Good morning, everybody. We're going to try and rattle through a slide pack, which, as usual, has an immense amount of appendices. As one of the analysts said this morning, "Stuart, I think you're trying to take 94 pages to tell us that nothing has changed." Within this weighty pack, we're going to gallop through it. We've got Dave Dacquino from the U.S. who's joining us, who's going to give you an update on the U.S. business. Of course, our chairman, Sir Roy Gardner, is here as well. I'm just going to talk a little bit about overview of the first half of 2018. I think the main thing is it solid progress? How we thought it would be. Revenues were down a bit, 5.6% at constant currency.
That's in part because we had some large contracts that came to an end in the first half of 2017, like the Australian patrol boats and also the Western Australian escorting. There was a little pressure that Dave will talk to you about on some of the U.S. task order contracts. Fortunately, the margin on those contracts where we didn't get as much volume as we thought is actually quite low, so the profit impact was muted. 20% up on underlying trading profit, 50 basis points improvement in margin, likely to be some acceleration of that growth in terms of profit growth for underlying profit in the second half. That is pleasing and in line with what we said in our strategy, which, as you remember, was a hockey stick strategy. Going down the front of the hockey stick is the easy bit.
It's when you come up and start growing again, that is harder. We're pleased that this first half shows clear evidence that we are growing our profits again. Good order intake performance, 120% book-to-bill, GBP 1.6 billion of order intake, 80% of that outside of the U.K. Our pipeline has grown a bit to GBP 4.7 billion, not growing as fast as we'd like, we've got a huge amount of big rebids coming next year, which itself is a major opportunity. We've done two acquisitions in the first half, both of which we're very pleased with. We've just got over the line the sixth and final Carillion hospital contract. Just to remind, at 4 times EBIT, we're buying GBP 700 million worth of order book and GBP 70 million of annual revenue is going to be enhancing to our margin in the healthcare business.
These are profitable contracts, I'm really chuffed to the back teeth that we've managed to get that. It greatly increases the size and scale of our U.K. healthcare business. BTP, which was inspired by Dave, is a small engineering company that greatly deepens our expertise in satellite and radar engineering. Balance sheet, as always, robust. Closing net debt at GBP 220 million. Leverage 1.75 times. EBITDA well within our normal range. No utilization of any working capital facilities. Our pension is well funded and in fact in an accounting surplus. The OCPs are within 4% of where Angus said they would be back in 2014, which is a big achievement. Our transformation, which continues apace. It's a significant part of our turnaround plan is to make our overheads more efficient and a more efficient operator.
We've taken about GBP 16 million out of SG&A year-on-year. We're doing a lot of progress with the IT systems. We're currently prepping our whole ERP system, our SAP ERP system, to migrate that from a large data center, a place called Gravelly Park, that by the end of the year will all be lurking somewhere in the cloud. In terms of our guidance for next year, we're maintaining the guidance as we said at our pre-close update revenue of GBP 2.7 billion-GBP 2.8 billion, broadly flat in constant currency for 2019, we expect. In this year, we expect UTP for the year as a whole to grow by about GBP 80 million, which will give us just over 20% growth for the year as a whole.
On the whole, we are reasonably pleased with the performance in the first half. Angus will now give you some more detail on that.
Thank you very much, Rupert. Good morning, everybody. I'll now take you through the financial section of the interim results. Let's start with the income statement. Revenue stated in IFRS 15 basis, as usual, excludes our share of JV and associate revenue, whilst the trading profit measures include our share of JV profit after tax. The prior period's numbers have been adjusted for IFRS 15, but as stated previously, the impact is not significant. Revenue of GBP 1.366 billion is down 9.4% on a reported currency basis and is down 5.6% in constant currency, which comprises a 6% organic decline from net contract attrition, partially offset by a 0.4% contribution from acquisitions, mainly BTP in the U.S., which we completed at the end of January this year.
The adverse currency impacts of GBP 57 million in revenue and GBP 3.2 million in underlying trading profit arose primarily from the strengthening of sterling against the U.S. dollar from a first half average of 1.26 in 2017 to 1.38 in the first half of 2018. All the rates are in the appendix, together with the impact of Forex sensitivities. The key translational sensitivity remains the U.S. dollar, where a GBP 0.05 movement in the sterling exchange rate has a full year impact of some GBP 40 million revenue and GBP 2 million of underlying trading profit. This chart is now easier to read given the absence of assets held for sale and discontinued businesses. There is an adjustment of GBP 7.8 million for the net impact on profit of items arising from the contract and balance sheet review.
The bulk of this relates to the release of non-OCP provisions that we took in 2014 on a number of contracts which are no longer required. We have taken the benefit of this release out of underlying profit to ensure that we give an accurate picture of true underlying performance. Despite the reduction in revenue, underlying trading margin improved by 50 basis points from 2.3% to 2.8%, reflecting our continued progress in reducing costs. Overhead costs were GBP 16 million lower during the first half as compared to the first half of last year as we continue to transform our operations and cost base. The biggest revenue declines were in the Americas and APAC.
In terms of the Americas, the organic revenue decline was largely caused by a reduction in volumes on our CMS contract, where we provide health insurance eligibility support and a lower volume of ship modernization task orders, the effects of which were only partially offset by growth from a number of smaller contract wins and revenue from our BTP acquisition. In APAC, the organic revenue decline was largely caused by contract attrition from the prior year relating to our loss-making Armidale patrol boats contract, as well as the Western Australia Court Security and Custodial Services contract. The 3% organic decline in U.K. and Europe revenue was mainly caused by the end of the Glasgow ACCESS contract late last year, whilst the small growth in the Middle East was largely due to organic growth in a number of our existing contracts.
Overall, revenue fell by 9% or GBP 141 million, with GBP 91 million of the fall being organic. This was exacerbated by GBP 57 million of Forex translation, offset by a net GBP 6 million from acquisitions and disposals. Underlying trading profit for the group in the first half of GBP 38 million represents a period and period growth of 20% in constant currency terms. U.K. and Europe profitability was broadly flat in the prior period at GBP 14 million, with margin unchanged at 2.2%. In the Americas, underlying trading profit fell by 6% in constant currency terms to GBP 19 million. A strong focus on cost savings and in-contract efficiency ensured that the impact of lower revenue was minimized, leading to an increase in margin from 6% to 6.3%. Underlying trading profit grew by a constant currency 34% in APAC to GBP 13 million, with trading margin improving to 5% from 3.4%.
This improvement in margin reflects the impact of the end of the loss-making Armidale patrol boats contract, as well as the impact of our progress in transformation savings and other cost efficiencies. Underlying trading profit in the Middle East grew by GBP 3.3 million in constant currency to GBP 10 million, in large part reflecting the non-repeat of the heavy costs of bidding the rail tenders experienced in the comparable period. Consequently, trading margin in the Middle East improved to 6.1% from 4.2%. Ongoing cost reduction programs delivered further savings in corporate costs with a reduction of 7% to GBP 19 million.
Turning to the bottom of the income statement, the small reduction of finance costs was largely due to a Forex benefit in the U.S. private placement interest cost, together with this more expensive debt being a smaller proportion of our debt mix following the repayment of GBP 30 million of private placement loan notes during the first half. The discount unwind on our provisions was also lower, and these factors more than offset the impact of our average net debt being GBP 38 million higher than in the first half of 2017. The blended cost of our debt is a little lower at 4.75% as compared to 5.2% in the first half of 2017. Reflecting in part the aforementioned repayment of the GBP 30 million of private placement debt during the first half. I'll cover tax and exceptional on separate slides in a moment.
Underlying earnings per share grew by 29%, from GBP 0.0146 to GBP 0.0188, reflecting the reported 11% increase in underlying trading profit, lower finance costs, and a lower effective tax rate. Reported earnings per share, which reflects non-underlying items and exceptionals, was GBP 0.0132 as compared to a loss of GBP 0.0177 in the prior period, reflecting this improved profitability and lower exceptionals. The weighted average number of shares in issue was broadly unchanged at 1.1 billion. The board remains committed to resuming dividend payments when it is prudent to do so, which will take into account the appraisal of future financial performance in terms of profit, leverage, and cash generation, as well as the prevailing market outlook. The board has not declared an interim dividend for 2018, given the anticipated free cash flow outflow and increase in net debt.
Turning back to tax, the underlying tax cost was GBP 10.6 million, giving rise to an effective tax rate of 34%, which, in an unprecedented turn of events, is actually within our guidance range of 30%-35%. The effective rate for the period is lower than the 40% of the prior period, due largely to profit mix and lower U.S. corporate tax rate. The effective rate remains higher than the blended country corporation tax rates due to the absence of a tax credit for U.K. in period losses. However, given the improving outlook in terms of U.K. profitability, as we work through our remaining loss-making contracts, GBP 17 million of deferred tax asset continues to be recognized with a further GBP 160 million of contingent tax asset, which we can recognize as the outlook for U.K. profitability further improves.
Cash tax remains more predictable, with GBP 5 million of tax paid in the first half, and an expectation, in line with last year, of GBP 10 million-GBP 15 million for the 2018 full year. In terms of exceptional items, these were a net GBP 11 million, as compared to GBP 27 million in the prior period. Similar to last year, operating exceptionals were driven by restructuring costs related to transformation, and include redundancy and other incremental costs of implementing this stage of the strategy. The level of these costs was broadly similar with the prior period, and with respect to the full year, we expect restructuring costs to be around GBP 30 million. The cash outflow related to exceptional items was GBP 24 million, which includes the final GBP 8 million installment of the DLR pension settlement, as well as the cash costs related to the restructuring costs.
In terms of full year, we expect exceptional cash costs to be in the region of GBP 40 million. Turning now to cash flow. You can see the breakdown of the GBP 26 million free cash outflow, which was similar to the GBP 27 million outflow in the comparable period. Underlying cash profitability was again offset principally by the cash cost of utilizing our onerous contract provisions. Utilization of our receivables financing remained at nil during the period, and we do not use any form of payables factoring. The working capital outflow in the period was GBP 27 million. While our average working capital days for receivables and payables in the first half are consistent with prior periods, the receivables balance at the end of June was higher.
This included the effect of the process of agreeing sales invoices taking a little longer with a small number of customers and some June receipts slipping into July. Historically, working capital performance tends to be stronger in the second half of the year, and we expect a similar profile this year. Our view of working capital and free cash flow has therefore not changed for the year as a whole. Turning to the bottom half of the cash flow, the other items that contribute to the GBP 79 million increase in net debt are highlighted. In addition to the previously discussed exceptional cash outflow of GBP 24 million, we completed the acquisition of BTP in the U.S., and right at the end of the first half, paid the first installment of the Carillion Health FM contracts.
Net debt was also impacted by a net Forex movement of GBP 13 million, reflecting the impact of the strengthening of sterling on our U.S. private placement debt. Daily average net debt for the period was GBP 216 million, compared to end of period net debt of GBP 220 million. Post the covenant adjustments highlighted in appendix five, our net debt to EBITDA leverage ratio is 1.75 times, up from 1.39 times at the prior period, but within our normal target range of one to two times. If you are like me, you crave for a set of Serco results where there's no mention of the 2014 balance sheet review and OCPs. The good news is that we're within sight of the finishing line.
With the OCP balance reducing to GBP 123 million at the end of the period, which means that we are some three quarters of the way through in terms of the GBP 447 million we booked in 2014. Utilization was GBP 34 million in the period, down from GBP 38 million at the same time last year. By year end, it's likely that the remaining OCP provision will reduce to around GBP 90 million. Utilization of around GBP 50 million-GBP 55 million is forecast for 2019, falling to GBP 20 million in 2020, and immaterial amounts for the couple of years thereafter. These reductions should make Serco strongly cash generative from 2020 onwards, which will support the future growth of the business and any potential dividend resumption.
As well as the small OCP release of GBP 0.4 million, we remove GBP 7.4 million of other provision releases relating to the 2014 balance sheet review from underlying earnings, in line with our commitment to be transparent and not take advantage of any subsequent provision releases. Cumulatively, the net release from the 2014 contract and balance sheet review of GBP 745 million is GBP 27 million, which represents a 3.6% change from the original charge. Now the really exciting bit, accounting standards. As you will remember, the impact of IFRS 15 on our 2017 results was immaterial given the repeat nature of our services and more prudent accounting adopted post-2014. The 2017 restatement reduced revenue by GBP 2.7 million, and underlying trading profit by GBP 0.5 million.
It should be borne in mind, however, that the future impact of IFRS 15 is likely to be bigger if new contracts have significant transition phases or long-term efficiencies built into the pricing of a contract, in which case a greater proportion of the revenue and profit will be recognized later in the contract. With respect to IFRS 16, we're working through the impact and putting in place the dual reporting capability that will be required to report results under the new standard, as well as under the existing rules for debt covenant purposes. Adjusting debt covenants to reflect IFRS 16 is very challenging given the potential volatility of operating lease movements.
For example, for Serco, winning and not winning the new U.K. asylum seeker contracts with their consequent impact on lease commitments could make a difference to our level of post IFRS 16 debt of several hundred million GBP, which is difficult to legislate for covenant-wise. This is not just a Serco issue, and it may require companies to keep two sets of books for a period of time. The key thing to remember about IFRS 16, in common with IFRS 15, is that there is no cash flow impact, albeit there will be some reclassification between financing and operating cash flows. In terms of the P&L, current operating lease costs will be split between finance costs and depreciation. Trading profit and EBITDA will increase as an element of the current operating lease will appear in finance cost.
In terms of profit before tax, there will not be a material change. Over the life of the lease, the timing difference between trading profit and finance cost will net out. Finally, let's look at the outlook and modeling assumptions. First and foremost, there's no change to the outlook and modeling assumptions from our June 2018 update. We expect revenue to be in the range of GBP 2.7 billion-GBP 2.8 billion, which includes an adverse impact of ForEx of GBP 70 million-GBP 80 million, or 3% of revenue based on current exchange rates. We expect a 2% contribution from our BTP and Carillion Healthcare acquisitions, partially offsetting an estimated organic decline of 5% from volume and net contract attrition. Despite the fall in revenue, we continue to expect strong underlying trading profit progress to around GBP 80 million, which includes GBP 4 million-GBP 5 million of adverse ForEx impact.
This profit growth is driven by cost savings, where we continue to make strong progress. We always need to bear in mind the sensitivity of profit to even small percentage changes in revenues or costs. We expect net finance costs to be in the GBP 13 million-GBP 14 million range, with the increase on the GBP 11 million of 2017 being primarily due to the absence of the pension credit following our pension buy-in transaction. In terms of the year-end, we continue to expect accounting net debt to be in the mid to upper end of the GBP 200 million-GBP 250 million range, with covenant leverage between 1.5 and two times, which includes the full cost of completing the Carillion Health FM acquisition. If Teleperformance's proposed acquisition of Intelenet proceeds, then the GBP 30 million Intelenet loan note will be repaid.
It is worth noting that the GBP 4 million non-cash credit included within this year's net finance cost relating to the loan note would no longer be earned. In the event of early repayment, there will be an approximate 25 basis point improvement to the covenant leverage calculation as the loan note is currently excluded from covenant net debt. I'll hand you back to Rupert now for the operational review.
Thank you, Angus. Usually, as always, we do the highlights and the lowlights. The lowlights is a rather shorter list that we trying to keep them balanced, but we had difficulty doing that this year, which I think reflects the greater stability of the group. Let's go down the highlights first. I mentioned that not only delivering double-track percentage growth in underlying trading profit in 2018, but we believe that we're on track to deliver that in 2019 as well. Margin up 50 basis points this year. Transformation cost savings on plan. I do think that our ability to look forward and say we're going to have two years with double-digit growth tends to show that the improvement in profits is well established in the business.
On the order intake, what I would point to is a truly exceptional rate of winning of extensions and rebids. In fact, out of 225 extension and rebids that we had in the first half, we won 224, which is an extremely encouraging rate, particularly since as we go into next year, we have what will be one of our biggest ever years for contract renewals. In particular, we have the COMPASS contract, now called AASC, where that is being rebid. That comes to an end in September 2019. At the start of the year, we have the MELABS contract in the Middle East ending and being up for renewal, and we have the Dubai Metro in the middle of next year. Right at the end of the year, we have the DIBP, the Australian immigration contract.
I would say that there is a sort of tug of love on this between myself and others. I regard these opportunities as being entirely positive, these rebid opportunities, because they give us the opportunity to go refill our pipeline. Between them, these major opportunities, if we are successful, not refill our pipeline, refill our order book, will have a significant impact, hold out the opportunity of a significant impact upon our order book, which I'm pleased about. It is an interesting fact, though, talking about the order book and the fluctuations actually of the pipeline, is that if you go back to the 1st of January 2016, our cumulative orders have been GBP 7.5 billion, and our revenue has been GBP 7.4 billion. Actually, since 2016, we have kept our head above water in terms of our order book.
There are not many of our peers that can say that, I think. We mentioned the Carillion acquisition, the BTP acquisition. Dave will tell you a bit more about BTP, but that's going well. Tributes to the integration of that. No surprises on the OCP front in the first half. I will talk a little bit later about our engagement with the U.K. government. I would say that, and I've said in our statement, that the noises coming from senior ministers, there seems to have been, I would say, a much more constructive tone coming from senior ministers. As Angus has told you that the balance sheet is in good shape, and I'm pleased to say that of our 220 million GBP of closing debt are compared to a daily average over the period of GBP 216 million.
It clearly shows that those two are aligned and we're not pushing stuff. It's been a really pleasing year on the operational excellence stuff. HMP Kilmarnock is doing an extremely good job, I was going to say cracking the drugs problem, but that's probably not the right word to use it, but getting on top of the drugs, the best performing prison in Scotland. We've just had the annual ratings of prisons in the U.K., and two of our prisons are rated as excellent, being Ashfield and the Dovegate Therapeutic Unit, where the recent report by the Inspector of Prisons gave it an absolutely glowing report and referred to it as an impressive institution. NorthLink is doing very well, the ferry service there. The preparations for the new sleeper service are going ahead.
That is to be launched for what's called the Lowlander service between Glasgow and Edinburgh on October 28th of this year. Then in the first half of 2019, we will do the Highlander service, which is Fort William, Inverness, and Aberdeen, in an astonishing act of self-discipline by the Chief Executive because, of course, I have a house near Fort William and my service is coming last. If you get a chance to see it, the new trains are absolutely magnificent. I would also say in terms of the OCPs, which were large OCP, we are running on track with that at the moment. In terms of lowlights, we did have a shortfall in the volumes on some of these task order contracts, ship modification.
CMS, again, some shortfalls in volume on that, but actually made up for because we had wider margin improvement on that contract. We lost to Firmoo in the U.K. and SSPARS, which was a major radar installation support contract in the U.S., we were disappointed about both of those. Our pipeline is rebuilding, but slowly. GBP 300 million added to it, I think to GBP 4.7 billion it stands at the end of the first half. I'm not too worried about that because of the enormous volume of rebid opportunities in 2019. Although there are better noises coming from government about the U.K. government, about the participation of the private sector in providing public services, the fact is that there's still quite a lag effect. There are a lot of negotiations and tenders that have been going for quite some time.
There are still what one might call quite a lot of old-school terms and conditions going around which government is trying to push down onto suppliers. That is not moving as fast as one might conceivably hope for. In terms of the regions, U.K. revenue down 4%, but the UTP margin was flat at 2.2%, a small drop in underlying trading profit. Operationally, strong performance, COMPASS contract doing well. We have a significant amount of public noise at the moment going on in Glasgow. If any of you are worried about that, I can come and talk to you about that afterwards. But suffice it to say that we have been supporting large numbers of asylum seekers after the determination by the Home Office, after their support has stopped.
The number of people we are supporting at our cost has been increasing, and we cannot go on doing that. In terms of contracts awards, we're now going to be doing the Edinburgh cycle. We won the contract to do that. We are going to be continuing to support The Queen's Flight out of Northolt and also Brize Norton, which was a contract that was being recompeted, but we have now been awarded an extension on. We got an extension on NorthLink Ferries. As I say, we have a very busy year next year for extensions. I cannot overestimate the importance of how we choose to bid the COMPASS contract. We've not yet fully decided which regions we're going to be bidding for, but it will comprise some our own existing regions and then perhaps some other regions.
There's some large opportunities in the pipeline next year for the MOD, for various transformation programs and Navy support, there's quite a healthy pipeline now also in health for next year. Americas, I'm just going to skip over and say that the revenue was down, but the margin was up 30 basis points. Strong order intake mainly from the CMS contract, Dave will tell you more about that in a moment. Asia-Pacific, revenue down 9% in constant currency, but the margin up strongly from 3.4% to 5% as they get to grip with their costs and drive efficiencies in their overheads. The ACPB contract which was our biggest OCP, dropped out of the revenues at the end of last June.
Between them and Western Australia Custodial Escorting Services, that was GBP 33 million of revenue that was in the first half of last year that didn't occur this year. They've been having a string of new wins in Citizen Services. That's basically call centers for the government. We've got a big business providing them for the tax office, for the National Disability Insurance Scheme. We re-won the contract to do the Melbourne Gardens. If anybody wants to go and have a nice walk in Melbourne, give us a ring. That business is also, there's a lot of activity in the prison space. We got a big bid in to run a prison called Parklea, another one in Queensland. And we're also doing the re-rolling of our highly successful Southern Queensland Correctional Centre from a male prison to a female prison. Moving on to the Middle East.
Revenue up modestly, profit up a lot. The reason why the profit is up a lot is that the enormous bidding costs that we had last year related to our unsuccessful bids for the Qatar and for the Riyadh Metros. We stopped bidding for those last year, and those costs have now dropped out. We won an interesting contract for fire and rescue services for Dammam airports, and we hope to see if we can find other airports that need our sort of skills in fire control. Two very big extensions and important rebids or extensions coming up. One would be MELABS, which is looking after Australian forces in the Middle East, and also Dubai Metro. The MELABS contract is very important. It's a significant profit contributor to this business. Whatever happens on win or renewed, we will have a reducing margin.
It's an important bedrock contract for that business. In terms of the pipeline, the pipeline in the Middle East is fairly weak at the moment because they put so much effort into the rail bids, and we need to rebuild that pipeline. There's a lot of stuff going on, particularly in Saudi Arabia. If I can just conclude this part of the section by just talking a little bit about our order book and pipeline progress, because I think that I've always been of the view that I'm not wildly consumed by the idea of how much is the pipeline and how much is bids and re-bids. The fact is, you need to have both.
If you go back over the last four or five years, about 50% of our order intake has been from the existing book of business, re-bids and extensions, and 50% from new work. This moves around a bit. The fact is that going back to from 2015 till now, well, actually from 2016 till now, we've put GBP 1 billion into our order book. The greatest guarantor of future business is, of course, our future order book. In terms of the major bids for next year, we've got, I mentioned COMPASS, the kit contract in the U.S. that Dave will talk about, a big kitting and systems integration contract there, Parklea prison in Australia, and a big contract for doing HEMP, which is protecting bases against electromagnetic pulse. We are pleased with the progress that we've made on this order book.
I can say, if you look at the GBP 11 billion at the end of the first half of this year, we're going to put another GBP 700 million into that through the acquisition of the Carillion contract. At which point, I'm now going to hand over to Dave, who will give an update on the Americas business.
Great. All right. Thanks, Rupert. Good morning, everybody. For those of you that haven't seen me before, We had the previous Serco Capital Markets Day, I think we had a chance to chat a little bit there. Otherwise, Dave Dacquino, representing the North American business. I'm pleased to be with you here this morning to give you a further update on Americas, Rupert, of course, touched on a few things. I'd like to cover four items as we go forward here. See what we got first right up. A recap on the financial performance for the first half of 2018 for the Americas, I'd like to run through the strong period of contract awards we had in the first half, Thirdly, where we stand in our pipeline, Concluding with how we're developing the mix for future growth.
Here we see the financial performance. The revenue decline that Rupert and Angus had mentioned was really driven by two contract areas, as mentioned. The first, CMS, which is our Center for Medicaid and Medicare Services. I'll cover that again in a moment. In terms of the new contract that we won, we did see revenue decrease by about GBP 32 million. This reflected the lower market price enrollment figures and also the reduction in exemption processing, so the technical side of this. That's due to the verification changes, it's also due to the increasing automation that we have driven into the business. The second area for the revenue reduction is the global installation contract, where we do our ship modification work. Volume on this, and this is a framework contract, was lower in 2017 and furthermore into H1 of 2018.
Given the U.S. government's current administration's focus on a larger Navy, we're hopeful that the volumes on these framework task orders will increase. In fact, we have seen an increase in the equipment builds, of course, this is the equipment that then gets installed on ships. We have a very clear level indication of what that'll look like. With the exception, though, of the ship modernization, in our defense business itself continues to have some pretty impressive growth. Let me just cover a few of those that you see here. We recently won our Defense Logistics Agency supply chain contract. That's a new one for us. It's executing well. In fact, we have two other bids in that pipeline. We're expecting to have those announcements in the second half of this year.
Our new U.S. Army Installation Command program is performing very well. We've already seen additional work from this customer, two additional task orders that have come out with them. Just for interest, I want to share with you, we're covering U.S. Army bases around the world with this contract. There's a total of 86 bases to give you a little bit of visual there. 64 of those are domestic and 22 are overseas. That gives you an idea of the footprint that we have there. Our anti-terrorism force protection contract is another program where we support military bases, in this case, Navy, 75 of those, 61 of which are domestic and 14 overseas. We've seen significant expansion on that contract from the original contract scope. We expect more on that particular contract as well.
Actually, this is an example of how we're expanding our work with our Navy customer. It's not just the installation side, but different parts of the Navy. Of course, the Naval Electronic Surveillance System, we call NES. We're very pleased we were successful in securing this business, and we're just starting to work under the new contract. In the first half, we did see an increase in the task volumes. I'll talk a little bit more about that when we talk to pipeline. Just for clarity, at least in American terminology, when we talk about acquisition program management, what we mean is support on the acquisition side and the program management for the customer's program office, where we sit with the customer. We had very good performance across our defense business and Homeland Security customer base.
In terms of profitability, as mentioned, while the revenue was down GBP 43 million in revenue, the profit was down just slightly, GBP 1.3 million. On the CMS contract, there was actually no profit reduction on that contract itself. We did have some increased productivity items that we had put in place, which will actually offset the reduced workload. Elsewhere across the division, we've also made progress on our transformation and our cost efficiencies, which again, reduce revenue, but increase our efficiencies. You'll remember we have one remaining onerous contract, the DES contract in Canada, which is the Driver Examination Services in Canada. Operational performance on that contract continues to improve, and I do want to give you some facts on that. We have 94 locations that we service in the Ontario province.
39 of these are traveling points where we actually move the locations to service the citizens, and 55 of those are permanent locations that we man. Interestingly, of the nearly 2 million customer interactions that we do each year, 725,000 of those are physical road tests where we're in the car giving the test, 588,000 are written tests in our facilities, and about 600,000 are license applications. Gives you some idea of the scope of that contract. Overall, I have to say I'm pleased with our contract execution and also the customer relationships. Let's go to-- Did I change the slide? No. There we go. No, I've got to go back one. Sorry about that. I think I'm there. Can't see that right. Yeah.
Turning to the contract awards, I really am very delighted. As Rupert has mentioned, $1.4 billion of awards in the first half of 2018. As I mentioned, the CMS contract was the largest within this. It was about $900 million. We look forward to supporting this customer for another five years. We'll talk more about that as well. On this program, Serco plays a very critical role in supporting the Department of Health and Human Services. Here's where we do eligibility verification. We have about 1,200 staff across three different locations. Here we handle millions of customer interactions, documents, notices, and so forth. We've already developed deep processing in our bespoke IT capabilities to support this customer, which we believe we can leverage further.
The new contract, though, is largely fixed price. By driving further efficiencies, we're aiming to maintain our profit, even in spite of the lower volumes. More on the Navy Electronic Surveillance System. Again, a $232 award. Great program win. Of course, it's a complement to our anti-terrorism protection program with the same Navy customer. What's important to note here is this becoming a sole source for Serco versus a multi-award previously, was a great success. By and large, it usually goes the other way from single source to multiple award. We're very happy with the relationship we had there and the success. I'm also very pleased about the Federal Emergency Management Agency, FEMA, win, which was a new customer and a new capability for us in North America, which expands our portfolio.
Unfortunately, this has been delayed due to protests from the losing contractors, which could extend, in this case, till pretty late in this year, perhaps into November, until we get a favorable result. I'm also happy to report a win with the U.S. Army at Wright-Patterson Air Force Base. This is in our acquisition program management business that I mentioned. Here's where we provide logistics support under what's known as GLASS II. That's the Global Logistics Acquisition Support Program. This win also has been pulled back due to some protest activity. In this case, we hope to see resolution in the next 30 days. Across the rest of the business, we saw another $200 million in additional awards. Here, I'm very pleased with the success of maintaining our current business.
Obviously happy with our 100% rebid rate. The fact is breaking into new markets as well, which is difficult business. We've had some good success. Here, let's take a look at the pipeline. As we look at the pipeline for Americas, the biggest opportunity, Rupert's mentioned this, is our C5ISR Integration, Kitting, and Cable Fabrication business. We call that KICK. What you think about here is this is actually helping the Navy build their equipment, which will then go on ships. This is moving a bit upstream. We expect this award to be announced imminently. This is, of course, an expansion of our hardware integration business located in Charleston, South Carolina. Again, this is with our current SPAWAR customer. They know us well. We're looking forward to that outcome.
Fairly new opportunities to enter the pipeline are two in the air traffic control segment that you see. One of these is a domestic program for the Federal Aviation Administration. Actually, interesting for me, this is a program that I won back in Raytheon days almost 10 years ago. The other is an operational and maintenance program in the Middle East for the U.S. Air Force. Actually, in this case, we're getting a great assist from our Middle East division, so we're working very closely together to be successful there. You see an entry there for our BTP acquisition. It's a smaller but important opportunity for that particular business. This is an offering for life cycle sustainment services and depot repair.
This is for the Navy multiband terminal satellite communications systems, there's over 800 antennas that are deployed on virtually every U.S. Navy warfighting platform, and also the shore communications. It gives you a sense of what we're doing there. The capabilities that we gained with BTP have really enabled Serco to pursue important opportunities like this. This is where we'll do equipment maintenance and repair versus just installation. It gives you a sense of how we're expanding our work with our current customers and new equipment. We also see several good framework contract opportunities, one of which I've represented on the chart. It's PMW, which really just stands for Program Management Warfare 750. That is a multiple award contract, it'll increase our capability set.
It's also in the equipment manufacture production area, it allows us to expand the breadth of our Navy customers again, who are focused on increasing the fleet size, and that is upgrading the capabilities on our U.S. Navy vessels across the entire fleet. I'm really pleased with the diversity of our pipeline and the number of opportunities that are available to us. We would hope the pipeline would build further on this defense cycle outlook, given the finalization of the defense budget, an increased level of funding, particularly in the areas such as ship modernization that we're working on, and given the momentum and the stated goal of a 355-ship Navy in the U.S. Let me conclude with how I see us developing the mix of our business as we go further.
I want to come back to BTP acquisition because it's been very successful, it's been well-received by our customers, many of which are other large prime defense contractors, and actually uniquely evidenced by the high-level Premier Supplier Award from Raytheon that Serco received just this past month. In addition, I'm pleased by the incremental opportunities that we now see as a result of this acquisition, really how, and this is the important part, how it deepens our engineering skills along with what Serco already does in the installation side of the business. What it in fact does is creates an end-to-end capability for us to offer to our customer. I've also, of course, been delighted by the success we've had in other sectors, such as Army and Homeland Security. I see good potential in broadening in other sectors as well.
Citizen Services is already about 35% of the division. Of course, a large part of that is our CMS contract that we talked about, but also FRTIB, which is the Federal Retirement Thrift Investment Board, and the patent office, where we're supporting the U.S. office. We'll look for other opportunities where we can process complex case management files. Our transport business is centered around air traffic control. In transport, as well as across defense and Citizen Services, we can also use Serco's international skills and capabilities to great effect. I'm very excited about what the other divisions can help us bring to the U.S. market space. There are also several Serco sectors which may become potential areas to develop in the North American division as well.
Well done, Dave. I do have an emerging opportunity, as I think some of us know and we talked briefly about, in immigration that we're evaluating with the U.S. Immigration and Customs Enforcement agency, ICE. For things such as this, we're clearly leveraging the expertise we have across the division. I have to say, I'm pleased to say that the Americas market itself remains highly attractive for further development and investment by Serco. Let me now hand it back to Rupert.
Well done, Dave. I just want to give, finally, an update on the U.K. market backdrop. Although the U.K. market is now only 40% of our revenues and 20% of our order intake in the first half, it does remain our home market and of vital importance to us. There's been quite a lot going on in the first half. Obviously, starting with the collapse of Carillion. The impact of the collapse of Carillion was to make government ministers start to concentrate on, more broadly, the state of the outsourcing market. This was not something that they had really had to worry about for a long time. It was just something that was there. It set off a political firestorm, and a lot of people had to start thinking anew about why should private companies perform public services.
I think that we, as an industry, had kind of forgotten that it's not obvious that what it says on the tin, a public service, that it should be private companies that should deliver it. It's a case that we have to make. Anyway, I'm heartened, you will see there's some commentary in our statement about how we feel, at least at a senior level, this debate has moved forward. Senior ministers have had to go back to square one and say, "Well, why do we want the private sector participating in the delivery of public services?" They've actually come out with, I think, very brave, very straightforward statements, which actually are completely consistent with the philosophy of Margaret Thatcher, John Major, Tony Blair, and David Cameron, which is along the lines that say what matters is the outcome.
What the outcome should be, high quality services, delivering good value for money for taxpayers, kind of who delivers that, we're agnostic, whether it be private or public or third party. That is as much as we as a market can expect in terms of a fundamental principle, but it is important for us to hear it said. We also see the four forces that we, those of you who were around in 2015, saw our strategy presentation. The four forces impacting public policy being growing costs, particularly in healthcare. You'll be aware of the extra GBP 20 billion going into the NHS as a result of aging population. The increasing need for investment in infrastructure, rising expectations of choice and service quality from citizens, the need to balance public income and expenditure, voters unwilling to tolerate higher taxation.
We still see fierce pressure on governments to deliver more and better for less. Even the last couple of days, Liz Truss, the Chief Secretary to the Treasury, has written out to non-protected departments saying they've got to go and save more money. Within this, you know that we took our heart in our hands and went and put our head above the parapet, in our last results, we put four principles being transparency, orderly exit, security of supply, and fairness, which we felt could help the market regain its poise and lead to a vibrant market for public services. I'm actually delighted to say that following evidence that we gave both to the Public Accounts Committee and to the Public Administration and Constitutional Affairs Committee, three of those four principles are taken up by each of those committees.
David Lidington himself has pledged to introduce living wills, which is clearly in the government's interest. The question is, will the government reciprocate in other areas like transparency, and also in codes of conduct? We see the market as still being difficult. The market is not one that is going to encourage any new entrants into the marketplace. There is still too much risk, unmanageable risk in many cases, being put on to suppliers. It will take time to do this, but the direction is correct. More on that in the back end of our statement. In summary, strong trading performance. Not many companies in our sector are reporting 20% increases in underlying trading profit. As you go down our P&L, the numbers, the percentages get bigger.
Acknowledge that it is a 20% increase on a small number, but we have increased the margin that we make by 50 basis points. Broadly speaking, this is what we said would happen, that the margin would improve. It would be partly from cost savings, partly from OCP contracts dropping out. I'm glad to say that I think our growth rate will accelerate slightly in the second half. Good order intake that we've discussed. To the extent that there is greater weakness on the revenue side in the market than perhaps we foresaw in 2015 when we did our strategy review then, well, we didn't anticipate that there might be rubble lying on the streets, that we might be able to go and acquire businesses at really fantastically good value.
I say between BTP and Carillion, we've paid five times EBIT for businesses that really have significant strategic import for us. I think that that is unexpected bonus. Our transformation continues apace, not only in terms of our costs, but also in developing our propositions. We've got a robust balance sheet and our 2018 and 2019 guidance is unchanged. At which point, we'll get onto the questions. Thank you for your attention. Right
Questions? Yeah.
Great. It's Paul Sullivan from Barclays. Firstly, in terms of your flattish growth outlook for next year and the profit guidance you've given, can you give us a bit more color in terms of the moving parts sort of underpinning that in terms of contract wins, rebids, renewals, et cetera? Then secondly, I know it's a long way away, but in terms of what do you need to see change, coming back to your comments about the market backdrop, for you to feel confident about revenue growth in 2020?
Well, let me take 2019. In terms of 2019 is an important year because we've got a lot of rebids. We've got about GBP 760 million of rebids. Some of the big ones there are potentially really good news for us. They're equivalent of new bids because on a contract like COMPASS, where we're losing a significant amount of money, if we can secure some new work, that will be incremental profit, and it will turn from being significantly cash negative to cash positive. You've got COMPASS, where the annual revenues are between around GBP 65 million. We've got the Northern Isles Ferries, where the contract was extended, and we will be rebidding that in the autumn of next year. That's about mid-GBP 60s in terms of revenue. We've got the Australian Immigration towards the end of the year. We've got the Dubai Metro, which comes up for renewal next year.
We've got MELABS, which is a key contract in the Middle East. Dave's got a very big one with gig next year. That gives you a flavor of the rebids that we've got. In terms of the pipeline for next year, we had GBP 1.9 billion added in the first half to our pipeline, and there's a whole variety of different work. We've got garrison support, we've got the prisons that Rupert talked about in Australia. We've got a bid in the Middle East around schools, PFI in Saudi. There's a wide variety of different things. Revenue-wise, we've said the guidance is probably around about a similar amount. We'll have the benefit of the second half year of the health acquisition. We've said that's about GBP 70 million of revenue on an annual basis. We'll see continued growth in terms of profit coming out of cost savings.
I think the consensus for 2019 at this point is in the low GBP 90s in terms of underlying trading profit.
Can I take the second part of that question? What's got to change to get the revenue line growing again? I mean, the best judge of whether the revenue line is going to start growing again is the order book. For that, I say that we put GBP 1 billion into the order book over the last three years. Actually, a lot of the stuff that we put in, like for instance, Grafton, is not appearing yet in the revenues because it doesn't appear till 2020. I would also mention that the Icebreaker, again, which is a contract, is not huge, but that's one where it was taken in the order book, but it doesn't actually generate any revenue for us for some time. I think that we're going to get the benefits.
I mean, the Carillion Healthcare business should put GBP 70 million a year into our health business and give us a scale and better able to grow that business. On something like the AASC contract that Angus was mentioning, I want to be clear that the decision on bidding that and what we bid that is not yet made. That that would to switch from making a loss to making a profit, that is going to imply a very substantial increase in the value of that contract in terms of revenue. I don't think that anybody is expecting to get back to 5%-6% revenue growth in 2020. We do sense is that this dropping off of the contracts that have been losing us money, that that is going to fall away.
We have around the edges of our business some volume-related work, nearly all of it in the U.S., which is actually not in the order book because those framework contracts, we only take them in when we get the framework. We are quite dependent in terms of our revenue growth at the margins of how busy those contracts are. They can change on a dime whether a ship comes in, but the profit contribution to them is not enormous. Somebody said to me, "Is 2019 a sort of seminal year for Serco? Because you've got all these big rebids coming up, that it's GBP 700 million of annual revenue. You can imagine what that would" Translate into a total value into the order book.
I think there's a fair argument says that 2019 is going to be very important because if we get that established and our base established with these large contracts on the existing base, then we have to do less in terms of the new stuff that's around. I would say that the other markets around the world, like the Australian market is growing, has got a strong pipeline. Middle East, a bit weak at the moment but that I think is maybe partly self-inflicted. Europe, we still got a large business there. I do believe that the U.K. market is in a hiatus, that Brexit will cause issues. Who knows what's going to come of it? Who knows what is going to come of it?
I can tell you that we've recently been asked by Border Force, for instance, to provide them with some extra staff on some of their ports to enable them to release staff to do other things because they are going to be so busy. It's not a large number of people, but it is maybe a straw in the wind that one of the things that's absolutely certain about Brexit is that when you take back control of your government, you get a whole lot of government you've got to control. I think that there may be opportunities for us there.
Perhaps, Paul, just come back to the rebids. What gives us confidence and, yeah, there are question over whether we will rebid all of them. Where we have rebid in the first half, our win rate is between 99%-100%. We've lost only one out of over 200 in terms of volume.
Another question? Yeah, Rory.
Morning. It's Rory McKenzie from UBS. Firstly, on the margins and beyond the S&A reductions, I noticed the gross margin improved to 9.3%. Can you say how much of that was ending of loss-making contracts, and how much was kind of in-contract improvement? As you work through the portfolio still, how much is there more scope to keep improving margin in contracts rather than just on rebid or that kind of thing? Then secondly, on the American market, it just sounds a bit healthier in terms of outsourcing. Can you talk about the risk transfer in those contracts, maybe in contrast to the U.K., and how you think about new areas of America's outsourcing? You mentioned immigration, for example. Lots of financial, maybe political risk there. How do you think about the balance of the risk and reward in that market?
I'll go to Dave first at the moment. I think one of the different characteristics about the U.S. market is that actually they have They're much more at ease with a cost-plus and then semi-fixed price and fixed price environment. Dave, I think it'd be useful just to talk about the progress on the CMS contract, how that started out and where we are now in terms of contract risk.
Sure. Yeah, that's a great point. If you start out the contract, it's really a cost-type contract and the contractor and the customer kind of get to know each other in the process as it goes forward. This is actually a natural progression where we now have about 75% of this contract that's fixed price because we've had an opportunity to understand the workload. The customer's had a good sense of contractually what that might look like. That's why we see us moving to a phase where having understood the contract now, we can move to the different contractual method. For us, from a risk perspective, it's fairly comfortable because we've had a chance to work on the contract.
Also, Dave, on the naval work, some of that is fixed price and some of that is-
Yeah, very good. The KIC contract is a good example of that. It'll be a cost-type contract initially, and what the Navy is looking for is us to, as we get repeat jobs, to fix price those and dial them in. It actually is a pretty standard methodology in the U.S., not just in defense, but we're seeing it across the way. Both the contracting agency and the contractors are more comfortable in a fixed price environment because both are able to incentivize in the right direction, if you will.
One of the things that when the British government say, do they do it better in other places? I think that the way that the U.S. government handled the CMS contract actually is an example of how to do it better. You've got something new. You don't know how it's going to work. You start off cost-plus, and then gradually you up the level. Our margins when we started on CMS-
Very low
Were 2.5%, something like that. I remember saying to this audience, "I'll have that all day long." Tiny margins but no capital employed and no risk. That has now transferred to significantly higher risk because we are taking more fixed price work but much higher margins, which is why we are saying that our outlook for the CMS is broadly the same amount of profit from a significantly lower amount of revenue. The immigration issue that is raised, this is very early days, but I think what it shows is that we are recognized as a world expert in immigration and looking after families who are going through some form of refugee or asylum process.
The Department of Homeland Security have approached us and said, "Could you perhaps help us figure out what we could be doing down in Texas on the border?" We have no infrastructure to do this in the U.S.A. The government knows that. Nevertheless, they've said, "Please come and talk to us." We are able to deploy help from Australia and perhaps from the U.K. to go and look at that.
In terms of your first question, there's a 60-basis point improvement. You've got all sorts of factors in there around mix and around what we're doing in terms of driving continuous improvement, and then you've also got the OCP. Broadly, I would say you've probably got a 20-odd basis points in the OCPs, and then across mix and contract improvement. It's a combination. The line below, you can see the cost savings in terms of the SG&A. SG&A has been the thing that we've gone after in the early years to reduce overhead, and we will continue to do that. You get to a point where you just want continuous improvement year out. Year in, year out, once we've finished transformation, we'll probably get the most of that done by the end of next year. We move into continuous improvement mode.
What I find really exciting is that 90% of our cost base is actually in the in-contract costs. Historically, that had always been the place where people go first. I think we've done the work in the overheads first, and now we're getting after in contract. What are we doing? We've got procurement. Instead of every contract doing its own procurement, we're using our scale and getting better procurement deals. We've got the management information that allows us to see everything that's purchased, and we're looking at outsourcing an element of that sourcing. We're also doing, what I personally find really exciting is, the Yellow Belt, and just bit by bit improvement, and focused on everybody doing their jobs slightly better, doing it in a way that provides better services, not just about driving cost out and driving efficiency.
It's actually about providing better service to the customer. The best example of that being Serco Cares in our health business, which Rupert can talk about later potentially. A lot going on in terms of contract cost and beginning to see it. There's cost pressures in different places, so we have to work really hard at being more efficient every single year. The organization is doing a really good job in terms of that.
We're going to be launching quite a big investment program now in the business now on rolling out a program called Workforce Management, where we use much more sophisticated methods that it will be on spreadsheets doing people's rosters. You kind of think that a company that employed 50,000 people would do that in a sophisticated way anyway. Actually, we don't. We are rolling that out. That's going to be a lot. I think we are now shifting. As the tree gets actually better rooted into the soil, your ability to go and shake it harder in terms of getting productivity out of it becomes greater. The contracts largely, the whirlwind of transformation and cost reduction has largely hit the SG&A. Now, 90% of the costs are in the contracts, and we are working on that as we go through. Another question? Yep.
Sam.
Sam.
Morning. It's Sam Bland from J.P. Morgan. I just wanted to ask on these overhead costs, they look to have been probably the primary driver in the half of the 50 basis point improvement in the margin. I think it's like a roughly GBP 16 million reduction in the overheads on a base of GBP 113. Obviously, quite a large year-on-year proportional change. I want to get a sense of how deep that amount of cost savings from that, how deep that pool could be of cost savings. I suspect next year we're probably looking for a slight increase in that underlying trading profit margin again on roughly flat revenue. Is that coming again from probably lower overhead costs or maybe to do with those contract costs that you've just been talking about? Thanks.
We'd like to see it come from both. There's more work to do in areas like IT. Our head of IT can maybe talk about our sort of migration to the cloud because it's beyond the likes of me. We've got procurement savings that we will be able to deliver next year, then generally across the business. We're very conscious of the need to balance our operational delivery capability because we're delivering critical services with taking too much cost out, which is why we've tried to do it in a thoughtful and programmatic way.
I want to pay tribute actually, really, because it's not often that I pay tribute to the forward-thinking and transformational capability of finance. Actually, Angus and his team have done an incredible job of outsourcing a huge amount of our finance function now. Between them and Accenture, who've done actually a very good job for us, we have gone through a major program of transformation on the finance function and still managed to produce our numbers on time. That is going to save, I think it's what? About GBP 3 or 4 million out of the
Similar
finance cost. We said, I think it was at the year-end, and Angus is going to correct me, but I think we said that over the two years, we expected to save about GBP 50 million from overheads one way or the other. Or was that total savings? I think
Yeah. No, that's fine.
We think we're going to get more than halfway there over the space of this year. There's already GBP 16 million year-on-year. Between the contracts and the overheads, we think that we can get there. There's still more runway to come. To me, there's nothing wrong with this. This is good. This is goodness because we can on the whole make those savings stick, and then we're moving now on the contracts and this continual grinding out of value. I keep repeating, this is a bit. Some of you will be aware of my shitometer that sits on my desk. I think, Sam, you have seen, you have witnessed with your own eyes my shitometer on the desk, which has on it marked, it's a loo brush with 5%-6% margins, because that's what loo cleaners make, 5%-6% margins.
We make nuclear weapons, run prisons, and we make two and a half. We've got a great deal of self-help to do out of this. We've always said that the major contribution to our margin improvement was going to be the conversion of OCP contracts, them falling away, and converting some of them onto a more profitable basis, and self-help from cost reduction, and a smaller part was due to leveraging our overheads from revenue growth. I'm fine with where we are. I see considerable additional mileage on the cost side. I also see, I accept that we will need to start growing our top line in the coming years. A GBP 1 billion increase in my order book is at least a beginning. Cian then.
Morning, it's Cian Nolan from Jefferies. Can I just first of all start with a couple of questions on cash flow and balance sheet? At least relative to my expectations, I think your working capital, dividend from joint ventures, and CapEx were all a little bit better than expected in the first half. Are there any headwinds potentially to deleverage in the second half? Because it looks your guidance to still remain within the top end of your guidance range for net debt for the full year. Feels like there might be a bit of leeway in that. Secondly, you're right, a number of your guidance points for the next couple of years are unchanged. One thing that does look like it's changed is the onerous contract provision guidance for FY 2019, which looks like it's come down by about GBP 5 million or GBP 10 million.
I'm just wondering whether there's any particular contract that you feel is now going better than previously guided. Thirdly, one for Dave. I think a number of your bids have included some quite interesting developments in AI and technology over the last few months. I'm just wondering what other initiatives you have there, and maybe Rupert, if you feel that the U.S. is sort of at the forefront of those and the rest of the group can maybe adopt some of those? Your general thoughts on sort of technology in general.
In terms of cash flow, the guidance is towards the middle to upper end of the range, and that now includes the acquisition of Carillion Healthcare. It's a little bit better. The key is clearly going to be the working capital. The receivables were a little bit higher at the half year. We think that's going to unwind as we go through the second half. There's nothing dramatic here, and I don't think Is there potential to do better? Yes, it's very hard to predict because there's so much cash that comes in that last week of each month that it makes cash forecasting second only to tax and our fingers crossed as we give you an indication every time we do it. In terms of the OCPs, yeah. East Kent is one of the ones that we had.
We have settled that, we've brought forward utilization from next year into this year. It's kind of at the margin. When you're at ±5, we'll get a better sense as we go through the autumn. The really exciting thing for me is that having come from GBP 447 million of future cash out the business, by the end of this year, we'll be at GBP 90 million. The end of 2019, we'll be sitting somewhere around sort of GBP 45 million-GBP 50 million with GBP 20 million to come in 2020 and then a small amount thereafter. The anchor that's been weighing us down from a cash conversion perspective will disappear. Dave, do you want to talk a bit about some of the tools we're using in CMS?
Right. When you think of automation and artificial intelligence and all that, I think of robots and things in factories, but that isn't this at all. What this is efficiency and data management, primarily in CMS. If you think about the millions of transactions we have with consumers, when someone calls in, the automation that we have will match up all the paperwork and present to the operator what needs to be done. For instance, if a consumer calls in and has particular data fields where they've either made an error or an omission, what the system does is pull all those documents in front of the operator and very clearly says, "Here's the two spots that are missing." The other thing that we've seen happen is the automation now immediately recognizes what the forms are.
We get a lot of mail, just physical mail that comes in. We scan that in, the computer analyzes it. It knows it's a tax form. It knows it's a passport or a driver's license. It knows where to look for the particular data fields, brings those forward, collates it, and makes it a very efficient call for the operator to talk to the administrator. Then the other piece of that is what we call data analytics, not just in CMS, but in other areas. What we've done is presented to the customer data analysis on their contract. Data they've never had before in our transportation area, in our defense area. In fact, what we're seeing is the customers then taking the data we present to them and presenting it to their management and using it as their reports.
That really ties us in as key partners. In the sense of automation, those are the types of things we're doing that are driving the efficiencies that help our contracts. Yeah.
In terms of the wider utilization of things like AI, robotics, and voice recognition, to the fury of some of my colleagues who regard me as being antediluvian, I've actually spent most of my life working around technology, so I like to think I have a view about it. Our strategy there is to use other people's tools to deliver value to our customers. We don't want to develop the tools. We think with all these things, the secret sauce is not the tool, it's the understanding of the application. One of the tools that we use is a software suite called Appian, which allows you to draw process on screen. The difference between these tools now and tools five or 10 years ago is that they handle a whole lot more. You've been able to do process drawing for a long time.
What they handle, though, is seamlessly security. They handle all the grunt work. They handle the cloud, the APIs, the everything. You can create what is, in fact, highly tailored software to highly tailored applications really quickly. The key thing that they haven't been able to automate is that knowledge and understanding of the application that allows you to create it in the first place, and that's where we're positioning ourselves for that. We're using a lot of clever stuff across the business. We're using drones to do building inspection, where we used to have to go and get cherry pickers into prisons. Not a great idea getting a cherry picker into a prison, because the nice little thing rumbles through the thing, goes up. We now fly drones over our prisons to do roof and gutter inspections. We're doing the same in Goose Bay.
We're using voice recognition at Norfolk and Norwich Hospital to allow people to go and order drugs. We're looking at some very advanced applications around the whole area of tagging stuff. On our call handling software, which we buy, using somebody else's tool, we've got some of the most sophisticated things. When you call in, if we know who you are, the system will go and look on social media to try and work out what football team you support, for instance, and direct you to somebody on the desk who supports Manchester What are they called?
United.
Right.
There's only one proper team.
I am told that this is very effective. We have partnerships with The interesting thing is how attractive we are to people who have some quite clever technology. We don't want to do it ourselves, we want to work with other people. If anybody else wants to chat about that, we're doing some cooler stuff than you would possibly think of a boring company like Serco. Any more questions?