Rentokil Initial plc (RTO) Earnings Call Transcript

Good morning, ladies and gentlemen, and thank you for joining us. It's a pleasure to be with you. I look forward to speaking with many of you in the coming days ahead. In a few moments, Paul will provide you with details on our financial performance for the 6 months ending June 30. I'll then come back to provide my first impressions and priorities for growth before taking questions. Please note to ask a question today, you will need to dial the separate conference call number shown on our website or at the end of this presentation. I want to first thank our 65,000 colleagues we have at Rentokil that come to work every day with 2 simple goals: keep each other safe and take care of our customers, and they do so to the best of their abilities. Our frontline truly are heroes and make me proud to be wearing the same jersey. For half 1, the main headlines of an encouraging set of results are good financial performance with further progress on revenue and profit and strong free cash flow conversion. We are pleased with the acceleration of international growth in the second quarter with 5.4% organic growth in pest control, and I was particularly pleased to see customer retention improved by almost 1% in the half. In the U.S., the team has worked hard and made good progress over the last 18 months. We have made the right pivots from the original integration strategy towards more brands, more branches and smarter digital marketing. And it was reassuring to see residential revenues continue to grow in the first half. We now need to give our commercial business similar focus and investments to drive comparable results. Since joining 4 months ago, I've spent much of my time in the field with our frontline and our customers. From these interactions, it is clear we have a strong right to win and possess many of the components necessary for doing so. I'll come back and share my initial thoughts on our growth plan and how disciplined prioritization and execution against increased customer focus, sales and operational excellence and complexity reduction will drive organic growth. To support us in both creating and delivering our growth plan, we have made 2 excellent additions to the team. Rafa is joining us on Monday to lead our business in North America, and Famous Rhodes had joined as Chief Marketing Officer for North America. In addition, we will appoint a Group Transformation Officer, a new member of my leadership team to drive our program forward. Critical to our success will be enabling our frontline. They are our brand, and we need to make it easier for them to deliver on our brand promise and do what they do best, taking care of customers. Today, I am more excited and confident about our future than I was on day 1. I've seen what is working, best practices that can be reapplied globally and our opportunities for improvement. Our task is to build on our strong foundations, standardizing, simplifying and scaling what we do best. The type of work I know very well from my previous roles, and it is what I'll return to talk about. Now let me hand it over to Paul to take you through the financials. Paul?

Thank you, Mike, and good morning, everyone. Before I begin, I'd like to draw your attention to the usual cautionary statement contained at the beginning of this presentation, which also applies to this call. I will now walk you through our key financial highlights for the first half. Unless otherwise stated, all figures are in U.S. dollars and on an adjusted basis. Any comparative performance is on a constant currency basis. Half year revenue was up 4.5% to $3.589 billion with organic revenue growth of 3.6%. Operating profit was $556 million, an increase of 6.6% with 10.2% growth in North America and 4.3% growth in International. Central costs were up 16.9% due to underlying inflation and ongoing investment in digital solutions and technology. I expect this growth to moderate in the second half with a full year growth rate in the low double digits. This resulted in an operating profit margin of 15.5%, up 30 basis points. After slightly higher interest costs and a tax rate of 25.7%, we delivered earnings per share growth of 8.3%. We've continued to improve free cash flow with 12.8% growth and 96% conversion, benefiting from disciplined working capital management and tight control of capital expenditures. We remain on track to deliver our guidance of greater than 80% cash conversion for the full year. Leverage stands at 2.4x, down 0.4x from this point last year and within our target range of 2 to 2.5x for the first time since we acquired Terminix in 2022. In line with our progressive dividend policy, we've increased the interim dividend by 8%. When I consider our financial performance overall, when compared against this time last year, we have improved across the board. There's still more to do, but I'm encouraged by our progress. Turning to North America. Revenue increased 4.2% to $2.197 billion. Organic revenue growth improved to 3.7% with 2.6% growth from Pest Control Services and 10.6% growth in Business Services. As a reminder, consistent with commentary at quarter 1, we continue to expect organic revenue growth in Business Services to moderate in the second half. Operating profit was $393 million, growing 10.2% with 1 percentage point of margin improvement to 17.9%, which reflected continued strong progress on our cost efficiency programs. We made good progress delivering on our strategic initiatives. We have already achieved our smaller local branch full year rollout target of 70 new locations and managers are now able to access Branch 360, our proprietary data hub, improving speed and clarity of decision-making. Finally, I'm pleased to see that both customer and colleague retention continues to improve year-on-year. Looking at Pest Control Services, which continues to benefit from a robust pricing environment. The chart on the left-hand side shows how far the business has progressed in a short period of time, benefiting from the actions we've taken to improve performance. Our residential business is performing well, delivering a solid growth rate in the first half. This was offset by slower growth in commercial, particularly in quarter 2. Looking a bit deeper at residential, core pest control accelerated through the half, slightly moderated by a slowdown in termite revenues in quarter 2. Residential leads grew 6%. And in line with our strategy, regional brands, in particular, drove strong lead growth. Looking forward, we've seen some weakness in North America residential lead flow towards the end of the second quarter and into July. Residential retention improved, helped by rising Autopay penetration and continued good performance from our customer sales team, which is achieving a roughly 1 in 3 success rate in customer value retained. Moving on to commercial, which grew more slowly through the half. Our commercial leads had good growth at 8%, but more is needed to improve conversion and retention, which declined year-on-year with moderately increased customer losses in small and midsized accounts, partly driven by the rationalization of our heritage Terminix commercial business we had spoken about earlier this year. We're accelerating several initiatives here to improve growth, which Mike will speak to in greater detail later. Looking more closely at North American margins. We provided additional disclosure to show the margins for both Pest Control Services and Business Services. Business Services has delivered strong revenue growth over the past 2 years, led by our lower-margin product distribution business. So this has a negative mix effect on total North America margins. In Pest Control Services, we've delivered good margin progression, up 1.4% since 2024 and close to 20% as of the first half. This improvement has been driven by our transformation program with over 1,100 roles offshore to lower-cost locations, primarily in our call center and support functions and over 500 roles eliminated through redesigned processes and automation. These actions delivered gross savings of $45 million in the half with net savings of $28 million after reinvestments. We exited the half with a gross savings run rate of around $90 million annualized, leaving us well on track to deliver against our original target. But this is only the beginning, and we see material additional cost efficiency opportunities across the group, which we started to address earlier this year with some outsourcing activity in the Pacific. Taking our successful playbook from North America, we expect to generate significant fuel for growth, self-funding reinvestment in 2027 and beyond, particularly to drive accelerated performance in the U.S. With this additional resource redeployment to North America as well as the stronger-than-anticipated performance from margin-dilutive business services, we are retiring our 2027 20% margin target for North America as it is no longer in line with our strategy. In the last 18 months, we've made various investments ranging from the optimization of our digital marketing spend, more brands, more branches and investments in customer service and in retention, which have already produced tangible positive outcomes such as lead growth and pricing improvements and will continue to help us by enabling our branch managers to make faster and better informed decisions. Moving to our international business, where we drove revenue up 5% to $1.392 billion. Organic revenue growth was 3.5% in the half with quarter 2 improving to 4.2%. Operating profit was $266 million, growing 4.3% with 19.1% margin. Pest Control delivered an improved sequential performance of 5.4% organic revenue growth in quarter 2, up from 2.8% in quarter 1. Performance was strong across the region, held back by strong comparatives in Rural & Track Spray in the Pacific and tougher trading conditions for property services in the U.K. Excluding these businesses, International pest grew 5.8% in quarter 2 and 4.9% in the first half. Hygiene and Wellbeing growth was more modest at 2.6%. International colleague and customer retention, which is already high, continued to increase year-on-year. Turning now to cash flow. Overall, continued disciplined working capital management and tight controls of capital expenditures delivered a strong performance with 96% conversion, up slightly from last year's 93%. After a strong first half, we remain on track to achieve our guidance of at least 80% cash conversion for the full year. Turning to look at cash and leverage. Strong operational cash generation has allowed us to make continued progress in strengthening the balance sheet with our leverage ratio reducing to 2.4x and net debt reducing by $75 million. Running through some of the key uses of free cash flow. The cash impact from one-off and adjusting items was $70 million in the half, largely attributable to North America transformation costs. We are increasing our full year guidance to $110 million to $120 million, reflecting additional costs in the first half for international transformation. We reinvested $39 million in bolt-on M&A, acquiring 14 businesses generating $26 million of revenue in the year prior to acquisition. We are reducing our full year forecast for M&A spend to $120 million as we continue to target accretive M&A focused on our core growth engines. We added $44 million to the legacy termite provision in the half. As a reminder, the calculation of the provision is mechanistic, reflecting experienced near-term trends over the last 12 to 24 months. The additional provision was primarily driven by us experiencing an increased claim cost in some non-litigated claims we settled in the period, which requires us to assume a higher future average cost for such claims going forward. Based on these current trends, we've also increased our cash outflow guidance for the utilization of the provision to a range of $115 million to $125 million for the year. Turning to capital allocation. Our primary focus is to invest in organic growth as it drives the best return on investment, deploying capital to support long-term growth and drive operational efficiencies. We will also continue to pursue inorganic growth through targeted M&A. We will remain selective and strategic in identifying opportunities, which are focused on our core growth engines. We remain committed to a progressive dividend policy, ensuring that dividends grow over time. Our approach reflects confidence in the underlying strength of our business and our ability to generate consistent cash flows while maintaining financial flexibility. We recognize the importance of returning excess capital to shareholders. And we do -- when we do have surplus capital beyond our reinvestment needs, we will evaluate opportunities to return it while maintaining a strong balance sheet, targeting 2 to 2.5x leverage. So in summary, we have delivered continued progress on organic revenue growth as our strategic initiatives are working, delivering improved growth in North America Residential Pest Control services. Commercial requires incremental focus, which Mike will speak to shortly. We're pleased with the performance improvements in international Pest Control. We're on track to deliver our 2027 cost savings in North America and see material further efficiency opportunities globally to unlock fuel for growth, allowing incremental redeployment of resource to North America. We remain focused on growing margins over time. Finally, I'm pleased with our cash performance, which puts us back in our target leverage range. Overall, there's no change to our outlook. We continue to expect full year profit in line with current market expectations. Thank you. I will now hand you back to Mike.

Thank you, Paul. 4 months in as CEO, and I'm already feeling at home in the world of pest and washrooms. I've been getting under the hood of the business, going on ride alongs with salespeople and technicians, visiting over 20 field locations, meeting with many customers and undertaking deep-dive business reviews across all our markets and functions. I frequently work from one of our U.S. branches and getting a ground level firsthand operational view of the business has been invaluable. What I have seen gives me conviction in our right to win. We operate in a structurally attractive industry with category-defining brands like Rentokil and Initial, powerful regional brands such as Terminix and well-known local brands like Florida Pest Control and Western Pest. We have a highly experienced, long-tenured and proud frontline organization with long-standing customer relationships. We have national coverage in many countries and are the only truly global pest and washroom business. And we benefit from differentiated capabilities and connected technologies, capabilities that create strategic, sticky customer relationships. We have solid foundations and the potential is very clear to see. Our goal is not to reinvent Rentokil, but to take the many strengths of the company and reapply them consistently across the group, organized to fully leverage scale and drive functional excellence and become a truly great service company. I want to take a moment and share my philosophy on what makes a world-class service company. It's a philosophy I've been sharing in town halls across the company in my first few months. Being a world-class service company comes down to 2 simple principles: enabling the front line and delivering customer service excellence. First, it's about the front line and how we, as leaders, set them up for success. We do so by establishing clear expectations, providing the right resources and training, removing barriers, empowering decision-making and celebrating wins. Recognition is a powerful tool and a key driver of engagement. Second and equally important is the customer. Our goal is to win at the 2 most important moments of truth. Do we show up when promised and do we do the job expected? If we can say yes to those 2 moments of truth, we earn the right to come back tomorrow and do it again. For service companies like us, delivering customer service excellence is our product. Like any product, it requires continuous improvement and investment, which is an opportunity for us in both pest and washrooms. From my initial observations, it's clear to me that we currently lack the consistency and standardization required to be truly efficient and effective. Our people are engaged, but are operationally oriented and focused on getting through today's task list. We have not enabled our sales force with the tools, training and resources required to drive outsized organic growth. We're not setting our front line up for success. As I said previous, setting them up for success includes giving them the necessary training, removing barriers and empowering decision-making. And we are too complex. Our complexity is inhibiting our ability to realize scale economies while diluting focus on our core customers and core business. Key to building a high-performing organization will be to make the business simpler and improve execution. Our 3 main priorities to drive organic growth are: first, customer focus. By making the customer the simple single center of focus, we will improve the customer experience. Second, sales and operational excellence, implementing tools to enable the sales force to be more effective, combined with defining operating models; and third, business simplification, removing complexity to create a leaner, more agile organization focused on core growth markets and business lines. Moving to our first core priority, customer focus. Our frontline engages with customers every single day. No one else does. I don't, group doesn't. The front line is our brand and are the reason customers stay. When they are engaged and feel valued, they go the extra mile to delight our customers and become trusted advisers. But today, we can make that hard for them. Insufficient training, shifting priorities and duplicative systems get in their way. We need to make it easier for them and standardize operating procedures so they can do what they do best, take care of our customers. Customers want to do business with people they like and trust. Building trust requires executing service delivery, winning at those moments of truth and solving customers' most pressing problems. Doing so often requires innovative solutions and products. PestConnect is a great example of an innovative solution that solves customers' problems, which I saw firsthand in one of my ride alongs. While I was prepping with our technician to get ready for the day, he received an alert on his phone that a PestConnect system was triggered at one of his customers. We used the app on his phone to pinpoint the exact location of the trap, one of many PestConnect systems the customer had. Sure enough, it had done its job. We let the facility manager know. He was unaware there was an issue, but was very appreciative that we proactively resolved it. We then reset the trap and went to our next appointment. It was a powerful example of how our technology helps solve customers' issues before they know it's a problem. We recently ran a successful pilot in the U.S. with a top 5 grocery chain, leveraging PestConnect and are now deploying PestConnect across their entire network, displacing a competitor who had won 40 locations from us just a year ago. Powerful impact with even more prospects now in the pipeline. Our second priority is sales and operational excellence. We have to sharpen our sales execution capabilities and deliver sales excellence. From proactive lead and pipeline management to account planning, performance management and growing share of wallet, we have opportunities to define what excellence looks like and drive execution. To deliver excellence, we also need to define a standard branch operating system, a system with a common heartbeat and rhythm across the network that creates a scalable sales and delivery model, improving technician performance. Earlier this month, I met with a cross-functional team at one of our U.S. branches. During those 2 days, we discussed what was working and what wasn't, including how 1/3 of our branches were delivering above-market growth. We then mapped our entire end-to-end process from lead generation to servicing the customer and identified 151 opportunities to improve. 151 opportunities may seem intimidating or surprising, but I was excited because we were getting to the root cause of our issues and identifying opportunities to improve. To date, we have been addressing the symptoms leading to poor execution and placing temporary band-ids on them. This level of detail will allow us to attack the root causes in order to eradicate the issues. This is exactly the approach I've used in previous roles to deliver step change improvements in performance. True operational excellence means knowing exactly what your network is engineered to do and having the discipline to cut out the noise. It's the hard, gritty operational work many companies ignore that it's exactly what unlocks scale performance. At Gillette, we were one of the worst customer product partners to our key retailers, such as Walmart and Tesco as measured by customer service. We undertook a similar exercise and followed the life of an order and process mapped the entire journey. The path to excellence was not a straight line nor without challenges. It took us 2 years to reach and fully sustain top-tier performance, but we got there. And we have improved so much that Walmart added us to their strategic supply chain council. We took a similar approach to sales while I was at Cardinal Health. We were losing share to a competitor and performed a sales diagnostic to understand why. Sales excellence relies on 3 core levers: sales strategy, sales execution and sales performance. All 3 must be in place to achieve top performance. Our diagnostic highlighted areas we needed to improve and the effort took time, but we reversed the share losses to grow at twice the market. I continue to use and refine these playbooks at subsequent companies. We will benefit from the same approach on our journey to excellence and have begun a detailed sales diagnostic in the U.S. As an initial step, reflecting the different customer and operational needs, we will separate our U.S. residential and commercial businesses and create single-threaded ownership and accountability across each. As you heard from Paul, we put a significant focus on returning residential to growth. We now need to give our commercial business the focus and resources it needs to return to sustainable growth. Our third priority area is business simplification. We are not leveraging our scale and are diluting focus and resources away from our core business. We have a decentralized operating model with a long tail of countries, service lines, systems and processes. We are too complex and fragmented. Our top 20 markets accounted for 93% of profit in half 1. The balance of profit comes from viable businesses, businesses that are very good at what they do with excellent people. We will be reviewing our entire portfolio and evaluating our current operating model, simplifying to focus our resources on high-growth markets and categories where we can deliver industry-leading operating margins and returns. As Paul has already covered by becoming more efficient, we will target cost efficiencies to reinvest back into the business, providing fuel for growth. To summarize, we have a strong foundation and a right to win with leading brands, global scale and local expertise. We are moving to a leaner, simpler and more effective organization focused on the customer, sales and operational excellence and business simplification. We will enable the frontline becoming a trusted adviser to our customers, standardizing processes and scaling the best of what we do. The potential is very clear to see. Our goal is not to reinvent Rentokil, but to take the many strengths of the company and apply them consistently across the group, organized to fully leverage scale and drive functional excellence and become a truly great service company. With the right focus and investment across our core priorities, we have the people, the brands and the scale to deliver sustainable organic growth, improve margins and free cash flow and deliver on the clear opportunity for value creation. Let me now hand it back to the operator. Paul and I will be very happy to take any questions. We'll pause here for a moment to line up any questions. Thank you.

[Operator Instructions] Our first question today comes from the line of Andy Grobler from BNP Paribas.

I've got lots of questions, but I'll keep it to 2. Firstly, just on the kind of restructuring and reorganization program in the U.S. You gave an example there at Gillette it's taking 2 years to get back on to the right track. Is that the kind of time line we should think about for the North American business that there's at least another couple of years ahead of us of restructuring and change before you're back up to market levels of growth and profitability? And then secondly, just in terms -- again, on restructuring, you talked about looking across the whole of the portfolio to see -- to ensure that the right for Rentokil. What specifically are you looking at and looking for? And what kind of level of portfolio change in management do you expect over the next couple of years?

Well, thank you, Sam. Thank you, Andy. Andy, let me -- I will answer the questions. Before I answer, let me just reiterate something I said at the end of the beginning. My focus is on returning this story 100-year-old company back to market levels of organic growth and with cost efficiencies and operating leverage, improve the margins over time. By focusing on the customer and delivering sales excellence and operational excellence and simplifying the business, we will. We have the people, the brands and the scale to do so. That I am confident of. In terms of restructuring in the U.S. and the similarities to Gillette, it takes people and process. And when you have a people and process business, it takes -- it could take 2 years, but we should have steady progress along the way. It's not necessarily going to be a straight line, like I said before, but we should be able to show that steady progress throughout the journey. And then in terms of looking across the portfolio, I think the cost savings work to date has opened the team's eyes to the art of what is possible, given them confidence that there's more opportunity and more to do, not only in North America, but across group and international as well. And that's where our focus will be attacking the opportunities around the group to be more efficient, effective and providing that fuel for growth. Paul, anything else from?

No. I mean, I think, Andy, you've seen that in North America, we've taken out sort of 1,100 roles from high-cost labor location and moving it to -- move them to lower-cost locations and that we're eliminating 500 roles. and that's principally in our back office. So as we look for efficiencies, we'll be trying to do the same. It's a well-established playbook that many companies around the world have done. And in terms of the portfolio overall and the components of it, as Mike referenced, our top 20 markets make 93% of our profit. So we're just trying to simplify. And if there's anything further to say on that, then we will come out and let you know at the appropriate time. But thanks for the questions, Andy.

Our next question comes from the line of Will Kirkness from Bernstein.

Two questions, please. I appreciate you're retiring that margin guide for North America. But I guess 20% doesn't sound unreasonable growth should drive margins. So I just wondered if you could give us a framework to think about kind of the future margin potential. And then secondly, I wondered if you could give us any color on the small local stores, kind of how they contributed to growth and what the margin profile is and how we should think about the ramp there?

Yes. Let me start. I think, Will, like I said, on the margin target, look, the work to date has opened the team's eyes to the art of what is possible and there's more to do. There's more to do not only in North America, but across group and across international, and that's where our focus will be. We'll look to reinvest back into growth where we can. But trust that through those cost efficiencies and operating leverage, we will improve the margins over time. And Paul, do you want to talk about.

Yes. So in terms of what were previously known as the satellites, but now are small local stores, we've rolled out another 70 of them, which is in line with what we said we'd do for 2026. It doesn't mean that there won't be more to come. We're continuing to evaluate all of the 220 that we've added and looking at locations and learning from it. So we may do more in due course. We're really pleased with the growth that we're seeing in the locations where we have added a satellite, we can see a clear improvement in leads that we get in those locations. So the strategy works. And maybe we'll do more in due course. And thanks for the questions, Will.

Yes, that's right. Sorry, Will, I missed the back half of your question, but that's right. I think we've had success with what we've rolled out, but that doesn't mean we have opportunity to optimize what we have rolled out and look at further expansion of the program.

Our next question comes from Annelies Vermeulen from Morgan Stanley.

Term and the strategy and how you're going to get there. But just on the comments on the weaker lead flow at the end of Q2 and into July, can we unpack that a little bit in terms of what you think is driving that? And are there any actions you're taking more immediately to drive that forward into your peak season? And then just also on the lower M&A spend target for this year, is that that you're seeing less availability of targets at decent multiples? Or is it that your cash spend focus is being redeployed elsewhere in the near term?

Yes. Thanks. I'll start and then ask Paul to work in. I think as we said in RNS, the residential lead flow was up 6% for the first half, but we did experience the weakness towards the back half of Q2, which continued into July. I would say the primary driver has been softness in termite leads with no definitive pattern apart from over-indexing in the geographies where the housing market has been under pressure. But I would say that into, I think, where you were going, we have plenty of opportunities internally to improve execution to drive organic growth. And I'm not accepting that the market conditions is a reason for not doing so. So some of the opportunities identified during that process mapping I referenced earlier a couple of weeks ago are now within scope of our sales and operational excellence initiatives. For example, maximizing other sources of leads, especially from our technicians, our trusted advisers improving lead conversion. We need to continue to reduce the friction in the new customer onboarding process, especially in initial inspections and appointment scheduling. But that process mapping exercise did identify 2 quick wins that we've implemented. One is adding lead coordinators to help manage the backlog. And then second is streamlining our field sales entry process. And I would say, finally, our new CMO, Famous Rhodes, has already -- he's jumped in with both feet and already identified some opportunities to reduce attrition in our current lead process. In terms of the lower M&A spend, I think it's more around the targets, and we're being smarter about the targets we go after and the IRR. It's not an issue about cash at all.

Our next question comes from Nicole Manion from UBS.

The first one, just to come back to the North America Services organic growth. Can you drill down a little bit more into the timing and impact of your actions, which have been designed to help growth and then the timing and magnitude of the impact from the weaker environment and the lead flow that you're now seeing? Obviously opened essentially all of the branches you planned for the year, for example, and many of the prior ones you'd assume would be maturing plus the regional and local brands as well. Is there any sort of volume sort of per branch trend you can speak to? Have these measures not had the impact you'd hoped for? Or is it something else in the environment? And then a second one on the branches, you've signaled that you think you need a single operating model. Obviously, a lot's happened with branches over the last year or so? You've opened the smaller ones, and you've talked about having a single dashboard, but maybe not the same systems. So can you clarify what you think is actually sort of changing there in terms of the branch plan looking forward?

I think on the North American performance, I think, look, no one is more disappointed with some of the numbers in the North American team. I don't think we can ask for more effort. They've been working tirelessly in triaging in the residential side of the business for the last 18 months, reversing decisions that were made at the outset of the merger and addressing symptoms of poor performance. Now that we've begun to stabilize, we need to pull up and define our road map for returning to sustained profitable growth, and that's what I talked about in terms of the sales and operational excellence. We also have to move into a focus on commercial. So residential is performing much better, but commercial is lagging. And I think separating the 2 and provided single-threaded ownership and accountability to the residential channel and the commercial channel will certainly help us in terms of where can we invest for growth, where do we have to simplify and where do we have to drive accountability.

And in terms, Nicole, of your question around the operating model and the opportunities there. I mean you'll have heard me say before that we have a wide variance of performance across our estate and our tertile. So our top tertile branches, as Mike said earlier, continue to grow well ahead of the market. And our bottom tertile are really holding us back. And this is because we don't have a standardized operating model, one run-your-day model that every branch can deploy. So we have some excellent leaders in our branches, and they have excellent results, and we have some weaker leaders and we've been addressing that. But there's still more to do there so that it is standardized and it's easier for our branch managers to go out to win every day. So that's what we'll be focused on there. Thank you, Nicole.

Our next question comes from Suhasini Varanasi from Goldman Sachs.

I have a couple as well, please. Can you help us understand the scale of the slowdown that was seen at the end of 2Q and the early trends in 3Q? Was it still growth? Was it just a little bit softer than the 2.4% that you printed in 2Q? Just some color there would be helpful. And sorry, just to go back to one of the previous questions. Is it possible to share some color on the time frame that you have set yourself to implement some of the changes, the biggest changes that you have identified during the process mapping, maybe to implement the standardized model and maybe some internal time frame that you have set yourself to see visible changes to the organic growth in North America?

Yes. Thank you. I think the first question, I think, around the slowdown in growth. Like I said, for the half, our residential lead flow was up 6% and the weakness in the back half and which has continued into July is primarily due to the softness in termite leads. And I think we've over-indexed in geographies where the housing market has been under pressure within the U.S., particularly in the Northeast. I think we do have continued opportunities in execution to drive organic growth, and that's where we're focused, what we can control internally. And I think the time frame for the changes that we're in the process now of creating that integrated road map based on opportunities that we identified with the field. We're going to be implementing quick wins as we go. I think I mentioned 2 of them, the lead coordinator and streamlining our field sales entry process. They may not be elegant solutions today because we want to plug some holes, but we are going to work to make sure we codify it and get it in place so we can scale. But I think these -- some of the longer process opportunities it could take up to 2 years, but that doesn't mean that we're going to wait for 2 years to see the progress. It's going to be steady progress as we go. But it's going to be systemic and sustainable certainly when we get there.

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

So a few from me. Just on lead flow, are you able to quantify the sort of resi lead decline that you've seen in the back half of June and July? And then also, I guess, your largest competitor talked about opposite trends to what you saw at the end of the quarter. So just wondering have your thoughts of if anything has changed in the competitive landscape? And then secondly, how should we think about where the additional investment in the U.S. will go? Is it kind of simply more smaller branches and investment behind regional brands? Or do you think there's any other area where you can invest to drive lead flow?

I think it's a good question. I think if I maybe combine a couple of them in terms of the regional brands. I think our regional brands are actually doing well. We've had a lot of strength in the strategy of reinvesting back into our regional brands is working. So we're encouraged by that. I think from a competitive standpoint, it is a big market. It is -- we've got a lot of opportunity to improve execution and grow organically. So I think all competitors, whether big or small, continue to compete as they always have. So I haven't seen it any better or any worse. I think, like I said, we've got to focus on what we can control. And right now, that's a lot of the execution opportunities.

And Oli, in terms of the lead flow, I mean it can be spotty, but some days are stronger than others. And so we're not sort of calling out exactly what we saw this in the month because we saw it coming through in June. We haven't finished July yet. So not putting an exact number on it. And it tends to be more in our national brands than in our regional brands. So we're still trying to understand that pattern. And as Mike said, it's more orientated towards the termite side, which could be the housing market and in different parts of the country. So we're just calling it out as a bit of color as to what we've seen most recently. Thank you, Oli.

Our next question comes from Tim Ramskill from Bank of America.

A few questions from me. I mean, maybe as a starting point, it feels as if the dialogue in recent times has obviously been very focused on how the residential integration of the 2 businesses was incorrectly delivered and hence, retain more branches, retain more brands, et cetera. Can you just kind of give us the same kind of diagnosis as to how the commercial business was impacted by the integration? And therefore, again, what missteps might have been taken and what needs to change? And then I guess, pulling away from the margin target, we can see how well that's been taken by the market this morning. So -- and there's nothing numbers-wise in the forward-looking discussion on the call today. So would I be right in thinking that you still made very good progress in margins in the first half in North America. So that was to continue, you wouldn't be 1 million miles away from 19% margins. But it seems as if you're going to invest in North America funded by savings, centrally savings internationally. Does that, therefore, mean that by the time we get to sort of late '27 into '28, actually, the group level margins are going to be probably similar to what most people expect today? Or what might I be missing? And then the third question is just going back to the point around simplification. Is this likely to be any market exits? Or are these all likely to be opportunities to release capital and actually make disposals where proceeds are generated?

Thanks, Tim. And because I've been around a little bit longer, I think I'll sort of take the question around what wasn't do incorrectly delivered with the integration and then come on and talk about the margin, et cetera. I think what we've focused our attention over the last 18 months is getting the residential business growing strongly, and it is. We really haven't seen a slowdown in that non-termite pest business in North America. So we're very encouraged by what we've delivered there. We did integrate a lot of branches back in the day, change systems, et cetera. And we also spent a lot of time focusing on residential and -- and that has led to a decline in performance in commercial. In conjunction with that, the Terminix commercial book of business that we bought was a bit mixed, and I've spoken about that before as well that we've been cycling out of some of the poorer quality contracts there, which has hurt our retention. So we'll continue to do that. The focus on resi and commercial as 2 separate business streams with different customers, different needs, different go-to-market strategies, different sales, et cetera, will, I think, allow us to address the needs of commercial much more effectively. And I think that will have a pretty rapid effect. In terms of the margin target, look, I don't disagree with what you're saying. We are very focused on taking cost out and putting it back behind growth. And I think with what we've achieved in short order in North America, we've demonstrated that we can do this very well, and we will do that across the group, and that will drive further growth, and it will drive higher margins. So I don't disagree with your hypothesis that the expectations that people had sort of out a couple of years will be achieved or exceeded as we take more and more cost out and drive growth higher and higher. There'll just be in North America in 2027, a bit of a sort of dislocation as we put more fuel into the engine, and it will take a while before it ramps up in terms of the revenue that we get from that. So it's quite sort of technical almost saying that's not -- that margin target is no longer appropriate. We are very focused on margin, and it will continue to accrete. And in terms of the simplification program and what we'll do across the business, -- we have exited in recent years a couple of very small markets where we've gone into because we saw an opportunity. It hasn't manifested. So we've just closed that business down. But these are really they're rounding errors. If we have other rounding errors, then we'll get out of those. Otherwise, if there's a market that we're in and we say we don't want to be in any longer, then we'll dispose of it. And if we do, then we'll come and tell you about it. So nothing to say on that today. But hopefully, that clarifies. And thanks very much for the questions, Tim.

Our next question comes from James Rose of Barclays.