Rentokil Initial plc

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 six 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 Rent2Kill that come to work every day with two 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 one, 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 conversions. 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 US, 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. 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 four 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 two excellent additions to the team. Rafa is joining us on Monday to lead our business in North America, and Famous Roads 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 one. 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 US dollars and on an adjusted basis. Any comparative performance is on a constant currency basis. Half year revenue was up 4.5% to $3,589,000,000 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 have 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 2.4 times, down 0.4 times from this point last year, and within our target range of 2 to 2.5 times for the first time since we acquired Terminix in 2022. In line with our progressive dividend policy, we have 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 am encouraged by our progress. Turning to North America, revenue increased 4.2% to $2,197,000,000. Organic revenue growth improved to 3.7%, with 2.6% growth from pest control services and 10.6% growth from business services. As a reminder, consistent with commentary at quarter one, we continue to expect organic revenue growth and business services to moderate in the second half. Operating profit was $393 million, growing 10.2%, with one 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 am 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 have taken to improve performance. Our residential business is performing well, delivering a solid growth rate in the first half. This was offset by slow growth in commercial, particularly in Q2. Looking a bit deeper at residential, core pest control accelerated through the half, slightly moderated by a slowdown in termite revenues in Q2. 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 auto pay penetration and continued good performance from our customer sales team, which is achieving a roughly 1 in 3 success rate in customer value retains. Commercial leads have 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 mid-sized accounts, partly driven by the rationalisation of our heritage Terminix commercial business we had spoken about earlier this year. We are 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 two years, led by our lower margin product distribution business, so this has a negative mix effect on total North American 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 a 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 and a half, with net savings of $28 million after reinvestment. 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 diluted 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 optimisation 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 $1,392,000,000. Organic revenue growth was 3.5% in the half with quarter 2 improving to 4.2%. Operating profit was $266,000,000 growing 4.3% with 19.1% margin Pest Control delivered improved sequential performance of 5.4% organic revenue growth in Q2 up from 2.8% in Q1 Performance was strong across the region held back by strong comparisons in rural and tract spray in the Pacific and tougher trading conditions for property services in the UK Excluding these businesses, international pests grew 5.8% in Q2 and 4.9% in the first half Hygiene and well-being 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 difference in work and 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 2.4 times 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 to $120 million, reflecting additional costs in the first half for international transformation. We reinvested $39 million in Bolton 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 forwards. Based on these current trends, we have also increased our cash outflow guidance for the utilisation of the provision through a range of $115 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 strengths of our business and our ability to generate consistent cash flows while maintaining financial flexibility. We recognise the importance of returning excess capital to shareholders and when we do have surplus capital beyond our reinvestment needs we will evaluate opportunities to return it whilst maintaining a strong balance sheet targeting 2 to 2.5 times 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 are pleased with the performance improvements in international pest control. We are on track to deliver our 2027 cost savings in North America and see material further efficiency opportunities globally to unlock fuel for growth. Thank you. I will now hand you back to Mike. Thank you, Paul.

Four months in as CEO and I'm already feeling at home in the world of pests 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, first-hand 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 Rent-a-Kill and Initial, powerful regional brands such as Terminex, 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 differentiating 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 Rent2Kill, but to take the many strengths of the company and reapply them consistently across the group, organize the fully leveraged scale and drive functional excellence, Thank you for joining us today. 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 two 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 two 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 test 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 three 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 advisors. 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 test connect 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 US with a top five 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 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 US branches. During those two days, we discussed what was working and what wasn't, including how a third 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-aids 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 is 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 two years to reach and fully sustain top-tier performance, but we got there. And we had 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 three core levers, sales strategy, Sales execution and sales performance. All three must be in place to achieve top performance. Our diagnostic highlight 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 US. 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've 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 our 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 and half won. 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 advisor 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 Rent2Kill, but to take the many strengths of the company and apply them consistently across the group, organize the fully leveraged 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, 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.