Well, good afternoon, ladies and gentlemen, and thank you all for joining us today. What an absolute pleasure it is to see you all up live and personal. It's been too long, so great to see you. Thank you for coming. This is our 3rd reset of our targets and it's our first deep dive into the hygiene business.
Today though, we'll be starting with pest control, where the team will provide an update on the future growth potential of the market and its key drivers. We'll take a more detailed look at our digital ecosystem, and we'll demonstrate our Pest Connect service. We're going to outline some exciting new innovations and also provide and M and A update before bringing it all together with some high level numbers. We'll then take a break for lunch where you'll have a chance to see a number of displays on digital, on innovation, on ESG before we dedicate the rest of the afternoon to hygiene and we demonstrate why this is indeed the new pest control. Here, we'll provide you with a first look at the results from what we believe to be the world's largest research survey into hygiene expectations since the start of the pandemic.
We'll update you on the organic growth opportunities that are clearly enhanced as a result of these changing attitudes. We'll explain where that growth will come from inside the washrooms, which is our core hygiene proposition, as well as outside the washroom and from geographic expansion. And we'll again cover the enhanced M and A opportunity before finishing with some high level numbers. We'll wrap up the day by leaving plenty of time for Q and A. And if you do have any questions during the sessions, Please feel free to add them to our Q and A portal if you're in the room or via the event website if you are viewing online.
We'll do our very best to include them all at the end of the day. I'm not going to go through the biographies of
our speakers today. They're set out in the deck there, but
suffice to say, It's the day they're set out in the deck there, but suffice to say they are indeed a very talented bunch. And of course, please don't hesitate to speak to any of the team throughout the day. We've got about 20 members of our vastly experienced team here with us today. Before I hand over to them, let me take you through some of the key highlights of the afternoon, starting with Rentokil, the global leaders in this outstanding pest control industry. Pest control is an Essential service and it protects the public's health against a vast array of risks associated with PES, many of which can cause severe illness or even worse.
This is a $22,000,000,000 market and half of that market is in North America and a 5th in each of Europe and Asia. And it's a market which we expect to continue growing by at least 4.5% over the medium term. Gary will outline in a moment how there's been no let up in the core market drivers post lockdown and how every market in every region is increasing its per capita spend on pest control services and products. He'll also unveil some new research carried out in 10 markets on the key factors influencing the decision making process of commercial customers when selecting and working with a pest control provider. Without wanting to steal its best lines, The research clearly shows the importance of service reliability, innovation, digital and sustainability, themes which play to our strengths and which you'll hear and see throughout today's event.
Rentokil is the global leader in pest control operating in 87 countries and with 56 market leading positions. This remains our main platform for medium term growth as we push deeper into key markets, we target higher growth customer sectors, and we enter key emerging cities for future growth. Therefore, today we've set a new medium term organic growth target for pest control at between 4.5% 6.5% per annum from 2022. One of those key drivers of future growth will be our digital ecosystem. That's a combination of digital handheld devices, remote monitoring, online portals and data analysis.
It's proven, it's robust, it's secure, It's responding to customer needs and it's delivering high levels of customer satisfaction. As Paul Donegan, our Digital Innovation Director, will demonstrate in a few moments, this is the future of pest control, And we've already made a major investment in time and money and effort to build our platform and to develop new opportunities through the use of data, informing our new customer propositions and our future innovations. Clearly, PestConnect's time has come. This is a high quality commercial service. And from 3% of our commercial customers today, we're setting a new ambition to reach 25% of our commercial customers with this outstanding service by 2026.
Phil Wood and Dave Hall from our U. K. Business, which has led the way with its deployment. We'll outline our model and demonstrate why Tesco and other high profile customers are choosing PestConnect. Product innovation is embedded in our DNA with our U.
K.-based power center. That's our home of science and innovation in pest control. And we have an unrivaled level of capability in house. Among our many firsts over recent years have been we've been the first to develop connected pest control services, the first to use CO2 in rodent control, the first to deploy LED lights for highly effective and sustainable insect control. Now Lizzie Jenkins, our Group Innovation Director was due to be with us today, but unfortunately she's had to drop out at short notice.
So Mark Reeder, our Head of Pest Category Marketing, will now be giving you a glimpse of some of our new projects from the pipeline of over 50 solutions, including remarkably video tracking and facial recognition software being used for the tracking of rodents, another first, as well as an expansion in our range of connected devices with our first new products for flying insects and crawling insects. Today, we're also announcing some changes to our category structures. And in pest control, We're just making one small change, and that is to include our U. K. Property Care business from January next year, moving it from protect and enhance.
In fact, it was the original Rent A Kill branded business back in 1925. The business protects properties from wood boring insects like woodworm, and it's already operating closely alongside our U. K. Pest operations. M and A is, of course, an important part of our growth strategy.
And this afternoon, you'll hear from Chris Hunt, our M and A Director. Since 2016, we've acquired over 200 businesses, mostly in pest control and with revenues over £50,000,000 We've built a network of contacts. We've got a proven acquisition model, and that continues to create significant shareholder value. Now the pest control market remains highly fragmented still with around 40,000 companies worldwide. About half of those are in North America.
Now despite 5 years of significant M and A, our pipeline in the States remains very much in line with 2016. Over that time, 43 of the top 100 companies have been sold, many to Rent A Kill of course, while another 42 companies have grown in scale and have been added to the list, with the average size of the top 100 companies still bigger than it was 5 years ago. Indeed, the company that's placed in position 100 has revenues of over £5,000,000 and that's about 5% bigger than the company in position 100 back in 2016. The company in the 25th position is in fact 20% larger and the company in the same position 5 years ago. So there are plenty of opportunities still to go for.
But we don't just go shopping for businesses in the U. S. We've got an active program in the rest of the world where we seek to build out a local density in the 1,000 or so cities that we're already in, as well as targeting those cities of the future That will deliver even higher growth levels over the next few decades. And again, Chris will cover this later. To wrap up the Pest Control session, Stuart will provide a financial overview, then we'll take a break for lunch before turning our attention to Pest Control's very important partner business.
Gary will again kick us off looking at the changing hygiene landscape and outlining our new research from 20 international markets. Aligning our new research from 20 international markets. This brings to life the impact that the COVID-nineteen crisis has had on hygiene attitudes and on behaviors and on customer preferences going forward. What's become very clear is that the benchmark of what constitutes good hygiene is now set at a far higher level and that the drivers of future growth have changed significantly since the pandemic. Anisha was the global leader in hygiene services with 22 market leading positions in top three positions in 38 of its 65 markets.
And we offer a wide range of high quality washroom products and services to meet the needs of our customers across the three main areas of hand hygiene, air hygiene and in cubicle hygiene. Our hygiene revenues have exceeded £500,000,000 in each of the last 3 years with pre pandemic growth of around 3% to 4%. And today the U. K. Team of Brian Lingard and Jill Rogers will provide you with a deep dive example of how our U.
K. Business Drives both revenues and margins. Firstly, through postcode density, and that's exactly the same as in pest control, which focuses on increasing the number of customers on each technician's route. Secondly, through product density, increasing the number of products and services in each washroom premise. Thirdly, through the positive impact of its shared overhead with pest control, combining the use of buildings, of infrastructure, of back office, of IT, and then adding revenues onto that shared fixed cost base.
And fourthly, through M and A, building postcode density and adding more revenue still onto the shared cost base that we already have. So today, we'll take time to explain that core washroom hygiene business, and we'll also demonstrate how the importance of hygiene has changed, and we think for good. And in response to these new customer needs, we are now creating a new category called hygiene and well-being, which we believe is the right business at the right time to help our customers keep their customers and employees safe in a less safe world. Our hygiene and well-being business will offer a broad range of services across 3 key areas. Firstly, our core washroom hygiene services using our scale, our service expertise and our brand as well as our digital and innovation expertise that's inside the washroom to drive organic growth.
Secondly, premises hygiene, That's leveraging our hygiene expertise outside of the washroom, including specialist hygiene services in air care and clinical waste management. And thirdly, enhanced environments where we offer well-being services to improve the employee with the customer experience, including premium scenting, plants, green walls, as well as air quality monitoring. So this new category brings together our core hygiene business with Ambiance Plants and Scenting, the dental hygiene and cleanroom services all moving into the new category of protect and enhance as of the 1st January next year. With Property Care also moving out of Protect and Enhance into pest control, this will leave our Workwear business in France as a standalone third category alongside our 2 large core categories pest control, hygiene and well-being. So now on the screen here, you can see a financial summary of that new hygiene and well-being category, and Stuart will cover that in more detail.
But as you can see, the category's ongoing revenue increases by around a quarter based on 2018 2019 data. And I'm pleased to say that we will retain the new organic growth target of 4% to 6% for Core Hygiene, and we'll apply that to this larger hygiene and well-being category as of the start of next year. So as we all hopefully move towards a post pandemic world, we see a compelling medium term growth opportunity. And to offer some broad guidance on where is that 4% to 6% of organic growth going to come from, we'd expect our core washroom services to generate around 50% of the 4% to 6% medium term target through enhanced washroom hygiene services such no touch such as digital. And for the other 50% to come from a combination of premises hygiene and enhanced environments that's outside of the washroom like air purification services and from extending our geographic reach.
This afternoon, you'll hear from Alain Mafroy, our regional MD for Europe, as well as from members of our management teams in the U. S, in Asia and Pacific to explain that latter part of the plan outside of the washroom and extending our footprint. So 4% to 6% is our new organic growth target. But in addition, we also have an excellent M and A opportunity. Chris will return later in the afternoon to focus on this M and A opportunity in the expanded hygiene and well-being category.
And clearly, this is applying the very same proven value creating model as pest control with a focus on city based density building opportunities. We expect to see the momentum in hygiene and well-being growing through 2022 to be supported by an emerging pipeline of around 80 targets today. And over the medium term, acquisitions adding annualized revenues in hygiene and well-being of over £25,000,000 each year. In addition, we will also be open to the potential for larger transactions should they become available. Now when I took over as CEO all the way back in 2013, I put in place new group targets for revenue, for profit and cash.
We beat those targets each and every successive year. And in 2017, we put in place our revised medium term targets. And you can see them there on the left hand of the chart. Since that time, our performance against those new targets has been strong. And given the new medium term organic targets for both pest control and for hygiene and well-being, the time is right to again demonstrate our confidence and our ambition and to revise the overall medium term group financial targets upwards.
Our organic revenue growth target will Increased by 1% to between 4% 5%. Our total ongoing revenue growth target also increases by 1% to between 6% at 9% of which M and A will typically comprise between 2% to 5%. Our ongoing operating profit growth moves from around to 10% plus and our free cash flow conversion rate remains at 90%. These medium term targets will come to effect from the beginning of next year. When we break for lunch, coffee and for drinks, I do hope that you'll take the time to visit the displays that we have of our latest innovations of our digital ecosystem, including Connect, and indeed on our ESG credentials.
ESG is real in Rent A Co Initial. It's embedded within our operations. And as you can see here, This is also being recognized by the independent raters where we have a very strong relative performance to the competition. So this is another area where we are determined to do the right thing in line with our social purpose of protecting people and enhancing lives, and at the same time, differentiating ourselves as a world class employer and as a purpose driven, high quality service provider. So let me now hand over to Gary, our Chief Marketing Innovation and Strategy Officer, who will cover the global pest control market.
Over to you, Gary.
Thank you, Andy, and good afternoon ladies and gentlemen. My name is Gary Booker. I'm responsible for the marketing, Innovation and strategy functions within Inventor Kill Initial. And I'd like to talk today about the drivers behind our pest control business And why this continues to be an outstanding and thriving investment opportunity. The pest control market continues to grow at a very solid rate delivering positive and consistent year on year growth.
Over the last 5 years the overall market has grown from around US18 $1,000,000,000 in 2016 to over US22 $1,000,000,000 in 2020 showing resilient growth Even in the midst of a global crisis. Overall the compound annual growth rate for this sector over this period has been around 4.7%. Looking at the overall share of the market North America continues to dominate and represents over half of the worldwide total. Over the last 5 years apart from the very smallest region of Africa growth rates have been in the range of 4% to 5% in most regions With Asia being the fastest growing at a compound rate of 6%. Looking forward over the next 5 years We expect to see similar growth rates with all regions looking likely to grow at a slightly faster rate than over the last 5 years.
The effect of this and likely outcome is that Asia will actually overtake Europe as the 2nd most important region worldwide by 2026 Driven by China and India growth in particular. In terms of how the market breaks down between its key segments Commercial remains the most important sector with 45% of the world total, but with residential still remaining a key area with over a third of the market. When I last spoke with some of you in 2018, I shared exactly this slide memorably in the middle using the word ratpocalypse. On the slide from 3 years ago I highlighted 9 key factors that we believe would drive growth in pest control. And looking back at this list I think each of these has indeed had an important role to play in the market growth.
What I'd like to do today is to group together and highlight 4 of these areas which I believe will be of particular importance as drivers for the years ahead. The first of these is the importance of climate and environmental factors. Whilst there are some who still may not believe It seems to most to be an inescapable fact that the earth is getting warmer. A number of interesting statistics exist In particular that we were already nearly 1 degree warmer in 2020 than the average from the previous century. But also at the more extreme end the number of days of incredibly hot weather Has nearly doubled.
What is also clear is that there's a direct correlation between warmer weather And pest activity. At its simplest warmer temperatures mean longer breeding periods and an Extended season of pest activity and there is evidence that some insects are now experiencing several additional life cycles per season compared with previous years. Increased warmth in previously cooler geographic areas also means We're seeing an increased migration of species. So a broader spread of pests into areas where they perhaps weren't before Such as an increasing mosquito population and problem in some Southern European countries. All of this simply means that climate and environmental Factors are leading to an increase in the pest populations.
Warmer weather means there are just more pests. So there are more pests in the world, but there are also more people. The world population continues to grow and is set to exceed 9,000,000,000 by 2,050, But the other trend of urbanization also continues. We have seen strong growth in this over many years, but this trend is set to continue with nearly 70% of the world's population living in urban areas by 2,050. The impact of this is also fairly straightforward.
There are more pests and there are more people living more densely together. More buildings, More harborage areas, more food production, and all of this leading to an ever increasing need for greater pest control. But it's not just the number of people that is increasing it's also who they are and what their expectations are. The middle classes as a sector is set for a particularly strong period of further growth over the next 10 years With much of this growth coming from emerging markets, the increased wealth of this sector leads to an increasing intolerance for pests with changing expectations and demands for ever higher sanitation standards and this is true and has an impact on driving both residential and commercial demand. And the last key driver that I'd like to highlight concerns data accessibility and transparency.
Everyone has more access to technology and the capability and reach and scope of that technology is increasing every year. The Internet of Things continues to expand apace with a near tripling of connected devices forecast in just the next 10 years. In just 2 years half of all devices and connections are expected to be free of any human involvement at all with the corresponding further explosion of data. More connected devices, more sensors, more measurements, More transparency of information and more awareness of problems with all of this data delivering new information and insight into the hands of customers and driving demand. So these are some of the factors that have driven both past market growth over recent years and will continue to do so in the future.
But also in 2018 I shared the significant delta and variance that exists in terms of Spend per capita between key regions. Back then we talked about the average global per capita spend being around $2.41 With the European spend being higher than the average and the North American spend massively so. By comparison Asia spend was much lower and therefore represented a potential opportunity. As we then look over the last 3 years What is interesting is that every region and therefore the total global per capita number has gone up to the 2020 estimates now as shown. But of particular interest is the highly significant increase in Asia per capita spending.
This potentially reinforces the point from earlier about The growing middle classes in emerging and developing countries. And as you can see is driven especially by increases in India And by an extraordinary number in China. This again highlights the importance of having a strong global footprint order to capitalize on the areas with the strongest growth potential. Similarly, we also see significant ranges in terms of the commercial versus residential mix in different countries all of which emphasizes the higher than average growth benefits that can come from taking a targeted approach. So all of this provides a great background and overview of the market.
And against that backdrop Rentokil is the largest pest control business in the world. In terms of global coverage we're able to service 85% of global GDP With significantly more revenue coming from markets outside of the U. S. A. Compared to some of the other market players.
Of the 87 countries we operate in we're positioned as the number one market leader in 56 of them. In addition to this we continue to take a priority city targeting approach. Key to this is having a strong market share in each city which we know is important to deliver the density and service efficiency that we want. And our ongoing plan which we will hear more of later when Chris speaks to us about our M and A approach It's to target specific cities and infill. In this way as the bottom right hand chart shows We're able to build scale in those cities which are actually set to have a higher GDP growth rate than either their national country GDP Or the global rate of growth.
What this means is that we have the best platform for global growth of any pest business. Aside from our scale and global reach what else do we consider as key factors that make us different and set us apart from everyone else? The first of these for certain is our expertise. Rentokil has had a specific focus on solving pest problems through innovative solutions since the very first day we started around 100 years ago when the legendary Harold Maxwell Laphroaig, The Professor of Entomology at Imperial College was asked to study ways of exterminating the death watch beetles in Westminster Hall And began to develop the 1st fluid specifically aimed at controlling wood boring beetles. We are unique in having a dedicated global R and D center for our science innovation and training enabling us to study animal Behavior in a variety of live environments and as a working space to trial a constant range of new innovations.
We also have an in house regulatory and technical compliance team and a certified GLP compliant analytical laboratory to ensure We stay ahead of all regulatory changes and can continue to develop our own new proprietary solutions. For our frontline teams, we pride ourselves on continual learning and development to ensure we stay as the acknowledged experts At the forefront of the latest thinking with the highest quality training and our technicians completed over 300,000 training courses last year alone. All of this sits behind our constant drive and focus on innovation. But it's not just in our central facility that we do innovation. Innovation is a core part of our culture that runs through every aspect of our business.
We get constant feedback and input from our expert frontline technicians. We get insight and identify new opportunities through the vast amount of data That our digital ecosystem automatically feeds in and provides us with remotely every minute of every day around the world. And we constantly strive to be first to market with new and patented solutions. At any one time we have over 50 different Ideas, concepts and products at different stages of development and trial in our pipeline. And all of these now have key criteria around ensuring They will have a positive impact from a sustainability point of view.
But perhaps most importantly we don't try and do this alone. We work with some of the world's foremost academics, researchers and expert partners to ensure we take advantage of the very latest thinking And are able to incorporate vast additional expert resource and insight into everything we do. Related to this and emerging from all the work we've done over many years is a unique and proprietary digital ecosystem. And when I say Digital ecosystem you may be hearing or thinking connected devices and this is certainly a very important part of what we do but our ecosystem is actually a suite And a full range of end to end digital solutions as Paul will share with us and explain in much more detail very shortly. Essentially our digital ecosystem consists of 3 parts.
Front line data And input onto mobile devices which feeds through into a portal for every customer providing unparalleled visibility and transparency Of all on-site activity directly to them. A range of always on connected solutions for 20 fourseven constant monitoring and customer peace of mind And the hugely powerful command center through which all our branches and teams can access key elements of the data we hold from all our sites worldwide. This provides a number of clear customer benefits not just in round the clock monitoring and early problem identification but in But in enabling our customers to access much of this data themselves and then allowing us to serve them with automated dashboards And documentation for complete transparency for audit compliance and even for automatic e billing. So all of these things we believe create a material point of difference in what we are able to provide and the way in which we can better serve our customers. But also we always want to be sure we fully understand and are delivering against exactly what our customers' needs are.
And in particular in advance of our event today we wanted to look at the largest sector the commercial customers and see what things were most on their mind Particularly in the light of the world slowly increasingly reemerging from the crisis. We commissioned a survey and spoke with the final decision maker for pest all. Control in 10 countries as shown on the right and across 6 different customer sectors to get a wide range of different views. But what's interesting when we look at the results Is the extent to which there is clarity and alignment from across the range of customers around a few major topics. Unsurprisingly on the left the top scoring response was around the need for the highest level of service delivery.
These are longer term high value contracted customers and what they want It's reliability and speed of response in dealing with any issues. The vast majority of these customers will have the My Rent A Kill portal Which gives them full on-site visibility and increasingly these are the customers who now have their sites protected by connected devices as well Which constantly update and feedback immediately in the event of any activity. But right behind the quality of service delivery came a clear statement around Innovation. More than ever the top commercial customers are wanting to ensure they have the very best new solutions on-site to deal with any problems swiftly And efficiently with 3 quarters citing this as an important criteria in choosing a service provider. And this is almost equal by those who say they want to have Always on, round the clock remote monitoring solutions for their sites and expertise and a suite of connected solutions in this area is also highly important in their choice of provider.
Similarly the ability to have automated reporting and proof of service which such technology enables is also right up there in importance for them, but perhaps even more enlightening from our research is the number of customers who are now very clear on the need For any partner they work with to be delivering the service for them in the most sustainable way possible. Very many corporations now have specific net 0 or other sustainability commitments they have made publicly and need to ensure Any suppliers they work with are also acting in full support of the delivery and achievement of those objectives. And per the last point on the right as we will see later on when Dave speaks with us, this reduction in chemical and pesticide usage Precisely the reason that the very biggest customer in the U. K. Turns to Rent A Cure to partner with on implementing a completely new pest management service across their entire estate.
So we're clear on what our customers want and in our ability to deliver against their current and future priorities. We have unrivalled scale and a global footprint that gives us a competitive advantage with a city targeted approach and further density driving through M and A. We have over 95 years of experience and expertise built firmly on a foundation of scientific knowledge and continual training and learning. We have a culture of innovation present right throughout our business which leads to a Stream of new proprietary and patented solutions coming onto the market to better serve customers and create a real point of difference. We have the very best end to end digital ecosystem which continues to grow in both breadth, depth, Market penetration and capability all underpinned by the power of the data we gather every minute of the day.
For all of these reasons we believe we are strongly positioned for organic growth in the pest control market with a target range of 4.5% to 6.5%. So what we'd like to do now is tell you a bit more about a few of these key areas for us starting with our Regional Managing Director for the UK and Rest World Regions Phil Wood who's going to lead the next section and explain a little bit more about how and why the pest control industry is transitioning to digital. Thank you.
Thanks, Gary. Great build up there. Good afternoon, all. Welcome to the Digital Pest session. Together with Paul Dominguez and Dave Hall, we're going to try and bring digital pest to life on the ground for you all.
So this is going to be an exciting session. Concentrate hard everyone, yes? Okay. So as Andy announced a short time ago, today we've set A new ambition to reach 25 percent of commercial pest control customers with our connected products in 5 years. Thought it would be helpful to appreciate the significance of this by giving you a journey before and after about how this industry actually works on the ground.
For a number of you, this will be a journey down memory lane. Some of you may be something a bit new. But in a world Pre digital and indeed throughout our industry as we speak, the world really is about bait boxes with traps or poisons, okay? This model does rely on technicians to check each one manually for signs of activity, but still have the skills, expertise, Attention to detail and communication skills to diagnose issues and to design action plans to solve issues. Technician visit cycles are largely 6 to 8 weeks inspection programs, meaning a potential infestation might have started weeks ago.
During the visit, any activity will have to be noted and actioned and written on a manual report and then filed away in a folder in the building. In regards to control of any issues, the dependencies would be on rodenticides or snap traps. So the boxes would have to be adequately supplied by both. So that's the picture in your mind you should have of the world out there as we speak now. Fast forward back to our digital enabled solution.
In Renticle's digital pest world, the bait boxes are replaced by connected devices dual autogate devices restricting the use Poisons to the target species. Report books and paper replaced by My Rentokil's electronic data capture and reporting. Data captured at source and in real time via our Service Track app. Data transmitted in real time to a central command center as Connect digitally watches our devices on-site 24 hours a day. But this should be seen as an evolution as despite all this technology enablement, The technicians, the skilled quality technicians, highly trained and in sufficient numbers are absolutely mission critical to ensure even greater response levels in the business.
So customers, as Gary have said, wants more effective pest control, and they want sustainability. In our connected world, they get both. You can see why we find these exciting times for what is a really exciting business. As you go through this session, Remember report books, reports and bait boxes being checked and that this digital world is now replacing. So let me hand over to Paul Donegan for the technology side.
Let's start with a quick
video to explain Digital Pest Control. So what is a digital pest control ecosystem? Well, to put it simply, it's about connecting the world's best pest control devices to the Internet. That may sound simple, but it's not quite the same as connecting a smart device to your home Wi Fi. Have you ever tried asking an information security officer you all.
If you can connect 500 mouse
traps to their corporate Wi
Fi, never mind what happens when the Wi Fi password changes. So the first layer of our ecosystem is our unique and proprietary long reach network, which helps us connect our devices directly to the Internet. The second layer is our IoT cloud platform. It's hosted in Google Cloud and has been designed for our ambitious growth. And it's already managing over 10,000,000 messages a day connecting our devices, colleagues and customers in near real time.
The 3rd layer is our colleague and customer experience layer, and that's a suite of apps that allow our frontline colleagues to interact with our devices. It allows our back office teams to remotely manage devices and our customers to have 100% transparency. So let me take you through this ecosystem step by step to show you how and why this is digitally remastering our industry. One of the early challenges was to ensure that our onboard radio and electronics didn't interfere with the device's ability to catch pests. Another was ensuring we have a solution, which had long range connectivity and could work both internally and externally.
Remember, They are low cost battery powered devices. And where pests like to live is not where Wi Fi and radio signals operate easily. As you've all had experienced of Wi Fi dropouts over the last 12 months and many of you will have to install boosters around your house. But I bet you still don't get a great signal at the end of the garden. These are all problems that we've had to overcome.
And with many years of investment and focus, we're confident We have a solution that is ready for scale. Unlike many of our competitors, we don't use our customers' Wi Fi And our devices send us heartbeat messages regularly to inform us of their health. These devices can also be updated and controlled remotely. For example, one of our dual autogates is activated. They tell the other autogates to open, allowing us to dynamically start baiting programs And I've hinted a few times already that connecting devices to the Internet is not as easy as it sounds.
Our early learning was all about how far can you push local communications in terms of range and at the same time keep power consumption low so we can obtain multiyear battery life. We wanted to keep the local installation as simple as possible and avoid complex and expensive boosters to get the range we needed. If you can imagine a large food distribution hub, it might have 50 loading bays at the back of the building and it's full of complex machinery in a very dynamic environment with moving people and equipment. That's the type of environment we've been testing in. And some of our largest installations have over 1,000 connected devices.
Knowing we can operate in these complex environments Gives us confidence we are ready to scale this solution. And our investment in Longreach means we stand alone from our customers' Wi Fi network, And we have full control of everything we install, which gives us agility and gives our customer better protection from cyber attacks. The Internet of Things is not something you can just buy off the shelf and the Internet of Pest Things can only be a collaboration of the best in class across a number of sectors. And as we continue our digital transformation, we're working with the best in mobile technology, Cloud Platforms and Data and Analytics. We have amazing collaboration across our technology and innovation teams, Our frontline teams and these technology giants partnering with the likes of Google and Vodafone, we are jointly pioneering low cost commercial IoT at a scale unseen in our industry.
A year in the life of Rent A Kill contains some pretty impressive numbers. We have over 20,000 frontline colleagues spanning 87 countries, working with over 970,000 customers. We visit over 2,000,000 customer buildings each year and record detailed pest management information at over 8,000,000 individual scan points and visit those locations over 50,000,000 times. Our teams and our devices recorded 10,000,000 signs of pest activity We made over 3,500,000 recommendations and took over 5,000 pictures to support them, which are in turn helping our customers pass their audits. We've already digitally empowered our frontline teams and the days of clipboards, Pen and paper and leaving printouts at a customer site is over.
Everything we do at a customer site is captured digitally. And making our apps easy to use reduces training and creating great colleague experiences is helping us deliver this digital transformation at pace. By linking our connected devices to our frontline apps, we can create a digital twin of the customer site and start to guide our frontline colleagues directly to the devices that have pest activity. This clearly has efficiency benefits and gives us more time to spend with our customers help them implement our recommendations. The command center is bringing our data to life It's helping us be more effective, efficient as well as highlighting new sales opportunities.
We can view our data at a global level and we can use it to monitor pest strains across countries and market sectors. Remember the food distribution hub I described earlier? Well, around the world, we have thousands of locations like this. And as we define our customer site the same around the world, we can now understand what pests thrive in those locations, what time of day and what day of week Pests are most active. These data insights are now helping frontline teams solve problems quicker and by helping our innovation teams design the next generation of solutions.
We're mining the recommendations we make and inform our sales teams of new opportunities. A customer's building type and its location can have a major role to play in the risks of pest activity. For example, a food storage warehouse that was built in the 19th century located near a river, woodland or wasteland Brings lots of additional risks simply based on geography and topology. And as we apply AI and machine learning, we can start to predict likelihood and future risks more than we could ever have imagined in a traditional world. MyRentacle is our digital customer Interface providing 20 fourseven access to our customers.
Everything that we historically wrote in logbooks and leave at a customer site Is now collected by our teams digitally and uploaded immediately to My Rent A Kill stored safely and securely in our cloud platform. My Rent A Kill is where our customers track progress against the recommendations we make. They can update the status and ask for further help. We create a full digital audit log, which helps them pass their audits from the likes of AIB and BRC. And unlike the paper based reporting of old, My Rent A Kill has a full suite of data analytics tools and provides access to near real time pest activity trending across their entire estate.
And when coupled with Pest Connect gives insights unrivaled in the industry. At a touch of a button, customers can set up automated reports and be delivered directly to them when and where they need it. It's live in 46 countries with 1,600,000 customer sites registered and has over 200,000 active users every month. I've worked in technology within this industry for almost 25 years, and the pace of change in the last five has been significant. Pest management was a very traditional industry, but our digital ecosystem is reinventing pest management and is digitally remastering pest control for the better.
Of course, all of this technology means nothing if it doesn't help us deliver better pest management to our customers. So to tell that story, I'm going to hand over to Dave Hall, the U. K. Operations Director.
Thank you, Paul. We would have thought anyone could have made technology so much fun really. But now let's get back down to earth and talk about How this works on the ground and demonstrates our operations in this space. Our model has been to go large in the U. K, learn and tailor before we roll out at pace across global markets with a target of 25% of commercial customers based on connected.
I'm Dave Hall. I've led this U. K. Rollout. Since launching Connect as a mainstream offer in 2019, we have increased our Connected portfolio by 4 fold And it now compromises circa 10% of our total business portfolio and is well on track to deliver that 25% portfolio.
We've seen progress both in our large key accounts and also local accounts and have targeted both new sales and also conversion of our current customers. So Pest Connect is intelligent pest control that doesn't cost the earth. But what does that mean in reality? The benefits to our customers are fivefold. Firstly, and most obviously, 20 fourseven connected monitoring.
But secondly, it's about having enough skilled resource on the ground to sort out the problem once the connected system has flagged a pest issue. Thirdly, it's about access to our unique catch and dispatch non toxic technology such as radar. And fourthly, It's about linking that to My Rent A Kill and giving the customer the data and the information they need. And 5thly, it's about reducing the use of toxic baits It offers a sustainable solution that reduces toxic bait by up to 40%. In summary, it offers a sustainable solution with no compromise on pest control.
And we've had a really, really strong response from our customers. 25% of our new contract sales are now connected. And importantly, 70% of those are on 3 year contracts rather than a traditional 1 year deal. And for current customers, we're converting nearly 60% of target customers over onto Pest Connect. And importantly, we're making progress across a very wide range of customer types.
This is mass market, it's not niche. As an example, we converted Tesco last year from the traditional pest control market to Connect, setting up over 1,000 sites in 2 months in the middle of lockdown. It's the biggest connected setup in the world. And why does it work for Tesco? Well, in the last 12 months, we've reduced their toxic bait usage by 40%, which is in line with our own sustainable agenda.
Levels of pest activity have reduced despite the challenges of operating a large retail estate in the middle of lockdown and pandemic. And we have future proofed their business against the changing legislation. And it's not just Tesco. Last year, we set up a number of the Nightingale Hospitals, including the Excel Centre in London. This is the 2nd biggest individual site that's been set up in the world with over 600 connected devices.
The site was surveyed on a Friday. The PO was agreed on a Saturday. The product was shipped on a Sunday. It was installed on the Monday, and by lunchtime on Tuesday, we caught the first mouse. We won the CBRE Best Innovation Award in FM, And I'm proud to say we awarded the Eden Project contract for Pest Connect in 2020 all on the back of a connected sustainable offer.
So what is our core offer? Well, as an example, for a low infestation standard SME customer, my offer to them will be this. We will reduce the number of routine visits, the number of technician visits from 8 to 4. We still fundamentally believe it's important that the technician inspects the site as part of the overall solution. We will locate fewer but better quality devices.
We'll offer you the digital reporting and 20 fourseven monitoring, All for broadly the same contract price as a traditional pest control offer. And obviously, we'll tailor that offer depending on the type of customer. Our digital reporting mid teens, I can identify for the customer when and where exactly activity happens right down to the time and the location. And because we have this large data bank of customers, we can benchmark their performance against their peer group. So we can offer advice on issues such as cleaning regime, colleague training, property maintenance.
We've also invested significantly in technician training. We've learned that our technicians need not just to be an expert in pest control, but also The connected system maintenance in the real world. So that's things like battery life management, location of devices, signal strength and environmental factors. It's meant a significant upskilling in role for our technicians and enhancing the role from being a bait box checker to being a true connected pest control expert. And with the floor plan app, this means that our technicians have a view of the site, its history, The device location before they even cross the threshold and entering the customer site.
And what that means that they can spend less time checking Bite boxes and more added value time sorting out infestation, which reduces nonproductive visits and delivers better customer service. It means they can spend more time talking to customers about other added value revenue opportunities such as proofing and flight control. In summary, it has allowed us to strengthen our offer to our customers across a wide range of customer types from SME to FM, from food manufacturing to retail, delivering for customers a sustainable solution with absolutely no compromise on pest control. Thank you. I'll hand back to Phil.
Thank you, Dave. So let me summarize what you've heard. I hope we've managed to excite you there. I can feel it. Yes.
So digital pest control takes the best of what's a great business and makes it better. Let's talk about colleagues. For colleagues, digital provides a job with even more purpose by removing much of the mundane and repetitive, But remember crucial part of the role and focus is time and attention on the forensic diagnostic elements of the job Plus the communication to the customers, which makes this such an impactful service. Digital pest control doesn't replace the people element, It supplements it. It's a message we really want to land here.
If we go to customers, for customers, the dynamic changes. You've got far more comprehensive coverage. Digital technology aiding the pest controller to be more proactive and precise and with data making sure we're solving the right issues before they become major issues. From a customer point of view, digital pest control emphasizes the benefits of the current service, but moves the dial read proactive service, visibility and data driven decision making. Now for the economics.
Economic case for digital pest control is also clear And supports our weighted growth targets of between 4.5% 6.5%. Connect gives us A clear point of differentiation. This takes all of Rentokil's traditional strengths, the best trained technicians in the biggest volumes And enables them to focus on the true value add through data. This supports higher retention. From a customer point of view, changing from a connect contract back to a traditional pest control contract would be like going from a smartphone to a red phone box And a queue for those of you old enough to remember those days.
Not a minor competitive differentiation, a significant when combined with our current strengths. Moving the industry from 1 to 3 year agreements is clearly not a structurally unhelpful dynamic in regard to customer retention of what is already a high bar. In regards to margins, This is an expensive journey and Rent A Kill has been investing for a number of years. We're now over that major structural investment part of the curve And you've heard from Dave clearly into the mass deployment stage. Standardization and scale over the cycle should drive the cost of equipment down.
Our experience of margins is broadly now flat at commencement and that over time we expect them to be accretive through equipment cost reduction and depreciation profiles. Digital pest. We've come a long way here and we think we've now established an established proven winner for colleagues, customers and shareholders in our view exciting times indeed. Now for even more excitement, I'm going to hand you over to Mark Reeder, our Group Category Director, for the next generation of innovations coming our way. Mark, over to you.
Thanks, Phil. Good afternoon, everyone. It's now for me to bring to life how the pest control looks moving forward, embracing technology, sustainability an increasing amount of data to maintain our industry leading innovation track record. Our innovation pipeline is as healthy as ever, combining a clear commercial focus with our pest control experience, setting out to deliver uniquely qualified customer focused solutions found on world class scientific expertise. Over the last 18 months, the pipeline has become more focused.
Firstly, this helped us streamlined through the crisis and pivot resources onto critical projects. Secondly, a focus on fewer things allows us to stretch the boundaries of our chosen areas further. This combination means we can deliver on our focus areas at greater pace. The more focused pipeline also means we can push the technology and solution to the absolute edge of what is possible today. And to look at additional aspects of the products such as sustainability of the solutions we develop, We can look at everything from cradle to grave, how raw materials are sourced, persistence in the environment and what happens at end of life.
All of this possible thanks to our investments in technology you just heard about and especially our partners who are leaders in their own fields. And that combined with our data Means that we have available to us gives us that edge. When I say more focused pipeline, we still have over 50 projects at all stages of the development cycle. These include hardware, chemicals, digital and database offerings with 17 patent applications creating the foundation for sustained differentiation in the future. Let's bring this to life with some of the additions that we will be adding to our digital ecosystem you've heard so much about.
Radar X is the next generation of our mouse ridden solution. While everyone else is launching their first, we are already on iteration 2. Changes fueled by experience from colleagues and customers. The biggest improvement we could make was to make it multi catch. It now has 2 kill chambers.
That means it's still a functional trap even after it's triggered once, with the added benefit of reducing the amount of visits needed by our technicians. It remains humane and nontoxic using a proprietary CO2 system. And to make this product practical and usable, we have to shrink the footprint of the mechanics inside to keep the form factor acceptable to customers, whilst also making the unit more resilient so it can be placed in the most challenging of environments. Next, Eradico, our 1st bait box made from fully recycled polymers and designed for closed loop recycling. The tray is specifically designed to be multifunctional, so it can take baits and snap traps.
And we're also redesigning our connected and proprietary dual autogate system to fit this new footprint. This means any solution put in this box should have maximum efficacy. And one of the outcomes of this solution is predicted to save 300 tonnes of virgin polymer per annum. Calling insect connects our first foray into the world of connected insects. The box is no standard box.
It is packed with super smart features, including a specially designed surface to help insects walk up the ramp, making it as attractive as possible for our tiniest pests. Getting an alert when a nice comparatively big, warm, fluffy mammal goes into a box is one thing, But getting alerts when cold blooded insects smaller than 4 millimeters have wandered in is another. But by adapting our detection technologies, we have achieved this, allowing our customers to get the fantastic data and alerts that they do from our rodent solutions. And our final connected solution to share with you today is Lumina Connect. Using the latest visualizing technology and applying that to the glue board, we have started to build our library of images and data.
And through machine learning, we were able to build beyond count and step into the world of ID ing insects. Moving on from our digital Ecosystems to further projects that leverage our industry leading data. Introduce one here called Helix, where the science is relatively heavy. Reducing chemical use, as you heard from Dave, is a real challenge. Connect certainly helps us to do that, but there are other areas in which we can remove and reduce chemical usage.
We believe that with our data, we can actually improve infestation control while reducing the amount of the rodenticides we use. Around 90% of rodenticides today are based on anticoagulants, and studies now show that genetic resistance to these chemicals is becoming ever more widespread. We now have the techniques whereby simply collecting droppings we can identify animal populations that carry these genetic mutations by using specific DNA probes. Our own internal trial show that on some sites, populations of mice were 100% resistant to a number of frequently used rodenticides, while some populations of rats were up to 90% resistant. By combining our data with asset publicly available data, such as the rodenticide Resistance Action Committee, we can target our treatments.
Using the correct rodenticide, we can target susceptible populations. This improves the efficacy of the active while reducing the overall amount of chemical needed to get an infestation under control. Final one to share today, check out a video of rats, typed using computer vision and machine learning.
This is where we start
to use facial recognition technology to observe animals, pests and rodents. People have been talking about video in the pest industry for some time, using camera traps and light to capture images of wildlife. But the real value and tricky part is translating Remote point to point still picture cameras into a platform where video content can be analyzed and delivered to any one of our 20,000 frontline colleagues on demand. This is exactly what we're working on. We're using tracking mechanisms developed to aid our studies at the power center and have incorporated video analytics into our digital ecosystem.
As you can see in the video, we are working towards tracking of features such as object attributes, movement patterns and behavior related motion, giving us certainty about identification, the source of the problem and treatment solutions. Having this type of behavior and spatial data will mean we can also understand the environment, What other species there are and the interactions with targets as well as the effects of temporal data such as time or weather and associated behaviors. So we can devise the optimum treatment for any area. The advances in deep learning, video analytics and neural networks will enable us to identify other objects of interest and therefore automate processes such as harborage identification and better guide our frontline experts to where and when they are needed the most. I very briefly introduced to you 6 of our current pest control innovations adding to our track record of delivering industry leading solutions.
We have over 45 more in our pipeline. And as mentioned earlier in the day, we are leveraging partners and true leaders in their industries to help drive these solutions at pace. Combining their expertise with our knowledge and ever expanding data driven insights allows us to deliver better and of course differentiated pest control solutions. Several colleagues will be around in our innovation zone later where you can see a number of these innovations. Thank you.
And I'd like to hand over to our M and A Director, Chris Hunt.
Thanks very much, Mark. I'm going to tell you today about how we create value through acquisitions and go deeper on 3 topics that I know are of interest to many of you. Firstly, our North American M and A program secondly, our activities in emerging markets, I. E. Cities of the future And thirdly, the sustainability of our pipeline, especially in North America.
But first of all, I wanted to set the scene by reminding you of the rationale for M and A within our business. We've shared the data on this chart with you before. It shows that branch profitability is optimized as you approach and exceed 25% local market share. That's because we're building density at a branch level. So if we already have a branch operation and we buy another, And combining the 2 means that we can optimize the routes.
Technicians spend less time driving and more time in front of the customer. We can also repatch sales reps to make them more efficient and find cost synergy by removing duplicate admin costs and activities and or consolidating properties. Some of that synergy can be reinvested. For example, we might choose to invest in sales reps to grow the business rather than let them go, Or we might buy a commercial business and decide to invest in local marketing activities to expand into residential. We think about value creation as a business process, and I believe that's what's driven our success.
I'll touch on just three aspects of that. Firstly, there's a dispassionate, disciplined evaluation of the opportunity. Here we get to grips with the quality of the business and the quality of its economics. It's a big part of my job to ensure that we get this right so that only investment grade opportunities come through. We do that using a standard financial model, forecasting future profits, cash flows, net present values, IRRs, paybacks and multiples.
And we reject roughly 1 in 4 at this early stage, either because we can't get the returns criteria to work or because we can't get Now this is led by the business, not the deal guys. So operators are clear what they can absorb quickly, and the target business gets an Dear of the rhythm, cadence and requirements being a member of the Rentokil family entails. And finally, we exercise strong governance. We review progress and we challenge regularly. Our investment committee approves all offer letters and post diligence our final business plans.
We do post deal reviews of performance against the business case and a full analysis with the PLC Board twice a year. These reviews help us to feedback and ensure future deals address common issues or benefit from the learnings. This chart shows you our deal activity And we've got a strong track record. It shows that we've done 228 deals since 2016, 186 of them, roughly 80% of the total deals have been in PEST, with the other 20% in hygiene and well-being. I'll talk about those in a later session.
You can also see that 73 deals, roughly a third have been in North America. And we've spent the bulk of our acquisition dollars there. But I wouldn't want you thinking it's all about North America because we've got a good track record in emerging markets and growth markets outside of North America too. Now we're executing roughly 3 deals a month and we couldn't point to a track record like that Unless we built the M and A capability to identify, evaluate, negotiate, execute and integrate these deals at pace. We do most of this with an experienced dedicated in house team.
The front end identify and evaluate sits in the market, so we close the opportunities. And the back end, the deeper evaluation, the deal structuring and the execution sits in the center with a small team of dedicated M and A specialists And links to our functional experts who help us to create value, for instance, in insurance or property. If I turn now to North America, The chart on the left shows you revenue multiples paid across the landscape of North American pest deals. It's based on data from one of the main brokers the Potomac Company. And thanks to them for allowing us to share it.
I think it's a pretty good representation of what's getting done in the market. You'll see that at the upper end, it shows revenue multiples rose in 2017 to 2018, and they've remained high since. There's been plenty of competition from the other majors, especially for the bigger assets. And we're seeing private equity on the hunt for smaller regional platforms to pursue a roll up strategy. But it's also worth pointing out that at the lower end multiples aren't expanding anywhere near as quickly.
Now we're quite used to operating in this competitive environment. And of course, money talks. And we're prepared to pay up for quality businesses because we know what quality looks like and we're confident in our model to deliver the returns. But others are offering similar prices, So winning deals is also about positioning ourselves as the preferred buyer. We've built that reputation over many years.
It's a mix of professionalism, sticking to our word, offering quick, clean and simple deals and respect for all colleagues in the integration. The chart on the right shows the revenues we've acquired and the returns we've made in North America. On average, we bought around £100,000,000 of revenue a year. 2018 looks a little light, but that's because we spent our M and A dollars in other growth markets and we had a few North American deals complete in early 2019. Now the second half of twenty twenty was huge.
Sellers were keen to exit, fearing Biden's tax reforms would increase their capital gains tax bill. And I feared that 2021 would be quieter because those planning to sell would have done so in 2020. But that's not the case. Our deal activity remains very healthy. And playing to that healthy deal flow, I'm often asked if the North American pipeline is drying up.
I don't think it is. And this chart demonstrates why. On the left, you can see PCT Magazine's analysis of revenues from the top 100 pest companies in 2016 compared to 2020. It excludes the majors. In 2016, there were 83 companies with revenue below £50,000,000 and in 2020, 81.
The threshold for entry into the PCT top 100 is now around £5,800,000 of revenues where it was about £5,600,000 in 2016. And as Andy mentioned, the top 25 are larger now than they were in 2016, whereas number 80 is about the same size. On the right hand side sorry, obviously, not all of those targets are actionable, but there's still a lot of bolt on targets, and they're a bit bigger than they were. On the right hand side, you can see how the top 100 markets evolved from £2,600,000,000 in revenue in 2016 to £3,100,000,000 in 2020. In 2016, there were 96 businesses excluding the majors, and that became 95 after Antisenex entered.
Of the 96, 43 sold and they've been replaced by 42 new entrants. It's also worth pointing out that those businesses who didn't sell have continued to flourish, Growing around 9.7% on average each year, and they fill the gaps from those that have sold. So in conclusion, Between 2016 2020, there's been a recycling of similar sized businesses. The market is bigger and there's still a high number of good sized targets to pursue. I focused on North America today, but it's also worth reminding you that we operate in 86 other growth and emerging markets.
I'll be talking to you about sorry, I'm not talking to you today about the growth markets, but opportunities remain good there and they give us flexibility to deploy M and A outside of North America where Having done 51 deals since 2016, here our strategy is a bit different. Emerging markets is about building a strong base for future growth Rather than bolt ons to infill our footprint or build density. Our hypothesis is based on 4 pillars. Firstly, that GDP grows quicker in emerging markets than It does in established markets. Secondly, emerging markets tend to have high urbanization rates, so growth rates in major cities are typically higher than the country as a whole.
Thirdly, pest growth rates tend to be higher than city growth rates. And finally, growing market share to 25% or so will deliver good margins for us like it does elsewhere. So it follows that targeting the fastest growing major cities will lead to a faster growing pest business relative to our more mature locations. And linking this with what Gary shared with you earlier, we see a considerable opportunity in Cities of the Future With ambitions to increase our scale in 125 of the top 250 cities and to enter a further 27. We think building share building a market share of 20 5% or so like in our established locations will lay the bedrock for future profitable growth.
Perhaps the easiest way to demonstrate this is with an example from Indonesia. Indonesia is the 8th largest economy in the world on a purchasing power parity basis And it will grow to be the 4th largest in the next 30 years. It's the world's 4th most populous country growing at around 5% a year With more than half of its people living in cities. Jakarta, its capital city, is growing at more than 8%, and we estimate that the Jakarta On the right hand side, you can see the benefits from that density. Our revenue per service FTEs increased 2.9 times.
Our techs are now closer to their customers and spend less time traveling, so they can spend more time with or serve more customers. We've consolidated the property footprint within larger branches, so our revenue per branch has increased 4.7 times, and our gross margin has increased 1300 basis points we now have more productive staff and lower branch costs. So in conclusion, M and A delivers profitable growth. It boosts our growth trajectory, and it's a key part of delivering our medium term guidance. We've got a model to create value from bolt on M and A and it's deep rooted in the business.
We're using it to pursue pest opportunities globally And those opportunities have been baked into our group targets to deliver between 2.5% sorry, 2% and 5% top line growth. North America will remain a focal point for our pest M and A activities, and M and A returns remain good, and we're confident in the pipeline. And finally, We're looking to replicate the Jakarta model in other cities of the future, either growing our current market share or acquiring entry platforms. Here, we're identifying good local pest businesses that we can mold into the Rent A Kill model, and when the time's right, bolt on other acquisitions. We believe cities of the future will be a bedrock of longer term growth.
I'm now going to hand you over to Stuart to summarize what we've told you and to share its financial impact.
Thank you, Chris, and good afternoon, everybody. Let me begin with a graphic you will recognize from our interim results presentation in July. It represents our cash compounding subscription model, which is driven by our operating model and which continues to run extremely effectively. Our operating and financial performance over recent years clearly demonstrates the efficacy of the model and its potential for acceleration in the future. We have very strong metrics in our pest control business, 2 thirds of which is subscription portfolio and which generates very high levels of customer retention at 84.4%.
We have a good ability to recover input cost inflation through effective pricing. Postcode density and market share drive strong operating margins and organic growth, which on a 4 year average has been around 5%. While the business is highly cash generative, it has very low requirements for investment and capital expenditure. And as we have said several times before, the industry is highly fragmented with 40,000 businesses offering significant opportunities for us to continue with our proven and successful roll up M and A program with a particular focus on cities of the future and North America. Combined, these elements mean we are very strongly placed to deliver growth in the medium term.
Turning now to a chart which illustrates the value of our operating model has created since 2015. We've used H1 numbers as a in order to give the most recent picture and demonstrate our recovery from the impact of the pandemic in 2020. The bar chart on the left shows that we've grown revenues by around 88% to 2021, a CAGR of 15.4%. Looking at operating profit growth on the right of the slide, this has risen by €99,000,000 since 2015, a CAGR of 15.6 percent to 2021. Both charts illustrate our delivery of substantial value creation in pest control over the last 7 to 8 years.
So let me briefly recap on what we've told you today. We operate in an attractive global market growing at 4.5% to 5% per annum. We have set our new organic growth targets of 4.5% to 6.5% over the medium term, which represents further momentum in our We are strongly positioned in innovation, digital and sustainability. And to reflect that, We have an ambition to install Pest Connect amongst 25% of our commercial pest control customers by the end of 2026. You will have noted the category changes described by Andy earlier today and which have only a very minor impact on the composition of the pest control category, with our U.
K. Property Care business joining PEST from the 1st January 2022. Finally, we have very high levels in the sustainability of our global M and A model and are particularly excited by the opportunities we see to grow and expand our footprint in the cities of the future, which brings us to the future and what all of this means for our targets. The combination of outstanding pest control structural growth drivers, including increasing per capita spend. And our own organic growth levers such as innovation, digital technology and sustainability and the continuation of our M and A program Means that over the next 5 years and beyond, we can continue to strengthen our already leading position in the global pest control market, Building organic growth and M and A on top of our base and enhancing net operating margins through greater density.
So we will now move to a 30 minute lunch break, during which you will be able to see some of our digital innovation and ESG displays. We are saving questions and answers to the end of the day, and you will see in your pack a link Which allows you to submit questions a question to us online, which we can then respond to later. We'll begin at 2 p. M. Thank you very much.
Well, good afternoon again, ladies and gentlemen. Hope you had a good lunch and had a chance to chat to some of the team at the breakdown. So far today, we've focused on pest control. We've announced a new medium term organic growth target of between 4.5% 6.5%. We've looked at that new market research on the expectation of customers for innovation, digital in sustainability.
We've highlighted our leadership in these areas and we set that new ambition to reach 25% of our commercial customers with Pest Connect over the next 5 years. We underlined the sustained value creation opportunity that we see in M and A. We also announced a new set of medium term financial targets for the group. Over the rest of the afternoon now, we're going to focus on our new category of hygiene and well-being. We're going to look at the organic growth opportunities inside the core washroom, outside of the washroom in premises hygiene and enhanced environments, and we're going to look at the opportunities for geographic expansion.
We'll then wrap up with M and A, the financials and the Q and A session. So firstly, let me just take a few minutes again to set the scene. In 1903 in America, Henry Ford was founding the Ford motor company. Orville Wright was undertaking the 1st successful powered flight. And meanwhile, 1 Arthur Bigelow, A former soap seller from New York had moved to London.
And from a small room on the 5th floor of a building in Holborn, He began to sell towels and soaps. He was the salesman, his wife ran the office, and she would embroider the towels with the initials of the customers. So they would know that they got their towels back. And from that idea, the Bigelows came up with the brand name initial. Before long, the company was employing 4 route men.
They made the deliveries In collections, you see them there on the left of the screen. They're state of the art at the time, highly sustainable vehicles. And 25 years later, Mr. Bigelow had changed his address somewhat. He'd moved from Holborn and he'd moved to Grosvenor House Park Lane.
He was the first to figure out how to make money from washrooms. Over the last few years, We at Initial Rentagil Initial, we've really fallen back in love with our Initial business. We've invested in innovation, in quality, in product development, in science, and of course, in the expertise of our people. So let's remind ourselves about the core of this business, the products that we offer today inside of the washroom. We'll start with this short video.
So over the years when I talked to you in the past about our core hygiene business. I've usually said 5 things. Firstly, it's a very good business with committed people, great products, a large customer base and high levels of customer service. Secondly, it's a valuable partner business to pest control, sharing overheads, IT, back office functions. Thirdly, that we've got a really operational focus in this business, delivering on time in full for every customer every day, which is by no means to be underestimated.
And it's a business that's supported by digital tools to add efficiency and productivity. Fourthly, it's a density play. It shares its root density expertise with pest control. And because of this, we have a very clear role for city based acquisitions to build out postcode density even further. And fifthly, whilst its margins and cash characteristics are indeed very similar to pest control.
This has typically been a GDP growth business with a historic core washrooms market growing by around 2% to 3% each year. So it's a really good business, but it hasn't had that same exciting growth perspective as pest control. And then of course along came COVID. Now Gary will take you through our new hygiene research in a moment, but as you can see here just two stats. 1 in 2 of us would now rather leave a venue if it didn't appear to have good hygiene measures in place.
84% of us now believe that it's important that our employer prioritizes creating a safe and a hygienic workplace. Clearly, as a result of the pandemic, attitudes to hygiene and the drivers of growth in the category have changed very significantly. And that's why this is absolutely the right time to create this new hygiene and well-being category. On this slide here, you can see several examples of the services provided in the 3 key areas: washroom hygiene, premises hygiene and enhanced environments. From no touch and digital washroom services to air purification And from specialist clinical waste management to air monitoring, premium scenting, green walls and office plant design.
This also provides a broad structure on which to innovate and to bring new services to the market in the future. Now Stuart will go through the new categories financials later this afternoon. But as I mentioned earlier on from next year We'll be applying our 4% to 6% organic growth target on this larger hygiene and well-being category. Before the pandemic, this business generated annual revenues of around £700,000,000 but was obviously negatively impacted in 2020 by the crisis. However, as you can see here in the first half of this year, the new category delivered ongoing revenues broadly in line with 2019, with the core business essentially returning as customers have gradually reopened.
So this afternoon then is really all about how are we going to grow this new enlarged category. And to answer the question, why is hygiene and well-being indeed the new pest control? And that answer comes in 6 main areas. Firstly, all of the things that we love about pest control with its strong market growth drivers also apply to the new category. Growing population, increasing middle classes, new standards and regulations coming in, as well as the threat of litigation in some countries forcing employers to take steps to protect their employees.
And of course, the growing importance of technology. All of these apply to hygiene and well-being, and Gary will cover these in just a moment. The second part of the answer is that hygiene and well-being shares the same very successful operating model as pest control with our focus on people, service and profit, and with a particular focus on density economics. Brian will provide you with a case study on those economics in the U. K.
Hygiene business focusing on postcode density, product density and the shared overhead with our other U. K. Businesses. And how the successful integration of our Canon hygiene deal was a great example of using acquisitions to enhance even further those operating margins. The third part of the answer therefore obviously is to sell more services to our existing customers inside the washroom, As I mentioned earlier, we expect that to account for around half of the 4% to 6% organic growth target.
Jill will outline examples of how we'll go about this using new products, particularly in air care and no touch, but also using new digital channels to market. And Jill will also cover the role of digital products and innovation and share the exciting opportunity that we see with our new rapid hygiene services. In a post pandemic world, we anticipate an increasing demand for digital hygiene services and for online reporting, meeting the needs of increasing scrutiny, regulation, and as I said, legal threat. And just to undermine the same successful innovation model as pest control, later this year, We will be opening a new U. K.-based center for innovation and product development, specifically for the hygiene and well-being category.
The 4th part of our answer is of course expansion outside of the core washroom. And this afternoon you're going to hear examples from Greater China, from the Pacific, from America and from Europe on how we can use our existing expertise in areas such as air purification, specialist clinical waste management and large scale biophilic design to capture this growth opportunity. The session will be hosted by Regional MD for Europe, Alain Montfarin. And Alain will then go on to provide the 5th part of the answer, namely the opportunity for geographic expansion and the progress we're making in the markets that we entered in 2020. As we increase our footprint, we build density, and we leverage our existing customer relationships.
The final part of the answer is the same value creating opportunity in M and A. Later on this afternoon, Chris will be back to provide an update on our proven model for hygiene M and A, which of course is very, very similar to PEST. Our progress on building the pipeline across the new hygiene and well-being landscape and on our new target for acquired revenues in hygiene well-being of at least £25,000,000 per annum, whilst at the same time also, as I said earlier, being open to the potential for larger transactions. We believe this is an outstanding opportunity. It's a compelling investment case.
It's the right business. The right business at the right time, just as the drivers of growth change as a result of the pandemic. We've got the operational model in place. We've got a global footprint. We've got a large existing customer base.
We've got a proven innovation capability and digital expertise. And most importantly of all, we've got highly motivated people and a great initial brand. Like Pest, this is a cash compounding global subscription business with 90% of its revenues on contract. It's a low CapEx intensity business around 13%. It's got excellent cash conversion metrics.
It operates at similar net margins to PEST, and it also delivers a high return on investment. In short, everything that you love about the pest control business and the pest control industry you see here in hygiene and well-being. So this is why we believe that hygiene and well-being is indeed the new pest control. We've got a clear plan, medium term targets for both organic growth and M and A. The opportunity post pandemic is there to be grasped, And we believe that we are better placed than anyone else to capture that opportunity.
So let me hand back now to Gary, who will cover the hygiene and well-being marketplace. Gary?
Thank you, Andy and good afternoon again. I'm here to talk to you in this section about why hygiene and well-being represents a very significant further value creating opportunity for our business. As you know initial is the global leader in hygiene and well-being services and we've been going for over 100 years Delivering great service now to over 280,000 customers around the world in over a 1000000 different locations. We're also live and active with a hygiene and well-being proposition in over 60 countries worldwide of which 20 new markets have been added just in the last 18 months. And we're currently market leaders and number 1 in 22 markets including the U.
K. And number 1 across Asia Pacific and the Caribbean regions. In addition to what we've done very successfully in pest control I'm pleased to build on the announcement that Andy has made to say that within the next few days actually we'll also be opening a brand new Dedicated hygiene and well-being center here in the U. K. Which will house all of our hygiene and well-being capability for innovation for product development and product testing across our full suite of solutions including our connected smart hygiene products.
The building itself has been designed and rated as excellent against the BREAM standard which is the world's first sustainability rating scheme for buildings Measuring everything from energy efficiency and carbon emissions reduction to its ecological value and biodiversity protection. This new facility continues to build from our proven focus in pest control where we have our global innovation R and D center and our GLP lab using science based expertise to develop unique and proprietary solutions again for our customers. So this Now gives us exactly the same dedicated facility for hygiene and well-being. We're obviously living in a world that has changed in some ways beyond recognition over the last 18 months. But as we look at our overall hygiene and well-being business.
It's important to note three things. Firstly our business was growing strongly before the pandemic And looking at the H1 comparisons has grown at a compound annual growth rate of just over 6.5%. Secondly through swift and decisive action last year a strong refocus and an incredible effort by all our regions and frontline teams We managed to only have a small impact on our business in 2020. And thirdly as you can see and as Andy has already mentioned our business is now back on track and growing again And we believe it's set to grow even more strongly in the future. In addition it's very interesting and encouraging to see the positive contributions Come from across our regions which all have a part to play in this success.
In particular we have specific strength in our Europe and Latin America region And coming from our U. K. And Rest of World region. Similarly today we'll be talking a lot about the three areas where we see growth opportunities on the right. If you look at the basis of our current mix, whilst it's clear that our core washroom business dominates, We already have a good base in both the wider premises hygiene and enhanced environment sectors.
And although we believe these latter 2 present Highly attractive new growth opportunities. We want to talk to you today about the significant growth potential we see in all three of these sectors. As per the theme of the day today we're here to talk about just how many similarities there are between The hygiene and well-being business and the pest business and why we believe hygiene and well-being is the new pest control. And that's equally true when we look at the key drivers and the factors behind the growth in this market even before the pandemic hit. The first of these is that the general growth in world population numbers fairly obviously has an equal benefit in this area.
More people means more demand for our services And similarly the trend of urbanization which we talked about earlier is also driving hygiene and well-being demand. More people living in urban areas increases the pressure to deliver clean water, clean air and the need for sanitation services. But this greater concentration also has the benefit again of increasing customer density which is a further a proven success model for us in PEST And it's something that we do incredibly well also in profitably providing a service for customers in hygiene and well-being. Secondly, economic growth has always been and continues to be a key driver for hygiene and well-being growth. This has been particularly true where GDP growth has been a driver for our washroom business, but overall economic growth is a key driver now for our other opportunity areas as well.
We've all been through a challenging 18 months with considerable economic uncertainty, but what is clearly now true is that the bounce back is starting And that investment levels and expectations are now increasingly positive. We're seeing businesses emerging across all sectors And across all countries in the world in different ways and to varying degrees but increasingly there is now a consensus and pathway for future growth. It's also very true to say that there is a significant amount of previous stifled pent up consumer spending Which is going to have a positive effect on demand economies overall. This economic pickup with greater levels of spending and higher investment Along now with higher levels of hygiene and well-being awareness we believe will deliver strong commercial growth for us. Not only has the population increased with more people in cities and a positive economic outlook, but more people than ever are now in the growing middle classes sector.
Way before the pandemic even started there were material positive factors driving increased hygiene and well-being demand. Again as we mentioned earlier when talking about pest control the rise of the middle classes with increased wealth and the increasing number of people in this sector was already creating increasing year on year demand. Growth of the middle classes in particular in the fastest growing developing economies and corresponding standards and expectation changes has led to increased legislation and attention on this area as a whole. And we're seeing this flow through into increased auditing and a desire for more measurement, more data and more transparency. We're also seeing widespread change and opportunity with new corporate sustainability commitments towards net 0 in this space.
The impact of all of this flows through in our world to expectations for more premium solutions And demands for greater transparency around sustainable solutions and sustainable operations. And again we're seeing a new regulatory focus globally Responding specifically to requests for cleaner air and surface hygiene. All of this requires new solutions to be developed and new technology to be in place. And it's important to note I'm talking here about factors that were in place And drivers that existed before we even knew what COVID-nineteen was. All of which leads us to the final point I want to make on drivers which is around expectations and awareness which is perhaps now one of the most important drivers in the sense that it's the one Where we're seeing the biggest changes moving forwards and I think the biggest opportunity.
We'll talk in a minute about the impact that the pandemic has had on this sector but hygiene and well-being were increasingly important focus areas before coronavirus. The corporate and personal wellness markets were growing strongly with increased attention on personal well-being and the environmental factors That either have a detrimental or a positive impact on that. There were a number of key drivers for hygiene and well-being sector with focus on Cleaner air in our cities, on emissions, on air quality overall, on healthier buildings And an increased expectation from employees and guests that the onus and responsibility is on their employer to provide a healthy and safe working or leisure environment. This was already leading to increased measurement, data, Analysis of environments and included focus on areas such as the benefits of a biophilic office, the benefits of natural plants and green walls And the important relationship between the quality of the working space and sickness rates and productivity. But then of course there's the very significant matter of an unprecedented global pandemic.
It's been a tragic and life changing experience which many countries and many people are still living through on a daily basis. But from a hygiene and well-being perspective the impact of this pandemic cannot be overstated. The change in awareness for the critical importance of hygiene and well-being standards in protecting against transmission And the understanding of how bacteria and viruses move between people has changed forever. Clean surfaces And perhaps even more importantly clean air have now left to the top of media attention and the corporate agenda. Before the subject and importance of hygiene was a conversation often we started.
Now it is business and life critical and we have a leading role to play in delivering the solutions and services in a trusted and scientific way which our customers are now proactively coming to us and demanding. We see this in all areas through societal impact changes and the fears that people now have about their own health and well-being. The flow through of this onto increasing regulatory activity, the demand for the creation of new solutions and the use Technology to measure report and solve some of the challenges and the knock on further increased attention on environmental factors And the importance of looking after our planet. All of these present yet further new areas for Increased economic growth and the creation of new opportunities for us in this sector. Now the key question of course is whether these changes are temporary factors that will fade Or whether they represent more fundamental changes in expectations, attitudes and behavior.
It's possible of course that in a number of years some of the experiences that the world has gone through may be forgotten But we believe that many attitudes have changed permanently and the effect of the pandemic in terms of hygiene awareness and new standards We'll be forever enshrined in new regulatory activity and legislation. To get a clearer view on how attitudes have changed though. 2 months ago we commissioned the largest hygiene and well-being attitudinal survey ever seen With 20,000 respondents across 20 different markets. We wanted to get a globally representative set of views across all continents And many very different countries large and small. As you can see on the right this included some of the largest and more mature markets as well as some much smaller more developing markets.
All of this is only very recently concluded and provides incredible insight to just how much attitudes and behaviors have changed. And we've captured some of this in a short summary report Which we've called the global hygiene reset. As you can imagine this survey gives us a rich new understanding much of which We didn't have before and it's perhaps useful to give you a few brief snippets of some of the findings. To start with answering the most direct question Over 95% of those questions around the world said that their behaviors had changed in some way as a result of the pandemic. That alone is an incredible statistic and it's then very interesting to see some of the areas and subjects that people around the world are most concerned about.
7 out of 10 respondents said they are now more fearful of the spread of germs via surfaces they touch than before the pandemic. But very interestingly an even larger number of people are concerned about the quality of the air they breathe and what might be in that air. And on that very same theme as we haven't mentioned it before I'm sure you cannot help to have noticed at the front looking like podiums these 2 A large virus killer units in the room today. They're also in the breakout room. These are one of the latest additions to our range helping to keep customers' premises safe and which Gill will talk about and also Greg our MD from China will explain a little more about later on.
Going slightly deeper as Andy touched on earlier when questioned about whose responsibility it is to create safe and hygienic spaces 84% of people around the world stress the importance and belief that their employer should be creating this safe environment for them. And this research and the feedback looked at many different environments and spaces with nearly half of all respondents saying they would leave a public venue if it did not appear to have good hygiene measures in place and then 48% of them saying they would not go back there again. There is a huge amount richness in-depth of detail in this study that we definitely can learn from. But what is very clear is that the pandemic has profoundly changed attitudes and behavior and this in turn has created significant new growth opportunities. We don't have time today unfortunately to go into all the nuances and depths of this research, but we have prepared that short summary with a number of the key researching which is available you all to take away and read further.
So as you go outside there is a little bag for you on your way out. So please pick that up and that report and some other bits and pieces will be in there for you. But just to give you a taste of some of the Lower level and more granular insight we're able to get. It's interesting just to note some of the variances and differences that exist between countries and markets. For instance over 2 thirds of South Africans said they would likely leave a venue that did not have good hygiene measures in place But curiously only around a quarter of people feel the same way in Japan.
Similarly in China 7 out of 10 people believe the venue itself is responsible Ensuring it is providing the levels of protection needed whereas in the UAE only 4 out of 10 people believe they actually have that responsibility themselves. So what we're seeing here is the important cultural differences to understand between countries. You can also see from the data where the expectations are Most extreme. So whereas 3 quarters of respondents in some of our markets expressed the importance of having hand sanitizer available to them in public venues In a country such as Indonesia this is almost a mandatory requirement and expectation. And looking at the key growth area of air quality which we'll talk about in much more detail later on you can also see those markets for whom this really is a critical subject Therefore for whom it potentially represents the biggest market opportunity.
But again what is true is that everywhere Even in some of the biggest markets in the world such as America there is a very high expectation for venues themselves to be putting new measures in place to stop The spread of germs. In addition to this we see opportunities across a very wide range of customer sectors. Some sectors have been more impacted by the pandemic and will recover at a slower pace whereas others have actually seen a huge uplift in demand, ironically created by the associated effects of the pandemic. In offices, we are seeing a more gradual return to normal, but still an increased demand expectation for hygiene And well-being provision. At the other end of the scale sectors such as logistics and warehousing have been booming and we have very good representation And a strong customer base in this area as well as in manufacturing and for high dependency food production and food retail customers.
For certain each of these sectors has been affected in a different way, but demand for provision of hygiene and well-being service exists across all of them. And we believe this next period ahead presents an increased growth opportunity for us post crisis. As Andy talked about earlier, we now have an expanded suite of services and solutions that can capture growth in 3 different spaces. Our core and strongest previous area of washroom hygiene we see as having forward potential of between 3% 5.5% compound growth. But we believe that the opportunity in premises hygiene is even higher with a forward growth rate over 6%.
This includes areas where we have previously been active with increased demand around hand sanitization and surface hygiene, but moving forwards in particular again around New opportunity of air purification. In addition the potential market growth from enhanced environments designed to make spaces more enjoyable for visitors customers and employees could be at an even higher rate. The appeal across all three areas is also back to our core business strength of adding density. The more we can add further services or solutions into one building the more efficiency and profitability we will be able to drive. So to summarize all of this we see a very clear path ahead for targeted hygiene and well-being growth.
And essentially to deliver this there are 3 overlapping opportunities. Firstly in the core washroom through the provision of increased Secondly to the expanded opportunity that exists for hygiene and well-being service provision outside the washroom reflecting this change in attitudes and expectations that have come as a result of the pandemic. And thirdly then by also expanding our hygiene and well-being Into new geographies by organic growth from existing operations or through M and A and also using M and A as a means to infill and add further density through bolt ons. Overall, we believe there is a forward growth opportunity of between 4% to 6% organic Plus a further £25,000,000 plus from M and A activity. What we would now like to do Let's go into each of these areas in more detail and we'll start by explaining a little bit more about our current model in hygiene operations.
To do that I'd like to hand over to our Hygiene Operations Director in the U. K. Brian Lingard. Thank you.
Thank you, Gary. Good afternoon. Time to talk about washrooms. Most people that follow Renskill and Nyssa will know our pest control business very well, but perhaps our core washroom business less so. I'll give you a quick tour of what we do and how we do it before taking you through the value levers of our washroom hygiene business.
So what do we do? We start in the cubicle. We do feminine hygiene units. We do toilet tissue, toilet tissue dispensers. We do hand and surface sanitizers.
We do WCD scaling systems move to the wash basins, soap dispensers, hand drying, any type of hand drying from paper towels to High speed electric hand dryers. If you think about the air in the washroom, we do air fragrancing systems. We do air purification systems. We do vending units. We do nappy waste, etcetera, etcetera, etcetera.
In short, we supply, we service We provide consumables for any customer need in a shared washrooms environment. The only thing we do not do It's cleaning. We're not a standard cleaning company. Anything else in the washroom initial can provide. Let's have a quick look at the customer types that we do it for.
We work across an incredibly broad customer portfolio, very similar to what you would know from Rentskill. It's the building, it's the people in the building that drive demand Less than what is actually happening within the building. Of course, we have customer segments with specific demands. Of course, we have different needs in different customer types and some differences between markets. But if you look at the group distribution, where do we get our revenue from?
Let's take some of the big groups. The public sector, which includes education. It's about a quarter of global revenues personal and professional services, which includes the care sector, About 20% of global revenues. Hospitality, 1 in 8 of our customers are in the hospitality sector, about 1 in 8 in retail. Those are our important customer groups across the initial group.
We do not do any work For consumers, we don't do private household. We help customers with shared washrooms, shared by students, shared by guests, shared by customers or shared by employees. And we do that across all sectors with no significant reliance on any one sector in particular. Let me try and take you through how we do it, and I'll use the U. K.
As an example. So our infrastructure in the U. K, 21 branches up and down the country. From each branch, somewhere between 20 40 drivers. The service colleagues will return to base Anywhere between 1 and 5 times a week, they'll replenish their stock, they'll drop off their waste.
That's the infrastructure. The logistics model and the key logistics considerations, each customer is assigned to 1 service colleague. Each building, each set of services is bespoke, so we have to get the same person back to the customer. 1, to give optimal customer service,
But also
to be able to complete the work in the allocated time. If you turn up at a building you have never seen before and you have to find all the washrooms, you can't maximize productivity. That's a key logistics consideration. 99% of all the work we do in the core washroom business is done on fixed service schedules. The customer will know That means all our work is preplanned for each driver every day.
The average driver has
about 2 50 customers on
his or her area. They are visited anywhere between
daily and on his or her area. They are visited anywhere between daily and up to every 8 weeks. So on a normal day, Each of the drivers will pull the handbrakes, start a call, greet a customer, do the work, debrief a customer anywhere between 20 40 times a day. In doing so, they all have done up to 500 units, empty, clean, disinfected waste units, replenish consumables, deliver consumables, any one of the many things we provide in the washroom. That's what we do to deliver on time in full to every customer every day.
So the fundamental operational model It is, as you can see, very similar to Rent Scale with bespoke services provided on customers' premises. Our washrooms business is operationally more intense. There's a higher level of repetition. There's therefore other also higher returns on density as I'll take you through in a moment. First though, What does our core washroom hygiene business look like today?
It's a strong business. Pre pandemic offered across 44 countries in the world delivering core services that our customers need. Was in 2019 a business of just over £500,000,000 delivering a 17% net margin, A business growing organically by 3% to 4% per year. So an attractive business with an attractive margin position. But let me introduce you to how we optimize margins in the core washroom hygiene business.
This is the business model that we operate the business on. So 3, 4 density levers, product and service density. So how much do we have to do at each customer's premise? Route density, how many times a day can we get the van to stop and support cost density, how much business can we run through unchanged overheads. Those 3 levers can be effectively boosted with M and A to accelerate them to directly impact route density to directly impact support cost density in existing markets.
Let's take the levers 1 at a time. Here you have our product and service density. How much work we have to do when we stop the van. For as long as I can remember, that has been a recognized lever and we've been making steady progress. We've improved our margins in low value customers.
And already today, half of our sales go into existing customer premises. That improves service density. So with every other sales transaction, we improve our service density. We now have a large ex Canon portfolio after the acquisition. The Canon portfolio had a lower product density than initial customers.
These are customers that have not yet been introduced to the much wider, better initial product range. So they represent a great opportunity for us drive this density lever further. Perhaps most significantly, with the increased hygiene demands that Gary spoke about, customers now see Both more and better solutions from the hygiene provider. Let me talk about route density. The root density concept is the same in hygiene as it is in pest control, but it's a stronger lever here where a pest control technician will stop 7 to 10 times a day, do 7 to 10 journeys a day.
A washroom technician will do 20 to 40 journeys a day, therefore, making route density and planning Even more significant. As an illustration here, you have the difference between 2 initial branches with very different density levels, a city branch and a rural branch. These are both our branches, so we know they're managed in the same way, optimized in the same way. So we can use them to illustrate the magnitude of route density. And the difference is significant.
With density, we can cut an hour drive time for a washroom technician. With density, we can deliver 16% Productivity and density flow straight through to both gross and net margins. So it's very value creating to sell in the right place, to have the customers in the right place. But of course, regardless where those customers are, we can only unlock that value through effective route optimization. And this is our route optimization.
The challenge is different from that of any parcel carrier or the delivery company. The nature of what we do and our customer relationships is highly bespoke. No two buildings are the same. Customers take a variety of services. So we have the fundamental constraint that we have to get the same person back to the same customer every time, which standard optimization systems don't do.
So our initial optimization system delivers A highly reliable service time predictor with actual drive time data, which we've collated and integrated over years. That gives us a very high degree of reliability. Firstly, that the route can be done, so we fulfill the customer's requirements. Secondly, that the route is effective. And as an illustration to how and the magnitude of effective routing, Lockdown gave us during lockdown, thousands of customers were closed, effectively reducing our density.
As society came out of lockdown and more and more customers needed servicing, we needed to ensure that we increased the productivity to cover all customers. And that was what we did and have done throughout this year. This year, we've seen our total hour spend Increase by 6%. But over the same period, through effectively making each vans work more and more dense, the time Each driver spend on customer sites as in the time where they generate value has increased by 23%. So very big benefit from driving density with effective routing.
Now the 3rd lever, support cost density. Weakening rental digital drive support got cost density at 2 levels. Our business unit structure Means that we can share functions across multiple businesses, back office, IT systems, etcetera, economies of scale in those, reducing costs relative to revenue. But it's not just at a business unit level. At a local level, running a number of brands based businesses out of the same buildings up and down this country and across the world Means that we can share building cost, we can share cost of warehousing and to an extent we can share cost of local management.
In the U. K. Alone, which is a mature market for us, we have since 2018 reduced relative support cost by 8% And even more impactful at the local level, we have reduced building and local management cost by 19% relative to revenue. So support cost density is a significant profit lever when we run both Runnequil and initial businesses across the same network. That's the 3 profit levers.
They're all significant in their own right. Understanding them and managing them well is one of the reasons why M and A can be so value creating both in new and existing markets. As an example of the value creation of M and A, let me take you through our most significant acquisition in the U. K, Which was Canonn Hygiene, which we began integrating in October of 2019. Clearly, people first.
For us doing the Canon acquisition, people was mainly about training. It was about training the Canon colleagues to our standards of health and safety, to our standards of customer focus to how to service our products, etcetera. The people part of it was a net investment. The infrastructure, Canon ran their business out of 18 branches. So 18 buildings of which we today use 4.
So out of 18 Canon buildings, 4 now form part of the combined network. Route density, probably the biggest lever. All ex Canon customers were integrated onto combined initial ex Canon route so that we achieve the density, that we achieve the density advantages. We did that and integrated 24,000 premises Over a 12 month period and ended up with roundabout 100 service areas, fewer than the two businesses had as separate entities. The financial outcome of these improvements and therefore the Canon acquisition and integration.
Revenues up 31%, gross profit up 51% and net profit up 140%. So M and A Has been very value creating for us. A quick summary of the 3 levers. Product and service density. Mushrooms are important post COVID.
We've got 26,000 premises to grow with. And already today, Half of our sales go into existing customers. If we can sell one more thing into each of our existing customers, We will have a 4% margin improvement. So it's a very powerful lever. Root density.
In a dense geography, We can improve our productivity by 16%. This year already, we have improved time on-site by 26. And as a proxy for long term improvement, since 2019 per van, we've reduced the fuel consumption by 15%. Support cost density, 19% reduction in local management warehousing. Building cost, 7% to 8% reduction in support cost.
And then the M and A, enhanced through M and A, Canon Both revenue and profit improvements. So that's the business we're running. What did COVID do to it? COVID hasn't changed any of the business logics. COVID has brought about a lot of disruption for colleagues and for customers, not only on a personal level with a Very, very difficult disease, but of course also on a business level with lockdowns, etcetera.
We are coming out of COVID stronger, in particular as Gary covered, because of the customer perception of hygiene. Our services have always been considered essential for the running of a shared washroom. But before COVID, we had to work hard to get anybody particularly interested in the hygiene aspects of it. Might be possible to get people interested in the design, might be possible to get people interested in the functionality, but that was as far as it would go. After COVID, we've seen a big change in customer attitude.
That applies both in the cubicle, where in particular no touch and use of disinfection has seen an increase. It applies on healthy hands where both hand washing and hand drying has been a big topic right since day 1 of the pandemic. And lately coming through very, very strongly is a general acceptance that we need clean air both within and outside of the washroom. And it's not just us. For the first time in years, the press is really interested in washrooms, Public toilets, restaurant toilets.
Now the press is even writing about washroom behaviors, which is clearly something that for us as a washroom hygiene business is most welcome. But their right to do it, The right to treat washrooms as an area of concern for 4 important reasons. It's the one place we all go, Probably applies to all of us in the room today as well. At some point during the day, we will all have visited the washroom. When I go to the washroom, I can't just look after myself.
I rely on the user before me, did they wash their hands? What happened in the cubicle before I came in? Did somebody just sneeze across the surfaces at the sink before I came in? And the surfaces in the washroom are surfaces that virus particles survive particularly well on, hard and smooth surfaces. So even if I haven't seen the person before me, the surfaces could still be contaminated.
And then there's the air because washrooms don't tend to be well ventilated. It's rare to get into a washroom that's really well ventilated. So there's every risk that what Ever the previous user might have admitted to the air is still there when I enter the washroom. To us for clear reasons why high washroom standards are important. Before we go on to see what the growth path post COVID looks like, let's just have a quick look at recovery.
So the core hygiene business. Before the pandemic, as Andy mentioned, we grew organically 3% to 4% per year, reaching £267,000,000 in the first half of twenty nineteen. When COVID hit Southeast Asia first in the beginning of When into lockdown, our revenue suffered at the end of H1 2021. We're pleased that our revenues in the core hygiene business online with pre pandemic levels. And that's with a number of countries in H1 of this year still in partial lockdown.
And it's with the important office sector still only partially open. How did we deliver recovery and what has it looked like? Firstly, colleagues. Colleague absence is now significantly down over where it was during the pandemic. And it's in line with previous year.
Colleague retention is in line with previous years. Service delivery, services done. Buildings are open, buildings we can service are now higher than they were in 2019. And importantly, customers. Local sales has recovered.
Quarter 2 of this year was at the same level as quarter 2 of 2019. And customer retention in quarter 2 was stronger than at any point in 2018 all 2019. So we're comfortable that we are well through the recovery. With the core washrooms business having recovered, it's time to talk about growth. To take you through growth, let me
So you've just heard from Brian that offices are one of our top sectors. And the key thing we've noticed about this sector during The pandemic is that we haven't seen terminations increase. So yes, they have reduced services And in some cases, renegotiated, but they've chosen these as opposed to going down the termination route. By working with officers directly and indirectly, we can support them in creating safer buildings. Safer buildings give people confidence to return, and it's more people returning that creates more demand for our services.
Now you heard from Gary earlier about the greater hygiene demand that people now have. So once the office reopening does get underway, In addition to an increase in service frequencies, we're confident we'll also see a continued demand for service lines such as no touch And tackling the issue of air quality. So in general, the greater hygiene demands we are now seeing Fall into 4 main categories, all of which are good news for us. Greater hygiene expectations in washing cubicles, Healthier hands from hand washing and drying through to sanitizing. Digital solutions within the washroom space As well as now tackling air quality.
We're also finding people are wanting to do more with sustainable suppliers. And in addition, there's a growing acceptance of as well as a growing demand for digital means when it comes to inbound And Iitbind customer communications with companies. So it's as a result of this combined with Initial's well established business model, Which is why we're confident there are a number of opportunities out there to grow our core washrooms business. So Gary shared with you earlier the headlines from the world's largest hygiene attitudinal survey conducted. And it showed how people Also a wide range of countries now have higher hygiene expectations as we come out of the pandemic.
I've pulled together for you some headlines from various pieces of research we've conducted specifically here in the U. K. And we are seeing a similar pattern. But I wanted to draw your attention to 4 statistics in particular. 74% of people surveyed said they were nigh more inclined to wash their hands if the dispensers are no touch.
46% of women surveyed said employers could do more to cater for their needs within the washroom space. 68% of people believe businesses and their employers should do more to ensure that the air in their premises It's clean. And then 62% of people felt that air purification systems should actually now be mandatory In public and educational buildings. So people really are now expecting more in general from their employers as well as businesses in this space. My group of hygiene expectations in washroom cubicles, They really mean opportunities for us in 3 ways.
Firstly, there's been a switch from no touch or have been a switch 2 no touch feminine hygiene units and these no touch units now account for approximately 40% of our total sales in this space. They have a good premium over the manual units and no touch would not be considered the go to product with new customers. The second opportunity is by tapping into hand and surface sanitizer as well as toilet paper dispensers and the consumables that go into them. There are more of these products as well as feminine hygiene units than anything else in the washroom space. And then because of the research we've conducted, we have a really good appreciation for what women are not expecting to See in washroom cubicles, all of which tie back to basic hygiene needs, to be honest.
But at the end of the day, everyone has a right to dignity And safety when they're using the washroom and we can help with that. Now Brian took you through the margin benefit that the business gets from selling just One more additional product into a customer. And all of the categories I've mentioned here are therefore a growth opportunity, not just from up Selling to existing customers, but also winning with new customers. There's no doubt that hand washing
and hand sanitizing are now taken
a lot more seriously than before. And I think are now taken a lot more seriously than before. And we can see this in Google Analytics as well as in our own research With a big spike in the number of people searching for as well as expecting to see No touch hand washing and sanitizing options. And we've seen a similar pattern in our own sales. It's not just that our overall sales of hand hygiene dispensers have grown.
We've also seen a shift in the product mix towards the no touch range, Which remember have a premium over manual dispensers. So with more people washing their hands, That means more people need to dry their hands and that in turn means more opportunities for our hand drying options. And If more people are washing and drying their hands, then they do tend to want solutions that are gentle and kind to their skin as well as the environment. And we're well placed to be able to deal with that. We offer alcohol free hand sanitizer.
We have dermatologically tested and pH And pH frenzy soap as well as low energy hand dryers. Now the next area is one that we're particularly It's our brand new high-tech, high end washroom services range called RapidSmart Hygiene. And the range consists of the following products: state of the art No Touch Taps, and they've been designed to help manage and reduce water consumption High-tech, touch free foam hand dispensers and sanitizers, cubicle lighting systems which indicate when cubicles are free for individuals to use and then a smart device which has been designed to help reduce Fuel buildup when you're flushing toilets. Now we think this range is a win win. On the one side, it gives washroom users a more hygienic, sustainable and sophisticated experience.
And then on the other side, it gives our washing customers a solution that helps save their Cleaners time and hassle. Why is that? Because they know which dispensers to go and top up. They don't have to go around and manually check each individual one So these devices can also be connected and that can therefore give our customers valuable insight into their washroom usage. And the final big growth opportunity I wanted to share with you today is around air quality, and that's a space which has transformed quite substantially in recent times.
Previously, the requirement was very much for washrooms to have a product to mask those nasty, musty washroom smells. This then moved towards a solution that combined fragrancing as well as cleaning. But as a result of the recent pandemic, The emphasis is now very much on products that purify and clean the air in the washroom space. We have products covering all three categories, but our focus is very much now on air purification. And that's why we launched it last year Virus Killer, which is an innovative air purifier that kills 99 0.999 percent of airborne pathogens including coronavirus.
We've got a couple of these as Gary mentioned in the room here either So those are the headlines from the product and service line opportunities. As you may recall, I mentioned in my introduction, we're also seeing a growing acceptance and demand For digital means when communicating with customers, we feel this can give us further opportunities to stand Now we've definitely seen a mix change in how people are choosing to get in touch with us. And by having a variety of digital solutions in place as well as the discipline on our side to use them properly, It means we've got a wealth of data available to us, which can help us understand customer behavior and demands. As a result of that, we're therefore able to meet customer needs effectively helping us to reduce our costs in the process. So on average, approximately 40% of our contact today with prospects and customers is done via digital channels.
Even before lockdown, people were searching side of what we considered normal working hours. And that trend has very much continued even now with us being out of lockdown. And chatbots have been absolutely integral to helping us meet this need, not just in our washroom hygiene business, But also throughout Rentokill Initial U. K. And it's these different chatbot applications across our family of businesses That have enabled us to share both expertise as well as cost at pace.
Now by the very nature, a BD process is absolutely critical to making the chatbot experience really work. They also need to be considered as a natural extension of your contact center. And that's why we find the most effective communications option is when people are using a combination of humans And technology. Now remember the importance of selling that extra service on-site. Well, we know access to good salespeople in the current climate is challenging, but we still want to sell more.
And that's why we find an effective model combining technology for targeted outbound marketing as well as handling a number of inbound sales With bringing humans into the mix at the right time. Based on our experience, Chat is an attractive communications channel for new customers to use, but it's also attractive to us for a number of reasons. Firstly, the sales output we get for new customers via this channel is in line with our overall conversion rates for new customers as well as consistent average sales values and in some cases even higher. And as I mentioned, we get the best conversions where we provide people with a combination of technology and human interaction. Next, it's helped us reduce our sales and marketing costs as well as our admin costs by 19% 10% respectively.
Thirdly, such an approach enables us to allocate the more expensive people resource to the higher value work. And then finally, customers are getting a better experience because they get what they want faster. And we can see this reflected in the business' Net Promoter Score, which is now very close to what would be classed world class levels. Nobody else in the hygiene space is really doing that much in on chat and it takes skill and effort To really make it work. And that's why we think this is something we can build a competitive advantage in.
So let's now take a look at how integrated technology into our existing customer communications. You've already heard from Paul earlier about the importance of data in pest control, And we're doing something similar in the hygiene space as well. Because we log all customer interactions, We can then analyze the reasons why people are getting in touch with us. We then use this data to build a bigger And better online portal, so that our customers can get a range of information on their contract and service history, but most importantly, at a time that works for them. Now we believe this is a way to continue to make us easy to do business with And also make it harder for people to leave us.
And that's why we've got a pipeline of developments to continue to enhance this system for our customers. As part of our customer retention program, we also have a series of communications sent at fixed intervals. So this is for things like welcome to initial. We just want to check-in and see how the installation went. And we're also going to check at regular intervals To see how our service is going.
We do this via our e mail platform as it means we can send e mails like at scale and quickly, But always very much tailored to the individual recipient. And it also means that feedback we get is automatically shared with the right departments as soon as it's received. Such an approach means we get feedback more regularly And at scale, all of which makes us easy to do business with. So In summary, we have a low cost, high intensity model that's designed to deliver bespoke services to On time, in full, every time. It's the combination of scale And technology across our Rentokil Initial family of businesses as well as our M and A program that means we have clear profit Beavers available to us that we really understand.
Undoubtedly, the hygiene space has changed our advantage With people expecting more from their employers and businesses, meaning a shift towards higher margin ranges for us such as No Touch As well as creating demand for new services such as air purification. But above all, our well established business model Built on a combination of product innovation, a strong inquiry model and a cost effective use Technology and humans, all of with our strong customer base at its core means we're well placed to capitalize on the growth opportunities that we've shared with you today. So thank you very much for listening. To close the session, I have got a short video for you, Which shows how we bring together all of this technology for our customers. At the end of that, we're then going to go into a 15 minute coffee break, after which we'll reconvene back in here.
And After which, we'll reconvene back in here. And Alain Mofoin, our Regional MD for Europe, will lead a session sharing with you Our plans for growth outside of the washroom as well as into new geographies. And just one final point, don't forget, You can submit questions onto the online portal or onto the event website and we'll then have the formal Q and A session at the end of the afternoon. Thank you very much.
Welcome back, everyone. Well, thank you for coming back and welcome back. Before the break, you heard about our new research into high levels of customer expectations for hygiene and well-being. And we focused on the opportunities inside the core washroom. This next session focuses on outside of the washroom, We're through the premises hygiene, enhanced environment and geographic expansion, we will deliver the other 50% of organic growth target.
Some of the opportunities here are new, while others built from existing businesses that we have in some of our geographies. All of them are good opportunities that stand to benefit from this post crisis world. We'll start by talking about how we'll capitalize on the in air quality, a market that stands to be defined or at least redefined in this new world. Connected to the air quality market, we share with you how we will drive forward the specialist hygiene business we have in 6 markets for pre pandemic annual revenue of £30,000,000 We'll then move into Medical Waste, a great road based business in the 11 markets where we operate for roughly the same size with €29,000,000 in 2019. We stay in the waste space with a smaller but really cool business with what we do in dental hygiene, Which had around €12,000,000 of revenue pre pandemic.
Finally, we will turn to our well-being offering with our plants in premium scenting businesses, which operate in 15 markets and which had revenues in 2019 of around 170,000,000 with premium scenting contributing roughly £17,000,000 These businesses are Like the others, businesses with a clear role to play in creating more healthy environments. Before I go on, I wanted to share with you a few characteristics of our DNA, Dorento kill Inissus DNA and why we can make the best out of these growth opportunities. You will all remember that last year in a matter of a very few weeks, just 3 actually, we pivoted into disinfection in a large way. In that very short space of time, we developed an offering for our customers, put together standard operating procedures, Got the supply chain together, trained 7,000 colleagues to sell and provide that service safely and effectively. In short, We got it all done in less time than we had ever done anything.
Beyond the £225,000,000 of new the characteristics of our DNA. We've listed 6 here. The fact that we are a hungry bunch with a hard commercial mindset, mindset rooted very deeply into the desire to understand how to best serve customers and deliver the best possible experience, Experience that relies on solutions anchored in strong signs and 100 years of experience in hygiene And an increasing leverage of technology. We have a strong global community, one that actually got stronger on the back of COVID, Community that enables us all to tap into the good ideas and initiatives from around the world. But crucially, The local delivery model ensures we empower the colleagues at the end of the chain to do what is needed to best respond to customers' needs.
All together that gives us a rigorous nimbleness, two words that don't necessarily associate easily, But for us, the key to having been able to make the best out of the disinfection opportunity, a rigorous nimbleness that we will equally play in our favor for the We are going to talk about and for none more than the air purification one for which Craig, RMD of Greater China, who could not join us today, as recording the following video.
Hello. My name is Greg Smith, and I am the MD of Greater China. In many parts of the world like Asia, the Pacific and Europe, people are already very sensitive to air quality. And in some parts of the world like sub Saharan Africa And Latin America, awareness around air quality is only starting to grow. Thankfully for us at Renklio, we are present in the majority of these markets.
So our route based model and expertise lends itself to capitalizing on this opportunity. Air verification. Air pollution is a major environmental risk to health in many countries and the pandemic has accelerated awareness and demand As has evolving legislation and regulation been introduced across the world. Air pollution kills around 7,000,000 people, 4,000,000 of them die from indoor air pollution every year. There is a growing awareness around the health impacts of poor air quality such as strokes, Heart disease and lung cancer and the pandemic has fast tracked the global focus on team indoor end.
It is estimated that air purification devices will achieve a compound annual growth rate of 10% to 12% over the next 7 years. The World Health Organization supports the fact that pathogens straight in the air and thereby increase the risk of cross infection. Indo air quality solutions such as air purifiers The concept of indoor air quality is underpinned by a number of metrics, but most popular Our CO2, carbon dioxide, PM2.5, POCs and humidity. Each of these have a role to play in creating clean As an example, monitoring CO2 indicates ventilation levels as recommended by the World Health Organization all. Good indoor air quality does not only contribute to smart building management, But it can also improve human health and deliver cost savings through productivity and energy savings.
The industry is expected to deliver growth of around 7.7 percent between 2020 2027 And has an estimated size of $2,800,000,000 in 2020. Whether in the workplace, At home, at schools or in other frequented guest locations, the air quality focus is increasing. There has been a realization of the need to provide good air quality for patrons, visitors as a form of differentiation and assurance. There is an ever increasing awareness of the productivity and health benefits of better air quality in the office and in the manufacturing environment Where employers require proof points to satisfy the employees' ever increasing expectations. Shared workspaces are growing in popularity globally and so are the expectations of the employees who use them.
84% of them believe that it's important that the employer prioritizes creating a safe and hygienic workplace And 52% of them are now more likely to open windows and doors where possible to manage hygienic risks as a result of the COVID-nineteen pandemic. Since the advent of COVID-nineteen, Over 70% of people are more concerned about the impact of indoor air quality on their health and the spread of germs in the air at Agreed in public spaces. However, the demand for home solutions are also steadily on the rise. In many cases, regulation and legislation is being introduced to drive an increase in indoor air quality standards Such as Belgium and the U. K.
And it is expected that many more countries will follow suit. When it comes to air purification solutions, Pentecal Initial is well equipped to satisfy the growing yet diverse customer demands. Through our standard and enhanced air verification offering, offices, restaurants, hotels As well as smaller premises with meeting rooms and reception areas are well covered by our range. The Inspire A72 offers a mobile solution And it's equipped with a HEPA 13 filtration system providing clean air to cost sensitive customers And contributing to healthy margin growth. The range is led by our premium VINOS Killer air purifier range, We combine triple filtration, titanium dioxide plates and a UVC reaction chamber, Enabling it to kill coronavirus in the air with a single pass.
This claim ensures solid growth across sectors And this range will be launched into more than 50 markets by the end of 2022. In addition to the technical prowess of the virus filler, which has a confirmed 99.999 percent Log6 Efficacy against coronavirus effectively leaving only 1 virus for every 1,000,000 in the air And this after only a single pass, our highly capable sales and service colleagues have the expertise in an increasingly efficient route based business to deliver a world class level of service from detailed survey Professional installation, conforming to the latest health and safety standards to the full servicing of filters And UV the active chambers. We can offer the service on time every time. It's a sickening irony that indoor air often even more polluted than the air outdoors. That's because our buildings are often filled with the same smog that's outside, but indoor air also is used with the CO2 that we exhale.
This is especially true inside our offices, which are loaded with coworkers. A major new study out of Harvard University Demonstrates that office air doesn't just make us unhealthy. This polluted air also slows us down on cognitive tests And makes it easy to get distracted. The more polluted the office A, the worse people performed on these tests. And crucially, these efforts found these results in dozens of typical commercial buildings in 6 countries across the globe, including the U.
S, the U. K. And China. The World Health Organization Launched new guidelines on the 22nd September 2021 and these provide clear evidence of the damaged air pollution In clicks on human health and they recommend new air quality levels to protect the health of populations by reducing levels of key air pollutants. As a result, the increased focus on indoor air quality monitoring, which has moved away from excessively detailed expensive Complex reports provides the opportunity for rent to initial.
Our experienced installation and route based teams Service multiple customer sectors and our air purifier solutions such as Inspire and Biosphere support indoor air quality improvement. Informed recommendations and indoor air quality report platforms will provide assurance for customers And their guests and employees and these solutions are currently being piloted in Hong Kong. Our proven delivery model has been trusted by proven leaders in their field, such as the Hong Kong Jockey Club and the O2 Arena, We'll see the benefits of a hassle free, frictionless service experience. Events such as the Brit Awards of 2021, It was the 1st indoor music event in the U. K.
For over a year, have seen the value in these solutions. So, Salvekar, we are excited about the opportunity in air hygiene around the world and especially here in Asia. 7 out of 10 consumers are concerned about the effects of air quality on their health. Legislation is getting stronger. Our revenues in the 1st 6 months have exceeded £3,000,000 and we estimate £7,000,000 for the full year.
We're already in 19 countries with a plan to offer a hygiene in 60 markets by 2024. We are effectively creating the brand new hygiene market. We have an outstanding range of products, the expertise of our people and the operational know how Already in place. And there's the potential to use M and A to create further value, holding scale and specialist expertise. So while it's too early to calculate how big this global opportunity will be, this could be very, very exciting.
Thank you very much.
As you just heard, air purification is a key part of our air quality proposition. But we have in a few of our U. K. And European countries another key part of that proposition with HVAC hygiene. It is part of what we call our specialist hygiene business.
In the 6 markets where we operate, its core mission It's to maintain and restore our customers' premises to their optimal level of hygiene. Part of what we offer includes specialist disinfection after catastrophic events like floods or crime scenes, As well as, for example, bringing Washroom back today as near as original state in our specialized hygiene services. But the services I really want to talk to you about are kitchen hygiene, water and air. Three areas strongly aligned with our mission. Three areas we particularly like because they're regulated and more relevant than ever in this post crisis world.
A significant part of our business takes care of the hygiene standards of commercial kitchens End of fire safety risk linked to the buildup of Greece. We do this for a wide range of customers that include the top end hotel in Paris, But also leading burger chains. With those customers, we have an agreed audit regime that sees us check the hygiene and safety requirements, But also ensure the suitability of access points in the extraction systems. When required, we perform a full restore from every visible piece of the kitchen to all the invisible parts of the hood and extraction systems. And a key part of our job is a quality control and relevant documentation given the regulation requirements.
On the waterfront, our services aim to prevent the threading water systems of Legionella, which leads to the Legionnaire disease. Auditing is there again at the core what we do, testing the water, confirming it's safe, or when needed, take the necessary steps to disinfect the system and ensure that what comes out is free of Legionella. This is a highly regulated environment that requires expertise As well as a thorough recording of every step to ensure we keep people, our customers and ourselves safe of any issue. Now air quality is the most exciting opportunity. Air purification as shared by Greg is a key to it.
But in many environments, like the one we're in right now or your office, an important driver of that air quality is the cleanliness and hygiene of the air conditioning system, including all the Edex. Offering spans from regular inspections and audits to the full de dusting and disinfection of the complete ventilation throughout an entire building, an operation that requires dedicated equipment, the right expertise and in some markets, The right qualifications and certifications. A relevant example to bring this to life is what we do for a leading French of HK with across France over 4 50 locations and growing. We have a tailored audit program that we are executing around their sites in order to drive the optimal frequency of treatment. Doing so enables them to reassure the ones they care for and their families that the environment in which they live and the air they breathe is something this operator takes very seriously.
Another example, this one coming back to your Legionella proposition is what we do for a leading retailer in Spain across their estates, stores, offices and warehouses. We perform quarterly audits and are contracted for a minimum of 1 full disinfection per year With more being performed on a needs basis, we give them full visibility of results through an online tool, a key benefit when they are getting audited by the Health Ministry. In summary, through the 6 countries in which we operate for roughly €30,000,000 We're well positioned to benefit from this post crisis environment and expect organic growth of 5 plus in the years to come. To contribute to this growth ambition, we are now looking at expanding our geographic presence on those three core services of Veolia and Kitchen hygiene in selected markets where we find the right conditions for entry. From those new markets as well as the existing ones, M and A is a real opportunity.
Chris will come back to it a bit later. The next opportunity in this Outside the washroom section is a business we currently have in 11 countries for 29,000,000 pre pandemic with solid growth experience over the last 5 years. We can go to the next slide, if you don't mind. Okay. Thank you.
To tell you more about our Medical Waste business, we have a recorded piece from Karen Kavanagh, our Marching Director for the Pacific.
Hello. Karen Kavanagh here, Marketing Lead for the Pacific region at Rentokil Initial. The World Health Organization mandates the guidelines for the disposal of waste management throughout the world and additional legislation is also driven By regulatory bodies across most regions. Initial Hygiene, the responsible partner to many of the world's key sectors, Specializes in the segregation, storage and disposal of various waste streams, including sharps, clinical and infectious waste And of course, the significant volume of waste generated as a result of the COVID pandemic. The current market value of waste disposal is estimated at $6,800,000,000 Some of the main drivers of growth of 5.6 Between now and 2025, stem from an aging population and the demand for incontinence product, the growth of the cosmetic treatments industry in mature markets, And of course, the emerging legislation associated with COVID management, including PPE and lateral flow test waste.
With over 20 years' experience, initial hygiene provides an integrated model in our approach to waste management, handling a broad spectrum of waste streams From clinical to laboratory, offensive to pharma. Meeting legislative requirements and providing robust initiatives that support a strong lens on sustainability, We offer an agile model capable of servicing customers through volatile demand patterns in a responsible, traceable and dependable manner. The outbreak of COVID-nineteen has led to significant increase in the demand for waste disposal services across the globe. As the vaccination rollout continues, growth is anticipated in the requirement of Sharps Waste Management to the tune of $624,000,000 by 2026. The 40% requested escalation in PPE from the World Health Organization, Combined with the volume of lateral flow testing that's being conducted, we'll see an increase in the requirement to segregate, incinerate and dispose of significantly increased volumes of waste as a result of the pandemic.
In Australia, our commitment to Thanks to the capability of service nationally, thanks to an expansive fleet of technicians, We have cemented our position as responsible, diligent and agile waste management service provider. With a team of 300 technicians located throughout the country, are in a reasonably unique position to cater for unexpected demand, peak waste management and ad hoc servicing. The acquisition of ASUS Medical Waste by the business in 2021, which has grown by a CAGR of 16% since 2015, We'll further enable expansion and servicing capability throughout the country. We see similar capability in the U. K.
In terms of ability to service And focus on setting standards in health care and infectious waste management. In contrast to bulk waste management that tends to operate at lower margins, Our service lines are highly profitable and this is due to our ability to carry out small van waste servicing. A key objective of the U. K. Team is to ensure customers are compliant with legislation surrounding clinical waste with a significant drive on sustainability around waste Energy, reduction of single use plastic, the introduction of recycled materials and paper saving via e waste documentation.
So in conclusion, initial medical is another great example of our expertise in hygiene. We already operate in 11 countries with combined revenue of £32.8 in 2020. Over the last 5 years, our business has delivered a revenue CAGR of 10.6% and the post pandemic market is set for strong growth over the next few years. Our plan is to continue to invest and grow in the 11 countries we are already in, but also selectively enter Several new markets through acquisitions where we can find high quality targets. Thank you.
Staying on the theme of specialized waste, let me now talk to you about a business that is probably less well understood, our dental business. What I suspect most of you don't know is that amalgams are full of mercury And mercury is bad for you. A health crisis in the '60s led many parts of the world to adopt and enforce regulation around the disposal of mercury, including the safe disposal of amalgams. Amalgams are basically mercury with silver. Europe, North America and Australia are in that camp.
Though the translation into the local countries' laws or the enforcement of those laws Still lagging in countries like France or Italy. So what do we do in our dental business? We offer waste solutions, Hygiene solutions and precious metal solutions. We have a lot to offer, but I will not take you through all that detail. What I do want to talk to you about is the core part of it, our waste offering associated with metal solutions.
To do so, let me tell you what happens when you go to the dentist to replace all the amalgams. Where do those go once drilled out of your teeth? In the drain, when you rinse your mouth and you spit it out. If you're a bit older, you also go for crowns or bridges, this precious stuff that invariably costs you lots and contains gold, palladium and platinum. When your dentist adjust those pieces, he will shave some of those crowns and bridges off And that metal dust will go just the same way down the drain.
Now because of the mercury regulation, the dentists in the countries where we operate obliged to equip their drains or pipes with a recuperation system, an amalgam separator. When they're full, we get these back through our service technicians or in some cases by post. The oil container sludge, which we have to process first to get the mercury out. We basically distill it like a good alcohol. The rest of the material gets refined to get A few grams of precious metals, and that is where the story is really interesting for us.
To illustrate the relevance of what we have to offer, an example from the Netherlands where the key dental chains, which have grown from a few dental practices to now count multiple 100 trust us with servicing them and keeping them safe from any compliance issue, which could see Some of their clinics get shut. The Swedish example is an illustration of the fact that authorities keep searching for ways to go even further in eliminating mercury out of the environment. Current separators captured 98% of the amalgams. That leaves 2%, a concern that is addressed by this project in which we have been taking part with a leading dental chain. The mission is to develop an even more effective separator.
That brings me to the trends in the dental market, trends that give us confidence that the growth trajectory of our business is solid. Consolidation of dental practices and the progressions of the progression of chains, it favors a player like us that can keep them safe. The desire from those operators to make their life easy, having one partner, us, for various critical needs is the answer. The next one is, of course, a key one. Whether regulation or enforcement or just environmental consciousness Doing the right thing could make a country like France attractive sooner than later.
To expand into those markets, M and A will be an option, Not the richest of all pipelines, but there are a few good targets worth going after. In summary, a really good business Let's see this take care of hygiene conditions at dentists as well as taking part in the removal of mercury in the environment. Going forward, we have key drivers of growth, including our recent and increasing exposure to North America, as well as opportunities to move into other markets when the time is right. A nice little business There will never be a large part of what we do, but one that is expected to be accretive to our hygiene growth and keep delivering nice 25 plus percent margins. The last business in the outside of the washroom Section we want to talk to you about sits in the well-being space with our Ambus plants and premium scenting businesses.
To talk to you about them, we have a message from Mike Sinclair, our SVP Sales and Marketing for North America.
Hello. I'm Mike St. Clair, Head of Sales and Marketing for North America. Today, I'm going to cover 5 areas That describe our approach to the well-being space. First, why we believe the demand for well-being solutions will continue well past the pandemic.
2nd, our service offerings that address this opportunity. 3rd, the data and science that support our strategy. 4th, our demonstrated success with leading companies and finally, our approach to continued future growth. We believe the global demand for healthy buildings and well-being solutions will continue well past the pandemic, especially in 4 key segments: Offices, hospitality, facilities management and retail. Four key points support our view here.
First, the pandemic has changed the way global businesses think about health. It's now a priority, And they are thinking about proactive ways to create wellness on a go forward basis. 2nd, the global wellness market is
all.
3rd, 92% of real estate investment managers expect the demand for healthy buildings to continue over the next 3 years. And finally, ESG Investment is focusing on health and wellness due to the higher rental income premiums these properties command. ReniKill Initial through its Ambius brand combines both hygiene and biophilic expertise to deliver 3 categories of enhanced well-being solutions. Biophilia may sound like a bad word, but it's not. According to Merriam Webster, Biophilia is a hypothetical human tendency to interact or be closely associated with other forms of life in nature or a desire or tendency to commune with nature.
In our first service category, we provide interior planting solutions that deliver benefits related to health, comfort and productivity. Next, we utilize planners and green walls to provide active green air purification. And lastly, we provide premium scenting solutions that are proven to positively impact guest dwell time, Spend and brand perception. I'm now going to discuss both the data that supports how the public feels about going into buildings following the pandemic and the science that supports the benefits of indoor plants in those spaces. 1st, Recent research suggests that people are looking for evidence of healthy buildings and that they've got 4 key concerns.
First, they are more concerned about the impact of indoor air quality now than before the pandemic. 2nd, if they work in a shared workplace, they believe it's important that their employer prioritizes creating a safe and hygienic workplace. 3rd, following the pandemic, people are concerned about whether a venue has adequate measures in place to stop the spread of germs. And 4th, they are concerned whether a business in a public venue has suitable systems in place to clean the indoor air effectively. So what does the science say?
Several studies show that indoor plants Provide 4 key benefits. 1st, indoor plants improve employee creativity. 2nd, they improve productivity. 3rd, indoor air quality has improved. And lastly, Environments with plants show a reduction in employee absenteeism.
2 leading companies that benefit from our Services are AECOM in Australia and Lendlease in North America. AECOM is a global provider Of technical and management support services with $13,300,000,000 in revenue in 2020. At AECOM, plants were specifically designed into work areas to improve air quality and productivity. We provide over 700 individual plants with more than 10 tons of white pebbles in wooden planter boxes That were specifically designed for AECOM. Lendlease is a leading global real estate and investment group With over 10,000 employees, environmental efficiency, occupant health, well-being and productivity We're central considerations to their corporate office design, taking special consideration for the amount of plants they have per person.
Here we have seamlessly integrated our solutions with other elements of healthy buildings for optimum benefits. In conclusion, we have demonstrated strong and sustained performance through the MBS brand across 15 countries, Delivering a CAGR of 3% over the last 5 years with average margins of 11.6%. Moving forward, considering the increased demand for well-being, we would be hopeful of consistently beating those historical growth numbers. And where we also see high quality businesses available for sale, we will look to continue to build out the scale of our wellness business line through selected acquisitions, both within our current Ambeus markets, but also beyond. Thank you.
I will now hand it back to Alain.
Well-being was the last one of the 5 businesses we want talk to you about in this out of the washrooms section. Five businesses that have performed strongly over the last few years, benefiting from our expertise in those fields combined with helpful regulations for some of them. We believe they've all gained in relevance as a result of COVID. We're in selected countries only, but we look at geographic expansion and M and A for the right markets. Now talking about geographic expansion, this is our next source of organic growth.
We declared last year our plan to get into 20 new countries for hygiene and expand our presence from 40 to more than 60 markets. Those new ones are truly spread across the world and include North America and part of Europe. Me tell you more after this video. To get into those new markets, we have 2 models, both leveraging our existing infrastructure in Pest or Ambeus. The first one is our traditional model with the washroom at its epicenter, the one Brian talked to us about.
The second one is centered on premises hygiene and offers solutions for hand, air and surface hygiene. A key part of this new opportunity for us is to go back into the European markets where we used to operate in hygiene. Seven markets from the smaller Austrian one to the big German one, markets we exited 4 years ago in the very successful to a joint venture transaction with CWS. We're going back with our initial brand, the reference brand in all these markets for decades. We're leveraging our existing resources and the many colleagues in these countries who use take care of hygiene, understand the market very well And are still in love with it as they once were.
So we have the brand, we have the people, we've got the expertise, we also have the product range, The supply chain, in short, we have everything it takes to be successful. We have reentered those markets with a full offering, leveraging our no touch range centered on washroom. But in this market too, we are training and certifying our colleagues to our Hygiene 360 proposition, giving them the tools and expertise to offer solutions across the premises and equip our customers with hand hygiene and air purification solutions. This is not a fast game. There is a stickiness in the hygiene market that is quite significant.
Stickiness we love, of course, as winning a customer gives us a strong perspective of keeping it 7 plus years. But it means it takes time to win them as like us, our main competitor in those markets, has got contracts running and notice periods that run up to 6 months. We have nevertheless made strong progress already in getting the markets to understand that we're back and convincing a good number of businesses to rejoin us. With a Shell in the Netherlands, the Antwerp Football Club in Belgium, Dusseldorf Clearport and Ford Motor in Germany, we have substantial contracts that are contributing to recreating the base density. Some of those are already getting serviced, and more will come online in the coming weeks months, including in early 2022.
And then we have a base of customers. We can push further on the accelerator and build density in all those places where we have presence. That density is substandard today. But at the speed we see the business developing and the compounding effect of the portfolio build, It will improve substantially from next year and especially 2023. North America is a different story altogether.
Though we have some small presence in Canada, we have no core washroom business in the U. S. And no plan to start building 1. But beyond our pest business, we have a strong Ambev business, as you've just heard from Mike. Plans play a key role in creating healthier space, but so does air purification and hand hygiene, solution that the ANVUS team in North America have very recently started to sell.
Our entire sales force is now fully trained and equipped to sell our range of various killer units, And they are putting out quotes to American businesses and employers who will soon seek to get more of their workers back at work. The team has made particularly good progress with key accounts and have already got significant quotes being discussed with big tech companies, facilities managers and banks. So it's early days, but all to play for. And we are confident we can build this market to your benefit and convince decision makers across North America that Premises Hygiene is an investment absolutely worth making. Beyond Europe and North America, we'll also enter the Middle East on the back of the Boker acquisition, It gives us a nice platform to work from and yet again an opportunity to expand into premises hygiene, A model we will also leverage through the rest of the world in countries like Turkey or some of our South American markets.
There again, We'll do it pragmatically focused on cities and key accounts where both the demand and the capabilities of our sales teams are higher. So in summary, we're expanding our hygiene business in over 20 new markets with larger opportunities in Europe and America. We've got all it takes to do it, including the nimbleness and pragmatism which we adopt to the local conditions. The compounding effect of the subscription model, we see critical mass, density and margin build over time and add a real contribution to the overall growth ambition in high g. There too, M and A is offering strong acceleration options.
Chris will talk to you about it in a moment. So you heard this earlier this afternoon from Brian and Jill about the opportunities that exist inside our core washroom business, Where we see excellent opportunities to sell more products and services that are relevant in this post crisis world. Services like NoTouch dispensers and bins and digital washrooms. Growth in this core washroom business, we believe, We'll deliver roughly half of our new 4% to 6% organic growth. And now you've also heard about where the other half of that growth is coming from.
In air purification, specialist hygiene, clinical waste disposal and dental hygiene as well as from welding opportunities through plants in Premium Sensing and in addition from new market entry opportunities. Added to this, We expect to buy at least €25,000,000 of hygiene and well-being revenues by way of acquisition. And with that thought, let me now hand over to Chris.
Thanks very much, Alain. So let's turn our attention to M and A in hygiene and well-being. My colleagues have already explained how hygiene businesses operate in a similar way to Pest, and it's the same in M and A. So I'm going to show you our track record, the returns profile and our plans to accelerate deals in this area. I shared our density building approach in PEST earlier, and Brian explained it for hygiene.
We look for very similar characteristics in our hygiene M and A targets. Firstly, quality in the business and secondly, quality in the economics. Quality in the business is about well trained and high quality service, whilst on the other, good pricing and cost control to drive profit. Quality in the economics is about having a customer base with low levels of churn And high levels of recurring annual contracted spend. A good base is typically linked to good financial performance.
We like to see revenue growth at least in line with the market and those revenues turned into profit and cash with some of that cash reinvested in people, training and equipment. Integration can be a little more complex. For example, if the acquired business uses a different shaped bin or a soap dispenser, then we need to be sure that our vans can carry that before we can combine the routes. But unlike pest, the businesses are B2B only And there tends to be less competition for them. So hygiene deals can be a little less expensive than best.
Brian The value creation story from when our U. K. Hygiene business acquired Canon U. K. Earlier.
And as he explained, the Canon business was less densely rooted. So here you can see our revenue per service head and customers served per FTE increased, but only slightly versus the tightly rooted initial business. The impact on service heads isn't as marked as in the Jakarta pest example, but you can see the impact of the branch closures Brian mentioned, Which have increased revenue per branch 2.1 times, and those property savings have led to a 480 basis point improvement in gross margin. The chart on the left here shows you that we've been consistently doing around 6 deals a year in this space. On the right hand side, you can see that 42, roughly 1 in 5 of the deals that we've done since 2016 have been in hygiene and well-being.
There are very few large global businesses in this space and a few region sorry and a few national players, But there are lots of local and regional players, and this is where we've been acquiring. So the average deal size is around 3,000,000 revenues, And we've spent 11% of our total M and A spend in this area. This chart shows you that hygiene well-being revenue multiples tend to be lower than Tend to be lower than PEST. You'll see that we've been paying around 1.5 times on average versus 2 to 2.5 times in PEST. I think that's for a couple of reasons.
Firstly, there's less competition for hygiene and well-being assets than there is in pest, and we don't see anybody trying to consolidate this market. Secondly, These businesses tend to be less profitable. That's because they require greater infrastructure to operate. And that really comes from the hygiene providers having invest in their own washing facilities and the kit installed in the premises, both of which carry a sizable depreciation drag in the numbers. You can also see that we target better returns from hygiene and well-being deals.
Average IRRs are a few percentage points above PEST, And that's for a couple of reasons beyond the price that we're paying. Firstly, most customer contracts are 3 years or longer, And attrition during integration tends to be low as customers understand it when a new service provider steps into the shoes of another. And secondly, we tend to get higher run rate synergies as there's more infrastructure to remove. For example, we can consolidate the bin washing facilities or we can leverage our procurement strength with the waste disposal providers. Now Alain and Gary talked to you earlier about the 3 areas we're focusing on in building our hygiene business, and M and A complements each of them.
First, we've already proven that M and A works in our core washroom business. And here, we're looking for city based bolt ons and targets to help us rebuild capability in our former European hygiene markets that we sold to CWS like Germany and Sweden. We're also looking to add extra hygiene revenues in countries where we currently operate mostly as a pest business. Now there may be a few larger targets to go after as well, but I expect the bulk of these deals are going to be regular small scale M and A that we do day in, day out. Premises hygiene businesses may be an attractive extension in markets where we already have a core hygiene offering.
There's a very deep and wide market to exploit here, but we're being selective in targeting the sorts of businesses that Alain, Greg and Karen talked to you about earlier, Things like air quality, medical waste and specialist hygiene. And as you'll have seen, we announced an acquisition of Boika World Holding as part of our interims. Boika is a leading hygiene business in the Middle East, and it's got some real specialism in food safety, hygiene and germ control services. Got a number of interesting collaborations and a number of regional contacts that we can look to leverage in this area. On the well-being side, we will, of course, continue with our Ambeus bolt ons and premium scenting businesses as and where relevant, Just like the ones that Mike described.
And other enhanced environment areas are a bit different to our regular M and A bolt ons. Here, it's more about finding interesting technologies and creating partnerships to leverage their intellectual property quickly. Now I'm led by Mark, Gary and the innovation teams here, And they come across all sorts of innovations and leave it to us then to structure those to find the right type of deal to develop and leverage those innovations as the situation requires. We've been consciously targeting hygiene deals for a couple of years now. You'll have seen the bump up in the 2019 deal numbers on one of my earlier slides.
We had very good momentum into 2020 until the global pandemic hit. That caused a number of sellers to mothball their plans. Many of them saw revenue stall, and they're waiting for their business to return to pre pandemic levels of activity so as to achieve Similar exit prices. We're in touch with a large number of potential sellers, and we have around 80 targets in the pipeline. That's a decent number, And I'm confident we'll turn many of those into deals in the medium term, but still a lot less than half of what we've got in PEST.
So we're raising our game, and we're deploying a similar strategy to build the pipeline. We're using our own network of people to identify potential targets at a branch level with disciplined follow-up as we do in PEST. And in several countries, we're also using 3rd party experts to sift the market, identify targets and provide warm leads. This initiative only got going around 6 months ago, but the early results are encouraging. So in conclusion, The hygiene business is very similar to Pest.
We know how to identify, evaluate, negotiate and execute deals at pace And we're going to look to increasingly do so in hygiene. We think that will drive better returns as we follow a similar integration model, improving density and service productivity, rationalizing properties and removing duplicate admin and overhead activities. And this is in an area where prices are somewhat lower than pest. We've been incredibly active in pest control, and that means we've spent a lot less time and attention in hygiene and well-being, But we're increasing that emphasis now. For the time being, we're targeting £25,000,000 or more in acquired revenues.
But of course, it could be much higher as our activities build Or perhaps we'll land a bigger deal or 2. So in the time honored tradition, I'll now pass over to you, Stuart, to summarize what we told them and share the financial impact.
Thank you very much, Chris. So, I'm going to start once again here with the illustration of our cash compounding subscription model for the model for the hygiene and well-being category. As you've already had pointed out, there's some key similarities between this model and the one for pest control, And I'll just point out a couple of these. Both models have the same focus on our employee of choice program and our need to have highly trained and committed colleagues delivering high levels of service to customers. Both categories are an essential service ensuring public safety, And both use technology and expertise in digital innovation to drive organic growth.
Finally, both models reflect the fundamental importance The route density in driving improved margins and cash generation to fund our M and A program. This next chart shows the key metrics in our hygiene and well-being category. And again, you'll notice the very strong overlap with the pest control metrics I showed you earlier. In fact, in some key respects, hygiene and well-being's metrics are better than in pest control. 89.6 percent of the business is subscription based compared to 64% in PEST, And customer retention is currently 86%, even better than Pest.
Annual pricing recovery is good at 1.5% on portfolio, And net operating margins are strong and very comparable to pest control, driven once again by postcode density and customer penetration. Hygiene and well-being is as cash generative as Pest at circa 90% conversion rate. And whilst higher than PEST, CapEx to sales on a 4 year average is still low at around 13% and reflects our need to purchase equipment for rental for our hygiene and well-being customers. The business has grown organically between 3% and 3.5% in the 4 years to 2019, in excess of our previous targets of 2% to 3% and gives us confidence in our newly up weighted targets. Like pest control, the industry is highly fragmented, providing good M and A roll up opportunities.
And as Chris has just said, we're targeting at least £25,000,000 per annum revenue from 2022 from hygiene acquisitions. Turning now to a chart to illustrate the value our operating model has created over the last 5 years. As with my PES presentation, we've used H1 numbers as comparator. We've grown H1 ongoing revenues by about 29% 30th June 2021, a compound annual growth rate of just over 6.6% or, in fact, 14.2% to pre pandemic 2019. Operating profit has increased by 123% over the last 5 years, including the contribution from disinfection services, With a compound annual growth rate of 22.2%.
So let me briefly recap on what you've been told today. Our newly created hygiene and well-being category will be around 25% bigger than our current core hygiene business, reflecting the new additions to the category of our Ambius and Dental businesses. We're strongly positioned to grow organically inside and outside the washrooms. We're targeting higher growth sectors such as air purification. We've entered 20 new markets, and we have a significant M and A opportunity.
On this chart, we try to visualize for you how Accelerated growth will be delivered within the new expanded hygiene and well-being category. Roughly half will come from organic growth within our core business, And the other half will come through service extensions and new market entries. Chris has talked to you in detail about the M and A growth opportunity how we're targeting to acquire £25,000,000 of revenues per year. In addition to small bolt ons, there may be larger opportunities that come along. And if they meet our IRR hurdles, we will certainly be open to those as well.
Let me close the hygiene and well-being of my presentation with a growth ambition. All the things the team has spoken about today, post crisis attitudes, the extended category and our own innovation, Combined with the M and A opportunity means that we believe we can create a business that will reach €1,000,000,000 revenues and beyond With greater density leading to margin accretion. So moving on now to a group wide view.
Before I go into
the details of this part of the presentation, Let me remind you of our capital allocation model, which is shown here on this first slide, and it is the consistent application of this model, Which has driven the strength of our performance over recent years. The key point that I want to make on this revenue slide is that we have demonstrated over the years that we can deliver continued and improving organic growth. As you know, because of the COVID crisis last year, with all its disruptions The business, we didn't provide organic growth metrics. However, if you look at the total growth, you can see that while our target has been 5% to 8%, We've regularly delivered numbers in excess of that. And indeed, up to 2020, we've regularly been in double digit growth.
In fact, our total CAGR over the period Is 11.3%, including the impacts from the pandemic. Our stated target for profit growth has been circa 10%, And you can see that our ongoing 5 year CAGR has been 11.7%, so comfortably in excess of this target. The chart also shows that we've grown profits from just above £200,000,000 up to £384,000,000 in 2020, Including the impacts from the pandemic and disinfection services. Looking now at free cash flow. Our historic target has been circa 90% conversion, and we're maintaining this guidance for the medium term.
We're showing a slightly longer history here than on the two previous slides from 2013 onwards because this really shows the full extent of how we've established a track record A strong cash delivery, including a record performance in 2020 despite an unprecedented global crisis. Cash has been excellent this year, also resulting in conversion of 151% for the 6 months to 30th June. Turning now to net debt. You can see that adjusted PBTA has delivered a Compound annual growth rate of almost 10% over this extended period. And at the same time, we've kept our net debt largely flat.
Our net debt to EBITDA ratio has averaged 2 times. And in line with our capital allocation model, we've used our profits, both organic and acquired, to fund acquisitions and keep net debt down. This has meant we've been comfortably able to meet our commitments to keep our investment grade rating while maintaining our progressive dividend policy. This next chart shows our new financial targets, And you'll be relieved to learn that as we've talked about these several times really today, I won't repeat them here. What I will talk about, however, is margins.
We've shown the strong dynamics, both in pest control and in hygiene and well-being, Which allow us to improve margins through innovation, technology, density and through reducing costs by leveraging shared overheads across regions and categories. I should also say that our entry into new hygiene markets and M and A programs will mean that our expected improvement in group margins may be Partially offset in the short term until we get those markets up to scale and the acquisitions integrated. Over time, these improvements will flow through to group margins. Hopefully, you've seen many positive things today, but any group CFO would take the opportunity to make the point that significant medium term external risks still exist. I'm not going to talk through all of these today as many apply to most businesses, and you can read them offline.
We believe that we've got effective mitigations in place. And notwithstanding all of these risks, we're confident in achieving the targets we've set out today. I want to try and draw all of this together, and here's the chart that we showed you at our last Capital Markets Day in 2018. We said then that we wanted to grow pest and hygiene revenues, and we've clearly done that. Net operating margins are now higher, And free cash flow has either been in line or ahead of target.
We've continued our progressive dividend policy, And we've maintained our BBB investment rating, and the U. K. Pension scheme has been substantially dealt with. If we update that slide, taking into account everything you've heard, this is how it looks today. What is clear is that we've established a long term consistent track record of delivering on or in excess of our stated targets for revenue, profit and cash.
Both pest control and hygiene continue to operate in industries with outstanding structural growth drivers, and I hope we've conveyed to you our firm conviction That our new hygiene and well-being business is every bit as attractive as pest control. As well as giving a summary of the new targets today, this next chart also shows the changes we're announcing today to the group structure. We've talked to you already about the changes to the categories, but I do want to draw your attention to the changes we're making to our regional structure, Which you may have already seen in the RNS we issued this morning. The number of regions stays the same, 5 regions in total, as Latin America continues to report through Europe. The Rest of World businesses, which were previously included within The U.
K. And Rest of World region have been transferred to other regions to better reflect their geographic locations. This includes Poland and the Nordics, which will be transferred to Europe our Caribbean operations, which will be moved to Latin America And our businesses in MENAT, which will move to the Asia region, which will be renamed Asia and MENAT. Our Sub Saharan Africa operations will continue to reported within the U. K.
There'll be no major changes to our North American region, with the exception of Puerto Rico transferring to Latin America. The Pacific will stay unchanged, comprising Australia, New Zealand and Fiji. And I will leave you with our newly updated right way plan on a page, which features all of the ingredients That have made Rent A Kill initial successful over the last few years. So there's the new targets, and that's the plan. We have multiple opportunities ahead of us.
And by taking our proven and scalable business model And our track record of execution, we are now ready for the next stage of our journey. By making our wonderful pest control business Even bigger and even better. And by taking a very good business today, our hygiene and well-being business, and making it the new pest control. And so with that, Andy and I and our management team here with us today will be happy to take your questions, And we will start by answering some of the questions that you have sent to us throughout the day. So I think the team are going to come up to the days, And we'll go from there.
Andy, do you want to take over?
I do.
Thank you.
Well, I think that's it.
Right. Thanks, Stu. So as Stu said, As the day has gone on, we've been collecting questions online. The brilliant theory behind this. On my part was to try and cluster questions together, so they wouldn't be all over the place.
I've just been handed 3.5 pages of questions that look very much like I've failed in my endeavor. We'll give it a go. So what we're going to do, we'll go through these questions first. This will be fun for these guys as it is for me because nobody knows who I'm going to flip these questions to, not even me yet, so we're going to see how this goes. When we get through these, we will do it quickly and then we'll go to questions from the room.
I make but one observation, it is the number of questions and the length of answers which will determine when we get the drinks in the other room. So if you bear that in mind with your questions, we'll obviously try and answer them all. And when we go into the drinks, reception for those who can stay. Please keep asking us questions. We're very happy to keep answering them.
So don't feel that you have to Stop interrogating and indeed wait till 1 or 2 glasses have been consumed. You might get better answers. So we'll see how that goes. Nothing else after Q and A, remind me to come back to this someone if I forget. So just before We leave, I just want to hand out 1 or 2 of those lovely HxDOT machines.
We'll talk about that in a minute. So I am going to attempt, Lord knows how, but I'm going to attempt to shuffle the deck here. I'm going to start with some questions on M&A. And the first question is, can you give a sense of your market position in India and China? What is the competition for in these for in markets like these?
So what's our market position in India and China? Let's start by talking about how big our business is in there. And then what's the M and A opportunity? Linked to that, we have another question, which is whilst emerging as a high growth area for PEST, M and A considerations only been 16% of total consideration. What's the reason for less M and A spend historically in emerging pest.
So I'm going to
tackle those 2 first. I'll answer the scale of the opportunity first, and then I'll Hand it to Chris to comment what's the market like out there in terms of opportunities, but why have we spent less money? So I'll come to that. So let's start. India, we are number 1.
We're number 1 in pest control. It is a It's a big, big opportunity, but it's a very, very bitsy fragmented market. The players in India are very small typically. Our business in India, let's call it £50,000,000 to £60,000,000 pounds in total, and we're the clear number 1. So the opportunity for us is really to build on that base and to consolidate.
There are lots of businesses, lots of pest control businesses in India, but they are pretty small. And if I'm honest, quite a few are a little bit challenged in terms of governance and whether or not we would recognize some of the practices. So it's not the easiest market. China, we're not number 1. We're in the top 5.
We're probably number 5. I'm doing it from memory. There in our Greater China area, Hong Kong, Macau, the Greater Bay Area, China, We're about €45,000,000 give or take. And as I say, I think we're about number 5, but we're certainly top 5. Chris, How do we find it doing deals in India and China?
Are there opportunities there and more broadly in the emerging markets. And why have we only spent historically relatively small amounts of our M and A bucket to spend given the opportunity so big.
Is this my development Conversation.
I'll let you know later, Chris. Right.
Okay. Yes. So the businesses that we tend to find in China and India are relatively small. And we've been doing some fairly neat little deal structures to bring in 200,000 or 300,000 of revenue that's quality revenue under some contracts under sort of commission structures in certain In certain markets particularly in filling stuff around these China Bay. So yes the size of the deals that we've done have been relatively small.
But I think that In terms of what we've spent Andy, we've roughly 18% of the deals that we've done by volume since 2016 Are in emerging markets and roughly 16% of the money that we spent I think is in emerging markets.
Thanks, Chris. One more M and A one while you're on, while the microphone is warm. It's a question about IRRs. Could you clarify The IRRs that we showed for Pest M and A, these are based on expected returns in the year of acquisition. That's a question.
Are these based on expected returns in the year of acquisition? And why don't you show the actual returns if you're tracking these to review acquisition business cases.
I think the honest answer is if we explained how we calculated it, the chart would have been really quite detailed. The honest answer is those are North American actual IRRs that we've driven over the period of the plan. The reason we put expected in there is of course that we're doing this over a 10 to 15 year period for an NPV purpose. So we've only got 2 or 3 years' worth of actual for some of those and then the rest is expected.
Yes. And I think what we've done, if you look back over last few years, not every time, but quite often in the prelims and the interims. We do give a bit of an update. We go back and say Of the deals we've done in the last 18 months, 2 years, which is what we take to the Board each period, we actually say what have we delivered deal to date on that crop of M and A. And you'll see that we are beating the hurdle rate.
So If you take the last 2 years, for example, I think the delivered IRR rate for the crop is about 15%, but we don't give it obviously by deal, and we can't most of these are calculated quite a way into the future. But in terms of periodic updates. We do that, and we do that with the Board in excruciating detail. I'm sure Richard, the Chairman, We'll validate that statement, but we really have a lot of detail on every single transaction we've done. The next Clutch of questions are all related to Pest Connect.
And I'm going to come first to you Phil and then to Dave. First question is about depreciation. What is the depreciation life of your connected devices? How do you ensure that there is no margin erosion after 3 years when the 3 year contract is renewed? So I will start with that and then I'll come back to Dave's questions.
So over to Phil.
Thanks, Chief Executive. Let me give this a go. We depreciate assets in Pest Connect over 3 years, okay? Our experience on the ground with customer lives is on average, that's sort of 7 to 8 That's our experience. So we're used to on the ground a sort of 7 to 8 year customer life cycle with rolling contracts.
Our contracts have an annual price increase in them. So that's the sort of what we're used to on the ground. Clearly, what that gives us is some opportunity to Best in the customers going forward as well.
Right. So 3 year contract, 3 year depreciation, Customer would typically stay with us 6, 7, 8, 9 years. We're typically looking to get annual price increases. And over that life, if we have a customer 6, 7, 8, 9 years, we'll be continuing to invest in them with new products, new solutions. So certainly not one we'd expect to be reducing prices over the life of the contract.
So not something that we would be overly concerned with I think. The next question, Dave, I'm going to come to you on this one. When a customer upgrades to Connect products and services. Can the contracted revenue go up? We said on the screen in your presentation that typically, we are saying to a customer, you can have all of these benefits for more or less the same price, but sometimes Can we get more revenue from the customer?
The short answer to that question is yes. What we do is it really depends on the pest risk view from the customer. And we will define the final specification once we've done a survey of the site. And the requirements of a cafe would be different, say, this building compared to a food manufacturer. So yes, there's an opportunity for the contract price to rise.
Great, David. While you're on, 2 part question, maybe I'll take the second part. The first Part relates to customer types, customer segments, which customer segments do you believe will move to that 25 penetration most quickly.
I've got to say, our evidence to date is we've seen broad growth across a number of sectors from residential through to food manufacturing and we've made good progress in retail And small SME as well. So it's pretty well across the board, frankly.
Thanks, Doug. And second part of that same question was what geographies do we think We'll adopt 1st. What we made 2 attempts at deploying Connect. The earlier attempt was we made it available to all of our businesses and say, right, here's the technology, this is how we think we should launch it. We concluded that was actually quite difficult.
All of our businesses didn't have the expertise, the experience, the training. And so what we did was relaunch effectively, which is why we went with the U. K. So we've gone very large in the U. K.
The idea being all commercial technicians in the U. K. Get trained and are upskilled so everyone in that business can now know what to do when they see product, how to install it, how to upgrade it, how to deal with battery issues or whatever. And that's the model we're going with. We're in 87 countries.
We're not going to go large in 87 countries. We're going to go for the big market. So Holland is straight behind the U. K. And already pushing on very well.
France is just behind Holland. Germany is just behind that. And we've got a number of other It's Australia, New Zealand. The big one will be the United States. And those of you who are close Followers of Rentagil will know that we've got a major IT replatforming project in the U.
S. Only once we've completed that IT replatforming. Can we go large with Connect in the U. S? But that will be very much one of the big markets.
So That is it's the bigger countries where we've got scale, where we've got deep experience, but we are very much heavily leaning on Dave and his team to help the other markets. But we're already off and running in Holland and France and Germany and as I say, New Zealand, Australia, etcetera. Got some more questions on Connect. Let me see if I can pick the bones all out of it here. Can you provide more color on the margin differential versus traditional pest control.
It's a little bit difficult to say because it really depends, it's very customer specific. If we've got what we call high dependency customers, let's take a pharmaceutical company. If a pharma company says, hey look, Every time this device goes off, I want you to send a technician down, and I want you to send them down within 4 hours. That's an expensive proposition. That's a day 1 margin enhancing proposition.
If it's Joe's Pizza Parlor and Joe says, Hey, look, when it goes off, pick it up at the next scheduled visit. That's a lot easy and a lot different. So it really is difficult to generalize. But as Phil explained, you all. We've made the investment in the hardware.
We've made the investment in the software. We've made the investment in the connected devices, in the training. So you are getting a lot more for that, but trading off of that, we're going to visit you less frequently. So you put those all into the mix. It is broadly margin neutral across a range of customer types and customer needs, but that margin will improve over time.
It will improve over time as the contract life goes out to 6, 7, 8 years. It It'll improve over time. As we go large with this, the unit cost of all of those bits of clever technology comes down significantly. So that's why the margin builds over time. And other than that, it's not really without taking a specific case of a specific customer.
It's not really possible to give you much more detail on the margins. There a couple of extra questions on Connect, which I think I'll take offline, only on the basis that they're quite difficult. And I'm going to move on to Another subject now. One for Stu I think. This is about the shared cost base between hygiene and pest.
How much of that cost base can you still consolidate. How much is already done? How much is still to go? Is there further opportunity on group margins as we look out over the next few years?
Yes. Thanks, Andy. So as a number of the team have described, because of our country structure, We're already very well integrated and share a lot of costs between the categories. And they're the obvious ones, HR, finance, back office, but perhaps some less obvious ones, health and safety, for instance, and the disciplines around those things. So we've got a good level of integration in back office.
And actually, might not be so obvious is at a branch level. So our branch infrastructure, we do a lot of sharing of property. So that gives us some good operational cost saving benefits as well. I think there is opportunity, though. We're just kicking off a program actually to look at some common processes, where we can standardize And then share both between categories, but also within regions across countries.
If I think about Those processes and what they might be, I'll give you an example of one where it's very integrated already and very standardized is around HR. Our people management It's pretty standard almost across the globe. So we've got and you'd expect that. It's absolutely core to what we do. I think an area where we see opportunity is in the leverage of the connected world through digital contracting, Electronic invoicing, electronic payment, where we do believe that if we can get some standardization, Actually, those standard processes have applicability across categories.
Customers in both pest control and in hygiene I would recognize and understand, and it would as long as the branding is right, then it makes no difference then. And there's benefits to be had downstream from that. We've got significant overheads in both businesses around contract management, management of invoicing. And in the end, cash collection, although we've been tremendously effective, it's a significant part of our cost base. And so the more we become digital electronic Right at the front end, setting the tone for the relationship, then we think there's significant opportunity to be had there.
Sizing it, Sorry, colleagues, I'm going to stick a number out there. We think there could be 1% to 2% of margin there all from further integration and standardization over the next few years. But honestly, that's a little bit of A shot from me. And no doubt, I'll pay for that later. Take
the microphone off. No, I
would if I were you.
Right. I'm going to move to some questions on the hygiene and well-being now. We'll get through these and then we'll go to the floor. This is a good question here, something that is highly relevant. The question is, if I look at the end market exposure in core hygiene.
It seems you are quite exposed to office, the office sector, office buildings. What is your view on the impact of the potential reduction in office footprint and spending per square meter on core hygiene revenues and overall hygiene and well-being. I'll come to Ryan and or Jill in a second, see what views they have on how exposed we are and whether we see it as a risk or an opportunity. The point I think I would make First is we've set these targets for 2022 and beyond. We've been quite careful to talk about these as post crisis targets.
We are still in a crisis. The world is still in a crisis. We have countries in lockdown. We have sectors that are still impacted, and the office sector is one of those most impacted. The debate, here you are in London, Central London, you've traveled up, you've all got your own view.
The debate around do offices fill up to their previous levels and if so when? That's a live debate. I don't think anyone knows the answer to that. What we did show though is that we've got back to broadly the same levels of revenues at the end of 1, as we were pre pandemic, and that's without a big recovery in offices. And it's still with some of our countries in lockdown.
And some of those lockdowns continue into Q3, so whether it's in Australia and New Zealand or whether it's in Indonesia and Malaysia. So What we're calling is the opportunity as we go into 2022 and beyond. My own personal view is offices do come back. And typically, if there's 10 people in the office or 100 people in the office, you still got to have the washroom open, you still got to have it serviced. Does it have a bearing on how much we can get for that service and how much throughput we have?
I'll hand over to the experts.
It's difficult to predict and particularly about the future. There's no doubt that should offices end up empty, we'll be impacted. But I guess chances are that There's a lot of people that will
be impacted if offices end
up being converted into flats. Throughput and the services that are throughput related, You could see a softening in demand and in revenue from the throughput related things. What we are definitely seeing Is that the increased hygiene standards so far have at least balanced that out. It is early to call, But
so far, we're very optimistic about office reopening. And I think we would have all picked up in the press, for instance, when 3,000 people to serve his office reopening. We are in the same camp as them. It looks positive going forward.
Thanks, Brian. Well, while you're there, another one for you. When will the full range of initial products be introduced to reduced to Canon and how quickly would you expect Canon to achieve the same number of services as Rentokil?
So we took on 24,000 premises. We have integrated them operationally and taken the density advantages. Of course, we did that right as the pandemic started. We have deliberately been a little bit cautious about going to those customers as the pandemic and the conditions during the pandemic have fluctuated. We've now started.
We run a trial around 5% of the customer portfolio proactively contacted. Conversion rates are bang on what it will take to get us to the same penetration. But it's 24,000 of them. So I would expect to be working on that throughout 2022.
Thanks, Brian. One comes at you now, due. For hygiene on average, what is the cost of sales as a percent of revenue? And what are the total overheads as a percent of revenue.
Yes. So probably easier to talk about gross margin than cost of sales Because we don't do many product sales, which that's how I'd interpret it. So gross margin is about 40% on average, And that's absorbing technicians, branch costs, line management of those people up to branch level. So it's a Reasonably absorbed number. And then the bridge to the sort of the net margins of 16%, 17% we've been talking about It's about 10% sales and marketing.
A lot of that in the hygiene space is individuals on the road selling face to face to customers. And then about 15% of admin and general management, that's the sort of shape of it. And again, 15% as a back office cost, you can see why we believe there's An opportunity there that's worth having a go at.
Thanks, Stu. The next question is what are the key considerations which will determine whether you enter the Canadian waterroom market? Curiously, I could show more knowledge than I really should on this subject because it's something I've looked at in quite detail. The Canadian washroom market with regards feminine hygiene services is virtually identical to Europe. The American feminine hygiene market has no relation to Europe.
If you want more detail on that, I'd gladly fill that in, but we'll do that over a drink. The Canadian opportunity, therefore, is one that we could look at recognize and say, yes, it's a density pipe. It's a specialist service model. But it's also a market that we've got very little existing washroom footprint in. So we have to start from scratch.
It's a big old country. It's centered around 10 cities or so. But it would mean we'll have to do some M and A to supplement organic. So I think the most likely answer is What we're doing at the moment is we're doing what we call a test kitchen. So we've gone into Toronto.
We're surveying the market. We're seeing whether or not The Toronto market is receptive to initial turning up and offering services. We are looking at M and A as an entry vehicle as well as that. And we'll also look at the outside the washroom opportunity in Canada. So we'll know within 6 months as to whether or not Canada and the big cities in Canada represent a conventional washroom platform for us.
My guess is not, but we're doing the work to find out. But it will be based on what customers or potential customers tell us whether or not they see what we've got as differentiating from what they can get from their existing supplier. I'm going to move to questions from the floor now. Apologies, I think in the sheaf of questions I've had here. I may have missed 1 or 2 unintentionally.
You've still got the chance to ask the questions that I missed, if I missed any. But let me just see if we've got any questions from the floor. And the hands are going up. Lovely. So, Kevin, if you can get to the first one.
Lovely. Alan?
Hi. It's Alan Walz from Exane. Just two quick ones for me. Could you talk a little bit about What you're seeing, how you're dealing with cost inflation, particularly in hygiene, but we can also talk about PES, including wages and what maybe supply chain disruption is impacting The business as it seems to be a key topic at the minute. That's the first question.
And then secondly, just on Pest Connect. Obviously, that's a Fast moving market. Could you talk a little bit about the competitive landscape there? We know that one at least one, maybe 2 of the other competitors have got their own product. You all.
It's a slightly different model to what you guys are putting out there, but just interested in a bit of an update on what you're seeing, what your customers are saying about you versus the other offerings that are out there and why you think you're still very much ahead of the curve? Thanks.
Yes. Thanks, Alan. Good to see you. Well, we'll start with cost inflation and labor, and I'll go to you, Stu. And then maybe just because it's so topical, I'll ask Dave whether he's got enough petrol to get home tonight and see what the impact in the supply chain in the U.
K. Business is. So Stu first and then to Dave.
Yes, sure. Thanks, Alan. In terms of inflation, I'll deal with sort of easy ones first, I guess. Anything that's petrochemical related, plastics, those sorts of things, no doubt we're seeing. It's pretty significant inflation in those items.
But it's a pretty small part of our cost base, honestly. So it doesn't really move the needle for us. The big issue is labor inflation. And it's patchy, if I'm honest, and that's partly a function of the nature of openings and closures economy by economy. And so we're seeing some hotspots, places like, I know the Bay Area, Phil could probably talk about London.
So those traditional places where labor is tight anyway and also where there is still government support in place as at the same time as markets are reopening. And so that's putting a lot of pressure on. Nevertheless, Our average pay increases are still in the sort of 2.5% to 3% range. So at a macro level, we're not seeing it sort of burst through. It's really Quite localized.
And where it's localized, it's painful. But it's painful as much from an operational perspective as staff availability more than it is about inflation. And as I think we've consistently said, we're good at recovering inflation through Price increases to our customers, and we've got better at it as well. And I think the circumstances we're seeing at the moment I mean, we're having to be more local, more flexible, so not a price increase across a region, But really quite local about the way we're applying price increases to reflect those local pressures. So we're very much responding where we're seeing it.
And it's difficult in some places, but it doesn't feel, in any sense existential at the moment. The only thing I'd sort of add is from A revenue and we talked about Connect a bit. PCBs absolutely the shortage of those are hitting us. And I think the guys would say, we'd be a lot speedier about the rollout of Connect if we had free flow PCBs. So that is a constraint on the top
line. And I think just really picking up on Stu's point in terms of fuel, well, the good news is I'm going to train on tonight, so I'm all right. But actually just picking up the localized issue. So this week in terms of fuel disruption, in terms of in the southeast, bit more of an issue for us, but very, very localized into very specific pockets through to the Scottish area manager who said what's the issue, not being it up, lot more in the news. And it's against about how we tackle we handle that locally, but very, very localized to be honest.
Thanks, Glenn. Look, on Connect, I mean, you know I love talking about the competition, so I could gladly do another 20 minutes on that. The way to think about it is, connected solutions, we believe, are today primarily for commercial customers. Residential opportunity, maybe an opportunity for the future, discuss. Not entirely sure we agree with that, but If it is, that's quite a way into the future.
So you've got some of our big competitors who are primarily resi and termite that are sort of saying not what technology, not really sure what you're talking about. And I understand why they wouldn't have focused on it because it's a commercial opportunity. I think it's fair to say that our Swedish competitors. Anticemics have gone down a similar route to us. I'll gladly, over a glass, give you a compare and contrast in terms of why we believe our products are better, why we believe they're more robust, why we believe they're cheaper, And why we believe our operating model, which Phil and Dave explained, our operating model is not, hey, We don't need to turn up anymore.
We'll just give you this technology and when it goes off, we'll come and see you. Our commercial proposition It's very much about technology and humans working in tandem. And this when the device goes off, We still believe that the answer is you need a skilled technician to solve the problem. What's causing it? Where's the source?
How do we stop it reoccurring? So our model is a sort of a hybrid model between people and technology. We believe we've got the best technology. It has taken us let's be honest about it, it's been it has taken us well over 5 years of investment and pilots and trial and error. We would find if you put it outside and a thunderstorm came down That stopped the machine device working.
If somebody parked a forklift truck, it caused the Faraday effect, so we couldn't the signals weren't. We have to solve every single one of these issues, batteries draining too quickly, all of these sorts of things. And that's what we've done. We've solved the issues 1 by 1. I'm not saying it's perfect, but it is absolutely scalable.
And we believe it's the best on the market. And we believe it is the future of pest control. So really, Alan, I think it's a question for you and the others to ask the competition. Rengkille is banging on about this. Why are you not?
Are they wrong or are you wrong? So we know our view, but it is primarily for commercial rather than resi. There may be an opportunity for resi down the road, but it's not as obvious to us at least.
Jane, you obviously want
to talk about the football, don't you?
Absolutely not. Thank you. Just the first one, Stuart put up a slide Containing some information that was talked about at the 2018 Capital Markets Day. Just looking back at that presentation, You obviously had some other targets in that presentation, which were around €300,000,000 of revenues in Asia Pest By 2022, €150,000,000 in LatAm by 2022 and the 18% margin target in North America. Could you just talk about whether all those targets are still part of this sort of next strategic plan?
And then the second question, just a clarification on divisional margins. Obviously, if you're talking about operating profit growth being ahead of revenue growth at a group level that implies margins going up. I just wanted to Clarify on the divisional level, is the messaging pest goes up because of root density, hygiene goes down a bit in the short term and then work where it goes up as revenue grows in that business?
Yes. Thanks, Daine. I'll let Stew come back on margins. Great point. I mean, who would have thought you would have gone back and had a look at the 2018 capital markets there?
I mean, I don't know whether that's fair or not, but You didn't highlight all the things that we did hit on the 2018 Capital Markets Day, but there we go. You're Quite right to raise it. There were 3 that you mentioned there was Asia, was LatAm, was the 18%. I'll take the 18% one first. We have built a there was 2 parts of the American.
1 was the scale, dollars 1,500,000,000 second was 18%. All. We're well past the €1,500,000,000 Some of that's come from what Chris has pointed out to M and A and a lot of that and we've done more M and A
than we expected to. So we're way past the €1,500,000,000 And
that M and A comes in, so we're way past the €1,500,000,000 that M and A comes in and it's dilutive. So People would ask me, well, how do you think about that? If you've got a dilutive acquisition, do you just not do it because of You might not get to 18%. That's madness. That is not, economic.
So we've taken the advantage to do really good quality acquisitions even if they were margin dilutive. And some of those acquisitions were in products distribution business where the margins are typically 6%, 7%, not 16%, 17%. You all. On the 18%, no, we haven't come off that at all. That's the target for end of 2022.
So we remain committed to that, but that's on an even bigger business than we were talking about back in 2018. Asia, I think, is a fair cop. I think, Jane, I think we're not as big as we wanted to be. Well, that's the bad news. The good news is the opportunity in Asia is just getting bigger and bigger.
That's why we shared the per capita spend. That's why we talked about India. That's why we're focused on cities of the future. Many of those cities are indeed in Asia. We'll get to those numbers well, we'll get to those numbers cheating by moving Middle East into Asia, but that wasn't really the plan either.
We will get to those numbers. The opportunity is really big. We've been we've made less progress than I wanted to in India. That you heard Phil talk this morning about moving from paper to digital. The business in India Was owing so much paper, it's unbelievable.
It's been quite the challenge to modernize that business, but we are making really good progress. So look, I think Asia, we absolutely get there. It just takes time and takes time. But again, the cities of the future isn't about what can we put you down the next year or the year after. The cities of the future is the long, long term play in this business.
I've never been more convinced of anything that if we look out 10, 15, 20, 25 years, we will have built really, really strong big businesses like the Jakarta example that Chris shared in city after city after city after city in the emerging markets. And with that GDP plus type growth, with that emerging burgeoning middle classes, The numbers can only go up in one direction. And we are the leader in Asia. Our competitors are not typically going after these markets. So in LatAm, it's slightly different.
I think we've made really good progress in LatAm. But The area that we've not moved as quickly as we wanted to was on vector control. We called a big opportunity in Brazil, where the authorities spend a huge amount of money each year on vector control, designed to stop the spread of dengue. And to be quite honest, in the last 18 months or so, the Brazilian authorities have switched their public health resources to COVID, And they've taken a lot of money away from the vector control opportunity. We've won a couple of nice contracts in Vector in the last 2 months alone.
So again, the Vector story has not gone away. It's just been delayed. So I think Ask me again in another 2 or 3 years. And if I'm still disappointing on those two subjects, then I shouldn't be. But I think that's fair questions.
Thanks, Jane.
Do you want me to talk about margins, please? Yes. So I think I'd use the analogy on margins that Andy uses about revenue and throw in 6 6s. We've got a number of opportunities to improve margins in pest control, in hygiene and in French workwear hygiene and well-being, sorry. In pest control, the long term prospects for a connected solution really feels like that should drive margins as we're growing in cities of the future, gaining density.
That should be a big opportunity for us. In hygiene, we've seen the opportunities and the increased density. Things like the Canon acquisition have demonstrated our ability to drive margin through density and share. I want to be clear though is we're not saying that margins in hygiene are going to step back. That's not what we're saying.
We're saying lots of reason to believe they'll go forward, but we'll have some countervailing impacts from acquisitions from new market entries, which will, to a degree, offset that for a period. So I think in general, you're right to identify 6% to 9% of revenue and 10% -plus profit suggests an enhanced margin over time, and we do believe that. But quite where that's going to come really will depend on where we're successful in those higher revenue opportunities and where we get the hits and where in some places we'll get the misses. And as ever, we'll manage that operationally extremely tightly year on year to make sure we're getting the best out of whichever region, whichever category we're getting it. But here and now, all I can do really is identify the macro movements, and we'll see how those play out over time.
Next question please.
Hi, this is Anvesh Agrawal from Morgan Stanley. Just Following the change in the reporting structure, French Workwear now becomes a standalone business. And now you've put out the organic growth target for that. So just wondering what is what are the strategic options you are thinking for that? Is there an option to exit that still exist?
Or you plan to sort of manage it within the in the rectal going forward.
Yes. Thanks for that. Look, I think I've been both consistent and clear on French work Where the 2 big categories we have, Pest and now Hygiene and Well-being, are core categories that we will continue to invest in technology and digital, in innovation, in M and A, in capability. Geographically. So that's the future of the organization.
Our French Workwear business in splendid isolation in France. It's the only country we have it. Workwear is essentially all it does.
If there is
a moment in time where we create more value for our shareholders by making that available to another party, then we do that. We're not emotional managers. We're not wedded to it just because it's one of our businesses. But if we don't see the opportunity to create substantial value for our shareholders by exiting it, we run it. It's a good business.
It's got a great management team. It's got a really good strategy. It's got a very nice position, nestled in as a strong number 2 to a very strong number 1. And it's as simple as that. So for me, it's not causing any kind of headache, any kind of problem.
If the moment's there, we'll take it. If it's not, we keep it, we run it. But it will never be a core business. We'll never go back into workwear. But we're pragmatic managers.
And if we make more money by running it well, which I think we will, I'm not we will run it well. I don't mean to say we'll definitely keep it, but that's a function of who out there, who's out there who wants it and what sort of value proposition. If we absolutely needed another contribution of cash to put into hygiene and well-being or pest control, It has option value, you could always monetize that. But I would rather more fundamentally answer the question, you all. How do we create the most shareholder value out of that asset?
That's always been the way we run the business. If we create most by selling it, sell out. If we create most by keeping it, we keep it. And that's the way to think about it. So no real change.
Now of course, it's in splendid isolation all on its own. So it's certainly got no hiding place if the numbers aren't good. But quite often, you all. That's quite a good thing for the business as well. So they'll be very clear that we're reporting that asset on its own.
So and we've put that 3% to 4% growth target, which is pretty respectable as well. So I think it's a good business. We'll see to be continued. Thanks.
Just one on hygiene. There's not a huge amount of market data out there. Could you talk a bit about who your key competitors are and kind of what sort of market position you have at this stage in your larger end markets?
Yes, that's a really good question. And if you think about what we've told you here today, we've now got this new category called hygiene and well-being. So we'll make it even more difficult for you to try and comp across because who else is in hygiene and well-being. So that's a challenge. You have to look at it by end market is the honest truth.
So in washrooms, that core €500,000,000 business, What you tend to see is that there are a number of big country players. So in America, which we already said, we're not going after that market, That would be Cintas. Here in the U. K, that would be PHS. In Germany and Benelux, that would be CWS Boca.
In Australia. That would be I can't remember now. I haven't got any Australians down the line here. Alain, come on, you used to be there. And yes, FLIC, anti Semics are in there.
So What we tend to see is in each country we operate, there'll be 1 or 2 pretty big country players. You don't get many cross border players. What you do get though is lots and lots and lots of city based players regional base players in the south of England or in Scotland, etcetera. So lots and lots, which is why this whole city density is so important and It's why the industry works that way. So it is quite difficult to comp in that sense.
Then if you then go down the other lines like this thing of beauty here, the virus killer. This is a new market. That doesn't even exist. There's the people have been working in air hygiene, but not air hygiene to deal with airborne COVID-nineteen. That's a brand new situation.
So unfortunately, you have to look at it by slice and again by geography. So you won't find anyone that looks really like Rent A Co initial, certainly not on a global basis. Closest to our model here in the U. K. Would be PHS Multi Service, It's a private company, so again it's more difficult for you to comp.
And if I'm honest, reading the big studies that are out, they don't really give you the insights. So we've tried to put as much color on that today by talking about the growth drivers in the individual slices, but you won't find it terribly easy to compass with. I guess, if you want a public market one, Cintas would be the closest, but it is a different market. Other than that, I'm not really able to give you much more other than go into each country, and that will be the answer. You knew that was going to be the answer, didn't you?
Right. Any more questions? I can't see with the bright lights in my eyes. Are there any questions, Kevin? No?
No? No? Going once, going twice. All right. Said I'd come back to this.
So I haven't really talked about this. This This is a little beauty. This is the HEXTEO. This is the virus color HEXTEO. This has got the same technology as that.
I mean this is designed for reception areas, for offices, it's also for residential. Mrs. Ransom's Christmas present last year this is what she got she was genuinely thrilled to be honest because it was an upgrade on what she normally get So, but all joking aside, why did she love it? Because it protects the thing that she cares about most. It protects the family.
So this is selling very well. It's selling residential. It's selling, as I say, into offices, to receptions. And just for a bit of fun, when you all came in this morning, we put your names into a hat because we've got 5 of these. Lord knows what it does for compliance.
You'll have to work it out for yourselves. I'll just slip it in your bag and not mention it to anyone. But it is random and somebody has drawn 5 names out of that and I hope that they're going to be on the screen. And there they are, you lucky 5. So when you leave this evening, if Laura, who's Catherine, Laura waving arms at the back there and pick this up on the way out.
And Well, have fun with it and be safe. So thank you very much everyone. It's been a bit of a marathon. We've tried to give you as much information as we possibly can. You've heard a lot about our core pest business and why it's the best pest business in an amazing industry.
You've heard a lot about our ambitions in hygiene and well-being. If we didn't answer any of your questions, we'll try and follow-up with those offline. We're now going to go straight through their drink reception. And as I say, feel free to Pepper, anyone with any questions and look forward to seeing you in a few minutes. Thank you all for attending.