Last week, could you please ensure your mobile phones are up 7 Thanks. Good morning, ladies and gentlemen. Thank you all for joining us today. And a few moments, Jeremy will provide you with details of our financial results for 2018 looking at the overall performance of the group and our 5 regions. I'll then come back to provide an update firstly on our main categories and then secondly on how we're executing our strategy through our value creating M and A program.
But first let me just say a few words to set the scene for today by covering the key highlights. We delivered a very good overall performance during the year with revenue from ongoing operations up 13.2% at constant exchange rates. Organic revenue growth improved to 4 in the fourth quarter. I'll come back to talk about Pest Control and hygiene in more detail in a few moments, but as you can see, they both had strong years. Ongoing adjusted operating profit grew by 13.3%, another very good overall full year performance with all regions contributing and it was particularly pleasing to see our business in France return to full year profitable growth as planned.
Jeremy will cover cash in more detail but a 94% cash conversion rate is also ahead of our medium term target. Rentecore initial has increasingly become a high quality resilient and defensive global business. We now operate across 70 five countries and multiple regulatory and economic zones. And we have around deep market leading positions. Our digital and innovation programs made really outstanding progress in 2018.
For instance, we've drove an additional 5 million web sessions through our local online campaigns and we added over 140,000 customer premises onto the MyRentiKil portal last year. Turning now to acquisitions, 2018 was another very good year for M and A with 47 acquisitions delivering 1,000,000 of combined annualized revenues. 42 of those deals were in pest control 14 of which were in North America. The M and A pipeline remains very strong. We've got off to a good start in 2019 with 6 high quality acquisitions completed by theendofJanuary of which 2 excellent deals were in North America and with those 2 deals, adding around USD 27,000,000 of annualized revenues.
While I'm particularly pleased with the M and A performance, our largest deal of the year distinguishes all future liabilities and with no future cash payments being required by the company and in fact we'll even be getting some cash back, which is a pretty remarkable deal. 2008 was a very good year for Entyco Initiative. I'm delighted that we have again exceeded our medium term financial targets for revenue, profit and cash and we are confident of delivering further progress again this year. Finally, I'm sure you'll see today's separate announcement about our Chairman like to welcome Richard Solomon's to the board as our new chairman Richard is a vastly experienced and successful businessman we very much look forward to working with him, but I'd also like to take this personal opportunity to thank John for his great support and his exemplary leadership of the board since we joined the company together back in 2008. Now let me hand over to Jeremy.
Thank you, Andy, and good morning, everyone. I'll now run through the key financial highlights 2018 in a bit more detail. Unless I state to the contrary, all numbers are at a constant rate of exchange. Ongoing revenue in the year grew by 13.2% with organic growth of 3.7% and growth from acquired businesses of 9.5%. Adjusted operating profit before interest for the year on an ongoing basis increased by 13.3% driven by good growth in all regions.
Adjusted profit after interest to actual exchange rates grew by 7.4% driven by the increase in operating profit, offset by the impact of the transfer of our German and Benelux textiles and hygiene businesses into the JV with Hannual in 2017 and adverse exchange rate movements of 1,000,000. Free cash flow was again strong in 2018, as Andy's mentioned. Operating cash flow at 1,000,000 was 1,000,000 higher than the prior year and free cash flow at 1000000 was 1,000,000 higher. Adjusted EPS at before tax of 2018 demonstrate another year of delivery against the financial targets that we set for the business in 2014 and which were revised upwards at the 2017 interims. Organic growth was towards the top end of our target range of 3% to 4% despite the weather impacted first half, and our profit growth was ahead of our target level of around 10%.
Reflecting leverage from the organic growth as well as with free cash flow conversion at 94% ahead of our medium term target of 90%. Looking now at Performance By Region, North America delivered a good performance in 2018, Revenue grew by 12.3 percent in the year, driven by continued strong acquisition pipeline as well as organic revenue growth which was 3.8% for the year. Pest Control delivered improved organic revenues of 5% in the second half which was less impacted by the weather with annualized revenues of over 1,000,000 or operating profit was up 12.8 percent, reflecting the impact of the acquisitions and leverage from the increased organic growth. Margins improved by 0.1 percentage points into 20 to 13.7 percent, and I'll talk more about net margins in North America. On the next couple of slides.
At our Capital Markets Day in 2018, we out our ambition for our North American business to become a $1,500,000,000 by the end of 2020. We've made excellent progress towards our revenue target with a strong improvement organic growth in H2, and acquisitions adding over $50,000,000 of annualized revenues in the year. We continue to work towards our net operating margin target, and we made progress in the second half of the year increasing margins by 50 basis points supported by stronger organic growth and savings in property and procurement from our best of breed cost savings program. As we look forward Given our revenue growth expectation for the region of 12% to 15% per annum, we are confident that we will deliver the 10% compound annual growth rate required in 20192020 to achieve our $1,500,000,000 revenue target. We are making steady progress with IT applications are delivered effectively, we have put back the date for its completion by 12 months to the first half of twenty twenty.
This impacts the timing of systems dependent savings in areas such as service productivity and field administration, meaning that we will deliver 18% margins by 2021. Ongoing revenues in Europe were up 9.7% in the year, with strong growth in Southern Europe, Germany and Latin America, which is managed through the Europe region. The region secured 13 acquisitions in the year, which contributed 6.2 percent of revenue growth. Organic growth of 3.5 percent was driven by strong pest performance, helped by the good weather experienced during the 20 eighteen's 2018 summer in Europe. Ongoing profits grew by 10.4 percent, the best performance in the region for some time, driven by growth in Southern Europe, Germany and Latin America, but also aided by France, which grew profits for the first time in a number of years.
Our JV with Hanyal is performing well in its first full year of operation. Revenue in the UK and the rest of the world region was up 19.5% of which 2.8% was organic. UK revenues grew by 4.2% in pest control and 4.1% in hygiene. However, the UK Property Mark Care market has been challenging, impacting both revenue and profit margins. Ongoing revenue growth has been strong in the rest of the world, driven by growth in all of its regional clusters.
8 businesses were acquired in the region in 2018 with annualized revenues of 1,000,000 Ongoing operating profits increased by 15% in the year, reflecting the organic growth in pest and hygiene and the impact of the acquired businesses. Revenues increased by 17.7 percent in Asia, with organic revenue growth of 5.9% and good performance in both pest and hygiene with acquisitions contributing growth of 11.8%. Operating profit in the region was up 51.1 percent, driven by leverage from the organic growth and the level of acquisitions. And our joint venture in Japan continues to trade well, growing revenue by 5.9% and profits by 7%. The Pacific business delivered revenue growth of 11.2 percent, of which 8.6% was from acquisitions, and 2.6% was organic, which underpinned an increase in operating profit of 7%.
The main acquisition in the year was the Canon Hygiene Services acquisition, which operates in both Australia and New Zealand. Operating cash flow, as I've said, of 1,000,000 was up 1000000 despite the impact of the removal cash flows from the businesses which transferred to the annual JV in 2017, with lower CapEx and improved working capital flows offsetting 2018. Continuing free cash flow of 1,000,000 was 1000000 higher than rates and an increase in the level of net debt during the year. Cash tax payments were 1,000,000 higher reflecting the increased profitability of the group. Our cash tax paid as a percentage of profit remains relatively low however at around 15%.
Free cash flow was used to fund 1,000,000 in cash dividend payments, a 15.4% increase on 2017. And spend on acquisitions amounted to 1,000,000 in 20 18, 1000000 higher than the previous year. Sterling weakened on average jury towards the end of 2018, and the impact of this overall increased the sterling value of our euro and dollar denominated debt by 1000000 compared to the prior year. Taking all of the above into account, our net debt increased by 1000000 in the year, 1,000,000,000. Looking at the balance sheet in more detail, Our net debt to EBITDA ratio stood at two point four times as at the 31st December 2018.
Our balance sheet remains strong and as the chart shows, our net debt levels are lower now than 5 years ago pre exchange movements. Consequently, the group's credit rating remains at BBB with a stable outlook. The group had over million of centrally held cash and facilities at the year end, which among other things covers the refinancing associated with the maturity of the 1,000,000 bond in Q4 2019. The average cost of net debt increased slightly during 2018, reflecting higher US dollar interest rates. The average cost of net debt in 2019 will benefit from the refinancing has a coupon of the group announced a bulk annuity buy in of its UK defined pension scheme defined benefit pension scheme in 2018 with a view to a full buyout of the scheme.
The buyout and the winding up of the scheme was expected to be completed in 2020 with an anticipated pretax cash surplus between 1,000,001,000,000. At the year end, the accounting surplus was written down, resulting in a noncash exceptional accounting charge of 1,000,000 Before I get to some guidance, I just wanted to flag the impact on our numbers of the new leasing accounting standard in 2019. The standard impacts 2019 numbers only and does not require restatement of the 2018 figures. The core concept here is that shorter term leases previously known as operating leases for assets such as motor vehicles and property will now be treated the same way as longer term leases previously known as finance leases. We do not know at this stage the exact impact of the standard at the moment but we will obviously be able to provide more detail as we head through the year.
We do know that there will be no impact on adjusted profit after interest. However, we anticipate that ongoing operating profit will increase by around 1000000 to 1000000 and this will the values attributed to fixed assets and net debt on the balance sheet by an estimated million. And will also have an impact on the accounting for cash flow items such as EBITDA, CapEx and interest although there is no underlying impact on the group's cash flows. In 2019 we will present our cash flow statement on the new and the old basis for comparative purposes. So in terms of guidance for 2019, we've made a good start to this year, and we'd expect the underlying outperformance in 2018 to flow into 2019.
Profit and loss and cash interest costs are estimated to be in line in Q4. 19 in line with 2018. In relation to the overall FX impact on profits, the situation remains very volatile. With sterling strengthening over the last 2 to 3 days based on current exchange rates, the impact it were to be maintained for the rest of the year would be to reduce 2019 profits by around 1,000,000. And again, we will continue to update you on the potential impact as the year progresses.
Based on the above, I would expect a slight increase in market expectations 2019. I'd now like to hand you back to Andy.
Thanks, Jeremy. So let me start then with our right way plan. This is a slide that I know you've seen many times before, but it summarizes how we're managing the business. In the interest of time, I'm not going to go through it again today But it does include our medium term targets there at the bottom of the chart and it is really pleasing to call out that once again we have outperformed each of them. Today though, I'm going to focus mainly on our market leading businesses in Pest Control, in hygiene, on our leadership in digital and innovation and finally on our M and A agenda.
So let's start with Rentecill, the world's leading pest control company. In 2018, we delivered a very good Full year performance with ongoing revenues increasing by 12.6% of which organic growth was up by 4.8%. Profits increased by around 10%. As you can see from the chart, this is a consistent high performer delivering a 5 year revenue CAGR of 16.2 percent. Pest Control is our key growth engine and it's extremely well positioned to capitalize on the increasing demand for pest control around the world with 85% of its revenues coming from growth markets and 15% from emerging markets.
Today, Rent Akill is the number 1 pest control company in 50 countries, And we've doubled the size of the business since 2014 and we have a strong plan to continue that growth trajectory. That plan that plan includes building our present in higher growth emerging markets, targeting growth in vector control, building out our international accounts business and of course continuing to increase our scale in North America where half of the world's pest control takes place and to do so by continuing to acquire high quality Pest Control Businesses in target cities that give us both density as well as a strong future organic growth platform. As Jeremy has already said, in North America, we're on track to reach revenues of $1,500,000,000 by the end of 2020 and we're confident of delivering margin expansion to 18% by the end of 2021. North America is a strong and growing Pest Control market and it's ripe for a new level of innovation and digital capability. 40% of our new Lomniya insect light traps headed to the us in 2018.
Now that's a product that hadn't previously been thought possible, but we delivered it using LED lights to replace traditional fluorescent tubes and by doing so The pest control market remains highly fragmented with some 20,000 pest control businesses and our reputation for customer service for looking after our employees and for leadership in Innovation And Digital are important factors in growing our M and A pipeline in North America where as I've said before, we believe we're typically the buyer of choice. Our focus in North America remains on new product growth in areas such as vector control, building market share through a focus on key customer sectors on value creating acquisitions where we've delivered 38 since the beginning of 2016. On innovation as we increasingly deploy our new global products and services into the U. S. Market, on national accounts, which again grew by 15% last year in North America.
And finally on our digital capabilities as we leverage our in house expertise to drive higher levels of online inquiries. In North America we've got a clear growth plan and multiple growth opportunities. Turning now to our emerging markets business where we've established strong positions across Asia, Latin America, Africa and the Middle East which are unmatched by any competitor. We delivered a good in India as we continued to increase the digitalization of the frontline, rollout our innovations and we also delivered 15 highly targeted acquisitions. Here we are building an exceptional medium term growth opportunity.
But don't take just my word for it. A recent report by Oxford Economics highlighted increasing urbanization and a shift to emerging markets over the next 10 years. The report highlights 750 Cities which by 2030 We'll have 410,000,000 more people and 220,000,000 additional middle income households. And this all plays to an increase in demand for pest control and an increasing spend per capita. The report also highlights that the 10 fastest growing cities will all be in India.
And following our PCI deal, we became the market leader, we now operate in all 10 of those cities. So turning now to Innovation And Digital as Capital Markets Day last year, we showed you a selection of the innovations in our pipeline and we demonstrated our new Lomniya insect light trap To date, we've sold service contracts for over 60,000 units generating some 1,000,000 of revenues and of course this is recurring portfolio revenue not one time product sale revenue. Lomnia is a great example of our innovation capabilities. We're setting new standards in the industry and we've got a strong pipeline of innovations to launch this year, extending the Lumiere range, adding more sustainable products and increasing our range of connected devices. Digital pest control services are another way in which we differentiate rent to kill from the competition.
Pest Connect is now available in 18 markets around the world and we've sent or received over 50,000,000 messages which devices in the field and our central command center, which is where we can now even monitor service performance at a global level, a country level, a local level and even a product level. The command center is unique to rent to kill an beginning to generate real insight on how we can improve service performance to boost our efficiency and to drive sales. Let me give you 2 quick examples. Firstly, we can now monitor and target an increase in the number of customer recommendations that we make for Secondly, many of our large multi site customers require typically a monthly report of the activity on their estate. It used to take one person in rent to kill, typically about 2 working days to bring together those reports from all of the stores around the country.
Today we've got 25 standard KPI and they're often embedded into our customers' own systems and we can generate those monthly reports in a matter of seconds. The My Rent Secure Port will give customers 20 fourseven access to details of pest activity and service delivery on their estate as well as contract and billing details. We now have million individual devices being tracked and 84% of our commercial customers are now using this portal. As a result, over 4,000,000 customer reports generated automatically by the customers themselves last year and over 300,000 marketing emails were sent. With new product information.
This end to end digital platform of connected devices, a central command center, bespoke apps customer portals is what will give us cost efficiencies as well as increased revenues through the competitive advantage that they are giving us. Finally then on pest control, I just want to touch on vector control. 12 months ago, we said our aim was to build our capabilities in this growing market which is worth just over $3,000,000,000 per annum pleased to say that we've made good progress last year. We're now the leading provider of vector control services in North America through the combination of the vector disease control international acquisition, which we acquired in 2017 and Mosquito Control Services which we acquired in the second half of last year. The market is beginning to open up 2 commercial providers.
We put in place a great team in Brazil We've made our submission for the very first of these public tenders and which we understand will shortly be confirmed that we've won that first tender. So I hope that's given you a good update on Pest Control. I'm just going to pick up some key points from hygiene, then protect and enhance and then close with M and A. Initial hygiene is the world's leading commercial hygiene services business. We have top 3 market positions in over 30 Countries.
And last year, our hygiene business delivered an excellent performance with ongoing revenue growth of and improved organic revenue growth of 2.8 percent. At the same time, profit growth of around 20% last year compares very favorably to the 5% profit decline back in 2014 Our 5 year turnaround story for this business perhaps gets a little lost with the understandable focus on pest control but it's had another good year with improving organic growth, excellent M and A high levels of customer service and customer retention also being up by 0.5%. Our focus is on operational execution which is designed to drive profitable growth And in particular in 2019, we're going to be building our product range to target specific growth areas including Air Care, and workplace well-being. With well-being programs now on the rise which are designed to boost Morale reduced staff absence and improved productivity, we see strong potential links with better workplace hygiene. Firstly, while well-being is still a relatively new concept for a lot of companies, improving hygiene facilities is a great first step reducing the for premium sensing providing bespoke air scenting ranges for hotels for retailers, for instance, will continue to expand in line with demand for healthier and more pleasant working environments.
And you can see our business has already grown from revenues of 1000000 back in 2015 to around 1000000 last year. And finally, with air quality deteriorating in many urban areas and in particular across Asia, We see a good opportunity for air purification products not just in the washrooms but also outside of the washrooms using initial hygiene services to deliver clean air in offices, kitchens, reception areas and we will be launching new Air Care products in 2019 to target this opportunity. So turning now to our 3rd business cluster protect and enhance Here we've got the 3 main businesses. We've got France, workwear, Ambeas, UK Property Care. Last year, we delivered a good full year performance with profits up by almost 11%, driven by service levels almost 99% and higher levels of customer retention.
In France where we've returned to of all growth. We've got an excellent management team in place. We've got a clear plan and the plan is being executed successfully. The program includes a strong employer of choice agenda, digital and innovation launches, a focus on service and product quality and on cost optimization. As you can see, it's delivered record levels of customer retention and a strong colleague retention levels as well at 90%.
It's too early to claim victory in France workwear just yet but it's been a year of very good progress and a clear plan is in place for 2019. Our small U. K. Property Care business, it's got unrivaled expertise in woodworm and damp proofing services, but it remains significantly impact by the slowdown in the UK property market and it made a small loss in 2018. To counter the ongoing market pressures we've put in place a business improvement plan based on better revenues for example by providing pest proofing services to our commercial pest control customers.
And by leveraging our digital expertise but also on cost and efficiency measures. Based on this plan, we are expecting to see decline in profits, the business has returned to form in 2018 with revenues up 3% and profits up by 16%. We continue to focus on higher margin services across the four lines of business which are interior planting, premium sensing, holiday decor and large special projects. So turning now to M and A, The execution of our M and A agenda continues to be of the highest standard with 47 deals completed last year, 1000000 in PES Control and in total delivering 1,000,000 of annualized revenues As you can see on the map there, the M and A agenda is active around the world with 14 deals in North America 6 in Latin America and a further 9 deals in other emerging markets such as Indonesia and Malaysia. And we monitor the integration and the performance of our acquired businesses very closely to ensure that they're continuing to meet our financial hurdles and as you can see there on the bottom of the page, the M and A program indeed continues to meet our expectations and to deliver in line with or above targeted returns.
Obviously, we will continue to execute this aggressively through 2019 and we have a gain set and indicative spend of between 10,000,001,501,000,000 this year. Turning finally to two areas of importance which go to the sustainability of our about delivering the numbers, but it's about how we deliver them, including how we manage our people the services we provide to our customers and the care that we show to the communities in which we operate. During 2018, we've made very good progress with our critically important employer of choice agenda We built a Global Careers website to bring in higher quality new recruits to reduce our time to hire and that's resulted in a 400% increase in the number of online applications per role and a 24% reduction in the time to hire. We've created over 500 new courses and videos for our U plus training platform and they had 1,200,000 views during the year. We've introduced a series of standard employer of choice KPIs at a group region country and local level which we monitor every single month.
The number of vacancies, the average number of applicants for each vacancy, the average time it takes to fill each vacancy critically important area for a business services company. And we also track a key measure, which is the retention of colleagues who have been with us for less than 12 months and you can see there on the bottom of the chart, we've made very good progress in every region. Finally then we've made some, we've got some high quality independent accreditation already in the area of sustainability But today, I'm delighted to announce the formation of Rentkill Initial Cares. This is a new charitable fund. Innovatively, this is a new program where we will be using both Unclaimed shares and Unclaimed shareholder dividends going back over the last 12 years and using that money to involve our 40,000 colleagues in helping support good causes around the world all in line with our mission to protect people and to enhance lives.
So in summary, in 2018 delivered a very good overall performance. We made good progress in ongoing revenue, profit and cash exceeding those medium term targets. And we're continuing to focus on building scale and density. We delivered a much improved second half with organic growth of 4.3%, four point 5 in the last quarter. We achieved the return to profitable growth for our protect and enhanced businesses and in particular our French workwear business.
We delivered scale in digital and innovation with now over 80% of all commercial pest control customers on our my rent kill platform, we've executed M and A at pace with 47 acquisition and a strong global pipeline of acquisitions ahead of us and finally based on this very good performance, We've announced a proposed final dividend increase of 15.2% and we are confident of delivering further progress in 2019. Thank you very much and Jeremy and I will now be happy to take any questions.
Hi, good morning. Sylvia Barker from JPMorgan. 3 questions, please. First of all, on the U. S.
Margins, So obviously the targets being pushed back, but I guess nobody really has that in numbers anyway. So kind of understanding the moving parts on that because obviously it implies quite a big increase in your services margin could you just update us on where the pest control services margin was in 2018 if you have that? And second of all, does the Vecta control tender from memory from your Investor Day those are quite large kind of potential tenders. Are there any public details that you can share in terms of potential size timing. And then finally on the potential JV exit in 2020, is that still kind of the base case we should be assuming.
Thank you.
Do you want to take the
first? Yes. So, you'll remember from the Capital Markets Day, the margin split up between pest services and the other businesses, the products business in Ambeas. What you'll see in what you've seen in 2018 is that improvement coming through the second half in pest services from the improved organic growth And we have had some benefit from our BetterBree in less IT related areas like property and procurement. But this is a back end loaded program in terms of the journey towards it.
And what we're looking for here is the as we've seen elsewhere in the group, particularly in productivity and in field based admin. What we're doing in terms of the system replatforming is get that all the systems that we've that in terms of the business we've acquired over the last 4 or 5 years onto a common platform in each of the regions We're then looking to get that data into the cloud so that we can access it across the country. And then we're looking to put the apps in that we put elsewhere in the group to drive those leverage best of breed programs. So this is back end loaded, and that's why we put it back a year. We're really being careful with the system implementation around not wanting to break the business because not only you're putting systems in, you're combining the processes across the group so that everybody in the west, the center, and the east all operating the same way.
And that change management is absolutely vital to delivering this. So it's not only a systems piece, it's a broader operational piece, There are no particular issues. We're just being absolutely careful in terms of what we're delivering. So we're still very confident of the delivery. It's a timing issue, not a, we've come across a problem a or a problem be.
So those pest services margins, we're still pretty comfortable we can deliver them. You look elsewhere in the group. Europe is a great example. If we look at our European pest us and our European business as a whole and what we've done in delivering the IT platform there over the last 2, 3 years that, if you like, gives the reinforces the confidence this is achievable in the U. S.
Once we get those systems in, Sylvia.
Good morning, Zomer. Good memory vector control in Brazil just to recap for those who don't have Sylvia's memory. It's a big potential market in Brazil, the Brazilian authority spending, around $1,000,000,000 a year, to try and control taser carried out across the municipalities in Brazil, which is 5,500. So you've got a big number divided by 5500 and big municipalities, small municipalities. You'll also remember our plan was let us build the capability, create the team, build the scientific capability that we need to support it, and let's go see if we can win the first of the outsourcing tenders, that tender took a little bit of time to come to market, but it has come to market.
We have submitted We believe we've been successful. And you'll also recall the plan was right. Win, the first one do an amazing job and use that as our marketing to go to the other municipalities and say, we'll look this is what you can do if you outsource. So that remains our model. The team we've built down in Brazil's outstanding difficult to size these things.
I think I told you last time the question was asked, it's either nothing or it's a very big number. And we're hopeful it's going to be more than nothing the typical size of one of these contracts I suspect is 1,000,000 to 2,000,000 something dollars, US dollars, something like that. So it isn't a big enough opportunity yet. I don't think for you to be putting things exotic things in your models But if we're successful here, this will be a really, really exciting opportunity because Mosquito borne disease is a problem which is getting worse around the world, not getting better. JV equally, memory is correct.
We have a clear contract that process from the beginning of 2020. That doesn't mean to say you should assume that we will joint venture is trading well, performing well, relationships are excellent, but the first date at which we could start an exit process would be the beginning of 2020.
Good morning. Rajesh Kumar from HSBC. Just when you talk about your pest control M and A strategy, could you give us some color on the type of synergy you get on the supply side, also in the world where Brexit is a concern how much of your supply stems out of the Dudley Factory or out of your various other UK sites which could be supplying into your global business and do you see any change in that supply arrangement going forward. And finally, when we look at the 4.8 percent organic growth in the pest control, could we get some split on how much of that growth comes from emerging market versus developed market. You've given some stats, but just as a plate of that growth number.
If you could give us some color, that would be helpful.
Yeah. I mean, I'm I can morning, Rajesh. I can give some color, on your answer, more than numbers, my learning friend may being able to give you some numbers. Synergies on supply side on acquisitions tend typically to be relatively small because most of our acquisitions are relatively small. You are right, of course, that is one of the first things that goes on the synergy list because there will be a saving.
But it's very, very minor in terms of what the contribution that it makes to the overall internal rate of If we do a big deal then obviously it's much, much bigger. Our supply chain is a global supply chain but that doesn't mean to say we're moving everything from China to America and all around we have regional hubs. So we've got a big hub in North America where we're sourcing most of our products from North America We have a big European central hub. We also have a UK hub and we have an Asia hub. So what we're constantly doing is trying to make sure we've got the right optimum level and these things changed.
There was a time that the right model was to make everything in China and ship it over at actually now for some of our businesses, local manufacturer is proving to be the right solution. So we've got a very active supply chain model that's constantly looking have we got this right and it's quite a tactical one. So synergies are not particularly big but they are real Dudley still remains probably the only one in the room that knows we've got a Dudley factory, I suspect, but we do have, 2 manufacturing facilities in the UK. One where we make Stainless steel things. So we build Stainless steel, bait boxes, stainless steel equipment more washrooms and one where we make some poisons for pest control and some soaps for washrooms.
These are small businesses, the profitable the small niche businesses in aggregate are at cross border supplies and generally on a cover it in terms of Brexit, our cross border supplies are very, very small. So no one should ever say Brexit will have no impact on our company, but it will be tiny. You won't be reading about an exciting Brexit story with Rentico in the headline because it's a very, very small impact on our business.
What we have done, Rajesh, is just in terms of the supply chain, just invested bit more inventory to give ourselves a 3 to 6 month cover, but it's a relatively small amount of the overall business set. So we've done a lot of planning around Brexit, but that planning says we don't expect much impact at all given that most of the products are consumed in country and where there might be an issue, we've secured supply of products to mitigate any risk. On the organics, we'll come back to you, Rich. I don't have a split between pest and emerging. My intuition tells me emerging is slightly ahead of, growth, but there isn't a big difference.
Asia overall, which is the bigger part of emerging grew by 5.9% and obviously that's driven by pest control, but, but, we've had strong growth in the in the second half and pretty good performance around the group in terms of pest control. So there won't be a big difference between emerging and growth we'll come back to you in a different way.
Latin America was double digits or just somewhere between 10 15 and the Middle East. Was low single digits. So as Jeremy said, I mean, it will be in aggregate, probably in the 6 or 7 versus the 4.8, I think.
Well, Andy, Jeremy Allen, from, Dan. A couple for me, please. I want to follow-up on Sylvia's question on the margin profile in the North American business. Obviously, you made a point of the 50 basis point improvement you made in the second half. Could you maybe just give us a little bit of indication of how you see that progressing?
I mean, clearly, going to be back end loaded, but is that 50 basis point can that carry over into 'nineteen and 'twenty then you get a bit of a pickup or is it going to much flatter and then a big kicker. Secondly, just the weather impact in Europe, obviously, we were blessed with a reasonably warm summer in 2018. Is it possible you can quantify the benefit that you've got maybe from the weather just so we're not called out by any tough comps as you go into that middle part of the year. And then finally, just on the CapEx side, million reduction in CapEx issue help the cash flow. Any sort of guidance comments you can make on CapEx for 'nineteen and 'twenty, please?
So, it is back end loaded, and we did a little bit of a chart on this at the capital market. So there's 3 component parts and margin improvement, organics, M and A, and best of breed. And to some extent, they go together. If you could get the best of breed, that flows into the organics and the it helps the synergy delivery as well. And the key parts of the best of breed we're looking for, as we're saying to Sylvia, is the service productivity and the field admin really need the systems in place and the process in place to deliver that.
So if I was looking from here through to 2021, I'd probably go quarter quarter half in terms of the way that will work its way through Alan as a rough guide to what the timing would be. The second question was to do with
quantifying the impact of weather on organic growth in Europe service to avoid unhappy comps in years' time? Yes.
Difficult to separate the sugar from the tea. What you can see is organic growth in Europe overall at a relatively high level at 3.6 and some numbers. Let us come back to you on trying to work out what that impact might have been. But
It's difficult to say when you're right to raise it of course. Yeah. It's difficult to say it's going to be huge. It only impacts PES, not hygiene, obviously. Our PES business is 80% portfolio, 20% jobbing, So it doesn't affect the 80% because that's the contract base.
So it's the jobbing piece. So you've got 20% of pest times Europe It didn't affect every market in Europe and it only affected it for 3 months during the hot season, but we did see an impact. There's absolutely no doubt really hot summer means more flying insects means more call outs. If Jeremy can try and calculate it, we'll make it available. It's not.
It's more looking back at previous years and seeing what Europe has been done year on year and identifying that. So I think it's just more a bit more your analysis. And in terms of CapEx, I mean, overall, we're looking at, cash conversion of 90%. Our our medium term target. So that's what you I think you should be looking for in your models.
Within that, we'll be looking to increase our investment in IT across the group as we have been doing in the last 2 or 3 years, moving into things like devices, as Andy said, continue with the replatforming and the applications deployment in the U S and continuing to drive efficiencies and effectiveness through that CapEx. Beyond that, it's relatively linked to revenue growth. It's motor vehicles, it's EFR. So it's there's no particularly big projects out there. So there'll be a slight increase relating to IT, but otherwise looking at CapEx as a percentage of sales, being broadly similar to what it was in, in 2018, with that growth being around the growth of the business.
Hi. Good morning. James Winkler calling from Jefferies. Just, had a couple quick ones. One was on Canon in the UK, last communication as, revenues of about 40,000,000 in profits of 2,000,000 just wondering if you could give any update on how the profitability of that has developed given that you've had to hold it separately as a separate operation?
And then second, in terms of France, France workwear, since it's returned to profitability, I'm wondering if you're able to give any comment on the potential divestment of that business as you divested workwear elsewhere. And if it's fair to assume that now it's a turn of profitability, it's kind of increased probability that you would divest of that asset.
Thanks James. I'll take those 2. I think, the Canon UK, situation, just to sort of remind everyone else who maybe not familiar with it. We bought the business effective, I think 1st January, 2018, across multiple markets 80 odd £1,000,000 of revenue just over 1,000,000 of revenues in the UK. And since the 1st January, We've been required to hold that business separately whilst the CMA has conducted its review as James's question points out.
That's come to the end of its process and the final determination at the end of the phase 2 review from CMA. Is that they require us to divest a relatively small part of that business and we're in the process of of doing that. One of the the curiosities of the whole separate process is it really is a whole separate process which means even I am not allowed anywhere near it. I'm not allowed to see it. I'm not allowed to talk to the guys run it, I'm not allowed to see the numbers, Jeremy gets to see the numbers to add it up.
So it really is this wonderfully, interesting process. And we laugh internally. I mean, clearly I do know the numbers. The business has performed very well. So, go figure.
We're not running it. It's completely separate. It hasn't got any synergies and the business has performed well. So I don't think we're at liberty to disclose the numbers of the business, but what people worry about in a whole separate situation is has that business deteriorated? And it hasn't the revenues held up and the profit has done reasonably well as well.
So we're really excited and looking forward to the day that we can complete, any partial divestment satisfy the competition market authority and get on with the job of integrating the business like we have done elsewhere. But, we're not actually a liberty to disclose separate numbers under the terms that are all separate, but it's performed fine. France, look, our position on France hasn't changed. We're professional managers of a portfolio of assets. It is not a core business for Enercare initial workwear.
We've got 2 really good positions now. We've got a very good 18% in a joint venture with CWS Boat, which is one part where we participate in the workwear industry and we continue to hold our French workwear business. What I said in the past was absolutely no way that makes any good sense to me for us to consider selling that business, if it was in decline and it had serious issues to be dealt with. And I would say we have now completed 2 years of our 3 year plan for that business. We've still got quite a lot to do.
I use the phrase we haven't declared victory on France yet There's still a lot of challenges in the in the French economy. There's still a lot of challenges in the French work, we're industry, and we've still got some things to fix in the business. So my position hasn't changed. We will do the right thing by our shareholders at the right time. And if the right thing is to divest the business, what we would do.
If the right thing is to hold it, we would hold it, but the critical thing, and I continue with that is we've got to make sure that we've got a really top quality business and that's why I shared some of the numbers with customer retention in the 90s with colleague retention in the 90s And a return to organic growth and return to profit growth, I feel good about what we've been able to achieve, but we're not quite finished with our 3 year project yet. So if you feel that I haven't answered the question, you've understood my answer correctly. Morning, James
Beard. Umus. Couple of questions, if I may. Just following up on that, Canon question from earlier, are you able to give an indication of, when that divestment process might to a conclusion, a second question on, labor cost within the business. You obviously alluded to sort of staff retention and recruitment within the slide deck.
Are you able to give us sort of indication of, what inflation is look like across the group and specifically within North America because we know, you know, from from what you guys said last year from what your competitors have said over the last couple of years there are some real pockets of tightness, within that economy. So has has that situation changed much over the course of the year?
On the first part, the Canon 1, it's all dependent on a process which we have to work through with the CMA and then it's dependent on finding the right buyer and the right buyer being satisfactory to the CMA. But assuming all of that works as we hope it would within the next 3 to 6 months hopefully will have that, completely resolved and completed. That would be reasonable time frame. I'll let Jeremy answer that the, labor cost labor inflation point, you're absolutely right. Why did I lean so heavily at the end on OE piece, it is without doubt the single most important strategic issue for business services company.
So we employ 40,000 people around the world, retention rate, roughly is about 85 percent. So each year we have to find 15% at forty thousand people, which we have an industrial machine that sits behind that we can get retention rate up 1 or 2 or 3 percentage points, that's huge for us. If it goes the other way, that's a worry as well. So we called this out 2 years ago. We've been working incredibly hard.
We're making really good progress But it's not an initiative. It's not a project. It is life. There are pockets of tightness around the world. But I think I happen to think we're managing them extremely well because we focus on it and we've got a whole, a whole massive engine behind it.
Every single one of our business meetings anywhere in the world, agenda item number 1 is safety. Agenda item number 2 is people without exception. Every single meeting starts that agenda to get that focus. So I think we are making really good progress, but, do you want to cover the So
at Randy's point, the issue we're finding in our model is not really around inflation as much as it is around access to people. So we're trying to manage our recruitment on our retention better, cost inflation in the U. S. To 2.5% that type of level, which we cover with there, annual price increases. The other point I'd make, to Andy's employer choice, the other, obviously, the key emphasis of the whole digital reput forming is to improve productivity and try and increase the efficiency of our back office.
So it's another way of managing your employment uses to increase productivity and look to particularly for the more mundane jobs in the back office look to automate those and use AI to to to manage that that element of it as well. So that's another part of the model.
Thank you very much. It's Mark Van Sand at Citi.
Could you talk a
little bit about U. S. Competitive environment? I know it in quite early days, maybe with ServiceMaster sort of X And American, our extra disposal. Could you talk a little if you've seen a change in competitive behavior.
And also could you talk to maybe pricing for deals? If you've seen an uptick, please?
Thanks, Bart. I have to be honest. We haven't really seen a major shift in competitive rivalry, in the States. As I mentioned, the 20,000 pest control companies out there and there's 3 or 4, ones of scale. You saw ServiceMaster results out this week looked looked pretty good in the 4th quarter.
I think the ServiceMaster had said that they were going to focus on commercial. We are more commercial than residential. I think you also heard them say in their results that they haven't done so well on commercial and they've done better on resi and termite. So if I'm very honest, I would say no the competitive scene feels broadly stable constant I mentioned our national account progress up 15% last year. I think we're 20% year before.
So we're continuing to have a sector focus and a big national and commercial So that's where we believe we've got really strong competitive advantage. That's why the technology, the innovation, the global brand, the positioning in the food industry, all of those things play to our strengths. And there I would say I think we're getting getting stronger in our sweet spot. But I don't think you're seeing major plate tectonic shifts if they are, they're not finding their way back to my, to my hearing, I would assume that it's broadly similar. Somebody will win in a region 1 period and they'll do less well in a region next period.
In terms of M And A pricing, I guess 2.1 Half of the world's pest control takes place in North America and the other half of the world's pest control takes place elsewhere. Elsewhere we would say, I think pricing remains, pretty sensible,
pretty
reasonable, and certainly again on our washroom side probably more sensible and more reasonable. North America prices are high. But they have been so now for 2 to 3 years. That would be my perspective. I don't believe based on what we've paid for the assets and what we hear others have paid for the assets.
I don't think prices are going up. I think they have gone up. I think they've been up there quite some time, 2, 3 years. You may recall, we reduced our internal rate of return for acquisitions in America from 15% to 13%. That was about 2 years ago.
2, 3 years ago. We did that to ensure that we could be competitive in North America. We don't typically have to drop to 13% out side in North America. So expensive in North America, yes, but we still maintain our financial discipline if we can't make our numbers can't make the model, we don't go for the asset, but, there's still a good quantity of assets available. We've picked up too in January.
And, yeah, look, I think it's, it's competitive, but it's not, it's not, inhibiting our ambition. I'll put it that way. Any more questions? Fabulous. Thank you very much for coming.
Appreciate it.