Welcome to everyone here in the room in London, and to those who joined us on the webcast, thank you for your ongoing interest in Capita. On April the 23rd of this year, we set out our transformation plan for Capita. Many of you were at that event. Today, we will share our progress against the commitments this plan defined, and begin, I hope, to earn a track record for doing what we said we would do when we said we would do it. This has been a challenging first six months. Indeed, we've had to address more issues than is normal over such a relatively short period of time. In fact, we joke about Capita dog years. Whilst there's still much to do, what I hope you take away from this morning is that we're making very good progress.
The first half results are in line with expectations, Nick will take you through the details in a moment. We're reiterating the profit guidance we gave for the full year 2018, updating it only for the disposals you'll already be aware of. We added GBP 921 million to our order book in the first half of the year, a combination of extensions and new contracts, and had a number of very notable contract wins subsequent to the half year end. We are making very encouraging progress executing our strategy, some highlights of which are that we put in place a new organizational structure, that we first presented in April. We've completed the rights issue, which we did in May, with proceeds of just over GBP 700 million. Disposal proceeds have gone particularly well and ahead of plan. We committed to GBP 300 million, we've delivered GBP 416 million.
We are on track to deliver the GBP 70 million cost out target for 2018, and the GBP 175 million for 2020. In terms of our overall 2020 financials, we remain on track to deliver these. In April, we introduced the concept of Simplify, Strengthen, and Succeed, this being our transformation strategy framework. Over the next three years, we said we would simplify Capita by reorganizing the business to focus on our most promising positions in long-term, secular growth markets. We also said we would do this with a much simpler organizational model, more disciplined processes and oversight, and greater cost efficiency. I am pleased with the progress we are making against each of these. Since April, we've put in place our new organizational structure, comprised of six divisions supported by a common set of group capabilities, much stronger functions.
We've also commenced work on the design of our new operating model, and we will say more about that in our full year results in March. We have sold five non-core businesses in the first half of the year, which helps us to strengthen the balance sheet, of course, and we've made very good progress on executing our cost competitive initiatives. I'll say more about that in a minute, but again, very much on track. We said we would strengthen Capita by improving our operational performance, governance, and oversight. We said we would invest up to GBP 500 million in differentiated capability, particularly, of course, in our growth platforms, and that we would strengthen the balance sheet. Since April, we have completed, as I said, the rights issue. We've raised GBP 701 million in gross proceeds.
We've instituted far greater discipline. Our governance setup is stronger with new investment contract review committees that Nick and I chair, so that we ensure we win the right work and optimize our allocation of capital appropriately through our new investment committee. We have agreed a strategic partnership with Microsoft for the use of their cloud platform, Azure, to extend the scope and speed of our digital transformation solutions. Our plan is also focused on the realization of a more predictable and lower risk business, and a transformation of our recent financial performance. Here, the conclusion remains the same. Successfully delivering the transformation of Capita will mean delivering at least GBP 200 million in sustainable free cash flow by 2020 and double-digit margins. Before I say a little bit more about the business, let me hand over to Nick to give a brief run through the numbers. Nick?
Thank you, John, and good morning, everybody. Firstly, we took decisive action in the first half to support Capita's transformation by reducing our debt. This included the completion of a rights issue in May, raising GBP 701 million of gross proceeds. This brought our adjusted net debt to EBITDA ratio down from 2.3 times at the end of December 2017 to 1.5 times at the end of June 2018, the middle of our target range. We expect our leverage to reduce further in the second half of 2018 on the completion of our announced disposals. Secondly, the half year 2018 results were in line with expectations, and I'll walk you through more detail on the figures in a moment. Finally, our underlying financial year 2018 guidance is unchanged before adjustment for our planned disposals, which were forecast to contribute GBP 25 million of profit before tax in 2018.
Turning now to our financial results. The underlying results for the six months to 30th of June 2018 exclude the recently announced disposals of Supplier Assessment Services and ParkingEye, which are disclosed as held for sale. The prior year comparatives here have not been restated. Capita's underlying revenue was GBP 1.98 billion for the half year, including an organic decline of 2.4%, which I'll cover in greater detail on the next slide. Underlying operating profit before significant contracts and restructuring costs fell to GBP 157 million, giving an operating profit margin of 8%. This reflected the dropping out of one-off benefits from 2017 and attrition across multiple divisions. Underlying interest charges fell from GBP 33.4 million to GBP 27.6 million, reflecting the benefit from last year's disposal of the Capita Asset Services businesses.
Underlying profit before tax was GBP 130 million. Adding back the GBP 10 million profit from Supplier Assessment Services and ParkingEye, profit before tax would be GBP 140 million, consistent with our full-year guidance. Finally, restructuring costs in the half year were GBP 49 million, around 70% of which related to our cost out program. The remainder are professional fees on the transformation. This bridge shows the changes in revenue by division between 2017 and 2018. Revenue declined as expected in the first half of 2018. We had limited benefit from new contracts across the group due to low levels of bid activity and wins in the prior year. As previously flagged, our customer management, IT and networks, and government services divisions declined as a result of contract and volume attrition.
In the case of government services, this reflected the reshaping of our DIO contract, which benefited from the recognition of previously deferred income in the prior year, and weakness in local government, which John will come back to later in the presentation. IT and networks revenue declined as a consequence of a lower level of sales in our managed IT business. Specialty services revenue increased, but this did include a one-off benefit from the end of our contract with Marsh. As announced in January, the administration of Prudential's life and pensions business is due to transfer to a new supplier in the second half of this year. Looking forward, we expect that organic sales will decline at a higher rate in the second half, reflecting continued attrition. Moving on to the underlying profit bridge. Profit before tax was in line with our full-year guidance for the first half.
Walking across the slide from left to right, the main reasons behind the fall in our profits year-on-year were firstly, a decline in the public sector resourcing margins on the transition to a new framework, and weakness in the apprenticeship market, which impacted profits in the People Solutions division. Secondly, contract and volume attrition in our customer management, IT and networks, and government services divisions. Thirdly, the dropping out of some one-off benefits, which were recognized in the first half of 2017, specifically GBP 16 million of profit in the DIO and government services, and GBP 9 million of profit in supplier settlements in IT and networks. Finally, increases in some cost items, including GDPR and investments in capability, which have been group-wide. Specialty services performed well but did include a GBP 9 million one-off benefit from the end of the Marsh contract.
Turning to our order book, we were very pleased by the resilience of our customer base in the first half, given the challenges that we faced before the rights issue. As a reminder, the order book covers about half of Capita's business. In the first half, we recognized GBP 1.2 billion of order book as revenue, but our order intake was GBP 921 million, with good wins and renewals across software, customer management, and government. There was GBP 179 million reduction from a loss of work in local government and the reduced scope of a 30-year FM contract, which we inherited with Tasker. We've won a number of new contracts in the second half, but there'll also be a reduction of GBP 200 million in the order book from the termination of the Prudential contract. There was an underlying cash outflow in the first half of GBP 115 million before restructuring costs.
As expected, our cash flows were impacted by changes in our working capital profile. Firstly, there was the normalization of period-end cash management. Secondly, there was a reduction of deferred income, reflecting the low levels of new business signed in 2017, which meant that we received less cash payments from clients to undertake work than revenue recognized in the period. Finally, we reduced our receivables financing facility from GBP 110 million to GBP 94 million. These items are responsible for the GBP 257 million working capital outflow. Net capital expenditure was GBP 56 million, reflecting the beginning of increased investments in infrastructure and systems, and the first investment since the rights issue in our transformation. In April, we highlighted GBP 300 million of expected spend in full-year 2018 on known commitments.
We spent GBP 158 million of this in the first half, including GBP 61 million on the Connaught settlement, GBP 36 million on the separation of Capita Asset Services, and GBP 37 million on restructuring. I'd like to provide you with a quick update on our pension. The IAS 19 deficit reduced from GBP 407 million at the 31st of December 2017 to GBP 289 million at the end of the 30th of June 2018. We've completed the triennial actuarial valuation of the scheme as at the 31st of March 2017. The actuarial deficit of Capita's main DB scheme was GBP 185 million, significantly lower than the IAS 19 deficit. As previously stated, Capita intends to pay down the actuarial deficit in the scheme over the medium term, and we will provide a further update in due course once agreement to address the actuarial deficit has been reached with the trustees of the scheme.
I'd like to finish by summarizing some areas of guidance for the year end of 2018. On cash flow, we continue to expect a number of known non-underlying commitments and working capital items, which are summarized on this slide. There's been no change there. We've introduced two elements of additional guidance for the full year. Our net interest charge is expected to be around GBP 55 million, and our leverage is expected to be towards the bottom end of our one to two times range, subject to the completion of ParkingEye, and the timing of adoption of IFRS 16. Our IFRS 16 project is ongoing, and we continue to make good progress to be ready for adoption. In principle, it would increase our debt for operating lease commitments and increase our EBITDA by the removal of rent charges.
We expect Capita's underlying pre-tax profits before significant contracts and restructuring costs to be between GBP 250 million and GBP 275 million. This updated for disposals, which would have contributed GBP 25 million in the full year. This is therefore consistent with our previous guidance. Any one-off benefit in the second half from the termination of the Prudential contract is not included in our GBP 250 million to GBP 275 million guidance range. With that, I'll now hand you back to John to update on the execution of our strategy. Thank you.
Thank you, Nick. This is the first time we're reporting against our new organizational structure, and I also hope that you see in the financials we've presented today a far greater degree of transparency than perhaps we have done as a company historically, and Nick has played a key part in that. Thank you, Nick. I want to start with a reminder of what we said in April about what drives most of our financial turnaround over the shorter term. It is taking cost out, where we're making good progress, delivering contract turnarounds, I'll come back to that in a minute, and reducing interest across from a much stronger balance sheet. These are drivers which are pretty much in our control. In the next few slides, I want to provide an update on each of them.
I'll brief you on the first investments we've made to get the company back onto an organic growth trajectory. This is obviously using the proceeds of the rights issue. Finally, I will cover off market trends as I run through each of the divisions in turn. We're now six months into executing a bottoms-up, methodical, and very disciplined plan to get cost out and improve our price competitiveness. This is not just about removing unnecessary cost. It is about making us more efficient and productive, and I'm very pleased, as I've said already, with the progress that's being made here. We've delivered GBP 30 million in savings in the first half, and we remain on track to hit our 2018 and 2020 targets with regard to cost competitiveness.
Since April, we've commenced programs such as the consolidation of more than 10 IT help desks, the integration of our four historically separate IT and networks businesses into a single operation, and the offshoring of an additional 600 plus roles to India and South Africa for both operational activities and functional shared services, with more likely to come. Additional cost opportunities are currently being addressed. I'll give you some examples of these. We have more than 360 separate properties across the U.K. today. Obviously, a significant potential to rationalize our property footprint. There is scope to drive savings from better management of our third-party software assets. We can centralize more of our procurement to leverage our significant buying power. We can be more comprehensive in the adoption of automation solutions, particularly robotic process automation, where we're setting up a core central team to drive this across all divisions.
I'll reiterate our confidence that we can take out GBP 175 million by 2020. I think more importantly, as you've heard me say previously, we will develop cost competitiveness as a core competency at Capita, one we can be proud of. We will do this to ensure, of course, we're not just price competitive, but that we're delivering appropriate margins. We lost more than GBP 50 million in 2017 on a small number of particularly challenging contracts, some of which continue to weigh heavily on our 2018 numbers. While there is still much to do on these contracts, I'm encouraged by the progress being made to improve their performance. We've also established a contract remediation committee, which I chair, which brings to that forum any contract where we might have a challenging engagement with the client.
In other words, we're getting engaged on any problematic contracts much earlier in the process than perhaps we might have done historically. We've established a strong partnership with NHS England on the PCSE contract. Operational delivery is improving. There are further benefits to come from such things as digitizing ophthalmic payment processing. Our forecast is and remains to be breakeven on this contract by 2020. We're not yet meeting contractual targets for the Army recruitment contract. However, the new recruiting software, DRS, is now working. It's in place. We have seen an encouraging response to recent recruitment campaigns. I can share with you that the regular soldier application is now at a five-year seasonal high. We have reset our partnership with the Army at a very senior level. Both parties remain committed to making a success of the contract.
For example, the Army is proactively reviewing selected entry policies in order to increase the potential pool of candidates we can attract. Whilst we're currently making a small profit on this contract, we are not generating the kind of return we should, and will not do so until we are delivering against the recruitment targets. We failed to deliver against the original transformation timetable on our contract with Mobilcom-Debitel in Germany, and had to replan this at the start of the year. I'm pleased to say we have now delivered on our first major milestone, a new Genesys contact center digital platform. Still much to do on this contract, but we're aiming to break even again on this contract by the end of 2020. As Nick said, we took decisive action to strengthen the balance sheet very early on in the year.
In May, we had particularly strong shareholder support for our rights issue at 97.3% take-up, raising, as we said, GBP 701 million in gross proceeds. We've also announced five non-core disposals, with total proceeds of GBP 416 million, well ahead of the commitment we made in April to deliver GBP 300 million. This includes GBP 160 million for Supplier Assessment Services, including Constructionline, which we completed in July. GBP 235 million for ParkingEye, which is expected to complete later this year, and GBP 21 million for three smaller businesses we also sold in the first half of the year. Over that period, we used GBP 157 million from the rights issue to prepay a tranche of U.S. private placement notes, and repaid a further GBP 150 million, which was due to mature in September.
We expect to use a further GBP 200 million from the proceeds of disposals to make accelerated pay-downs across our U.S. and EUR private placement notes in the second half, subject to the completion of the ParkingEye transaction. Including all the proceeds from disposals, leverage at year-end is now expected to be at the lower end of our target range of one to two times net debt to EBITDA. From this much improved base, we will continue to review the structure of our balance sheet further to improve its efficiency and flexibility, something we will continue to look at over the next couple of years. This is a slide we shared in April when we stated we would invest up to GBP 500 million in three areas. We said we invest in organizational capability, services and products, and IT systems and infrastructure.
As already mentioned, we've set up a new investment committee that I chair together with Nick to optimize the allocation of this capital. Much of the initial spend has been used to catch up on prior underinvestment, particularly in our services and products technology. Over the next two slides, I'd like to give you a little bit of an update on where we are in terms of that investment. We are, of course, a people-based business, one in which our success is predicated on the smarts and skills of our employees. Under the direction of our new chief people officer, we have therefore commenced work on Capita's first ever people strategy. This is to ensure we attract, engage, develop, and retain the talent we need to be successful in our execution of our strategy.
We will track the effectiveness of this strategy using a number of metrics, including such things as employee net promoter score surveys. I'll reiterate again that the incentive scheme for our top 150 executives and managers will be linked, amongst other things, to improving this score. Since April, we have made further progress on staffing our executive committee. We have appointed a chief general counsel, we are close to announcing the appointment of a chief growth officer, a head of sales and marketing, we are close to making good progress on the appointment for a chief digital officer. I'm delighted that we continue to attract an excellent caliber of candidates to these roles, our focus on functional excellence, something that, as many of you have heard me say previously, was less well-developed at Capita, is already paying off.
As you know, Nick Greatorex has informed us of his intention to step down as CFO. A search for his successor is underway, we will make a further announcement in due course. On a very personal note, I would like to thank Nick for his invaluable support he has given me since I came to Capita on the 1st of December of last year. Thank you, Nick. Earlier this summer, we launched a project to develop a new operating model. This will introduce a more disciplined, standardized, and efficient way of working. We will say more about this, as I've said, in our full year results in March. The board and I feel strongly that Capita must be a company which people want to work for, work with, and invest in.
Actions, of course, speak louder than words in this regard, therefore, you will see a series of changes in such things as the culture of Capita and how it engages with all of its stakeholders over the coming months and years. For example, we're placing a lot more emphasis on diversity in all of its forms and on addressing our gender pay gap, we are strengthening our relationships with suppliers through the development of a supplier charter, with particular focus upon our approach to and payment terms with SMEs, who are a strategically important part of our supply chain. I'm also particularly pleased to announce today that we have also agreed to appoint up to two employees as directors in response to the recommendations of the new UK Corporate Governance Code.
This you should interpret as another key message from Capita with regard to driving the kind of social credentials that are appropriate for a company that derives 45% of its revenues from the public sector. We're also investing more in digital technologies, the digital technologies that power our client offerings, specifically our software products business, of course, the digital platforms we use to deliver our customer management, our government services, and our people solutions offerings. This is key to ensuring we have the sustainable competitive offerings that will ultimately drive organic growth. Since April, we've kicked off a number of investments. Some examples, a new smartphone version of our educational software for emerging markets called SIMS Lite, a next-generation version of the Orbit benefits platform, and our Knowledge Pool learning booking system. Finally, a new customer management digital contact platform in customer management.
We're also increasing the use of technology partnerships to extend the scope and speed of our digital transformation capability. Indeed, defining and building out this ecosystem, again, as we presented in April, establishing this ecosystem of strategic partners is core to our long-term strategy. The first tangible example of this is our recently agreed five-year partnership with Microsoft for the use of their Azure cloud platform. This will not only support the rollout of cloud services, particularly in the software and customer management business, but it'll also facilitate the rollout of our next version of SIMS and make it easier to internationalize our software offerings as services. We're also very close to agreeing a partnership with McKinsey Digital to accelerate our data analytics and digital transformation capabilities. More partnerships will follow. Our chosen markets are growing, currently we are not. Addressing this is my single highest priority.
It'll also be the single highest priority, of course, for our recently contracted, yet to be announced, chief growth officer. We will be announcing his appointment very shortly. Organic top-line growth is fundamental and a building block to achieving our long-term value creation plans. As I have stated before, this will take time. We're having to retool, retrain, and augment our sales organization, building on our undoubted strengths, our tender response to honing skills in consultative selling and opportunity origination. We also need more focus on the development of competitive, scalable, and repeatable solutions. This takes us back, of course, to my comments about investing in technology. With the rights issue completed and the leadership team coming together, I'm very pleased with the progress we've made on the latter.
I am now able to spend much more of my time with clients, I would add that our access is just great. With our sales leads, something I personally enjoy, but that is also giving me a lot more insight to the market opportunities we have as a company. My many engagements in the last few months with the senior leadership of our clients across the business convinces me that the opportunities are there. We need to be getting after them. At the same time, I also want to reiterate that we're not going to repeat the mistakes of the past and say categorically, very strongly, we are not going to prioritize revenue over margins. We are not going to prioritize revenue over cash generation.
Our new contract review committee provides central oversight to ensure this, to ensure we don't take on unacceptable risks, and that we realize appropriate returns on the contracts we bid on or originate. This committee also ensures that the deals we are bidding on fully align with our operational, strategic, and financial goals. To reiterate, organic growth will take some time to realize. We're still committed to delivering organic growth in 2020. We're putting the building blocks in place to achieve that. Back to what we're seeing right now. As Nick and I have already mentioned, order intake in the first half was GBP 920 million. I would suggest a strong vote of confidence in Capita as a business partner. Clearly, this was a period of some uncertainty for the sector post Carillion, and Capita specifically, and a number of contract decisions therefore took longer than anticipated.
Low levels of tender and subsequent bid activity in 2017 also impacted our order book over that period. Collectively, these factors resulted in a 6% decline in our order book since the year-end. Since June, however, we've announced new customer management contracts with Southern Water and BA, government services contracts with, for example, the Department for Education Standards and Testing Agency. As most of you will be aware, we were the winning tenderer on the Defence Fire and Rescue contract with the Ministry of Defence. As we presented in April, each division now has, for the first time at Capita, a clearly defined five-year strategy, a clearly defined set of executable actions, what we call our strategic imperatives, to ensure execution on these strategies, and agreed delivery time frames and associated performance metrics. The focus is now very much on execution.
Over the next few slides, I'd like to update you on where we are division by division. In Capita Software, we have a top U.K. software business with high margins and good cash flow. We develop specialist enterprise software for markets such as education, emergency services, and local government. We also sell products which serve similar needs horizontally across industries such as workplace management, our Retain product, and payments, our Pay360 product. Capita Software is a strong software technology platform and one we have every intention of growing. There were a number of important milestones in the half year for Capita Software. Firstly, as mentioned previously, we made investments in the SIMS suite. We piloted the next version of this product and launched a finance module, both of which are now cloud-based solutions.
We also started development of a smartphone-enabled version for emerging markets, as I mentioned previously, our SIMS Lite product. Secondly, we set up a sales and marketing operation in the U.S. This is to roll out selected products in that geography, including AMT-Sybex in the utilities sector, our payments product, Pay360, and our resource management software, Retain. Thirdly, we won a number of important clients, including a SIMS contract for actually the world's largest school in Lucknow, India, with over 56,000 employees, and two relatively large secure solutions contracts with the West Midlands Police and the Ministry of Justice in the U.K. In the human resources market, we have half a billion of annual revenues and market-leading platforms such as Orbit and Hartlink in benefits administration. Our addressable market, which covers now the entire hire-to-retire spectrum, is growing at a mid-single-digit CAGR.
In the half year, we brought our operations together under a single leadership team for the first time, and here we will drive benefits from the unified structure by realizing cost savings, of course, but perhaps more importantly, creating and leveraging a single sales engine that sells the entire portfolio of solutions. I'll remind the audience that less than 4% of our clients in this division have more than one contract with us because of the highly siloed nature in which this business was previously managed. We commenced our accelerated investments in our next generation Orbit platform, onto which a number of our clients are migrating. We upgraded our learning booking system, and also the candidate portal of our pre-employment screening system in Security Watchdog.
We also took some cost actions, which will show through in the second half of the year. We won several small contracts in the first half, including work for RWE and a training consulting contract with Vodafone. Customer management is the market leading provider of multi-channel customer contact services in the U.K. and the number 2 player in Germany and Switzerland, with a strong presence in telecommunications, utilities, and the retail sector. The opportunity in these markets is for us, the growth opportunity in this market is expected to be a CAGR of between 4% and 5% between now and 2021. However, the U.K. sector is challenging, and we are currently experiencing some attrition in that segment. We serve our customers from a mix of onshore, nearshore, and far shore locations in Europe, South Africa, where we have distinctive capability, and in India.
We have invested in market leading technologies such as Octo and our multi-channel customer management platform, and have a proven track record of delivering not just strong customer service for our clients, but demonstrating to them how we can help them grow their revenues. In the half year, we commenced a training program to reskill 8,000 of our people. We commenced a refresh of our IT and telephony infrastructure. After a difficult start, as I've already mentioned, we delivered the first major milestone on our contract with Mobilcom-Debitel in Germany. Year to date, we have won a number of important contracts, including British Airways, served from our operation in South Africa, and expanded contracts with Southern Water, the Financial Services Compensation Scheme, Npower, and Marks & Spencer. Government services remains a key segment for us.
With many long-term contracts, strong relationships, and cash generation, it is, as I've described previously, the annuity in the portfolio. Government is no different to the private sector in its need to embrace digital transformation as a means of addressing budgetary pressures and improving how it serves its citizens. We serve two very different markets, central government and local government. The pipeline of opportunities in central government, we talked about a pipeline there of GBP 3.5 billion over the next 5 years in April. A market, a customer for whom we are a strategic supplier remains very much intact. I am also encouraged by the dialogue taking place with the Cabinet Office and more broadly with government around government's approach to strategic sourcing. We have a number of services that we offer to the local government service, both in software, HRO, and business process outsourcing.
The latter of these is changing very quickly and is proving to be challenging. Large strategic partnerships are no longer being sought, and some customers are going to take services back in-house for a variety of different reasons. This trend will affect our revenue and order book in the coming years, and it encourages us to accelerate the rebooting of our offering to local government. We have success in a number of areas with scalable, repeatable digital solutions today, for example, around revs and benefits. We need to be making more offerings or designing and delivering more offerings of that nature to this market. In the half year, we've commenced a program to drive operational excellence and put in place continuous improvement plans across the division. As previously mentioned, we've significantly improved the operating performance on the NHS England PCSE contract.
We expanded our contract with Transport for London to include the new Ultra Low Emission Zone, a strategic client for us. More recently, we were selected by the Department for Education's Standards and Testing Agency to manage the administration, the processing, and support for all primary school tests across England. This is a contract worth GBP 109 million over the next 6 years. As already mentioned, we've been selected by the MOD as the winning tenderer for the Defence Fire and Rescue contract. These last two contracts, I should highlight, are the largest strategic sourcing decisions made by central government this year. Again, represent a vote of confidence on the part of central government in Capita. We are a top 10 player in U.K. IT services, providing end-to-end enterprise services to not just other parts of Capita, but to third-party customers as well.
Overall, this is a market that is mature, but we still see upside, and particularly from our network outsourcing business. In the half year, we commenced the One ITS program to consolidate our business into a single countrywide IT services business. This includes the introduction of shared service centers with common processes, and an increase in the use of offshoring, which is expected to realize significant cost savings over time. We also commenced a program to invest in, simplify, and consolidate our data centers, and we have won a number of contracts in network services with, for example, the Ministry of Defence, Metropolitan Police, and Kent County Council. Lastly, Specialist Services.
This, as you will remember, includes our financial services and regulated operations, our government and specialist commercial partnerships, and any other standalone businesses that are not core to our five growth platforms, such as travel, print, and property. It includes, as we've described previously, a mix of cash-generative, growth, and challenged businesses, and we're managing this business as a portfolio to embrace their different business models, and to provide more oversight and discipline. The team are currently doing more work to define the best way to maximize value from this portfolio. You should not expect, given the success we've had with disposals year-to-date, further disposals from this portfolio for the time being.
Recent wins in this segment include being the preferred bidder on an enforcement contract with the Ministry of Justice, and our business services business has won contracts with both the Department for International Trade and Rolls-Royce. In summary, we are at the start of a multi-year transformation. We are on track with respect to the plan we outlined in April. I'm pleased with the progress we're making. PBT guidance for 2018 remains unchanged. Order intake was GBP 921 for the first half of the year, encouraging given the journey we were on at that point in time. We're on track to deliver GBP 70 million in cost savings in 2018, and at least GBP 175 million by 2020. We will deliver GBP 416 million in proceeds from disposals this year, well ahead of our commitment of GBP 300.
We will invest up to GBP 500 million in CapEx over the next three years, have begun to make these first disciplined capital investments. Our leverage target of 1 to 2 times net debt to EBITDA remains on track. We were in the middle of this range in the end of June, with the disposal proceeds from ParkingEye still to come, we will be at the lower end of that spectrum by the end of the year. Our strategy also continues to focus on delivering a more predictable and lower risk business, we have committed, and I reiterate our commitment to delivering double-digit margins and at least GBP 200 million in free cash flow by 2020. With that, I thank you for your attention, and Nick and I, of course, would now be delighted to take your questions. Thank you. Suhasini.
Good morning. Suhasini from Goldman Sachs. Just one question, please. Seven months back, six months back when we met, you did mention that the U.K. MOD was probably not the best place for Capita to be. Since then, you have probably participated and won quite a lot of contracts. Can you talk about how the relationship with the U.K. government has changed, what makes you more optimistic here? Thank you.
Firstly, let me deal with the MOD. I think the DIO contract, which we extricated ourselves from in 2017, was not necessarily a contract that we were best suited to deliver against. I'm not sure we made that statement about the Defence Fire and Rescue contract. If you look at the contracts we engage with central government, what they all have in common is a focus on people smarts, productivity efficiency, and the use of technology. The Defence Fire and Rescue contract is no different. That technology manifests itself in the form of the equipment we're sourcing largely from the U.S. to deliver the service, but also the software technology that Capita is using to execute on the service. That includes our Retain resource allocation software, as well as our ControlWorks Blue Light software, which we sell to third parties as well. It's in line.
Is of the margin performance, 6%-8%, that we recognize we can derive from delivering contracts to central government. Now, to your broader question about central government, I am encouraged by what I'm hearing from the Cabinet Office. I think as painful as events of the latter part of last year and the early part of this were for other players in the space, I think that has caused not just the Cabinet Office, the civil service, but politicians to take a much closer look at the efficacy of government procurement, the transfer of risk, the terms and conditions. We should be doing much more, as I mentioned at the Public Accounts Committee a month or so ago, to co-create, to collaborate, and to innovate. Government procurement in its current form is, quite frankly, too restrictive in terms of our ability to innovate, to create value.
I would also suggest that the transfer of risk is unreasonable. Those are factors which are being embraced and understood by central government today. We are proactively involved in discussions through a number of vehicles in helping shape central government thinking around strategic sourcing, and I am encouraged by some of the decisions that are being made. Yeah. Julian.
Good morning. It is Julian Cater from Numis. Couple of questions, please. The first is, in respect of the problem contracts, I wonder whether you could just say what the year-on-year profits delta was from the three contracts that you drew out there. The second question is in terms of the contract review committee, John, that you now chair. How rapidly are you seeing changes in the behavior of people within the organization, bringing potential contracts to you and the rest of the committee? My third question is in respect of your comments on local government. Can you just remind us within the government division, what proportion of that is local government? When you talk about an expectation of a 4% CAGR, is that 7% in central government and minus 2% in local government? Or how do you see that developing, please?
Uh-
Sorry, that was more than two.
Yeah. Let me start with the last one first. A lot of questions there, Julian. About 17% of our revenue today is from local government. It is a subset of that which is in the local government BPO space. We do not anticipate the local government BPO business to grow going forward. That is not a model that local government feels is appropriate going forward. Our opportunity is to deliver more of the scalable solutions, as I mentioned, that we are very successfully delivering through a number of councils across the U.K. today. We have some of those solutions today in the form of revenues and benefits. We have other solutions that we are developing. I would also emphasize that we have a very healthy software business with local government, which is not declining.
In terms of your first question, I'm afraid we're not going to go to that level of granularity. I would simply say that I am pleased with the pace at which we are improving the operational performance of those three problematic contracts that we covered today. Indeed, I would say that progress on those is probably progressing a little better than I would have anticipated at the beginning of the year. Julian, I'm afraid your second question was?
Second question is more a cultural point in terms-
Yeah
of the contract review committee. Sure.
I would say yes. Capita's had a culture historically where things were optional. This is no longer optional. If people are going to bid, they have to come to the Divisional Contract Review Committee firstly, if it is of a certain value or has certain financial risk or reputational risk criteria, it comes to the Group-level Contract Review Committee. The papers are distributed well in advance of the meeting. They are gone through in some detail. Each contract we review over a period of roughly an hour. I think it's fair to say with the support of the commercial function in the organization, which own the process all the way down through the hierarchy, people are getting it. This is the way we're now going to assess very early on in a tender process or when we actually submit the bid.
This is the way we're going to assess whether this is something we want to be doing or not based on the risk profile, based on our strategy, et cetera.
Thank you very much.
Morning. It's Keir Long from Jefferies. I have three as well. Apologies. First of all, Nick, I wonder if you can give us a bit more detail on the GBP 52 million of other working capital that you mentioned in your slide. I guess just conceptually why, if you've got negative organic revenue growth, it's still absorbing cash in the working capital line. Secondly, could you give us a bit of background, please, on the GBP 6.8 million put option cancellation that's in the notes and whether there's a mechanism maybe to change the formula for the other put options that the company has? Thirdly, just from an analyst perspective, your guidance obviously excludes a number of factors, but we would need to include them, particularly when we're putting cash flow statements together.
Could you help us think about maybe the initial losses on the deferment contracts, potentially that could be generated this year and next year? The, I think the cancellation fee that you mentioned regarding the Prudential contract as well. Thanks.
Right. Hi, Keir. The GBP 52 million working capital movement was made up principally of three things. The unwind of the receivables financing facility obviously had a partial contribution to that. We had some suppliers in the first half who tightened some of their payment terms. Not surprisingly, as a result of some of the events that we went through. We are expecting by the full year that that will have reversed again. We also had some rent payments that were held over from the end of last year, which we have normalized. Sorry, there was a fourth item as well. We had one large customer that historically had paid us quite significantly in advance, and we have reduced the amount of that advance payment. It is a combination of things in there.
Your second question around the put option, I am afraid people far brighter than me do the calculation around how we discount that. What I do know is as the date that comes closer to fruition, the discount rate and the discount calculation changes. I think that is probably what you are seeing, but we might want to follow up later on that one. Deferment loss, we will not be specific on that at this stage, and not least because of the position the contract is in at the moment. Your last question on Prudential. There will be an accelerated unwind of the deferred income on the Prudential contract, which will be released in the second half. As I said earlier, we are not including that within our guidance. One of the things that we will have to quantify is any asset write-downs that will offset that.
For example, if we are carrying any CFAs or tangible assets in relation to that contract, they will also offset that number. We will disclose that in full in the second half. As I said, it is not included within our guidance. If there is a positive contribution, it will mean profits will be in excess of that guidance number.
Is that cash or bookkeeping?
Sorry?
Is that cash or bookkeeping?
The deferred income, no, it's purely an accounting adjustment.
Thanks.
Fiona, do we want to take some online?
We have a question on the line from Tom Joyce, thanks.
Yeah. All good. Firstly, just on the impact on SIMS business, the rollout seems to be taking a little bit longer than expected. Could you maybe just run us through?
Hey, I'm afraid we're finding it really hard to hear you. If you're on a speakerphone, could you possibly pick up the handset?
Yeah, the handset. I'm not on speakerphone.
That's better. Keep going.
Okay. on the SIMS business, you are rolling out the
Yeah.
Can you give us an update on profitability of SIMS, please?
I think your question.
Cost saves.
I think your question was on the profitability of SIMS. Was that correct?
That's right.
Yeah. We don't break down our financials at that level of granularity. What I will say about SIMS is, it's a very successful product. We have 80% of market share in the U.K. We're now starting to get traction in one or two selected international markets. We're expanding the modules for the SIMS product. We announced and rolled out the finance module in the first half year. Frankly, as one of the jewels in what is a very strong portfolio of software assets. A very successful product, I'm afraid we're not going to break down the profits on that business specifically.
Okay. If that's the case, what's happening to the rest of the software businesses, where is profitability declining there, please? Then just on the cost savings, could you just say whether that is a GBP 30 million impact in the half year, or is that a run rate by the end of the half year? Maybe just finally, a view on revenue attrition that you expect for H2, please.
He wants to know on the revenue attrition.
Yeah. Hi, Tom. Just to go back on your SIMS question. On the adoption of IFRS 15, the recognition of revenue on the SIMS product became more akin to a SaaS-based platform. As we move to the cloud with SIMS, the likelihood is there won't be a significant impact. That's one of the advantages of that early adoption, meant that there was much smoother effect on revenue as SIMS moves to the cloud. There has been some profit decline in some of the software businesses. Probably the most notable was AMT-Sybex, but as John said, we're piloting a rollout of that product in the U.S. Historically, we enjoyed some quite significant profits on sale of licenses, which under the new accounting are now spread into the future.
That business is getting used to the new accounting standard and the effect that that has on its sales strategy, and one of the reasons why we've been pushing those products into the U.S. Do you want to talk about cost savings for H1?
Uh-
That was the second question. Thirty million in-year first half impact.
Yeah. The cost savings, yes, it is impacting the first half results. Nick, I'm not sure whether the other part of the question, whether it was run rate for the remainder of the year. Yes, it will be. Yeah.
For revenue attrition in H2. Yeah.
No, the cost savings.
Yeah. We've talked about GBP 70 million for the full year.
Okay.
We've not broken it out.
On revenue attrition. Look, Tom, we've not given guidance on revenue attrition. I don't plan to do that today. What we have committed to doing since I've come on board is delivering organic revenue growth by 2020, and we're on track to do that.
What we can say, Tom, is that consensus has us down about three and a half % for the full year.
Fiona, any other questions online?
Our next question today comes from Thomas Thiele from Jefferies. Please go ahead.
Hello. Yes, I had a question on the GBP 49.1 million of contract and restructuring charges. I understand that 70% of that relates to the cost-out program from what you said. I am just trying to square that with the guidance of GBP 40 million cost to achieve that you still have in your guidance for 2018. Perhaps you could help me to understand that.
Well, about one-third of that GBP 49 is associated with professional services fees that we incurred in the definition of the strategy, the cost-out work, and the operating model activity we are doing. There is also some professional service fees there associated with our preparation for the rights issue. The other two-thirds is directly associated with costs that relate to taking cost out of the business and the transformation overall. Nick, is there anything you would add to that?
No, I think just to reiterate that we expect to spend around about GBP 40 million, taking GBP 70 million out of the business. There are some other programs that were ongoing as we entered the year. We have spent money on things like the Smarter Faster Finance program as well, which is delivering some good results for us.
Good.
Just so I understand that, two-thirds of that GBP 49 million would relate to the cost to achieve, which equates to about GBP 33 million. Does that mean it's very heavily weighted to the first half versus the second half?
I would
With the overall you expect.
Nick, do you want to?
Yeah. The GBP 33 million or approximately GBP 33 million also includes some costs that we've incurred in relation to other programs that were already underway. The cost to deliver the GBP 70 million, we think, will be about GBP 40 million, although we have spent a lot of that money in the first half, which will then have a full run rate effect in the second half.
I see. Just a second question on Specialist Services. You said not to expect any additional disposals for the time being, which is fair enough. Are you still actively pursuing disposals, however, for parts of that business?
Do you want to?
Are you still at?
No, we're not. We have shut down any further disposals for the time being. That's not to say that we might not revisit that in the future, but right now, I'm delighted with the proceeds we received from the businesses we've already sold. Those that remain in Capita Specialist Services, as I've said, are very cash generative, by and large. They're growing. We have one or two we need to fix. This is not the right time to sell those. We want to maximize the value from them, and to do that, we should not be selling them at this point in time.
Okay. Thank you.
Good. We'll take one more question if there is one from the audience, and then we'll shut it down. Good. Thanks very much, everyone, for attending today and your interest in Capita. Thank you.