Earnings call transcript: Rentokil Initial ADR stock surges 10% post-Q3 2025 results

Rentokil Initial PLC ADR (RTO) reported its Q3 2025 earnings, revealing a group revenue of $1.8 billion, marking a 4.6% year-on-year growth. The company’s stock surged 10.3% in premarket trading, reaching $29.88, following the announcement of its financial performance and strategic initiatives. With an impressive gross profit margin of 82.29% and a market capitalization of $15.12 billion, InvestingPro analysis shows the company maintains strong profitability metrics. The stock’s rise comes amid strong organic growth and effective cost efficiency measures.

Key Takeaways

• Rentokil Initial reported a 4.6% year-on-year increase in Q3 revenue to $1.8 billion.
• The company completed 21 M&A deals, contributing $39 million in annualized revenue.
• Net debt stood at $3.9 billion at the end of the quarter.
• The stock price increased by 10.3% in premarket trading after the earnings call.

Company Performance

Rentokil Initial demonstrated solid performance in Q3 2025, with a 4.6% increase in group revenue compared to the same period last year. The company achieved 3.4% organic revenue growth, driven by strong performance in North America and international markets. Despite challenges in the Pacific region, Rentokil maintained growth momentum through strategic acquisitions and operational efficiencies.

Financial Highlights

• Revenue: $1.8 billion, up 4.6% year-on-year
• Organic revenue growth: 3.4%
• Net debt: $3.9 billion
• 21 M&A deals completed, adding $39 million in annualized revenue

Market Reaction

Rentokil Initial’s stock price increased by 10.3% in premarket trading, reaching $29.88. This surge reflects investor confidence in the company’s growth strategy and financial performance. The stock’s movement places it above its 52-week high of $27.96, indicating strong market sentiment.

Outlook & Guidance

The company expects to meet full-year 2025 market expectations, with plans to expand its satellite branch network and enhance cost efficiency. Trading at a P/E ratio of 47.1x, Rentokil aims to achieve a 20% operating margin in North America post-2026 and continues to focus on improving organic growth in the region. According to InvestingPro’s Fair Value analysis, the stock is currently trading near its fair value, suggesting balanced market pricing. Get detailed valuation metrics and access to the comprehensive Pro Research Report, available for over 1,400 US stocks, to make more informed investment decisions.

Executive Commentary

"We are pleased to see that improvement in customer retention," said Andy Ransom, CEO. Ransom emphasized the company’s strategic initiatives, stating, "We have a plan to get to the margin. Needs some growth, not stratospheric growth." He also highlighted the effectiveness of current strategies: "The stuff that we are doing is having an effect. That’s really the message we want to get across."

Risks and Challenges

• Market saturation in certain regions could limit growth opportunities.
• Macroeconomic pressures, such as inflation and interest rate fluctuations, may impact financial performance.
• Competition in pest control and hygiene sectors remains intense, requiring continuous innovation.
• Supply chain disruptions could affect operational efficiency and cost management.

Q&A

During the earnings call, analysts inquired about Rentokil’s net gain concept in its contract portfolio and the company’s pricing strategy. Executives addressed plans for margin expansion and elaborated on the satellite branch strategy’s performance, underscoring their commitment to driving organic growth through strategic changes.

Full transcript - Rentokil Initial PLC ADR (RTO) Q3 2025:

Rika, Call Coordinator, Rentokil Initial: Good morning, everyone, and welcome to the Rentokil Initial Q3 trading update call. My name is Rika, and I will be coordinating your call today. During the presentation, you can register to ask questions by pressing followed by the number 1 on your telephone keypad. If you change your mind, please press followed by the number 2. Otherwise, you do have the option to submit a question via the Q&A tab above the slides on the webcast. Thank you. I will now hand you over to your host, Andy Ransom, Chief Executive Officer at Rentokil Initial plc, to begin. Please go ahead, Andy.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thank you very much. Morning, everyone. 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 2025 results in line with market expectations. For the three 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.

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, an 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. 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 have now reported 11 consecutive quarters of improving colleague retention.

Importantly, our customer retention rate has nudged up again from the half-year stage to 80.9%, where investment in the customer saves 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. We continue to target opening 150 satellite branches this year. Finally, the door-to-door sales 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. 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. 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. 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 UK also saw growth improve with continued strong performance in our core pest control and plants businesses, and then 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 ambients was offset by adverse weather impacts on our rural and tract 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 and well-being grew by 3% organically, an improvement from the 0.9% in the first half as market conditions improved in the Pacific and in the UK and sub-Saharan Africa regions, which returned to growth in the quarter. On M&A, we completed three 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 there 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. Let me hand back to the operator to manage the Q&A. Thank you.

Rika, Call Coordinator, Rentokil Initial: Thank you, Andy. We will now begin the question and answer session. If you would like to ask a question and you have dialed in on the phone lines, please press followed by the number 1 on your telephone keypad now. If you change your mind, please press followed by the number 2 to remove yourself from the queue. For those of you who have joined on the webcast today, you can register a written question in the Q&A tab above the slides. The first question we have comes from Annelies Judith Godelieve Vermeulen with Morgan Stanley. You may proceed with your question.

Annelies Judith Godelieve Vermeulen, Analyst, Morgan Stanley: Hi, good morning, Andy. Good morning, Paul. I have three questions, please. Firstly, Andy, you mentioned contract portfolio net gain improvement performance in Q3. Could you talk a little bit about dubbing versus contract portfolio growth? Did you see growth in both elements in the quarter, or was one stronger than the other? Secondly, sort of related, if you could comment on the performance of resi versus commercial versus permit. Was there anything or any one area that drove more of an improvement in the quarter relative to another? Lastly, just putting it all together, you’ve spoken about improved lead flow, improved customer retention, the customer saves program, et cetera.

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 growth in new customers and how much of it is the improvement you think in customer saves and customer retention? Thank you.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thanks, Annelies. I could 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. It was really pleasing to see that improvement in net gain. Just to remind colleagues on the line, the business, as 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. 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. We did see, so jobbing was above the average rate of growth that we’ve shown you there. 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? That’s the key thing that I’m looking for in the business. 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, yeah, 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. It’s the new customers that we have to infill into the portfolio.

Again, without giving you numbers, we were encouraged in the third quarter by what we saw, but we’re a long way from where we need to be. If you just do the math quickly, you know we’ve got price above the rate of inflation, but we grew 1.8%. 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 that this is early days here. We are pleased.

We’re not satisfied, and we’re not complacent because we’ve got a lot to do, but it’s the positive momentum we’ve seen in net gain in the portfolio, which is what we’re looking for and what we’ll be pushing to see what we can do in the off quarters, in the quiet season. Thanks, Annelies.

Annelies Judith Godelieve Vermeulen, Analyst, Morgan Stanley: Very clear. Thank you, Andy.

Rika, Call Coordinator, Rentokil Initial: Your next question comes from William Kirkness with Société Générale Group. You may proceed.

William Kirkness, Analyst, Société Générale Group: Thanks very much. I’ve got two 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 a customer save initiative versus pushing through price increases? Secondly, I know it’s just a trading update statement, but I wondered if you could talk about progress on levers to improve free cash flow. Thanks.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thanks, Will. I’ll hand those both to Paul, I think.

Paul, CFO, Rentokil Initial: Thanks, Andy, and thanks, Will. 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 you a little more. It’s more sophisticated than that. It’s identifying where there are pockets of opportunities, where we can see different types of customers, different archetypes, and then deploying different pricing strategies against different customer markets. It’s sophisticated. There is more to go for with it. We will continue to roll that out. I’m pleased with the performance that it is giving at the moment.

In terms of price promotion and trying to win volume on the back of reduced pricing, you will always have a component of that in a business, but that’s not what has been driving the performance you see today. 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. We’re pulling all those levers. I quoted the net debt number at the end of the period and 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.

Hopefully, we’ll be talking more about that in March with the full year results.

William Kirkness, Analyst, Société Générale Group: Okay, thanks very much.

Rika, Call Coordinator, Rentokil Initial: Thank you. We now have Suhasini Varanasi with Goldman Sachs Group on the line.

Suhasini Varanasi, Analyst, Goldman Sachs Group: Hi. Good morning. Thank you for taking my questions. I have three, please. I clearly think 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 drop of 60 bps from the total business. 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 the third quarter in the next one? 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 the investments going into 2026 and the plans for funding around that? The third one, you’ve really treated your margin target for more than 20% beyond 2026.

Can you maybe just remind us what the building blocks that will get you there, starting with the top line? Thank you.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thanks, Suhasini. I’ll take the first two and then hand over to Paul for the third one. Paul and I are not in the same place. Your 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’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, so 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 paid?

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?" We said, "Look, 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." 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, excuse me, drag coming from the mosquito work relating to last year’s mega hurricane season. That is a factor. As I said in answer to Annelies Judith Godelieve Vermeulen’s question, what we are looking for is can we see momentum in the portfolio?

The portfolio, and I’m sure you will 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. It’s the building of the portfolio that gives you the momentum to take into next year. There’s no reason to assume that, excuse me, the fundamentals that we’re seeing in the business change in the fourth quarter. That said, it is the off-season. We do have that drag. Let us see. In terms of the door-to-door and the satellite, 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 three or four weeks after that. That’s when we will do the budget in a month’s time.

Two core questions, and there’s plenty of other core questions, but two core questions that we’ll be asking and answering in the budget process are how many more satellite branches do we want to open. What we’re seeing in the satellite branches is really encouraging data coming off the satellite branches that we opened 12 and 9 months ago. There is a maturity to these satellite branches. There is a period of optimization of the satellite branches. You’ve got to get enough five-star reviews in the satellite branch area. It is a thing that builds. I think it’s very likely that we will take a decision to add more satellite branches next year. It could be material. I don’t know. It could be a decent number.

We simply haven’t done the math on that and worked through it. There is a limit to how many satellite branches and how many cities you believe you can optimize these in. We will answer that very much in the next month or 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 sales, we deliberately characterize door-to-door sales 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. On the door-to-door sales program, that does not require an investment. That does not require a headline investment, but it is a different model. The door-to-door sales model is you’re engaging a third party.

It’s their sales force typically that does 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. It’s not like you hire another 100 people in the sales force. You do it through a third party. 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. We will have a much clearer idea exactly what plan we’re going to put into place. We have to fix the plan for 2026 by the end of 2025. It’s locked and loaded. By the time we talk to you next, we’ll be able to tell you how many sales territories we’re going after in 2026. I’m sure it’ll be more than the 25. Over to you, Paul, on the margins.

Paul, CFO, Rentokil Initial: Thanks, Andy. I’ll try and speak up, and hopefully, you can hear me a little more clearly. It’s the same story as I talked about at the prelims back in March and the interims in August. As we look at the business, 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 on 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. The margin piece, getting to the 20%, that is our intention. Obviously, it does require growth in the business to balance what this year and into next year and in 2027.

That is what we’re targeting for. I think having targets like that is important, and we can clearly align the sites to it. Of course, nothing is ever done till it’s done, but that is what we are shooting to.

Rika, Call Coordinator, Rentokil Initial: Thank you very much. Thank you. Our next question comes from Oliver Davies with Redburn (Europe) Limited. You may proceed.

Paul, CFO, Rentokil Initial: Hi, guys. Good morning. Just one from me. I guess, you know, would you be able to give us an update on the term of integration, you know, how the commercial branches’ integration has gone this year, and then, you know, the plan for 2026 in terms of the residential branches and also the changes to technician pay plans? Thanks.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thanks, Oliver. Yeah, 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. We’re focusing on commercial-only branches, and we’re focusing on those that need to go through a PES pack to PES pack conversion. Branches that are already on, excuse me, a version of the end design software PES pack. Easier to do. We’ve got those underway. They’ve started well. No issues to report. Happy with that. 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. We saw a less than satisfactory performance in lead flow and in customer retention. 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?" As you recall, the satellite strategy was in part in response to that issue, but also on customer retention. 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.

We’re making, I would say, steady progress on the further integration. 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’s 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. 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 optimizations. A lot of other things that go into that. I’m feeling pretty good on the other parts of integration.

I think the pay plan discussions that I was in two weeks ago, Paul and I were in two weeks ago in New York, happy with how they’re coming along. We will 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. 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, etc., is still to be worked through through the budget process. We will give an update with the prelims.

William Kirkness, Analyst, Société Générale Group: Thanks very much.

Rika, Call Coordinator, Rentokil Initial: Thank you. The next question comes from James Steven Rosenthal with Barclays Bank PLC. You may proceed with your question.

William Kirkness, Analyst, Société Générale Group: Hi, good morning. I’ve just got one, please. It’s on reinvestments, and I appreciate your high-level thought there. When would it make sense to increase spend in marketing and sales, for example? Related to that, I mean, the 20% margin target you 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?

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thanks, James. I’ll take that. Paul, if you violently disagree with my answer or you’ve got a better one, pile in after me. 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. I think Paul famously quoted the quote that with marketing spend, half of it is wasted. The problem is you never know which half. Marketing spend is notoriously difficult to work out. Are you getting the returns on investment that you demand? 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. Paul’s mentioned we’ve hired a data specialist. 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. 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, 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? 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? To be fair, we haven’t done the budget for next year.

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, there’s not big, bold assumptions around the $100 million that Paul’s 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. I know there’s a degree of, you know, we’ll believe it when we see it, which is fine. We have a plan to get to the margin. Needs some growth, not stratospheric growth.

I can’t give you an answer to, you know, could you envisage spending more in marketing? 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 2026.

William Kirkness, Analyst, Société Générale Group: Thank you. Appreciate it.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thanks, thanks.

Rika, Call Coordinator, Rentokil Initial: We now have Nicole Manion with UBS Investment Bank on the line.

Annelies Judith Godelieve Vermeulen, Analyst, Morgan Stanley: Morning, Andy. Morning, Paul. Two questions for me, please. They are follow-ups on some of the previous ones, so sorry if there’s some familiar ground. First, beyond 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? 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? Secondly, I appreciate you’ve touched quite a bit on satellite branches, but maybe just one more specific question there.

You’ve got obviously a decent sample size now from the past nine 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? Thank you.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Thanks, Nicole. Yeah, absolutely. On the first one on colleague retention, we continue to see improvement in colleague retention in North America, in the United States, pest control, and particularly in the technician side. 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 rung in our internal ladder of colleague retention. Sorry to say it, but the Pacific region is on the bottom. Pacific hasn’t got worse. North America has got better. It is no longer worst in group. I have been sort of rubbing their noses in it for some time that they’re the bottom of the pile. They’re no longer bottom of the pile. That is really, really encouraging. I have 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. I couldn’t be happier that the retention rates have improved 11 quarters in a row. Almost, we’re not at the group average yet in the States, but we’re not so far off it. Yes, it is coming through techs 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.

It is not the new pay that is driving up retention. It’s a really interesting observation. You’re quite right. We have changed pay plans for all new joiners, for example, in sales. We made some changes to the fixed versus variable, which has had an impact on sales colleagues. The pay for service colleagues, we’ve not adjusted that yet. 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. It is possible that we might go back to integration. We might go faster on the pay plan in 2026. We were originally rolling out the new pay plan branch by branch, integration by integration. It is 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. Really, really pleased on what we’re seeing in colleague retention across the board in the U.S. On the satellites, 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. In the first 12, 18, what’s 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. We did. There was a lag on it, and then we saw the drop. 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.

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 we’re talking about the residential or termite business. 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. 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 two quarters, it won’t be picked up. It has to mature. It has to optimize. The way you optimize it is you’ve got to get customer reviews. 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." We ask our technicians when they have happy customer experiences. We ask the customers, "Are you happy to give us a review?" Once you’ve got about 10 reviews, the big search engines will pick you up. When you do search for "Pest control near me," after a while, you will start getting hits on their web pages.

It does take a bit of time to mature. We thought it would, and it has. The lead flow that we’re getting through on the satellite branches that we opened a year ago and nine months ago is actually looking really good now. That gives us the confidence to say the ones that we opened six months ago and three months ago will continue to mature and continue to improve. The ones that we open 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. That’s how they work. They do work. They are working. They work well. It’s just one strand of an overall multifaceted marketing, sales, and operational strategy. 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 are 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. 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. The stuff that you put on your web pages needs to change. We’ve made really good improvements there and significant investment in bolstering our organic search. For me, satellites are important. It addresses a particular issue that we caused ourselves, I suppose. The broader search and organic search program is actually more significant, more important. Thanks, Nicole.

Annelies Judith Godelieve Vermeulen, Analyst, Morgan Stanley: Pleasure to help. Thanks, Andy.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Sure.

Rika, Call Coordinator, Rentokil Initial: The next question on the phone line comes from Allen Wells of Jefferies. The line is open.

Paul, CFO, Rentokil Initial: Hey, good morning, Andy. Just two 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 in June. Just any comments on how that trend has carried on sequentially through the quarter? The second question, do we need to be mindful of anything on the higher growth in business services in the U.S., which is obviously slightly lower margin, and the non-repeat 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? Thank you.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Yeah, thanks, Alan. Yeah, 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. We finally broke through the line, if you like, in June into positive territory. 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 one 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. 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. Of course, 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? What was the weather like on August the 15th of last year? Why is search volume up 10% and on the 12th it’s down 3%?

It’s very, I would say, volatile. It moves about a lot based on other factors. I could tell you, but it wouldn’t really tell you much. I think the important point is the stuff that we are doing is having an effect. That’s really the message we want to get across. This is not coincidental. This is not a weather phenomenon. We are satisfied. We’re pleased with what we’re seeing on lead flow. Again, don’t forget, it is now the off-season. We’re into winter, and it depends what the winter looks like. High growth business services, I mean, you’re absolutely right to call that 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. It had a really powerful third quarter.

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. One of my 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. 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 ambient plants business. They all performed well in the third quarter. I don’t think you can read that level of growth, please don’t, into the fourth quarter.

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. That’s all wrapped up in the comments we’ve made, which is that we expect to deliver full year 2025 in line with market expectations. That’s where we are.

Paul, CFO, Rentokil Initial: Great. Thanks, Andy Ransom.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Cheers up.

Rika, Call Coordinator, Rentokil Initial: Thank you. Our final question from the phone lines comes from Carl Reinsford with Arenberg. Please go ahead.

Paul, CFO, Rentokil Initial: Good morning, Andy. Morning, Paul. Just two clarification questions from me, please. Firstly, apologies if this is basic, but I just wanted to understand your commentary around net gain a little better. Firstly, the improvement, was that across North America, or were you just referring to the contract portfolio? 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 maths suggest negative volume. I’m probably misunderstanding something there. It’d be helpful if you’re able to clarify that calculation, if you could, please.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Yeah, no problem.

Paul, CFO, Rentokil Initial: The second question, I’m sorry, Andy, the second question, I’ll just, yeah, I’ll do both at once, that’s okay. 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. You also say there’s been sequential growth. 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 a -0.2% for H1. Any information on both of those would be very helpful. Thank you.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Sure, Carl. I’ll try. I’ll try and I’ll probably fail to answer your Q1 and Q2 question just as a spoiler. Look, net gain, 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. On January 1, we start with a book of business under contract. If nothing else changes, that’s the revenue that we will generate from that book of business during the calendar year. Things do change. To get net gain or net loss, there are basically three things that happen in your portfolio. Number one is customer retention.

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. Going from 80% to close to 81% retention, 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. 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. Those are two 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 onto a contract, to an earlier question, that’s a negative. The third leg of the stool is new business, and that’s the critical bit, and that’s where lead flow comes into. That is about selling contracts. That’s why the difference between net gain and revenue is quite an important one. I know we’re in danger of entering masterclass level pest control now. The point, the example I gave earlier, Carl, around if I sell a contract for $1,200 and I sell that in July, I’ll get six times $100 revenue in the second half of the year, and then I’ll get six times $100 revenue in the first half of the following year. If I sell a job, I’ll get $1,200 if that’s the equivalent example.

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? For me, as 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. 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 terminations. We measure the percentage of new contract sales as a percentage of the portfolio, which is a critical measure for us. If you outsell your terms, then you’ll get the business into net gain. 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.

I know it’s a bit of a, you know, we always talk about the concept as a complex concept. It’s not the same as revenue. Revenue is what the portfolio generates in a particular period. 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. Price increases above the rate of inflation, organic growth of 1.8%. By definition, we’ve got a slight, we’ve got a leak in the bucket in terms of overall revenue performance coming from pest control in the United States. It’s improving. That’s what I said earlier. 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. We’ve got to do it first. 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 that are offline.

Paul, CFO, Rentokil Initial: Very helpful, Andy. Thank you.

Andy Ransom, Chief Executive Officer, Rentokil Initial: Cheers, Carl.

Paul, CFO, Rentokil Initial: Just on the North American, I know you said you can’t answer the Q1 and Q2. Was the comment you’re making really against the page one number, the contracted side?

Andy Ransom, Chief Executive Officer, Rentokil Initial: Yeah, look, you know, without going quarter by quarter and deep into the portfolio and so on, I don’t have the numbers in my head, if I’m honest. We saw improvement in net gain. In the second quarter, it was better than the first. The third quarter was better than the second. Q3, sorry, go on.

Paul, CFO, Rentokil Initial: I’m referring to the sort of jobbing versus contracted organic growth, the 1.8%. I’m just saying, you know, you’re basically implying contracted was worse than 1.8%. You mentioned that there was sort of an acceleration, the sequential growth in Q2. That was the second question just around that split, really. Are you getting the Q2 number presumably was lower than what I thought, to be honest, in that case?

Andy Ransom, Chief Executive Officer, Rentokil Initial: I don’t know, Carl. I don’t know what you thought, so I can’t answer that. I’ve probably done as much damage to your question as I possibly can there.

Paul, CFO, Rentokil Initial: No, I’ll take it offline with you, Andy. I appreciate that. Thank you for the insight.

Andy Ransom, Chief Executive Officer, Rentokil Initial: All right. Cheers, Carl. Did we have any questions online that we need to pick up?

Rika, Call Coordinator, Rentokil Initial: Thank you. We have a question from the webcast from Jane. Following the big increase in the legacy termite provision in the first half, which 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?

Andy Ransom, Chief Executive Officer, Rentokil Initial: 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?

Paul, CFO, Rentokil Initial: No, Andy Ransom, there aren’t. No, we’re all good online.

Andy Ransom, Chief Executive Officer, Rentokil Initial: are no more questions.

Rika, Call Coordinator, Rentokil Initial: In that case, I would like to conclude the no more questions on the phone line. I’d like to close the question and answer session here and hand it back to Andy for some final closing comments.

Andy Ransom, Chief Executive Officer, Rentokil Initial: 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. 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.

Paul, CFO, Rentokil Initial: Thanks, everyone. Speak soon.

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