Good morning. Everybody. We're gonna try and ruffle through a, slide pack, which, as usual, has an immense amount of appendices. And as one of the analysts said this morning, Stuart, I think you're trying to take ninety four pages to tell us that nothing has changed. But, within this weighty pack, we're going to gallop through it.
We got Dave Lukino from the, US who joining us is going to give you an update on the US business. And of course, our chairman, Roy Gardner is here, as well. So I'm just gonna talk a little bit about, overview of the, first half of twenty eighteen. I think the the main thing is is it's solid progress and what kind of how we thought it would be. Revenues were down a bit 5.6 percent at, constant currency.
That's in part because we had some large contracts that came to an end in the first half of twenty seventeen, like the Australian patrol boats and also the Western Australian, escorting. And there was a little pressure that, Dave will talk to you about on some of the US task order contracts, but fortunately, the margin on those contracts that 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 and likely to be some acceleration of that growth in terms of, profit over the underlying profit in the second half. So that is pleasing and in line with what we said in our strategy, which as you remember was a hockey stick strategy.
And going down the front of the hockey stick is the easy bit is when you come up and start growing again that is harder. So, we're pleased that this first half shows clear evidence that we are grading our profits, again. Good or good, order intake performance, 120 percent booked to bill, 1,600,000,000 of order intake and 80% of that outside of the U. K. Our pipeline has grown a bit to 4,700,000,000 not growing as fast as we'd like, but we've got a huge amount of big rebids coming, next year, which itself is a major opportunity.
We've done 2 acquisitions in the first half. Both of which but we're very pleased with it. We've just got over the line the 6th and final carillion, hospital contract just to remind at four times, EBIT were buying £700,000,000 worth of order book and £70,000,000 of annual revenue is going to be, enhancing to our margin in the health care businesses are, profitable, contracts. And I'm really, chuffed to to the back seat that we managed to get that. It greatly increases the size and scale of our UK health care business and BTP, which was inspired by, Dave is a small engineering company that is, greatly it deepens, our expertise in satellite and radar, engineering.
Balance sheet has always robust, closing net debt at 220,000,000, pounds 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 we're Angus said they would be back in 2014, which is a a big achievement. And our transformation, which and is 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 16,000,000 out of SG and A, year on year, and we're doing a lot of progress when the IT systems were currently prepping our whole ERP system, our SAP ERP system to migrate that from a large data center, a place called Gravely Park. That by the end of the year, we'll 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 2,700,000,000 to 2,800,000,000, relatively flat in constant currency. For 2019, we expect.
In this year, we expect UTP for the year as a whole to grow by about 80,000,000, which will give us just over 20% growth for the year as a whole. So on the whole, we are reasonably pleased with the performance in the first half, and 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. So let's start with the income statement. Revenue stated in IFRS 15 basis and 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 numbers have been adjusted for IFRS 15, but as stated previously, the impact is not significant. Revenue of 1,366,000,000 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 percent contribution from acquisitions, mainly BTP in the U S. Which we completed at the end of January this year. The adverse currency impacts of 57,000,000 in revenue and $3,200,000 on 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 twenty eighteen. All the rates are in the appendix together with The key translational sensitivity remains the U. S. Dollar, where a $0.05 movement in the sterling exchange rate has a full year impact of some 1,000,000 revenue and million of underlying trading profit.
This chart is now easier to read given the of assets held for sale and discontinued businesses. However, there is an adjustment of 7 800,000 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 OOCP 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 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 1000000 lower during the first half as compared to the first half of last year The biggest revenue declines were in the Americas and Aspect. 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 Aspact, the organic revenue decline was largely caused by contract attrition from the prior year relating to our loss making armadale patrol boats contract as well as the Western Australia Court Security And Castorial 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 in the middle east was largely due to organic growth in a number of our existing contracts. Overall, revenue fell by 9% or $141,000,000 with $91,000,000 of the fall being organic. This was exacerbated by 57,000,000 of Forex translation, offset by a net 6,000,000 from acquisitions and disposals. Underlying trading profit for the group in the first half of 38,000,000 represents a period flat in the prior period at 14,000,000 with margin unchanged at 2.2%.
In the Americas, underlying trading profit fell by 6% in constant currency terms to 1000000. A strong focus on cost savings and in contract efficiency ensured that the impact of lower revenue was minimized leading to an increase in 34% in Nasdaq to 13,000,000 with trading margin improving to 5% from 3.4%. This improvement in margin reflects the impact of the end of the loss making armadale patrol boats contract as well as the impact grew by 1,000,000 in constant currency to 1,000,000. 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 and corporate costs with a reduction of 7 percent to 19,000,000. 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 costs together with this more expensive debt being a smaller proportion of our debt mix following the repayment of 1,000,000 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 38,000,000 higher than in the first half of twenty seventeen. The blended cost of our debt is a little lower at 4.75% as compared to 5.2% in the first half of twenty seventeen, reflecting in part the aforementioned repayment of the 30,000,000 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 1.46p to 1.88p, 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 1.32p as compared to a loss of 1.77p in the prior period reflecting this improved profitability and lower exceptionals.
The weighted average number of shares an issue was broadly unchanged at 1,100,000,000. 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 10,600,000, giving rise to an effective tax rate of 34%. Which in an unprecedented turn of events is actually within our guidance range of 30% to 35%. The effective rate for the period is lower than the 40% of the prior period due largely to profit mix and lower US corporate tax rate. The effective rate remains higher than the blended country corporation tax rates due to the absence of a stability as we work through our remaining loss making contracts.
17,000,000 of deferred tax asset continues to be recognized with a further million of contingent tax asset, which we can recognize as the outlook for U. K. Profitability further improves. Cash tax remains more predictable with 5,000,000 of tax paid in the first half and an expectation in line with last year of 10,000,000 to 15,000,000 for the 2018 full year. In terms of exceptional items, these were a net 11,000,000 as compared to 27,000,000 in the prior period.
Similar to last year, operating exceptional were driven by restructuring costs related to transformation and include redundancy and other incremental costs of implementing this stage of the strategy. And with respect to The cash 8,000,000 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 1000000. Turning now to cash flow. You can see the breakdown of the 26,000,000 free cash outflow.
Which was similar to the 27,000,000 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 27,000,000. 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 a green sales invoice is 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 Turning to the bottom half of the are highlighted. In addition to the previously discussed exceptional cash outflow of 1000000, 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 Corillian Health FM contracts. Net debt was also impacted by Sterling in our U. S. Private placement debt. Daily average net debt for the period was 216,000,000 compared to end of period net debt of $220,000,000.
Post the covenant adjustments highlighted in Appendix 5, Our net debt to EBITDA leverage ratio was 1.75 times up from 1.39 times at the prior period but within our 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 3 quarters of the way through in terms of the $447,000,000 we booked in 2014. Utilization was 1,000,000 in the period, down from 1,000,000 at the same time last year. By year end, it's likely that the remaining OCP provision will reduce to $55,000,000 is forecast for 'nineteen falling to $20,000,000 in 20.20 and immaterial amounts for the couple of years thereafter.
These reductions should make Circos strongly cash generative from 2020 onwards which will support As well as the small OCP release of $400,000, we removed $7,400,000 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 1,000,000 is 1,000,000 which represents a 3.6% change from the original charge. Now they're really exciting, but accounting standards. As you will remember, the impact of IFRS 15 on our 2017 result was immaterial given the repeat nature of our services and more prudent accounting adopted post 2014. The 2017 restatement reduced revenue by 1,000,000 and underlying trading profit by 0 point 5,000,000.
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 seen is very challenging given the potential volatility of operating lease movements. For example, for circle winning and not winning the new U. K. Asylum seeker contracts with their consequent impact in Leeskabomans could make our difference to our level of post IFRS 16 debt of several 1,000,000, which is difficult to legislate for covenant wise.
This is not just a circle issue and it may require companies to keep 2 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 and 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. But 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 and modeling assumptions from our June 2018 update. We expect revenue to be in the range of $2,700,000,000 to $2,800,000,000, which includes an adverse impact of 4x of 1000000 to 1000000 or 3% of revenue based on current exchange rates. We expect a 2% contribution from our BTP and Caribbean 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 1,000,000 which includes 4,000,000 to 5,000,000 of adverse Forex impact. This profit growth is driven by cost savings where we continue to make strong progress, but you 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 17 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 million to million range. With covenant leverage between 1.52 times, which includes the full cost of completing the Carillion Health FM acquisition.
If teleperformance is proposed acquisition of Intelli Net proceeds, then the 30,000,000 intelli Net loan note will be repaid. It is worth noting that the 4,000,000 non cash credit included within this year's net finance costs relating to the loan note would no longer 25 basis point improvement to the covenant leverage calculation as the low note is currently excluded from covenant net debt. I hand you back to Rupert now for the operational review.
Thank you, Angus. So usually, we do, as always, we do the highlights and the low lights. And, the low lights is a rather shorter list that we look trying to keep them balanced, but we had difficulty doing that this year. I think reflects the greatest stability of the, group. But let's go down the, highlights first while I mentioned that, not only delivering, double track, percentage growth in underlying trading profit in 2018, but we believe that we're online to on track to deliver that in, 2019 as well.
Margin up 50 basis points this year transformation cost savings on on plan. And I do think that our ability to look forward and say we're going to have 2 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 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 a an 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 I call AAC where that is being rebid that comes to an end in September 19.
At the start of the year, we have the Milabs contract in the Middle East, ending and being up for renewal. And we have the Dubai metro, in the middle of next year. And right at the end of the year, we have the DIBP, the Australian immigration contract. And I would say that that, there is a sort of a a a a tug of love on this between myself and, others. I regard these opportunities as being positive these rebid opportunities because they give us the opportunity to go refill, our pipeline.
And between them, these major opportunities, if we are successful, not refill, and refill our order book, we'll have a significant impact hold out this the opportunity of a significant impact upon our order book which I'm pleased about. It is an interesting fact they're talking about the, the order book and the fluctuations actually of the pipeline is that if you go back to the 1st January 2016, our cumulative orders have been 7,500,000,000 and our revenue has been 7,400,000,000. So actually, since since 2016, we have kept our head above water in terms of our, order book, and there are not many of our peers that can, say that, I think. We mentioned the, Caribbean acquisition, the BTP acquisition, Dave will tell you a bit more about BTP, but that's going well. Tributes to the, 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 UK government, but 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 I Angus has told you that the, balance sheet is in good shape. And I'm pleased to say that of our 220,000,000, pound of closing, debt.
Are compared to a daily average over the period of 2 16. So it clearly shows that the those 2 are aligned and we're not pushing stuff. It's been a really, really pleasing year on the operational, excellence, stuff. HMP Kilmarnock is doing an extremely good job. I was gonna say cracking the judge's problem, but that's probably not the right, word to use it, but getting it on top of the drugs, the best performing prison in Scotland.
We've just had the annual ratings of prisons in the UK and 2 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, are there. The preparations for the new sleeper service are, are going ahead. That is to be launched for the, what's called the lowlander service, between Glasgow and Edinburgh, on October 28th.
Of this year. And then in the first half of twenty nineteen, 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 services coming last. But if you get a chance to see the new trains are absolutely magnificent. And I would also say in terms of the ACPs, which of a large ACP, 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 for because they made up for because we had wider margin improvement on that contract. We lost a firmware in the UK and SPAZ, which was a a major, radar installation support contract in the US, and we were disappointed about both of those. Our pipeline is rebuilding, but slowly, 300,000,000 added to it. I think 4,700,000,000 stands at at the, end of the, first half. I'm not too worried about that because of the enormous volume of, rebid opportunities in in 20, 19.
And although there are better noises coming from government, about the, UK government about the, participation of the private sector in providing, public services. The fact is there's still quite a lag, effect. There are a lot of, negotiations and tenders that have been going for quite some time. And there are still what one might call quite a lot of old school, terms and conditions, being going around which government is trying to, push down on to, suppliers. So that is not moving as fast as one might, conceivably hopeful.
In terms of the regions, UK 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. And if any of you are worried about that, I can come and talk 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 of of his after, that support has stopped. And we count that number of people we are supporting at our cost has been increasing, and we cannot go on, doing that.
The in terms of contracts awards, we're now going to be doing the Edinburgh cycle, how we won the contract to do that. We are going to be continuing to support the queen's flight out of, Norfolk and also Bryce Norton, which was a contract that was, being recomputed, but we have now been awarded an extension on we got an extension on Northlink Ferris. And, as I say, we have a a very busy year, next year for extensions, the, I cannot overestimate the importance of how we choose to bid the Compass contract we've not yet fully decided which regions were going to be bidding for, but we 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. And there's quite a healthy pipeline now.
They're also in health for next year. Americas, I'm just gonna skip over and say that the revenue was down, but the margin was up, 30 bay basis points, strong order intake, mainly from the, CMS contract and 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 grit with with their costs and, drive efficiencies in their overheads, the ACP B contract, which was our biggest ACP dropped out of the revenues at the end of last June. But between them and Western Australia, custodial escorting services, that was £33,000,000 of revenue that was in the first half of the last year that didn't, occur, this year. They've been having a string of new wins in, a 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. The we re won the contract to do the Melbourne, Gardens. Say if anybody wants to go and have a nice walk in Melbourne, give us a ring. And, 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 Parkley, another one in Queensland. We're also doing the rerolling of our highly successful South Queensland Correctional Center from a male prison to a female, prison. Moving on to the, Middle East. Revenue went up modestly profit up a lot. The reason why the profit up 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 re add metros, those we stopped bidding for those, last year and those costs have now, dropout.
We won an interesting contract for foreign rescue services for demand airports. And we hope to see if we can find other airports that need our sort of skills in control. 2 very big extensions and important, rebids or extensions coming up. 1 would be me labs. Which is looking after Australian forces in the, in the Middle East and also Dubai Metro.
The Milab's contract, is, very important. It's a huge is a significant profit contributor to this, a business, but whatever happens on when or renewed, we will have a, we will have a reducing margin, but an important bedrock contract for that, business. And in terms of the pipeline, the pipeline in the Middle East is fairly is fairly weak at the moment because they put so much effort into the rail bids. And, we need to rebuild that pipeline, but there's a lot of stuff going on particularly in Sidya Arabia. So, 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 are consumed by the idea of of how much is the pipeline and how much is bids and revisit is the fact is you need to have both And if you go back over the, last 4 or 5 years, it's about 50% of our order intake has been from the existing book of business with rebids and extensions and 50% from new work.
And this moves around a bit. But the fact is that going back to from 2015 till now, well, actually from 2016 till now, we've put a £1,000,000,000 into our order book, and the greatest guarantor of future business is, of course, our future, our future order book. In terms of the, major bids for, next year, we've got, I mentioned Compass, the contract in the that, Dave will talk about a big, kitting and, systems integration contract there partly prison in the in Australia and a big contract for doing hemp, which is protecting bases against electromagnetic pulse. So we are pleased with the progress that we've made on this, order book. And I can say if you look at the 11,000,000,000 at the end of the first half of, this year.
We're going to put another 700,000,000 into that through the acquisition of the carillion contract. At which point I'm now gonna hand over to Dave who will tell you about the, giving update on the Americas business.
Alright. Thanks, Rupert. Good morning, everybody. For those of you that haven't seen me before and, we had the previous Circo Market Capital Day. So I think we had a chance to chat a little bit there.
Otherwise, Dave Duquino, representing the, North American business. So I'm I'm pleased to be with you here this morning to give you a further update on, Americas and Rupert, of course, touched on a few things. But I'd like to cover 4 items, as we go forward here. See, we've already got first shot up. A recap on the financial performance for the first half of 'eighteen, for the Americas.
And then 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 and then concluding with how we're developing, the mix for future growth. So Here, we see the financial performance. So 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. And I'll cover that again in a moment.
But, in terms of the new contract that we won, we did see revenue decrease by about £32,000,000. So this reflected the lower market price enrollment figures and also the rezum the reduction in exemption processing, so the technical side of this. That's due to the verification changes, but 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 17 and then furthermore into H1 of 18.
Now given the US government's current administration's focus on a larger navy, we're hopeful that the volumes on these framework task orders will increase. And, in fact, we have seen an increase in the equipment builds, and, of course, this is the equipment that then gets installed on ships. So we have a very clear level indication, of what that'll look like. So with the exception though of the ship modernization, then in our defense, our defense business itself continues to have some pretty, 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. And in fact, we have 2 other bids, in that pipeline, and we're expecting to have those announcements in the second half of this year. And then our new army installation command program is performing very well.
And we've already seen additional work from this customer to additional task orders, that have come out, with them. And just, for interest, I wanna 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. So that gives you an idea of the footprint that we have there. And then 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. So we've seen significant expansion on that contract from the original contract scope. We expect more on that particular contract as well.
And, actually, this is an example of how we're expanding our work with our navy customer. So it's not just the installation side, but different parts of the navy. And then, of course, the, naval electronic surveillance system, we call nez, We're very pleased we're 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.
And then in the acquisition program management, you know, and and just for clarity, at least in a 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, with the customer. We had, very good performance across our defense business and homeland security, customer base. So in terms of, profitability, as mentioned, while the revenue was down $43,000,000 in profit or $43,000,000 in revenue, The profit was down just slightly, £1,300,000. On the CMS contract, there was actually no profit reduction. On that contract itself.
And we did have some increased productivity, items that we had put in place which will actually offset the reduced workload. And then elsewhere across the division, we've also made progress on our transformation and our cost efficiencies, which again, reduce revenue, but increase our efficiencies. Now you'll remember we have one remaining owner risk contract, the Dez 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 a bit of a facts and facts on that.
We have 94 locations, that we service in the Ontario province. Now 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 manned. Now interestingly, of the nearly 2,000,000 customer interactions that we do each year, 725,000 of those, 1000 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. So it gives you some idea of the scope and, of that contract.
So, you know, overall, I have to say I'm pleased with our contract execution and also the, customer relationships. So let's go to did I change the slide? There we go. No. I'm gonna go back one.
Sorry about that. I think I'm there. You can see that right. Yeah. So turning to the contract awards, I, I really am very delighted.
And as Rupert has mentioned, 1,400,000,000, in U. S. Dollars. Of awards in the first half of twenty eighteen. As I mentioned, the, CMS contract was the largest within this, and it was about 900,000,000, in US dollars.
And we look forward to supporting this customer for another 5 years We'll talk more about that as well. You know, on this program, Circle plays a very critical role in supporting the Department of Health And Human Services, And here's where we do eligibility verification. We have about 1200 staff across three different locations, And here, we handle millions of, customer interactions, documents, notices, and so forth. We've already developed deep processing in and our bespoke IT capabilities to support this customer, which we believe we can leverage further, the new contract, though, is largely fixed price. And by driving further efficiencies, we're aiming to main our maintain our profit even in spite of the lower margins.
I'm sorry, the lower volumes. So then more on the Navy, electronic surveillance system, Again, a 2 32 US dollar award, great program win. And then, of course, it's a compliment to our anti terrorism protection program with the same navy customer. Now what's important to note here is this becoming a sole source for circle versus a multi award previously, was a great success. By and large, it usually goes the other way from single source to multiple award.
So we're very happy with the relationship we had there in 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. Now unfortunately, this has been delayed due to protests from the losing contractors, which could extend, in this case, so pretty late in this year, perhaps in November, until we get a, favorable result. I'm also happy to report, a win with the US army at Wright Patterson Air Force Base. And and this is in our acquisition program management business that I mentioned.
Here's where we provide logistics support under what's known as Glass 2, and that's the global logistics acquisition support program. This win also has been pulled back, due to some protest activity. And in this case, we hope to see resolution in the next 30 days. Now across the rest of the business, we saw another $200,000,000, U. S.
Dollars, in additional awards. So here, I'm very pleased with the success of maintaining our current business, obviously happy with our 100% rebid rate. And, the fact is, breaking into new markets as well, which is difficult business, and we've had some good success. So here, let's take a look at the pipeline. As we look at the pipeline for Americas, the biggest opportunity in Rupert's mentioned this is our C5 ISR integration kitting and cable fabrication business.
We call that Kick. And and what you think about here is, this is actually helping the navy build their equipment, which will then go on ships. So this is moving, a bit upstream. We expect this award to be announced imminently. And this is, of course, an expansion of our hardware integration business located in Charleston, South Carolina.
And, again, this is with our current spacewar customer, and, they know us well, and, we're looking forward to that outcome. A fairly new opportunities to enter the pipeline are 2 of the air traffic control segment that you see. One of these is domestic pro 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. And the other is an operational and maintenance program in the Middle East, for the US Air Force. And, 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, You know, it's a smaller, but important opportunity for that particular business. Now this is an offering for life cycle sustainment services In Depo repair, this is for the Navy multiband terminal satellite communications systems, And there's over 800 antennas that are deployed on virtually every US Navy war fighting, platform and also the, shore communication. So it gives you a sense of what we're doing there. The capabilities that we gained with, BTP have really enabled CIRCO to pursue important opportunities, like this.
This is where we'll do equipment, maintenance, and repair versus just installation. Gives you a sense of 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, Now that is a multiple award contract, and, it'll increase our capability set. It's also in the equipment manufactured production, area, and it allows us to expand the breath of our navy customers again who are focused are, on increasing the fleet size, and that, is the upgrading the capabilities on our US Navy vessels, across the entire fleet.
So I'm 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. So, let me conclude with, how I see us developing, the mix of our business as we go further. I wanna come back to BTP acquisition because it's been, very successful, and 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 CIRCO received just this past month. In addition, I'm pleased by the incremental opportunities that we now see as a result of this acquisition and really how and this is the important part, how it deepens our engineering skills along with circle. What circle 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 sec sectors such as army and homeland security. So I see good potential in broadening and broadening in other sectors as well.
Citizen services is already about 35% of the the division. And, 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 US office, and we'll look, for other opportunities where we can process complex case management files. Our transport business, is centered around air traffic control, But in transport, as well in, as well as across defense and citizen services, we can also use circles international skills and capabilities to a great effect. So I'm very excited about what the other divisions can help us bring to the US market space. There are also, several circles, several circle sectors, which may become potential areas to develop, in the North American division as well.
We do have an emerging opportunity as, I think some of us know and We talked briefly about an immigration, that we're evaluating with the US immigration and customs enforcement agency ICE, And for things such as this, we're clearly leveraging the expertise we have across the division. So I have to say, I'm pleased to say that the America's market self remains highly attractive for further development and investment by CIRCO. Let me now hand it back to sir to, Rupert.
Yep.
Welcome, Dave. Right. I just want to give, finally, an update on the UK market, backdrop. Although the UK market is Now only 40% of our revenues and 20 percent of our order intake in the first half, it does remain our home market and a vital importance, to us. And there's been quite a lot going on in the first half.
Obviously, starting with the collapse of Caribbean. The impact of the cap collapse of credit 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 to something that was there, but it settled for political fast storm, and a lot of people had to start thinking anew about why should private companies, perform public services. And I think that we, as an industry, have kind of forgotten that it's not obvious that what you say what it says on the tin, 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 and you will see there's some commentary in 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 1 and say, well, why do we want the, private sector participating in the delivery of public services. And they've actually come out with, I think, very brave, very straightforward, statements, which actually are completely co 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 the outcome. What the outcome should be, high quality services, delivering good value for money for taxpayer, payers, and kind of who delivers that were agnostic, whether it be private or public or third party.
And 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 4 forces that we those of us those of you who are around in 2015, So our strategy presentation, the 4 forces, impacting public policy being growing costs, particularly in health care. You'll be aware of the extra 20,000,000,000 going into the, NHS as a result of, aging population the, increasing in, need for investment in infrastructure, rising expectations of choice and service quality from citizens, the need to balance public income and expenditure, and voters unwilling to tolerate higher taxation, and we still see fierce pressure on governments to deliver more and better for less, even the last couple of days, Liz Trust, the 1st secretary of the Treasury has written out to non protected departments saying they've got to go and save more more money. Now within this, you know, that we have slight cigar, heart in our hands and went and put our head the parapet, and we, in our last results, we put for 4, principles being transparency, orderly exit security of supply and fairness, which we felt could help the, market regain its poison lead to a vibrant market for public services.
And I'm actually delighted to say that following evidence that we gave both to the public accounts committee and to the public and constitutional affairs committee, 3 of those 4 principles are taken up by each of those, committees. David Lizzinger himself has pledged to introduce living wills, which is clearly in the government's interest. The question is, is will the government reciprocate in other areas like transparency, and also in codes of, of conduct. But we see the market that's 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. But the direction, it will take time to do this, but the direction is correct more on that in the back end of our statement. So in summary, strong trading performance, not many companies in our sector, reporting 20% increases in underlying trading profit, and as you go down our P and L, the numbers, the percentages gets get bigger. Ad acknowledge that it is a 20% increase on a small number, but we have increased the margin, that we make by 50 basis points. And broadly speaking, this is what we said we would happen that the margin would improve.
It would be partly from cost savings, partly from ACP contracts, dropping out. And 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. We are to extent that there is greater weakness on the revenue side in the market than perhaps we foresaw in, 20, in 2015 when we did our our strategy view 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. And I say between BTP and, a a carillion.
We've paid 5 times EBIT for for our businesses that really have significant strategic importer, for us. So I think that, that is, unexpected bonus. Our transformation continues, a pace, not only in terms of our, costs, but also in developing, propositions. We've got a robust balance sheet and our 2018 2019 guidance is unchanged at which point we'll get on to the questions. Thank you for your attention.
Right. Questions? Yeah.
Great. It's, it's Paul Sullivan from Barclays Just firstly, in terms of your flattish growth outlook for next year and the profit guidance you've given, sort of what 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, etcetera. And, and then secondly, I know it's 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. So in terms of, you know, it's 19 is an important year because we've got a lot of rebids. We've got about $760,000,000 of rebids. Some of the big ones there are potentially really good news for us. The 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 significant cash negative to cash positive.
So You've got compass where the annual revenues are between 65,000,000 around 65,000,000. We've got the Northern Isles Ferris where the contract was extended and we will be rebidding that in the autumn of next year. That's about you know, mid-sixty's in terms of revenue. We've got the Australian immigration, towards the end of towards the end of the year. We've got the Dubai Metro, which comes up for renewal next year.
And we've got Milabs, which is a key contract in the Middle East. And we've got, you know, Dave's got a very big one with, GIC next year. So that gives you us a flavor of the rebids that we've got. In terms of the pipeline for next year, there are we had 1,900,000,000 added in the first half to our pipeline. And there's a whole variety of different different work.
We've got Garrison port. We've got the prisons that Rupert talked about in in Australia. We've got a bid in the Middle East around schools PFI and Saudi. So there's a wide variety of different things. You know, revenue wise, you know, we've said the guidance is probably around about a similar amount will have the benefits of the second half year of the health acquisition.
So we've said that's about $70,000,000 of revenue on an annual basis. We'll see continued growth in terms of profit coming out of cost savings. And I think the, you know, consensus for 2019 at this point is in the low 90s in terms of underlying trading profit.
So can I take the second part of that question? What's got changed to get the revenue line growing again. I mean, the best judge of whether the revenue line is gonna start growing again is the order book. And for that, I say that we put a 1,000,000,000 into the order book, over the last, 3 years. And actually, you know, a lot of the stuff that we've put in, like, for instance, Rafton, is not appearing yet in the revenues because it doesn't appear till 2020.
I would also mention that being icebreaker, again, which is a contract. It's not huge, but that one where was taken in the order book. It doesn't actually generate any revenue for us for, some time. I think that we're gonna get the benefits. I mean, the the health care, Korean health care business should put £70,000,000 a year into our, health business and give us a scale and better able to grow, that business.
And, on something like the, AAC contract that Angus was mentioning, and I I want to be clear that that the decision on bidding that and what we did that is not yet made, that that would because of the to switch from making a loss to making a profit that is going to imply apply a very substantial increase in the value of that contract in terms of, in terms of revenue. So I don't think that anybody is expecting, to get back to 5% to 6% revenue growth. In 2020, but we will start with, I'd reduce a sense is that this dropping off of the contract They've been losing us Monday that that is going to, for where we are, we have around the edges of our business some volume related work nearly all of it in the US, which is actually not in the order book because those framework contracts, we only take them in when we get the And we are quite dependent in terms of our revenue growth at the margins of how busy those contracts are. And they can change on a dime whether a a ship comes in, but the profit contribution to them is not enormous.
But, somebody said to me is 2019 a sort of seminal year for Circa. Because you've got all these big rebids coming up that it's £700,000,000 of annual revenue. Well, you can imagine what that would translate to into a total value into the order book. And I think there's a fair arguments is that 2019 is gonna 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. And I would say that the the other market around well, like the Australian market is growing, you know, has got a strong pipeline.
Middle East is a bit weak at the moment, but that I think is maybe partly self inflicted. Europe was still, got a, a largest business. And I do believe that the UK market is in a hiatus that the Brexit will, cause a, issues. But I, you know, who knows what's going to come of it? Who knows what it's going to come with it?
But 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, and it's not number of people, but it is maybe a straw in the wind that, you know, one of the things that's absolutely certain about Brexit is that when you take that control of your government, you've got you've got a whole lot new of government you got to control. So I think that, there may be opportunities for us that.
Perhaps, Paul, just come back to the rebids. What gives us confidence? And, yeah, the, you know, there are questions over where we are, whether we will rebid all of them. But 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.
Next, another question?
Morning. It's Rory McKenzie from UBS. Firstly, on the margins and beyond the SG and 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 contracts improvement as you work through the portfolio still, how much is there more scope to keep improving margin in contracts rather than just on a rebid or that kind of thing.
And 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 UK and how you think about new areas of America's outsources you mentioned immigration, for example, lots of financial may be political risk there. So how do you think about the balance of the risk and reward in that market?
So I'll go to Dave first at the moment, and I think one of the character, different characteristics about the US market is that actually they have many the much more at ease with a, cost plus and then semi fixed price and fixed price environment. And, 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. Sure.
Yeah. That's it's a great point. So, if you start out the contract, it's it's really a cost type contract, and the contractor and the customer kinda get to know each other and the processes that forward. So 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 customers had a good sense of contractually what that might look like. And that's why we see us moving to, a a phase where having understood the contract now, we can move to the different contractual method And for us, from a risk perspective, it's it's fairly comfortable because we've had a chance to work on the contract.
And then also, Dave, on the naval work, some of that is fixed price and some of that is. Yeah.
That very good. You know, the kick contract is a good example of that. It'll be a cost type contract initially. And when what the Navy is looking for is us to, as we get repeat jobs to fix price those, and dial them in. So it actually is a pretty standard methodology in the US, not just in defense, but we're seeing it across the way.
And 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
So one of the things that when the British government say, do they do it better in other places? I mean, I think that the way that the US government handled the CMS contract. Actually, it's an example of how to do it better. You've got something new. You don't know how it's gonna work.
You start off cost plus. And then gradually you up the level. So our margins when we started on CMS were 2 a half percent. I know that And 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 have 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. On the immigration issue that he's 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, a process and, the Department of Homeland Security have approached us. And so could you perhaps help us figure out what we could be doing down on the in Texas on the border?
We have no structure to do this in the, u USA. The government knows that, but nevertheless, they've said, please come and talk to us so we are able to deploy help from Australia and perhaps from the UK to go and, look at that.
In terms of your first question is a 60 basis point improvement. Now 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 OCPs. So broadly, I would say you probably got 20 odd basis points in the FCPs and then across mix and contract improvement. It's a combination.
But what and then the line below, you can see the cost savings in terms of the SG and A So SG and A has been the thing that we've gone after in the early years to reduce overhead and we will continue to do that. And you get to a point where you just want continuous improvement year out. So once year in year out, once we've finished transformation, probably
get the most
of that done by the end of next year. We then move into continuous improvement mode. What I find really exciting is that 90% of our cost base is actually in the in contract costs. And historically, that had always been the place where people go first, but I think we've done the work in the overheads first and now we're getting after in contract. So 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. And 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, you know, just bit by bit improvement. And, you know, focused on everybody doing their jobs slightly better.
Doing it in a way that provides better services, not just about driving cost out, driving efficiency, it's actually about providing better service to the customer. The best example of that being Circle cares in our health business, which Rupert can talk about later potentially. So, you know, a lot going on in terms of contract costs and beginning to see it. There's cost pressures in different places. And so we have to work really hard at being more efficient every single year and the organization is doing a really good job in terms of that.
So, going to be launching a quite a big investment program now in the business now on doing a rolling out, a program called workforce management where, we use, much more sophisticated methods than it will be on spreadsheets doing people's rosters. And you kind of think that a company that employed 50,000 people would do that a sophisticated way. Anyway, actually, we don't. But we are eroding that out. That's gonna be a lot.
And I think there is you know, there's be we are now shifting as we get 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. And the contracts largely you know, the the whirlwind of transformation and cost reduction has largely hit the SG and A, but we're now, you know, 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 JP Morgan. I just wanted to ask on these overhead costs. They look to have been probably the primary driver in the half the 50 basis point improvement in the margin. I think it's like roughly 16,000,000 reduction in the overheads on a base of 113, obviously quite a large year on your proportional change.
Can I get a sense of how deep that amount of cost savings from that? How deep that pool could be of cost savings? And you know, I I expect next year we're probably looking for a slight increase in the 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 talking about?
Thanks.
We'd like to see it come from both. There is there's more work to do in areas like IT. So our head of IT can maybe talk about our, sort of migration to the cloud because it's beyond the likes for me. We've got procurement savings, that we will, be able to deliver next year and then generally across the business. And 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.
So 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, but actually, Angus and his team have done an incredible job of, outsourcing a huge amount of our finance function now. And between them and Accenture, who've done at a very good job for us. We have gone through in a major program of transformation on the finance function and still managed to our numbers on time. But that is going to save, I think it's more about 3 or 4,000,000 out of the finance finance cost But we said, I think it was at the year end, and I think this is going to correct me, but I think we said that over the 2 years, we expected to save about 1,000,000 from, from overheads one way or the, Are there always that was that total savings? I
think yeah. No. That's fine.
And, we think we're gonna get, more than halfway there. Over the space of, this year. There's already 16,000,000 year on, a year. And between the contracts and the, overheads, we think, that we can get there. So there's still more runway to come.
And and 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 move and then we're moving now on the, contracts and this continual grinding out of value. I mean, I keep repeating. This is a bit I some of you will be aware of my shotometer.
That sits on my desk. I think, Sam, you have seen, you have witnessed with your own eyes, Maisha Thomas on the desk, which has on it marked it's a lube brush, with 5 to 6% margins because that's what lube cleaners make. 5 to 6% margins. And, you know, we make nuclear weapons run uh-uh prisons and they and we make 2a half. So we've got a great deal of self help to do, out of this, and we've always said that the major contribution to our margin improvement was going to be the conversion of OCP contracts for them falling away and converting some of them onto more profitable basis and self help from cost reduction.
And a smaller part was due to are leveraging our overheads from revenue growth. So I'm not, you know, I'm I'm, fine with where we are. I see considerable additional mileage on the cost side, but I also see I accept that we will need to start growing our top line, in the coming years. But an in a billion increase in my order book is at least a beginning.
Keith.
Morning. It's Ken Martin from Jefferies. Can I just, first of all, start with a couple of questions on cash flow and balance sheet? So, at least relative to my expectations. I think your working capital dividend from joint ventures and CapEx were a little bit better than expected in the first half.
So 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 for net debt for the full year feels like there might be a bit of leeway in that. But 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 owner's contract provision guidance for fiscal 'nineteen took like it's come down by about 1,000,000 or 1,000,000.
So I'm just wondering whether there's any particular contract that you feel is now going better than previously guided. And then thirdly, one for Dave. So I think a number of your bids have included some quite interesting developments in AI and technology over the last few months. Just wondering what are the initiatives you have there? And maybe, Rupert, if you feel that at the U.
S. Is sort of at the forefront of those and the rest of the group can maybe adopt some of those or your general and sub technology in general?
So in terms of, cash flow, it, you know, the guide's guidance is towards the middle to upper end of the range. And, that now includes the, this, the acquisition of Curlian Healthcare. So it is it's a little bit, a little bit better. The key is clearly going to be the working capital. And the receivables were a little bit higher at the half year think that's going to unwind as we go through the second half.
So there's nothing dramatic here and I don't think is there potential to do better? Yes, but 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 in our you know, the fingers crossed as we give you an indication every time we do it. In terms of the OCPs, yeah, it's we've East Kent is one of the ones that we had. We have settled that. So we've brought forward utilization from next year into this year.
Is kind of at the margin when you're at plusorminus5, we'll get a better sense as we go through the autumn. But the really exciting thing for me is having come from 1,000,000 of future cash out of the business. By the end of this year, we'll be at 1,000,000 the end of 'nineteen will be sitting somewhere around sort of 45,000,000 dollars, $50,000,000 with $20,000,000 to come in 'twenty and then a small amount they're and, you know, the anchor that's being wing is down from a cash conversion perspective will disappear.
Dave, do you want to talk a bit about the, some of the tools we're using in CMS?
Right. So, you know, when you think of, automation and out of intelligence and all that. You know, I think robots and things in factories, but that isn't this at all. What this is is efficiency in data management. Primarily in CMS.
So 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. So 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 clearly says, here's the two spots that are missing. The other thing that, we've seen it happen is it, the automation now immediately recognizes what the forms are. So we get a lot of mail, this 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 in and makes it a very efficient call for the operator to talk to the administrator.
And 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. And in fact, what we're seeing is the customer is then taking the data we presented them and presenting it to their management and using it as their reports. And that really ties us in as key partners. So in the sense of automation, those are the types of things we're doing.
That are driving the efficiencies to help our contracts. Yeah.
In terms of the wider utilization of, things like AI robotics and a voice recognition. To the theory of my, some of my colleagues who regard me as being anti diluvian. I've actually spent most of my life working around technology. So I like to think I have a a 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. So one of the tools that we use is a, software suite called Appian, which allows you to draw process on screen. And the difference between these tools now and tools 5 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. So you can create what is in fact highly tailored softwares are highly tailored applications really quickly, but 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. And you know, 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 a nice little thing that rumbles through the thing. Gaves 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 uh-uh drugs. We're looking at some very advanced applications around the whole area of tagging stuff on our call handling where, which we buy, for some using somebody else's tool, we've got some of the most sophisticated things. So 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, you know, what are they called?
United. Right. There's only one property.
I am told that this is very effective. But so we have partnerships with and we are very interesting thing is how attractive we are to people who have some quite clever technologies. So we don't want to do it ourselves. We wanna work with other people. If anybody else wants to have to chat about that that were doing some cooler stuff than you would possibly, think of a boring company like Circo.
Any more questions? Thank you all very much. Indeed, there'll be no further questions. Thank you, for your, attention and, we will, of course, be available for, coffee or questions afterwards.