RE: H1 Results & Announcement18 Aug 2020 10:55
Financial outcome
Adjusted revenue1 in the first half has declined by 9% to £1,652.2m (H1 2019 £1,815.5m). Around 4% of this (c.£80m) relates to revenue lost due to the impact of COVID-19, mainly in transactional businesses and those where client end-markets were severely affected. We managed to offset this partially with Government contracts to support the Department for Work and Pensions ('DWP') in particular and which benefited half-year revenue by £32m. The remainder of the decline was expected, representing the impact of contracts lost in the second half of 2019, specifically local government contracts.
Adjusted profit before tax1 for the half year was £30.1m (H1 2019 £117.8m) on a post-IFRS 16 basis. The decline is due firstly to the net change in margin from revenue losses and wins from 2019, as we lost high contribution and margin contracts and renewed or won lower margin work, as well as the impact of revenue losses from COVID-19. We partially offset this with £129.5m of cost savings: £72.6m from our ongoing transformation programme and £56.9m in additional cost savings specifically as a result of COVID-19, such as lower travel and property costs and payroll savings, some of which are expected to continue into 2021. There is also a £42.6m non-cash charge for holiday pay accrual which is as a result of high levels of untaken holiday for our 60,000 colleagues; this is expected to reduce significantly in the second half. The loss relating to the start-up of the Defence Fire and Rescue Project ('DFRP') is £6m at the half year and is still expected to be around £20m on a full year basis. This contract is going well to date and over its lifetime is forecast to generate good profit and cash flow.
Adjusted cash from trading operations was £193.3m (H1 2019 £187.8m) as the improvement in underlying cash conversion along with cash preservation and profit protection measures offset the negative impact of COVID-19 and contract losses, as well as positive impact from contractual working capital. Adjusted free cash flow1 during the first half year was £176.0m (H1 2019 £30.1m), which in addition to the above impacts reflects the expected year on year reduction in capital expenditure and £77m of advance customer receipts. Further cash benefits including £117m of deferred VAT and £33m from a receivables financing facility, put in place for additional risk management, have contributed to a positive movement in headline net debt of £256.6m. Net debt at 30 June 2020 was £1,096.6m (31 December 2019 £1,353.2m), helped by these cash preservation initiatives, with covenants compliant with gearing ratios at 1.5x for the US notes and 2.1x on the Euro notes. Liquidity at 30 June was £704.1m.
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