Morning, ladies and gentlemen, and welcome to Rentokil Initial PLC third quarter 2026 trading update. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session through the phone lines, and instruction will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand it over to Mike Duffy, chief executive officer, for his opening remarks. Please go ahead.
Thank you. Good morning, everyone, and welcome to our third quarter conference call. To begin, I am going to cover the key highlights and then hand over to Paul to discuss the results in more detail. I will then close with an update on progress against our strategy to build the platform for sustainable organic growth. Overall, it was a solid quarter. I am encouraged by the progress we have made executing against our priorities of customer focus, sales and operational excellence, and business simplification. Where we have taken action, we are seeing results. In North America, we delivered an encouraging performance by optimizing our marketing spend, prioritizing the highest converting lead channels, and improving service quality. In our international business, pest delivered another strong quarter of organic growth, close to 6%, as our focus on excellent client service, targeted account management, and connected solutions continues to pay dividends.
As I have said before, our first priority is to restore North America to market levels of organic growth, which will include investing in training, sales capabilities, and our separated residential and commercial businesses. These investments will be fully funded through savings across our international business and group central costs. Over the last few months, I have been working closely with my leadership team to finalize these investment and savings plans. We will provide more detail at our full -year results in February. Finally, we are moving fast on business simplification with our divestment of SOLitude. The disposal proceeds will further reduce our leverage, and as a result, the board has approved a $200 million share buyback program. Before I hand over to Paul to discuss trading, I wanted to say a few words about our leadership announcement this morning.
Paul has taken the decision to retire from full-time executive life for family health reasons. He retires on January 31st, and we are pleased that he will stay on as a senior advisor, ensuring a smooth transition to a new permanent CFO. Paul has been a great partner, helping me get up to speed with the business, and during his time at Rentokil, has had a significant impact improving our financial discipline and strategic focus. The board, myself, and the entire leadership team are sad to see him retire, but also fully understand and support his decision to prioritize his family. The search process for a new permanent CFO is underway. If it is not complete by February 1st of next year, Sarah Sergeant will step up from her current role as group financial controller to become interim CFO.
With that, let me hand over to Paul to discuss trading.
Thank you, Mike, and good morning, everyone. Before we begin, I would like to draw your attention to the usual cautionary statement contained in our trading update, which also applies to this call. Unless otherwise stated, all figures are in U.S. dollars, and any comparative performance is on a constant currency basis. Starting with group, revenue was $1.9 billion, representing 3.4% organic growth. North America delivered 3.2% organic growth and international 3.7%. Looking at North America in more detail, pest control services revenue growth was 2.7%. Contract growth was 3.1%, an improvement from the second quarter. Weaker lead flow early in the third quarter resulted in a lower jobbing performance at 2.6%. Organic growth was 2.4%, with the pricing environment remaining robust.
Residential performance across core pest control and termite was solid, while pleasingly, commercial national account, which is approximately one-third of our commercial business, saw improved growth driven by better service quality and continued PestConnect adoption. The drag from rationalizing our heritage Terminix commercial client portfolio is now largely passed. After seeing a mid to high-single-digit decline for July and August, residential lead flow moderated towards a 1% decline for the month of September. North America business services continued to deliver strong revenue growth, up 9.6% organically, driven by ongoing momentum in our product distribution business and continued strength from new client wins in brand standards. We continue to anticipate growth to moderate towards mid-single digits. I am pleased to note that both customer and colleague retention continues to improve year-over-year. We saw progress in residential customer retention, and commercial retention stabilized in the quarter.
Moving on now to our international business, where revenue was up 5% and organic growth was 3.7%, or 4.7%, excluding our two businesses serving the U.K. property market, which continues to be challenging. International pest control organic growth strengthened to 5.7%. Growth was broad-based across regions, and it is pleasing to see some markets, including the U.K., our largest international pest market, sustaining high single-digit organic contract growth despite tough economic backdrops. International hygiene and wellbeing organic growth was 0.7%, significantly impacted by weak trading in our DCUK asbestos removal business. Excluding DCUK, organic growth was 2.6%. Overall, as Mike said, it was a solid quarter. We have also made good progress with our cost savings program in North America, and we expect to deliver full-year profits in line with current market expectations. Moving on now to capital allocation, where I have consistently emphasized our disciplined returns-focused approach.
Our first priority is to invest in the business, both organically and inorganically, then pay a progressive dividend, and finally return surplus capital while maintaining a strong balance sheet with a target leverage ratio of 2x to 2.5 x. We were back inside that range for the first time since the Terminix acquisition at the half-year stage, and with the sale of SOLitude, we will continue to delever through the remainder of the year. The board has therefore approved a $200 million share buyback program, which will start shortly. Finally, before I hand back to Mike, as this will be my last results conference call for Rentokil Initial, I want to thank all of you who have supported us during a period of heightened change.
I am committed to ensuring a seamless transition, and I am pleased that we have the caliber of talent on the finance bench of Sarah Sergeant, who will step up, if required, to be interim CFO as of the 1st of February next year. Sarah is a chartered accountant with a long track record of success across multiple senior finance leadership roles, primarily at Compass Group. Prior to Rentokil, she was group CFO for a small listed U.K. business. I am looking forward to continuing to work with Mike and the wider executive leadership team on an advisory basis. My conviction in the long-term opportunity to drive value creation has only grown since I joined the business in late 2024, and I am pleased to remain part of the team working to unlock that opportunity. Let me now hand it back to Mike.
Thank you, Paul. Let me start by spending a few minutes on the consumer search environment. The start of the third quarter saw reduced total Google Search activity, which we flagged in July, as we also saw weakness in our lead flow. We took action and saw results, with our lead flow improving sequentially through the quarter. We shifted our marketing mix towards our highest yielding channels and improved year-over-year conversion in nearly all our channels through self-help actions. As Paul referenced, this self-help improved our residential lead flow decline to just 1% for the month of September. We are being agile and adaptive. Where the environment is changing, we are understanding those changes and responding. With LLMs, we are moving into a world of increasing transparency where local reputation and service matters.
We will win by continuing to elevate our service quality and by deepening customer relationships to become their trusted advisor. These models draw on the broader web, not just Google, so we are strengthening our signal across the sources they trust, reengaging affiliate channels like Yelp and the Better Business Bureau, and producing hyperlocal content where it moves the needle. Our scale provides us the capabilities and the resources required to win locally. We are also front-footed on AI agents. Terminix.com already lets you price, schedule, and pay in minutes, and our call center is being trained to win when an AI agent calls on a customer's behalf. Looking ahead, we are developing capabilities to push live pricing and scheduling availability into a format AI agents can interact with and expect implementation in early 2027. Before I move on, let me reiterate what I said before.
AI search is currently a very small share of our mix, whether we are dealing with a human or an AI agent, immediate availability, speed to install, and service quality are what matters most. That is exactly why we are focused on our three priorities of elevating our customer focus, delivering sales and operational excellence, and simplifying the business. Turning now to some highlights on executing those priorities. In North America, we have made good progress over the last few months, taking steps to separate residential and commercial and promoting two pest industry veterans to lead those businesses. We will continue to work towards a full functional separation to drive greater operational focus, transparency, and accountability for those businesses, reflecting the distinct needs and expectations of each customer group. In the third quarter, we implemented multiple self-help actions to drive sales excellence and improve conversion.
These included shortening connection times to customer service agents through process improvements for call and chat journeys. We are also reducing friction in the online selling experience and implementing SMS and email nudges for abandoned cart recoveries. In Atlanta, we have stood up our test and learn pilot this month to start working towards a standardized branch operating model, a model based on demonstrated best practices from within our network. The opportunity from consistently executing a standardized playbook is significant, as demonstrated by the top third of our branches delivering above-market growth. This pilot takes learnings from our best performers captured earlier in the year and puts them into practice. It will run into the first quarter next year, leaving time to start phased implementations ahead of the next peak season.
The objective is to define how best to organize people, define processes, and utilize tools in a branch to ensure that our people in the field are equipped to execute with excellence. In closing, we have delivered a solid quarter, and the buyback announced today demonstrates the board's confidence in the strength of our business model. We have made tangible progress to advance our strategy since we set out our three strategic priorities back in July to build the platform for sustainable organic growth. The goal is not to reinvent Rentokil. It is about applying the existing strengths of the group with greater consistency. The reward for driving consistency will be substantial. We operate in an attractive industry, growing mid-single digit with multiple long-term tailwinds, where we have leading market positions with a strong right to win.
Over the past two years, where we have taken action, we have seen results backed by great people and strong brands. Finally, talking of great people, I want to thank our 65,000 colleagues around the world who come to work every day with two simple goals: keep each other safe and take care of our customers. They do so with my thanks and appreciation. Let me now hand it back to the operator. We will pause for a moment to line up the questions. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. To ask a question on the phone line, please signal by pressing star one on your telephone keypad. To submit a written question via the webcast page, please click the Ask a Question button. We will pause for a moment to assemble the queue. We will take our first question from Andy Grobler with BNPP. Andy, please go ahead.
Hi, good morning. Two from me, if I may. Firstly, just in terms of the full separation of the commercial and residential activities in the U.S., can you just talk us through what is involved in that process and to what extent that is a physical separation rather than a business line separation? On the same theme, to what extent are your other businesses across the group, whether that be Ambius or hygiene, are fully integrated and whether there is physical or business line separation that can be managed over time if you so choose to do so? Secondly, just on PestConnect, you talked about the rollout in the U.S. gaining traction and lots of demand.
What are your expectations for the number of units that could be rolled out over a next 12- 18 months process, and how would that compare to the opportunity and success you've had in rolling that out in the U.K.? Thank you very much.
Thank you, Andy. I'll start with the PestConnect and if you want to take the separation, but I'm happy to do so. I think my internal expectations for PestConnect are probably higher than others, but we've had a tremendous response from current customers as well as potential customers, and it is a solution that has proven very well in international, and the U.S. team internally has done a great job embracing the technology. Our customers have responded very well. It gives them peace of mind as they think about some of the compliance requirements, for example, from FDA, if you're in food. We know internally with PestConnect, as we've seen in our other markets, it's a very sticky solution and it drives retention. So we're excited about the rollout in the U.S.
The reps and the account execs have been very excited with the training and the listen and learns we've done. We're excited about the prospects.
Andy, in terms of the separation, what we're making sure of here is that residential gets exactly what it needs to perform optimally, and commercial does as well. We're not having to compromise on slightly different business needs, whether that's around sales, training, or any other component of the business, because they are a bit different. If you think the rest of our business outside of North America is really a commercial business, and we know what retention that should run at, and we know that we're running at a significantly lower retention in the U.S. We know there's a big opportunity for us there. If we look more broadly across our businesses around the rest of the world, it isn't really a physical separation issue if we were to decide to make further progress on whether it's on any other part of the portfolio.
It's how integrated into our systems environment they are. We've spoken about that a bit before. All of our businesses sit on the Rentokil systems. If we wanted to exit anything further, we'd need to take a bit of time to stand up a separate system, which would make it easier to sell them. It's not a physical issue per se. Thanks, Andy.
Thank you very much.
Our next question comes from the line of Annelies Vermeulen with Morgan Stanley. Annelies, please go ahead.
Morning, Mike. Morning, Paul. I have two questions as well, please. Given the shifts in the customer acquisition model that you've referenced and the shifting digital landscape, you've mentioned more technician-led, self-generated leads. Is that where incremental investment will go? Or put differently, is the mix of investment, in terms of marketing and advertising and so on, shifting as this technological change also shifts? Then secondly, as part of that, given everything we're seeing in recent months on the technology side, could you talk a little bit about how your larger brands have been performing versus your regional and local brands more recently, and if you've seen any notable changes there between those? Thank you.
Thanks, Annelies. On the customer acquisition model, I think it certainly predates when I got here. We've been working on getting the marketing mix model right, and I think we continue to find ways to reallocate the dollars as appropriate, which I talked about before. In terms of investments, that's still a work in process, so I'm not going to comment on where we think we're going to invest. But certainly equipping our frontline, as I mentioned, the learnings in the pilot or what we hope to learn, equipping our frontline with what they need to execute with excellence is certainly on top of our list. In terms of how we see the brand performance, as you know, the Terminix brand is number one for unaided brand awareness, and it continues to be a strong brand.
It's a brand people know and trust, and we continue to leverage that in our regional brands. Regional and local, they had been neglected in the past, but I think with the pivot back to our 30-brand strategy, we've seen good strength with our regional brands out in the market. I don't know, Paul, anything you want to add?
No. Thanks, Annelies.
Great. Thanks, Paul, and all the best. Thanks for the engagement.
Thanks very much, Annelies.
Your next question comes from the line of Suhasini Varanasi with Goldman Sachs. Suhasini, please go ahead.
Hi, good morning. Thank you for taking my questions. Just a couple from me, please. You've indicated that organic growth improved through the quarter. Is it possible to provide a bit more color on growth in September and October versus the 2.4% average seen in the third quarter? Do you think that the momentum that you've seen over the third quarter can continue over the next few quarters? Because it feels like a lot of the changes that have driven the improvement feel a bit structural. Just some color there would be helpful. Thank you. The second one, can you please provide some detail on how the commercial customer saves team pilot exceeded expectations, and what kind of improvement in retention rates did you see, please? Thank you.
Let me start, then I'll hand it over to Paul. I think, like I said before, I'm encouraged by the progress we've made since setting out our priorities in July to build the platform's sustainable organic growth through customer focus, sales and operational excellence, and business simplification. As I talked about in July, we're on a journey. But where we have taken action, we've seen results, and the team has done a great job stabilizing the business and returning to growth, and we've got to keep building on that hard work. We still have a lot of wood to chop, as they say in the U.S., but like I said, I'm encouraged by the progress we've made.
Look, on the specific questions as to the leads, we talked about at the interims that we'd seen in June and into July some weakness in the leads environment. As I said in my prepared remarks earlier, we saw a mid to high single-digit decline for July and August, and then September was significantly better, and we've seen that progress in the latest few weeks trading into October. So we are encouraged by that. There's a lot of work, as Mike said, that has been done over the last few years to improve our marketing capabilities, our digital marketing capabilities, and we've got some great people working with us. In terms of the customer saves team and the broader work that we're doing on commercial retention, we've spoken before about how this is an opportunity for us and a real focus.
We should have a very high level of retention in our commercial business, and it wasn't at the same level and still isn't as around the rest of the group. Customer saves team, that's helped, as has the installation of PestConnect, and we've also lapped now the headwind that we were seeing from exiting the Copesan weaker clients. That seems to be on a better path now. So we have high hopes there. That should be averaging us up, and it hasn't been, so a lot of opportunity in that area. Thanks, Suhasini.
Thank you.
Our next question comes from the line of Will Kirkness with Bernstein. Will, please go ahead.
Thanks. I had two questions, please. Firstly, if we look at that contracted number within pest control services of 3.1%, if that's organic plus M&A, I guess with pricing, that might imply that volumes are still negative. I just wondered if you had a view on, or if you could help us with what the volume performance is within the contract book, and how you feel about that moving into positive trends. Secondly, just with regard to cost savings and think about Paul's departure early next year, how far through in terms of U.S. cost savings and perhaps more importantly, the international cost savings to fund the U.S. investments do you think you'll be before then? Thanks.
Thanks, Will. Yes. You're right. What we're pleased about is that the pricing environment continues to be very good. We've talked about inflation pricing, and we talked before about the sophisticated way that we go about this. It's hyper-personalized and data-driven. It's not that everybody gets a blanket price increase. There's a lot of factors that come into play, and pricing has been a big part of our performance uplift in the last few years. But volume is still negative, and so that is still an opportunity for us, no doubt. In terms of the cost savings, look, it's never about one person. There's a broad team that's been working on this across the business, and Mike, I think, has been very clear that we will be taking cost out of the international business.
Now that it is moved under the leadership of Phill, it is easier for him to look at all the costs and where they overlap and say, "Well, actually, we can do that differently." I have spoken before about the fact that our costs at the group level have been going up very significantly for some years. There is a big opportunity for us to address that and move that back to where it should be. We are working at pace and very comprehensively against that. So we will see that continue to deliver and fund the investment the business needs to make into North America. Thanks, Will.
Perfect. Thanks for everything. Cheers, Paul.
Cheers, Will.
Our next question comes from the line of Tim Ramskill with Bank of America. Tim, please go ahead.
Thanks. Good morning, both. I'm going to try three questions, please. So pretty big picture, but there's obviously a prevailing wisdom that the market here grows in North America at 6%, but clearly the dynamics across the larger players we could observe isn't quite as strong as that. Just interested in your thoughts as to whether there's anything changing regards to that kind term growth trajectory. Second question is around North American margins. Obviously, you had the kind of reset of expectations at H1, but as it stands today consensus expects to see no change in margin in 2027 or 2026, which seems quite ambitious given the plan for investment back into growth. Just interested in your thoughts as to whether that's feasible or not.
I know you've touched a couple of times already on some of the commercial dynamics, but I guess again at Q2 H1, you were talking about how commercial had shifted from being a boost to overall growth to a drag. I just wondered if you could comment on the differential in growth performance between resi and commercial in Q3, please.
Yeah. Thanks, Tim. Let me start and then I'll hand over to Paul. I think the U.S. is no different than international. It's a structurally growing and attractive market. I think the industry fundamentals are still strong. It's got a good TAM, it's good CAGR, like you mentioned, characterized by the high market fragmentation. The tailwinds include climate change, the urbanization, a growing middle class. I was in the food industry. That's a heightened food safety and compliance requirement, especially obviously in commercial, and that's where our PestConnect solution plays really well because it gives people peace of mind that if they get a surprise visit from the FDA, at least it's one less thing they have to worry about. So to your question on the market growth for the long term, I think it's still very structurally growing and attractive.
Yeah. Look, Tim, I guess I would say a couple of things. You've heard me talk before about our terciles and our top branches are growing well ahead of that market growth that you talk about. There's no specific advantage that those branches have. So there is a very big opportunity for us to go to that market level and then beyond it. I think what we're focused on is getting first back to that level of growth and then going beyond it. If you think about what our U.K. business did, nearly 10% organic growth in an economy in the shape of the U.K. economy. That was after similar performance earlier in the year that this business can grow extremely fast.
Obviously, we've got a lot of proving to do to get it to that point, but we are going to invest appropriately to make sure we've got the competencies, skills, and all the tools that are needed to get up to that level of performance. That's why we've said that for 2027, we step back from that 20% margin target. There's a lot of opportunity for margins to accrete, and they clearly will as we add more and more revenue onto a cost base which can support a much bigger business. But we're just not focusing on that in 2027. It's investing back in with the savings that I've talked about, that we will generate in the international business costs to continue to drive up growth, and then the margin will come over time.
In terms of commercial versus resi, I think this is the story that I've talked about before. Commercial should be structurally a higher retention business, and that does make it easier to have high levels of OG because you haven't got the same drag from client cycling off. That's where we need to get to. It is still a drag for us, and though it's better than it was. So we're pleased with the quick results from the changes we've been making. As Mike said, this is what we see across the business. When we see something and we get at it, we see a sharp response. That's really encouraging. That's everything I've seen over the last few years as we diagnose the patient and start to give it medicine, it recovers, but there's still a lot more work for us to do.
As Mike said, a lot more wood to be chopped, and that's the journey we're on. Thank you, Tim.
Thanks. I think, Paul, you and I first spoke 20 years ago, so I genuinely wish you very best of luck in your retirement.
Thank you very much, Tim. Appreciate that. It has been a great 20 years.
Our next question comes from the line of Ollie Davies with Rothschild & Co Redburn. Ollie, please go ahead.
Yes. Good morning. Thanks. Just a couple from me. Firstly, just a question on the 30 brand strategy. Given that LLMs are favoring more local brands, do you still plan to consolidate the tail or is there now a better reason to potentially re-look at that and keep them? Secondly, you talked about the macro, particularly housing impacting Terminix lead flow in Q2. Can you just talk about how that progressed through the quarter versus, I guess, more normal resi?
Yeah. I'll start on the brand strategy, and if you want to take the lead. I don't think we've said we were going to consolidate to 10. I think we said we were going to consolidate to 30. We'll pause here and see what makes sense going forward. As I talked about earlier, the regional power brands are actually holding up very well. To your point around local, people, at the end of the day, they want a brand they know and trust. I think we've got to look at that through that lens, especially given some of the dynamics you referenced.
Yeah. Look, absolutely. I think that that 30 is truly brands. Beyond that, we do have some names, but they might only be on one branch. It is a bit hard to say that is truly a brand. A brand has to mean something, has to have a promise, has to have a proposition, et cetera. I think that isolating the 30 and saying that this gives us enough coverage across the United States market to build out and invest behind, do promotions, et cetera, that is the right level. We are really pleased we have got those great 30 brands. In terms of the dynamics that drive the market, we have said before, this is really a non-discretionary spend item for the vast majority of households. This is not linked so much to consumer sentiment.
It is, in the termite business, it is more correlated with housing starts and housing moves. We did call out some weakness, particularly in the Northeast at the second quarter, and that has continued to be a drag into the third quarter. It is correlated to housing rather than the general consumer.
Yeah.
Thanks, Ollie.
Thanks very much, and all the best, Paul.
Thank you, Ollie. I appreciate it.
Our next question comes from the line of James Beard with Deutsche Bank. James, please go ahead.
Yeah. Thanks, guys. Morning. Just one from me. Going back to digital lead flow, how material now is AI LLM search as a proportion of your lead flow, and to what extent has that changed over the last three to six months?
It still represents a small. There's Mike. Represents a small portion of our lead flow. Like I said, we're reacting and adapting quickly and shifting our media strategy accordingly. Reestablishing those relationships with key affiliates like Yelp, Consumer Affairs, the Better Business Bureau, BBB, developing FAQ layers to optimize the LLM extraction, adding hyperlocal content and imagery for the Google profiles and local web pages. The team's doing a great job adapting and responding to these shifts. We're certainly encouraged by the progress we've made. Like Paul said, where we have taken action, we've seen results. That here in the LLM, in the marketing space, is no different than operationally.
Thanks, James. Did you have another question, or did that cover it?
That was it.
Great. Appreciate it. Thank you very much.
Our next question comes from the line of James Rose with Barclays. James, please go ahead.
Hi there. Just one from me. It is on your residential termite and smaller commercial subscription business. Maybe for you and the industry, what does new customer pricing look like versus existing customer pricing? Is it a fairly flat structure across the book, or do you have a back book of longstanding customers who are paying quite significantly higher prices?
I will let Paul jump in. We do not discuss pricing, obviously, with customers. I think new customers, there is a number of variables that go into pricing new services. So it is not a one size fits all. But like I said, there is a number of variables that go into our pricing engine.
Yeah, and thanks, James. I think one of the opportunities we have talked about before is to cross-sell more products to customers. So as they come in, then they might start with a job, and then we will say, "Well, actually, it makes sense for you to be working on a contract with us." Then we will say, "Well, would you like us to also deal with mosquitoes because your neighbor has a mosquito problem, so you are likely to have a mosquito problem, et cetera." Then we may initially only be looking after pest control, not termites, so we would like to sell them the termite services, et cetera. So we can build, over time, a stronger relationship as a trusted advisor to our clients. They want that because it is easier to deal with one provider than multiple providers.
Our longstanding customers do tend to be the most valuable ones. That links back to what Mike has talked about before. Number one priority is excellent customer service, and doing that, keeping those customers happy, they will then refer more customers to us, and the lifetime value of that customer continue to increase, and that is what we are very focused on. Thank you, James.
Thank you.
Our next question comes from the line of Jane Sparrow with JP Morgan. Jane, please go ahead.
Morning. Two questions, please. The first one, just returning to the improved trend in lead generation in September. Appreciate you have taken a lot of action. Those are paying off, but just wondered if there is also any improvement in the underlying market, maybe due to monthly weather variability or anything to call out on prior year comps. Really just anything that you would call out beyond the actions that you have taken. The second question is just on capital allocation. I appreciate leverage has come down. It is still relatively elevated, and you also have the additional obligations on the legacy termite provisions, which is effectively debt.
I just wondered how much debate there was around the deployment of those SOLitude proceeds on a buyback rather than reducing leverage or retaining the firepower for future pest M&A, perhaps.
Yeah, thanks, Jane. I'll start with the lead generation. My background, I come from a retail background where we got great data from Nielsen, IRI, et cetera, on category performance, channel performance, et cetera. We don't have that type of data in this industry, so it's not great. I think what we've seen in October has been consistent with what we saw in September. I think, as you said, where we've taken action, we've seen results, but I wish I had better causation correlation in terms of data to market performance, but we just don't.
Yeah. Look, in terms of capital allocation, I think you know the algorithm that I work to, Jane, and that's very consistent. Our first priority is always to invest into the business, and Mike has talked about the areas where we will continue to invest to drive organic growth. Then we will buy businesses, and this year, we think we'll probably spend about $100 million on that. We are focused on strong, strategically relevant businesses in strategically relevant markets to bring in. This year, $100 million is sufficient for the opportunities we see there. We'll reduce debt down when we see a need, but if you think about the 2.4 x that we were at the half year, well, seasonally, we do tend to de-lever more in the second half. About half a turn on that 2.4x is the IFRS 16 capitalized leases.
If you take that out, we'd be sub 2x. Yes, we do have a continued cash need on the Terminix provision, which we've spoken about before. No real change on that, obviously, given this is just a quarter. But we were very comfortable with returning the proceeds from SOLitude. This business should be highly cash generative. We've spoken before about our ambition is to grow revenues against a consistent cost base so we can accrete margins, generate surplus cash, return that to shareholders, and drive mid-teens EPS growth. This business should be perfectly capable of doing that on a sustained period. That's the algorithm. That's what we're working toward. Thanks, Jane.
Thanks very much, and best of luck with everything, Paul.
Thank you. Appreciate it, Jane.
Our next question comes from the line of Allen Wells with Jefferies. Allen, please go ahead.
Hey, good morning, gentlemen. A couple from me, please. Firstly, just circling back on the lead gen side. You obviously saw lead gen fall from 6% or 7% down to negative in the quarter. Can you just talk us through the lag effect on how lead gen flows into growth because growth has obviously held up quite well. Is there an expectation that that could still impact as we go into Q4, the gen that's come down. Then specifically with lead gen down but growth stable, can you just maybe kind of the building blocks of what the offsets are. I'm guessing it's higher conversion on the leads that you are getting, or is there something else that's keeping growth up. You obviously do mention higher retention there. That's the first question.
Secondly, on that aggressive shift to kind of AI, at least in the narrative that we're hearing since May, June time, you've clearly taken action. Would it be fair to assume that you've accelerated or increased some of the investment required in the second half. If so, how does that actually change or impact the magnitude of the overall investment plan, or is it just kind of timing allocation versus where we were at the start of the year. Then finally, just on the pricing, you flagged good pricing dynamics. There's obviously a higher narrative around how AI may impact pricing at an industry level with kind of increased transparency, the use of agents. I just wonder if you can maybe just give us your thoughts on how AI impacts longer-term pricing within the industry, particularly for premium price players. Thank you.
Yeah, thanks. There's a lot here to unpack, so I'll start and then ham and egg it here with Paul. I think on the lead gen and lag effect, there's two different things on the leads. One is contract and one is jobs. Jobs are more immediate in terms of revenue recognition and contract, obviously, there is a lag there as you think about the initial and the recurring services. So it's hard to answer that cleanly without understanding the mix of the jobs versus contracts. So there is some lag on growth. In terms of what's driving our improvements, we are focused on conversion. So we've done a lot of stuff to create a more frictionless experience for customers in the customer journey, whether it's through our call centers in the IVR to speed to lead, speed to install, and shifting and reallocating dollars to those higher converting channels.
We're doing a lot of things from a self-help perspective to drive conversion and control the things we can control. In terms of AI and the investments, we're shifting dollars, so this hasn't been an incremental investment for marketing spend. We're reallocating dollars across our marketing mix to make sure that we're allocating dollars to the channels that have the highest returns. In terms of pricing, I think at the end of the day, this is not a commodity service. You're inviting somebody into your home. That's very intimate, and at least I know how it works at my house, and we're not just going to take anybody to show up and come into our home. You have to have a comfort with the technician that you can leave him or her in your house, invite them through personal spaces, et cetera.
Brands and local reputation matters, service consistency matters, and technician reputation matters. I don't think, from my perspective, it's not a race to the bottom on price. Again, it's not a commodity service. It's an intimate service that when you invite somebody into your home, you want to know and go with a brand you trust and you know. I don't know, Paul, anything?
Yeah, look, the only thing I'd add, Allen, is if you think about the conversations we've had over the last few years about marketing spend, when I came into the business in 2024, there'd been a lot of money that had been badly spent and hadn't delivered revenue for us. We've been reallocating that, really understanding the competencies that this business needs in the digital search environment. It isn't just about throwing more money to get more leads. It doesn't work that way. You can't just buy leads. You need to make sure that you are presenting your proposition to AI in the optimal way, so that you show up well as they look to make the best recommendations to the user of the AI. And we understand that well.
We've got very strong marketeers who know exactly what to do with content, and what the different LLMs will look for across the internet. We've been reorientating ourselves to stand up well against that. It's more doing that than just throwing more dollars at it. It's a fundamental understanding, and that's where the scale players are going to win, because we can do that. If you're just a small local operator, you can't really change anything. We can. Sometimes there's a slight lag effect as we look and see what's happening, and then we make the required changes. The scale player always wins in the long term. Thank you, Allen.
Thank you.
Our next question comes from the line of Nicole Manion with UBS. Nicole, please go ahead.
Good morning. Just one, I think, from me. Appreciate you've already said quite a lot about commercial, but obviously does seem as though there's been an improvement already in Q3 from some of the initiatives you outlined a few months ago. Is there any more detail you can give on the specific drivers of this? Is there an impact from the separation and the hiring of new operations managers already in there that you feel like you can speak to? Or is it more about some of the other self-help measures around customer saves and so on? Thanks.
Thanks, Nicole. I think the separation is new. That was announced in September. While we'd love to say that was the catalyst, that wasn't the catalyst. I think it's going back to some of the basics, frankly, on commercial and really focusing on service quality, showing up when we said we would show up. I think PestConnect is starting to build momentum and give our sales reps confidence in getting them back on the balls of their feet versus standing on their heels. They're being more. As you win gives you confidence creates momentum, and I think as they see these wins, because we do have a strong right to win in this space, it is a core competency of ours outside the U.S., and we've leveraged a lot of those best practices and disciplines. Like I said, PestConnect has done really well.
I think it's just our guys getting back on the balls of their feet, doing what we say we would do, and showing up on time and performing the service that we said we would do, and that's creating a lot of the momentum.
Thanks, Nicole.
Great. Thanks. Just a quick follow-up, though, if that's okay. Just around the separation, I was meaning more around the separate operations managers. Would it be fair to say then, based on what you've just said, that's still mostly ahead of you in terms of that hiring process and finding those people?
Yes. That is part of as we look at our investment thesis for next year. That is still within that scope. That is correct. But we have not done that.
Great. Thanks for the clarification. All the best as well, Paul.
Thank you, Nicole. Appreciate it.
There are no further questions. I will now hand it back to Heather Wood to address the written questions. Heather?
Thank you. Yes. We've had some great questions come in, written questions come in. Paul, I'll give this one to you because I think you covered it in your prepared remarks. Residential lead flow recovered a 1% decline in September after the weaker July and August. What were the declines in those two months?
Thank you, Heather, and thank you for whoever sent in that question. Look, as I've said, it has improved across the quarter sequentially. We saw a mid to high single digit decline for July and August. We're not quantifying it precisely. That sort of gives you the indication. What we've seen in September with that -1% is broadly continued through months to date in October. If there's any variation, we'll talk about that in February at the full years. That's what we're currently seeing. No more quantification we can provide today.
Thanks, Paul. Another question, Mike, on the residential and commercial split. Question about when will it be complete? Does it create duplicated costs, and will it require incremental investment?
Good question. Thank you. I think that we're working through the incremental investment piece. Obviously, our goal is not to add redundant costs and to run a cost-efficient model where we can. Mona and Mack, who are two industry vets with more than 40 years combined between them, one grew up on the Terminix side of the business, one on the Rentokil. They're working through the process now and understanding where, how, and when to make the right investments or splits.
Thanks, Mike. Then a question on the contract revenue improvement in North America pest control services, which was 3.1% in Q3. Just a question about how much of that improvement came from the improvement in the commercial national accounts, and how much from resi?
[Anne], thank you for the question. I do imagine we cannot split out every component of our improvements, and frankly, we sort of do not want to give any more information because it is a bit commercially sensitive. Those have both been drivers of the improvement, but I am not going to split it out with any more specificity. But thank you for the question.
Then one last one on the pilot. We have obviously identified the 150 improvement opportunity. A very specific question on which three to five will have the greatest financial impact, and what determines whether they will be rolled out nationally?
Which three to five of the 150? That is why you do a pilot. I think we are doing two things. We are looking at the customer journey, and we are also looking at the operating model. As we go through the pilot, we are taking learnings and best practices. I know Paul has talked about it a lot, and I think I mentioned it earlier. We have a number of branches, especially the upper third, the top tercile, that are performing above market from an OG, from a growth perspective. So learning from them and what they do well and repackaging it, if you will, and piloting it in these sites in Atlanta. That is why, like I said, why you do a pilot, see what works, what is scalable, and certainly, there will be things we can do immediately, and I know the team is already doing things immediately.
For example, in residential, looking at pre and post calls to make sure they're done consistently from the text with the consumer. There's a number of things I'm sure that we'll be able to roll out immediately at scale and some other things that will probably be more of a phased implementation. It's not rocket science. It's hard work, it's detailed work, but it's work that I've done in my past. I think as you get after it. People are excited about the pilot across the network because they're looking for opportunities to improve as well. They're anxious to see what learnings come out that can be replicated. A lot to learn over the next 12 weeks.
Great. Thanks, Mike. That's the end of the written questions. I will hand it back to you to close up the call.
I'll close. First, thank you, Paul. Paul, over the last seven months, has been very patient with me as I've asked him a thousand questions a day, and I appreciate it. He's been a great partner and a great asset to the company for the last two years. I know he'll be missed, but family takes priority, so we all support that decision. Turning to the business, I'll end where I started. I'm encouraged by the progress we've made since setting out our priorities in July to build a platform for sustainable organic growth through customer focus, through sales and operational excellence, and by simplifying the business. Our goal is not to reinvent Rentokil, but to take the many strengths of the company and apply them consistently across the group. As I mentioned, we're on a journey. Where we have taken action, we've seen results.
The team has done a great job stabilizing the business and returning to growth, and we need to build on that hard work. As I said, we still have wood to chop, but I am encouraged by the progress and how adaptive and resilient this organization is. Appreciate everybody's time. Thank you. For those in London, enjoy the sun. It's nice to see it out today. I don't know if it's staying tomorrow, though. Thank you, everybody.
Thanks, everybody.