Morning, ladies and gentlemen, and thank you all for joining us today. In a few moments, Jeremy will provide you with details of our results for the first half of twenty nineteen, looking at our five regions where we've again delivered a very good overall financial performance with revenue, profit and cash once more in excess of our medium term targets. I'll then come back and provide and updates on the operational and financial performance of our pest control, hygiene and protect and enhance businesses with a particular focus on the good progress we're making on our employer of choice and on our digital and innovation agendas. Let me just say a few words to set the scene for today by covering the key highlights of the first half. Delivered another strong overall performance with Organic growth at 4.2% was above our medium term target of between 3% 4%, but it also equals our highest growth rate in the first half for over a decade.
There were strong performances in both pest control and hygiene, which delivered organic growth of 4.8% and 4.3%, respectively. Ongoing operating profit grew by 6% reflecting good growth in all of our regions while group operating margins were up by 0.4 percentage points and up by 0.5 percentage points in North America. Underpinning our good performance in operating profit and in particular, in organic growth was a very encouraging improvement in customer retention which was up by 1 supported by an equally encouraging improvement in Turning now to acquisitions. M and A execution in the first half was very strong with 17 acquisitions delivering annualized revenues of 1,000,000 and with 12 of those acquisitions being in Pest Control. In North America, we completed 7 pest control acquisitions in the half with annualized revenues of around $59,000,000 comparing very favorably with the $53,000,000 acquired in I'm also pleased to announce the successful divestment of our 17 point of an early exit and with an excellent price of 1,000,000.
So overall, the business has performed very well in the first half with a strong organic growth performance with revenue profit and cash, again exceeding our medium term target with very good M and A execution, successful divestment of our JV holding and the declaration of an interim dividend of 1.51p per share, an increase of 15.2%. We remain confident of making further progress in the remainder of the year. With that, let me hand over to Jeremy to take you through the group financials and the regional performances in more detail.
Thank you, Andy, and good morning, everyone. I'll now run through constant rate of exchange. So ongoing revenue in the half grew by 8.8% with organic growth of 4.2% and growth from acquired businesses of 4.6 percent. Adjusted operating profit before interest for the half on an ongoing basis increased by 11.6% with growth in all regions, delivering a 40 basis points increase in group net operating margins. Adjusted profit after interest at actual exchange rates grew by 13.7 percent, driven by the increase in ongoing profit.
Free cash flow was again strong in the first half at 1000000, a 1000000 increase on the first half in twenty eighteen. And adjusted EPS at actual exchange rates increased by 14% in line with the revenue profit and free cash flow results for the first half have demonstrated another period of delivery against the financial targets that we set for the business 5 years ago in 2014 and which were revised upwards at the 2017 interims. Over the last five years, we have delivered compound annual organic growth, revenue growth of 3.3% well within our target range of 3% to 4%. Compound revenue growth over the last 5 years of 11.5% is well above our target growth rate of 5% to 8%, helping to drive profit growth of 15.2% compound, again, well above our 10% target. And as you can see from the chart, free cash flow has increased considerably over the last 5 years, reflecting our medium term target of 90% conversion.
Looking now at performance by region. North America delivered a good performance in the first half, supported by acquisitions and improved organic revenue growth despite wet weather across much of the U. S. In Q2. Revenue grew by 9.6% in the half, driven by continued strong acquisition pipeline as well as organic revenue growth, which was 3.7%.
Pest Control revenues grew by 10.3% with organic revenue growth of 3 point with annualized revenues of over $59,000,000, exceeding the amount of revenue acquired in the whole of 2018. The operating profit was up 14.7 percent, reflecting the revenue growth and higher net operating margins which improved by 50 basis points to 12.1%. And I'll talk about net margins more in the next couple of slides. At our Capital Markets Day in 2018, we set out our ambition for the North American business to become a one $500,000,000 revenue 18% net operating margin business. And we're making excellent progress towards our revenue target with an improvement in organic growth in the first half and the acquisitions that I mentioned on the previous slide.
We continue to work towards our net operating margin target, and we made further progress in the first half of the year increasing margins by 50 basis points, supported by stronger organic growth, synergies from acquisitions starting to flow through, and savings in our property and procurement from our best of breed cost savings program, offset by a greater mix of lower margin product sales. Our IT transformation program is progressing well, and I'll talk about this in more detail on a following slide. Given the progress made on revenue achieving our 1,000,000,000 revenue target in 2020 and the progress that we've made on margin delivery in the first half means that we remain on track to deliver our 2021 margin target. As we noted at the prelims, a key dependency for delivery of the margin target is the replatforming of our IT platform. And we've continued to make good progress on this, and I thought it would be useful to share with you in more detail a bit more background on the various program streams and our expectations for when deployment will be completed.
The key first step in our IT program is creating a consistent platform across the country, In relation to this, supporting infrastructure, the chart shows that we have all the data we will have all the data from the business into the cloud during 2019 and that the large majority of the business will be on a standing standard operating platform by the end of this year. Having a consistent infrastructure delivers cost benefits in its own right through reduced back office costs and more effective management. But it also critically allows us to deploy our group applications across the North American region in the key areas of service sales and customer communications. As previously noted, the implementation of these applications enables the delivery our best of breed margin benefits in 20202021, meaning that the journey to our 18% margin target by 2021 is weighted towards the end of this period. In Europe, ongoing revenues were up 7.7%, driven by strong performances in Germany, Southern Europe and Latin America, which is managed through the Europe region.
Organic growth continued to be very strong at 4.8%, with pest control growing by 7.7% and hygiene by 2.8%. Ongoing profits grew by 8.6% reflecting the strong revenue performance with profit growth being achieved in all the regions key countries. As you'll have read, earlier today, we completed, we announced the sale of our 17.8% stake in the annual JV, and I'll discuss this in more detail in a moment. Revenue in the UK and the rest of the world region was up 10% of which 4.5% was organic. UK organic revenues grew by 6.5% in pest control, and 8.4% in hygiene, driven by strong contract wins.
However, the UK Property Care market continues to be challenging, impacting both revenue and profit margins. Ongoing revenue growth has been strong in the rest of the world at 8.3%, driven by growth in all of its regional clusters. Ongoing operating profits increased by 7.3% in the half, reflecting the organic growth in pest and hygiene, however, margins reduced by 0.5 percentage points due to the impact of the UK Property Care business. Revenues in Asia increased by 11 supported by good performance in both pest and hygiene and acquisitions contributing growth of 6.1%. Operating profit in the region was up 11.9% with operating margins in line with the prior year.
4 acquisitions were completed in the first half with annualized revenues of around 1,000,000. The Pacific business delivered ongoing revenue growth of 2.4 percent, of which 1.9% was organic, driven by good performance in hygiene in Australia. Operating profit increased by 2.5%, in line with ongoing revenue growth. Operating cash flow of 1,000,000 was up 1000000 reflecting the increased profitability of the business and the timing of dividend payments from the JV offset by the phasing of working capital movements and provision payments which were net million adverse. The 2019 numbers reflect adjustments relating to IFRS 16, which has effectively increased the level of depreciation Continuing free cash flow of 1,000,000 was 1000000 higher than last year reflecting the increase in operating cash flow previously noted.
Cash interest payments were 1,000,000 higher than 2018 This is largely an IFRS 16 adjustment with underlying cash payments, some 1,000,000 higher, reflecting slightly higher levels of net debt. Cash tax payments were 1,000,000 lower due to phasing. Taking into account a 15.7% increase cash dividends and million spend on acquisitions, underlying net debt increased by 1,000,000 in the period. Sterling weakened on average during the half and the impact of this overall increased the sterling value of our euro and dollar denominated debt by 1,000,000. The adoption of IFRS 16 added million of lease liabilities to our reported net debt figure.
And taking all above into account, our net debt at the half year was 1.442 1,000,000,000. As I mentioned earlier, we announced the sale of our 17.8% stake in the annual JV, today, but 1,000,000, creating an estimated profit on disposal of around 1,000,000. The disposal means we have generated proceeds of some 1,000,000 for the disposed businesses. And we will use these proceeds initially to pay down debt and then to support the group's M and A program. Our net debt to EBITDA ratio adjusted for IFRS 16 stood at two point six times at the 30th June, compared to an unadjusted 2.4 times at the 2018 year end.
And on an unadjusted basis, the ratio would have been 2.5 times at the half year. Taking to account today's sale of the JV stake, our IFRS adjusted net debt to EBITDA figure falls to around 1.9 times. Our balance sheet remains strong and as the chart shows, our net debt levels are broadly in line with where they were 5 years ago before FX movements and the impact of IFRS 16. And adjusting for the impact of the JV proceeds the group's debt levels are significantly lower than they were 5 years ago. The group's credit rating remains at BBB with a stable outlook, In May 2019, we issued a 1,000,000 bond as a coupon of 0.875 percent to refinance our million bond, which matures in September this year.
This historically low rate of interest has enabled us to reduce our expected interest costs in 2019 and more significantly in 2020, as I will discuss further on my next slide. So finally, before I hand over to Andy, some numbers for the for your models in relation to 2019 2020. IFRS 16 is now expected to increase ongoing operating profit by 1000000 and the adjusted interest charge by 1,000,000 compared to our previous guidance between 1,000,000 and 1,000,000 And this has no overall impact on adjusted profit before tax with the two numbers cancelling each other out. The business is trading where we'd directed to at this stage of the year and therefore our guidance for the full year for 2019 and for 2020 remains unchanged subject to the following items. We now expect 2019 central costs to be around 1,000,000 higher than previously guided, in line with the H1 increase, reflecting our continued investment in innovation and our digital program and the impact of the increase are expected to be 1,000,000 lower than previously guided, reflecting the refinancing of the million bond at lower interest rate and lower in 2020 is an anticipated reduction in interest costs compared to previous guidance for 2019 of around 1,000,000 Profit from associates in the second half is anticipated to be 1,000,000 lower than the prior year following the disposal of the JV.
And the full year impact on 2020 is a reduction of 1,000,000. At the prelims, we guided to adverse FX of around 1,000,000. FX has been volatile since then with sterling weakening against the euro and the US dollar. Should current rates continue 1,000,000 for 2019 and 1,000,000 to 1,000,000 for 2020. Taking all the above items into account, We anticipate expectations for 2019 to remain unchanged and expectations for 2020 to increase by around 1,000,000.
So to conclude, we're very pleased with the performance of the group in the first half, And I'll now leave you with a slide summarizing some of our key achievements so far this year, while I hand you back to Andy to continue our presentation.
Thank you, Jeremy. Right then. Starting as always, with our right way strategy. Here's a slide that I know you're very familiar with. Today, I'd like to focus on the middle part of the bottom row there.
That's our low cost operating model. This is what internally we call the machine as it describes all of the various cogs and components of our engine for successfully compounding our organic revenue growth and our acquisition growth and converting these into cash. We then reinvest the vast majority of that cash back into the machine in the form of investments in technology, innovation and of course, into our M and A, into our core businesses. Today, we'll focus firstly on the primer of the machine, and that's our people. And our critically important employer of choice agenda and secondly, on our digital and innovation agendas.
Let me start with our people. In Rentico initial, every single business meeting starts with Xi. Or safety health and the environment. From the PLC board meeting down right through the organization to region country and branch meetings. She is the first item on every agenda and we've made it absolutely clear that there's nothing more important in our business than ensuring that every one of our 40,000 people goes home safe every day.
Now in my view, there is a clear and a direct correlation between businesses that attain the highest safety standards and businesses that deliver excellent financial performance. So it's really pleasing to see that we have made dramatic improvements over the last 5 years and that our safety performance is now at world class standards. And this achievement has been recognized by the Royal Society for the Prevention of Accidents who've awarded Rentecue initial its gold award for both 2018 and again in 2019. At the bottom of the slide there, we've also included some of our environmental credentials. That's the E of Xi.
These being recognized by the Dow Jones Sustainability Index, FTSE for Good by Ethabel and by others. Not only are we consistently reducing our overall emissions but we have already also achieved a carbonnet 0 position through our work with the climate change charity, Cool Earth and the Rentico initial cares initiative. Mitigating 100% of our annual carbon footprint through a rainforest protection program in Papua New Guinea. Now given the success that we've enjoyed by making Xi the first item on every agenda, 2 years ago we decided to make our employer of Choice Initiative, the 2nd agenda item. And here, just as for Xi, we have a consistent set of measures, and KPIs which we monitor across the entire company.
You will often have heard me describe our people agenda as the most critical strategic imperative that we have in Rentico initial. Put quite simply, if we get our people agenda right then we have a fantastic opportunity to execute our plan and to create value for our shareholders. If we don't get our people agenda spot on, then quite simply it doesn't matter how good the plan is. We would not be able to execute it. As you can see on the chart there, in the war for talent and with a competitive labor market in some of our markets, We're beginning to see real and very tangible benefits coming through from our employer of choice agenda.
Where we now see externally verified world class levels of colleague engagement and enablement outstanding training and development programs to enhance the expertise of our people and also exceptionally high scores on Glassdoor where we top the league table for business services. If you got 2 spare minutes today with nothing else to do, I would suggest you take a look on Glassdoor, Rentecure and just have a flick through the first 10 or 20 reviews. It will give you a really good insight into our company. As you can see, this effort is translating into much improved and now really excellent levels of colleague retention. Delivering a 2.8 percentage point improvement to 87%, meaning that not only do we spend less time, money, effort, recruiting and training new people, but it also means that happy, engaged and well trained colleagues deliver an even better service for our customers.
This again, you can see with our Net Promoter Scores in pest control improving by 1 point 6 points and in hygiene by 2 points. And in turn, this is leading to the excellent 1.1 percentage point improvement in customer retention that I mentioned earlier. So great progress in the areas of safety, sustainability, colleague retention as well as customer satisfaction and customer retention. And these have all been important drivers in achieving our excellent organic growth in the first half. Turning now to our business lines and let me start with Pest Control.
We delivered another strong performance In the 1st 6 months, with ongoing revenues increasing by 11.4% of which organic growth was up 4.8% and profits were up by 11.5%. Pest Control now accounts for 64% of our revenues. And as I've said many times, this is an outstanding business. It is our key growth engine and it is extremely well positioned to capitalize on the increasing demand for pest control around the world. There are many drivers expectations for better hygiene standards, growing middle classes and urbanization, increasing regulatory change in areas such as food safety climate change and increasing pest pressures.
In 2019, we expect the global pest control market to exceed $20,000,000,000 and to continue growing at around 5% per annum over the coming years. Rent secure is the number one pest control business in over 50 countries and it's the largest commercial Pest Control company in the world. Our global footprint is unrivaled by any competitor. And as you can see, illustrated, On this chart in the first half, we continue to deliver strong performances right across the globe. Facilitating our organic growth in these attractive growth in emerging markets, Rentacule enjoys a number of genuine competitive differentiators.
First of course is our global scale now operating in around 80 countries. Our employer of choice program that I mentioned earlier, our genuine technical expertise, our powerful Rentecule brand, is now one of the world's top 50 most valuable and recognizable commercial brands. We enjoy a core strength in the attract of commercial sector. We're leading the industry in digital and in innovation. We have an extremely strong digital marketing capability which delivered record levels of traffic onto Rentica websites in the first half, growing double digits to 9,000,000 sessions and which enjoyed excellent conversion into online inquiries, which were up 33% in the half.
And of course, we also have our high quality M and A capabilities building both density in our existing markets and new positions in key growth City markets of the future. Rensiker was the undisputed leader in both digital technology and innovation. In the pest control industry. And we use that to improve our productivity and to lower our costs to establish higher barriers to excellence and to protect our core markets to enhance our service and customer satisfaction and to differentiate our products and services And in turn, obviously, therefore, to grow our sales. A great example of how we differentiate our products and services is the new Lomnia range, which is the first to use LED lighting to attract flying insects.
Not only are these units highly effective in comparison to others on the market, but by using LEDs rather than the traditional fluorescent tubes, they reduce energy consumption for our customers by around 60%. We launched Lumbia around 18 months ago, We now have it in 42 markets and sales increased by 44% in the 1st 6 months of this year. Over the last 12 months, we've deployed 20 robotic process automation projects in our UK business. In sales, marketing, finance and HR to both free up capacity, but also to reduce costs This has reduced UK transactional process costs by around 40 basis points. And we're now looking to take the use of robotic across the of artificial intelligence.
We've appointed 2 senior level directors for AI who are partnering with global technology leaders to focus on our internal operations and processes and on our customers. One of the projects we're working on is a new AI route optimization tool, which has the potential to adapt to traffic updates by the millisecond. We're also developing a new pest ID app that will identify a particular pest from a photo taken by the technician in the field on their smartphone. It will then advise on the best tools for the job as well as potentially sending a short training video or safety video to the technician. One of our core pest control markets is of course rodent control.
It accounts for around 1,000,000,000 dollars of the global pest control market and it's growing around 4% per annum. Here we've launched a range of new digital products to enhance our proposition in this core market. Spring in a year. So the speed of monitoring and our proactive action that our connected devices allows will become increasingly important in rodent control. At Rentecill, our digital pest control platform of Pest Connect My Rent Acule and our online command center offers an unmatched level of monitoring, reporting and insight and I'm pleased to report a strong performance in the first half.
We had a 17% increase in connected devices, a 29% increase in the usage of the My Rentico portal. We now have an impressive 98% of all commercial customers of Rentacill now using the system and 14,000,000 messages from our internet of Things units in the field were sent to our online command center. This is a proven, robust digital platform that is taking the protection of customers' facilities and the mitigation of risk to a new level. Right, switching gears slightly. If I ask you to tell me what this is, I suspect most of you intelligent looking people in the room would be able to correctly identify this as a mosquito.
Some of you might even know it's the Geito. Some of you might further know that along with its sister, the anopheles, these are the biggest killers on the planet responsible for transmitting viral diseases including dengue fever, Zika, yellow fever, chikungunya and malaria of course. And many more. Identification of mosquitoes quickly and effectively is an essential first step in the protection of public health. That must be easy to do, I guess.
Well, it's not in fact easy. Unfortunately, there are more than 3500 separate species of mosquito around the world. We have 175 of them now in the United States alone. It's one of the reasons that we're developing that Pest ID app that I mentioned earlier. On this slide here, you can see the main diseases and the scale of the impact on public health around the world.
If we just take dengue fever, As one example, the World Health Organization estimates there are 390,000,000 Dengue infections every year resulting in 25,000 deaths worldwide. Before 1970, only 9 countries had experience severe dengue epidemics. Today, the disease is endemic in more than 100 countries. Clearly, as you can see from the recent reporting, the scale of this threat is actually getting worse. Globally, we market is now worth around $4,400,000,000 per annum and Rentecula is ideally placed to support customers in this market and some market that's growing by 7% per annum.
We have the people and the skills where we're already operating in the key markets of Asia, Africa, North America and Latin America. We've got the proven tools to undertake fully integrated surveillance disease monitoring, mosquito control measures from the ground and now in the air. And we have the experience, we're already undertaking local authority programs in the states, while in Asia, we've got decades of experience in providing mosquito control, services. And we're building on this with even greater scale and capability. We've established a global center for and mosquito and vector control.
In the U S, we've created a mosquito laboratory at the power center here In the UK, we're continuing to use our M and A capabilities following 3 key acquisitions in North America and Brazil. Over the last two years, we've just recently acquired Ecovec In Brazil, this is a high quality university spinout business with infrastructure and organization to scientifically monitor the presence mosquitoes and this latest acquisition will no doubt be very useful in our ongoing discussions with several municipalities in Brazil for the use of our experience expertise for their large scale vector controlled programs. So it's a large and growing market and will remain an important medium term opportunity for rent to kill as we continue to build our capabilities and to grow our presence in this market. Turning briefly now to Hygiene, where we continued to make very good progress with ongoing revenues increasing by 6 0.5% of which organic revenues grew by 4.3% and that's against our typical target of around 2% to 3%. Ongoing profits were up by 8.6%.
Organic growth was driven by encouraging performances from the Pacific, from the UK and Europe with good contributions elsewhere from the 2018 acquisitions of Canon and CWS Italy as well as from a range of operational initiatives. These include extending our best in class product range, maintaining our 5 star customer rating on Trustpilot, delivering a 2 point improvement in customer satisfaction and continuing to target upselling to existing hygiene customers particularly through new email marketing activities. In hygiene, we're also driving operational improvements to drive productivity and density. In the first half, we completed the rollout of on-site servicing for feminine hygiene units in our UK business. Meaning that we no longer have to transport full bins back to the branch.
This significantly reduces the load of the vehicle as well as increasing the number of customer visits each technician can make before returning to the branch. We've also continued to roll out service track hygiene. This is now in 23 countries and we're beginning to see the expected productivity benefits coming through. And of course, we've maintained our highly targeted M and A activity with 5 city based deals in the first half, to build on our scale and geographic density. In hygiene we're continuing to provide the best washroom product ranges and a wide range of hand, air, and feminine hygiene services, but in addition, we're also targeting new growth opportunities with the development of air sensing and purification products and we're in late stage development with a new range of internet of things, digital hygiene products as well as a number of pilots of new services including the provision of first aid kits, which we're piloting down in Australia.
I don't think we are quite yet ready to move our hygiene organic growth targets up but we can certainly begin to see the potential of this category starting to come through. Turning now to our 3rd business cluster, Protect and InHANCE. We have 3 main businesses in Protect and InHANCE. Ambus, our plants business, UK Property Care And France Workwear. These businesses typically operate in tougher market conditions and have weaker growth characteristics than our pest control and hygiene businesses.
Together, they accounted for about 14% of group revenues in the first half. As you can see there on the left hand side, we've put protected the revenues of these businesses pretty well given their market conditions. And indeed, in the first half, revenues increased by 1.4%. Profit's declined slightly by around GBP 340,000, which was essentially due to the Property Care business in the UK. Whilst the rate of decline has started to improve, there is no doubt that the business is operating in a very challenging marketplace.
Our Workwear business in France remains the single biggest part of the Protect and Enhance segment and the business made continued progress in the first half with revenues increasing by 2.9 percent to 1,000,000 with profits in line with last year. In the last six months, the business has now rolled out RFID technology so that it can track each one of its 190,000 garments from the initial collection at the customer to the arrival at the plant through each of the different processing stages and then back out to the customer again. And this will significantly improve our quality of service and the efficiency of our garment processing. It still remains too early to claim victory with our turnaround of France Workwear but it has been in the first half, we acquired 17 pest control and hygiene companies, delivering annualized revenues of 1,000,000. The majority of the M and A activity focused on building density in North America, where we acquired seven businesses so far this year.
We've also entered the exciting cities of Oman in Jordan and Colombo in Sri Lanka. As you know, at Rentecill initial, we have huge experience in acquisitions and we maintain a very financially disciplined approach to M And A, which in turn means that we continue to deliver excellent returns against our differentiated IRRs. It's not just acquisitions. The JV divestment announced today reinforces our all around M and A credentials and with an excellent pipeline of prospects, supported by a strong balance sheet, we now expect M and A spend to exceed 1,000,000 for the full year. So in summary, in the 1st 6 months, we've delivered a strong overall performance.
We've continued to focus on people. On technology and on innovation. Our colleague and customer retention rates have improved significantly Our organic growth rate equaled our best for over a decade. Operating profit margins, free cash flow were all ahead of last year. We've continued to execute a strong M and A agenda.
We've delivered on the opportunity to successfully divest our joint venture holding ahead of schedule and for great price and the board has declared an improved interim dividend increasing by 15.2 percent. All in all, I think the business has performed very well in the first half and we're confident of delivering further progress and the remainder of the year. So with that, Jeremy and I will now be very happy to take your questions. Eric Carlson from K Few curious to hear what you think the increased M and A guidance means. Is it $250,000,000 to $300,000,000 or could it be a lot more than that, especially in context of the stronger balance sheet post divestment?
Yes, thanks. Look, we gave guidance on M and A spend each time we ship with you to be honest. And we can see only so far ahead in the pipeline. We can see maybe 3 to 6 months. The increase in the guidance is really reflecting the healthiness of the pipeline.
It's not reflecting we've money in our pockets. So we need to spend the money in our pockets. We don't, we don't kind of work that way. It's nice that we've got the money in our pockets. But I guess we would have been up rating our M and A spend for the second half irrespective In terms of what does that mean, does it mean 251 or does it mean 300, it's really difficult to say.
There are some interesting things in the pipeline, which mean the spend could be a reasonable amount more than 250. But as we look at it now, I guess what we're saying is guided 200 to 250 that looks too low now. It looks almost certain to be in excess of 250. I can't really give you more than that. It just depends how many of the things that we're working on, come through.
And as I mentioned a minute ago, we are very financially disciplined We don't make our returns. We don't do the deal. If we don't like what we see in due diligence, we walk away. So it depends how many of the things that we're working on, drop through, but the the pipeline really has never been as as follows it currently is today.
Thank you. James Winckler from Jefferies. Just had a few quick ones. Number 1, one of commentaries from one of your competitors last week was that June May was a little weak in terms of demand partially driven by the wet weather she referenced. But July came back quite strongly.
I'm just wondering if you had consistent, commentary in terms of how you're seeing the market specifically. In North America and the shape of it through the quarter, specifically with regard to the exit rate. And then to, on the M and A now that you have, dispose of this JV and have a lot more room on the balance sheet. Wondering if you'd be you think you're more willing to pursue perhaps chunkier size deals or if the run rate should be sort of looked at in the same light of, a large volume of bolt on transactions. And then lastly, if I'm not mistaken, you had in the agreement until the end of 2021, to dispose in your, of in the option of the agreement to dispose of the JV, remain JV stake.
Just wondering if you had any comment on why you chose now rather than the holdout of the rest of the agreement?
Yeah. Thanks, James. Well, I hate talking about the weather to be honest, it sounds like a retailer, but May June, reliably informed were the 2nd, wettest months in the United States on his 3. So there was weather. That's what we will say.
We can be certain there will be weather. There was a lot of weather in America and May June and a lot of it was wet. And we do have an element of our business, which is seasonal. So the residential component of our business, if it's not good pest weather, then we're not selling or installing pest. All I can tell you, I haven't seen the numbers for July yet because I'm not sure it's even finished technically, but the weather in July in America has been much warmer.
SUNS come out strong, warm, humid temperatures down south and strong sun in the in the north. So, we certainly would expect to see a return to form if you like for for July. I have no clue what the weather is going to be for the rest of the quarter. Chunkier size deals again, it's really the same answer that that I gave earlier, James. You know, we've never looked at M and A on through the lens of how much have we got to spend.
That's not the way we think about it. We look at are there deals that fit our city based target criteria. Do they meet our differentiated return criteria Are they quality deals with good management, with good pricing in the market that we're going after? And the view Jeremy and I have always taken is we'll worry about how we finance it as and when we find them. So if ever we got to the point that there was chunky a deal.
We would have a look now. So what are our options and does it make sense? And critically, does it create value for shareholders? So I don't think it would be a good read across to say we've got 1,000,000, which in fact, has arrived in the bank this morning. So we have completed.
I don't think it'd be a good read across to say we've got that money, so we're going to go out and spend it. But as I've just said, The pipeline is good, so you should expect us to continue to execute whether they are small, medium, chunkier, just a function of what's out there. Why sell now as opposed to later? To be honest, I always indicated that this was a possibility, that we would exit early. When we put the transaction together with Daniel, we had an agreed business plan that said we would likely come out from year 3 onwards.
Why did we say year 3? We thought the majority of synergies from the combination would have been delivered by then. I think the annual team had made really good progress have gone ahead with the project they moved on quickly. So the synergies have been coming through more strongly. And it suited their purposes and our purposes to agree a deal now.
We could have waited and then we could have sat and waited and wondered would we get more or would we get less? But this looks like a terrific outcome for shareholders. Great return on the investment we made in the joint venture. So nothing special about it. It's something that we chatted with, with Hanniel from time to time and it suited their purposes as equally it did ours.
Hi. Good morning. Sergei Barker from JP Morgan. A few quick ones please on margins. Could you just give us the North American pest services margin?
I think you didn't give it the full year then maybe for the half year as well. Secondly, on the Asia margin, you have mentioned before that that's probably the one region where passing through price increases can be difficult just from a cultural point of view. Is that the reason behind the margin weakness in the first half? And can you maybe talk about the second half? And then the restructuring cost that you include within underlying EBITA.
So those were a bit lower. What should we expect for the full year on that? And then just finally, on growth. Hygiene, very strong in the UK. How should we think about that?
What drove that? And what about the second half?
Yes, thanks, Silver. So, pest services, were a bit higher than the 50 basis points. So, sales in Ambeas and products diluted it. So it was around about 70 basis points or so, and obviously there's lots of pluses and minuses within that, but it was around about that level. With stronger organics could have been higher.
The M and A started to flow through, but again, M and A was slightly higher as well and some of that new M and A is dilutive, but overall it was basis points. Asia, actually, the element that is holding margin slightly back is PCI and just the integration of, PCI. So we're actually starting to get better track on price increases in Asia. It's still not where we'd like it, but if you remember in the past, Asian margins have grown with increased density, And actually, if we get the pricing to flow through as well, that would help even more. But in the first half, it's really been about the PCI integration.
To restructuring costs, I think we'd still guide to 7,000,000. If on, so you can get within that, that's where we'd like to be. And then we'll come back to it in 2020 to see if that changes was only slightly below the kind of 3,500,000 run rate, and there's still plenty of projects in terms of cost saving initiatives around the group to go for. I wouldn't unless we call that down for the moment, if we could bring it inside, that would be great.
Yeah, on the, on hygiene, I think, yes, I've described the strategy for hygiene a number of times. We call it execute now internally. We say this what we have to do, we just have to execute the plan. It's not as complex a business as pest control. And typically if we execute the plan and win business, we tend to keep it longer.
Our retention rates are high. Our ability to price increase through is good. So what I think you've seen here in the first half is a little bit of that, which is the continued execution of the plan, the continued performance of the plan, which is good. We've also had So really good contract wins in the UK, in particular, and because it's a portfolio there's no jobbing, there's no, you know, one time revenues in the hygiene business, really. This means that should flow through the portfolio.
So second half for the hygiene should
be a positive
performance, but what we can't guarantee is when we sat here in 12 months' time, will the big contract wins that we've enjoyed in the 1st period this year? Will they repeat So, I'm being a little bit guarded about where do we think the hygiene growth could go to. I've always told your It's GDP business. It's a 2% to 3% business. I've always told you I'm not remotely satisfied with that, and we should do better.
So if we sat here in a year's time and we've continued that, we might be entitled to call it a trend and that we are proving that we can run the business at those sorts of levels. Until we've done that, I'm more cautiously saying, look, it's still at 2.5%, 3% sort of sort of business. But big contract wins in the first half and continued solid execution of the plan across all of the regions, I would say, is how we've done it in the first half.
And sorry, Jeremy, just in terms of the absolute this margin. Is that now still at 17% or is it 13% on 18% now? Just in North America peso,
the,
in terms of your for the 1st half or for the overall target, you're talking about the target?
No. Just the
was delivered in the first half.
The I haven't got the absolute number. I've only got the blended, but it would be above the 12.6 or with 12.6 for the half and it would be in the 14%. It's much lower in the first half. So it would be around 13.5 in the the first half. So it's when I come back to you, it's over on the up to them.
Good morning. Tom Sykes from Deutsche Bank. Just a few questions around North American business again, please. I just wondered, is there any change in the nature of national accounts at all in terms of how the pricing with regards to sort of base level of revenue versus the amount of transactional jobbing business or call out that you have to do there? And is that price does that pricing affect the margin at all?
I wondered if you could give a view on job in versus product sales, and versus contract, whether there's any difference in your ability to pass on prices. In those different areas. And perhaps when we look at the sort of business as it is now, how much of the, improvement in margin could you get out of the current revenue base and how much is the movement up to 18% at this point in time dependent on the extra revenues of the scale that you get out of that, please?
Thanks, Tom. We've always had an arrangement that, if it's a difficult question, Jeremy does a nice the easy ones. So I'll take the first one, Jeremy can do the, the second thing. At the simple answer to the question, seeing a change in the nature of national accounts? Are we seeing any difference between pricing?
Do we see any difference between the pricing of contracts, the job being? The answer is no. We are, winning in national accounts. Commercial is our absolute sweet spot. National accounts is our sweet spot.
And we've been growing our national accounts business in North America, double digit organic growth, for the last two 2 years or more. So, we certainly feel that we're winning in the national account space. It's always competitive in national account. You're dealing with the biggest, procurement, individuals, you're dealing with people that want to negotiate on price as opposed to service. It's always been competitive.
I don't see any difference at all. I don't see any shift in the competitive dynamic. Whether driven through economic factors or competitive factors, it feels absolutely as it has for the last few years. So good to know on the first one. Katie?
Yes. So on the, and it's a similar answer on the jobbing and contract. So not seeing any significant change in the pricing and environment, either in the U. S. Or actually elsewhere in the group.
And it remains a reasonably good environment for putting price increases through, just a little nuance. What you tend to see on the jobbing side is if it's a really busy season, the elasticity tends to get to a point where you do get some premium pricing flowing through. So that tends to be less impact for where you've got wetter weather and will be better where you've got hotter weather. So there's a more of a seasonal dynamic to it, but that seasonal dynamic hasn't changed, if that sense. So overall, pricing actually environment tends to be has been pretty good across the group and in North America.
In the first half. In terms of how their margin flows through, without making it overly complicated, in terms of what we're looking to liver, as I've said before, part of it's due to organic growth, part of synergizing the M and A that we're going to do, both those are revenue related to an extent, And then probably half of it is down to best of breed, which is really about driving benefits out of our core revenue. So we do need the organic growth and we're looking for the M and A to come in and synergize, which is about half. And then we're looking for the, for the best of breed to drive half, which is on the core. And obviously the organic and M and A depends slightly on the timing of it and when that M and A flows through.
So what we've had in In the first half, for example, we're driving synergies out of some of the M and A that we've done historically, but then we've got M and A coming in that's been quite high that tends to be a bit dilutive. So roughly the quick answer to your question is about half of it's revenue related and half it's based on the core. If we deliver our plans on the revenue, we'd expect that revenue to flow through. So I think, yes, we're pretty confident about the revenue target. So it really is within our scope to really drive those savings off the replatforming and drive that through.
So I think we're pretty confident on the revenue and it's for us to deliver on the margin with what we get either from M and A organic or through the call we've currently got.
Okay. Thank you. And just to follow-up on when you say that the sort of pricing environment is consistent, would you say that it's, but you then said it's competitive in commercial? Presumably you're able to pass on prices and jobbing to a greater extent at the moment. So are we talking sort of it's 3%, 4% on 1 off jobs and it's 2% on commercial.
And therefore, the gross margins are relatively static on commercial, but you're able to get some cost benefits to hopefully improve your margin Is that the kind of dynamic that we ought to be thinking about this for smaller customers, it's a bit stronger pricing, I guess it's
Yeah, I mean, the dynamic that you described, Tom, is correct. I'm not going to comment on the numbers, but the dynamic is, is that absolutely correct because job being will be the highest margin thing that we typically do because the logic being If you can do additional work for customers whilst you're already on-site to do a scheduled visit, then you can get good operational leverage on the cost to serve that customer. So in terms of margin point, jobbing is always more healthy, has a more healthy margin than routine work on the pricing for jobbing, I mean, Jeremy touched on it a little bit there. There are times, We like these times, but there are times where we are so busy in the high season that we actually have more work than we can get done. Now we hate letting customers down, but we do have dynamic pricing in those moments.
So if if we are really stretched and the team are fully used and we're maxing out on over time. And that doesn't last for long, but there will be a part of the season, then we would dynamically price. We will yield, manage, unashamedly, we will put our prices to the point where the customers will select, which jobs we do because otherwise we'll disappoint customers if we take we take work that we can't actually deliver. So there is an element of dynamic pricing yield management on the jobbing side when the high season hit more generally, yeah, we have a fixed pricing model for routine work. So we're working on an hourly cost basis and we know what returns we make on that.
Jobbing, we do have a little bit more flexibility around how we price that. So yes.
Great. Thank you very much.
Matija Garagolek from Goldman Sachs. Three questions from my side. Firstly is like a follow-up on the U. S. Margins on your Slide 14.
Just to make it clear, so based on the chart, based on the completion of the IT replatforming, we should start getting some uplift in the margins already in 2020. Is that fair or is everything back end loaded? Second question would be on basically on vector control, which is quite a significant part of your presentation. Do you have any numbers about what are your current organic growth rates in that business? And also, I mean, you have like a 1% market share at the moment.
Do you see like I know a tipping point just about to happen whereby that market share could increase significantly under 4 actually make a very material contribution to your overall business. And then thirdly, as you talk about R&D Digital, can you just remind us what is your R and D spend or what it was in the first half of the year and how much of that is capitalized and how much is expensed? Thank you.
Yeah. So, it's not all 2021, absolutely. You know, we're driving some costs some of the best of breed savings are flowing now the benefits of being on on having all the digital in the cloud, for example, start to drive some elements through. Typically, you get most of the benefits when the whole country is on the same platform. So it will there should be some op photo in 2020.
And you can see some of the applications. We can do it without the platform. We just need it in the cloud, etcetera. So it will through 2020. Most of it will be 2021 because you get the benefits of everything being on the same platform, everything working together.
So it's a little bit of of a of a of a, an exponential curve, but certainly we'll be looking to drive some blockbuster breed benefits in 2020 that systems related. That's right.
On rates of control, mosquitoes. I included all those extra slides specifically for you because you always ask
me about rates
of control. Look, the reason I put that in there is because we aren't doing a lot of work on mosquito control and vector control It is a large market. It's a very, very complex market, but it is a large market and the market is growing significantly. And the threat to human health is very real and significant. I also characterize the opportunity in the context of it's a medium term.
Opportunity. I honestly don't know, whether or not it's realistic a material contribution out of vector control. I do know we are working on quite a number of, exciting projects but they move very, very slowly. And it's a complex world. If you added up all of the revenues today across the Rentico initial group that we have for mosquito vector control.
It's above USD 50,000,000 and in the first half that grew at more than 10%. Organically, but it's a small number in the context of the group today. I wouldn't have wasted all of your time with half a dozen sides on control, if I didn't think it was a really key opportunity for the group. But the one thing, I can't tell you because I don't know is over what timeframe is it going to material. But I clearly do think that the opportunity is material, and I don't know of many companies out there that have the capability and the skill set and the global reach, as we do, to address that opportunity.
In terms of the, R and D spend, our budget for, 2019 is the 1000000 to 1000000 level, which is slightly higher than where we've been previously typically being in the 1000000 to 1000000 and there are the 1000000 and 25 And that tends to get capitalized and amortized over a kind of 5 year period. So it hits the P and L in time. And then what you're seeing a little bit in the P and L in the first half is some extra deployment costs. So as we're deploying with a lot of the deployment happens at the center, initially in the first rollout was we're deploying some of those group apps into the group, the slightly higher deployment costs in that 1,000,000 range, over the year.
So Lucas from Deutsche Bank. I have two questions. The first one on M And A, At one point in terms of how much you spend to do the deals negotiate and then integrate it operationally, does it become an issue for you. So you don't have the bandwidth necessarily to do it. And the second one on vector control, on the margin side, do you think on, with the scale, on the medium term basis, is it fair to say it's higher margin than pest control, it's higher barriers to entry.
It's probably something you put more value on. How do you think about the margin more on a medium term level?
Our M and A bandwidth, I've spent 35 years of my career doing M And A, so it's a subject that's very close to my heart. We've got considerable bandwidth within the organization. We've got a dedicated M and A team, which is 7 or 8 people globally, And in doing the number of deals that we do in any 1 year, typically, these deals are not hitting the same part of the organization all at the same time. We've got 2000 odd branches around the world. And for many, they'll get an acquisition once every 5 years or once every 10 years.
So the impact on the bandwidth of the organization, when you get an acquisition to execute and you're running a town or a city or that really stretches you but you only get to do one, and you work on it for 6 months and it's done when we, we, the area where the stretch becomes a bit more obvious is in America where we do 6, 7, 8, 10, 12 deals a year, but it's a huge, huge market. It's half of the world's press control market. So it's unusual for us to be doing acquisitions which hit 2 in St. Louis, in the same year. So again, the same principle applies.
We try not to end up doing multiple acquisitions in the same city. We have central resource, we have regional resource and we have local resource. And we have templated and systemized our M and A process to a really sophisticated level. So If it's the first time you've ever done an acquisition and it's hitting you, we basically hold your hand all the way through from day 1 through to 6 months, so you know exactly what you need to do. So I'm not worried about bandwidth.
For me, that's a high class problem. If I end up with more deals than I know what to do with, But again, we are experienced M and A practitioners. So if we thought we couldn't do it, if we thought we would damage breaking my machine, then we wouldn't do it. So. Vector mean you make a very good point, very interesting point as to what the margins are.
What we see on vector control, it's, it's sporadic. It's not a, it's not like the rest of our business, which is portfolio and you have nice contracts that roll over. It's an emergency situation. We're called into action. When there's an emergency, it's an emergency.
And if you need us and we can help you, then we will price according to what we feel is appropriate. So yeah, it's a relatively high margin, but lumpy sort of business because if we go 3 months with no big projects, our margins don't look so good. So when we do get a big project, we make sure that we're paid appropriately. That's particularly the case in America where we've got a fleet, a small number of airplanes where we we got from the sky after there's been a hurricane or major flood in a part of the state's water on the ground, sun, humidity, massive mosquito breeding, and then we're called into action. We will be busy for 10 days the guys will barely sleep.
They'll go round the clock, deal with it. That's a project that's a very lucrative project, but then they might be quiet again for the next 3 months. So it is a little bit different to the cadence of the rest of our business, typically a bit higher margin, less predictable.
Thank you.
Mattia Garbert again from Goldman Sachs. One more on, on guidance. Now you're keeping your organic growth guidance at 3% to 4%. You delivering at the top end of that. What would it take for you to say increase that medium term?
Well, pest control deal is a bigger part of the business. Hygiene is now associated showing signs of a good growth.
The non flippant answer is these targets we've shared with you are our medium term targets. I've said to you guys many times, if we have a fabulous organic quarter you shouldn't get carried away and when don't go off to the Sunny Uplands. And if we have a weak organic quarter, the wheels have not fallen off. It just happens that we get If we can consistently deliver quarter to quarter those sorts of numbers, then we would come back and say, do you know the shape of the organization now, the medium term guidance needs to move. We're not quite at that point.
I answered the question earlier on HiJU if we can get that consistency and we can see it in the business and if we can get that, consistency in pest, I mean, I I shared with many of you. I'm not satisfied that we're growing at 5%, give or take organically and pest control. The industry is growing at 5%. So we should be doing much better than that. And as and when we do, then I'll come back and say, do you know what?
We need to move our organic targets. But because of the, you know, I want to say volatile, but there is a seasonality to the business. There is a weather element It does go up, it does go down. We don't want to we want to be as open as we can, but we also want to be relatively conservative. These are medium term guidance, they're not annual guidance, medium term guidance.
So if we can see that consistency come through, then I think we would be potentially having a different, messaging. But as at today, we had a good discussion internally as at today, we feel it's appropriate to leave it where it is for the time being, but we are very encouraged to deliver that level of growth with a poor wet Q2, clearly if it hadn't been wet, it would have been better, we would have delivered a better number. K. Any last question. So, but thank you very much, everyone.
Thank you.
Thank you.
See you all again in 6 months. Thank