but addressing structural and strategic issues, many long in the making, to ensure we create platform for long term sustainable growth. We are intent to create a better quality business. We're now beginning to see tangible reward for this effort in our improving status with clients and the first signs of organic growth in some parts of the business. So the headline is our transformation is on track Our guidance for 2019 remains unchanged and we are reiterating our 2020 targets. Now before I hand over to Patrick for a detailed run through the first half financial performance, a quick reminder of our transformation plan, which is underpinned by 3 imperatives to simplify, to strengthen, to succeed. Our plan is transforming capital into a more consistent predictable business and one that will generate sustainable free cash flow. And to deliver growth, we are focusing on businesses in those market, focusing our businesses on those markets with attractive margins and strong long term structural growth trends as we evolve, of course, to being a more focused consulting digitally enabled services and software technology business. And indeed independent research here in the UK suggests that the market for for such services will grow between mid single and low double digit rates over the next 3 years. And it's not as if we're starting from scratch, tech market view one of the leading tech research firms here in the UK recently ranked capita as the leading supplier of software, IT and business processes surfaces in the UK. Now this next slide is a repetition of something we showed you in March gives you clear insight into the progress of our transformation. We are executing against 6 key transformation work streams listed here with the starting point on the left and a definition of success on the right. The light blue dot are progress made to March 2019, The dark blue dots are the progress we expect to make through 2019. Once there have been some puts and takes, I want to emphasize again that overall, we are where we expected we would be at this stage of our transformation. And in a moment, I will talk you through some of the initiatives we are undertaking to now pivot to growth. But before I do that, over to Patrick. Good morning. Delighted to be with you again today. This is my second results presentation for CAPITA, and I've now been with the group for a little more than 6 months. My first impressions around the reach of what we do and As John will discuss in more detail later, we're making good progress across a wide range of areas. And by the end of the year with new management and information systems, and the benefits of stabilized and embedded governance, the business will become more predictable and understandable. This slide contains the key financial metrics for the group. As a reminder, to provide a clearer picture of the group's performance, we report our results on an adjusted basis. There are fewer adjustments this year and I expect this simplification to continue. However, this year sees the implementation of IFRS 16 which has a material impact on our results. To aid comparison with last year, we will be discussing the results before the impact of this change. Turning to the results themselves, overall, they were in line with our expectations. Revenue is down, mainly reflecting losses in structurally challenged markets in 20 seen, but excluding those, revenue has stabilized. The lower revenue impacts operating profit, but at the profit before tax, after the benefit of lower interest charges, profit is pretty stable. I will cover cash flow and debt movements in more detail later on. But first a word on revenue. I spoke at the full year about changes in some of our markets. Most notably in parts of local governments and parts of our life and pensions business. These charts show the breakdown that was explained at the full year. Between those markets in structural change or runoff and the rest of capital. The chart on the left shows the order book And it is important to remember when you look at the order book that around 40% of our revenue does not flow through the order book. Examples of this include purely transactional revenues such as recruitment and some IT sales as well as revenue earned from framework contracts which do not contain volume guarantees such as the DWP PIP contract. While the chart on the right shows annual revenues, we're excluding the structural structurally challenged markets, revenue is expected to stabilize in 2019 before returning to growth in 2020. As John will explain later, the investment we are making in building the capacity and capability of our growth function and propositions for our clients is central to driving this growth. So far this year, there are 3 main changes that have influenced three main factors that have influenced our revenues. Contractor, we have lost, totaling some 138,000,000, which you can see on the second bar, These fell into 2 main categories. The contract came to an end and we chose not to rebid because either because the contract was not consistent with our corporate purpose or was not consistent with our business strategy, or the contract was just terminated early. The next bar shows the million impact of changes to some of and the impact where for a number of reasons clients have varied scope, mainly in local government. Finally, there have been a number of contract wins in IT And Networks and in government services, totaling 1,000,000, which has already doubled the total for the whole of 2018. This slide provides a different perspective on revenue and shows the impact of the change by division. The slight reduction in software revenue is as a result of an unusually large license deal coming to an end in the first half of twenty eighteen, Project revenues in Government Services have been strong. However, reductions are expected in that business unit in the second half as the local government contract terminations discussed earlier start to take effect. Specialist Services revenue also reflects the reductions in Life And Pensions mentioned earlier. For this slide, which shows the profit, the change in profit before tax, I'm using the divisional breakdown. The first impact shown on the slide is a one off profit related to the termination of the Marsh contract in 2018. The reduction in revenue has had an impact in the relevant divisions, However, cost reductions, which have realized some 1,000,000 in the first half across the whole business, are starting to have a real impact in some divisions, in particular, software customer management and specialist services. Profit in all divisions and in particular in the central functions, has also been affected by the investment of around 1,000,000 in professionalizing our corporate functions, the cost of cyber and GDPR and investments across most divisions in addressing service delivery challenges on some of our larger contracts. In addition, we have invested 1,000,000 in building sales capacity and capability that will be critical to future revenue growth. This slide provides a breakdown of financial results by division. I'll not spend much time on this slide, which highlights the widespread of profitability and margins between divisions, as John will provide more color on a division by division basis later in the presentation. Now this slide is still more complex than I would like because a clear presentation of free cash flow is essential to good understanding of our business. The working capital outflow is reduced as the investment of GBP 146,000,000 to normalize period end cash management rolls off the numbers. I've combined the movement in deferred income, accrued income, and trade receivables as the movements between these categories are influenced by timing differences. The slight increase in outflow reflects the net impact and the IT And Networks division, offset by a lower deferred income release on local and central government contracts. The movement in trade payables is partly as a result of further investment in improving supplier payment terms and some payment differences at year end. As expected, capital investment is higher and is discussed on this next slide. Net capital expenditure so far this year has been 1,000,000. The major items of investment included continued progress in updating our financial systems, to improve financial reporting processes and controls. There's been investment in software to drive new propositions and enhance existing products, which can be seen coming through these numbers. We're very focused on driving business cases to increase this investment to underpin the delivery of revenue growth. Looking forward, we still expect to invest around 1,000,000 between 20182020. This slide shows all the cash flows that are not included in free cash flow. These include known and expected commitments such as the million investment in business restructuring and the second of 3 significant payments under the pension deficit recovery plan. And also in the period, we used some of our surplus cash to repay a million term loan. This is a new site, so I'll spend a little bit of time on it. It shows net debt on a 7 day rolling average. And it highlights 2 major changes in our net debt. The first is the reduction in net debt following the rights issue and 2 business disposals which together have significantly strengthened our balance sheet. Which was a feature of the cash management activities that we no longer undertake. At the beginning and end of the relevant month, June or December and it is highlighted by the arrows which, for example, in December 2017, show a movement of 1,000,000 compared to 1,000,000 in June 2019. And I've had a look at the chart going further back and the volatility was even higher. And we think that this chart marks a step forward in transparent disclosure agenda. This slide further highlights the scale and impact of the de gearing of the balance sheet that took place in 2018. Total liquidity remains around 1,000,000,000 including cash of just under 1,000,000 and the revolving credit facility of 1,000,000. This liquidity provides the business with the financial resources that it needs to support the ongoing transformational change and investment. As I said earlier, the impact of IFRS 16 will be significant an increase in assets and liabilities of 1000000 and 1000000 respectively Lease rentals are replaced by depreciation and finance charges, improving operating profits and margins but because of the mix The group is in the 2nd year of a major transformation. The successful delivery of this program of change and in particular, the revenue growth and cost saving initiatives are critical to the future performance of the group. Net finance costs are expected to decrease to around 1,000,000, reflecting the lower debt levels and profit before tax is still expected to be within the range of 1000000 to 1000000. As usual, the key variables in the range are the delivery of the cost savings and the timing and impact of contract wins and revenue growth as well as any potential contract restructuring or terminations. Another point worth noting is that the cost reduction plan is weighted to the second half of the year because as you will remember, we accelerated that from 2020 into 2019, so it's weighted towards the back half. We expect our net debt to EBITDA ratio to remain within our target of 1 to 2 times before the impact of IFRS 16. However, as a result of the pension deficit contributions and accelerated investment in restructuring, it will remain in the top half of the range for this year. Again, just to remind you, all of these exclude the impact of IFRS 16, however, the impact expected of those changes is shown in an appendix. Very much for your time and attention. I'll now hand back to John Thank you, Patrick. I have a few more years on this gentleman, so I'm going to remain seated if that's okay. I'm pleased with the progress we're making in the transformation of capita. We continue to recruit the right talent as evidenced by the executive hires we have announced today. We've put in place a more effective operating model and procedures and by the end of this year, we will have the appropriate management information systems in place. And I hope you get a sense, too, that we continue to transform at pace. As we talked about at the full year results, at the start of this year, we launched Capita's 1st Pan organizational operating model, 1capita. This is the foundation for how we act and enables us to deliver more consistently and with the organization's adoption of our operating model, which is bringing much needed clarity to how we run the business and facilitating perhaps even more importantly, collaboration across capital, particularly on client propositions. A good example of this would be the work our consulting organization is doing with the data communications company to propose a solution to better predict power demand, for utility supply. We still have work to do in driving the cultural change required, but I'm pleased with the progress we are making in this arena as well. Our purpose deliberately speaks to our responsible business strategy, an area where we have made encouraging progress in changing key stakeholder perceptions of capital. Obviously, a very critical dimension of our overall transformation. For example, We are now the only LSE listed company to include 2 employee executive employees on the board of directors. We've done this for multiple reasons, but primarily to bring our 63,000 colleagues with us on our multi year transformation. We have produced our first ever supplier charter outlining how we operate and work together with our 35,000 suppliers laying out the core principles by which the company does business and what capital expects from its suppliers in return. We are committed to meeting the government's prompt payment code, ensuring full compliance on payment terms for our micro and SME suppliers in particular, and in aggregate, capita has now met the requirements of the code for the last 12 months and in fact was recently recognized by both number 11 and the Federation of Small Business for being an exemplar in this regard. We have made a further scheduled payment to reduce our pension deficit, in line with the commitment I made to reduce our actuarial pension deficit as a matter of priority in January of last year. And we are this year seeking accreditation from the fair tax mark. These and other tenants of our responsible business strategy will be published in our first responsible business report later this year. Our most important asset are our people. And I want to take this opportunity to thank our colleagues, many of whom are listening in this morning for their hard work and their commitment to our transformation journey. Thank you. As a business to business to customer or B2B to C services company, we are only as good as the ability of our colleagues to consistently delight our clients' customers. For this reason, it is vital we invest to bring our people with us on this transformation journey. And we have launched our HR 2020 vision which Pan Kapeter defines for the first time such things as career paths, training opportunities through the newly formed Kapeter Academy, and Cabotas first ever employee performance and succession management system in order that colleagues have clearly defined objectives and that management has clear oversight of performance against these. These actions are a tangible demonstration of our focus on and investment in our colleagues at capital, something that is core to attracting, developing and retaining the right talent. And of course analogous to what you would expect in any professional digitally enabled services firm. And as you can see from this slide, our people, our colleagues are choosing to stay longer. And the rating employees are ascribing to us as a desirable place to work is trending upwards. Our glass go rating, for example, is at a 4 year high. We are already seeing economic positive economic return on these actions, for example, through greater employee engagement in our customer management business, we have increased retention and reduced associated costs of recruitment and training by over 1,000,000 in the last 12 months. We have also continued to recruit significant talent into the business at multiple organizational levels. The executive committee continues to evolve. As we build a team to deliver both the near term operational improvements the business requires as well as long term sustainable growth. Andy Stark joins us this week as our new Head of Government Services and we've announced today that Chantel Free and Amy Chapel will join us will join us in October to head up our people solutions and customer management divisions, respectively. And you will find short bios on each of these new hires, in the appendix of the slide And in summary, these 3 are proven executives that bring precisely the skills we need to deliver on our strategy. We remain very focused on increasing diversity and inclusion. And for the 2nd year in a row, we have submitted improved gender diversity statistics to the Hampton Alexander review. Now I have spoken previously about 3 significant contracts that presented capital with operational, reputational and financial challenges in both 2017 2018. We are continuing to make encouraging progress here and have made improvements against delivery of their key performance indicators. For example, in the first half of twenty nineteen, we delivered a very successful advertising campaign that resulted in the highest level of basic training starts of regular soldiers to the British army since our contract with the army started in 2012, and we have continued to make good progress since. In June, Richard Baynam for the National Audit Office said it is clear that the higher level of engagement of last summer by capita has been translated into action, intent and delivery. The second contract is Primary Care Support England, better known as PCSC for NHS England. Our operational performance on PCSC is now stable and delivering on the vast majority of operational KPIs. Our new digital solutions for both ophthalmic payments and the performer lists were successfully tested last month and we now will roll these out in the second half of the year. Importantly, these will enable us to materially improve the end user experience but also significantly reduce the cost of service tell. We are meeting all of the key performance indicators on this contract today and our focus is now on driving further efficiencies to reduce the cost to serve through amongst other things, the adoption of automation technology. As a result of these operational improvements, we continue to plan to generate an aggregate profit on these contracts in 2020, including reaching breakeven on PCSC and MobileCom Debitel by the end of that year. Now we will continue to update you on progress against these specific contracts, but I want to spend a little bit of time today talking about the rest of the portfolio. Our ability to deliver on contracts today is helped by a number of things by our improved governance and our controls but also because we are being far more selective and disciplined in terms of the scopes of work we bid on in the first place. We've also made encouraging progress with respect to the professionalization of our project management function, and we have now rolled out our proprietary program management tool Evolve. Consequently, today by far the majority of our contracts are being executed on time, on budget and to client specification. For example, We implemented and now operate Central London's U Less, the ultra low emissions zone system for transport for London. This was a very complex implementation using highly sophisticated technology that went live with no operational issues and continues to meet all operational KPIs. We had several complex, but very successful go lives of our control work emergency control and solution, with several major police forces across the UK, in the first half. And now we have implemented 911I with 6 police forces in the United States. We set up the help desk to support key stage 1 and 2 on our standard and testing agency contract and the digital solution and the pinning the delivery of this contract will go live in the second half of this year. And last week, capita achieved the best ever service delivery, highest quality scores and lowest complaints ever, on our contract with O2 in the first half of twenty nineteen. And we have since been working with O2 to develop a new model for their premium customer service and in investing in a multichannel messaging platform that will replace the current O2 web chat service later this year. I think it's also important to emphasize that by being there with our clients day in, day out, delivering strong service performance of itself creates new opportunities, which historically perhaps capita didn't maximally take advantage of. And in fact, the growth of our business over the last 18 months with transport for London is a case in point. Operational excellence is one of the key transformation work streams by which we will continuously improve our competitiveness as a corporation. And there are 3 broad elements to this work stream. First, we have a program to continuously improve our operations, clearly defining and standardizing our procedures using lean methodologies to drive productivity and making better use of the copious quantities of operational data we have through the execution of these contracts. And most importantly, as a result of that, reducing the cost of poor quality and the cost to serve. 2nd, we continue to benefit from the 12,000 colleagues we have in our global delivery centers in India South Africa and Poland who continue to deliver exceptional service for our clients. And we expect to add in the region of 800 people to our organization in India and South Africa specifically this year, including further expansion of our digital development center, our shared services support for the functions as well as growing the number of contract agent, contract center, contact center agents we have in South Africa. 3rd, we are focused on playing a leading role delivering automation robotics and artificial intelligence based solutions. And in the first half of this year, We became a regional partner to UiPath, 1 of the world's largest and most successful robotic process, process automation providers, And we now have, as indicated in the March results, more than 100 developers, analysts and program managers working at our newly established automation center of excellence in Birmingham, leveraging not just UI path, but our strategic relationship with Microsoft to deliver these solutions from by 3% through the use of automation by the end of 2020 and also offer this service to our clients through our consulting practice in due course. Automation also allows us, of course, to focus colleagues on more value adding activities for our clients. As a result of these actions and others, we remain on track to deliver million in savings by the end of this year. Now Patrick talked about some of the investments that we are making improve capital management systems and modernize and professionalize the way we run this business. And over the next two slides, I want to give you some color regarding the increased proportion of investments that is now going into growth, creating sustainable long term growth. First, I want to tell you about 2 new digital products that we will launch in the second half of this year in the human resources sector. The first product involves the digitalization of security watchdog, our existing UK market leading pre employment screening service. That's a business that currently has revenues in the region of 1,000,000 per annum. It fulfills an important role for clients helping them to make appropriate recruitment decisions and preventing illegal working and identity fraud. We're building on the considerable domain expertise we have in arena, creating a digital version of the process that is both more efficient and comprehensive in the background checks it undertakes on individuals. We're using advanced analytics and integration of open data sources to significantly shorten the average screening time. We're reducing it from an average 25 days to 5 days. We're also working, importantly with channel partners such as Workday and SAP to make the digital service available to their customers. In fact, security will be the only screening service to be included in the Workday Partner marketplace in the UK from the fourth quarter. We are one of the first in the market to offer a digital screening solution. It's been developed by us, but also in close partnership with an established portfolio of course, a blue chip HRO clients who we also anticipate will embrace the solution over time. The second product is a new digital onboarding application, which is a neat fit with the new security watchdog offering. This product is designed to significantly improve the experience of new employees particularly in the period between accepting a new role and starting it. We have developed this product, for our own use, particularly in our customer management business and alongside existing and new clients in sectors such as retail, hospitality and financial services to create a single digital solution that engages new employees between offer acceptance and their first start date enables new starters to be more productive from day 1, increases retention in those sectors where the high turnover is in the 1st few weeks of employment. Both of these products will contribute to the growth of our People Solutions division in 2020. But I think there's an even more important point I want to make here, and it is that historically, capita would have acquired such innovation. These solutions represent 2 of a growing number of examples of organic digital innovation at capita and speak to what we should be able to achieve into the future. Rigiting growth is an area where we need to make significant progress in 2019 to deliver an acceptable level of revenue growth overall. We made real progress in the first half and believe we have now put in place the foundations for sustainable long term growth. 1st, by pooling existing consulting capabilities in data analytics and digital experience at the group level and combining these with 20 new partner level hires from Global Professional Services Firms. And we are now using that consulting capability more strategically to create revenue growth opportunities. Through consulting engagements we believe this proven model will generate more pull through revenue for the rest of the divisions. 2nd, by ensuring we have the right competencies across our growth function, to change the types of conversation we are having with our clients and that we choose the right scopes of work as a result, as mentioned earlier on. To this end, a consulting selling model within the sales function and have now delivered sales methodology training, in the first half to 650 frontline sales executives. One might argue that the recent expansion of the scope of our contract with Southern Water to provide end to end customer services, billing and collections is a great example of working consultatively with a client to create additional value for both parties. 3rd, we continue to invest in better client advocacy through classic account management, something capital historically did not have, and additionally, industry segment expertise. And lastly, we are investing in our customer relationship management systems to better define and track our pipeline of opportunities and also allow us to allocate sales resource more efficiently and ultimately, of course, to improve sales accountability. Through the above, we are identifying client opportunities more proactively and, as a result, believe we will win a higher percentage of our revenues through non competitive processes. And this is already paying off. Our pipeline of opportunities is growing, and revenues in our core businesses are pivoting to growth. And our consulting practice has won several engagements. I'll give you some examples. We're implementing an artificial intelligence solution to support a German telco with better customer retention. We're automating processes for a client the Financial Services sector here in the UK and we are supporting a major retail bank to implement agile working practices. I'm very pleased with the speed with which our consulting focus is gaining traction in the market. Now in the first half, we were awarded contracts worth 830,000,000 that went into the order book. That's not the value of all of the contracts we closed in that period as, Patrick alluded earlier on. Our software division performed particularly well, winning a number of contracts in the emergency services and utility sector. These included contracts for communications with the Metropolitan Police, records management for Police Scotland and a new contract with SSE business energy to support the delivery of the next generation of smart meters. Customer management has extended its contract with Carrefund warehouse for a further 5 years, and IT And Networks won more work with transport for London and a new contract with Energir. Momentum has picked up since the half year. We were able to recently announce a million contract to modernize and support improvement to the operational effectiveness of the Ministry of Defense's Fire And Rescue Service, and a projected GBP 145,000,000 extension of our contracts with the department for work and pensions and the department for communities in Northern Ireland to deliver personal independence payment assessments. Both awards are a clear measure of the confidence and trust government has in capital's ability to deliver critical public service. This slide contains an overview of the broad range of progress we are making in each division. Over the next six slides, I will quickly 5 software business in the UK with healthy margins, high margins, good cash flow and a strong platform for long term growth. And there were a number of important milestones in the half. First, our software order book increased by 6% and our book to bill ratio exceeded 110 percent, giving us confidence on our ambition for the second half of this year and twenty twenty. In addition to the wins already mentioned, we won a new contract for a police force in North Africa and we extended our contract to support UK ambulance radio terminals communication and mobile data sources in our digital development center in Pune and substantially. We now employ more than 1300 people, supporting both categories of software development at Capitan. I want to remind people that there are 2 distinct categories of software development in the company. Firstly, that we sell through our classic software licensing model in capital software. But secondly, the proprietary software platforms we develop for our digitally enabled services. 3rd, we have made encouraging progress with our software entry into the U. S. As a result of the above, we continue to expect to grow division revenues from the second half of this year and target at least mid single digit growth in 2020. You will remember that last year, we brought all of Capital's human resources businesses together under a single leadership for the first time creating our People Solutions division, which provides services across the employment life cycle. In the half year, we created a new data and analytics platform to support the modernization of existing and the launch of new digital solutions, I gave you some examples of that earlier on. We won several new contracts, including resourcing services for the home office, learning services for Network Rail, pension administration for a leading pensions insurer and screening services for Nestle. We increased investment in client service which took priority in the first half over actions to reduce cost in this division and therefore impacted margins in the first half. The proportion of clients taking more than one service has doubled admittedly from a low base. And in the last year, there in the last year, and there remains significant opportunity to sell more of our people solutions offerings into our existing client base. Capital is a leading provider of customer engagement services, both in the UK, Switzerland and Germany, with a strong press the telecommunications, retail and utility sectors. And in the half year, in addition to the awards already mentioned, we extended contracts with a number of clients, including British Gas and a leading High Street bank. Government Services remains a key segment for us with many long term contracts strong working relationships and cash generation. And of course, government is no different to the private sector in its need to embrace digital transformation as a means both addressing budgetary pressures, but also of course, as a means of better serving the citizens of this country. In the half year, we identified over 200 opportunities to use automation to improve productivity across our government sector contract portfolio. For example, using online forms, on our Gas Safe Register contract to automate and download the files from and to automating download the files from 82 NHS databases on our PCSC contract. In local government, we have separated our operations into growth services, scalable, repeatable digital solutions, such as revenue and benefits collection, and planning services, separating that from legacy multi service contracts that, as we have described previously, are in structural decline. We're working, of course, closely with councils such as Birmingham to agree and manage a smooth transfer of services back to local authority management. We are a top 10 player in UK, IT And Network Services and having brought our IT businesses together last year We have increased the use of shared service centers and common processes and can provide now end to end enterprise services to midsize third party customers, government and other parts of capital. And we are now beginning to pivot towards growth in that division, building our sales capability and developing new offerings. In the first half, we continued to modernize and strengthen our IT infrastructure by investing in our data centers, we began to transform transport for London's network estate and one additional work from them to deploy cellular infrastructure in the London Underground and to facilitate the delivery of dedicated mobile connectivity for the emergency services. We won a new contract with Energia and extended our contracts with the education authority of Northern Ireland And Liberata. And we have begun to see the first evidence of an improving sales trajectory in our pipeline, which increased by 50% since the end of last year. Lastly, specialist services, this of course includes our financial services and regulatory sorry, regulated operations, government and specialist commercial partnerships such as Axalos and Ferra and many other stand alone businesses such as travel print and property. And as we stated previously, we are managing these businesses to optimize their value and each business has its own defined strategy. In the first half, we stepped up our efforts with some of our closed book clients in life assurance to seek better long term solutions for both parties, We further developed our partnership with Zurich by bringing all of their UK customer service operations together and taking responsibility for administering their new life protection proposition, a market leading set of products and a digital services platform. And we took a number of actions to reduce our costs limiting the impact of last year's loss of the proved and Marsh contracts. So to recap We continue to transform capita into a more predictable lower risk business. A year and a half into our multi year transformation plan, we remain on course including the generation of at least 1,000,000 of sustainable free cash flow in 2020 and double digit margins. I thank you for your attention. And Patrick and I would be happy to take your questions. Paul? Do we have a mic, please? It's Paul Simon from Barclays. Just firstly, you seem to have quite a lot of confidence and visibility on the software business and you're sort of giving a sort of a hard target for the second half and for next year. Could you talk about the other parts to the portfolio and how envisaged then how do you go through those bits performing in the second half? That's the first one. And then just tied to that, the order book for the digitally enabled parts of the business ex software look like they were down year on year. So again, what's sort of going on there? And is it more phasing than anything else? And then local government, would you would you help us by sort of splitting out the revenue decline you saw there it sounds like it did better than expected, but it sounds like it's going to get worse before it gets better unless it doesn't get better? So Paul, you're asking a level of detail there. We're probably not going to satisfy you on, I'm afraid. I mean, clearly, we are now and we did do in the full year results, distinguished between what we call the structurally challenged elements of capital, local government local government multi service contracts. We are not exiting the local government market, I hasten to add, as well as our life and pensions business. And I think There's a very helpful slide. It was slide, I don't know, my glasses aren't 9, I think it is. In Patrick's section, which speaks of course to what is happening, through revenue overall. If we look at the non structurally challenged parts of capital, what you might wish to refer to as core capital going forward, then clearly revenues have stabilized. And on the basis of the order book, and what we're forecasting for the second half of the year, we're starting to pivot to growth in some of those businesses. I'm not going to get into details as to which are and which are not. They're each at different stages in their evolution. But the very fact that revenue decline has stabilized after many years of decline, I hasten to add, is encouraging obviously. Just picking up 1 or 2, have slightly more specific points. The you are corrected in Government Services because revenue grew and we're expecting some of those life authority contracts to go in the second half of the year. The impact of that whilst still sooner than we first thought is now later than we second thought. What we as we look to revenue for the whole of the year, we're comfortable with where consensus is, which roughly means that revenue in the second half will be, the same as in the first half. The important point on order book is about 40%, as I mentioned, of our revenue doesn't go through the order book. So that isn't the sole measure of how we feel about the future. And in fact, if you take the DFRP contract alone and had we signed that in June rather than in July, then actually the order book would have been flat. So the order book itself is heavily influenced by the timing of the timing of signing extensions or big contracts. So it's a much better thing look at over a longer time horizon rather than to sort of overreact to kind of 6 months, windows. Thanks. It's Rob Plant from Panmure Gordon. Has the change of government and the focus on Brexit had any impact on activity in your central government businesses generally? To date, no. There have been some modest engagement opportunities that we have undertaken for various government departments to help them with their Brexit planning. Clearly there is potential to do more as government furthers its Brexit, planning. And obviously there have been statements in the last week about the commitment of funds to achieve that. None of, none of that, today is coming our way, but are we going to actively engage with central government given the degree to which we of course, we would. Good morning. Thank you. Tom Sykes from Deutsche Bank. A few questions, please. Firstly, just on the PCSE deal, I think in the second half, you get a milestone payment from switching on the ophthalmic admin system or whatever it's termed. But in H2, do you therefore get the milestone payment and the cost saving And so therefore, you get a double benefit in H2. And then are there any other milestone payments to think about on that contract, please? Just in terms of the second half, you gave that adjusted free cash flow, slide where you were about minus 1,000,000 or so, when we consider the movement in year on year organic revenue, and the movement in deferred income, would you expect that adjusted what was -1000000 to then be actually a positive number in the second half of this year now? Is that the scale of cash improvement that we're seeing? And maybe, is it possible to give some kind of view on the scale of sort of larger contracts that you're actually bidding on some kind of visibility on whether there are other defermo type contracts, customer management contracts of reasonable size, that you're actually in a competitive process on now that you'd expect a decision on in the next 6 to 12 months, please? So Tom, thanks for the question. I'll do 13 and then Patrick can do 2. There is no milestone payment on PCSC in the second half of this year. That's not how contract is constructed, we will realize the benefits of that contract as and when we deliver the cost savings to the client. We will largely reallocate a significant number of people in that contract to other opportunities we have through 2020 and it will be through the reallocation of that resource that we will realize the cost savings and they are material and they're one of the key reasons why we are stating that we will, that contract will turn to profitability at the latest by the back end of 2020. You might want to do 2, Patrick. So on the cash flow, it was a, as you said, a small outflow we're talking about broadly flat over the year, so we'll be a small positive in the second half but not significant what causes that difference. CapEx is probably going to be slightly higher in the second half and the restructuring, will be, it's not in free cash flow, but in net debt, the restructuring will be a little bit higher. Working capital, we're guiding deferred income unwind of somewhere between 101150. It's quite volatile depending on the exact timing of any further contract restructurings. And, Tom, to your 3rd question, you know, I said in our prepared remarks that we are encouraged by the growth in the pipeline, particularly as we have invested in our growth function And that pipeline includes some material large contracts that we are going to be bidding on through to the end of this year and into 2020, yes. Okay. And nothing sort of more you can give as you are bidding on something, but that's it. Well, there are there are large contracts in government around the provision of, for example, HR back office services. There are similarly large contracts in government around training, we have a number of and these are in the hundreds of millions not in the tens of millions and we have a number of opportunities in the financial services arena for a very large bank. That's probably all I want to say at this stage given we're in a competitive process on some of them and we're in progressing a non competitive dialogue in others. Okay, thank you. And would you expect any announcements on those in 2 this year or is that into? I learned a long time ago never to predict when you can close a contract with the government in particular. I'm afraid I'm not going to change that policy. It's, you know, who'd have said, you know, we bid on defense fire and rescue, three and a half years ago. And, we closed it in, in, in July of this year. So I just, it just would be inappropriate for me to, to to voice of timing. We're progressing them very actively. We're very engaged. We've got a much more professionalized growth function today to engage with clients on those sorts of opportunities, but some of these things will close when they close. Good. Thanks very much everyone for your interest in capital this morning. Thank you.