Morning, ladies and gentlemen, 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 2019, 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 come back and provide an update 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. We delivered another strong overall performance with revenue from ongoing operations up 8.8% at constant exchange rates.
Organic growth at 4.2% was above our medium-term target of between 3% and 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 11.6%, 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 the very encouraging improvement in customer retention, which was up by 1.1% and up by 1.8% in Pest Control. Which in turn was undoubtedly supported by an equally encouraging improvement in our colleague retention, which I'll come back to shortly.
Turning now to acquisitions, M&A execution in the first half was very strong, with 17 acquisitions delivering annualized revenues of GBP 55 million, and with 12 of those acquisitions being in Pest Control. In North America, we completed seven Pest Control acquisitions in the half, with annualized revenues of around $59 million, comparing very favorably with the $53 million acquired in the whole of 2018. I'm also pleased to announce the successful divestment of our 17.8% stake in the Haniel joint venture, taking the opportunity of an early exit and with an excellent price of EUR 430 million.
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&A execution, successful divestment of our JV holding, and the declaration of an interim dividend of GBP 0.0151 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. Good morning, everyone. I'll now run through the key financial highlights for the first half 2019 in a bit more detail. Unless I state to the contrary, all numbers are at a constant rate of exchange. Ongoing revenue in the half grew by 8.8%, with organic growth of 4.2% and growth from acquired businesses of 4.6%. 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%, driven by the increase in ongoing profit. Free cash flow was again strong in the first half at GBP 96 million, a GBP 23 million increase on the first half in 2018.
Adjusted EPS at actual exchange rates increased by 14%, in line with the growth in adjusted profit before tax. 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 five years ago in 2014 and which were revised upwards at the 2017 interims. Over the last five years, we have delivered compound annual organic revenue growth of 3.3%, well within our target range of 3%-4%. Compound revenue growth over the last five years of 11.5% is well above our target growth rate of 5%-8%, helping to drive profit growth of 15.2% compound, again, well above our 10% target. As you can see from the chart, free cash flow has increased considerably over the last five 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 3.9%. Seven acquisitions were completed in the half with annualized revenues of over $59 million, exceeding the amount of revenue acquired in the whole of 2018. The operating profit was up 14.7%, reflecting the revenue growth and higher net operating margins, which improved by 50 basis points to 12.1%. 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 GBP 1.5 billion revenue, 18% net operating margin business. 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 growth in the first half and our strong M&A pipeline in North America, we remain confident of achieving our GBP 1.5 billion 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. 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 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 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. 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 of our best of breed margin benefits in 2020 and 2021, 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 region's key countries. As you will have read earlier today, we announced the sale of our 17.8% stake in the Haniel JV. I'll discuss this in more detail in a moment. Revenue in the U.K. and the rest of the world region was up 10%, of which 4.5% was organic. U.K. organic revenues grew by 6.5% in Pest Control and 8.4% in Hygiene, driven by strong contract wins. The U.K. 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 Control and Hygiene. However, margins reduced by 0.5 percentage points due to the impact of the U.K. Property Care business. Revenues in Asia increased by 11.6%, with organic revenue growth of 5.5%, supported by good performance in both Pest Control 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. Four acquisitions were completed in the first half, with annualized revenues of around GBP 7 million. The Pacific business delivered ongoing revenue growth of 2.4%, 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 GBP 127 million was up GBP 22 million, 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 GBP 11 million adverse. The 2019 numbers reflect adjustments relating to IFRS 16, which has effectively increased the level of depreciation and CapEx by similar offsetting amounts. Continuing free cash flow of GBP 96 million was GBP 23 million higher than last year, reflecting the increase in operating cash flow previously noted. Cash interest payments were GBP 4 million higher than 2018. This is largely an IFRS 16 adjustment, with underlying cash payments some GBP 0.7 million higher, reflecting slightly higher levels of net debt. Cash tax payments were GBP 6 million lower due to phasing.
Taking into account a 15.7% increase in cash dividends and GBP 121 million spent on acquisitions, underlying net debt increased by GBP 83 million in the period. Sterling weakened on average during the half. The impact of this overall increased the Sterling value of our EUR and USD-denominated debt by GBP 21 million. The adoption of IFRS 16 added GBP 184 million of lease liabilities to our reported net debt figure.
Taking all the above into account, our net debt at the half year was GBP 1.442 billion. As I mentioned earlier, we announced the sale of our 17.8% stake in the Haniel JV today for EUR 430 million, creating an estimated profit on disposal of around EUR 140 million. The disposal means we have generated proceeds of some EUR 979 million for the disposed businesses. We will use these proceeds initially to pay down debt and then to support the group's M&A program.
Our net debt to EBITDA ratio, adjusted for IFRS 16, stood at 2.6 times at the 30th of June, compared to an unadjusted 2.4 times at the 2018 year-end. On an unadjusted basis, the ratio would have been 2.5 times at the half year. Taking into 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 five years ago, before FX movements and the impact of IFRS 16. Adjusting for the impact of the JV proceeds, the group's debt levels are significantly lower than they were five years ago. The group's credit rating remains at BBB, with a stable outlook.
In May 2019, we issued a EUR 500 million bond at a coupon of 0.875% to refinance our EUR 500 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. Finally, before I hand over to Andy, some numbers for your models in relation to 2019 and 2020. IFRS 16 is now expected to increase ongoing operating profit by GBP 3 million and the adjusted interest charge by GBP 3 million, compared to our previous guidance between GBP 5 million and GBP 10 million, and this has no overall impact on adjusted profit before tax, with the two numbers canceling each other out.
The business is trading where we'd expect it 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 GBP 4 million 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 in our share price on LTIP costs. Underlying P&L and cash interest costs are expected to be GBP 4 million lower than previously guided, reflecting the refinancing of the EUR 500 million bond at lower interest rates and lower levels of net debt post the sale of our stake in the Haniel JV. The full-year impact in 2020 is an anticipated reduction in interest costs, compared to previous guidance for 2019 of around GBP 14 million.
Profit from associates in the second half is anticipated to be GBP 7 million lower than the prior year following the disposal of the JV, and the full-year impact on 2020 is a reduction of GBP 17 million. At the prelims, we guided to adverse FX of around GBP 5 million. FX has been volatile since then, with sterling weakening against the euro and the US dollar. Should current rates continue for the remainder of 2019 and throughout 2020, we estimate that this would now have a positive impact of around GBP 5 million-GBP 10 million for 2019 and GBP 10 million-GBP 15 million 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 GBP 10 million.
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 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&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 Rentokil Initial, every single business meeting starts with SHE, 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. 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. 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. It's really pleasing to see that we have made dramatic improvements over the last five years, and that our safety performance is now at world-class standards.
This achievement has been recognized by the Royal Society for the Prevention of Accidents, who've awarded Rentokil 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 SHE. These have been recognized by the Dow Jones Sustainability Index, FTSE4Good, by Ethibel, and by others. Not only are we consistently reducing our overall emissions, but we have already also achieved a carbon net zero position through our work with the climate change charity Cool Earth and the Rentokil Initial Cares initiative, mitigating 100% of our annual carbon footprint through a rainforest protection program in Papua New Guinea.
Given the success that we've enjoyed by making SHE the first item on every agenda, two years ago, we decided to make our Employer of Choice Initiative the second agenda item. Here, just as for SHE, 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 Rentokil 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. Also exceptionally high scores on Glassdoor, where we top the league table for business services. If you've got two spare minutes today with nothing else to do, I would suggest you take a look on Glassdoor, Rentokil Initial, 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 1.6 points and in Hygiene by two points. In turn, this is leading to the excellent 1.1 percentage point improvement in customer retention that I mentioned earlier. Great progress in the areas of safety, sustainability, colleague retention, as well as customer satisfaction and customer retention. These have all been important drivers in achieving our excellent organic growth in the first half.
Turning now to our business lines, let me start with pest control. We delivered another strong performance in the first six 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, as I've said many times, this is an outstanding business. It is our key growth engine, it is extremely well-positioned to capitalize on the increasing demand for pest control around the world. There are many drivers of that sustainable growth, including rising consumer 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 billion, to continue growing at around 5% per annum over the coming years.
Rentokil is the number one Pest Control business in over 50 countries. It's the largest commercial Pest Control company in the world. Our global footprint is unrivaled by any competitor. As you can see illustrated on this chart, in the first half, we continued to deliver strong performances right across the globe. Facilitating our organic growth in these attractive growth and emerging markets, Rentokil 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 Rentokil brand, which is now one of the world's top 50 most valuable and recognizable commercial brands. We enjoy a core strength in the attractive 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 Rentokil websites in the first half, growing double digits to nine million sessions, which enjoyed excellent conversion into online inquiries, which were up 33% in the half. Of course, we also have our high-quality M&A capabilities, building both density in our existing markets and new positions in key growth city markets of the future. Rentokil is the undisputed leader in both digital technology and innovation in the pest control industry, we use that to improve our productivity and to lower our costs, to establish higher barriers to excellence, to protect our core markets, to enhance our service and customer satisfaction, to differentiate our products and services, in turn, obviously, therefore, to grow our sales.
A great example of how we differentiate our products and services is the new Lumnia 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 Lumnia around 18 months ago. We now have it in 42 markets, and sales increased by 44% in the first six months of this year. Over the last 12 months, we've deployed 20 robotic process automation projects in our U.K. business in sales, marketing, finance, and HR, to both free up capacity, but also to reduce costs.
This has reduced U.K. transactional process costs by around 40 basis points. We're now looking to take the use of robotics across the group, starting with some of our larger, more established markets. The next part of the plan is focused on the selective introduction of artificial intelligence. We've appointed two 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 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 $2 billion 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. As you can see on the screen there, a single pair of rodents, rather impressively, can produce 2,000 offspring in a year. The speed of monitoring and our proactive action that our connected devices allows will become increasingly important in rodent control.
At Rentokil, our digital pest control platform of PestConnect, myRentokil, 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've had a 17% increase in connected devices, a 29% increase in the usage of the MyRentokil portal. We now have an impressive 98% of all commercial customers of Rentokil now using the system. 14 million 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 asked 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 Aedes aegypti mosquito. 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 3,500 separate species of mosquito around the world. We have 175 of them now in the U.S. 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 million dengue infections every year, resulting in 25,000 deaths worldwide. Before 1970, only nine countries had experienced 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 estimate that the mosquito and vector control market is now worth around GBP 4.4 billion per annum, and Rentokil is ideally placed to support customers in this market. It's a 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, and mosquito control measures from the ground and now in the air.
We have the experience. We're already undertaking local authority programs in the U.S., while in Asia, we've got decades of experience in providing mosquito control services. We're building on this with even greater scale and capability. We've established a global center for excellence in mosquito and Vector Control. In the U.S., we've created a mosquito laboratory at the Power Center here. In the U.K., we're continuing to use our M&A capabilities following three 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 spin-out business with infrastructure and organization to scientifically monitor the presence of mosquitoes. 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 Control programs.
It's a large and growing market, and it will remain an important medium-term opportunity for Rentokil 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 6.5%, of which organic revenues grew by 4.3%. That's against our typical target of around 2%-3%. Ongoing profits were up by 8.6%. Organic growth was driven by encouraging performances from the Pacific, from the U.K. and Europe, with good contributions elsewhere from the 2018 acquisitions of Cannon and CWS Italy, as well as from a range of operational initiatives. These include extending our best-in-class product range, maintaining our five-star customer rating on Trustpilot, delivering a two-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 U.K. 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 ServiceTrack Hygiene. This is now in 23 countries. We're beginning to see the expected productivity benefits coming through. Of course, we've maintained our highly targeted M&A activity with five 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.
In addition, we're also targeting new growth opportunities with the development of air scenting 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. We can certainly begin to see the potential of this category starting to come through. Turning now to our third business cluster, Protect and Enhance. We have three main businesses in Protect and Enhance: Ambius, our plants business, U.K. 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 protected the revenues of these businesses pretty well, given their market conditions. Indeed, in the first half, revenues increased by 1.4%. Profits declined slightly by around GBP 340,000, which was essentially due to the Property Care business in the U.K. 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% to GBP 97 million 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. 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 a first half of continued and solid progress. Turning finally to M&A. In the first half, we acquired 17 Pest Control and Hygiene companies, delivering annualized revenues of GBP 55 million. The majority of the M&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 Amman in Jordan and Colombo in Sri Lanka. As you know, at Rentokil Initial, we have huge experience in acquisitions, and we maintain a very financially disciplined approach to M&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-round M&A credentials. With an excellent pipeline of prospects, supported by a strong balance sheet, we now expect M&A spend to exceed GBP 250 million for the full year. In summary, in the first six 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 cashflow, were all ahead of last year.
We've continued to execute a strong M&A agenda. We've delivered on the opportunity to successfully divest our joint venture, holding ahead of schedule and for great price. The board has declared an improved interim dividend increasing by 15.2%. All in all, I think the business has performed very well in the first half, and we're confident of delivering further progress in the remainder of the year. With that, Jeremy and I will now be very happy to take your questions.
Eric Olson from Kepler Cheuvreux. Curious to hear what you think the increased M&A guidance means. Is it GBP 250-GBP 300, or could it be a lot more than that, especially in context of the stronger balance sheet post divestment?
Thanks. We give guidance on M&A spend each time we sit with you, to be honest, and we can see only so far ahead in the pipeline. We can see maybe three to six months. The increase in the guidance is really reflecting the healthiness of the pipeline. It's not reflecting we've got money in our pockets, so we need to spend the money in our pockets. We don't work that way. It's nice that we've got the money in our pockets, but I guess we would have been uprating our M&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 GBP 250. As we look at it now, I guess what we're saying is we guided GBP 200-GBP 250. That looks too low now. It looks almost certain to be in excess of GBP 250. Can't really give you much more than that. It just depends how many of the things that we're working on come through. As I mentioned a minute ago, we are very financially disciplined. If 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. Depends how many of the things that we're working on drop through, but the pipeline really has never been as full as it currently is today.
Thank you. James Winkler from Jefferies. Just had a few quick ones. Number one of commentaries from one of your competitors last week was that June and May was a little weak in terms of demand, partially driven by the wet weather, which you referenced. July came back quite strongly. I am just wondering if you had consistent commentary in terms of how you are seeing the market, specifically in North America and the shape of it through the quarter, specifically with regard to the exit rate. Two, on the M&A, now that you have disposed of this JV and have a lot more room on the balance sheet, wondering if you think you are more willing to pursue perhaps chunkier sized deals or if the run rate should be sort of looked at in the same light of a large volume of bolt-on transactions.
Lastly, if I'm not mistaken, you had in the agreement until the end of 2021 to dispose and you're in the option of the agreement to dispose of the remaining 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. I sound like a retailer, May and June, I'm reliably informed, were the second wettest months in the U.S. in history. There was weather, as we always say, we can be certain there will be weather. There was a lot of weather in America in May and June, and a lot of it was wet. We do have an element of our business which is seasonal. The residential component of our business, if it's not good pest weather, then we're not out selling or installing pest. All I can tell you, I haven't seen the numbers for July yet. I'm not sure it's even finished technically, the weather in July in America has been much warmer. Sun's come out strong, warm, humid temperatures down south and strong sun in the north.
We certainly would expect to see a return to form, if you like, for July. I have no clue what the weather's going to be for the rest of the quarter. Chunkier sized deals, again, really the same answer that I gave earlier, James. We've never looked at M&A 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? The view Jeremy and I have always taken is we'll worry about how we finance it as and when we find them.
If ever we got to the point that there was a chunkier deal, we would have a look and then say, "Well, what are our options and does it make sense? And critically, does it create value for shareholders?" I don't think it would be a good read across to say we've got EUR 430 million, which in fact has arrived in the bank this morning.
Yeah.
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. As I've just said, the pipeline is good, so you should expect us to continue to execute. Whether they are small, medium, chunkier, that's 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 Haniel, we had agreed a business plan that said we would likely come out from year three onwards. Why did we say year three? We thought the majority of the synergies from the combination would have been delivered by then. I think the Haniel team have made really good progress. They've got ahead with the project.
They moved on quickly. The synergies have been coming through more strongly. It suited their purposes and our purposes to agree a deal now. We could have waited. We could have sat and waited and wondered, would we get more or would we get less? This looks like a terrific outcome for shareholders, a great return on the investment we made in the joint venture. Nothing special about it. It's something that we chatted with Haniel from time to time, and it suited their purposes as equally it did ours.
Yeah.
Hi, good morning. Sylvia Barker from J.P. 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 kind of weakness in the first half? Can you maybe talk about the second half? The restructuring costs that you include within underlying EBITA, those are a bit lower. What should we expect for the full year on that? Just finally, on growth, Hygiene, very strong in the U.K. How should we think about that? What drove that? What about the second half?
Thank you.
I'll handle the first.
Yeah. Thanks, Sylvia. Pest services were a bit higher than the 50 basis points. Sales and Ambius from products diluted it. It was around about 70 basis points or so. Obviously, there's lots of pluses and minuses within that, but it was around about that level. With stronger organics, it could've been higher. The M&A started to flow through, but again, M&A was slightly higher as well, and some of that new M&A is dilutive. Overall, it was 70 basis points. Asia, actually, the element that is holding margins slightly back is PCI, and just the integration of PCI. We're actually starting to get better traction on price increases in Asia. It's still not where we'd like it.
If you remember in the past, Asia margins have grown with increased density, and actually, if we get the pricing to flow through as well, that would help even more. In the first half, it's really been about the PCI integration. In terms of restructuring costs, I think we still guide to GBP 7 million. If obviously we can get within that's where we'd like to be. Then we'll come back to it in 2020 to see if that changes. It was only slightly below the kind of GBP 3.5 million run rate. There's still plenty of projects in terms of cost saving initiatives around the group to go for. I wouldn't necessarily call that down for the moment. If we could bring it inside, that'd be great.
On Hygiene, look, I think I've described the strategy for Hygiene a number of times. We call it execute now. Internally, we say, "Look, what do we have to do? We just have to execute the plan." It's not as complex a business as Pest Control. Typically, if we execute the plan and win business, we tend to keep it longer. Retention rates are high. Our ability to get price increase through is good. 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 some really good contract wins in the U.K., in particular. Because it's a portfolio business, there's no jobbing, there's no one-time revenues in the Hygiene business, really.
This means that should flow through the portfolio, second half for the Hygiene should be a positive performance. What we can't guarantee is when we're sat here in 12 months' time, will the big contract wins that we've enjoyed in the first period this year, will they repeat? I'm being a little bit guarded about, well, where do we think the Hygiene growth could go to. I've always told you all, it's GDP business. It's a 2%-3% business. I've always told you I'm not remotely satisfied with that, and we should do better. If we're 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 that 2.5%, 3% sort of business. 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.
Thank you very much. Sorry, Jeremy, just in terms of the absolute services margin, is that now still at 17% or is it touching on 18% now, just in North America Pest Control?
In terms of for the first half or for the overall target? You talking about the target?
No, just the pest control-
What was delivered in the first half?
North America.
I haven't got the absolute number. I've only got the blended, it would be above the 12.6. We were 12.6 for the half, and it would be in the 14%. It's much lower in the first half. It would be around 13.5 in the first half. I'll come back to you, Sylvia, on the absolute number.
Okay.
Morning. Tom Sykes from Deutsche Bank. Just a few questions around the 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 transact or jobbing business or call-outs that you have to do there, and does that pricing affect the margin at all? I wondered if you could give a view on jobbing versus product sales, and versus contract, whether there's any difference in your ability to pass on prices in those different areas.
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 and 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 it, and I take the easy ones. I'll take the first one, Jeremy can do the second two. The simple answer to the question, are we seeing a change in the nature of national accounts? Are we seeing any difference between pricing? Do we see any difference between the pricing Contracts to jobbing, the honest answer is no. We are winning in national accounts. commercial is our absolute sweet spot. national accounts is our sweet spot. We've been growing our national accounts business in North America, double-digit organic growth for the last two years or more.
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. I think it's a no on the first one. Jeremy?
Yeah. It's a similar answer on the jobbing and contract. Not seeing any significant change in the pricing environment, either in the U.S. or actually elsewhere in the group. 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. That tends to be less impactful where you've got wetter weather and will be better where you've got hotter weather. There's more of a seasonal dynamic to it, but that seasonal dynamic hasn't changed, if that makes sense. Overall pricing actually environment has been pretty good across the group and in North America in the first half.
In terms of how the margin flows through without making it overly complicated, in terms of what we're looking to deliver, as I said before, part of it's due to organic growth, part of it synergizing the M&A that we're going to do, both those are revenue related to an extent, then probably half of it's down to best of breed, which is really about driving benefits out of our core revenue. We do need the organic growth and we're looking for the M&A to come in and synergize, which is about half, then we're looking for the best of breed to drive half, which is on the core. Obviously the organic and M&A depends slightly on the timing of it and when that M&A flows through.
What we've had in the first half, for example, we're driving synergies out of some of the M&A that we've done historically, but then we've got M&A coming in that's been quite high, that tends to be a bit diluted. Roughly, the quick answer to your question is about half of it's revenue related and half is based on the core. If we deliver our plans on the revenue, we'd expect that revenue to flow through. I think we're pretty confident about the revenue target. It really is within our scope to really drive those savings off the replatforming and drive that through. 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&A, organic, or through the core we've currently got.
Okay. Thank you. Just to follow up on when you say that the sort of pricing environment is consistent, would you say that you then say it's competitive in commercial. Presumably, you're able to pass on prices on jobbing to a greater extent at the moment. Are we talking sort of it's 3%, 4% on one-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? For smaller customers, it's a bit of a stronger pricing, I guess?
The dynamic that you described, Tom, is correct. I'm not going to comment on the numbers, but the dynamic is absolutely correct because jobbing will be the highest margin thing that we typically do. 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. In terms of margin point, jobbing is always more healthily, has a more healthy margin than routine work. On the pricing for jobbing, 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. We do have dynamic pricing in those moments.
If we are really stretched and the team are fully used and we're maxing out on overtime, and that doesn't last for long, but there will be a part of the season, then we will 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 work that we can't actually deliver. There is an element of dynamic pricing yield management on the jobbing side when the high season hits. More generally, 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.
Okay.
Yes.
Great. Thank you very much.
Matija Gergolet 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, 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 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? Also, you have a 1% market share at the moment. Do you see a tipping point just about to happen whereby that market share could increase significantly and therefore actually make a very material contribution to your overall business? Then thirdly, as you talk about R&D, digital, can you just remind us what is your annual R&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. It's not all 2021, absolutely. We're driving some costs. Some of the best of breed savings are flowing now. The benefits of 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. There should be some start to flow through in 2020. You can see some of the applications, we can do it without the platform. We just need it in the cloud, et cetera. Some of it will through 2020. Most of it will 2021 because you get the benefits of everything being on the same platform and everything working together. It's a little bit of an exponential curve. Certainly, we'll be looking to drive some of those best of breed benefits in 2020 that are systems related. That's right.
On Vector Control mosquitoes, I included all those extra slides specifically for you because you always ask me questions about Vector Control. The reason I put that in there is because we are doing a lot of work on mosquito control and Vector Control. It is a large market. It's a 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 in the short term to expect a material contribution out of Vector Control. I do know we are working on quite a number of exciting projects, but they move very slowly, and it's a complex world.
If you added up all of the revenues today across the Rentokil Initial group that we have for mosquito or Vector Control, it is above $50 million, and in the first half, that grew at more than 10% organically. It is a small number in the context of the group today. I wouldn't have wasted all of your time with half a dozen slides on Vector Control if I didn't think it was a really key opportunity for the group. The one thing I can't tell you, because I don't know, is over what timeframe is it going to be material. I clearly do think that the opportunity is material. 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&D spend, our budget for 2019 is in the GBP 25 million-GBP 30 million level, which is slightly higher than where we've been previously. Typically, we've been in the GBP 20 million-GBP 25 million and nearer the GBP 20 million than GBP 25 million. That tends to get capitalized and amortized over a five-year period, so it hits the P&L in time. What you're seeing a little bit in the P&L in the first half is some extra deployment costs. As we're deploying, a lot of the deployment happens at the center, initially in the first rollout, as we're deploying some of those group apps into the group, the slightly higher deployment costs in that GBP 1 million-GBP 2 million range over the year.
Sure. Lucas from Deutsche Bank. I have two questions. The first one on M&A. At what 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? The second one on Vector Control, on the margin side, do you think 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?
Thanks. M&A bandwidth. I've spent 35 years of my career doing M&A. 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&A team, which is seven or eight people globally. In doing the number of deals that we do in any one year, typically, these deals are not hitting the same part of the organization all at the same time. We got 2,000 odd branches around the world. For many, they'll get an acquisition once every five years or once every 10 years. 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 a region, that really stretches you. You only get to do one, and you work on it for six months, and it's done.
The area where the stretch becomes a bit more obvious is in the U.S., where we do six, seven, eight, 10, 12 deals in a year. It's a huge market. It's half of the world's Pest Control market. It's unusual for us to be doing acquisitions which hit two in St. Louis in the same year. 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. We have templated and systemized our M&A process to a really sophisticated level. 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 one through to six months, so you know exactly what you need to do. 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. Again, we are experienced M&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. Vector, you make a very good point, a very interesting point as to what the margins are. What we see on vector control, it's sporadic. 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. If you need us and we can help you, then we will price according to what we feel is appropriate.
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. 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 go up in the sky after there's been a hurricane or major flood in a hot part of the States. Water on the ground, sun, humidity, massive mosquito breeding, we're called into action. We will be busy for 10 days. The guys will barely sleep. They'll go around the clock, deal with it. That's a project. That's a very lucrative project. They might be quiet again for the next two, three months.
It is a little bit different to the cadence of the rest of our business. Typically a bit higher margin, but less predictable.
Thank you.
Excuse me. Matija Gergolet again from Goldman Sachs. One more on guidance. You're keeping your organic growth guidance at 3%-4%. You're clearly delivering at the top end of that. What would it take for you to, say, increase that medium term?
More organic growth, I think.
Well, Pest Control clearly is a bigger part of the business.
Yeah.
Hygiene is now also showing signs of, say, good growth.
The non-flippant answer is these targets that 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 don't go off to the sunny uplands. If we have a weak organic quarter, the wheels have not fallen off. If we can consistently deliver quarter to quarter those sorts of numbers, then we would come back and say, "Do you know what? 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 Hygiene.
If we can get that consistency and we can see it in the business, and if we can get that consistency in pest, 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%. We should be doing much better than that. As and when we do, I'll come back and say, "Do you know what? We need to move our organic targets." Because of the, I won't say volatile, but there is a seasonality to the business. There is a weather element. It does go up, it does go down. 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.
If we can see that consistency come through, then I think we would be potentially having a different messaging. 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. 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, and we would have delivered a better number. Okay.