Rentokil Initial plc (RTO) Q3 2025 Earnings Report, Transcript and Summary

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.