Rentokil Initial Aktie

Good morning, everyone, and thank you for joining us on today's Rentokil Q1 Trading Update. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Paul Edgecliffe-Johnson to begin. Please go ahead when you're ready.

Thanks, Drew. Good morning, everyone, and welcome to our first quarter conference call. Before we begin, I'd like to draw your attention to the usual cautionary statement contained in our trading update, which also applies to this call. I'll start by making some brief remarks on trading, and then I'll be happy to take your questions. As we only reported on performance and strategy last month, today's announcement is a short update on revenue performance in the first quarter. As a reminder, all commentary is on a constant currency basis, unless otherwise stated. So we made a good start to the year with group revenue of $1.7 billion, representing organic growth of 3.4%. This is driven by continued momentum in North America, which delivered 3.9% organic growth and a solid performance for international, which saw 2.8% organic growth.

Looking in more detail now at North America, where revenue grew 4.5% to $995 million. Pest Control Services delivered revenue growth of 3.5%, including 6.1% from one-off job revenue and 3.0% from contract revenue, an improvement from the previous quarter's 2.4% contract revenue growth. Pest Control Services organic revenue growth of 2.8% continued the steady quarter-by-quarter improvements we've seen over the past year as we execute our strategy to optimize the ROI from our marketing spend, invest behind our strong national and regional brands and improve our sales execution. The pricing environment remains robust with continued above inflationary increases. Overall, as we flagged back in March, our teams across the U.S. worked hard in February, delivering excellent customer service to recover workdays lost due to January's extreme weather.

Business Services delivered strong organic growth, up 12.7%, helped by pre-spring demand in product distribution, new customer wins in brand standards and some large contract wins in lake management. Colleague retention of 82.6% increased 40 basis points compared to the position at the end of December. Customer retention was broadly flat on last year at 80.4%. Moving to our international business. Revenue was $682 million for the first quarter, up 4.1%. Contract revenue grew 5.5% and one-off job revenue was broadly flat. Organic growth of 2.8% was supported by good growth in Europe, Latin America, the U.K. and Sub-Saharan Africa, benefiting from strong pricing and volume growth.

This was offset by a 60 basis point headwind from organic revenue declines in Asia Pacific due to tough comparatives in our job-based rural and Trackspray business and Middle East, North Africa, impacted by the Middle East conflict. So in summary, we've delivered a good start to the year during our seasonally quieter first quarter, driven by continued momentum in North America and solid progress across our international business. We remain on track to deliver a full year performance in line with market expectations. I'll also take this opportunity to welcome Thérèse Esperdy as Rentokil's new Chair effective from the 1st of September this year.

For more details on Thérèse and her appointment, please see the announcement released yesterday. Finally, as you all know, last month, we welcomed Mike Duffy as our new CEO. Mike will be leading the half year results presentation in July when we will be giving you a more detailed update on the progress we're making executing against the plans we set out in March. And with that, I will now hand back through to you for Q&A.

[Operator Instructions] Our first question today comes from Suhasini Varanasi from Goldman Sachs.

Just a couple from me, please. On the core pest services growth in North America, we've obviously seen a very steady improvement in recent quarters. Just wanted to help us understand how you expect the improvement for the next few quarters, please? Are there anything -- is there anything on comps, et cetera, that we should be worried about over 2Q, 3Q? And the second question is on Business Services. It's been pretty strong in the last 3 quarters. Can you help us understand the drivers behind this and whether this can continue into the rest of the year?

Thanks, Suhasini. So look, I mean, in terms of the growth that we're seeing on the [indiscernible] side first, this is a combination of all the efforts that we've been putting into the business really over the last 12 months or so. So the strategic pivots that I talked about my first call near 15 months back. And driving up the number of leads that we've got, improving our conversion, improving our marketing ROI, et cetera, et cetera, is all helping us grow. But it is a grind-up story. We are improving our pricing capabilities, and that's the driver of all the growth that we're seeing at the moment. Volumes are still negative, in line with what we saw in second half of last year.

So the strategy for 2026 is to try and improve our volume performance, keep more customers, increase retention and still hold on to that pricing. There's no big things that I would call out in the quarters to come in terms of lapping tougher comparatives. There's always a few puts and takes, but there's nothing that is that material. In terms of the Business Services segment, yes, I mean, 12.7% is stronger growth than I expected to see in the first quarter. And we had a very strong second half as well. But I do think that this is an aberration rather than the norm. I don't expect to see this level of growth from that business segment. I think we've just seen some particularly strong demand in chemicals and distribution.

And in the first quarter, as I mentioned, we had some brand standards win in our Steritech business and a large job in light management. So those have all driven it. But I think it will revert back to a normal level of growth as we go through the year.

Our next question comes from Annelies Vermeulen from Morgan Stanley.

I have 2 questions, please. So firstly, you've made comments about the focus on volumes and so on. In previous quarters, you've given some color on lead generation. So could you perhaps comment on how that trended in Q1 relative to Q4 and the second half of last year? And then secondly, just a follow-up on pricing. I appreciate it's early days, but given what oil prices are doing, concerns on inflation going up and so on, are you already beginning to push higher price increases with customers? And would you expect pricing to accelerate through the rest of this year relative to the levels that you've seen in Q1 '26? And perhaps if you could talk about how that ties into this focus on retention, how you'll balance that with continuing to want to improve volumes?

Thanks, Annelies. So in terms of lead generation, I'm not going to every quarter put out the numbers. We'll continue to pull it out at the interims and the full year. But I think it's just a bit too [indiscernible] in every single quarter. No change there. We're still pleased with what we're seeing. All the work that we've done to improve our marketing capabilities and to improve both the number of leads and the quality of leads is continuing to drive business for us. So we're pleased with that, but nothing has changed in the last sort of 42 days since I talked about the full year. In terms of pricing, as I've spoken about before, our pricing capabilities are much better now.

The fact that inflation is going to be driven up by oil price increases. It doesn't really change our pricing strategy for the residential business. On the commercial business, we'll have to see what happens there, whether there's any scope in markets around the world for price surcharges. That would be something we would consider, but there's no decisions on and it's subject to the contracts that we have with customers around the world. So we will continue to do as we always do, making sure that we offer excellent service and excellent value, and we'll look at the competitive environment, what everybody else is doing and what's sort of fair in the circumstances. But nothing that I expect to have a big impact on the numbers this year. And so yes, I think that's the main message. Nothing is going to have a big impact on the numbers this year.

Our next question today comes from Andy Grobler from BNP Paribas.

Two for me as well, if I may. Firstly, just kind of following up on fuel price increases and the potential for some inventory shortages. How much inventory do you have in the system? And are you seeing any signs of stress resulting from the conflict in the Middle East? And then secondly, a bit [indiscernible], I'm afraid, but just in terms of exit rate in March and to what extent all of that was impacted by the weather?

Thanks, Andy. So yes, I mean, clearly, we do spend a reasonable amount on fuel in the business, but it is only 2% of our cost base. And as I've spoken about before, there's a lot that we are doing to the cost base around the world in terms of offshoring and restructuring and driving improvements in efficiency. So we have got quite a few levers to pull there. So we'll have to see how long the fuel price increase remains with us. I don't expect it to be a material number for us in the context of 72% of our cost base. And in terms of inventory, we do actually have quite a lot of inventory in the supply chain and the majority of our supplies were not coming through the [indiscernible] though coming other routes.

So we're not as impacted as perhaps some businesses might be. So that's not something that currently is a concern to me. In terms of exit rate, so January obviously was impacted, and we had a lot of work to do by our technicians to get around to our customers in February and March to recover that work, and they worked fantastically hard as they always do. And we're able to get back and get all the jobs covered and that's how we delivered the numbers that we have delivered today. So it's a little difficult to look through that and look at the March exit rate. So there's nothing that I can see in the numbers that tells me anything different in March from the earlier months. But if there was, it would be quite hard to see through the noise, but we're pleased with the quarter.

Our next question comes from Nicole Manion from UBS.

Just 2 questions from me, please. Firstly, just on the customer retention side, progress there perhaps a bit more muted than you've seen for the colleague retention. Can you talk through some of the drivers of that, maybe on the commercial side compared to in resi in the U.S.? And then secondly, just on any branch openings year-to-date, I think it's 70 or so smaller branches you're aiming to open through the year. Have there been any more open through sort of Q1? Kind of where are you tracking towards that target?

Thank you, Nicole. So yes, I mean, we were pleased with the -- with both customer retention and colleague retention actually. Colleague retention is clearly a fair bit up from where it was at quarter 1 of last year, and that's progressed through. So it's all the efforts that we're making to look after our colleagues is paying off, and that's a super important part of our business model. And so we're pleased with that. In terms of customer retention, I mean, it's basically flat on where it was last year. And remember, these are -- we report on a 12-month rolling basis. So no real differences there. We spoke previously about the rationalization that we're doing on some of our commercial customers to take out customers that aren't as profitable -- commercial customers that aren't as profitable.

And that is a little bit of a headwind. And you're seeing that coming through in the slight decrease from the quarter 4 number that we reported there. So it's not on the residential side, it's driven by that commercial side, which was deliberate. And in terms of branch opening, yes, as you know, we've got another 70 branches that we are opening during the course of this year and making good progress with that. So I'm not going to give a quarter-by-quarter rundown of the branch count and I don't think that's particularly helpful, but it's all on track. We're pleased with the progress. And so yes, overall, we're continuing to do exactly what we said we would.

[Operator Instructions] Our next question comes from Allen Wells from Jefferies.

Two quick ones from me, if I may. Firstly, you talked a little bit about the job in versus recurring activity within North America Pest Control the full year numbers. I think the job in activity was a bit stronger. I just wondered if you could provide a bit of an update in terms of how Q1 played out and the progress you made on recurring revenue improvement there? That's my first question. And then secondly, I appreciate it's only been 40-odd days since the last update. But just in terms of the branch integration that was paused last year and restarting, maybe you could just provide a kind of update and reminder on how to think about the kind of timing and shape of progress here as we move through 2026.

Thanks, Allen. So yes, I mean, as I said, in terms of the pest control services growth that we saw overall that 3.5% that was 6.1% from one-off job revenue and 3% from contract revenue, which is an improvement from the previous quarter's 2.4% contract revenue growth. So that's important. If you look at how we're growing that, it's still all price. So we're seeing the same sort of volume declines that we saw in the second half of last year. That's a continued focus for us and an area of opportunity, but we're pleased with the pricing that we're getting. And job revenue does move around a bit quarter-by-quarter, but we're pleased with the 6.1% increase that we saw there. In terms of what we're doing around integration, I think I spoke about that quite extensively 42 days ago and no change from that.

We're rolling out our branch 360 data layer, which allows all our branch managers to see data more simply. And that's been very well received. That's out and a lot of branches now and pleased with the progress on that. And really nothing further to say. I wouldn't anticipate that we'll be saying a lot more about integration per se. Our focus is on driving the performance of the business. And that's sort of a new chapter for us, if you like, as we put the integration chapter behind us. But thanks very much Allen.

With that we have no further questions in the queue at this time. So that does conclude the Q&A portion of today's call. I'll now hand back over to Paul for some closing remarks.

Thank you very much, Drew, and thank you, everyone, for dialing in and listening. And as I said when I started at Rentokil that my ambition was to make Rentokil a nice safe boring stock where we do what we said we're going to do. And hopefully, this morning's results show that we are on track. And we look forward to talking with you again for the half year in July. So we'll speak to you then. Thanks very much, everybody. Bye for now.

Thank you for joining. That concludes today's call. You may now disconnect your lines.

Hello, and welcome to the Rentokil Full Year Results 2025. My name is Carla, and I will be coordinating your call today. [Operator Instructions]

I will now hand you over to your host, Andy Ransom, Chief Executive, to begin. Please go ahead when you're ready.

Good morning, everyone, and welcome to our full year results presentation for 2025. After my opening remarks, Paul will provide a review of our financial performance. I will then focus on the execution of our plan in North America as well as providing a brief update on our International region, our categories and our adoption of AI. We'll then open the floor for your questions. And as usual, details of how to ask a question can be found on the web portal.

2025 has been a year of encouraging progress with group revenues increasing by 3.8% and with organic revenue growth of 2.6%. Our H2 performance was particularly encouraging with group revenues increasing by 4.5% and with organic revenue growth being 3.5%. My main focus for today, however, will be on North America, looking at our performance in 2025 and how we're building on that platform in 2026. This time last year, we set out our plan for growth in North America, and it has been a year of encouraging progress with our performance, particularly in the second half, improving significantly. Whilst we're not there yet where we want to be, organic growth reached 2.6% in the fourth quarter. This was underpinned by strong execution, rolling out our new marketing plan, investing in our regional brands, opening 150 small local branches through our satellite program and delivering $25 million of in-year cost savings through our efficiency program.

Our International business also saw improving organic revenue growth of 3.4% in the second half. This combination of improved growth and cost efficiencies delivered adjusted operating profit growth of 5.4% and positions us well to deliver our plans for 20% net operating margins in North America next year.

Now looking to 2026, we have clear plans in place to build on the progress made last year. Our focus continues to be on growth, where we plan to expand our multi-brand strategy, deploying around 30 regional and local brands instead of the 9 we had previously indicated, and we'll continue to increase our local presence, taking our network of small local branches to around 220.

As I'll explain in a little more detail later on, the team in North America has also used the pause in integration to develop a simpler plan for the creation of a single unified field operation. On systems, we've developed a new branch data portal, meaning we can maintain our existing systems for longer. And on pay plans, we're taking a more simplified approach to harmonizing pay policy where, in essence, service colleagues joining us next year will join our new plan, whereas existing colleagues will be given the choice of the new plan or to be grandfathered in their existing plan.

So this combination of maintaining more brands and their branches, continuing to use our existing branch systems, whilst also simplifying the pay plan process means less change at the front line and more focus on the customer and indeed on growth. Fueling this growth and supporting our 2027 financial targets is our efficiency program, and Paul will now take you through this in more detail along with the rest of the financials.

Thank you, Andy, and good morning, everyone. I will now walk you through our key financial highlights for 2025 and look at our regional performance in more detail before closing on cash flow and capital allocation. As a reminder, unless I state otherwise, all numbers are on a continuing operations basis following the sale of our France Workwear business, and any comparative performance is on a constant currency basis.

Revenue was up 3.8% to $6.9 billion with organic revenue growth of 2.6%. Adjusted operating profit increased by 5.4% to just over $1 billion. This resulted in a group adjusted operating profit margin of 15.5%, a 30 basis point increase year-on-year. After an adjusted interest charge of $204 million, up $29 million due to the cost of additional bond debt issued in the year and an adjusted effective tax rate of 25.3%, adjusted basic EPS increased 2.4% to $0.2591.

I have spoken previously about our focus on maximizing cash, and I'm particularly pleased with our free cash flow performance with 24.5% growth to $615 million and free cash flow conversion of 98%. This reflects disciplined working capital management and also some one-off benefits, including real estate sales.

With the growth in profits and free cash flow and the proceeds from the sale of France Workwear, partly offset by an adverse foreign exchange impact of $181 million on year-end net debt, our leverage ratio improved to 2.6x, down from 2.9x a year ago and close to our target range of 2 to 2.5x. Reflecting this performance, the Board is recommending a full year dividend of $0.1239 per share, an increase of 3%, in line with our progressive dividend policy.

Turning to North America. Revenue grew 3.2% to $4.3 billion with organic growth of 2.3%. Pest Control Services was up 1.1%, while Business Services grew 8.9%. I'll come back to talk about these performances in more detail shortly. Adjusted operating profit for the region was $749 million, up 5.1%, bringing our adjusted operating profit margin to 17.4%. This improvement reflects the early benefits of our cost efficiency program, which delivered $25 million of savings in the year.

Operationally, we are seeing our strategic initiatives strengthen key KPIs with colleague retention up 2.8 percentage points to 82.2% and customer retention increasing to 80.5%. We also completed 12 bolt-on acquisitions in the region with combined revenues of approximately $27 million in the year prior to purchase.

Looking at our performance in North America in more detail. Fourth quarter organic revenue growth in Pest Control Services improved to 2.6% from 1.8% in the third quarter and 0.1% in the first half. This sequential improvement demonstrates the results we're seeing from the strategic initiatives we put in place at the start of this year.

Lead flow, a key metric to indicate future growth in our contract portfolio, grew over 7% across the second half of the year, driven by our revised sales and marketing strategy. This has included a shift towards a more targeted digital marketing approach with a bigger focus on driving organic leads and also increased investment in our regional brands to boost lead generation and brand awareness.

The ongoing rollout of smaller local branches through the satellite program to bolster customer proximity and local presence is proving successful with branches with one of these localized hubs attached to it, generating more than double the lead flow of those without. We've also improved our execution by moving sales accountability directly back into the branches. In addition to winning new customers, we have retained more through a relentless focus on customer service, and we've been able to sustain strong pricing discipline through the year. Andy will talk more about these initiatives shortly and how we will continue to build into 2026.

Turning to Business Services. We were pleased with fourth quarter organic growth of 7.8% against a strong prior year comparative, which included $6 million of emergency vector control revenue, which did not repeat in 2025. Across the year, Business Services organic revenue growth of almost 9% was supported by double-digit growth in both our distribution business and our brand standards business, with the latter benefiting from significant new business wins.

Throughout the year, we have been executing against our plans to simplify the North American business, improving the efficiency of our cost base and creating fuel for growth. We are increasing discipline in our day-to-day operations with improvements in organizational design and simplification of processes. The streamlining of operations led to headcount reductions of over 500 roles by the end of 2025.

We are also reducing cost in the business through outsourcing and moving non-core functions to lower-cost locations. This has allowed us to scale our back office operations more effectively while reducing our fixed cost base. To date, around 430 roles have successfully been offshored. We're using technology to automate manual processes and improve our overall efficiency while better leveraging the benefits of our purchasing scale through managing our third-party spend and consolidating spend with suppliers.

As well as reducing costs, we continue to drive improvements in how we invest our sales and marketing spend to optimize ROI and have reallocated some $20 million of marketing spend away from suboptimal paid lead activity to higher efficiency channels and campaigns. We rapidly mobilized to deliver $25 million of savings in 2025, targeting the cost areas that were easiest to impact quickly. There remains very significant opportunities for us to create efficiency in our cost base.

As we drive up efficiency in the business, we are also investing back in a targeted way to drive organic growth. In 2025, this has included incremental marketing investment and strategic initiatives such as the rollout of smaller local branches and enhancing our capabilities in areas from pricing to data insight. This is helping us to identify the levers to elevate performance and amplify the benefits of our strategic initiatives.

Improving our data has been and will continue to be fundamental to our ability to optimize our marketing budgets to maximize our reach into available customer demand. We have already delivered a double-digit reduction in our cost per lead, and there is more to do. Balancing driving cost out with funding investments behind sustainable improvements in organic growth has been key to improving both top line growth and profit margin, and we will continue to balance this carefully as we progress towards our North America margin target of over 20% in 2027.

Moving to our International business, which encompasses all regions outside North America. Revenue grew 4.8% to $2.6 billion with organic revenue up 3%. Organic revenue growth improved in the second half, up 3.4% compared to 2.6% in the first half. We saw our strongest performance in Europe, driven by healthy demand and solid pricing in Southern Europe, while growth in Asia was supported by the fast-growing economies of India and Indonesia.

Adjusted operating profit increased 5.7% to $518 million, with margins increasing 20 basis points to 19.8%. The U.K. and Sub-Sahara Africa delivered double-digit growth, reflecting a strong revenue performance. Asia and MENAT also displayed margin resilience despite a backdrop of high wage inflation. Customer retention remained strong at 85.7%, and excellent colleague retention was seen throughout the year at 90.3%. We also completed 24 acquisitions in the region with combined annualized revenues of approximately $36 million.

Turning now to central costs, which in the year were $191 million, up almost 7% and up 9% at actual rates with some 85% of our central costs in sterling. In addition to underlying inflation, this growth represents multiyear ongoing investments in proprietary technology, digital applications and AI capabilities to support colleague efficiency, customer satisfaction and to generate revenue.

In 2026, we expect continued above inflation rates of growth in addition to an FX headwind. One-off and adjusting items, excluding termites, were $92 million in 2025, primarily incurred in North America as part of the overall cost efficiency program. Looking forward to 2026, we are expecting a similar level of spend.

Moving now to the termite provision, which, across the year, we have increased by $201 million with an additional $122 million in the second half after the $79 million in half 1. The trends that we saw in the first half of the year have continued. These included an increase in the number of complex residential and commercial litigation claims compared to 2024, albeit at a lower level than at the time of acquisition. More detail on this is included in a slide in the appendix, and a continued increase in cost per claim as our proactive strategy to solve customer problems and reduce litigation continues.

In addition, during the second half, we have resolved numerous large commercial legacy claims at a cost ahead of the historic average and increased the long-term inflation assumption in our provision model from 2% to 3.2% as a result of persistently high inflation in legal defense, housing and building materials costs. The cash cost of settling claims in 2025 was $95 million, and we expect a similar level of cash payments in 2026.

Turning now to cash flow. We generated free cash flow from continuing operations of $615 million, representing an adjusted free cash flow conversion of 98%. This was ahead of our guidance of 80% and a further improvement from the half year. We reduced the working capital outflow by $67 million to an outflow of $59 million through our disciplined focus on debtor management and supplier harmonization, moving to more consistent credit terms across our supplier base.

Although some of this improvement was one-off in nature, the underlying discipline remains, and we are focused on continuing to improve in this important area. Our overall free cash flow conversion also benefited from $20 million of real estate sales. Our gross CapEx of $196 million was in line with guidance, and we would expect a similar level of spend in 2026.

Cash interest increased by $41 million to $222 million following our refinancing activities earlier in the year. Cash tax was $7 million lower at $100 million, mainly due to legislative changes in the U.S. Looking ahead, we continue to target a free cash flow conversion above 80%.

Our strong operational cash generation, combined with strategic divestments, has allowed us to make progress in strengthening the balance sheet. Net debt at the end of the year was $3.65 billion compared to $4 billion at the start of the period. The key cash inflows in the year were $636 million of free cash flow and $391 million in net proceeds from the sale of our France Workwear business, which completed on the 30th of September 2025.

Beyond the immediate cash influx, this disposal has simplified our International business, reduced our ongoing capital expenditure requirements and structurally improved our group cash conversion. We reinvested $121 million of cash in bolt-on M&A, which remains core to our growth strategy. This was less than originally planned with some slippage of deals into 2026. Our pipeline for 2026 remains strong, and we're targeting spend of around $200 million.

The cash impact from one-off and adjusting items amounted to $100 million for the year. These costs were largely attributable to transformation costs in North America, which, combined with other cash one-off items, will be a further outflow of around $80 million to $85 million in 2026. Our closing net debt was impacted by $181 million adverse FX translation movement. Nonetheless, we are pleased to see progressive strengthening in our balance sheet with our net debt to adjusted EBITDA ratio reducing from 2.9x to 2.6x, bringing us close to our target range of 2 to 2.5x.

Turning now to capital allocation, where our framework is built around 5 key priorities designed to balance growth, shareholder returns and financial resilience. Our primary focus is on organic investment as it drives the best ROI, deploying capital to support the long-term growth of our business. We will also continue to pursue targeted inorganic growth through bolt-on M&A. We have a strong track record of successfully integrating acquisitions to drive value creation, and we will remain selective and strategic in identifying opportunities that complement our existing portfolio, strengthen our market position and deliver long-term shareholder value.

We remain committed to a progressive dividend policy, ensuring that dividends grow over time. Our approach reflects confidence in the underlying strength of our business and our ability to generate consistent cash flows while maintaining financial flexibility. We recognize the importance of returning excess capital to shareholders at the appropriate time. When we do have surplus capital beyond our reinvestment needs, we will evaluate opportunities to return it, always ensuring that such actions align with our broader financial strategy.

Finally, we remain focused on maintaining a strong and resilient balance sheet. Overall, our capital allocation strategy is designed to strike the right balance between investing for the future, delivering long-term value to shareholders and maintaining financial strength.

So in summary, we have delivered an in-line performance in 2025. We are encouraged by the clear signs that our revised North America strategy is working and the improvement in growth in the second half from our International businesses. Our focus on cash is improving our operational cash conversion and reducing leverage towards our target range. As we balance investing in sustainable organic growth and driving up the efficiency of the business, we remain firmly on track to achieve our $100 million cost reduction target and our goal of a North America margin above 20% in 2027.

Although the first month of 2026 in the U.S. has seen some disruption from extreme weather, as we look forward, we have confidence in delivering in line with market expectations.

Thank you. I will now hand you back to Andy.

Thank you, Paul. So over the next few minutes, I'm going to start by highlighting the strength of the pest control market, both in the U.S. and globally before diving into North America's performance. I'll then finish with brief updates on our international growth and emerging markets, on our 2 categories and on the good progress we are making with the use of generative AI across the business.

As you can see, the global pest control market has demonstrated consistent, resilient growth, expanding from $15.4 billion a decade ago to an estimated $29 billion in 2025. This represents a robust 6.6% compound annual growth rate over the last 10 years. Looking ahead, the market forecast for growth in the pest control industry remains very healthy with a projected 6.2% CAGR through to 2035.

This growth is driven by multiple consistent factors, including increasing urbanization and growing middle classes, which drive demand for professional pest services. Heightened demand for higher hygiene standards across all sectors and as you would expect, climate change are also contributing to a rise in pest activity, all combining to create a sustained need for our services.

In Hygiene & Wellbeing, which accounted for 17% of group revenues in 2025, we are the leaders in an attractive global market, which is expected to grow at around 4% annually through to 2030. This is being driven by an aging global population and their increasing hygiene needs, social and demographic trends such as urbanization and increasing middle classes, so similar to pest control, a heightened focus on hygiene standards post the pandemic and greater environmental and regulatory compliance requirements. So we're operating in 2 very healthy global markets.

Let's now get into the main focus of today's presentation, that's our plan for North America, where we're continuing on our journey to create an undisputed powerhouse in pest control. This is founded on a number of key themes. First, as I've just shown, we operate in an attractive noncyclical growth market with the U.S. accounting for approximately 50% of the world's pest control market and where we are now a leader for commercial, residential and termite services.

Second, we are laser-focused on scale and on density. And this is not just about size. It's a fundamental understanding of how density unlocks significant economies of scale and efficiency opportunities.

Third, we are building power brands like Terminix and other well-known regional brands such as Western Exterminator and Florida Pest Control, giving us strong brand equity in every city in the United States and, in turn, supporting other parts of the business' need for local digital leads, local sales, local pricing and recruitment.

And finally, everything is powered by our proven, repeatable low-cost operating model, centered on being an employer of choice and maintaining an unwavering focus on customer service. Importantly, as you know, we are primarily a contract-based portfolio business with around 75% of Pest Control revenues in the U.S. being under contract.

Now looking back, the integration of Terminix required 2 main thrusts: Firstly, to create a unified enterprise in the U.S.; and secondly, to create a single unified field operation. To date, at an enterprise level, we've successfully established a single leadership structure. We've completed the complex legal merger. We've aligned on our core back-office stack of systems, for example, for people management. We've introduced a single approach to procurement, and we've harmonized our management salary and benefit structure.

Crucially, we've also made investments that will drive future performance. We've launched our first U.S. Pest Innovation Center, which is focused on residential pest control, termite and mosquitoes. We've placed an intense focus on being an employer of choice, making excellent progress in turning around colleague retention, particularly within Terminix. And we've also invested in new data and pricing capabilities. These are all important steps in unlocking the true long-term potential of the combined business.

Now as you know, in 2024, we began pilot migrations to create a single unified field operation. And while these were very successful at delivering the expected cost synergies, and they did not negatively impact on the retention of our field-based colleagues, we did, however, experience a negative impact on our growth. The combination of fewer locations and a complex change agenda saw lower levels of inbound leads and some customers reacting negatively to the change in their technicians, eventually leading to lower customer retention in the migrated branches.

Therefore, we made a decision to pause the full-scale migration throughout last year and to focus on returning the business to growth. This time last year, we outlined a new growth plan to address the root causes of the lead flow and customer retention reductions. And as you know, we saw encouraging signs of progress at the half year and again at Q3. And pleasingly, this has continued into the fourth quarter.

The detailed plan that we set out in 2025 extended across a number of key areas, but was essentially focused on operational execution. For leads, we revised the marketing plan to add greater emphasis on organic leads on more local web content and on beginning to leverage AI optimization for local search. For 2025, we focused on 9 core regional brands alongside the Terminix brand, and a key part of the plan was to roll out our small branches under the satellite program to give us greater customer proximity.

For sales, we moved ownership of field operations back into the branches, making the branch managers fully accountable for their local sales performance. This was coupled with a dedicated door-to-door pilot over the summer in around 25 territories. And as Paul has already highlighted, we also began driving business simplification, including the outsourcing of a number of key functional activities. Whilst this was all underway, our North America team has been working on plans to build on the successes of 2025 and to introduce a much simpler approach to branches, brands, systems and to pay.

So let me provide a brief update. Our people, of course, are our greatest asset and our commitment to being an employer of choice is yielding excellent results. We've seen a 19% improvement in Terminix technician retention since the acquisition. And in 2025, North America colleague retention was up a further 2.8% to 82.2%. This is absolutely foundational to our future success.

On the customer front, we delivered very encouraging improvements in customer satisfaction ratings, and we've continued our focus on the end-to-end customer experience, delivering a 0.4 percentage increase in customer retention now at 80.5%. And this will continue to be an area of maximum focus going forward.

Our marketing focus shifted in 2025 to generate more organic leads through local brands and local content, where we optimize the content of around 1,200 individual web pages. And while only a very small part of the overall impact last year, we've also begun to leverage AI to optimize our local search presence so that when customers need pest control, Terminix is increasingly the AI cited domain to be shown in the search results.

Critically, the successful rollout of our local network of new small branches under the successful satellite program brings us much closer to the neighborhoods where our target customers are living. By the end of last year, we had around 150 of these small branches open. In addition, our successful toe in the water with a dedicated door-to-door sales program in 25 territories last year will be expanded to around 40 territories this year.

This local approach was reinforced with our focus on 9 regional and local brands alongside Terminix, which together drove a turnaround in residential lead flow, which was up 7.1% in the second half against the same period last year.

As you've already heard from Paul, in addition to growth, efficiency was a big theme for 2025 and will continue to be so in 2026. Clearly, improving our marketing, our lead generation and our sales execution only matters if we're efficiently installing and subsequently billing our new customers. We continue to focus on increasing our speed to install rate. And in 2025, we introduced new KPIs to track the percentage of installs within 24 and 48 hours of signing. Overall, performance was good in '25, but this is another area where there is room for further improvement this year.

By improving these operational performance areas, we have, in turn, improved our financial performance. Organic growth for Pest Control Services increased through the year, achieving 2.2% in H2 compared to 0.1% in the first half. This culminated in a strong fourth quarter, delivering organic growth of 2.6%. And importantly, the progress on contract revenue was particularly pleasing, up by 2.4% in Q4, alongside a healthy 5.6% increase in jobs. So an encouraging 2025 and one on which to build in 2026.

Our brand strategy is a core lever for growth and the original plan focused primarily on both the core Terminix and Rentokil brands. The new plan outlined last year saw us add investment and focus on 9 highly recognized regional and local brands, which included the relaunch of their stand-alone websites and which delivered an encouraging increase in our inbound lead flow. And going forward, we will now invest in around 30 brands and support each of them with our best practice digital and marketing approaches. We'll have the Terminix brand as our national flagship, the 9 brands that we supported last year and a further 20 local and regional brands in key cities where their local brand equity is strong.

Next, our focus is on the local branch network. And I've already highlighted the impact of the 2024 pilots and our pivot this time last year to focus on more branches. We've now added 150 small local branches, and the path forward is to continue that rollout, where we will open an additional 70 in 2026, taking our local network of branches to around 800 by the end of this year. This combination of keeping more local brands and their branches and by expanding our network of small branches as part of the satellite program gives us greater customer proximity and a stronger local brand presence.

The most significant recent refinement to our plan involves our approach to data and branch systems harmonization. Our updated approach provides us with the immediate benefits of operational harmonization. We're launching Branch 360, which is a unified reporting and insight solution. It's been designed to provide a single pane of glass for our field leadership and our sales and marketing teams. By integrating data across our current branch infrastructure, this system-agnostic platform delivers consistent KPIs and daily accountability without being dependent on a single fully integrated back-end system. This ensures a standardized management experience across the entire organization regardless of the legacy platforms in place at the local level.

Going forward, every branch manager will utilize a standardized performance interface that displays critical financial, operational, leads and sales metrics. Rather than requiring managers to manually extract and interpret data, Branch 360 will push actionable insights and reports directly to them on a daily basis.

Finally, the team in North America has also developed a new approach for pay plans. The original plan required a branch-by-branch system harmonization to have been implemented before we could change the pay plans. Our new approach is to decouple pay plan implementation from systems harmonization. This year, we will harmonize branch manager pay, and then we'll focus on sales team pay in commercial pest control. This removes complexity and frustration of the different plans, and it's something that we expect to be well received.

Finally, for our largest population, the technicians, we're taking a very pragmatic approach. New colleagues will be onboarded directly onto the new plan from 2027. However, we will give our current colleagues the choice to either opt into the new plan or to be grandfathered in their existing plan with no obligation to change.

To conclude our dive into North America, we've continued to make good progress on employer of choice and on customer service. We've increased residential lead flow, underpinned by the rollout of 150 small local branches and our additional brands. This execution has led to an improved organic growth performance, which was particularly encouraging in the fourth quarter.

Going forward, we're building on this growth platform with a focus on 30 brands and increasing the number of small local branches, which will continue to roll out at pace this year. And we now have a new simpler approach for branch data and systems and for pay plans. There is still a lot of work to be done, but clearly, we are seeing encouraging progress.

So before we conclude and take any questions, a brief look at International and our categories as well as at generative AI, which I know will be of interest to you. As you saw earlier, our International businesses continue to operate in strong and resilient growth markets, with revenue in Pest Control up 5.4% in 2025 and increasing by 4% in Hygiene & Wellbeing. International growth markets delivered a solid financial performance with our revenue up 4.4% and profit up by 4.7%. Here, technology and innovation are our core competitive advantages. Our PestConnect deployment continues to progress well with around 100,000 additional devices installed in 2025, bringing our total to over 600,000. And in the Netherlands, for example, over 50% of our commercial pest control portfolio is now connected through technology.

Our emerging markets continue to perform well, posting revenue growth of 6.2% and profit growth of 10.8%. And here, we are continuing to execute our cities of the future M&A strategy to capitalize on the development of the mega cities, which has resulted in 24 deals over the last 3 years and has secured leading market positions in key growth markets, including India and Indonesia, and this will be an outstanding platform for future long-term growth.

I won't go into this slide in detail, but it's a summary of our overall Pest Control category performance globally and where organic revenue growth increased from 1.8% in the first half to 3.4% in the second. And similarly, in Hygiene & Wellbeing, which increased organic growth from 0.9% in the first half to 3.6% in the second and, as you can see, has delivered consistent revenue growth post pandemic.

So this is my 50th and my last presentation to you. And looking ahead, if there's just one area in particular that I will be very excited to see develop, it's how the business adopts generative AI to enhance its productivity and efficiency as well as providing further service differentiation to our increasingly digital savvy customer base.

Although clearly, it's still early days, we're making good progress. In 2025, we successfully launched Google Gemini AI to all 60,000 plus of our colleagues, and we had over 1 million users in just the first 6 months alone. On the service side, our innovations like PestConnect Optix, which was launched last year, uses AI to identify individual rodents from images sent from the field. And we've created our own in-house AI portal, lovingly named Rat-GPT, where over 100 dedicated AI agents are already in use or in development.

The power of this focus on AI is perhaps best demonstrated by just a couple of brief examples of our Agentic AI solutions currently being piloted. Our prospect prioritization solution is a fully developed system, which uses multiple AI agents to analyze the wide range of leads that we receive. We receive Internet leads. We receive telephone leads, field-based leads, small leads, national account leads, jobs leads, contract leads, leads in high and low-density areas. And what this new agent will do is score each lead based on conversion likelihood, sales value and a range of other metrics, and then will nudge the salesperson to prioritize the best of the leads.

Equally impactful is our on-the-go technician assistant. So if you can imagine a technician walking towards a customer site, this GenAI-powered tool will be speaking to the technician, giving them vital information; information about the site's history, the last infestation details, what the open recommendations are, what the bill payment status is and other important practical information. These are just 2 ways in which we are taking the power of AI and deploying it across the company. Clearly, there are many significant opportunities ahead of us, and we're really only just starting.

So to wrap up, for the final time, I've included our RIGHT WAY scorecard in the appendix for you to read. But in short, as I prepare to hand over the baton to Mike, I personally feel very encouraged by the group's performance in 2025. Clearly, there is still much more to be done, but I'm very pleased to see our progress in North America, and I'm highly optimistic about the long-term prospects for the company where I will be cheering on from the sidelines in the future.

Thank you very much. Paul and I will now be very happy to take your questions, and there will be a brief pause for the operator to line up any questions. Thank you.

[Operator Instructions] And our first question comes from Andy Grobler with BNP Paribas.

Just a couple from me, if I may. Firstly, in America and operationally, as the strategy moves to kind of more branches, more systems, more brands and so forth, how would you balance the cost of doing that against and the visibility that you need from a central perspective. Is there a risk that some of these branches become somewhat independent through that process?

And then secondly, just in terms of cash costs with termite costs going up in '25 and looking to '26, what are your expectations going in the longer term for those -- both for those termite costs and for the one-off integration costs over the next 2, 3, 4 years?

Thanks, Andy. I'll take the first one and hand it to Paul for the second. Look, I don't think so is the answer to your question in terms of risk either on the cost side or indeed on the risk of loss of control of lots and lots of small branches.

If I take the second limb of that first. The Branch 360 single pane of glass, in particular, is going to give us the best visibility that we've ever had at branch level. At the moment, if you're a branch manager, across our suite of branches, you've got to have about 42 different tabs if you want to complete the full suite of KPI metrics and measures.

And going forward, every single branch is going to have the same desktop open with the same KPIs, metrics, measures, dashboards and push reports going to them centrally. So I actually think we're going to have better control, visibility and consistency across our branches than we've ever had. And many of the smaller branches opened under the satellite program are really an extension of the larger local branch. So they're run by the same branch managers. So I don't think there's any risk there at all of loss of control, quite the opposite, I think.

In terms of cost, the smaller branches are relatively cheap, if I can use that word, relatively inexpensive. The costs have been included in our plans, in our budgets, in our forward look on our numbers. So not a significant increase. And the majority of the increased investment on the brand side is actually on organic search. So it's not so much on the paid search, which is quite expensive. It's on organic, supporting their independent websites, web pages, et cetera. So I think the increased cost is modest. It's all factored into our forward-looking numbers. And I think it's going to give us great, great transparency and consistency on the branch level. So Paul?

Look, on the cash side, I think the first thing that we should all remember is this is a very cash-generative business, and we've proven that in 2025. So we brought the leverage down. Cash conversion was at 98%, and we're going to keep pushing really hard on this. The working capital outflows were significantly lower in '25 than they were in 2024. In terms of the sort of one-off areas, the cost of the termite provision, $95 million in 2025 cash cost. We expect it will be about the same in 2026.

Our strategy is to try and close off claims as quickly as we can, whether that's litigated claims or non-litigated claims. It's good to push them through, get them to resolution, and that's our plan so that we can put this behind us as quickly as possible. I can't tell you really exactly what the cash is going to be in '27 and 2028, how that will track down. Expectation is that it will track down because we are dealing with large complex claims now. That's what's put up the provision in the second half. And so we will see it ameliorating over time, but I can't tell you exactly the trajectory on that.

In terms of the costs related to the transformation plan, the cost-out plan, we will continue to see those costs in 2026. I'm really pleased with how the plan has gone in 2025, how quickly we've managed to get cost out, but there's a lot more to do. The returns on this, obviously, though, are very, very good. So where we see an opportunity to take cost out of the business, yes, it will have a onetime cost for redundancies or restructuring, but we'll continue to pursue those. Thanks, Andy.

And just one further thing. Andy, thank you for however many years it's now been, and best of luck with whatever the future brings.

Appreciate it, Andy.

The next question comes from Suhasini Varanasi with Goldman Sachs.

A couple for me, please. I just want to get some more color on the door-to-door pilot that you implemented in 2025. In the places where you implemented it, is it possible to understand the proportion of new sales that came from this new channel versus your traditional or digital channels? That's the first one.

And the second one, I think Business Services has been delivering very strong growth despite the headwinds in vector control services in 4Q. Just wanted to understand the drivers behind this and your expectations for 2026.

Thanks, Suhasini. The door-to-door program, we're pleased with it. It did not make a major contribution to the revenue performance, relatively modest, but we were pleased with it. It's our first toe in the water for door-to-door.

And as I've said before, it's become a big channel. I still think we're learning on the job with this. And I'm on the record of saying in the past, I've always had a slight concern about door-to-door that the customer retention rate on door-to-door isn't as strong as it is where a customer has reached out to find us. And that's proven to be the case. So retention rates have been lower in the door-to-door business, but absolutely in line with what we modeled.

So we put a big tick against the program in 2025 as a success, but as a pilot. And we've included, I'd say, a relatively modest ambition in 2026. We're moving up from 25 territories to about 40 territories. If it continues to go well, and I don't see why it wouldn't, in '26. It will obviously be up to Mike and the team, but I wouldn't be surprised to see that getting potentially materially bigger in '27. So not a big contributor. We don't break it out separately. More to come for in '26.

Let's see how we get on. If it continues to go well, I think that could be a much more material potential opportunity in the future.

Business Services, yes, it's had a really good year actually off a less good year in '24. So you've got a little bit of comp benefit, I would say, '25 on '24. Just a reminder what's in Business Services, half of Business Services or just over half of Business Services is our distribution business, our products distribution business, which is really quite different from everything else. Everything else is a contract portfolio services business. The products business is selling pest products and turf and ornamental products to the industry and to individual consumers.

That is a very lumpy business. It can go in waves, and we've had a very strong finish to the year in that business. But it's a good business. It's a good, well-run, solid business. So I don't see -- I'd be surprised if it grows as strongly in '26 as it did in '25, but I would say it's a good performing business, and it's going nicely. The other businesses are contract portfolio businesses. They are Business Service operations. So we have brand standards, which looks after franchise properties and goes and checks if they are living up to the standards that the franchise owner has set. That's a good business, running very nicely. We've won some big new recent accounts. So I would expect that business to perform pretty well in '26.

We've got our plants business, Ambius, which is a nice business, doesn't grow at the sort of rates that Pest Control does. So that's a slower growth business, and I'd expect that to be similar in '26. So look, I think it's had a great year, slightly flattered by a poor year in '24, but solid businesses, well run, and I don't see why they shouldn't make a decent contribution in '26, but perhaps not at the stellar growth rates we've seen in '25 would be my best view.

And the next question comes from Annelies Vermeulen with Morgan Stanley.

I had two questions, please. So firstly, on the rebranding of the retiring brands, I think you said a lot of those are one-branch businesses. So how many branches or brands does that involve? And what was the criteria for the decision on that segment specifically? Were there certain things that you look for in terms of signing those off?

And then secondly, on the pay plans for the technicians, have you collected feedback on this from your existing technicians? And what was that based on? And if so, do you expect it to meaningfully continue to contribute to improving retention from here? And are there any additional costs associated with having to run 2 pay plans?

Thanks, Annelies. On the rebranding, those who've got a good and long memory will remember that we've got about 80 brands, give or take. So we're going to keep 30. So that means there's 50 -- I unfairly call them 1 horse towns. There are 50 brands. They're almost exclusively single city or single town brands. It doesn't mean to say we don't love them and like them, but it doesn't make economic sense to support those 50 individuals. So they are the 50 smallest. In aggregate, those 50 brands don't even represent 10% of the total revenues.

So they will be retired quietly, slowly, gently over the next couple of years. And the criteria really was just based on scale. It's the ones that have got the least footprint, the smallest brands in small towns and smaller cities. And we tested brand equity as well. So we actually tried to work out how strong are these brands in the market. And the ones where we've got strong brand equity, we've retained and the ones where the brand equity is weak, we've taken a decision that it's better to migrate those to a strong brand equity local brand, whether that's Terminix or it might be one of the other 30.

On the pay plans, no, look, there's not additional costs. There's the absence of some savings, but it's not material. And again, it's all fully costed in the plan. But as I said in the remarks, it's a very pragmatic decision. As I've explained several times over the last 2 or 3 years, we do have quite a distribution on a bell curve of pay for technicians and some have got legacy pay plans that look quite generous compared to the pay plans we've been operating across the business for some time now. And we've just taken a pragmatic decision that we will grandfather those. So if you want to stay on the pay plan that you're on because you like it, because you think it's generous, because you've worked out how to maximize your income, you can stay on it.

So for the pay plan that we're moving to for the new people that joined from '27 onwards, we're essentially taking an existing pay plan that works quite well. We've modified it slightly. So there's absolutely no reason to believe it will be anything other than business as usual and a successful new pay plan. But it does mean we're running more than one pay plan for longer than we originally wanted. So there was some modest cost improvement originally planned to move to a single pay plan. We've foregone that saving. But as I say, relatively modest and included in our forward-looking plans.

Great. Thank you for the engagement, Andy. Best of luck.

Thank you. Cheers. Pleasure. .

And the next question comes from Bill Kirkness with Bernstein Societe Generale Group.

I have two questions, please. Firstly, as organic growth rehabilitates, I assume there's some market share gains happening. And if so, can you just talk about where you see those? Are they quite broad-based? Or are they sort of focused with the smaller peers or larger operators?

And then secondly, you mentioned the weather impact in Jan. I just wonder if that's so material as to disrupt this sort of improving momentum we're seeing in North America pest or whether actually you've got enough self-help to drive ongoing improvements regardless of the adverse weather?

Thanks, Bill. Look, market share in pest control is a notoriously difficult endeavor, there's about 18,000 to 19,000 pest control companies in the United States, and we're operating across hundreds of cities. So in any particular town, any particular city, customers have got massive choice. Typically, they've got a choice of 10 to 20 local players. And so trying to work out when we improve where the share improvement is coming from and vice versa is really, really difficult.

You can only really see in a live dynamic way, whether you're winning or losing share on the big national account piece. And that isn't really what's driving our improvement in organic growth. I'd say it's broad-based, and it's coming essentially from improvement in our operations in residential and termite, and it's across multiple towns and cities. So really difficult to say where we're winning or where we're winning from. But most of it, I would say, is local movement as such.

On the weather, look, the way it works in our North American business, the way the entire industry works in North America is you only get paid and you only recognize revenue once you have done the work. So if you get a weather event, as we saw for a few days in January and you can't get your colleagues out on the road to do their routines. If you're not visiting that customer, then you're not billing that customer and that revenue doesn't happen. But that doesn't mean that revenue has gone. What that means is you work like crazy in the month of February to catch up the visits that you missed in the month of January. And clearly, that's what we will have been doing in February to try and catch up that work as much as possible.

February weather, we thought was going to be a bit wobbly as well. At one point, there was a couple of snow days. But in actual fact, the weather in Feb turned out fine in the end. So we draw attention to it simply because it happened. It was material. It wasn't just one day. It was a few days down the Eastern Seaboard. But we will be working very hard to catch it up through February and into March. So we're not flagging a major issue, but clearly some softness in the month of January.

The next question comes from Nicole Manion with UBS.

One on the price and volume split in North America piece. There are a few mentions in the release about the robust pricing environment. I think that's actually sort of fairly consistent with what you said earlier in the year. But is there anything to call out here in terms of the pricing piece still accelerating or just holding at a similar level?

And then secondly, sorry if I've missed this, I think you can sort of back it out from the numbers on branches that you have given in the release and the presentation. But could you sort of just confirm the total sort of branch base number as of the end of 2025 in North America?

Thanks, Nicole. So in terms of price and volume, we're still very encouraged by what we're seeing on price. We do manage to get inflation plus, which we've seen through the year. And as you've seen, the organic growth has been ticking up quarter by quarter. So we are continuing at a similar level on price and clearly doing better on volume. We're still losing a bit of volume if you look at that number that we printed in the fourth quarter, but it's improving sequentially.

And in terms of the number of branches, well, we said that by the end of this year, we expect to get up to approximately 800, and that's going to include 220 of these sort of small local branches or satellite branches, which we're at 150 on. So the 70 delta is the change from 730-ish at the end of this year to 800-ish at the end of 2026.

Got it. All the best, Andy.

Appreciate it. Cheers, Nicole. Thanks.

And the next question comes from Jane Sparrow with JPMorgan.

Two questions, please. Just on the regional brands and the Terminix brand, it sounds like the improvement in lead generation is largely being driven by the reinvigorated regional brands. Can you perhaps comment on the main Terminix brand and how that is performing?

And then secondly, of those branches where there's a high proportion of people sticking on the old plan, is there any noticeable divergence on KPIs on your new one pay scorecard versus the other branches where more people are on the new plan, please?

Jane. Yes. Look, the Terminix brand is doing well, but you're correct in your deduction that the regional brands must have done really well. They did do really well. Super pleased with the performance of quite a number of the 9 regional brands. And as I said in an earlier answer, a lot of that has come through really focusing on organic search performance, and that's what's given us the encouragement in part to go with the 30 brands. So that's excellent.

But the big, big battleship brand, Terminix, is going well and has performed very nicely. We haven't seen as big percentage increases, but it is performing nicely. And there, we do things like market testing for brand recognition, unaided brand recognition. Can you name a pest control company in the United States? Can you name a pest control company that you would consider using if you had a pest control problem. And we've had a recent survey on that, and the data has come out very, very strong. It's a powerhouse brand, and it's got fantastic brand recognition. And so it's performing well, but we do support Terminix significantly with paid search as well as organic search. And over time, what we'll be looking to do, particularly as we get more into the AI generative search, we'll be looking to move further down the organic search for Terminix as well. So it's performing well, but a big part of the rebound in lead performance has come from those regional brands and the reason why we're supporting the 30 going forward.

In the second question, that's way too early to say what that looks like in terms of branches with a high proportion of people on old pay plan, which is largely heritage Terminix brands and then performance of branches with people on newer pay plans. So it's too early to call that. What we have been doing, and Paul has made this observation a few times, we've been much more into the data than we've been before.

We've got a Head of Data and Data Science. We've got a small data science team, actually not so small these days, analyzing data from branches and really trying to work out, well, where we've got fantastic performing branches versus poor performing branches, what are the factors that are contributing? Is it tenure? Is it pay? Is it geography? Is it commercial versus residential, all of those factors. And we're getting more insight into that, not ready to call it on that, but pay plan might be one element out of about a dozen, but there is no binary read across between old pay plan equals great performance, new pay plan doesn't. That doesn't exist.

But the point of the question, what drives different branch level performances and what are those factors, that's really why we're super excited about the 360 single pane of glass. Mike and the team are going to have much better data over the next few years than we've certainly had for the last 2 or 3 years. But no correlation at this point to call out, Jane.

Okay. All the best for the future apart from the obvious foot front.

Yes. Well, I would say the same to you, Jane. I would say I hope Spurs don't get relegated, but I would be lying if I said that. So good luck, Jane.

[Operator Instructions] And our next question comes from Allen Wells with Jefferies.

Most have been answered, but just two quick ones. Firstly, Paul, just on the $100 million cost saving plan. Obviously, we've had lots of moving parts over the last 12 to 18 months with the change in brand strategy, less closures, more satellites, changing brands, changing remunerations. As we sit here today, could you maybe take a step back and simplify down how we should think about the maiden building blocks of the $100 million and what will be delivered in 2026? That's the first question.

And then maybe just secondly, just following up on the remuneration plan and the allowing of grandfathering, et cetera. Obviously, we're a couple of years into this process now. And what drove the need to change that at this stage? What have you seen? What were staff telling you? And why now? That would be my question.

Thanks, Allen. So in terms of the cost plan, I'll happily take a step back and many of you will remember that we had our integration cost savings back in the day. That got a little bit difficult to track through. So when I came in, I said, take the 2024 cost base, there will still be inflation on that cost base, but we will take $100 million of that. And that's what we are tracking well against. So I've said that we've taken $25 million out of the cost base in 2025. We came sort of at that from a cold start. So most of the savings were manifested in the second half. So if you think about that, that means that on a run rate, it's more than double that, that we're achieving, we are investing back into the business. So whether it's the new capabilities we've talked about in pricing, in data, in many other areas of the business or the additional resources we're making available for marketing and for our additional branch network, that's all being funded. So it's a fuel for growth strategy, and we'll continue to do that. So we will tackle back-office costs, we'll tackle inefficiencies, we'll tackle spans and layers, all the normal opportunities that you would see in a very large-scale business to take cost out. There is significant opportunity. What we are doing is going after the right cost at the right time.

Some we will leave a little because they might be a bit more disruptive to the business. So the focus at the moment has been on that back office cost, cost of finance of accounts payable, et cetera, et cetera, removing roles, offshoring roles, et cetera. But still lots to do, and we will get that $100 million out by the time we're reporting the 2027 results and to get the margin up to 20% plus.

And look, in terms of the pay plans, the whole plan that we're coming up with in terms of how we simplify the go-forward integration is not to cause disruption. It's to settle people down. If there was some anxiety in technicians that perhaps they wouldn't like the new plan as much as their current plan, fine. They can just grandfather on to their current plan. We want people to get focused on doing their jobs well. We are an employer of choice in the industry, and that's the most important thing to make people go out and delight customers every day. And if there's something getting in the way of that, then we've removed that. So yes, that's our thinking.

And the next question comes from James Beard with Deutsche Bank.

I've got two, please. Firstly, you noted the improvement in residential leads in the second half. I was wondering if you could talk through the time that you expect those to convert over and how that improvement in resi leads is splits between contract and jobbing.

And then secondly, going back on to pay plans, again, you said no change to residential sales staff pay plans in '26. When should we expect any sort of change to residential sales staff pay plans, please?

Thanks, James. '27 is the answer to the second question. Sorry, I should have said that. In terms of the time it takes from lead into sale into install is a really good question. I mean, that's a proper pest control question, James, that's really down in the weeds, but it's really, really important. Because if it's residential, if you've got a mouse running around your kitchen, when do you want that solved? You want it solved immediately. So the speed from which we can take a residential lead, and the same is true of termite. You've just discovered termites munching away in your basement or your cellar, you want that sorted quickly.

And what we've seen is why I mentioned the new KPIs, operational KPIs in terms of how quickly are we getting from the lead to the sale to the install and it only becomes revenue when you do the install. We've got to get faster and we've got to get more consistent at that. So we are now getting a good proportion of the leads converted, sold and installed within 24 to 48 hours. And that's the sort of time window we are giving ourselves because if customers are having to wait 3 days for their mouse running around the kitchen to be dealt with or for the worry of the fact that termites are in their house, for many customers, that's too long.

On the commercial side, time is much less critical. Commercial customers, that's fine. You can come next week, you can come next month unless they've got an emergency. So yes, look, it's a really, really key part of the business. And if we look through 2025, what we saw, particularly in the second half was a -- if you go at the top of the funnel and come down, really good improvements in the leads coming into the business. So MQLs, which we track on a daily basis. We look forward to that. At 4:00 every afternoon, we get a daily report on MQLs. Really good progress on SQLs. So what percentage of MQLs turn into sales-qualified leads. So that's gone really, really well. Really good progress on sales.

So the marketing leads are good leads. They're turning into sales leads. The sales colleagues are selling and then it gets less good in terms of how many of those sales actually get converted into revenue. So that's the critical thing that the team are now working on is the next challenge as they work from the top of the funnel and they're working through down into the middle and into the bottom of the funnel. So that's why these KPIs of what percentage of sales are getting turned into activity with the customer is super critical. So good, good progress, and I think that's where Mike will have the team focused this year is improving the conversion of actual sales into -- turning into revenue.

In terms of the split between contract and jobs, I have explained many, many times, we're a portfolio business, portfolio, meaning a book of contract revenues, roughly 75% of the U.S. For group level, we're more about 80-20. But at North America, U.S. pest, it's 75% contract portfolio, 25% jobs. Really good performance on jobs, over 5% organic growth in jobs in the fourth quarter and improving performance on contract portfolio. But it's that contract portfolio that we've got to get into consistent, healthy positive quarter-on-quarter improvement.

We've seen some of that now, but we've got to build on that. It's only when we get that and back to the question we had a while ago about price versus volume. We've got to get that volume growth consistently back into the portfolio. It feels like it's coming. It feels like it's building, but that's where we need to push on in 2026 and into 2027. Only when we get that plus the jobs, will we get the business back into industry levels of growth and beyond. But I'm really confident the team are all over this. But good performance on jobs and an improving performance on contracts as well.

And all the best in the future, Andy.

Appreciate it. Cheers. Thank you.

[Operator Instructions] And our next question comes from James Rose with Barclays.

I've got a few on commercial, please. In the release, this has been flagged as a particular growth area. I wonder can you expand on your growth plans there?

Secondly, is it right that commercial branches will be running on new systems, so slightly different ones to resi and termite branches?

And then finally, how progressed are you in bringing some of the innovations and technology you have in the international and European business into the U.S. And what's the opportunity there?

Thanks, James. Yes, look, good question. Rentokil is the undisputed global leader in commercial pest control. The Terminix acquisition brought with it a big business in residential and termite. But Rentokil, which operates in, what, 88, 89 countries is globally renowned for its commercial pest control business. So we should be punching above our weight in commercial in the United States.

And we're not yet where we need to be in commercial. I think in part because we've had so much focus on getting the resi business right and getting the termite business right. We've recently taken the decision to give independent leadership of the commercial business to one person. We've got an individual who probably knows more about commercial pest control than just about anyone on the planet. He's an export from the United Kingdom. So we've given it dedicated leadership.

In terms of the plan for the business, improving customer retention has to be at the first part of that plan. We still don't have retention where it should be. Customer retention in commercial should be very high typically. It needs to be higher. It is going to be -- the commercial business will all be on PestPac, which is the core system that Rentokil has been using for 3 or 4 years now in the United States. So there won't be any great surprises or drama there. So that should be relatively straightforward.

And you're absolutely right to raise the question of innovation. I was chatting to Mike the other day, and he's been introduced to some of the really cool innovations that we've got in pest control and commercial pest control, in particular. And we've got some really interesting ones coming in the pipeline over the next year or 2. But we have manifestly been weakest at deployment of commercial pest control innovation, in particular, our connected solutions in the United States.

And we're going to fix that. That needs to be a key priority for 2026. We need to see the U.S. really starting to adopt and drive innovation. That's why the individual that's in charge of the business has been chosen in part because he's got great experience with that innovation. So look, I think it's an area we should be punching above our weight given our global position. The systems are relatively straightforward in the innovation agenda. It just needs execution now. We've got the products. We've got the services. We've got the technology. We just have to execute.

And it's easy for me to say, particularly as I'm about to walk out the door and say, over to you, Mike. It is easy to say, but that's what we do around the world. So I'm confident we will do that in the United States.

Super. Thank you very much, James. I'm looking at Heather across the table here. Are we done with the questions?

No more questions. Unbelievable. Thank you all very much. I can't believe that is it. As I said earlier, that was my 50th set of results, and I think quite a good one to sign off on. It has been an immense privilege to be CEO of this company for the last few years. We've gone from a reasonably unstructured conglomerate to a pretty focused world #1 in our chosen industries, which is a pretty cool thing, I feel.

And it's been, as I say, a great privilege to be here, but the success we've made in the last decade or so is absolutely down to the people in the organization. I've always said if we get the colleague strategy right in Rentokil Initial, everything else follows. And I think we have got a wonderful culture in this company. So I do want to pay tribute to the 60-odd thousand colleagues and all the ones that went before them in creating the brilliant company that it is.

And believe it or not, I do want to thank you a lot. It's been great dealing with you for such a long time, doing my best to answer your questions. Will I miss it? I think I probably will a little bit, but I'll get over it. So thank you all for your interest in the company. It's been great getting to know many of you.

And for the next few weeks, I really look forward to handing over to Mike. We're having a great transition. He's having a lot of fun getting to know all the people around the business, and I'm sure he's going to be a great success. And personally, I think the company is set fair for long-term value creation, which is, at the end of the day, what it's all about.

So thank you all for your support of the company, your questions and in many cases, your friendship as well. So thank you all very much indeed.

Good morning, everyone, and welcome to the Rentokil Q3 Trading Update Call. My name is Rita, and I will be coordinating your call today. [Operator Instructions].

I will now hand you over to your host, Andy Ransom, Chief Executive Officer at Rentokil, to begin. So, please go ahead, Andy.

Thank you very much. Good morning, everyone. And before we begin, as always, can I just draw your attention to the usual cautionary statement contained in our trading update this morning as it also applies to this call. I'm going to start off with some brief opening remarks, and then Paul and I will be pleased to take any questions.

We're encouraged by our performance in the third quarter as the overall positive trends that we described at our interim results have continued into the second half of the year and leave us on track to deliver our 2025 results in line with market expectations.

For the 3 months to the 30th of September, group revenue was $1.8 billion, representing year-on-year growth of 4.6%. Organic revenue grew 3.4%, with an improvement in North America to 3.4%, and organic growth across our international businesses of 3.3%.

Looking at our performance in North America in more detail. Pest Control Services organic growth was 1.8%, which compares favorably to the 0.3% seen in the second quarter. North America Business Services organic revenue growth was particularly strong in the third quarter, up 11.9%.

Back in March, we discussed how we were evolving our North America strategy to drive enhanced lead generation and a lower cost per lead. This was a comprehensive overhaul of how we were growing the business, informed by our learnings in 2024. And this revised strategy included raising the bar on improving colleague retention and driving up customer retention, enhancing our digital marketing to realize the benefits from better organic lead generation and higher quality, lower cost paid for leads, and evolved satellite branch strategy to improve customer proximity and local search visibility, and moving our sales operating model back under the branch managers to drive more accountability and visibility of results.

At the half year stage, this plan showed early signs of yielding results with the improvements that we saw in lead flow in June. And it's pleasing to see that this improved performance has continued. Following the lead flow growth in June, we delivered year-on-year growth in lead flow throughout the third quarter as we focused on improving organic leads and on better targeted lower cost paid leads.

We also now reported 11 consecutive quarters of improving colleague retention. And importantly, our customer retention rate has nudged up again from the half year stage to 80.9%, where investment in the customer sales team, in particular, is having an impact. The rollout of satellite branches is on track with 139 in operation, delivering improved lead generation through a stronger local presence together with higher volume, higher rated customer reviews, and we continue to target opening 150 satellite branches this year.

Finally, the door-to-door pilot continued in 25 sales territories, and we're encouraged by the results, and we're planning an expansion of this pilot in 2026.

Standing back, you'll remember that we talked about our core challenge and core opportunity to sustainably improve our North American organic revenue growth, being shifting the contract portfolio into consistent and healthy growth through customer retention, through pricing and through winning new customer contracts. So we are pleased to see that improvement in customer retention. We also continue to deliver on pricing discipline, achieving price increases a little above the rate of inflation. And combined with the higher volume of new leads, we did see an improvement in contract portfolio net gain performance during the quarter.

For a business driving value through a contract portfolio, it's this quarterly sequential improvement which will, over time, translate into stronger top line growth. The focus now is about taking the learnings from these actions and planning for 2026 as we hit Q4, which is a seasonally quieter quarter. We've also noted for Q4 that 2024 benefited from one-off emergency mosquito control work driven by an exceptional hurricane season last year. And this is not currently expected to repeat, impacting Q4 organic growth by about 60 basis points, albeit in dollar terms, it's actually very small in the context of the U.S. business as a whole.

Turning now to our International businesses, which obviously we now report excluding France Workwear with the sale completed at the end of the third quarter. International revenue grew by 4.6% with organic growth of 3.3%. Europe sustained strong growth from the first half into the third quarter, particularly in the Southern European markets of Spain, Portugal and Greece. The U.K. also saw growth improve with continued strong performance in our core Pest Control and Plants businesses, and an improved performance in the lower-growth Property Services business.

Growth in the Pacific region, though, remains below the average for International. Good growth in core Pest Control and Ambius was offset by adverse weather impacts on our rural and track spray businesses. In terms of category performance, Pest Control organic revenue growth for the group was 3.4%, driven by good momentum in North America. Hygiene & Wellbeing grew by 3% organically, an improvement from the 0.9% in the first half as market conditions improved in the Pacific and in the U.K., in Sub-Saharan Africa regions, which returned to growth in the quarter.

On M&A, we completed 3 deals in the quarter, taking the total number of deals completed this year to 21, and representing annualized revenue in the year before acquisition of around $39 million. We were pleased to complete the France Workwear sale with the receipt of $397 million of initial cash proceeds. As a result of ongoing cash generation and the disposal proceeds, net debt at the end of the quarter was $3.9 billion.

Looking forward, our outlook for the remainder of the year remains unchanged. Current trading is in line with our expectations. And we expect to deliver financial results for the full year, in line with market expectations. Beyond 2025, our cost efficiency initiatives remain on track to deliver the $100 million cost reduction by the end of 2026, and to achieve an operating margin in North America above 20% post 2026.

In summary, the third quarter demonstrates a continuation of the positive momentum we began to see in the first half of the year. The International business is performing solidly and they are encouraging, but still early signs that the revised strategy we're implementing to improve sales execution and to evolve our digital marketing capabilities are beginning to have a positive impact in North America.

So with that, let me hand back to the operator to manage the Q&A. Thank you.

[Operator Instructions] First question we have comes from Annelies Vermeulen with Morgan Stanley.

I have 3 questions, please. So firstly, Andy, you mentioned net gain in contracting portfolio, improvement in performance in Q3. Could you talk a little bit about jobbing versus contracting growth? Did you see growth in both elements in the quarter? Or was one stronger than the other?

And then secondly, sort of related, if you could comment on the performance of resi versus commercial versus termites. Again, was there anything or any one area that drove more of an improvement in the quarter relative to another?

And then lastly, just putting it all together, you've spoken about improved lead flow, improved customer retention, the customer saves program, et cetera. So when we think about this improvement in the growth and the step-up versus Q2, could you talk a little bit about your sense of how much of the improvement in the growth is both in new customers and how much of it is the improvement you think in customer saves and customer retention?

Thanks, Annelies. We can probably do an hour just attempting to answer that question, which I promise I won't. But there's a lot in there. I'll try and give you a little bit of color. Look, as you correctly identified, getting the business into positive, healthy, consistent net gain in the portfolio is what we need to see in the business to get the sorts of levels of organic growth that this business is capable of. So it was really pleasing to see that improvement in net gain.

And just to remind colleagues on the line, the business -- most of the questions I'm sure will be about North America, but the business in the U.S. is approximately 75% of the revenues under contract and 25% is jobbing. And so as I said at the half year, I'm not overly concerned about the jobbing side of the business. We can always produce jobs in the business. What we have to do is to get that healthy positive net gain back into the business, and we have to get volume growth back into the business.

Without giving you specific data, jobbing was pretty good in the third quarter. As I said, don't worry too much about jobbing. But we did see -- so jobbing was above the average rate of growth that we've shown you there. But the net gain was the best we've had in the business for a little while, and it was encouraging to see that. What we now need to see is can we continue net gain in the portfolio into the fourth quarter and into the first quarter? Or does it revert to net loss. So that's the key thing that I'm looking for in the business. But the answer is we saw good jobbing, but we also saw an improvement in the portfolio.

The resi, termite, commercial, we actually saw improvements in all of those. Termite had not been great in Q2, from memory, and H1. So termite performed better in the third quarter. But resi was also encouraging, and that's important to see in the business as well. Commercial was steady.

Lead flow, yes, look, I think it's important that we get revenue growth both from our existing customer base. But the critical thing here is we have to find new customers and new customers to add into the contract portfolio base. Typically, with your existing customers, your opportunity is to keep them longer. Your opportunity is to upsell more services to them and your opportunity is to price to them. That's the role that the existing customers play in revenue growth. But it's the new customers that we have to infill into the portfolio. So again, without giving you numbers, we were encouraged in the third quarter by what we saw, but we are a long way from where we need to be.

So if you just do the math quickly, we've got price above the rate of inflation, but we grew 1.8%. So you can do the math yourself. That tells you we've still got a level of volume decline, but the decline was an improved rate of decline, if I'm clear on that. It was better than it has been, but we need to see that move into positive territory. That's why we're really saying this is early days here. We are pleased. We're not satisfied, and we're not complacent because we got a lot to do. But it's the positive momentum we've seen in net gain in the portfolio, which is what we are looking for and what we'll be pushing to see what we can do in the off quarters in the quiet season.

Your next question comes from Will Kirkness with Bernstein Societe Generale Group.

I've got 2 questions, please. Firstly, on pricing and your initiatives there. What's the balance between lowering price to take share? And then any price reductions you're having to put in because of the customer saves initiative versus pushing through price increases? And then secondly, I know it's just a trading statement, but I wondered if you could talk about progress on levers to improve free cash flow.

Thanks, Will. I'll hand those both to Paul, I think.

Thanks, Andy, and thanks, Will. So on pricing, really what we're seeing here, and we talk about pricing being a little better than inflation is better pricing strategy. We have a new pricing lead in North America, and we are using the data that we have in the business better to identify where opportunities are. This isn't just a vanilla approach that you ask everybody to pay a little more. It's more sophisticated where there are pockets of opportunities where we can see different types of customers, different market types, and then deploying different pricing strategies against different customers. So it's sophisticated.

There is more to go with it. We will continue to roll that out. And we're pleased with the performance in these states at the moment. And in terms of price promotion and trying to win volume on the back of reduced pricing, you will always have a component of that business, but that's not what has been driving the percentage there.

In terms of the levers to drive free cash flow, you've heard me speak before about how important I think this is in the business. And there's an opportunity in working capital to drive that. There's also an opportunity in our capital expenditure and to make sure that we are getting the best returns on capital from what's being deployed. So we're pulling all those levers. I quoted the net debt number at the end of the period, and we'll come back obviously at the full year and I'll talk about the cash flow in more detail. We're making progress, and the machine is definitely moving. So look forward to talking more about that in March with the full year results.

We now have Suhasini Varanasi with Goldman Sachs on the line.

I have 3, please. Clearly, you have seen a very good improvement in growth. Can you maybe discuss the expectations into the next quarter? I appreciate that you have a potential drag of 60 bps from the mosquito business. But given the underlying improvement that you saw in the third quarter, is there any reason to believe that the growth will not be at least as good as third quarter in the next one?

And the second one is on 2026. It's just not on financials, but given the success that you have seen on door-to-door, satellite branches, et cetera, can you maybe share some initial thoughts on how you're thinking about investments going into '26 and the plans for funding around that?

And the third one, you previously stated your margin target for more than 20% beyond 2026. Can you maybe just remind us about the building blocks that will get you there, starting with the top line?

Thanks, Suhasini. I'll take the first two and then hand over to Paul for the third one. And Paul, when we get to -- Paul and I are not in the same place. You are a little bit -- sound quality wasn't great. So I don't know whether you can get a bit closer to the mic or there's nothing we can do, but we will press on.

In terms of your first question, growth in the fourth quarter, I mean, I've discovered, to my pain, that making forecast predictions about organic growth in the business is probably not a good use of my time or yours. It's been difficult for us to be precise with this in recent quarters. I'm not going to do that. I'll make a few sort of general observations.

Are we pleased with what we're seeing on lead flow and the improved way that we're going about getting both organic search and also the new approach to pay? Yes, we are. We said that at the half year. We were asked at the half year, are you sure it's not just the weather that you're seeing? Are you sure it's actually having an impact? And we said, look, I can't rule out that weather is part of it, but it is having an impact. We are doing things, we are changing things, and we are seeing positive results from those things. And I expect that to continue.

What does that translate to when we're in the winter, in the off-season, a little bit more challenging to say. You've picked up on the 60 bps drag coming from the mosquito work relating to last year's mega hurricane season. So that is a factor. But look, as I said in answer to Annelies' question, what we are looking for is can we see momentum in the portfolio. And the portfolio, and I'm sure you all get this, if we sell a contract for $1,200, then we get $100 of that income each month for the next 12 months. If we sell a job for $1,200, we get $1,200 of income in the month in which we sell the job. So it's the building of the portfolio that gives you the momentum to take into next year. So there's no reason to assume that the fundamentals that we're seeing in the business change in the fourth quarter. But that said, it is the off-season, we do have that drag. So let us see.

In terms of the door-to-door and the satellite, I mean, the honest answer is we're off to America next week with the Board, and then we've got the American team coming to London 3, 4 weeks after that. That's when we will do the budget in a month's time. And 2 core questions, and there's plenty of other core questions, but 2 core questions that we'll be asking and answering in the budget process is how many more satellites do we want to open.

What we're seeing in the satellites is really encouraging data coming off the satellites that we opened 12 and 9 months ago. So there is a maturity to these satellites. There is a period of optimization of the satellites. You've got to get enough 5-star reviews in the satellite area. So it's a thing that builds. So I think it's very likely that we will take a decision to add more satellites next year. And it could be material. I don't know. I mean it could be a decent number. We simply haven't done the math on that and worked through it. There's a limit to how many satellites and how many cities you believe you can optimize these in. So we'll answer that very much in the next month or so. And so by the time we come back and talk to you with the prelims, we'll have the answer to that question.

Similarly, door-to-door, we deliberately characterize door-to-door through this summer as a pilot. We're pleased we did it in 25 territories. I think it's highly likely that we will do that in more territories next year. And on the door-to-door program, that does not require an investment. That does not require a headline investment, but it is a different model. You're essentially -- the door-to-door model is you're engaging a third party. It's their sales force typically that do the door-to-door selling on your behalf, with your brand, with your service proposition, and you pay them for successful results. That's how it works.

So it's not like you hire another 100 people in the sales force, you do it through a third party. So it's a slightly different impact on the P&L, but it doesn't represent an investment as such, but it might have a different shape in the P&L. But again, we'll have a much clearer idea exactly what plan we're going to put into place. And we have to fix the plan for 2026 by the end of 2025. It's locked and loaded. So by the time we talk to you next, we'll be able to tell you how many sales territories we're going after in '26. I'm sure it will be more than the '25.

Over to you, Paul, on the margins.

Thanks, Andy. And I'll try and speak up and hopefully, you can hear me a little more clearly. So it's the same story, as I talked about at the prelims back in March and the interims in August. But as we look at the business and we look at what we had historically talked about as our integration savings, we will take the 2024 cost base, and after 2026, we will have been able to have taken out $100 million of cost from that cost base. There will, of course, be inflation in the cost base, but that should give everybody a good indicator of where we think the numbers will be on the cost side for 2027.

And then the margin piece, getting to 20%, that is our intention. Obviously, it does require growth in the business through the balance of this year and into next year and in 2027. But that is what we're targeting for. We think targets like that is important, and we can see a clear line of sight to it. Of course, nothing is ever done until it's done, but that is what we are shooting to.

Our next question comes from Oliver Davies with Rothschild & Co.

Just one for me. I guess, would you be able to give us an update on the Terminix integration, how the commercial branches integration has gone this year, and then the plan for 2026 in terms of residential branches and also the changes to technician pay plans?

Thanks, Oliver. Yes, it's a fair question. We haven't said an awful lot. It's a Q3 trading update, so we can't cover everything in detail. How would I describe it? Look, I'm pleased with where we are. We've restarted commercial, as we said we would. We're focusing on the easier end of the spectrum. So we're focusing on commercial-only branches, and we're focusing on those that need to go through a Pest Pack to Pest Pack conversion. So branches that are already on a version of the end design software Pest Pack. So easier to do. We've got those underway. They've started well. No issues to report. So happy with that, and we'll continue with that into next year.

If we look back at the integrations done prior to the pause that we put in at the beginning of the year, what we saw was excellent delivery of the cost savings and the margin improvement, but we saw a less than satisfactory performance in lead flow and in customer retention. So we put together a very detailed action plan to say, okay, what are the things that we need to do differently to make sure that future integrations have both the benefit of the cost out, but also we don't see the impact on lead flow. And as you recall, the satellite strategy was in part in response to that issue, but also on customer retention.

So we're still working through that plan. Some of that goes into systems and system redesign. Some of it goes into process, some of it goes into change management. So we're making, I would say, steady progress on the further integration, but this is a fence that we're not going to rush, and we don't need to rush. It's one that we've got to get right. What we are really focused on, though, Paul has just talked about the overall cost out. Some of that cost will come from branch integration, but we found a lot of other opportunities as well, which is why we're confident we'll get the $100 million, and we'll get to the 20% margin.

But as you said in your question, Oliver, integration involves a lot of stuff, right? It's not just systems integration. It's not just branch and physical location. It's pay plan, it's branding, it's route optimization. There's a lot of other things that go into that. And I'm feeling pretty good on the other parts of integration. So I think the pay plan discussions that I was in 2 weeks ago -- Paul and I were in 2 weeks ago in New York, happy with how they're coming along, and we'll take a decision as to how we roll that out for 2026 quite shortly in the budget process. We've made some good progress on branding.

So look, it's a complex story. We're taking our time. We have restarted. We're satisfied with what we've seen on the restart and the commercial. The finer detail of exactly what it will look like in 2026, et cetera, that's still to be worked through, through the budget process. And again, we'll give an update with the prelims.

The next question comes from James Rose with Barclays.

I've just got one, please. It's on reinvestments, and I appreciate your high-level thoughts there. When would it make sense to increase spend in marketing and sales, for example? And related to that, I mean, the 20% margin target you've got, I assume that assumes turn to volume growth at some point. Is that deliverable, do you think, within the same envelope of marketing spend as it is now? Or does it assume some expansion and some reinvestment over time?

Thanks, James. I mean I'll take that. And Paul, if you violently disagree with my answer or you've got a better one, pile in after me. Look, I think it's an interesting question. Marketing, in particular -- I mean sales and marketing, but marketing in particular, is always a challenge to work out. And I think Paul famously quoted the quote that with marketing spend, half of it is wasted. The problem is you never know which half. And marketing spend is notoriously difficult to work out. Are you getting the returns on investment that you demand? And we're getting much, much better at that. We're getting much better insight on where we're spending our money and what returns we're getting. We're getting better at data. And Paul has mentioned, we've hired a data specialist.

So in terms of can we see where the dollars are going? Can we see what we're getting for the dollars? Can we see what sorts of returns we're getting from different channels, not just digital, but other channels, we are getting better, and that's really, really good. Therefore, implicit in that is if you get to the point that you are rock solid confident that an additional dollar above your plan invested in a particular channel or a particular approach is going to give you a really good return. And you can debate, is it going to give you jobs? Or is it going to give you contracts? Is it going to give you an in-year return? Or is it going to give you a return over the lifetime of the contracts. But if you can see that additional dollar, then you've got choices to make. Would you invest more additional dollars to get more additional growth.

And to be fair, look, we haven't done the budget for next year. And these are the sorts of questions that we will work through in a real environment with the team, let's look at all of the channels and how do we think much like we've just talked about in terms of the satellites and the door-to-door, we'll be working through that.

As we sit here, we don't -- there's not big bold assumptions around the $100 million that Paul has just talked us through and the post-2026 margin. Yes, that does require some growth. It requires growth. Whether it requires volume growth or just total growth, I'm not sure. Frankly, it's sensitive to volume versus total growth. It does require growth, but we're on a trajectory to get us there. So hence, I know there's a degree of -- we'll believe it when we see it, which is fine. But we have a plan to get to the margin. Need some growth, but not stratospheric growth. So I can't give you an answer to could you envisage spending more in marketing? And the answer is, if we can see demonstrable returns from the channels and we're getting much better at this, we absolutely reserve the right to do that. We'll figure that out in the budget, but that shouldn't detract from the ability to deliver the 20% margin target post '26.

We now have Nicole Manion with UBS on the line.

Two questions from me, please. They are follow-ups on some of the previous ones. So sorry if there's some familiar ground. Firstly, on the pay and retention side, just based on your previous answer, Andy, is it fair to say that within the overall colleague retention number for North America, technician retention is also still going up? And are you still in the pilot or discussion phase for pay for most technicians? Or are there some cases where you've already made changes, I guess, with some of the new joiners, perhaps their pay structure maybe reflects more of what it is you're intending to move towards for everyone? Or is that not the case?

And then secondly, I appreciate you've touched quite a bit on satellite branches. Maybe just one more specific question there. You've got obviously a decent sample size now from the past 9 months or so. Can you comment on how you think they're working, maybe especially those that have been live for longer and just essentially whether you think they're meeting what your initial expectations of what you thought they could do were?

Thanks, Nicole. Yes, absolutely. On the first one on colleague retention, yes, we continue to see improvement in colleague retention in North America, in the United States Pest Control, and particularly in the technician side. And I was looking at the data yesterday. I don't know whether I should be celebrating this or not, but North America has now got off the bottom run in our internal ladder of colleague retention. And sorry to say, but the Pacific region is on the bottom. Pacific hasn't got worse. North America has got better. So it's no longer worst in group, and I've been sort of rubbing their noses in it for some time that they're bottom of the pile.

They're no longer bottom of the pile. So that is really, really encouraging. And I've said this many, many times. If you've got a business like ours and people are not turning up to work, either because they're just not turning up to work or you've got horrible churn in the sales force or in the service force, it's a very difficult business to run. This is a necessary but not sufficient condition for growth and success. So I couldn't be happier that the retention rates have improved 11 quarters in a row. And almost, we're not at the group average yet in the States, but we're not so far off it. So yes, it is coming through tax as well.

It's a very good point actually because to be honest, we haven't rolled out the universal pay plans either on sales or service yet. I can't remember the precise figure, Nicole. I think it's about 10% of the total North America team is on the new plan. It's something like that. So it's not the new pay that is driving up retention. So it's a really interesting observation. You're quite right, we have changed pay plans for all new joiners, for example, in sales, and we made some changes to the fixed versus variable, which has had an impact on sales colleagues. But the pay for service colleagues, we've not adjusted that yet. So as per the answer to, I forget whose question it was a little bit earlier, we will be locking our views on that in the budget season to adjust the pay plans.

And it is possible that we might go back to integration. We might go faster on the pay plan in '26. We were originally rolling out the new pay plan branch by branch, integration by integration. It's possible that we go faster on the sales pay plan, and we may go faster on the service pay plan, decision yet to be taken. But really, really pleased on what we're seeing in colleague retention across the board in the U.S.

On the satellites, yes, what we're seeing, just to sort of remind people why we're doing the satellites, in the first 12 months post acquisition, we shut down a lot of sites, and we went to co-location of branches. And in the first 12, 18, more so only 12, 15 months or so, we didn't really see much of an impact on our search performance in the areas where we had shut physical locations. But then we did. There was a lag on it, and then we saw the drop. So in part what we've been doing is putting some of the satellites, many of the satellites in areas where we used to have a physical location, where customers used to look for us.

But rather than just put the satellites exactly where the old branch used to be, we've taken the opportunity to put those satellites in more affluent neighborhoods. It's a fact that our services are easier to sell to wealthier individuals if you're talking about the residential or termite business. And therefore, putting our physical markers, putting our pin locators, putting our small satellite branches in areas which are more affluent makes it more likely that you're going to find the customers or they're going to find us that want to buy our services and are happy to pay our prices for the services that we provide. So that's what we've been doing.

In the first few months of opening a satellite, you don't see an awful lot of activity, because the big search engines don't recognize. If you do a search, pest control near me, for the first few months, maybe the quarter, maybe 2 quarters, it won't be picked up. It has to mature. It has to optimize. And the way you optimize it is you've got to get customer reviews. So what we do is we allocate the customers from the mother branch, from the closest physical large branch. We allocate the logical customers that are in the vicinity of the satellite, say to the customer, your new branch is 123 High Street. It used to be somewhere else.

And then we ask our technicians -- when they have happy customer experiences, we ask the customers, are you happy to give us a review? And once you've got about 10 reviews, the big search engines will pick you up. So when you do search for pest control near me, after a while, you will start getting hits on their web pages. And so it does take a bit of time to mature. We thought it would and it has.

So the lead flow that we're getting through on the satellite branches that we opened a year ago and 9 months ago is actually looking really good now. That gives us the confidence to say, well, the ones that we opened 6 months ago and 3 months ago will continue to mature and continue to improve. And the ones that we opened in Q4 this year, and I'm sure into Q1 and Q2 next year will start delivering fruit the back end of next year and into 2027. So that's how they work. They do work. They are working. They work well. But it's just one strand of an overall multifaceted term marketing, sales and operational strategy.

And the work that's going in from the team into organic search generally is actually way more important than just the satellites. The changes that the big search engines have made through AI and AI-generated search, that's having a profound impact. I'm sure you'll notice it as you search now and you get AI mode and you get all of the other changes that the answer to the question you search on the Internet is now an AI-generated answer. So we have to optimize the content on our web pages to be content that is responsive to the same narrative that the AI engine is going to give you.

So the stuff that you put on your web pages needs to change. And we've made really good improvements there and significant investment in bolstering our organic search. So for me, satellites are important. It addresses a particular issue that we caused ourselves, I suppose. But the broader search and organic search program is actually more significant, more important.

The next question on the phone line comes from Allen Wells of Jefferies.

Andy, just 2 quick ones from me. Apologies if I missed this in the comments earlier, but could you just maybe comment a little bit about the shape of both the North American organic growth and the lead generation as you move through the quarter? I guess I'm kind of looking for like exit rates for Q3. You helpfully gave some lead generation numbers, which I think were up 6 and a bit percent in June. So just any comments on how that trend has carried on sequentially through the quarter?

And then the second question, do we need to be mindful of anything on the higher growth in business services in U.S. Pest, which is obviously slightly lower margin. and the nonrepeat of the Vector Control, which again, I'm not sure if that's also slightly higher margin. Anything we just need to be mindful of on the second half margins in North America from the impact from that? Or is it too small and won't really be noticeable?

Yes. Thanks, Allen. Yes, look, you'll understand we're not going to be drawn into a sort of month-by-month blow by blow. We showed the progression in the interims really for one main reason, it was showing -- it wasn't so much the 6.6% improvement in June, although that was clearly a high point note that everyone picked up on, obviously. What the real importance of that was to show that we were moving from a dark place of negative year-on-year lead flow all the way through the first quarter, and it improved and it improved and it improved. And we finally broke through the line, if you like, in June into positive territory.

So it wasn't so much focused on the 6.6%. It was focused on the fact that we've moved out of negative into positive territory. We were positive in each month throughout the third quarter. I'm not going to give you a real commentary. August wasn't as good as September. August had 1 fewer trading day. September had one more trading day, pick the bones out of that. We were pleased -- let me just put it that way, we were pleased with the search performance in each month across the month.

And of course, the thing that you've got to get also, which is difficult if you're not seeing the data. Paul and I see the data every single day without exception. We see the daily data on lead flow across the United States business. Because to a degree, it depends, well, how much money did you spend in August of last year or September of last year on paid search? And what was the weather like on August 15 last year, why search volume up 10%, and on the 12th, it's down 3%. So it's very, I would say, volatile. It moves about a lot based on other factors.

So I could tell you, but I wouldn't really tell you much. I think the important point is the stuff that we are doing is having an effect. And that's really the message we want to get across. This is not coincidental. This is not a weather phenomenon. So we are satisfied, we're pleased with what we're seeing on lead flow. But again, don't forget, it is now the off-season. We're into winter. And so it depends what the winter looks like.

High-growth business services, I mean, you're absolutely right to call out Business Services. Roughly half of Business Services is our Products Distribution business. Products Distribution business is a 6%, 7% margin business. give or take, something like that. And it had a really powerful third quarter. And I don't think you can assume, and please don't assume that the levels of organic growth that we've seen in the Business Services business in the third quarter will continue at those levels. I think business is going well, performing nicely. But one of my old bosses used to say, in business, it's pretty rare to throw six sixes, by which he means it's quite unusual for everything to go right in a particular period.

Well, in the third quarter, I think we threw six sixes in Business Services. I think everything -- all of the businesses there, we've got Distribution, we've got our Lake Management, we've got our Brand Standards business, we've got our Vector Control business, and we've got our Ambius Plants business. They all performed well in the third quarter. So I don't think you can read that level of growth, please don't into the fourth quarter. And you're right to call out that the margins on Distribution and some of the margins on Vector are lower than the average for North America. But that's all wrapped up in the comments we've made, which is, look, we expect to deliver full year 2025 in line with market expectations, and that's where we are.

Our final question from the phone lines comes from Carl Raynsford with Berenberg.

Just 2 clarification questions from me, please. Firstly, apologies if this is basic, but I just wanted to understand your commentary around being a little better. And so first is the improvement, was that across North America? Or were you just referring to the contracted portfolio? And second, in my head, net gain suggests that you've won more than you've lost basically, which suggests positive volume, but as you say, the math suggests negative volume. So I'm probably misunderstanding something there. So it would be helpful if you were able to clarify that calculation, if you could please.

And the second question -- I'm sorry, this is the second question. I'll do both at once, if that's okay. But just a clarification on the North American growth. You note jobbing was above 1.8% reported, so that implies contracts had to be below that. But you also say there's been sequential growth. So would you be able to clarify the Q1 and Q2 numbers for contracted growth, so that I can contextualize that comment, please? From what I'm aware of, you only gave sort of minus 0.2% for H1. Any information on both of that would be very helpful.

Sure, Carl. I'll try and I'll probably fail to answer your Q1, Q2 question, just as a spoiler. Look, net gain, so let me try and break it down for you very quickly. Again, we're only talking here all the questions this morning and I get it have been about North America or United States Pest Control. Fine. That's what we're talking about. That's the kernel of what we're addressing here. Roughly 75% of the revenues, revenues are not sales, revenues come from the contract portfolio. So on January 1, we start with a book of business under contract. And if nothing else changes, that's the revenue that we will generate from that book of business during the calendar year.

But things do change. So to get net gain or net loss, there are basically 3 things that happen in your portfolio. Number one is customer retention. So if you keep more customers throughout the year by value as opposed to by volume. But if you keep more customers by value than you did in the prior year, you're going to improve the value of the contract base by that. So going from 80% to close to 81% retention, but with an ambition over the next few years to get to 85% is one of the ways in which we drive up the revenue coming from the portfolio. So the first thing you can do to improve your net gain, your contract portfolio, the revenue that's under contract is to improve your customer retention.

The second thing you can do is to give price increases, which we do on an annual basis, typically on the anniversary of the contract, to those customers under contract. So those are 2 pluses, if you like. If you can get retention up, that's a plus. If it goes down, that's a minus.

Pricing, if you put price increases up, that's a plus. If you give price discounts to hold on to a contract, to an earlier question, that's a negative. Then the third leg of the stool is new business, and that's the critical bit, and that's where lead flow comes into. So that is about selling contracts. And that's why the difference between net gain and revenue is quite an important one.

I know we're in danger of entering master class level pest control now. But the example I gave earlier, Carl, around if I sell a contract for $1,200 and I sell that in July, I'll get 6 x $100 revenue in the second half of the year, and then I'll get 6 x $100 revenue in the first half of the following year. But if I sell a job, I'll get $1,200, if that's the equivalent example.

So net gain is how are we performing in the period? Is the body of business under contracts larger than it was the last time we looked at it. And for me, I've been running the business a long time, it's the key leading indicator that tells you whether you've got momentum in the business, because if you can keep your retention moving up, if you can keep your price levels healthy, and then you can add more business than you lose, you've got to outsell your termination. So we measure the percentage of new contract sales as a percentage of the portfolio is a critical measure for us. If you outsell your terms, then you'll get the business into net gain. And if you get the business into net gain, that sets you up for next year, provided you can keep the momentum going in the portfolio.

So I know it's a bit of -- we always talk about the concept, it's a complex concept. It's not the same as revenue. Revenue is what the portfolio generates in a particular period. So all of the comments that I gave on that were about the U.S. Pest Control, to be honest. We still do have -- on a volume basis, we've still got a leak in the bucket. So price increases above the rate of inflation, organic growth of 1.8%. By definition, we've got a slight -- well, we've got a leak in the bucket in terms of overall revenue performance coming from pest control in the United States. But it's improving.

And that's what I said earlier, we've got to get -- if we can get net gain, net gain always gets worse in Q4 and Q1, because it's the off-season. It's the quiet season. If we can improve our net gain performance in Q4 and Q1, that sets us up really well for an improved performance in Q2 and Q3 next year. But we've got to do it first. So without really unpacking the numbers into another level of detail, I can't really do more than that in this morning's call, but happy to try and answer questions offline.

Just the other on the North American -- I know you said you can't answer Q1, Q2. So was the comment you're making really against the H1 number, the contracted side?

Yes. Because without going quarter-by-quarter and deep into the portfolio and so on. And I don't have the numbers in my head, I'm honest. But we saw improvement in net gain, and the second quarter was better than the first. The third quarter was better than the second and -- sorry, go on.

I'm referring to the sort of jobbing versus contracted organic growth, 1.8%. So I'm just saying you're basically implying contracted was worse at 1.8%. But you mentioned that was sort of an acceleration, the sequential growth from Q2. So that was sort of the second question just around that split really. Are you getting -- the Q2 number presumably was lower than sort of what I thought, to be honest, in that case.

I can. I don't know what you thought, so I can't answer that. But I probably have done as much damage to your question as I possibly can, honestly.

No, I'll take it offline with you. I appreciate that.

Did we have any questions online that we need to pick up?

We have a question from the webcast from James. Following the big increase in the legacy termite provision in the first half was in large part driven by a step-up in cost per claim, can you provide any insight into trends in cost per claim during Q3?

I'm going to keep that one really simple. No. We tend to do balance sheet items at the half year, and we'll pick that up with the prelims.

Were there any other questions online?

No, Andy. We're all out. We're all good online.

In that case, I would like to conclude the -- no more questions on the phone line. So I'd like to close the question-and-answer session here and hand it back to Andy for some final closing comments.

My final closing comments. Thank you. Thank you very much for attending today. Thank you for your questions. Thank you for your interest in the company, as always. And we look forward to hopefully making progress in the fourth quarter and updating you on that with the prelims early next year. Thanks very much, everyone.

Good morning, ladies and gentlemen, and thank you all for joining us today online. In a few moments, Paul will provide you with details of our financial and regional performance for the 6 months ended 30th of June. I'll then come back to provide a brief update on our markets and businesses before we focus on North America and then take any questions. [Operator Instructions]

So let me just start with a high-level summary of the first half. Our performance was in line with expectations with revenues at a group level increasing by 3.1% to $3.36 billion and with organic growth of 1.6%. Our International region delivered organic growth of 2.7%. And in North America, organic growth was 1.1%, increasing from 0.7% in the first quarter to 1.4% in the second. We delivered group adjusted PBT of $418 million and a group operating margin of 15.2%, 120 basis points lower than in the same period last year, reflecting the anticipated year-on-year reduction in North America. Cash flow conversion was healthy and the divestment of our French workwear operations remains on track for around the end of Q3. Now Paul will cover all of this in more detail shortly.

Moving on to North America. On the right-hand side, at the time of our prelims in March, we outlined a number of priorities for this year aimed at improving our inbound lead flow. In particular, we've adjusted our marketing tactics to put greater emphasis on nonpaid or organic lead generation. And in the second quarter, we began to use a fuller suite of marketing tactics. We continued to enhance our customer proximity and local visibility, for example, to get improved results from local searches like "pest control near me" through the opening of our new satellite branches. And we've now increased the number of these low-cost satellites from 36 at the end of the first quarter to now 100 at the end of Q2. Our brand awareness has also continued to improve, up by 3 percentage points.

And importantly, as you can see, we delivered inbound lead growth in our residential and termite business of 6.6% in June, returning to year-on-year lead growth for the first time this year. On the door-to-door sales pilot, while still early days, this is also off to an encouraging start, and I'll provide more details later.

In the first half, we also continued to improve our data analytics and insights, and we now have a more granular branch level assessment, which we're using to support our plan for targeted growth initiatives and for future integration planning. Our focus for the second half is, therefore, to continue to deliver our RIGHT WAY 2 Growth plan, focusing on customer retention, on pricing, on trusted adviser leads, on broader marketing execution and branding and on the door-to-door pilot, all with the aim of continuing to build out lead flow and in particular, to focus on the key area of growing our customer contract portfolio through improved contract sales, customer retention and pricing.

We'll focus on further optimizing our satellite branches and rolling out our new locations towards the 150 mark by the year-end. And we plan to resume integration in the second half with our commercial branches as well as deliver a detailed program of work to make further process system and execution improvements ahead of the 2026 planned branch migrations. Importantly, while our refined time lines may mean not all branches are fully integrated by the end of next year, our expectations of the $100 million cost reduction opportunity from the integration and attaining an operating margin in North America above 20% post 2026 remain unchanged.

So with that, now let me hand over to Paul.

Thank you, Andy, and good morning, everyone. I'll run through the key financials of the first half, then move through our regional performance, then explain how our improving data analytics are helping shape our plans to improve our North American performance. Unless I state otherwise, all numbers are on a continuing operations basis, i.e., excluding our France Workwear business, which we announced the sale of at the end of May. I will talk more about that later. Any comparative performance will be on a constant currency basis. With the move to dollar reporting, we've also taken the opportunity to simplify and update our constant currency reporting to a more conventional basis.

Overall, we've delivered a solid performance, in line with our expectations for the first half. Revenue was up 3.1% to $3.364 billion with organic revenue up 1.6%. North America was up 2% or 1.1% on an organic basis as pricing more than offset reduced volumes.

Adjusted operating profit was $511 million, a decrease of 4.5% with the decline in North America more than offsetting higher profits in International. Our group adjusted operating margin was 15.2% I'm pleased with our free cash flow performance with cash conversion at 93%, ahead of our 80% guidance. This was driven principally by improved working capital performance, and this remains an absolute priority.

Net debt to adjusted EBITDA stands at 2.8x, up slightly since the year-end, reflecting approximately $175 million of adverse foreign exchange impact on period-end net debt. We've maintained our half 1 dividend per share at $0.0415, payable on the 22nd of September to shareholders on the register on the 15th of August.

Looking now at our performance in North America, where we saw revenue up 2.0% to $2.106 billion. Organic revenue grew 1.1% with quarter 2 at 1.4%, up from quarter 1, which was 0.7%. Adjusted operating profit was $356 million, down 7.3%, bringing the adjusted operating margin to 16.9%. This principally reflects cost inflation and lower volumes despite continued good price realization.

It was pleasing to see colleague retention increased 1.4 percentage points to 80.7% and customer retention also improved to 80.5%. And as Andy will talk about more, lead flow returned to growth in June for the first time this year, up 6.6%. We acquired 8 businesses with combined revenues of approximately $18 million in the year prior to purchase. One of our team's priorities has been to improve our data analysis so we can get to the heart of our recent performance issues, and we're starting to see the benefit of the work we've been doing.

We now have better data on a branch-by-branch basis, which will allow us to drive improvement in underperforming branches and also refine our integration activities as we move forward. As we analyze our branches, the sales performance differentials are characterized by wide variations in lead flow and customer retention. Pricing performance, however, is very consistent across the portfolio. We can see clearly that where our lead generation and customer retention processes are working well, we're delivering strong and sustained organic growth, well ahead of market growth.

In terms of driving lead growth, we are refocusing our marketing budgets towards organic lead generation. We now have 100 satellite branches in operation, up from 32 at quarter 1, and we expect an additional 50 by year-end. And our summer door-to-door sales pilot is showing encouraging early progress.

In terms of integration, in the second half, we will restart with stand-alone mainly commercial branches and complete a detailed program of work to make process system and execution improvements in previously migrated branches, where lead flow and customer retention are not yet at their required levels. Our expectations of the circa $100 million cost reduction opportunity from the integration and attaining an operating margin in North America above 20% post 2026 remain unchanged, but our refined time lines may mean not all branches are fully integrated by that time.

Moving to our International business, which encompasses all regions outside North America. International revenue was $1.251 billion, a 5.1% increase year-on-year. Organic revenue grew by 2.7%. Pest Control organic growth was strong at 3.8%, while Hygiene & Wellbeing grew slightly more steady at 1.1% as the U.K. and Pacific businesses saw more challenging market conditions. We saw our strongest performance in Europe and Asia, MENAT, driven by pricing and growth in Southern Europe, India and Indonesia. In the U.K., a strong core Pest Control performance was negatively impacted by U.K. property services, which was impacted by the slowdown of the U.K. commercial property market and tightening local authority spending. Adjusted operating profit for International increased by 4.6% to $242 million.

The adjusted operating margin remained broadly unchanged at 19.3%, reflecting strong pass-through pricing. Europe and Asia, MENAT delivered solid profit growth, aided by pricing and scale in India and Indonesia. The U.K. and Sub-Saharan Africa saw strong margins despite a challenging macro backdrop. We achieved excellent colleague retention rates of 90.4% and customer retention remained strong at 85.2%. We continued our bolt-on M&A program, acquiring 10 businesses with total annualized revenues of approximately $17 million.

At the end of May, we announced an agreement with H.I.G. Capital for the sale of our France Workwear business. Strategically, it reinforces our focus on our core Pest Control and Hygiene & Wellbeing sectors. And financially, it increases our cash generation going forward. The transaction values French Workwear at a gross enterprise value of approximately EUR 410 million, including an earn-out mechanism of up to EUR 30 million linked to the business' performance in 2026.

Total net cash proceeds are expected to be approximately EUR 370 million and completion of the sale is expected to occur late in quarter 3 or early in quarter 4. From an accounting perspective, the business has been classified as an asset for sale since the 31st of May 2025. And as you will see, it is reported as a discontinued operation in our half year '25 financials. Assets held for sale are not depreciated. So this will reduce depreciation by approximately $50 million to $60 million this year within discontinued operations, depending on when the transaction completes and by approximately $80 million annually. In the half year, there was around an $8 million depreciation benefit. The sale will add approximately 100 basis points to our cash conversion ratio and reduce capital expenditure by approximately $100 million on an annual basis.

Turning now to group cash flow. It was a strong performance with free cash flow conversion of 93%, ahead of our guidance of 80%. The main driver was the working capital performance with an improvement of $64 million year-on-year as we focus on managing creditors, debtors and inventory levels more tightly. The movement on provisions of $40 million predominantly reflects the increase in the provision for termite damages claims, which I will cover in a moment.

Cash costs in relation to claims in the half year were similar to last year. Net capital expenditure was $88 million for the period, in line with last year. Lease payments amounted to $90 million, also very similar to last year. On the financing side, cash interest payments of $106 million decreased by $25 million compared to the previous year. This was driven by a change in the timing of some of our bond interest payments. Cash tax payments were $43 million, an increase of $7 million year-on-year.

M&A remains an important part of our growth strategy and cash spent on current and prior year acquisitions totaled $83 million. Dividend payments amounted to $198 million. The cash impact of one-off and adjusting items was $48 million compared to $52 million in the first half of last year, largely attributable to Terminix integration costs. We issued 2 inaugural dollar bonds in April, raising $1.25 billion, significantly extending the tenure of our debt. We used $700 million of the proceeds to repay a corporate bond due to expire later this year. The significant movement in the euro to dollar exchange rate between the year-end and this period end added approximately $175 million to our net debt based on the rate at the end of June.

As I mentioned earlier, maximizing our cash and cost efficiency is very much a priority for the team. We have made good progress in working capital through focusing on disciplined execution, and we will continue to focus on this. Full year working capital outflow expectations continue to be in line with our previous guidance of a $75 million to $85 million outflow, albeit we will aspire to do better than this. The sale of France Workwear will mean around $100 million less annual CapEx going forward. M&A remains a key growth enabler, and we now expect to invest a total of $200 million this year. We continue to look to improve efficiency in our cost base. We have multiple programs underway, including headcount reductions, procurement initiatives and some offshoring. We are continuing to see significantly fewer filed termite warranty claims.

Our open termite claims have also reduced by 23% compared to half 1 2024. However, in the first half of this year, we saw an increase in the number of complex litigated claims outside of the Mobile, Alabama area and a 9% increase in the cost per termite warranty claim in the period as our proactive strategy to solve customer problems and reduce litigation continues and as we resolve several large legacy claims. As a result, the provision in relation to such claims has increased from $236 million at the period end to $276 million at half 1 2025. I won't go through this slide in detail, but to note, this is on a continuing operations basis for the full year compared to our previous guidance, which was for the whole group.

In summary, we've delivered an in-line performance in the first half with a strong conversion of profit into cash. We continue to improve our data analytics, which will help us drive North American performance going forward. It's early days, but we are seeing encouraging recent lead flow from our growth initiatives, which Andy will talk more about shortly. We continue to make progress on our cost efficiency programs and in optimizing our working capital, while the sale of France Workwear makes us a more focused cash-generative business. As we look at the remainder of the year, we expect to perform in line with market expectations.

Thank you. I'll now hand you back to Andy.

Thank you, Paul. Over the next few minutes, I'm going to cover off a few important topics. First, I'm going to remind everyone what excellent markets we're in and take a look at their long-term growth rates. After that, I'll show that we've got an excellent opportunity in our International region, which now accounts for 37% of the group before shining a light on North America. Whilst around 80% of our North American business is our pest business, the other 20%, which rarely gets a mention, is our excellent business services companies, and they're all performing well. That will then leave us with our U.S. pest business, which is 25% made up of one-off jobs, but 75% of which is our contract portfolio. Getting the contract portfolio into consistent and healthy growth is our core challenge and our core opportunity.

So I'll spend a fair amount of time discussing the 3 areas that we have to win in to achieve that contract portfolio growth and those being customer retention, pricing and vitally important, winning new customer contracts. So let's get underway, and I'll start with Pest Control, which accounted for 83% of group revenues in the first half. Over the past decade, the global pest control industry is estimated to have virtually doubled from $14.4 billion in 2014 to $27.3 billion in 2024, a CAGR of 6.6%. And in North America, market growth has broadly matched that of the International region at around 6.5%.

This global growth was driven by key factors such as increased regulation and legislation, urbanization, the rise of the middle classes, consumer demand for higher hygiene standards and the impacts of climate change. Now encouragingly, the forecast growth for the next 10 years remains very healthy with the latest independent market forecast projecting market growth levels will broadly double again, in line with the past 10 years at a CAGR of around 6.2%. We, therefore, expect the value of this incredible global industry to reach approximately $50 billion by around 2034.

In Hygiene & Wellbeing, which accounted for 17% of group revenue in the first half, we hold a global leadership position in core hygiene services across 70 markets. We offer industry-leading products in hand, air and in-cubicle hygiene, and we're increasing our focus on washroom dignity and services for an aging population. As well as shared operational and functional overheads, this business shares operational efficiency opportunities with pest control, deploying the same technologies, aggregating its procurement purchases and often cross-selling services across the combined customer base. With future market growth expected at around 4%, the business is also well placed for long-term growth above expected GDP levels. So we're operating in 2 very healthy global markets.

So now let's drill down a level and look at our reporting regions, and I'm going to start with international. The International region accounted for 37% of our group revenues in the first half, and it comprises high-quality businesses in largely noncyclical markets across 87 countries in Europe, the United Kingdom, Asia, MENAT, Latin America and the Pacific. And we're a leader in pest control in key future growth markets such as India, China and Indonesia.

Pest Control accounts for around 60% of the revenues in International. This is a region with strong core markets. And here, we're focused on driving growth through global accounts through our industry-leading innovations, the rollout of our connected technologies and through our excellent M&A program.

Our second reporting region is, of course, North America, which delivered 63% of our group revenues. As you can see on the right-hand side, 81% of our $2.1 billion of revenue in the first half came from Pest Control and 19% from business service operations.

And North America region has strong fundamentals: the continued improvement in colleague retention, up by a further 2.9 percentage points; good progress on customer satisfaction with customer retention now at 80.3%, ahead of the 79.3% for the same period last year; and a combination of powerful national, regional and specialist brands.

So let's drop down a level again, and I'll start with Business Services. These are strong, well-run businesses that are operated independently of our U.S. Pest Control business, and they each have deep expertise in their respective specialist areas. Ambius for interior planting, VDCI for public sector mosquito vector control, SOLitude for lake management, Steritech for food hygiene and brand standards auditing, Target which is our pest control and turf and ornamental products distribution business and our Canadian pest control operations.

And in the first half, these businesses generated revenues of around $400 million with an organic growth rate of 5.8%. So a very encouraging first half in Business Services. These are excellent businesses. They're operating in strong markets, and they've got good future growth prospects, as noted on the slide.

So turning now to U.S. Pest Control. And let me start with onetime jobbing revenues. In our U.S. Pest Control business, roughly 1/4 of our revenues come from onetime jobs. Now these could be something straightforward, such as a residential wasp nest job for a new residential customer or it could be something like a significant bird proofing job for an existing commercial customer. Onetime jobs are typically easier to sell than contracts. And in the first half, our jobbing revenues were up 3.6%, 1% being organic growth. Over 40% of our jobbing revenues typically come from upselling services to existing contracted customers, which is why our trusted adviser technician lead program is so important with the other 60% of jobbing revenues coming from new customers who do not currently have a contract with us yet.

Looking at our trusted adviser technician lead program, we've driven technician participation rates from around 40% in 2023 to around 50% in 2024. And now as of the end of June, rates have reached 64% with all 5 U.S. markets now operating at or over the 60% level. On Internet leads, we've refocused our marketing spend, and we've supported SEO with new digital content, improved local web pages as well as with direct mail and e-mail campaigns to new and existing customers.

Whilst on job pricing, our focus is on improving the basics in areas such as new product launches as we introduced innovations for both upselling to existing customers and targeting new customers, rate card harmonization across our brands and readiness to support seasonal promotions and campaigns. Whilst we are far from satisfied with our level of job sales so far this year, we believe we have a solid plan focused on better leads from digital marketing and from our trusted adviser program, together with the better use of our pricing lever.

So let's drill down again and focus on what I see as our main challenge, and that is growing our contract portfolio. The benefits of our subscription style contract business are significant with the certainty of having around 75% of revenues on contract, unlike many other business models, which start with 0 revenue on the 1st of January. We can also apply our annual price increases, and we can plan our operational routes more effectively. In the first half, we delivered contract revenue of around $1.3 billion. But as you can see, this declined very slightly year-on-year by 0.2% if we remove acquisitions. So clearly, contract revenue is our biggest challenge, but it's also our biggest opportunity.

And our focus here is on 3 key drivers: on customer retention, on annual pricing and on new contract sales. On customer retention, our Drive to 85 program is designed to transform our customer retention capability over time. And in the first half, we saw an overall improvement in retention of 100 basis points, now sitting at 80.3%. Whilst we're pleased to see progress made, our overall ambition for customer retention over time is to drive it up towards 85%, closer to the average for the rest of the group.

In terms of the Drive to 85 program, our team is focused on getting the basics right, on service adherence, on speed of sale to install, on customer communications and on billing and scheduling. We've invested in our customer saves team, and this has been instrumental in our efforts with the team improving its performance now for 6 months in a row and with saves up from 20% in January to 26% in June. And we're also developing a predictive churn model, which will assign a customer risk score to each customer and so enable us to take a more proactive approach to potential future churn. So in summary, we are making progress in customer retention. We've got a clear ambition, and we've got a clear plan to achieve it over time.

Turning now to the second leg of achieving contract portfolio growth, that of pricing. And here, we're making good progress with strong pricing discipline to both new and existing customers, achieving price increases in the first half above the rate of inflation. However, we've got an opportunity to go further, and we've added leadership with our first Vice President of Pricing, who is now assembling a small team dedicated to a smarter and more sophisticated approach to pricing. Having identified that price increases are stickier with customers who pay us by bank autopay, we've now successfully tested new autopay adoption tactics, increasing penetration from around 52% to 60%.

The third leg of achieving contract portfolio growth is to win more new contract customers. And to do this, as I've explained previously, we need to improve our inbound lead generation through a broader range of marketing and brand initiatives.

Historically, we've been overly reliant on paid for digital channels, which whilst effective in many respects, has limited our overall lead generation potential and has incurred higher associated cost per lead. Our renewed focus is on a broader range of full funnel lead growth activities. In the second quarter, spend has been refocused on awareness channels like Meta and YouTube. This shift is designed to maximize the benefits of our marketing spend and drive an increased volume of inbound new customer leads. We've also launched a comprehensive program to bolster our local online presence. In the first half, we've added around 200 local web pages of new content, significantly increasing our local share of voice in key markets. Overall, we've implemented 20 initiatives to target a broader channel mix to support both national and regional brands and ultimately to drive increased lead flow.

We also recognized a historic underinvestment in building our brands, which is critical for long-term sustainable growth. This shift is already yielding positive results with our June brand health report showing Terminix's top-of-mind awareness up 4% to 32% and a total unaided awareness up 3% to 54%.

Now let's turn to the rollout of our satellite branches. This is a key component of our local market penetration strategy and is proving to be an important part of our paid and organic search strategy. We launched the first wave of pilot satellite branches late last year and in the first quarter of this year. Obviously, it takes time for these new branches to be effective. I'm pleased to report that this first 25% of these satellite branches are fully optimized, are generating good lead flow and importantly, they're also profitable. By the end of June, we had 100 satellite branches operational, and we're making good progress towards having around 150 satellite branch locations by year-end. The performance of these locations continues to increase as they mature and build their number of local 5-star reviews. So branches that have been live for 90 days or more significantly outperform new locations, averaging approximately 3x more leads per month and demonstrating the importance of establishing a strong local presence and building brand awareness.

And here, you can see the outcome of our targeted actions taken in the second quarter with residential and termite inbound lead generation up by 6.6% in the month of June and so delivering positive lead flow growth for the first time this year. Whilst it's too early to be certain that this encouraging performance will continue throughout the third and fourth quarters, we are certainly encouraged by what we see as well as actions to drive inbound digital leads. We launched our door-to-door pilot in the second quarter, operating across 23 branches, and this program is off to an encouraging start. The pilot is primarily focused on residential contract sales, specifically our pest-free 365 plans, which offer comprehensive protection from the main pest types, along with targeted upselling of services for ticks and mosquitoes, for example.

As of June 30, the pilot had already generated approximately $12 million in annualized sales and contributed about $2.2 million in revenues during the period. The pilot will continue throughout the summer with a planned full-scale deployment being in scope for next year.

So a quick recap here. We operate in highly attractive structural growth markets with healthy 10-year outlooks. We have an unrivaled footprint in the markets outside of the U.S. And in the U.S., we have an excellent portfolio of stand-alone operations in business services, which are performing well. In the U.S. pest control market, the long-term growth trends look set to continue. We are the largest operator in that market, but we've been underperforming over the last 2 years.

We've got a plan to improve our onetime jobbing performance, which accounts for about 1/4 of those revenues. However, the foundational need here is for us to get our contract portfolio into healthy long-term growth. And to do this, we need to be successful in 3 key areas: firstly, in customer retention. where we have a plan to get from 80% towards 85% over time and where we've seen progress over recent months. Secondly, on pricing, where we're also making good progress, but most importantly, on sales of new customer contracts, where we've seen some areas of progress in the second quarter, but where we need to continue to execute more effectively to drive up more leads and to convert more of those leads into sales over the coming quarters.

So I'll finish with this final summary slide. There's no change to our full year guidance. We remain very focused on growth. The integration restarts shortly, starting with our more straightforward commercial branches. And we are confident that our North American business will be operating at a 20%-plus margin post 2026.

Thank you very much. We will now open it up for questions. [Operator Instructions] We'll pause just for a moment for the operator to line up the questions. Thank you very much.

[Operator Instructions] The first question comes from Suhasini Varanasi of Goldman Sachs.

Two from me, please. On the termite provision claims that have been revised up in this period, can you maybe discuss what drove -- I mean, how should we think about future changes to provisions next year? So for example, next year, if the cost per claim goes up again, will there be another revaluation? I think that's the first part.

And secondly, how should we think about claims generally into the second half of the year versus the first half? Is it evenly spread out? Do you expect any acceleration or any changes in the trends?

The next question is on the quarterly growth rate. It's good to see the improvement in North America general pest control, including Business Services. But did you see any changes towards the quarter end on the growth in June? Or are you seeing any changes in July, for example? Any color that would be helpful.

Thanks, Suhasini. So the termite provision, yes, we put that up in the first half. It's a fairly mechanistic calculation. And although we're pleased with the progress we're making and that we're being able to reduce down the number of claims that we've got, our recent experience is that on the non-litigated claims, the cost of settling those claims, some of which are rather more complicated claims is up 9%. And as a result of that, as we look out over future years, then we have to increase the provision there.

If -- to your question, what would happen in the second half and next year if we saw a variance in the cost per claim up or down, then it is sensitive to our most recent experience. So yes, it could come down again, it could go up. Our cash out in relation to the provision is in line with what we'd expected. And that's the number that I most look at because this is going to continue to be volatile as a number of factors come into play.

In terms of the quarterly improvements, Q1, Q2, obviously, Q1, and I spoke about this at the first quarter results, that had the headwind of the extra trading day last year from the leap year. And then if you normalize it across the 2, yes, perhaps a little bit better in quarter 2, but broadly unchanged and certainly not at the level that we're aspiring to. And we don't give a comment on current trading. So not looking at July, July is actually not finished yet even, but we were encouraged, obviously, by the better performance that we saw on leads, which in due course, we would expect to lead into better sales and better revenues.

The next question comes from Oliver Davies of Rothschild & Co Redburn.

Just a couple of questions for me. I guess in Q1, you mentioned that the paid digital search returned to positive growth in March. And then you've obviously mentioned overall lead flow growing in June for the first time this year. So I guess a couple of questions on that. Are you able to give us an indication of the split between digital and kind of organic leads within that kind of total lead data? And then secondly, can you help us understand how digital and nondigital leads progress throughout the quarter?

And then my second question, I mean, in terms of one-off jobs, I think you've seen a bit of a slowdown there, I think mid-single-digit growth last year. I think you mentioned 6% in Q1. So I guess, why have you seen a slowdown in the second quarter there?

Thanks. Yes, I'm not going to give you a split of our spend between the channels. I mean that's -- this is a competitive environment and where we spend in paid search means competitors look at that as we look at where they're spending as well. So it's a pretty competitive environment.

The data we're showing here is all leads. So that includes paid leads, it includes organic leads and it includes tech leads as well. And really, what we're saying here is we did talk about the fact that we became over-reliant on paid search, and that's because we weren't yet able to get the organic channels working as we needed to.

So what you've seen over the last 2 quarters, and in particular in Q2, is a progressive move by us to take money out of paid search and put it into organic search and into other broader channels, like I say, with Meta and top of funnel marketing advertising as well. So it's a migration of spend. We've kept the spend broadly the same across the period, but spending less in the paid area, but also happily the cost per lead coming down in the paid. So we're getting more effective and more efficient in the paid channels, but also deliberately spending fewer dollars there, taking those dollars and putting them into organic.

So it is a very, very detailed endeavor here, and Paul and I get daily reports literally. At the end of each day, we can see what the lead performance is. We can see what's coming from paid, what's coming from organic and what's coming from technician leads. And broadly speaking, the story is paid leads down, organic up and tech leads up as well. But I can't give you -- I could, but I can't give you the breakdown of how we split that spend, but that's what you should expect to see more of in the future. I don't think we're close to optimizing where we want to be here, but we are encouraged by what we've seen, and we're certainly encouraged by what we've seen in the most recent weeks. So let's hope it continues into the second half of the year. Sorry, what was the question?

In relation to your question on one-off jobs, Oli. So it is always going to be a little bit variable quarter-by-quarter. And what we're really focusing on is driving better performance in getting our contracts signed up, and we're really focusing the sales force on to that because that's the key area of weakness that hasn't been good enough in recent times. So if we can address that, then obviously, that's recurring revenue, as Andy was talking about, is that subscription base. And so that's our biggest priority. We will see some variability in jobs quarter-by-quarter.

The next question comes from Annelies Vermeulen of Morgan Stanley.

I have 3 questions, please. So firstly, on your inbound lead flow, which you called out as very positive in June, 6.6%. Rollins also saw a very strong period in June, driven by very favorable weather. So could you comment on how confident you are that, that inbound lead flow was down to your execution on marketing relative to a very favorable market backdrop driven by sunshine?

And then secondly, on this predictive churn model, could you elaborate on what do you look for in that churn model in terms of indicators that would imply a customers at risk of leaving? Have you had any indications of accuracy yet from that pilot where it's correctly identified customers that are looking to leave? And I'd also be interested if it's given you any more detail on why customers are canceling and sort of reasons for attrition.

And then thirdly, just on door-to-door, you mentioned a full-scale deployment next year. Could you clarify, does that mean you're planning to roll it out across your entire portfolio in North America from the 23 branches, I think you said today? Or will that remain more selective in certain regions?

Thanks, Annelies. Yes, when the big yellow thing comes out in the sky, there's no doubt that, that has an impact on insects, crawling, biting, stinging insects. So there will be some weather in the numbers. It's incredibly difficult to sift that out and say what the weather impact is. But we are confident that we are seeing returns for the efforts that we're making. So again, I can't break it out and say how much do we think is weather, how much is self-help measures. We're certain that the things that we're doing, we can test and they are having an impact. And as we said, we're not going to get into month by month, but clearly, we wouldn't be sharing June data so positively if we weren't seeing some similar results in the month to date. So I think that's further evidence, this is not just a weather thing. But as I said, can we say it's going to continue through the full second half, not yet able to do that.

The predictive analytical churn model won't surprise you, Annelies. It is an AI tool. And the great thing about AI is that we can set the model over multiple databases. So we measure customer happiness. We measure NPS. We measure customer satisfaction. We know when a customer has sent in a complaint. We know when a customer is paying late. We know when we've missed a customer visit. So we can put all of those data points into the model and ask the model to predict based on this, have we got a cohort of customers who statistically are more likely to churn than others.

And then based on that, the question is, okay, so what do you want to do with that information? And that's the interesting bit, and that's the bit we need to fully test in the market. Having got a list of customers more likely to churn than others, we then put in extra efforts to make those customers happy. So if it's a specific with a recurrent pest issue, we go back and try and solve that issue. So it's early days, but it's exciting data. And it's -- to your point about can you be sure that it works, we've also taken last year's data and pushed it through the model to see how accurate -- if we had that last year, how accurate would it have been to predict accurately. And it's surprisingly accurate. But like most things with AI, you have to train the model.

So it's early days. It's exciting. The data scientists and the IT people are having a lot of fun with it. The question now is, can we put that into operational effectiveness, but it looks very interesting.

On the door-to-door, we deliberately -- we set a pilot this year. I mean I'm on record as being something of a skeptic around the door-to-door model. And I have to say I'm really pleased with what we're seeing in the door-to-door model. But it is a summer sales model effectively. Going back to the point you made about the weather, the door-to-door sales teams knock on doors when it's hot and sweaty and when the insects are hatched and people are seeing mosquitoes or they're seeing ants or they're seeing other insects typically. And so it is a summer sales program.

But America being a huge continent with extreme weather in the Southeast, for example, the season for door-to-door in Florida is a lot longer than it is in the Northeast, for example. So what we'll be doing through the balance of this year is really we'll continue through the summer. We're actually looking to see if parts of Florida and California would sustain the door-to-door model into the fall, into autumn. And then at the back end of the year, we'll put together the program because we work with third parties on the door-to-door model. We'll put the details of precisely how many branches, at which parts of the United States and which months we're going to do it for. But what I'm saying is it is very likely to be a material scale up from the 23-branch pilot we did this year.

And the only thing I'd add on that, Annelies, is that like we have with the satellite branches where this year, we said and we have delivered that we would cover that within our existing marketing spend by just reprioritizing that in 2026 would be my expectation again. So although, as Andy says, yes, we've got plans for a full scale deployment, we're not signaling that, that's then going to lead to a major increase in the marketing costs.

The next question comes from Nicole Manion of UBS.

I have 2 questions, please. Firstly, you mentioned that one of the things you're still looking to address is the historic underinvestment in building some of your brands. I know there's a lot of moving parts at the moment in terms of the various investments you're making and you're having to rebalance things a bit as you've become over-reliant on [ paid for ], for instance. But I guess the question is, overall, are you confident that you can fund what you need to do by refunneling spend from one area to another? Or do you need to sort of still step up those investments, if that makes sense?

And then secondly, just a clarificatory one really. You said you remain confident in the $100 million cost savings and 20% margin post 2026. There's a comment in there, I think, around refined time line. Can you just explain sort of what's meant by that precisely? And apologies if I missed something obvious on that bit.

Yes. Look, as we sit here today, I'm going to do this from memory. I don't have the data in front of me, but roughly 50% of U.S. pest revenues are branded Terminix, roughly 30% are branded with 1 of the 9 or 10 regional brands that I've mentioned before. So brands like Florida Pest Control and Western Exterminator and then roughly 20% are branded as independent standalones. So what that tells you is the independent standalones will cease to be branded as independent standalones, and they will become either Terminix-branded, which we think is well funded or they'll become 1 of the 9 brands. So what we are saying is we have to support those 9 brands alongside the Terminix brand.

The effort that has gone in, in the last quarter into those 9 brands or most of them is going into organic search. So there's a lot of things you can do with brand support. We've not gone down, for example, TV ads for the 9 brands. We have gone down TV ads for Terminix. So the majority effort to improve the performance of the regional brands is coming out of paid -- not coming out of paid, but reducing paid and really putting our efforts into organic search.

So as we sit here, we're not saying we need to put more money. We think we've got the balance about right. But as we get better -- and we surely will get better. As we get better and we get smarter and we can see stronger demonstrable returns on investment for where we put those dollars, if there's a good case to say, hey, look, if you put an extra dollar here, you're going to get $4 back there, I'm pretty sure the CFO would be pushing us to look at potential for spending more. But that's not the plan, Nicole. It's not in H2, and it's not in the forward plan. So that's the answer to the first one on the underinvestment on brands. And as I said, we're doing a lot of work on Terminix because it's nearly 50% of the revenue.

On the comment on branch migrations, look, all we're simply saying here, and I think it deserves unpacking a little bit there. I don't think you've missed anything. We did say at the last time out, we expected the -- all of the branches to be fully integrated by the end of next year. And what we're saying here is, look, we have a path to the $100 million savings that we've talked about. We have a path to the 20% net operating margin that we've talked about. We may not get all of the branches fully integrated by the end of 2026. They will take the time that they take. We are restarting the integration shortly now, and we're restarting on what we consider a more straightforward, simpler commercial-only branches and many of them are already on the same IT system. So they're PestPac to PestPac conversions. We'll start the bigger branch integration program next year, but it might not all get finished by the end of '26, but we still get to the $100 million. So that's how you should understand that. Hopefully, that was clear.

The next question comes from James Rose of Barclays.

I've got 3, please, 2 on leads and 1 on branch integrations. Firstly, on leads, could you talk about the quality of the improvement of leads you've seen so far to the conversion of ARPU? Are they better than what you've got from paid search leads last year?

And then secondly, do you see that the leads you're getting are fueling contract sales more than they were previously rather than going into jobbing work?

And then the final question is on the branches you've already integrated and have said are not up to standards. What are the execution improvements you've highlighted or flagged in those which you want to tweak or change going forward?

Thanks, James. Really difficult, and we're into master class level questions now, which is always a challenge certainly for me. Look, you've got 2 funnels at work here. You've got a marketing funnel and you've got a sales funnel. So in the marketing funnel, and those of you who are into this will be very familiar with what I'm talking about. You've got top of funnel activity, so building brand awareness all the way down to paid search and organic search at the bottom of the marketing funnel. And what we're saying is we're investing in the top of the funnel in brand awareness. Brand awareness is the best quality sort of leads because if you're searching for Terminix, that means you're very likely to buy from Terminix. So that's why we drive up the top of funnel and brand awareness. So as we see people calling us on the phone because they want to speak to Terminix, that's a very good chance that they want Terminix to solve their problem.

If you go to the bottom end of the funnel and you have technician leads, the conversion rate of technician leads is not typically as good. And we call them creative leads because we've got our technicians trying to convince a customer that they need a solution that the customer didn't even know that they had a problem. So it's not surprising that the conversion of tech leads comes in at a lower rate. So this is always a mix effect. So it's really quite difficult to unpick that and give you a decent answer.

But what I think we're saying is the quality of leads that's coming in through top of mind, top of funnel awareness brand-based leads is good quality, and we can see that improving. Technician leads, which are improving in number by their nature, will have a lower conversion rate. I wouldn't consider them poor quality leads, but they convert at a lower rate. So that's the answer to that.

Again, next detailed level question. You said, are they feeding contracts or are they feeding jobs? Really difficult to say. Most leads typically start life, James, as a job. That's -- they just do. You've got a mouse running around the kitchen, you don't yet know that you need a contract from us. You think you just want someone to solve the mouse running around the kitchen or you've got a wasp nest in the garden. But the nature of our business is such that even if you only have a job, we will try and sell you that job and then we will try and convert you into a contract customer. So having taken the job to do the wasp nest, we then seek to convince you actually, if we put you on a subscription contract, you get 4 visits a year, you've got unlimited callouts, you're covered for multiple pests. So really difficult to actually say, is a lead a job or is it a contract because the majority will start life as a job and you convert into contract.

Your question about the integrated branches and what we're seeing there and what are we doing about it. I suppose on the good news on the integrated branches, the colleague retention, that's the technician retention and sales retention of the people working in those branches is very good. So we're pleased about that. We changed all the pay plans, and we're broadly happy there. We may tweak those pay plans further, but that seems to have gone okay.

The big area that we need to work on is lead flow. Our old friend, lead flow. And it's probably not surprising if you've had 2 branches and you've closed 1. You had 2 locations, you've got 1. You had 2 brands, you've now got 1. You got a lot of moving pieces here. And it's the lead flow that has been the most significant.

So all of the stuff that we've talked about using data analytics kind of getting smarter at where we're putting the money into both paid and organic, that's a big focus for us going forward. We've got to see the lead flow in those integrated branches to a healthier level than where it is today.

And customer retention, we always expect customer retention would dip when you integrate branches. It has dipped. We need to see it coming back. Broadly speaking, we know how to get customer retention improvements, and I've gone through some of that earlier today. So the 2 things we'll really be working on is how do we get really good lead flow when you integrate the branches and how do you ensure that the customers remain happy through that process.

Looking so far as colleague experience is pretty good, pay plan is pretty good. And I don't think any of you would want us to blindly push forward aggressively into integrating if we haven't satisfied those 2 questions. So the plan we've got now is we'll integrate some of the easier, more straightforward, more stand-alone, more commercial and more PestPac to PestPac branches in the second half. And we'll spend the second half really getting the playbook in a good shape to restart the bigger integration wave next year.

The next question comes from Will Kirkness of Bernstein of Societe Generale Group.

I've got 3 questions, please. Firstly, I just wonder if you could give any sort of metrics on the satellite stores in terms of revenue profile or EBIT ramp as they start to mature or perhaps return on investment.

Secondly, just on the U.S. retention, the 85% -- obviously, you've talked about that before in terms of where the group is, but I think you've maybe felt that it would be tough for North America to get there. So 85% as a sort of target feels like a step up. I just wonder if you're seeing something positive in the data that's giving you a bit more confidence there.

And then my last question just around Hygiene & Wellbeing. I think Q2 growth there was 0.4% organic. I just wondered if you could quantify -- you talked about being [ price-led ]. I wonder if you could talk about what the price component was.

Yes, let me try and unpack that. I don't think you're going to be surprised with my answer to the first question in terms of giving you the metrics in terms of the satellites. I've probably said this as much as I can, really. The satellites are small. So a small physical office, often a sort of business park or high street location, branded Terminix typically with a few people working in the office. And these are people that already exist in the organization. So it's the incremental cost of the operation is the lease cost and running the office.

The technicians already exist from the mother branches. The salespeople already exist from the mother branches, admin already exists. So the branches per se don't carry a big cost other than the actual cost of the physical location. So the number of leads that come in, again, I haven't disclosed that, but they start slowly. And until you get -- I think it's 10, until you get 10 reviews, customer reviews, the big search engines don't recognize you. So when I talk about these branches getting optimized, you've basically got to get loads of customers spotting you and making happy reviews, 5-star reviews. Once you get a volume of 5-star reviews, then you turn up on search.

So in terms of return on investment, it's relatively straightforward for us to get the number of leads to more than pay the cost of the branches but that's not our ambition. Of course, our ambition is to drive up significant volumes of local search. So we fully funded the cost of the 100 and 150 branches all within the operating plan. It's not like we've had to put a big chunk of extra cost into the business.

On U.S. retention, you're absolutely bang on. I would say 2 things in terms of the 85% and the rest of the group. The rest of the group is about 85%, but it should be 87%, 88%. So let's be clear. The ambition for retention is an ambition in North America at 85%.

But I'd tell you, if we get the North America business, U.S. Pest Control up to 82%, 83%, that will make a significant impact on organic growth. I mean I've given you in the slides, given you enough to do the maths for yourselves on this. Once you work out what the value of the portfolio is and you put an extra 3 percentage points of retention on that, given it's 3/4 of the business, you can work it out for yourself.

So I was quite careful in my words. I didn't say we're going to get to 85%. I said we're going to move towards 85%. 85% is the aspiration. That's the -- everyone in our North America business is very familiar with what is Drive to 85%. They all know it. So the ambition is clear. And is there any reason why we couldn't get to 85% in the U.S. over time? No, there isn't. But would I be happy if we get to 82%, 83% over the next couple of years? Yes, I would. But I also think the 85% in the group needs to move up as well. So hopefully, that squares the circle, why that all sort of makes sense.

Look, Hygiene & Wellbeing is sort of a mixed bag of performance really. Most of the businesses, the bigger businesses actually did reasonably well. We had 3 material contributors to the weaker performance. It is Hygiene & Wellbeing, and so within Wellbeing, we have our Ambius business, that's the plants business. Last year, we had a big, big piece of volume through cruise liners, cruise ships. I think we did the biggest cruise ship in the world, and that was a significant win in-period, and we didn't have those repeat this year. So the Ambius piece of it dropped in-period, but that's not a structural issue. I'm not remotely worried about that.

In the Pacific region, what we saw is that a lot of good business was sold in the pandemic for air hygiene devices. The Australians and New Zealanders, in particular, bought a lot of devices to kill airborne bugs during the pandemic and post the pandemic. And frankly, the world isn't worried about bugs in the air as they were at that time. So we've seen an unwind of some COVID contracts in the Pacific.

And the third market that underperformed in the period was the U.K. and Ireland. And a big piece of that -- I hate to bring up COVID after all these years. We had some benefits last year with COVID credits being released last year, which we talked about last year, and they didn't -- obviously don't repeat again this year. So some of it's comp, some of it's lumpy, big job performance out of Ambius. I'm not overly worried about Hygiene & Wellbeing. It's in a decent marketplace. It needs to perform better than it did in the first half, that's for sure. But it's mainly coming out of those 3 places.

The next question comes from James Beard of Deutsche Bank.

Just one question from me. On their call last week, Rollins referenced the impact of Google AI summaries on leads traffic to their websites. And I was just wondering whether you've seen the same impact during the period as they have and what you've been doing to manage and mitigate that.

Thank you, James. The master class continues, I love it. And yes, Google indeed did release their AI mode in Google Search. I think they released it in the States actually about 4 months ago. They just announced they're releasing it here in the United Kingdom. It's part of what's been going on, frankly, in search now for the last year or two. I read a statistic the other day and it was on ChatGPT, so it must be true, mustn't it? The statistics said that in the United States over the last 12 months, 60% of all searches no longer result in a click, by which that means that either people weren't searching for something that they wanted to buy or it means that they got their answer from AI.

And I mentioned this, I think, last time we were talking. Part of what we're doing in -- I mentioned we've refreshed 200 pages of content and a lot of that in the regional brands as well as the Terminix brand. What we're doing now is making sure that the content of our sites is the content that the AI model, the AI large language model, is looking for. So you have to have better quality content. You have to anticipate, well, what are the questions that searchers are really going to be asking and what are the answers that AI is going to give them and does your website have the content to feed that answer. Because if it does, the AI answer will often feature you in their answer.

So I know it's a bit wordy what I'm saying there. The short point is we're very aware of the Google changes. We're a very -- we're a Google company. We often describe ourselves as a Google company. We're very close to Google as an organization. So we're very aware of the changes, and we've been very, I'll say, quick. But we're working hard on content to optimize the content to the latest changes in the AI model. And it's not just Google, other search engines are doing similar things. And so this is not a Rentokil Terminix phenomena. It's not a pest control phenomena. It's a global phenomena with the big search engine companies trying to make sure that they can keep their income from search. And we have to be nimble and quick and thoughtful. And that's what we're doing. So we're focused on the quality of the content to match it up with what the AI likely answer to the most obvious questions will be.

The final question comes from Suhasini Varanasi of Goldman Sachs.

I just have a couple of quick follow-ups, please. Is there an update on the appointment of the CEO in North America? Any update there? And just on the guidance for the year, when you say it's going to be in line with market expectations, if we had to mechanically just adjust for the Workwear disposal, I think your consensus on company compiled is $922 million of PBT. So we just take off $57 million from that, which was last year's Workwear profits to get to this year's number on PBT?

Thanks, Suhasini. I will certainly cover the first one. Look, CA North America, I'll say something when I've got something to say on the subject. What I will tell you is the guy that's running it, Alain, who I mentioned before, he's worked with me for 16 years and spent 16 years running pest control businesses around the group and running marketing, is doing a brilliant job. He's absolutely flying in that role. The team have responded to him really, really well. So I'm very happy that we've got Alain there on an interim basis. And when we've got something we can update, I'll gladly share it. But I'm happy with where we are. I'm happy with the process.

Suhasini, on your question around guidance, it is unavoidably a little bit more complicated with the accounting that we have to use now for this discontinued operation. Our commentary around being in line with expectations is on an apples-to-apples basis. So that consensus number that you referenced is effectively what we look at our internal expectations against and say, yes, we believe we are in line with that. When the business does exit, then at that point, I think consensus will change. People will take it out and there will be an adjustment for the profit exiting, but also for the depreciation.

So those factors will both have to be put in. But as we look at what people have for the France Workwear business in their numbers, then extracting that should still mean -- will still mean that we are in line with market expectations post. But thank you for the question, Suhasini. And I think that wraps up the call today.

Thanks, everyone. Thanks for joining us. Really appreciate it. And I look forward to updating you with the Q3 results in, well, just a few weeks' time. Thanks, everyone.

Thanks, everyone. Bye now.