Rentokil Initial plc (RTO) Q2 2024 Earnings Report, Transcript and Summary

Well, good morning, ladies and gentlemen. In a few moments, Stuart is going to provide you with details of our good overall performance in the first half of 2024. I'll then come back. I'll provide a very brief update on each of our categories before we focus on North America, where we're making encouraging progress against our RIGHT WAY 2 growth plan with the core metrics now moving in the right direction and where we'll deep dive on our integration program, which is going extremely well. Brad Paulsen, our CEO for North America, will take you through a progress update on both of these important areas. So to set the scene, let me just say a few words by covering the group highlights of the first half. Revenue increased by 4% to GBP 2.8 billion with top line growth in all regions, of which organic growth was 2.8%. Our Europe, U.K., Asia and Pacific regions are all delivering organic growth in the range of 4% to 6%, and they've all performed well in the first half. In the first quarter, our North America Pest Control business delivered organic growth of 1%. And this has increased to 1.5% in the second quarter following the launch of our Terminix It marketing campaign and our RIGHT WAY 2 growth plan. We are pleased with the progress being made in colleague retention, the increase in brand awareness and branded search, inbound digital lead flow and the increase in the number of technicians submitting sales leads from existing customers. Rebuilding our growth engine will take time, but we made good progress in the second quarter, and we expect to make further progress in the second half. Group adjusted operating profit grew by 4.7% to GBP 455 million. And we delivered a group margin of 16.5%, up by 10 basis points and in line with our guidance. Statutory profit before tax at actual exchange rate was GBP 253 million, an increase of 5.6% on the prior year. Our bolt-on M&A program continues to create value with 23 acquisitions in the first half, generating annualized revenues in the year before acquisition of GBP 81 million. A leverage ratio of 2.8x puts us firmly on track towards further deleveraging towards our target range of between 2 and 2.5x as we committed at the time of the Terminix acquisition. So an encouraging overall group performance. And while we're mainly focused on North America growth and integration today, it is worth highlighting that the rest of the group continues to perform very well. Four months ago at our prelim results, we set out our detailed plan to reinvigorate organic growth in our North America Pest Control business. We explained our model, which you can see on the slide there, with opportunities for growth from both existing and from new customers. To date, we've invested around $21 million of the $25 million we committed at the prelims. And that's gone into brand marketing, lead generation and into new sales and marketing talent. I'm pleased to say that whilst it's still early days, we can see green shoots now appearing, and our key growth KPIs are showing positive improvements. We've delivered excellent continued progress on colleague retention, and it was particularly good to see an increase in sales colleague retention of almost 400 basis points since the beginning of the year. Our Terminix It brand campaign was launched in mid-March, and according to our latest data, has already been seen 685 million times and by 96 million people. This has delivered a very encouraging 29% increase in branded search for Terminix. In April, we registered our first month of 2024 year-on-year inbound sales lead growth from new potential customers, and this continued through May and June. And more of our technicians are also submitting sales leads from existing customers with an increase in participation rate from around 50% in January to over 60% in June. Our underlying progress in the second quarter gives us the confidence to extend these investments with an additional $25 million committed to growth initiatives funded from gross synergies with around $15 million of that being spent in the second half. But we'll also shift more of our focus on to the long-term need to improve the customer retention rate, particularly with our residential and termite customers. So we're confident that the investments that we are making are the right ones for growing our underlying contract portfolio to support not just the second half but also to lay the foundations for long-term growth. Touching briefly on the excellent progress we're making on the integration. In the first half, we completed Phase 2 of the integration, which included the detailed preparation of the branch integration program. The first integrations then began on schedule in June and July. Today, our end-state systems and processes are live, and they're working well in the first 9 branches that have been integrated with 160 technicians serving both commercial and residential customers and with combined annual revenues of around $37 million. When you include the Rentokil technicians who are already using our new end-state PestPac system and now the first Terminix colleagues are also using the system as part of the first branch integrations, it's now being used by over 40% of our technicians in the U.S. and will be being used by over half of our U.S. techs by the end of this year. And we're firmly on track to achieve our gross cost synergy target of $325 million, having delivered an additional $58 million of gross savings in the first half. The additional H2 investments in our RIGHT WAY 2 growth strategy of $25 million takes our total planned investments over the course of the integration to around $125 million, and therefore, we now expect total net synergies to be over $200 million. So a positive overall group performance, green shoots coming through in North America as we execute the RIGHT WAY 2 growth plan and excellent progress on the integration program, which remains firmly on track. With that, let me hand over to Stuart.

Thank you, Andy, and good morning, everyone. I'll run through the financial highlights of what's been a good first half overall. I'll start with the group level numbers. And then as usual, I'll move through the regions and then look at the balance sheet. Unless I state to the contrary, all numbers are at constant rates of exchange. The business delivered a good top line performance in the first half. Revenue was up 4% to GBP 2.76 billion and statutory revenue up 1.3% to GBP 2.7 billion. Organic revenue was up 2.8%. This translates to an adjusted operating profit of GBP 455 million, a year-on-year increase of 4.7%, and margin was up 10 basis points. Free cash flow was GBP 172 million, and cash conversion was 62.2%. This year-end -- half year phenomenon was a result of timing of customer and supplier payments around the half year, and we expect cash conversion to return to 80% to 90% for the full year. These factors, combined with the continued success of our bolt-on M&A program and the dividend payment, resulted in a net debt-to-EBITDA ratio of 2.8x on the 30th of June, on line -- on track for full year expectations. Based on a good performance in H1 and our confidence of further progress in the remainder of the year, the Board has approved an interim dividend of 3.16p, a 14.9% rise year-on-year and in line with our progressive dividend policy. So looking now at our performance by region, starting with North America. The North American business grew by 1.1%, of which 1.3% was organic. Pest Control services also recorded organic revenue growth of 1.3% for the half year. However, in Pest Control services, we saw an encouraging 50 basis point improvement between the 2 quarters as well as positive movement in a number of key leading indicators that Andy and Brad will speak to shortly. The Pest Control category overall was up 1.1% with a drag from the products distribution business. This was affected by customer inventory loading in 2023, creating very strong prior year comparatives. Adjusted operating profit in the region was up 1.8%, and operating margin was up 10 basis points year-on-year to 18.6% with a benefit from synergy delivery partly offset by our $21 million additional investment in marketing in the half. Note that excluding the product distribution business, our margin was 20% flat. Customer retention was stable at 79.8%, and we've seen further strong progress on colleague retention. Total North America colleague retention, including Terminix, improved 2.6 percentage points to 77.8%, driven by improvement in retention of both technician and sales colleague roles. Terminix colleague retention was up strongly by more than 3 percentage points to 73.1%. Despite the attention given to the Terminix transaction, we've had another good period for bolt-on M&A, acquiring 9 businesses with estimated total annualized revenues of around GBP 22 million in the year prior to purchase. The quarter-on-quarter financial improvement in Pest Control services indicates that we're beginning to see benefit from our RIGHT WAY 2 growth plan. We're making an additional $25 million investment in customer acquisition and retention to help deliver our growth opportunities, of which $15 million will be spent in H2. The Terminix integration has also made strong progress with the first branch integrations well underway and $22 million of net cost synergies delivered in the region in H1. Turning now to the European region. Another period of strong performance across the board here, driven by both effective price increases and resilience in overall demand, revenue rose by 7%. Organic revenue growth was 5.8%. All 3 business categories posted strong numbers. Pest Control revenue was up 8%, with a strong double-digit organic revenue contribution from larger markets like Germany, Italy and Benelux. Hygiene & Wellbeing grew revenue by 5.2%, supported by an improved performance in the specialist hygiene and clean room businesses. France Workwear revenue was up 7.5% with continued pricing progression. Adjusted operating profit rose by 9.1%, and operating margin increased by 40 basis points to 18.9%. This was underpinned by the core hygiene business and also in clean room where higher volumes at good margins led to improved overhead recovery. While inflationary pressures remain, we've been successful at protecting margins with pass-through pricing. Customer retention remained strong at 88.5%, and colleague retention rates have also continued to be excellent, up to 90.7% and touching on historical highs. Eight business acquisitions were completed in the period with estimated annualized revenues of GBP 13 million in the year prior to purchase. Turning to the U.K. and Sub-Saharan Africa. We delivered a strong trading performance. Revenue increased by 13.2% with a positive contribution from both business categories with Pest Control up 5.2% and Hygiene & Wellbeing 21.4%. Adjusted operating profit increased by 9.3%, and operating margin slightly decreased by 90 basis points to 23%, largely due to short-term dilution from bolt-on M&A activity. The main margin performance -- the margin performance has been underpinned by the U.K.'s service performance reaching an all-time high, reflected in an excellent Net Promoter Score, which also sustained strong customer retention rate, and colleague retention in the region is at 84.4%, up 1.1 percentage points. We completed one business acquisition in the year with estimated annualized revenues of GBP 30 million in the year prior to purchase. Looking now at Asia and MENAT on the left-hand side of the slide. Regional revenues rose by 7.5%, of which 4.7% was organic, supported by good contract growth and effective pricing. Pest Control in some of our key markets such as India and Indonesia led the way. Adjusted operating profit increased by 1.7%. Additional growth investments in Singapore and Hong Kong meant that adjusted operating margin for the period was down slightly to 13%. Customer retention was strongly up, and regional operations have continued to benefit from an excellent colleague retention rate of 93.5%. We acquired 3 businesses with estimated annualized revenues in the year prior to purchase of GBP 11 million. And finally, the Pacific region. Another double-digit top line performance here with revenue increasing by 10.4%, of which 4.1% was organic. Pest Control was up 12.6% with notable strength in commercial. Hygiene & Wellbeing was up 8.1% with continued strong demand in the region for our Ambius business. Regional adjusted operating profit was up 5%. The first half operating margin was slightly impacted by phasing in rural pest control. The customer retention rate remained strong, and colleague retention improved by 1.6 percentage points. We acquired 2 businesses with estimated annualized revenues in the year prior to purchase of GBP 5 million. Group margin was up 10 basis points, continue -- underpinned by our continued execution on strategic initiatives. These include the densification of roots and products, optimization of overhead costs and leveraging technology and innovation along with active cost base management. Integration activities have positively impacted margins from completed M&A initiatives brought in at lower than group margins. Gross synergies from the Terminix integration contributed 170 basis points to group margin, and there was 100 basis points reduction from investments, including 60 basis points from the additional marketing investment. Group cash flow. Higher trading profits came from organic and acquisitive growth, partly offset by FX. The group did have a GBP 97 million working capital outflow in the first 6 months of the year. This resulted from a slightly softer debtor performance and improved supply payment processing right at the end of H1, and these are expected to revert to previous guidance in the second half and not have an impact on the full year cash outlook. As a consequence, full year '24 guidance for working capital and cash generation remain unchanged. The cash interest payments increased by GBP 10 million year-on-year. Cash tax payments totaled GBP 31 million, a decrease of GBP 27 million year-on-year, also attributable to some prior year one-off tax payments and H1 2024 one-off U.S. tax refunds mainly related to the Terminix acquisition. The cash spent on acquisitions was GBP 76 million, while dividend payments were GBP 149 million. Note that for some of our bonds, we pay a full year of cash interest in H1 versus a P&L charge across the year, reducing cash conversion in the first half by about 10 percentage points. Our full year '24 guidance, as I said, for adjusted free cash flow remains at 80% to 90%. The group's net debt-to-EBITDA ratio remains stable at 2.8x. The group maintains a liquidity headroom of approximately GBP 1.5 billion, which includes an undrawn revolving credit facility of $1 billion set to mature in October 2028. Around 81% of the group's debt is at fixed interest rate. The group has a EUR 400 million bond maturing in November this year. And with the current level of headroom, we've got good optionality around the timing of the refinancing. Before looking at our technical guidance, I want to share our plans to change our presentation currency. We've used pound sterling since the inception of the group. However, the U.S. now represents about 60% of group revenue and 2/3 of group profit, which can result in significant reporting volatility from FX movement. We, therefore, plan to change our presentation currency to United States dollars for all reporting periods starting from 1st of January 2025. We commenced a project to this end in the second half of last year that would allow us to do this. We provide -- we will provide U.S. dollar comparatives for key financial statements and support for modeling from the annual results reporting in 2025. Our U.S. business has never been more significant to the group, operationally and strategically. We acknowledge the market debate around listing for companies such as Rentokil. Our Board will continue to keep the group's listing under review. However, at the current time, we are strongly focused on driving up organic revenue growth through the RIGHT WAY 2 plan and successfully integrating Terminix. Moving to technical guidance. On this slide, we give estimates to help you with your models in relation to the full year. Most remain unchanged with some updates. On the P&L, we expect Terminix integration cost to achieve to come in about GBP 10 million lower than previously guided. The adjusted effective tax rate is expected to be lower in the range of 24% to 25%. Anticipated spend on M&A is revised to between GBP 200 million and GBP 250 million. Our full year FX guidance reflects the strengthening of the pound against the dollar, and we now anticipate to have a headwind of between GBP 30 million to GBP 40 million. We expect this increased FX headwind to be offset by further operational progress. We do expect a net $15 million or about GBP 12 million revision to group adjusted operating profit in the full year, which reflects, amongst other things, the additional growth investment in H2. And at that point, I will hand back to Andy.

Thank you, Stuart. I want to give the North America section here as much time as possible this morning. So in the interest of time, I'm going to turn the pages on our usual employer of choice and business category sections at pace. I'm delighted with the excellent progress that we're making and obviously happy to take detailed questions later. Our tried and tested operating model continues to perform very well. And as you can see, we've continued to make good progress in colleague safety and in sustainability. We've also made progress in colleague recruitment and in particular in colleague retention, where in the year to June, our global colleague retention rate has increased by an excellent 4.2% to almost 86% and by 1.7% year-to-date. In our Europe and Asia regions, we've achieved an outstanding retention rate for our service technicians of over 90%. And in a moment, Brad will discuss the very good progress we're now making in North America. Turning to our business categories and starting with Pest Control. In Pest Control, we operate a simple, repeatable model in a global market that is underpinned by structural growth drivers, including urbanization, growing middle classes, population growth, climate change and increased regulatory pressure, particularly in food safety. As you can see on this chart, according to the latest industry reports, since 2018, whilst North America, which by the way accounts for around 50% of today's global pest market, has increased spend per capita on pest control by an impressive 24%. Spend on pest control continues to grow significantly faster in the emerging markets of Asia and in India and China, in particular, where the equivalent per capita growth rates are 170% and 468%, respectively. And this is very much in line with our long-term M&A strategy of building our presence in those cities of the future. And indeed, in the first half, we acquired the second largest pest control company in India, securing our leading position in that very important future growth market. Looking at our global Pest Control business. In the first half, we delivered revenue growth of 2.8%, of which 2.2% was organic, with our global Pest Control business now having first half revenues of around GBP 2.2 billion and having an impressive 10-year revenue CAGR of almost 19%. Pest Control profits in the first half increased by 2.2% to GBP 421 million with margins remaining stable at 19.2%. While, of course, we added the additional investment for growth in North America, the business has delivered a 10-year profit CAGR of over 20%. Turning to Hygiene & Wellbeing. In the first half, we delivered revenue growth of 9.6%, of which 4.8% was organic growth. We acquired 7 excellent companies with annualized revenues in the year prior to purchase of GBP 45 million, exceeding our full medium-term guidance of GBP 25 million. Since 2014, this high-quality sister business to Pest Control has delivered a revenue CAGR of 6.3%. During the first half, profits in Hygiene & Wellbeing grew by 14.3% to GBP 77 million, and margins increased by 80 basis points to 17.2%. This is an attractive business category with similar route-based operating model to pest control and shared country management teams, shared functional support and other shared overheads, and over the last 10 years, has delivered a profit CAGR of 8%. In the first half, our initial Workwear business in France delivered a strong performance with revenue growth of 7.5% to GBP 116 million, all of which was organic. Adjusted operating profit grew by 9.4% and increased margins by 30 basis points to 17.2%, the highest since 2015. With the Olympic and Paralympic Games starting this week, our Workwear business will be playing its part, supplying and cleaning staff uniforms as well as flat linen and towels to many people visiting Paris this summer. Turning to our bolt-on M&A program. We operate in highly fragmented markets. And since 2018, we've acquired 284 businesses around the globe, mostly building our position in the highly attractive pest control market and with acquired revenues of around GBP 909 million. For your reference, we've broken this down into the pie charts that you can see on the right-hand side there. The opportunity in M&A remains significant. In the first half, we delivered 23 bolt-on deals with annualized revenues of GBP 81 million for a consideration of GBP 112 million. In North America, we delivered 9 small tuck-in deals, including the acquisition of Xceptional, which has a presence in 12 states. And it's our entry into the wildlife control and exclusion business, something that neither Rentokil nor Terminix has previously offered. So good continued progress. The pipeline is in good shape, and our current view of M&A spend this year is around GBP 200 million to GBP 250 million. Based on our most recent analysis, our ongoing M&A program continues to perform at or above our hurdle rates and well above our WACC. So a good overall performance from our business is around the world. So now let's move our focus to North America. I'm just going to say a few words this morning, and then I'm going to hand it over to Brad. In the first half, we spent $21 million of the additional $25 million committed at the prelims, and we spent that on digital search, on enhanced web content, the optimization of our social platforms, our brand advertising campaign and our brand partnership program as well as investing in the sales and marketing teams. With our North American business having around 75% of its revenues under customer contract, it's important to note that the investments will befit the Terminix brand not just this year but for the years to come. I'm very encouraged by the initial progress, and as I mentioned earlier, we are now seeing the green shoots coming through with good progress against the core growth KPIs. Our RIGHT WAY 2 growth program continues in the second half with the announcement of additional investment of $25 million, $15 million of which will be spent in the second half, and which will be spent on digital marketing, extending the brand campaign and adding additional new area sales managers, and importantly, on a series of customer retention initiatives, which Brad will touch on shortly. We'll fund this investment for growth from gross synergies, and we're expecting to see continued improvements in our growth metrics over the coming quarters. So lots of focus on growth across the business, but at the same time, the business has made excellent progress on the integration. Execution of our plan in the second quarter was very successful in preparing the business for the first branch integrations and in launching those, which are now underway, and they're going well. We're building the foundations for long-term sustainable growth, and we're making good progress. Now let me hand over to Brad, who will firstly provide an update on growth and then move on to the integration program. Over to you, Brad.

Thanks, Andy, and good morning, everyone. For those of you I have yet to meet, I am Brad Paulsen, the CEO of our North America business. I am pleased to represent our team today and excited to highlight the encouraging progress we delivered in the first half. I shared this past March that our U.S. pest team would use our RIGHT WAY 2 framework to help deliver a world-class customer service experience to our existing customers while also prioritizing key actions to help increase our growth from new customers. I'm happy to report that our team delivered meaningful progress across several key areas of our framework, which I believe will help deliver growth benefits for our business as we move forward. Foundational to our growth success is the ability to deliver industry-leading colleague retention. Hiring, training and retaining top talent is becoming a strength of our business as we saw continued gains in retention realized by our team in the first half. We saw material retention increases in our service technician, sales and customer care colleague populations as well as our back-office admin teams. Branch manager retention stood at an impressive 97.5%. These improvements are a reflection of our commitment to our people and the belief that a trained and happy team will deliver great service to our customers, which over time will lead to improving customer retention. I am particularly pleased with improvement delivered in our sales colleague retention, up by almost 400 basis points as that was a colleague group we previously identified as needing more focus and support. Customer experience and customer retention are key parts of our organic growth model. We want to keep the customers we have, delight them with a great experience and sell them more services through our service technicians. Each 1% of customer retention improvement represents, on a full year basis, around $27 million in organic revenue. And given our combined rate stands at just under 80% today, which we view as stable but a long way from best in class, so clearly, there's a significant opportunity here for improvement. Our plan is being developed but will include using our customer data to identify and address customer friction points, build on the new service quality control program. We will deliver targeted customer marketing to those customers that our data identifies as at risk, and we also plan to add around 40 people to our dedicated customer saves team. This past spring, we launched our new Terminix IT brand campaign aimed at increasing awareness of our Terminix brand and strengthening our top of funnel marketing execution and performance. We are very pleased with the initial results of the campaign as it's been received well and delivered a noticeable improvement in brand favorability with our targeted customer segments. Additionally, we identified new customer inbound leads as a focus area, and again, are encouraged by the improved performance in this part of our business as our team delivered year-over-year lead growth in April, May and June. This is the first time this has occurred since August of 2023. As I just mentioned, the initial results from our Terminix It brand campaign are very encouraging. Our campaign has been viewed 685 million times and by over 96 million individuals, which has generated a 29% increase in branded search and 6% increase in visits to our Terminix website. We will continue to invest in our brands as we know it is an essential agreement to have a known and trusted brands in consistent organic search performance. Another area we have prioritized in our RIGHT WAY 2 framework is lead generation from our service technicians, a program we call trusted advisers. In the first half, through the use of end market training programs, performance dashboards and minor technology improvements, we have seen the participation rate for this program increased from circa 50% at the start of the year to over 61% in June. We will remain focused on this opportunity and expect to deliver further improvements in participation rates and lead generation in the next 6 months. The final areas of our RIGHT WAY 2 framework I will touch on today are sales efficiency and pricing. A critical piece to delivering improved sales efficiency is increasing the retention of our sales colleagues. Our colleagues with less than 1 year of service time are especially important as our data highlights that a sales colleague with more than 1-year service is typically around 50% more effective than those with less service time. In the last quarter, we have made adjustments to the training and compensation plans for our new sales colleagues, which is already resulting in increased retention rates. Along with this, we are also adding area sales managers for our legacy Terminix sales geographies. We believe this is an important investment to ensure our local sales teams receive the training, coaching and support they need to consistently deliver above-market sales growth. We initiated the implementation of this plan in the first half and expect to complete it over the coming months. Lastly, I continue to be pleased with our pricing discipline and execution as we are successfully mitigating the impacts of inflation on our business. I am genuinely encouraged by the RIGHT WAY 2 execution progress we made in the first half of the year and expect these positive trends to continue. These areas are critical building blocks to our future organic growth and will help deliver improved growth performance moving forward. So let me now add a few comments on the progress we are making with the integration. Over the last 2 years, we have streamlined and unified the organization, invested in new talent, improved colleague retention, introduced a single payroll and benefit system, put colleagues onto a single people management platform, integrated 10 stand-alone acquisitions with $210 million of revenues onto our new PestPac platform; developed and tested our branch integration playbook; significantly improved the risk around termite warranties and delivered gross cost synergies of $162 million. In the first half of this year, we have completed Phase 2 of the integration plan to prepare and test for branch integrations in which we delivered the full legal merger, developed and tested 22 systems with 190 features to enable the integrations and harmonize multiple business processes, contracts and applications. We also undertook the important task of designing our new compensation structures, where we have rolled out harmonized pay plans for field leadership and national account sales teams, designed a fair and consistent technician pay structure, which will ensure our compensation will be competitive in the industry. And this is ready to be piloted later this year in the first integrated branches. And we've improved our contracts for new sales colleagues, moving away from 0 salary, so no more 100% commission contracts for our new hires. It's been an outstanding second quarter of progress, rounded off by the green light for the first branch integrations. To date, 9 branches have undertaken the full systems and data integration with technicians, sales, admin and leadership teams all now successfully operating on the new standard IT platform. We have delivered the integration for residential customers, for commercial customers and for national account customers, and we have migrated combined revenues of around $37 million. So how is it going? In short, very well. We have a single set of systems. Data has been migrated. Sales leads are flowing as they should. Work orders are completed. And calls from customers following the expected initial spike have returned to usual levels after a few days. If you include our Rentokil technicians in the U.S. who have already moved to the new version of PestPac, then we already have 40% of our U.S. technicians using the new end-state system. And in the second half, our plan is to migrate over 25% of heritage Terminix branches, revenue, service technicians and sales colleagues onto the new PestPac platform. Now I know there's interest in the process of branch integration. So we've included this slide for information. I won't go through in detail today, but we have a highly disciplined approach to branch mergers with each program running over 6 to 10 months. Delivering each local integration is a dedicated team of specialists who are on the ground to make sure everything happens on schedule and according to our playbook. As I've just mentioned, the first systems integrations are going very well. So we are effectively through the planning and integrate stages shown on the slide, and we are on track for the first rerouting, branding and pay plan pilots starting in October. This is a highly disciplined structured process where only by delivering the current stage effectively do we earn the right to move on to the next stage. I know that our branch strategy is also subject to some interest, so here are a couple of slides to provide you with our latest analysis. As with other parts of the integration, we are taking a data-driven approach to this. Today, our branch network has a combination of large, medium, small and a large number of subscale branches, and we have analyzed the data for each. Our main focus is on increasing the size of the 160 or so subscale branches to provide greater scale and density. Just to be clear, this is not about creating mega-sized branches but optimizing properties and creating better route density, just as we have done in the U.S. and around the world with our bolt-on program for many, many years. This data-driven approach ensures we can increase route density and reduce property overheads. There is no change in our spans of control. There is no major impact on the service technician role. Just as today, technicians start their route from home and visit the branch only 3 or 4 times a month for training and to pick up materials. And most importantly, there is no negative impact on our customers. Customers, of course, do not physically visit branches. It's the technician who owns the customer relationship. And by accurate route planning, we'll actually be putting them closer to their customers. Linked to the route integration is the brand strategy. And here again, we are using a data-driven approach to inform our evolution to a multi-brand strategy using the power of our Rentokil and Terminix national brands, supported by co-branding the Terminix brand with our strong regional brands such as Ehrlich and Florida Pest Control and leveraging many of our important local brands over an extended transition period. As a final point, I'm very pleased to share the progress made in our termite warranty claims as we delivered continued improvements, particularly a 75% reduction in filed complex litigated claims and a 20% reduction in new warranty claims in the Formosan termite heavy Mobile Bay area. This is obviously a long-term program, but we have made encouraging progress over the last few quarters. So just to wrap up, following an excellent second quarter, the integration is on track. And we now have the first branch integrations underway, and they've started well. With that, I'll hand it back to Andy.

Thank you, Brad. So in summary, before we move on to questions, good overall group performance in the first half. As you've just heard, RIGHT WAY 2 growth plan is up and running in the U.S. We've seen many of the core growth KPIs showing improvements in the quarter. And to support that growing momentum. We'll continue to invest for growth with that additional $25 million. The branch integrations are underway. They're going very well as we continue to build out the long-term foundations of our powerhouse U.S. Pest Control business. Given the encouraging overall performance, the Board declared an interim dividend of 3.16p per share, which is an increase of 14.9%. So with that, thank you very much. We're going to take questions now. We're going to start with questions in the room and then any additional questions from the audience online. Thank you very much.

Suhasini from Goldman Sachs. Two from me, please. You've talked about the improvement in leading indicators based on -- after the digital advertising spend. And you've also talked about rebuilding the growth engine. You're also talking about the incremental $25 million spend that you want to do in the next 12 months. So why lower the growth in North America to the lower end of 2% to 4% range?

I think that were 2 questions.

The second one is on the customer retention, you talked about increasing the customer retention and how an incremental 1 percentage point change can drive additional $27 million of revenue. Can you share your thoughts on where you think the retention rate can reach medium term? And of the spend that you have in the incremental $25 million that you wanted to go, maybe it's an extra 1% or 2% in the next 12 months, and then maybe beyond that takes a little bit longer?

Thanks. Yes. Look, to the growth point, in the core U.S. pest business, 1.5% is an improvement on 1%, and we're pleased with that. But it's still -- we've got some work to do to get -- just do the math. We've got some work to do to get to the lower end of the range. So I think it's essentially a math issue. We do see progress in the second half. And so you've been an excellent analyst. You can do the math for yourself. But we need further progress in the second half, which we expect and which we plan, to take us to that level. So I've said many, many times, this organic growth journey is not linear. It's not binary. There will be lumps and bumps in the road. And you heard from Brad, the fact that we've got positive lead flow for the first time since August of last year is a big thing in my life. It's certainly an important step in the right direction. Lead flow from the technician's an important step in the right direction. We've just got to continue to execute the plan. So what we're saying is we've seen good evidence that the plan is working. Sure, we'd love it to work faster and be bigger than it has been. But it is moving. Momentum is building. If you roll that forward, we expect to see further growth in the second half, but it takes us to that sort of place. On customer retention, I think it's a great question. Before the Terminix acquisition, Rentokil North America's retention rate in our pest business in the States, doing from memory, was about 82.5%. Terminix was about 75%, 76%. So we're now at a blended average of whatever it is, 79.5%, I think. And so just take the first point. If we get our business back to just where we were in Rentokil North America before the acquisition, that's about 3 percentage points of improvement in retention. So do I think it's reasonable that we can get our business on a combined basis to 82.5%? Yes, absolutely. I believe that's reasonable. The rest of the group is more like 85%, 86%. Now I think we have to aim off a little bit because the rest of the group does not have as much residential and termite, and resi and termite always have lower retention rates. So I think aspirationally, probably saying to get to 86% anytime soon is a bit aspirational. But do I think we can get to 82%, 83%, 84% over time? I absolutely do. I'm not going to be so brave as to say where do I think retention rate is going to get to quarter-by-quarter. I don't want to give myself another target. But I know you'd love that. But I'm not going to do that. But we should see progress in that. I do think it's fair to say that we've been incredibly focused on trying to get the phone to ring, trying to get lead flow going again, which, as I said, has been an issue for some time. We've got that going again. It's taken a lot of effort. It's not perfect yet, but it's much improved. We're now saying, okay, we need to make sure we've got enough focus on customer retention now. And that's why we're putting the extra 40 heads into the save team. So look, we'll make progress in customer retention. Again, I'll say it now. It won't be linear. It won't be binary. But over time, we'll make progress. But we should be getting to the 82s, 83s, 84s over time. And if you do the math on that, that's quite a big chunk. And a lot of people will ask about the difference between us and our lovely U.S. big competitor. But a big chunk of the difference if you look between their organic growth and ours, a big chunk of that, I will guarantee, is better retention rate. So it was a long answer, but I was trying to anticipate a few other questions. Thanks for the question.

Annelies Vermeulen from Morgan Stanley. I have 2 questions as well. So firstly, on the marketing spend, you've been very clear about what's been successful and where you've seen progress. Of that initial $25 million that you've spent, is there anything that hasn't been so successful or anything that you think will shift the mix of how you spend the next $25 million? That's the first one. And then secondly, on the product distribution business, it sounds like that's been quite a drag in the second quarter. From memory, I think that recovered a bit in Q1. So perhaps you could talk about what happened in Q2. And are you still confident in the recovery of that business going forward? Or are you considering options for that business from here?

Yes. Thanks, Annelies. In terms of what went well, what didn't go so well, one of my old bosses used to say you never throw six 6s in business. So you rarely get a period where everything that you did worked brilliantly and to plan. So I think there's a range of outcomes. I think there's also a range of experiences through the quarter. I think the performance on the paid search actually improved in the second part of the quarter. So part of that's learning by doing. So does this work? Well, that didn't work, so let's try something else. Yes, that works. So let's do that again. So I think part of that is, as I say, learning by doing. So I think we've had an improved performance, but it wasn't perfect throughout the entire period. But I'm happy with where we are now. One of the things, of course, if you put money into paid search, which we have done, you increase the cost per lead. So that's something I'd rather -- it wasn't the case. But by definition, if you put more money to big search engine companies to drive up performance, which means we want that term and we want that term, you're going to push the price up. So that's probably something that in terms of cost per acquisition of lead, it would be nice if that was a bit lower. So you have to be quite smart with where you spend your money because if you spend it in all of the obvious cities on all of the obvious search terms, all you do is just push up the cost. So I think a little bit more -- we need to be a little bit smarter in terms of exactly where we spend those dollars. But broadly speaking, I think the plan that we're going with in the second half is essentially a repeat of the plan, certainly when it comes to paid search and the advertising. Product distribution, you've got an excellent memory, indeed. And to sort of prove the point, not just was Q1 an interesting quarter for us last year, Q2 was very interesting. And if you remember, I pointed to the distribution business, which, for years, have been reasonably boring and stable, had got quite volatile. And we've seen a big drop, but we also saw a massive bounce back in the second quarter. And I think June of last year, from memory in the distribution business, we had something like 20% organic growth in that business. So we've been a little bit caught by the comps on that business. It's a very good business. It's a great team. It's run well. So I've got no fundamental concerns about that business. And like all of our businesses, we reflect every year as to whether there are alternatives to the business. No current plan on that one, but we talk about that with the Board in the fourth quarter as we do every year. So -- but business is a good one.

Allen from Jefferies. Three from me, please. Just to go back on the $25 million of additional investment. Could you maybe just talk about -- you said the confidence -- I think your language was the confidence to ingest more. But some of this stuff is, as you say, search engine terms, et cetera, which is an ongoing investment. If you want to keep those search engine, you need to keep doing it. So where is the confidence that we don't need further investment beyond this [indiscernible] $25 million? That would be my first question. Second question, just make a little bit of comments around the pricing environment in U.S. pest as well. Just mindful of the growth is obviously still a little bit weak versus peers. But pricing seems like it's holding up okay in the peer group. So just wondering. Are you able to benefit from that as well? And then finally, I noticed in the comments the contracting growth in North America was 2%. So it's running ahead of the broader group. Obviously, part of the challenge here with Terminix is moving some of that jobbing activity to contracting and changing the mix level. So just wonder if you can comment a little bit there about the progress, where that goes, the challenges on contracting and how that moves through the year as well.

Thanks, Allen. I'll take the first and the third. Stu, you can do pricing. Yes, look, I think -- yes, that was the word I used, and I think it's appropriate. So I think someone asked a question a few months ago and said, well, what -- why is $25 million the right number? I think it was actually Annelies who asked the question. And I said, well, it's the right number because that's what we've calculated. It's the right number I also said, but we reserve the right to move to a different number if there is a different number. And I also made the point in the remarks that -- and it sort of links to your third question about, Allen, which is really important. 75% of our revenues in North America are under contract, 25% is jobbing. So we need to make sure that the investments we are making is not just to prop up organic revenue growth in a single quarter. I'll make the bold statement. Anyone can do that if all you're trying to do is drive a number in a quarter. And you would do exactly what you just said. You'd switch the jobs. So a job in termite is $3,000. A job in home insulation services is $10,000. Pest control contract for a year is $1,200. You sell a contract for $1,200, you're going to get $100 in each of the months. So you're going to get $300 in a quarter. Or you could shift the focus to jobs, and you can get bigger growth, but then you've got to do it all again next year. So the confidence that we've got is if I was sitting here and saying, you know what, we've thrown an awful lot of money at Google, but we couldn't make the phone ring, that would be a real problem. We have thrown money in [indiscernible]. We have spent money on paid search. And we've started to see -- thank goodness, we've started to see positive inbound lead flow from the activities. We've still got to train the machine better than we've done at the moment. So there's still -- we've still got examples where we're sending branches -- sending leads to branches that don't need them and not sending them to branches that do. But that's about training the algorithms, training the machines and making sure we're smarter about where we spend the money. But the talent we've got, the agencies we've got, the focus we've got with Brad and his team demonstrate the confidence that what we have done in the second quarter is working, and that's why we're repeating it. And yes, we think it makes imminent good sense to put more money to work. But don't forget, we're not just trying to make the phone ring in quarter to sell a bunch of jobs in quarter. We are trying -- and I'm glad -- I'll deal with the third question. We are trying to, over time, get that mix right that we are building the portfolio. So you're right to point the 2% out. 2% still not where we need it to be. But that portfolio growth of 2%, if you get a contracting business where you get your net gain up to, say, 5% over time, that will give you typically 5% of organic growth. So that is one of the features that we've seen in the quarter, a bit more focus on selling core pest control contracts. It doesn't mean to say we're not focused on jobs because jobs are incredibly important. But you've got to get that contracting portfolio into positive momentum, into positive net gain, and which is why the focus on retention is so incredibly important. So you've got to not just fill the top of the bucket. You've got to stop the stuff coming out at the bottom of the bucket at the same time. So that explains the confidence. That explains the contracting bit. Pricing, Stu?

Yes. On pricing, it feels pretty resilient to us, again, not just North America, pretty much across the globe. You've got some tapering there, obviously, as inflation comes off. But they continue to be able to price effectively, including North America. And where would you see a problem, you'd see it in the retention rate. You'd start to see retention rates drifting up if we were going to get -- sorry, termination rates drifting up if we were having problems making pricing stick. So we haven't seen any sort of sea change in our ability to recover price in North America or anywhere else around the world. It feels pretty solid to us.

In the North America like I assumed…

Well, look, we continue to try and recover inflation is what we do. We're not trying to enhance margins. So -- and as I've said many times in the past, we look at it on a monthly basis, and we process in the month what we're seeing in front of us.

This is Simona Sarli from Bank of America. I have a couple of questions, please, one for Andy and for Brad. Probably considering since the closing of the deal, how has your opinion changed or evolved on the potential challenges but also opportunities from Terminix in North America? The second one, if we look at the performance for Q2, and clearly, you flagged that you already had tough comps from June last year in the redistribution business, which I assumed was also already well known to you. So what can mean that it was probably softer than expected and that explains why the growth was actually below your guidance overall for past control in Q2? And if you can provide a little bit more color on the differential in performance between commercial versus residential in termite versus Q1. And if in commercial you have lost any contracts, for example, with national account [indiscernible].

Thanks. I'm trying to pick the bones out of that. The 2 questions that sounded more like 4, but I'll do my best. Let's go to the first one. Overall, how do we feel about -- I mean use it me and Brad, I think I'll take it because Brad only joined the team post the deal. And the question was how do I feel about it relative to how we used to feel about it and when we looked at it. Look, let's be honest, it's clearly taking us longer to get growth where we need to get growth, and I think you've heard me diagnose many times and give the strategy for pest control business. You got to have great colleague retention and great colleague retention consistently over time feeds into great customer service, which feeds into better customer retention, which feeds into the ability to sell customers more things, more jobs, upselling and to get good prices. So I think fundamentally, the bigger challenge or the challenge probably that's turned out to be bigger is getting colleague retention back or up to where we need to or towards where we need to. And it's probably the area that I'm also most delighted with the progress we've made in the last 12 months. So I think that's to pick the main issue. I think it's being harder to get growth. And I think it's been because we've been finding it harder or the challenge to get the colleague retention up to where we need to has been bigger. In terms of the opportunity side, I look -- we judge performance and we look at companies and we look at them through an incredibly narrow range of how have we done in the last 13 weeks. I don't know. I look at this as the opportunity that we're building here to create, I call it, the powerhouse of pest control. I couldn't be more excited. I remain incredibly excited about the opportunity in this business. We're the #1 in the world. We're the #1 in resi. We're the #1 in termite. We're the #1 in commercial. We spend more innovation than anyone else. It will take time. But if we build it, they will come. I'm more excited than I've been in the past, but we still got ways to go. In terms of the -- I'll just deal with the commercial bit, specifically, National Account. National Account is performing very well. Rentokil National Account is very strong. I looked at the win/loss data the other day, absolutely no evidence at all that we've lost big accounts to big competitors, and we've certainly won as much as we've lost. So I don't think there's any new story there. Don't forget Terminix had a National Account piece of business, and Terminix was the weakest of the National Account players in the United States. So I think we've seen a bit of attrition around the Terminix National Account's table. But over time, we're moving the Terminix National Account Copesan customers into the Rentokil's table. So we're working through that, but I don't think it's a big story there. What was specifically softer about the distribution business? Do you want to pick that, Stu?

Yes, sure. Really, it was a bit -- those comps, as you rightly point out. It wasn't a surprise to us. We had 20% plus organic growth in June last year. Actually, distribution helped the number in Q1. So it's not that it's particularly challenged. It's just more lumpy than it really used to be pre-pandemic is the main shift. So we didn't give a revenue target -- growth target for Q2, by the way. We gave one for Q1 and then we gave one for the full year. So we're still sticking with that target range of 2% to 4%. So we haven't really moved that, and we certainly didn't give a target for Q2, and distribution was included in that view of life, of course.

James Beard at Deutsche Bank. I've got two questions, please. Could you give us a little bit more detail around the working capital and particularly the debtor performance in the first half and why you think that is a one-off issue and will reverse in the second? And second question, you mentioned that you're pivoting away from 100% sales commission for new hires in North America. What proportion of North American sales colleagues are currently on 100% commission contracts?

Yes. On debtors, it was quite peculiar. I mean we don't manage cash strongly at the half year because it's really related to the -- we're building up the season. We always have some sort of outflow. And it was just a bit bigger. If you -- what was interesting is every single region we reviewed said, and you're going to love this, the half year finished at a weekend. And we paid out debtors -- our creditors the week before, and we suffered from customers paying us the week after. And actually why am I confident because we saw the week after the cash flowing in. So it really was a timing thing. We're largely a Northern Hemisphere business, therefore, at the 31st of December, we don't see those characteristics. And so I'm really confident that it was just a real peculiarity around the half year that I wouldn't expect to recur.

Sales colleagues. I'm going to give you the answer, and I'm going to look at Brad and he's either going to nod his head or he's going to shake it, so we're going to do it that way. I think we have 425 colleagues in Terminix who are on 100% commission. I don't think we have any in heritage Rentokil. I think we have 425. That's probably about 10% of the total sales force. He's sort of shaking his head, nodding his head. I don't know. And what we're doing here is important. If you've already figured out how to sell and you're already on a 100% sales commission scheme and you've been doing it for X years, you love it. And we're not going to take that away from those people. But we don't think that's the way to build the future professional sales force. We don't do it in that way in any part of the business. We don't do it in Rentokil North America. So for new people coming in, we're moving them to a much more conventional structure that we've been using for years in Rentokil with a good salary, but with good opportunities to earn more money. So the earning potential will be as good. But if you're already using the 100% scheme, we're not going to take that away. And that was one of the worries on our behalf, I will say, one of the worries that's been out there, which is, are you going to lose a lot of your top sales people because you're going to take away the 100% sales? No, we're grandfathering for an inappropriate phrase. We're leaving them in those pay structures.

Chris Bamberry, Peel Hunt. A couple of questions if I may. How did organic growth in North American pest services developed over the quarter? And secondly, you kind of nudged down slightly your M&A target for the year. Is that just a timing issue? Or have you been losing out on deals? And I guess, on that front, what are we seeing in terms of pricing and competition for acquisition?

I'll do the M&A one and then I'll come back to the one that I'm not going to answer. M&A, we do what we can. So at the beginning of the year, we gave you the very best view of what we think we're going to do in the following 12 months and then we update it, either we say, we're going to spend a bit more or we're going to spend a bit less. M&A is very opportunistic, very lumpy. You can win a big deal and suddenly the numbers change or you can lose a few. There was no story here at all between the 250 -- the 200 to 250, just simply as we sit here today and the pipeline for execution in the coming 6 months. Just doing the math on it, and we probability weighting on well, how many of these deals do we think we will close, et cetera, that's where it comes out. So we reserve the right, of course, we do to spend more than the 250. We reserve the right to come in under the 200. But as we sit here today, it looks like it will land in that range. I don't think there's much I can tell you on pricing. We certainly saw over the last 5 years in the United States, an increase in prices that kept -- went up 5 years ago and stayed high. Then we were hoping that prices would dip a bit. And I think we did see prices dip a bit in the last 18 months as interest rates moved up, and therefore, private equity found it more difficult to be competitive. I don't think -- and it's marginal. I don't think we've really seen much movement in those prices. If there's been any movement, I'd say it's been a little bit softening overall, but not massively. You saw the amount of money we spent relative to the dollars we bought or the pounds that we bought, and you might say, oh with that, that looks like you're spending less per revenue dollar. That's really a function of the fact that we did more on the Hygiene & Wellbeing side in the half than previously. So Hygiene & Wellbeing deals typically come at a lower multiple, typically because there are a few people chasing them. The pest control pipeline and funnel looks good. Prices are stable, may be a shade lower than they were, but difficult to say. In terms of the month-by-month, blow-by-blow, no, I'm not going to go down that rabbit hole. Otherwise, I'll be giving you a monthly revenue numbers, and I don't plan to do that. But I don't think there's a massive story in the quarter. I've mentioned that some of the paid activity, we learned as we went through the quarter. But overall, I don't think it's a big story in the quarter to share one way or the other.

Nicole Manion from UBS. Just two questions, please. You've talked today a lot about the importance of colleague retention and since the deal closed, I think that's broadly speaking been increasing. Should we be expecting some volatility in those metrics, even if only temporary, as you sort of crack on with those full branch and route integrations in the kind of later phases? And then secondly, a broader question on the branch strategy. I guess there's obviously multiple ways to skin a cat, but you have a big peer who is maybe quite vocal having these smaller, but more numerous branches. I think you've touched on it today in those helpful slides, but I wonder if you could elaborate on what gives you confidence that is the right approach? Is it that you think you're doing something different through the integration process around innovation, route planning and so on. It will be somewhat better than what peers in the market have or is it something else?

Yes, colleague retention. That's a good question. I think we'll know it when we see it is the honest answer. If we go back to the pilots that we did whenever it was 12 months ago, we did see volatility in colleague retention. That is why we did the pilot. So we then drilled down and said, okay, what caused this volatility, what have we done to upset people that has caused them not to want to hang around. Some of it was around things like the pay structure. So we've learned from that. This is why we pilot, and that's why I'm going to share some of the changes there. We've also said -- we've called what we're going to do in the fourth quarter, a pilot. We've done that quite deliberately. It is the plan. The plan is locked. We know what we're going to do on pay and conditions. But we're pragmatic. If when we get into it, we get a lot of negative feedback from colleagues, okay, we reserve the right to change that pay plan and pivot. We actually think and our data suggests, there are going to be far more people who are going to be happy with what we're going to do than those who have the potential to be unhappy. But we're also focusing on the ones who could be unhappy. So how do we make sure that we reduce the probability that they're really going to be unhappy. So it's possible. And I would say -- and also sitting behind your question, don't forget to deliver the synergies that we're committed to, we have to take a lot of people out of the business. Our plan firmly is not to do some big redundancy program. That's not going to happen. How we'll do it is typically not to replace natural attrition. So as people leave, we won't need to replace them. We would just reorder the territory. So there could be some volatility because there are moving pieces. But the underlying trends are there to see and they're positive. The branch -- excuse me, I got terrible man flu, so apologies. The branch -- the reason I put that chart in -- Brad put that chart in, there's been a lot of myths that have been commented again on our behalf that we're going to move to this mega branch structure. We're going to have these huge branches. And clearly, look, I get it. My very good friends in Atlanta have a different approach. But is it really that different is the question I would ask and the main point of that Slide 43 was to point out what's really happening here is we're taking 160 branches, which are subscale, which are sub-3 million. And that's just too small for a branch. It just is. So most of those become small branches. And then you do the math on that, it's not so wildly different. And you look at that say, well, actually, on big branches, let's talk about those big mega branches. We've already got 80 of those today, and we're going to move to 110. So I don't think it's radical and nobody ever asked the question to my friends over Atlanta, but somebody should ask them, do you have big branches because, hey, guess what, they do. So I don't think it's a radically fundamentally different view to the competition in the market. We're just in a -- we're in a moment in time, we've got to get through this process. We've got to get all the systems fully plumbed in. We've got to get rid of the integration. I'm very, very confident that end state is more than fit for purpose. And it's a model that we've used for years. So I guess, I would encourage people not to spend an awful lot of time trying to tease out the differences between us and the competition, but -- except that actually our model is much, much more similar than it is different. And some of the points that Brad made in his comments, customers don't go to branches. So the notion that we're putting branches closer to customers is a slightly odd one. Technicians are -- their route is based on where they live. So if you live in North Atlanta, we'll give you a North Atlanta territory. So you are living in the community of where your customers are. So we have that proximity. I'm sure there are things that we can do better, and we're a learning organization. But the point of the slide is really say, look, it's not a fundamental move to mega branches. It's enough weighting of subscale into small branches.

Sylvia Barker from JPMorgan. Three, please. On organic for the second half, you'll finally be doing some of the full integrations in Q4. Would you share any dis-synergy assumptions that you've got within the organic guidance for North America? Secondly, free cash conversion, is that different in North America versus the rest of the business? Because you've got more residential, presumably have a different proportion of prepayments? How does that -- maybe not just for the half, but more structurally? And then finally on Hygiene, obviously, we've asked you this in the past, so sorry to ask again, but where is that business in terms of the -- I guess, how integrated it is with pest in the various regions? Clearly, we get asked that a lot given the recent news flow.

Thanks. Well, I'll do 1 and 3. Yes, I'm not going to give you a number on dis-synergy. All I'll say is that as we put the program together, as we put our plan together, as we put our guidance together, we made certain assumptions that there would be some level of short-term impact on organic growth as you move into integration. So rather, and hopefully, I'm not going to give you that number. But I also said, look, we've done many integrations where the impact has been 0 and we've done many integrations where the impact has been significant. The thing that I'm really most excited about in the second quarter is we've done the systems integration. I know that might not sound a big thing to many of you, but it is a big thing. So to integrate this business fully and properly, we have to do two things. We have to get the systems fully integrated. That's an enormous task, an enormous task, so many things that have to be done well. And that's gone really, really well. So we've now got an IT stack that we've converted Terminix colleagues from their system into the new system. We've converted stand-alone acquisitions to the new system. We've converted commercial, residential, termite to the new system. We've had multiple day 1 glitches every single one of which has been resolved and put to bed. So not saying it's done, but my goodness me, that's a big tick to say you've got the systems integration done. Well done, good, excellent. Yes, but we've still got other things to do. And the three big things that we have left to do is: rerouting, is rebranding and is pay. We feel really good about the pay piece. We've spent ages and loads of money with third parties, and we've talked to lots and lots of people. I think the pay structures we got are really good. We'll find out in the fourth quarter. So -- and as I said, if that doesn't work, well, we adjust. Branding, we put a chart in here on branding because again, people are worried on our behalf that we are going to overnight rip up 70-odd local brands and move to Terminix overnight. We never said we were going to do that. We never plan to do it, but we put a bit more meat on that bone. And we said, look if it's big regional brands like Western Exterminator, Florida Pest Control, Ehrlich, they will be co-branded and they'll probably be co-branded for years and years and years. And I'm sure, long since after I stepped in this job, you'll be able to see Western as a brand. It will be co-branded with Terminix. And then the little brands, well, okay, but we're going to take a bit of time to phase out the small brands. So the pay I'm feeling good about, the branding I'm feeling good about, and then the rerouting, rerouting for Brad, we're going to have to do what we've done, hundreds, if not thousands and thousands of times and it's the rerouting that probably -- it's a bit an answer to the question, that's where you could get some sand in the gears. If you don't do that well, you'll annoy a few customers. So the pilot so far don't involve rerouting, they involve systems integration, big tick, terrific. Pay plan looking good, branding looking good, rerouting. We've done it so many times before, but that will be the pinch point. Can we do that at scale over the next 2 years without causing a lot of interruption to our customers? We think we can, but I'll let you know when we get into it and we will get into it in the fourth quarter. Free cash flow conversion.

Yes, free cash flow. Thanks Andy saying taking so long over that give me a chance to have a think about it. So let's start from the bottom. National Account, very, very similar, almost identical. [indiscernible] might be different commercial business. We've got a big commercial business in North America, very, very similar. Again, it's payment in arrears and why sort of commercial customers take longer. You're right, residential and termite is different. We've -- and the main difference is around revenue recognition. So it's visit based. It's highly seasonal. So you are billing often on a monthly basis -- sorry, collecting cash, apologies, on a monthly basis. But then you go out and you do work and you recognize the revenue and then you allocate the cash. So what you get up is -- as we get into the season -- through the season, your revenue recognition is ahead of your cash collection, yes? And so then that unwinds for the remainder of the year. We've still actually -- so a very high percentage of new residential and termite customers are on either EasyPay or credit card. It certainly starts with 9 . We still got quite a big legacy of historic customers that still pay by those -- that glorious American thing called the check. So therefore, we still have some collection challenges and that variability around customers that we've had for a very long time. So that's the way the difference is really around the revenue recognition on residential and termite.

How integrated is Hygiene with pest control? It's pretty integrated. At a country level, you run a country, you don't run past or hygiene, you run both businesses. So there's only one MD, only one FD, one HR director, one IT director. So at that most senior C-suite level in any country, you're running the whole thing. So you want to separate those businesses, you're going to have to put a huge layer of overhead in one side or the other. At the branches, it's mixed. Some we run at the same physical location, some are separate. We use the same IT stack. We share procurement. So there's a significant overlay between the businesses, and we get some commercial benefits as well. We don't do a lot of cross-selling. Hold the front page, cross-selling is really, really difficult to do. Anyone who tells you it's easy, has never tried it. But we do have a lot of customers who buy both, that doesn't mean to say that pest control people are selling hygiene or vice versa. But if you're a happy pest control customer, we will introduce you to hygiene and vice versa. So we do get a cross-personalization on commercial. So honestly it's a very similar business the way it works, route density. It's got even higher level of contracting versus past control. All of the things that we talk about in pest control about the importance of colleague retention and all of that exactly the same. So the synergy of having those businesses together, I think, is material. The dis-synergy of separating those businesses, I think, is material end off as far as I'm concerned.

The last question in the room, then we'll take some online.

Okay. We've got some there.

It's James Rose from Barclays. Got two, please. First is on the North America growth strategy. We've clearly made good progress on leads. But when it comes to sales conversion, is that at a rate below what you typically expect and what's your thought and diagnosis for that? And then secondly, assessing the slide, you're doing a process deep dive on the Terminix pricing process. What has prompted you to do that and what would you sort of expect to find from that review?

On the first question, can I add someone has asked online, why the average value of lead was down along with sales conversion? So if we could combine that question with yours.

Yes. I will try not to talk so long and give you less time to prepare the answer for second one on pricing. Yes. Look, we gave you the growth model, which shows where growth comes from. Sales conversion and average lead value was very slightly down, but they were down. And large numbers times a small variance can get you a medium-sized number. So it did have an impact. The honest answer is if you push hard to generate additional leads, you shouldn't be surprised that some of the leads are of a weaker quality than if you weren't pushing as hard. So it's simply, again, a numbers game. So yes we've got more leads, but they weren't all of the same quality. And as you go down the funnel, some of them will be of a weaker quality and some of them will be smaller and that then feeds into conversion, which is if you -- if the only thing you ever feed a sales person is brilliant top quality leads that are incredibly easy to sell, they're going to sell them. But as you go down the funnel and you give them things that are a little bit more difficult to sell, they don't close quite as highly -- at a higher rate. The bit is though and I get excited about this. Brad covered it in his piece, particularly on the Terminix side, we've had a really horrible retention rate of new sales colleagues. The reason -- one of the main reasons we're moving away from this 100% commission thing for newbies is newbies don't like it. It's really difficult to be successful in a few months on a 100% -- no salary, 100% commission only. And our data proves that if you've done a year or so, your conversion gets a lot better. So by getting more and more people to stay longer and longer, we will get an improvement in the sales conversion rate by into the fact that our people have got more experience as opposed to we're replacing experienced people or replacing churn at the front end. So I think it's a big story. The numbers were marginal, really marginal, but I was hoping to see an improvement in the conversion, and we saw a marginal decline. So one to keep an eye on, keep asking the question, but one that Brad is incredibly focused on. We'll get those numbers up as we get sales colleague retention up. Stu?

On pricing, something I've spoken about a couple of times. If you sort of step back and look at the heritage of pricing in Rentokil and in Terminix. Rentokil very, very granular owned by branch managers, given targets and allocate price increases according to the knowledge of their customers, their performance people who've had a poor service, people who've had really good service where they're not making enough margin blah, blah, blah. So really, really very granular approach to pricing around a target overall. In Terminix, much broader brush. So top down, here's our price approach. So I'm talking existing customers here, okay? Much more about -- so in some ways, more effective, but in some ways, a sledgehammer. And so actually, two things. One, bringing those things together, we think we can have a more strategic approach to customer groups. So by category, by [indiscernible] sorts of things. But also, we've got some mismatches in pricing between -- in the same regions. So the Rentokil price position for existing customers might be quite different to the Terminix price positioning and delivering effectively the same service. So as we bring these things together in one big data lake, it gives us much better opportunity for effective pricing, combining the best of both understanding and bringing the -- where we've got customer issues, where we've got softer on pricing, where we've got et cetera, et cetera. So bringing the best of both into that world. But I think also strategically gives us a much better opportunity to manage yield around pest pressures, around the demographics of the region. So that's what we're doing is trying to not lose the best of both combine them and really look at how we are pricing. And of course, that feeds into new business pricing as well. So understanding better our existing customer base helps us better position a single proposition for Rentokil Terminix in that region around be it resi, commercial or termite that's the way to think about it. So online, we've got a couple of questions. I'd say that 2 or 3 of them are market rumor related, let's say, so I'll read them out. Have you engaged with [indiscernible]? Any update on the disposal of French Workwear? Have you spoken with Mr. Peltz since the news came out? Philip Jansen is working with private equity companies. Do you have any response to this? How will the company fend off a battle? So before Andy comes to those, I'll give those to him. I'm enjoying this role, honestly. Can you provide more details about the upcoming refi of the EUR 400 million notes? Would you consider to increase the size or might like-for-like any preferred market? So we match our borrowing to our EBITDA. Those notes are actually swapped to dollars. Most of our debt surprisingly is swapped to dollars, about 2/3 of it. And historically, we've had a good EMTM program, very low maintenance, very effective. That's what we've done. Clearly, now with our bigger U.S. presence, we'll consider raising dollars in the U.S. in vanilla issuance. And we've got a term loan, a variable rate term loan that matures in 2025 back end of next year, which was the loan we took out at the time of the acquisition. So between the term loan and this year's euros can we put those together and do a bigger block? Or do we still keep more smaller, manageable annual refinancing? That's what we're thinking about. But those are the choices we've got, and that's the decision we'll make later on this year.

Thanks Stu. Well, let's stay with those. But first off, I've been doing this job quite a few years. I have never disclosed the private conversations I've had with any of our shareholders, and I don't intend to start doing so now. It would be completely inappropriate. I wouldn't do it for long only that I've known for a decade, I wouldn't do it for new people coming on to the register. So that, I think, is easy to deal with whoever the shareholders are. The second point is we treat all of our shareholders exactly the same. And certainly, we treat all of our major shareholders exactly the same. So we do meet our shareholders from time to time, and that's what I would consider normal investor relations. In terms of matters in the media, I mean, stating the extremely obvious, we don't comment on rumors, but I'd also remind everyone the panel rules and the panel requirements in terms of these matters are incredibly clear and incredibly strict. So I think you can interpret that as you will. I don't spend time reading the newspapers and their speculation and quite often not, they're not as accurate as you might think, but I don't spend time worrying about that. We're working incredibly hard on growing this business. We're working incredibly hard on improving organic growth in North America, work incredibly hard on the integration and the Rest of the World business, which is all going well. So I focus on the stuff that I can focus on and not the stuff of idle rumor and chatter, can't comment those rumors and would never comment on discussions that I've had with any shareholders.

Disposal of French Workwear. Any update?

No. Look, the position of French Workwear, I mean I updated in terms of the performance, another cracking performance, one might make the argument at best-performing business, but a cracking performance again from French Workwear. It is noncore. It is a noncore asset to the group and I'm sure at one point in time, we will conclude that there is an owner for that asset who is a better long-term owner than we are. But that requires somebody to want to buy that business at a price that makes sense to our shareholders on a fundamental shareholder value [indiscernible]. So selling an asset at an undervalue doesn't seem to be a good thing to me, selling an asset for an appropriate value does seem a good thing. So it's not "for sale." But then again, everything is "for sale." That's the nature of business. So no update and no change to our position. It's a lovely business. It's well run. It's performing well. At some point, I suspect we'll conclude that there is a better owner that is not today.

Thank you very much. I think that's it.

Are we done?

All questions done here.

Thank you, everyone. I appreciate it.