Rupert Soames - Group Chief Executive Angus Cockburn - CFO Ed Casey - Group COO

Julian Cater - Numis Securities Joel Spungin - Bank of America Merrill Lynch Kean Marden - Jefferies Rob Plant - JPMorgan Rory McKenzie - UBS Ed Steele - Citi Sylvia Foteva - Deutsche Bank Stephen Rawlinson - Whitman Howard

Good morning, everybody. We've got sound, lights, camera, action. So, the format today is I'm just going to give an introduction; Angus is going to do the numbers and then, I'm going to give an update both on the first half operational review and on the strategy. I apologize if it's going to be -- we'll try and keep it within the regulation 40 minutes, I may go five minutes over. But apologies, there's a lot of ground to cover. And apologies also for the complexity of the numbers, I'm afraid, over the next three or four reporting cycles, as we go through the various provisions and the disposals, there's going to be lot to untangle from the numbers. And all I would say is that both Angus and I regard it as our responsibility to try and help you get a proper understanding of what's going on in the underlying business. In summary, the first half, we think, is a respectable start to what will be a long and occasionally bumpy road to recovery. Profit, before the benefit of one-off items, was in line with our guidance at the recent trading update and slightly better than we said at the time of the rights issue, being £46.9 million before one-off items and £62.7 million as reported. And Angus will talk you through the difference. As you all know, we had successfully completed a rights issue and, as a consequence of that, our debt has reduced very substantially, from £682 million to £290 million. We've signed about £1 billion of contracts in the first half; that's 400 individual transactions, most of them re-bids and extensions. But it shows that we do have a commercial machine running, albeit slowly. And the pipeline which has been declining very rapidly over the last couple of years, has now, at least, destabilized at about £5 billion. Strategy implementation is well under way; reshaping the portfolio on core markets. We're making, I think, very good progress on the self-help in terms of exiting unprofitable and non-core contracts, hopefully, managing that process with the customers in a mature and professional way. In terms of disposals, I know that a lot of people would be hoping to hear some update on the news, particularly about our Indian BPO business. All I will say is that the process is still ongoing; it's progressing. For those of you who are avid readers of the various -- the Indian financial press will be aware that it's had more twists and turns than a John Le Carre novel. But our preference remains to sell this business; but if we can't, we will happily keep it. It is performing very well. And the reason why we wouldn't is if we don't think we're going to get value. And the Board is assessing a number of different options. But, as I said, our preference is to carry with that process, towards disposal. Operating costs have reduced by £200 million year on year and we expect that to repeat in the second half. So, in 2015, we expect operating costs around £400 million lower than they were in 2014. A lot of that, clearly, is costs coming out of contracts that have ended. But, frankly, that's an important part of managing the business and managing contract exits, to make sure that all the costs come out at the same time. And in terms of the £20 million we talked about of in-year savings of largely overhead savings in Group and in the divisions, we're on track to achieve those. Angus would not be Angus and Rupert would not be Rupert, if we were not continuously cautious on the outlook. We're maintaining our 2015 guidance on trading profit of £90 million before the various one-offs that Angus will discuss. When we do the summing up, we do each of the monthly reviews and we have a look at the risks and opportunities for each division, we would say that, probably, the opportunities outweigh the risks. And the absolute certainty that we will miss our target partly is more that we'll miss it on the upside, than on the downside. So the risk is on the upside of the £90 million. However, one swallow does not a summer make and we remain cautious about 2016. And we're very keen that people do not gallop away with enthusiasm believing that 2016 is going to be anything else other than a tough year. There's a lot of revenue attrition that's already built in and we're going to have to run quite hard to -- into 2016, when revenues and profit will continue to be under pressure. And now to hand you over to the soul of happiness and delight and of my noble friend, Angus Cockburn.

Good morning. As you can gather, the next 20 minutes or so will probably be not be riveting entertainment, but will be full of good information for you. We'll start with the income statement. And here, you can see the first couple of headline measures. In terms of revenue, as we've explained before, we're now simply reporting IFRS revenue which excludes the share of JVs. You'll see details of the JVs in the finance review section of today's statement and even more in the notes to the accounts. In terms of trading profit, this, too, is now consistent with IFRS. It only adjusts for two things, exceptionals which we'll talk about later and amortization of intangibles arising on acquisition. In order to help you understand the numbers better, we've highlighted a few items to help make the numbers more comparable. First, as we reported in December, we've restated the comparatives to reflect the fact that the fair value of some financial instruments went through reserves last year when, in fact, they should have gone through trading profit, due to ineffective hedge documentation. The 2014 numbers have, therefore, been adjusted to reflect this by adding £8 million to revenue and £18.2 million to trading profit. We now have the documentation required to have these classified as effective hedges, so the mark-to-market accounting entries now go straight through reserves. I think, more importantly, in the first half of this year there are a couple of other items within trading profit that needs to be understood, for -- just to make it comparative. There's a net £5.5 million credit from adjustments to the contract and balance sheet review. I'll come back and explain this further, in a moment. And then, there's also an end-of-period accounting adjustment, because certain businesses are designated as held for sale which means that trading profit is reported in these businesses without their associated depreciation amortization, of £10.3 million. And this benefit should be ignored, again, for comparison purposes; it's an accounting quirk. There is a note on the bottom of the slide about currency. In the first half, there was a £20 million revenue and £1.8 million trading profit benefit from currency translation in the period. The rates are in the appendix. And based on spot rates today, we'd expect a net currency headwind in the second half and, therefore, possibly a small negative for the year as a whole. Let's now have a look, in a bit more detail, at revenue. This is the normal detailed slide, breaking down revenue performance by division. Rupert will give a bit more color in each division, so I'll concentrate just at a high level around Group and the main movements. The organic decline was 11%, driven by the previously flagged impact of contract attrition. The Australian immigration contract did decline significantly in both volume and price and accounted for the entire 16% organic decline in AsPac. But this decline was slightly less marked than we'd expected at the start of the year. In terms of central government, the biggest constituents of the 26% decline were NPL and DLR, while the 10% decline in North America was a result of attrition in defense and citizen services contracts. The revenue impact from disposals was mainly from GSR, augmented by the annualization of a couple of small disposals in 2014. Currency added 1% to Group revenues, meaning that revenue in total declined 11% or £229 million, during the first half. Turning then to trading profit, here you can see the divisional trading profit and margin, shown on a comparable basis before the impacts of the contract and balance sheet review; adjustments, depreciation and amortization of assets held for sale and the financial instruments restatement. So, the three things we talked about a minute ago. Our Group trading profit, on this basis, was £46.9 million or £45.1 million at constant currency. So flat on an underlying basis on the first half of last year. Clearly, there has been a profit reduction flowing through from over £200 million of revenue going away, driven by lost contracts, volume reductions and disposals. Offsetting this, however, is the utilization of provisions against onerous contracts that we have and the fact that we've reduced costs in line with revenue which Rupert will touch upon. Group trading margin during the first half was 2.6%. Included within this is 40 basis points of margin enhancement from equity accounting and joint ventures, where we take profit after tax into trading profit, but do not consolidate the revenue. Let's now look at the effect on provisions and the other review adjustments. We gave a commitment to report transparently the effect of last year's contract and balance sheet review on future numbers. So I've a slide here to explain the income statement effect and an even more tortuous slide, in a couple of minutes, so you can understand the balance sheet picture. During the first half, we took an additional net £7.7 million of extra OCP against contracts where the expected outcome has changed. This net £7.7 million is made up of additional provisions of £14.2 million across four contracts where we already had an OCP booked and releases of £6.5 million from two other contracts. There were no new contracts, where previously there was no OCPs that required a provision. We monitor all contracts constantly in terms of any trigger events that would require a full review of the contract financials. Then, as part of our budget process during the second half, we will review all the contracts and OCPs and update our owners' contract provisions, as required. As well as the movement in the OCPs, there were a number of movements in the other provisions, accruals and bad debt charges that we took as part of the contract and balance sheet review. These movements resulted in a £13.2 million net release. So, overall, the income statement benefited by £5.5 million in the first half. And we've separated that out for you, so as not to cloud your understanding of our underlying financial performance. The utilization of OCPs neutralizes the in-period loss across the 50 or so contracts on which we booked an OCP. So there was £60 million of help, if you like, in the first half; or alternatively, you could say that the £47 million of trading profit reflects Serco's portfolio of contracts that are breakeven or better. The utilization was lower than expected at the start of the year which is a positive, though most of this upside relates to the timing of expenditure. With respect to full-year 2015, the impact of any adjustments arising from the contract and balance sheet review will not be known until after our contract review at December 31, 2015. It is very difficult to predict what numbers this will throw up, given the multi-year impact of any onerous contract provision adjustments. Our guidance, therefore, continues to be on the basis of trading profit before these adjustments. It is worth noting that taking all provisions other than OCPs, accruals and allowance for bad debts that the charges taken were greater than the releases in the period. This will, however, vary over time, depending on contract activity, but we will be consistent in our approach to provisions and accruals. Turning back to the income statement, pre-exceptional operating profit for the first half was £59.8 million. This is stated after amortization of intangibles arising in acquisition of £5.3 million which has been reduced by the £2.4 million benefit from the treatment of assets held for sale. I will cover tax and exceptionals separately, so just a word on the net finance cost line. This was a net cost of £18.6 million before exceptional finance costs which was in line with our expectations. Average net debt reduced, though the blended cost has increased with our refinancing and this cost also has the discount unwind in provisions running through it. We anticipate that the blended interest cost for the year as a whole will be between 4.5% and 5%. You will find all the detail in the finance review. The tax charge for the first half was £15.8 million which is an effective tax rate of 38%. This charge includes the benefit of not depreciating or amortizing assets held for sale. If these assets had been treated in the like-for-like normal way, the tax rate would have been 46%. The reason that this is lower than the 50% to 55% anticipated tax rate for the full year is due to the half-and-half mix of profits with the Middle East profits being weighted to the first half. In terms of the year as a whole, we continue to expect a tax rate on a like-for-like basis of 50% to 55%. Taking account of the depreciation and amortization benefits on assets held for sale and annualizing that first half impact, you'd expect the rate to be in the range of 40% to 45%. In terms of cash tax, as expected, the cash tax rate was lower than the income statement charge with a net £7.7 million being paid out during the first half, with the full year estimated at a cash outflow of around £10 million or so. The treatment of our UK tax losses remains consistent with the year end. And our estimated tax losses at the end of June were £720 million, with a potential value of £144 million at a 20% tax rate. Currently, only £11 million is recognized in the balance sheet, with the remainder being a potentially very valuable contingent asset in both cash tax and effective rate terms. Turning next to exceptional items, the charge for exceptional items was £117.1 million. The major element of this relates to an impairment of the carrying value of businesses held for sale. At the previous balance sheet date, the carrying value of the assets held for sale was set according to early indicative offers and before some of the perimeters had been finalized as to what would be in or out of potential transactions. The £70 million reduction in goodwill is caused by around £30 million lower than expected proceeds and a £40 million increase in the value of assets being sold arising from trading; cash being left behind; as well as changes in the perimeter. The other exceptional operating costs were £4.9 million loss on the disposal of the Great Southern Railway in Australia and the sale of an Indian bus services business. In addition, £9.6 million of restructuring costs arose from the strategy implementation and associated redundancies, together with some costs related to transactions and external advisory fees. The exceptional net finance costs of £33 million consisted of £25 million of make haul costs arising from the early repayment of private placement noteholders as a result of the refinancing, with the balance being related to the costs of deferring the covenant test to allow the rights issue to take place. The equity placing conducted in May 2014 and the rights issue in April 2015, increased the number of shares for EPS purposes to 886.2 million. With respect to the 2015 year as a whole, the projected average number of shares is around 990 million which annualizes to 1.1 billion from 2016. The statutory loss per share was 10.3p. On a pre-exceptional basis earnings per share was 2.9p. If the benefit of review adjustments and the depreciation and amortization treatment on assets held for sale are stripped out then the EPS number would have been around 1p which is the basis comparable with consensus and our guidance for the full year. As indicated in March, the Board is not recommending the payment of an interim dividend or anticipating the payment of a final dividend for 2015. The Board is committed to resuming dividend payments and a progressive dividend policy when it is prudent to do so, taking into account the outlook for underlying earnings, cash flows and financial leverage. Let's jump, then, to cash flow. During the first half, there was a free cash outflow of £77.5 million, compared to £49.7 million inflow in the same period in 2014. Adding back tax and interest, the trading cash outflow was £49.9 million, compared to an equivalent trading profit of £46.9 million. The major reasons for the negative trading cash conversation related to a £71.5 million working capital outflow which reflects reduced cash management activity at half year and the utilization of £60.1 million of onerous contract provisions. The majority of the difference between the average net debt for the period, excluding the impact of the rights issue and the half-year period-end balance, has now largely unwound. This, in previous years, had been £150 million. And with the exception of a £30 million forfeiting facility which we'll review in 2016, the impact of uneconomic and broadly applied cash push will be dealt with by the end of the year. This next slide reconciles the free cash flow outflow to the movement in net debt for the period. Net debt reduced by £392 million during the first six months, from £682 million to £290 million, on the back of net proceeds from the rights issue of £530 million. During the first half, there was a cash outflow from exceptional items of £73 million which includes both the cash effect of charges taken in the previous year and this year. This figure was made up of exceptional interest payments and expenses related to the refinancing; the ongoing DLR pension settlement payments; lease termination payments associated with the GSR disposal; clinical healthcare OCP costs and restructuring costs. The £24 million reduction in non-recourse loans related to debt previously associated with the National Physical Laboratory contract which was technically sold on January 1, 2015 for net asset value. On April 30, 2015, following the completion of the rights issue, Serco concluded a refinancing with its banks and private placement noteholders. The Group's committed revolving facility was reduced in size from £730 million to £480 million and the maturity date moved out two years to 2019. Financial covenants across the Group's funding arrangements are unchanged, with the key covenants of net debt-to-EBITDA being less than 3.5 times and the EBITDA interest cover covenant being more than 3 times. The covenant compliance certificates for the deferred December 31, 2014 covenant tests were submitted to the lenders, in accordance with the amended terms in May 2015. At the half year, net debt-to-EBITDA was 1.7 times and interest cover was 4.8 times. We continue to expect a cash outflow in the second half which we anticipate will mean that net debt-to-EBITDA will be around our top-end target medium-term leverage ratio of 1 times to 2 times. This is, of course, before the impact of any further disposals. With respect to the numbers in this slide, I'll focus just on the movement between the 2014 year end and the 2015 half year, given the impact of the contract and balance sheet review and the assets held for sale. The completion of the rights issue resulted in net liabilities of £66 million at the end of 2014 becoming net assets of £364 million by the half-year. The impact of unwinding of the cash push can be seen in the increase in receivables number, despite the decline in revenue. It is also encouraging to note that we made good progress during the first half in the Middle East, collecting old receivables which in some cases dated back some five years, with this being part of the contract and balance sheet review adjustment since we're able to release the associated bad-debt provisions. There was a reduction in net assets held for sale from £345 million to £307 million, reflecting the completion of in-period disposals; expected disposal proceeds; changes in the perimeter of assets held for sale and the trading movement of balances over the period. The movement in goodwill arose from currency translation, while the movement in provisions primarily related to the utilization of the provisions taken at the end of last year. As promised at year end, we will disclose these movements in the OCPs to give full transparency in the years to come. So, as the first stage of that, apologies for the slide, it's not particularly user friendly, but it's got the data that you need. It shows the movements in total reported provisions during the first half. We'll focus on OCPs, because that's the major element of it. The total OCP charge taken at the end of 2014 was £447 million, of which £14 million was for exceptional OCPs, plus £433 million for non-exceptional OCPs. A few rows down, you can see that we utilized £68.8 million of this provision, of which £8.7 million was applied to exceptional items relating to our exit from clinical healthcare and £60.1 million was utilized on non-exceptional contracts. Given the nature of many of our contracts which, for example, like COMPASS, have unpredictable volumes, there will be inevitable fluctuations in the OCP utilization and provisions, going forward. Encouragingly, we utilized less OCP than we expected during the first half, but, as I said, most of that related to timing. And with respect to COMPASS, we do expect higher numbers of asylum seekers during the second half. As you're already aware, during the first half we charged an additional £14.2 million of OCPs, where our performance expectation has deteriorated, whilst we released £6.5 million of OCPs we no longer require. The OCP provision at the end of June was £379.8 million. We've made some progress in addressing the various contract challenges that underlie this number, either through self-help in terms of improving our operating efficiency or by engaging with the customer. This is an area that will continue to be a key focus, going forward. This slide is for reference only and shows the pre-tax return on invested capital which on a statutory trading-loss basis is a negative number of some 60%; but on a pre-balance sheet and contract-review basis is positive 11.5%. Turning then to the last couple of slides, go through the outlook. We expect revenue for the full year to be in the region of £3.5 billion, having taken account of the impact of the GSR disposal. We continue to expect trading profit to be around £90 million, with the risks now weighted to the upside. The basis of this remains unchanged from our results in March. And, therefore, it excludes any adjustments arising from the contract and balance-sheet review which, you remember, provided at £5.5 million benefit in the first half. It also excludes the benefit of not depreciating and amortizing assets held for sale. Additionally, the potential impact of an early termination of Thurrock local government contract, where we expect to receive a £9.9 million end-of-contract payment, is also excluded. We expect that this will have a one-off circa £6 million income-statement benefit which will be booked either late this year or early next year, dependent on the timing of completing operational transfer. We still expect a free cash outflow of around £150 million in 2015, caused primarily by the trading loss from loss-making contracts where utilizing OCPs neutralizes the P&L impact, but not the cash flow associated with these losses. This is likely to result in a year-end net debt number in the region of £320 million to £350 million, pre any disposals. The modeling assumptions slide is there for your reference. We've covered a lot of this as we've gone through the presentation. And it's in line with the views that we shared with you six months ago. The forecasts, as usual, are predicated on the prevailing exchange rates at the end of the first half. So, finally, let me summarize for you. Trading in the first half is a little better than we anticipated. And our first half result was in line with our guidance at the pre-close update. We maintain our trading profit guidance for 2015, with the risks now weighted to the upside. However, I would caution you that we're still early in what is a major transformation at Serco. And in line with the plan, we expect revenue and profits to continue to be under pressure for the next couple of years. With that, let me hand you back to Rupert.

Thank you, Angus. And let me just remind you of the presence of my noble colleague, Ed Casey, who is the Chief Operating Officer and, therefore, has a keen interest on what we're going to be talking about next. Those of you who remember our time at Aggreko will remember we always used to do highlights and lowlights, a slide which was searingly honest. So, we're going to try and maintain that tradition. Clearly, we were pleased about the completion of the rights issue, 96% take up and the debt refinancing, £1 billion of signed contracts. 400 individual transactions, rebids and extensions included some notable wins in the Saudi Rail company, where we're now operating a 3,500 kilometer railway line inside Arabia; in the U.S., for a contract to provide Navy ID cards and an extension of our contract in the United States with the FAA, where we're providing air traffic control out of 54 towers which is about 30% of the nation's air traffic control. Costs down £200 million, will annualize to £400 million year on year which, as you will note, is not far off the revenue reduction of £229 million. And I do say, as a recurring theme, that in the army they always say you judge a regiment by how they leave their barracks, not how they arrive at their barracks and I'm pleased with the way that colleagues have been managing those exits. Startups and mobilizations, we're now proudly running the Caledonian Sleeper. Unfortunately, on every train that runs there is about five people who have my mobile telephone number, so any shortfall in service I am instantly aware of. Fiona Stanley, we've mobilized that. I'll talk a little bit more about that later. And also, we have taken into service the world's most modern prison in Auckland, the Auckland South Correctional Facility. As Angus said, the OCPs are running slightly better than planned. We suspect there's a lot of timing about this, but it be better that the utilization be running lower than we thought than higher. And we've won a crop of operational awards, as well. In terms of lowlights, the pipeline remains weak, particularly in the UK. And we've made limited progress on business development side. I think that that's going to pick up now. We have recently announced the creation of three centers of excellence which are groups bringing together our expertise in healthcare, justice and immigration and rail, to push ahead the development of our propositions in that. In terms of operational challenges, anybody connected with Google will have the delights of, at least, a monthly diet of scandal and probing and allegations around the world, the latest one being at Mt Eden prison. I'll talk about some of these individually, as we go through the presentation. But may I just say is that this is one of the reasons why we want to be a specialist provider of services to government. It is part of the weft and weave of what we do that we're and rightly should be, subject to media attention and scrutiny. We often become a football in the political arena. And I think that what is important is how we manage these challenges, not be surprised that they sometimes occur. I mentioned contract exits earlier on. Notable ones are National Physical Laboratory; the Cornwall out of hours; part of the U.S. Federal Thrift Board; Thurrock and Colnbrook immigration removal center. And we discussed earlier the slow progress on disposals. Make a mention the uncertainty around the impact of new government spending plans. Clearly, the fact that there's a majority government is helpful to decision making, but there's still a lot of uncertainly in government exactly how they are going to go and save the very large amounts of money that are penciled in. And we will also be watchful of the impact of the new legislation around living wage. If I may, finally, say is that this has been a half, a period last six months, struck by particular tragedy. You will all be aware or you may have seen, that one of our prison custody officers was attacked by a prisoner in London and a few days later, she died. It was a vicious and unprovoked attack. It's the first time in 25 years that a custody officer has been killed by a prisoner. It is a deep tragedy and reminds us all that when we provide services at the pointy end of the government stick we're often dealing with difficult, dangerous and violent people. And Serco frontline staff put themselves on the front line on a daily basis. Just moving on to give an overview of the portfolio of our business. I want to say the reason for this graph is simply to underline the fact that over 45% of our revenues actually come from outside the UK. This is our revenues related including joint ventures. And when Northern Rail comes out next year, the proportion of our revenues accounted for by central government will drop below 30%. But it is an important point about the development of our strategy, whereas when we're in the UK it tends to be that everybody's interested in what's happening in central government. But it is not the majority of our business, love them though we do and respect them though we do and they are a very important customer of ours. And talking of which, we'll just have a quick review of the central government's business. Revenue's down 26% in terms of organic revenue decline, mainly due to the exiting, the taking back in house of the National Physical Laboratory. We lost the contract to run the Docklands Light Railway, leaving it as the position after 15 years of the most reliable light railway system in the world; well, actually now been beaten by the Dubai Metro. But we exited that and also, Colnbrook immigration center. In terms of pipeline, we have two large bids outstanding, one being the Defense, Fire and Risk Management Organization bid which will be probably decided at the back end of next year. And we're also currently bidding the Clyde & Hebrides Ferries, although the final documents of those have only just been published and we will be evaluating those over the next couple of week. In terms of operations, there's a pretty good rule in life, is that expletive off your customers by poor performance and at the same time losing money, is a bad combination. Now, on a lot of our contracts with the UK Government we're still losing money. But, in fact, the operational performance on quite a few of our contracts has got notably better. We've invested millions of pounds in the supporting systems for the prisoner escort contract in the UK and, as a consequence, the performance against our key performance metrics has got a lot better. We're performing better on COMPASS. The other contracts where we have large OCPs, there is painfully slow progress on Ashfield, where three years after re-rolling of the hospital -- of the prison, we're yet to be able to agree a new charging mechanism with the government and also, on our marine contract with the government, where we're making some progress on restructuring that. Moving ahead and looking at the UK and Europe, the local and regional government business, less of a revenue decline. But it's got a large number of quite small contracts, some lossmaking ones that we'll be existing shortly. Suffolk Community Healthcare comes to an end at the end of September and National Citizen Service support contract at about the same time, both of which were heavily lossmaking contracts. In operational terms, the new management's doing very well. They're facing a lot of challenges. They're doing well on exiting some sensitive contracts. And I just want to flag up in lights what is -- that we actually have a very good European business; notably, with the European Space Agency, where a lot of Serco people are helping to monitor Philae which is the lander which is sitting at the moment on a piece of rock orbiting the sun. And that business has won some important new contracts, including one from the European Commission. In terms of the Americas organic revenue decline; that's a decline in constant currency of about 10%. A number of contracts have come to an end or been lost. The U.S. intelligence market became particularly viciously competitive over the last couple of years and we lost a lot of volume there. But, on the other hand, we're doing very well on the ObamaCare contract which is going well and is expanding. And now this business, funnily enough, is one of the businesses where a lot of the order intake occurs in-year. We have a lot of task orders. And I'm happy to say that in the last -- in recent weeks we've seen a healthy rash of new task orders coming through in the Americas. In terms of Asia Pacific organic revenue decline of 16%; nearly all of that coming from the re-bid of the onshore immigration contract, where there are many fewer people to look after and also at lower rates. The business has done a good job of reducing costs in line with that. And it's still a profitable contract, but it's just much less than it was because the volumes and rates are much lower. Fiona Stanley, that's now running well on the non-clinical side. When we opened that hospital, about eight or nine months ago, we were providing a limited number of clinical services, most notably sterilization. And it became very quickly evident that an alliance of doctors, nurses and trade unions decided that it was very unhelpful to have private contractors running anything on the clinical side. And, if I may say, I think we've given up with good grace on that and have retreated to our clinical base -- our non-clinical base. And that contract is now going, I think, a lot better. On continuing the theme of improving operational performance, on the patrol boats contract, we're now either on or around our availability metrics for the government which is good. We're still losing a huge amount of money on that contract, but at least we're providing the boats. I mentioned earlier on Mt Eden. Mt Eden is one of those extraordinary things that can happen in our business. If I tell you that when we took over Mt Eden prison three years ago it was rated as one of the worst run prisons in the New Zealand system. And the last 15 months, it's been rated, across 100 KPIs, as being the best-performing prison in New Zealand. It's an astonishing track record of transformation on there. And we're also running it for a lot less money than it was being run for before. Unfortunately, there has been -- there were some videos made their way on to the Internet of fighting going on within the prison and this has now become entangled in a major political storm about privatization. And it has gone -- we've seen a huge media frenzy. And I think what we just have to do in these things is that we have to keep calm and carry on and understand that we're servants of the state; that public scrutiny is part of the things we have to deal with. And it's how we deal with them, as much as anything else. But do not ever think that Serco is going to be an easy or trouble-free ride. And Mt Eden shows how quickly you can go from hero to zero in this marketplace. In terms of the Middle East, I mentioned earlier our new contract with Saudi Rail company. The sector's very busy with a lot of bids. Superb performance on the Dubai Metro, where we're having to measure the reliability of state stats to 3 decimal places after 99%. It's been running extremely well. We've had a lot of work been going on collecting old debt which has been -- they've done a jolly good job on that. And the pipeline's very healthy in the Middle East. It operates in a slightly different way to other marketplaces. Sometimes the bidding can be quite chaotic and you have to be pretty flexible and move quite fast. But it is an area of -- that, we think, a big opportunity for our business. Finally, in the global services business, well, here, as I've mentioned, we've had -- this business has been dealing with having to do business whilst being a part of a sale process and a complex and a difficult one, at the same time. And actually, they've done extremely well to keep focused on the operational requirements of their customers. They're performing out of their socks against their operational KPIs. They've extended a major contract with a large financial services business for several years and they've opened up new centers, both in Manila and India. So actually, in the circumstances, a pretty good performance from them. Moving now to a quick update on the strategy, just to remind you of where we were and our strategy is. Our ambition is to be a superb provider of public services by being the best-managed business in our sector. And it had three stages. The first was in 2014, was to stabilize; the second, between 2015 and 2017, is transform and then, between 2018 and 2020 to grow. And the platform for doing that is, basically, around four themes. One is winning good business; the second is executing brilliantly; the third is making Serco a talent magnet, a place where people are proud to come and work and fourthly, is to make it profitable and sustainable. And whilst I've spoken about quite a few of these things during my presentation, I just want to draw attention to some of the progress that we've made, particularly around the title winning good business, where we have greatly strengthened our bid risk-management process and oversight. It is almost certain that we're today signing contracts that will turn out, in some respect, unexpectedly or will lose money or there is an element of that, that is just a business of our scale; you're always doing something wrong somewhere. But it's much, much better. The whole bid-management process is much more rigorously managed. The oversight is better. It's not that we will never make mistakes, but I think we'll make fewer of them. And under Ed's leadership, we're developing the centers of excellence and the value propositions and that's going to bear fruit in the coming years. In terms of executing brilliantly, well, again, as I said, we've mentioned that we have done well on our cost savings. But as well as saving costs, we're now actually investing hard to produce better infrastructure in finance. I think -- Angus was telling me that in our SAP system there are currently 80,000 different cost codes across the system. So we're investing millions of pounds, going and rationalizing that and bringing that into the land of sanity, a major transformation. We have done, I think, very well, rolling out a new management accounts pack. And also, the monthly management reviews are much better run than they used to be. Major upgrades to IT infrastructure, and we have a new CIO. Likewise, in global HR and in procurement. In terms of the theme of making Serco a place people are proud to work, clearly, we're delighted to welcome Sir Roy Gardner as Chairman to the Board in the last few weeks. But at working level, there's been a very significant reinvigoration of management. Basically, within the UK business nearly all the management are new in the last 12 months. And just in the last six months, we've had new business unit MDs in sales and services in Australia; health in the UK, local and regional government; transport, health and FM in the Middle East. And amongst support function leaders, new CIOs at Group and in LRG and AsPac; new finance directors in central government and AsPac; new operations directors in LRG and central government; new commercial directors. The list goes on. It is a major thing. And one of the things that we found enormously encouraging is how many good people are being attracted to Serco, seeing it for what it is which is a major opportunity to participate in a very large and interesting turnaround. I think also, on the operational level it's helping to make our colleagues more proud of working in Serco. Serco and proud of it. Because of the fact that we're getting -- our operational issues are getting better across a lot of our contracts. And I think that they see across investors and media our reputation beginning to return. In terms of being profitable and sustainable, things I would point out, as Angus mentioned, we've been unwinding this dreadful cash pressure period ends; we're working hard to mitigate our loss-making contracts; OCPs are performing better and we're slowly grinding away at the loss-making contracts. So, just some concluding thoughts, in terms of summary and outlook, we've got a strong core business, delivering public services. Challenges, as we've always said, are within our power to resolve. And by resolving those challenges, we can deliver growth and increase value in the future. Trading's been a little better than anticipated. It's a respectable start. The analogy I've been using is to say, well, we've come -- is a horseracing analogy, is we've come out of the stalls; we've got a long race in front and it's definitely a jumping race, not a flat race. But we've made it over the first fence and we're still on board and galloping ahead. The strategy implementation's well underway. And, in terms of the outlook, we think that the risks are now weighted to the upside. But it is going to be a long and occasionally bumpy road. It's a multi-year turnaround. We've never made a secret of that. And lest anybody gets too enthusiastic about doing slightly better than we expected this year, is 2016 is going to be tough. There's a 10% known revenue attrition in 2016 and there's about 23% of our current business needs to be rebid or extended by the end of 2017. So some major challenges lie ahead. And on that note, I'm going to have a sigh of relief and say shall we take any questions? Thank you.

[Operator Instructions].

It's Julian Cater from Numis Securities. Two questions, please; the first on the pipeline and second on the centers of excellence. Of the £5 billion pipeline, could you, perhaps, say how much relates to businesses that are earmarked for disposal and how much to the two major UK central government contracts?

I'm going to ask Ed to answer those questions.

None of the pipeline related to businesses being disposed. And in terms of you mentioned the two large UK bids, that's probably about 30%.

Second question on the centers of excellence, one of those is on rail and my understanding is that a number of years ago global group was set up for rail or perhaps it was transport more generally. I wondered if you could say what the difference is this time round.

Yes, well, I think, first of all, there's a lot of different people running the company today than it was then. So the company is becoming quite a different business than it once was and the culture is very different. Part of that culture is one of accountability. When we say we're going to do things, we hope, as we showed in this first half, that we actually deliver on our promises. But more importantly, I think that we're going to resource this. In the past, we had lots of dreams and lots of plans but didn't -- frequently didn't resource them appropriately. As Rupert mentioned, we recently announced three individuals to head those centers of excellence and we've got some other hiring plans to support those. We've got the support of each of the division CEOs and business development directors. So I think what you'll see is, not only here in the centers of excellence, but in all of our transformation activities, rather than kind of shoot from the hip we have been very systematic in terms of approaching this with a long-term fix. And so we're trying to build the centers of excellence from the bottom up; the same way we're trying to execute our transformation plans from the bottom up.

Interestingly enough, the rail center of excellence is based, guess where, Middle East, not in the UK.

It's Joel Spungin from Merrill Lynch. Just another question on the pipeline, actually, just following on from Julian's. Could you talk a little bit about why you mentioned that UK's central government's pretty slow? Is it slow because you're not making the list or is it slow because there's not a lot of stuff out there? And also, could you say, obviously, you mentioned, in the past, that international's going to be a key part of future growth. How much of the current pipe is related to international opportunities? And then, a second question, you mentioned, obviously, minimum wage being an issue that you're looking at. Could you maybe just talk a little bit more about where the risks are and how much of your UK business is relate in any way to minimum wage and what mechanisms there are on contracts to pass through the impacts of any minimum wage increases?

I'll ask Ed to take the question about the pipeline and the UK and whether or not we feel that we're being excluded from stuff, we're not seeing stuff. But I'll just take the minimum wage stuff, to begin with. I think this is one of these points where it's difficult to foresee exactly what the consequences will be. We employ relatively -- well, very few people who are on the minimum wage of £6.50 an hour, but quite a lot of people who are paid £9 and £10 an hour. And I think that the issue is going to be, between now and 2020, what happens to differentials over that time. I actually think that it's going to be a major issue for government. And it's going to be interesting to see how government holds its average pay increase to 1%, while at the same time increasing the living wage by 6% compound through the process. So, I would just flag it up, there's going to be a lot of -- I think, it probably affects us less than other businesses that maybe are more associated, maybe, on the healthcare sector with the delivery of stuff. I think it's very hard for -- it's going to be very hard for them. But we're going to have to watch it. It is a pretty considerable change in the environment and one that, on the face of it, we welcome, of increasing the pay of the lower paid. But it could have some -- it's not the impact this year, it's the impact in future years which I think will be interesting. Talk a little bit about pipeline.

Yes, the pipeline, you asked, the prior question was about two large ones in the UK. It's probably 25% to 30% that's kind of a more accurate range of where those values are. And, I would say, in terms of the UK pipeline versus the rest of the world, the rest of the world's probably 65% to 70% of the pipeline.

So the answer is the pipeline is, broadly speaking, in not bad shape in the rest of the world and it is in poor shape in the UK. I don't think -- I think that since we go -- you say, well why have other people got strong pipelines? Well, I think it's particularly in the frontline services sector that the pipeline has been quite weak. And these things take a long time to develop. And for a period of time, a year, 18 months ago, we were persona non grata; I don't think that that is true at all now. I think the governments very keen to see us bidding stuff, but it will take us time to rebuild.

It's Kean Marden from Jefferies. Could we just touch on the development teams as well, as I think, from memory, you were looking at some hiring plans there. The last time you caught up with analysts you'd filled, I think, two of the vacancies, but I think in total there were about eight or nine verticals where business development was looking to basically be hired into or some personnel change there. So any update on that would be helpful. And then, secondly, do you have a feel for the degree of underperformance or fines or non-performance relative to KPIs that the business has suffered during 2015 and what that figure would look like in a more normalized year?

I'm not aware that we've given a breakdown of saying, post by post, how many numbers. The business has gone through a massive restructuring across the whole thing; you will have seen £200 million of costs come out in the first half. So I'm not quite sure where that number came from about saying that there are eight vacant positions across verticals for business development people, if I heard you right.

Yes, well, my interpretation of the comments we had with the analysts meetings was that you'd hired two people in business development roles over the last two months and there were still some vacancies.

That we would what?

So, in business development teams.

That we had hired or lost?

That you had hired, filled two vacancies and that there were more to come.

But allow me to say, we have a business development team in a budget of getting on for £50 million to £60 million. And we're running BD teams across -- we're hiring in BD, that is absolutely true. I'm struggling to think of the two people in BD we may have hired in the last -- we're hiring there the whole time. We absolutely do need to hire more. The centers of excellence will need us to hire more. And, as I've said in the lowlights, the progress has been -- bluntly, we've been diverted by -- the need to go and do a rights issue and the fundraising has kept Ed and I absolutely focused on that. And we need to make faster progress, Ed, than we have been.

And I think that we probably mentioned this at the full-year earnings meeting that we had, Rupert and I, coming off the strategy work we did last year into the autumn, we're anxious to get after rebuilding the pipeline and building the centers of excellence out, as we said they're going to be an important part of our strategy. And we looked at each other at the time when we took the write-off in November and said there is no way, with the bank negotiations, closing the year end, doing the rights offering, we were going to be able to focus and still be in with a long list of operational challenges, get to the growth agenda. So we basically looked at each other and said, to be honest, we're probably not going to get to this for Q2. The reality is that, although we have insulated the income statement from the losses of some of these problem contracts, they still are operational drains. And without question, the businesses in the UK and a lot of the Group staff, have been very busily and actively involved in working through a number of these operational problems. And as Rupert said, we just recently appointed some heads to these first three centers of excellence and now we're basically -- as Rupert said and a lot of my time is going to be now shifting to the growth agenda. But I would have to say, without question, we're probably, if we turn the clocks back nine months, a quarter behind where we thought we would have been or we'd like to be.

And on your second question about abatements and penalties and [indiscernible], it's not a number that we collect centrally and say -- perhaps we should and then track it. I just don't know what the aggregate amount that we've been paying out over the thing. I think it's much more in -- there were some contracts where we have been paying out large abatements. I think they're getting -- my instinct is, is that they're getting fewer, but I can't give you objective evidence of that. But we'll go away and think about it. Since our management information, that could be the 80,001 cost center that we can gather as part of our financial transformation.

You can check it all on Google.

On the what?

It's all on Google Alerts.

Yes. Robert?

It's Rob Plant from JPMorgan. Just on the pre-close trading was a bit better and that seems to be because of Australian immigration. Would that be the reason why you're more confident, perhaps, about the guidance?

Clearly, Australian immigration is an important factor. But I think that the list of risks and opportunities that we have -- it's the way that do now -- every month we look at each division's numbers and see what the risks and opportunities are. And this a business that it can move around quite a lot and the one thing we know is we're not going to make £90 million, it will be either lower or higher. But you can't balance the angels on the heads of a pin and it is our view that it's more likely to be on the right side of that than on the wrong side. And part of that is that the mechanism. It's actually quite an interesting mechanism by which it's happening which is as the number of illegal immigrants or immigrants who arrived by sea, has dropped significantly. And virtually no boats have arrived for the last 1.5 years; in part, because of the very excellent work that the Armidale patrol boats have been doing. But the Australian Government have been filling that capacity up with a higher proportion of people who are actually convicted prisoners, who are awaiting deportation. So we're getting a mix change. And to come to Kean's point about saying see it on Google Alerts where you're seeing a pickup in the number of alerts coming through of protests and riots or whatever -- well, not riots, but protests and disturbances in the immigration. So part of that is that we've got a much higher proportion now of convicted criminals, rather than those who are awaiting deportation. But it's one factor, not the only one and it's an important one, but it's one.

It's Rory McKenzie from UBS. A couple on the OpEx savings, your guidance implies a lower revenue reduction in H2 than in H2, so can you say which cost items you'll be pushing harder on to get the same absolute amount of cost savings out of the business to reach that £400 million for the full year? And then, secondly, you mentioned how pleased you've been with the contract exit process, can you can talk about how that worked with delivering on your promises versus pulling out costs as you exit those contracts, please?

Can you just repeat the second half of that question?

You just mentioned that you're pleased with how contract exits were going, so how do you approach that, delivering on your promises to customers versus trying to get out--

Yes. Frankly, sometimes it's very difficult because an example would be, for instance, in Suffolk at the moment, where we're providing community healthcare. And people know that they're going to have a new employer at the end of September and being able to -- the healthcare services tend to have quite high turnover, it's quite difficult to fill places there. So you often get a bit of a blip in the last month of a contract. But we're used to dealing with this; it's an important thing that we have to manage. But our view on these things is it's incredibly important to be seen by a customer to be seen to exit well and they have fond memories of you, not that you're going out bolshie and spitting. And also, that a lot of the people we know may want to come work for us in other things, later on. The first part of your question was about the operational costs. Well, it's not going to be precise. We saved slightly more than £200 million in the first half. So if we're going to make £400 million, we need to say it will be slightly less year on year. And the other point being, actually, costs were slightly higher in the second half of last year. It's an easier amount to get to in the second half than it is in the first half. And I don't want to make a complete -- it's a very round number that as where we will actually end up; it might be more, it might be less.

It's Ed Steele from Citi. Three questions, please, first of all, one for Angus. While there are a lot of moving parts in numbers for both this year and next, what's your sense for the natural seasonality of profits between the first half and the second half now, please?

I think I'll answer that better once we've been through a full season. But my sense is it is pretty evenly split. And I think actually what will drive it, in Middle East, profits. We've had more in the first half; some of that is the impact of the bad debt provision. The rest of it, there are areas of the business in -- where, if you're doing driver license renewals, there's certain parts of it. So there's a little bit of weighting in AsPac. I think it's changes within the mix, rather than the absolute. So, I regard the first half very much as we're halfway there. And I think -- it's volume/metrics move around. I don't think that it's necessarily seasonal weighted in every case.

And then second question, is there a formal process underway now in Australia whereby you are seeking to claw back some recompense for the excess costs with the patrol boats, please?

I don't think it's advisable to discuss in public forum. Clearly, this is now a matter of public information and the customer is well aware of our concerns. But I think that the precise nature of those conversations should remain confidential between us and the customer, but it's not like some Victorian romantic secret; the truth that dare not speak its name, that we're losing vast amounts of money providing a very good service for the Australian Navy.

And a third question, do you still think it more likely than not that global services will be disposed?

I wouldn't say whether it's more likely than not. I think that it is our preference that it should be, but we're not prepared -- why would we do it unless it represents good value for our shareholders, because it is a very good business. As I say, we remain -- we have a preference for it. But we're going to be, the Board -- Ed and I and Angus are under clear instruction from the Board to proceed if it makes sense and if it doesn't, we will keep the business and happily say, because, as I say, it's doing well from an operational point of view.

It's Sylvia Foteva from Deutsche Bank. I've got three, please. First, are you in discussion to re-price or otherwise amend any of the onerous contracts, especially the top five, at the moment? Are you in any kind of conversations with the client? Two, could you please talk about the £70 million impairment relating to the assets held for sale. Which ones is that relating to the most? Is it relating to the Indian BPO business? And then finally, could you talk a little bit about the pipeline and the timing of decisions within that. Thank you.

So, one for all three of us, Angus, you take the goodwill impairment, will you and you take the pipeline and I'll take the --

The businesses held for sale at the moment consist of environmental and leisure and also the BPO business. And across these businesses that's where the adjustments are. The bulk of it relates to the BPO business.

In terms of the OCPs, I repeat my previous question, the fact that we have some contracts on which we're losing large amounts of money is not lost on our customers. But each circumstance is different. And remember also that we have long-term relationships with these customers. So, of course, we're doing all that we think that we sensibly and reasonably can across these contracts to mitigate the effect on shareholders. But just throwing our toys out and spitting dummies out with very large customers is not going to work well. But they will also recognize in their time that if they keep on having contracts on which contractors end up losing large amounts of money, that this is a marketplace. And we will see. But, naturally, we're not just sitting there saying that we provided them with the contracts and then we don't have to worry about them. But what I would also say, though, is that a key early point on these contracts is to get the operational performance right, as well. Because sympathy from a customer is in short supply if we're not even delivering what you said you would. Ed, on the pipeline?

Again, you may recall that we've now been defining, for the last 15 months or so, our pipeline as those contracts are going to be awarded in the next 24 months. And so, of the £5 billion or so that are in the pipeline, there are three that are likely to be awarded this year; one is the passport contract in the Americas. And then, there are two in AsPac; one is an offshore immigration contract and the second is a marine services contract. Beyond that, we haven't given a specific timetable for other bids in the pipeline. That's the best guidance I can give you.

It's Stephen Rawlinson from Whitman Howard. Just one from me, in the text of the statement this morning, you talk of the delay in terms of the sale of environmental and leisure services business and you mention contracts being novated. Has that process started? And, if so, to whom are they being novated? Could you just help us out a little bit there? Because it seems to be implying that you actually started that process.

No, it's much more mundane than that. Interestingly enough, Serco has quite a different structure from some of our peers in the UK, who have lots of different companies doing lots of different things, activities. Serco's activities in the UK tend to be under the umbrella of a single operating company. In order to be able to sell the environmental services business, we're novating the contracts into another Serco subsidiary so that subsidiary can then be sold, if that's what we intend to do. And it's a mechanistic thing. But we have to get the customer's agreement to that novation from Serco Limited to some other thing first.

Are we done? Phew. Thank you very much, indeed. Thank you for coming in on such a hot, hazy and humid day in August. And see you all shortly, I hope. Thank you.