G4S, which provides outsourced services to manage cash including guarding and security, is in the final stages of a four-year restructuring programme and is also cutting costs to boost productivity.

It said it secured new contracts in the first half which would lift revenues going forward and would start to reap technology-related productivity gains, but investors fretted about narrowing margins.

The group said first-half underlying profit before tax fell 3.2 percent to 212 million pounds, with restructuring costs and weaker trading in the Middle East dragging on profitability.

That was short of a consensus forecast of 217 million pounds by seven analysts provided by G4S.

First-half underlying revenues rose 0.2 percent to 3.6 billion pounds, in line with the consensus forecast, but investors said narrower margins dimmed the full-year outlook.

"The weaker margin trajectory is likely to result in low/mid-single digit downgrade to 2018 consensus EPS estimates," analysts at Jefferies said in a research note.

G4S shares, which have traded flat in line with the FTSE Mid 250 index <.FTMC> in the year to date, were down 7 percent at 262.2 pence by 0857 GMT, their lowest since May.

CEO Ashley Almanza said revenue growth should continue in the second half of the year and productivity gains would start to show through.

"Our contract wins and strong retention rate in the first half of 2018 provide revenue momentum into the second half of the year," he said in a statement.

Broker UBS said organic revenue and margin growth was slightly slower than expected. G4S's Europe and the Middle East business, where profits fell 4.6 percent and its EBITA margin fell to 6.7 percent form 7.1 percent, held back its overall performance.

"Margins were down 20 basis points year-on-year due mainly (to) the drag from Middle East, although this should also improve in 2H," UBS said in a research note.

The Middle East is part of the group's combined Europe and Middle East business which accounts for about a third of its total revenues and about 40 percent of EBITA.

G4S said it expected an improvement in its Middle East business in the second half. It also said it had made productivity gains in the first half under a programme that aims to save 90 to 100 million pounds of recurring costs by 2020, most of which should boost profit.

The group reiterated its medium term guidance for revenue growth of 4 to 6 percent annually.

(Reporting by Elisabeth O'Leary; Editing by Kate Holton and Susan Fenton)

By Elisabeth O'Leary