Overview of the financial performance for the nine months to 30 September 2012

In the first nine months of 2012, overall revenues compared to the same period last year, excluding the London 2012 contract, grew by 6.3% at constant exchange rates and by 4.1% at actual exchange rates. Including the London 2012 contract, revenues grew by 9.2% at constant rates and by 6.9% at actual exchange rates. As expected, the group operating margin was lower compared to the same period in 2011.   

Organic Growth

Overall organic growth was good at 5.5% (8% including the London 2012 contract), with 9% in developing markets and 4% (8% including the London 2012 contract) in developed markets.

• In secure solutions, organic growth was 6% (9% including the London 2012 contract), despite an 11% decline in the US classified government business.
• Overall, growth was helped by a continued strong performance in developing markets, UK government and North America commercial businesses.  

• In cash solutions, organic growth was 3% overall - developing markets grew 10% and developed markets were broadly flat.

• Organic growth in developed markets is expected to improve as new contract wins in the UK come onboard fully.

Margins

Overall the group margin was down 0.3% (excluding the London 2012 contract) on a constant currency basis, due to contract phasing in the UK government businesses and US government budgetary cuts. Cash solutions margins were broadly in line with the same period as last year, with a stronger performance in the cash solutions businesses in most developing markets.

Acquisitions & Divestments

During the first nine months of the year, we invested £8m in deferred consideration in respect of prior year acquisitions and £95m in capability-building acquisitions such as a leading security provider in Brazil, and fire and safety consulting businesses in Ireland, Netherlands and Belgium.

Olympics contract loss provision

As stated previously, our current estimate remains that the loss on the London 2012 contract will be in the region of £50m and this amount was provided for at the half year and taken as an exceptional item.  This estimate is based on our current expectation of the financial outcome including reasonable estimates of costs where at this date there is still uncertainty.  

Financial position

Our financial position continues to be strong and we remain on track to meet our cash conversion target of 85% of PBITA for the full year.

Summary 

The business has continued to achieve good underlying organic growth despite some adverse moves in foreign exchange and challenging macro conditions.

The US government market and some Continental European markets are still proving to be difficult and we expect these trends to continue. The North American commercial businesses are continuing to perform strongly and the UK has shown an improved performance.  Our developing markets businesses, which account for more than a third of group profits, continue to achieve strong results.

Our restructuring measures taken in 2012 to reduce overhead costs and continued focus on business improvement should help margins improve in 2013.

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