Rentokil Initial plc (RTO) Earnings Call Transcript & Summary

Good morning, everyone, and thank you all for joining us today for this extended results session. So in a few moments, Stuart is going to provide you with details of our excellent performance in 2022 and provide technical guidance for '23. I'll then come back to provide a brief update on each of our categories and on our bolt-on M&A program. After that, we want to spend some time taking you through our plans for Terminix. We'll cover the integration plan and cost synergies, the investments we're making into the business and a number of positive accounting adjustments. We'll also share with you our high-level growth plan for the combined business in North America, where I'll be joined by Brett Ponton, who, of course, heads up our organization in the states. Also with us today are Vanessa Evans, our Group HR Director; and Mark Purcell; our Group IT Director, who are both heavily involved in the North America integration program. So to set the scene, let me just say a few words by covering the highlights of last year. Our full year results are very strong, reflecting an excellent performance in revenue, profit and cash, all ahead of our medium-term targets as well as an excellent year for M&A, where our bolt-on program didn't miss a beat despite also delivering the landmark Terminix transaction. Revenue increased by 19.1% to GBP 3.5 billion with organic growth of 6.6%. Adjusted operating profits grew by almost 23% to GBP 542 million, and we delivered a group margin of 15.4%, which is our highest for around 20 years. Now if we drop down to a level of our regions and our businesses, you can see that strong underlying revenue growth was delivered right across the board. Just to highlight 2 or 3 areas. Our North American business obviously grew significantly with the addition of Terminix, but also delivered a strong organic performance for the year, up by 5.7%. The Europe and Latin America region had an excellent year with revenue growth of 13.2%, of which 9.1% was organic. And Asia and MENAT delivered revenue growth of 13.4% with 11% organic growth. Looking at the revenue performance through a category lens, as you can see there on the right-hand side of the chart, Pest Control grew by 29% and accounted for 71% of the group's revenue in 2022. Revenue in Hygiene and Wellbeing increased by 9.8%, 9.3% organically, while in France, Workwear the business had an excellent year, growing revenues organically by 16.6%. Now completion of the Terminix transaction was, of course, the key highlight of the year adding valuable scale, capabilities and talent as well as the powerful Terminix brand. And we're now highly focused on delivering the deal's significant benefits. A new organization design has been finalized and a best-of-breed top team has been appointed. There's a strong level of colleague engagement across the organization, and we've now deployed a new shared mission, vision and values. We've also identified the best-of-breed systems and processes across the 2 organizations, which will be adopted over the course of the integration. Early synergies have started to come through. And obviously, I'll come back to that later. An optimal end-state branch network has now been designed and that will take us from over 600 branches to around 400 branches. We'll execute this in a planned and disciplined way using our vast integration experience. And despite this significant level of activity, trading in the fourth quarter was very good with the combined pest control business, delivering an organic growth rate of 5.6%. Looking ahead, as the undisputed leader in pest control, we will be very strongly positioned to create further value for shareholders. We have an increased net cost synergy number to at least $200 million to be delivered by the end of 2025. We've increased our medium-term group organic growth target to greater than 5%. It was previously between 4% and 5%. And beyond that, once we are through the integration, our ambition for organic growth in our U.S. Pest Control business is to consistently achieve 1.5x the industry growth rate. We're targeting a group adjusted operating profit margin in 2025 of greater than 19%. That's up from around 15% just before the deal, and our post-integration cash conversion will be above the 90% mark. So an excellent performance during the year, really good progress being made with Terminix and an exciting set of targets for the future. So with that, let me now hand over to Stuart.

Thank you, Andy, and good morning, everyone. I'll run through the financial highlights as what has been a strong year. I'll start with the group level numbers and then as usual, move through the regions and then look at the balance sheet. Unless I state to the contrary, all numbers are at constant rates of exchange. The business delivered a strong top line performance in the year. Revenue was up 19.1% to GBP 3,522 million, benefiting from good underlying growth and, of course, the Terminix acquisition. Organic revenue, which excludes this infection was up 6.6%. This translates to adjusted operating profit of GBP 542 million, a year-on-year increase of 22.7%. The strong profit conversion from the higher revenues in addition to Terminix synergies and IFRS accounting adjustments, which I'll discuss shortly, has resulted in improved group margin of 15.4%, a year-on-year 45 basis point improvement. This reflects margin improvement across most of our regions, including notably in our North American and European businesses. Free cash flow in the year results from strong profit performance and was GBP 374 million. This represents about 92% cash conversion, excluding the impact of one-off cash flows, mostly related to the Terminix transaction. These factors, combined with the continued success of our bolt-on M&A program and the dividend payment resulted in pro forma net debt to adjusted EBITDA ratio at year-end of less than 3.2x. Based on a strong full year performance, the Board has recommended a final dividend for the year of 5.15p per share to bring the total dividend for 2022 to 7.55p per share more than an 18% rise year-on-year. This is in line with our progressive dividend policy as well as our commitments at the time of the Terminix deal and demonstrates our confidence in the outlook for the business. I want to briefly step back and look at some of our key financials over the longer term. On this slide, we show a number of P&L and cash flow metrics over the longer term. These charts illustrate the trends of the business, evidencing our strong and consistent progress over the longer term in compounding revenue, profit and cash performance through organic growth and M&A. To pull out just one of these trend lines, adjusted operating margin in the top right quadrant, we can see a 290 basis point improvement in the period from 12.5% to 15.4%, our highest net margin in 20 years. This speaks to the success of our business model, which is focused on increasing route density, maximizing the efficiency of our support structure and driving advantage through the use of technology and innovation. I'd like to say a few words about our margin development in 2022. Here, we firstly look at the factors that drive our net 45 basis point year-on-year improvement. Underlying training -- trading delivered through the continued execution of our strategy, which has driven business growth and improved density, contributed to nearly 30 basis points to margin. Terminix overall contributed a net benefit of 19 basis points. The underlying Terminix business dampened group margin by 45 basis points However, this was more than offset by realized synergies and IFRS accounting adjustments of 64 basis points, with about $18 million of the benefit coming from accounting versus our guidance of $14 million and $13 million from synergies, again, versus our guidance of $4 million. Looking at inflation, we've worked hard this year to both recover cost and protect margin. As expected, margin showed less progress in the second half as inflationary wage increases largely dated from the first of July, but margins were still broadly in line with the prior year. Two of our most significant cost lines are employees and fuel. People-based costs are our single largest cost accounting for more than 50% of revenue, while fuel for vehicles is the most volatile line item. Cost inflation as a percentage of revenue has moved as expected. And as a consequence, at this point, we remain confident that we can continue to pass on input cost inflation to our customer base, whilst clearly keeping this under very close review. For you to review in your own time in the appendix, we've set out in more detail the impact of Terminix on group margins as well as an estimate of Terminix margins had they reported in the full year. These lines -- these margins are in line with that anticipated in the acquisition case. Looking now at our performance by region, starting with North America. Our core North American business grew by 29.7% in the year, of which 5.7% was organic. If we break that organic number down, we estimate that the full year growth of Rentokil North America, that is stand-alone Rentokil, was similar to Terminix's annualized run rate from the date of its acquisition. In spite of a slightly weaker Q3 performance, we still delivered a good full year growth rate in North America Pest Control of 5.3%. The full year organic performance reflected an increase in contribution from price rises to offset the expected inflationary pressures, and we had good pricing across all channels in the region. The positive performance in the North America business continued into the year-end, driven by good underlying trading at both Rentokil North America and Terminix and also by strong delivery on synergies from the Terminix transaction. North America Pest Control delivered 5.6% growth for the final quarter. Again, we saw similar rates of growth at Rentokil North America and Terminix in Q4. Adjusted operating profit was up 32.7%. We've had a stated ambition to improve margin year-on-year in North America, and that's what we delivered once again. Adjusted operating margins in the region increased to 17.1% for the full year. That's a 40 basis point improvement year-on-year. Our target of 18% net operating margin at Rentokil North America by the end of 2022 has also been met with margins in Q4, whilst always a strong period well in excess of 18%. That margin journey has been driven by growth, both organic and acquisitive, creating increased density and underpinned by the implementation of our Best of Breed operating platform, which we completed at the beginning of last year. Despite the attention given to the Terminix transaction, we've had another excellent year for bolt-on M&A in North America, acquiring 13 businesses with combined annualized revenues of around GBP 38 million in the year prior to purchase. Turning now to the European region. A really good performance across the board here, driven by both pricing and volume, revenue rose by 13.2%. Organic revenue growth was 9.1%. All three business categories in Europe posted strong numbers. Pest control revenue was up 21.5%. Hygiene and Wellbeing, on this metric, including disinfection, was up 2.4%, while France Workwear recorded growth of 16.6%. Hygiene and Wellbeing is back to providing full contractual service terms in most of its markets in the region. France Workwear, overall, is actually exceeding pre-COVID levels supported by robust pricing. Adjusted operating profit rose by 14.8%. We've been successful at protecting margins with pass-through pricing and that provides a stable basis for the delivery of a 30 basis point improvement in adjusted operating margins to 19.9% through business growth and improved density. Whilst labor markets throughout the region remain tight, we've been very effective at managing the pressures. Consistent with other regions, we've seen no material increase in bad debt or insolvencies in Europe. The region completed 18 business acquisitions in the year with annualized revenues of GBP 62 million in the year prior to purchase. Turning to the U.K. and Sub-Saharan Africa. The region delivered a resilient trading performance against strong COVID-related comparators in 2021, particularly in the U.K.'s medical waste business. Revenue for the region increased by 2.9%. Pest Control was up 6.2%; Hygiene and Wellbeing was down slightly owed to the expected reduction in COVID disinfection business. Our Ambius business delivered an improved performance, reflecting a more supportive operating environment in the hospitality, office and travel sectors. Regional adjusted operating profit increased by 1.7% to GBP 96 million. Adjusted operating margins were 26%. It's worth, again, noting that regional cash performance has been good with debtor days ahead of pre-COVID levels. Inflationary pressures have been significant in the U.K., but our pricing systems have delivered a price performance that has mitigated cost inflation. Despite price increases, customer retention is up over 1 percentage point year-on-year at 86.6%. Looking now at Asia and MENAT. The year saw a strong performance as we benefited from post-COVID market reopening in most countries. Sector's hardest hit from the pandemic, such as hospitality, retail and offices resumed operations. This led to a quick recovery in demand for core service provision in both pest control and hygiene, with recovery led by two of the region's largest markets: Indonesia and Malaysia. Regional revenue rose by 13.4%, of which 11% was organic. We've made good progress on price increases in a region where we have been historically less successful. Demand recovery and pricing have helped deliver 17.5% growth in adjusted operating profit. Adjusted operating margin for the Asia and MENAT region was up 50 basis points to 13.9%. And finally, returning to the Pacific region, another very strong trading performance here. Regional revenue increased by 12.8%, of which 7.9% was organic. Pest Control was up 12.9%, with notable strength in commercial. Hygiene and Wellbeing was up 12.7%. We've had good demand in the region for Ambius services and new air hygiene solutions. Regional adjusted operating profit was up 19.7%, with an increase in adjusted operating margin of 120 basis points to 20.9%. In the region, we acquired 7 pest control businesses and 1 Hygiene and Wellbeing business. So that's a rundown of our regions, which, as you can see, have performed very well overall in the year. Across our geographies, with the persistence of inflationary cost pressures most notably wage inflation but also in fuel, but we continue to be very successful in mitigating increases through pricing. Let me say a few words now on cash flow and debt. Adjusted cash flow of GBP 490 million, was GBP 31 million higher than in 2021. It was driven by an increase in adjusted operating profit, offset by one-off items, much of which was related to deal and integration costs of return acquisition. The group had a GBP 9 million working capital inflow in the year due to tight management of payables and receivables. There was a partial offset from higher levels of inventory to protect against potential supply chain challenges. Capital expenditure of GBP 185 million reflects a more normal pattern of spend post-pandemic. It also includes Terminix CapEx in the final quarter of the year. On the second cash flow slide, we see that free cash flow was GBP 374 million. Cash interest payments of GBP 39 million were only GBP 2 million higher than the prior year, reflecting the timing of interest charge payments relating to the financing of the Terminix transaction. Cash tax payments of GBP 77 million reflect higher group profit. Cash spend on current and prior acquisitions, dividend payments, proceeds from new debt and the cash impact of one-off and adjusting items largely due to deal integration costs, contributed to an increase in cash and cash equivalents of GBP 726 million. So let's have a look at debt. As a reminder, we are active in the debt market in the first half to finance the Terminix acquisition. We issued 3 bonds converting our short-term bridge facility into longer-term debt. These bonds, alongside the $700 million term loan, covered transaction costs and Terminix debt. Terminix's term loan and facility and bonds were repaid in October and November 2022. The other material item seen on the slide is for FX translation of GBP 131 million. This is primarily due to the strengthening of the dollar against sterling. We closed the period with net debt of GBP 3.3 billion, in line with our guidance. That's a proforma net debt to adjusted EBITDA of less than 3.2x. The group remains committed to an investment-grade rating of BBB. And as you'll see in our medium-term outlook, we're targeting a net debt to unadjusted EBITDA ratio of less than 3x by the end of 2024. On this slide, we update some technical guidance to help you with your models in relation to the full year 2023. I'll let you read this in your own time, but I will draw your eye to a couple of items. For the avoidance of doubt, the accounting benefit is an additional $32 million versus 2022. Interest is in the range of GBP 125 million to GBP 135 million after the expected noncash hyperinflation credit of GBP 20 million to GBP 25 million. Note that about 75% of our interest costs are fixed, and therefore, not subject to rate volatility. An effective tax rate of 25% to 26% reflects the expected U.K. increase in April and the fact that a high proportion of group profits are in the United States. At this point, I'll hand back to Andy, who will take us through the business category performance.

Thank you, Stuart. Right, over the next few minutes, and I'm going to update you on the performance of our operating model and our three businesses before turning to the exciting opportunities with Terminix. I'm sure you all recognize our operating model starting, of course, at the top with our colleagues and our Employer of Choice agenda. That rolls into excellent customer service, into innovation, into digital, on to the delivery of profitable growth and then on to our capital allocation model and ESG at the top. So let me focus though today just on our colleagues. Despite the continued labor market pressures in some areas, our recruitment systems and our processes performed really well in 2022. Our Careers+ app, which allows colleagues to apply and to refer or share career opportunities across their own social networks, now has 16,000 registered users from within the Rentokil Initial family. And that's delivered an impressive 27,000 job applications into the Rentokil Initial Group from this network. And this was one of the first pieces of best practice that we were able to share with Terminix to enhance their recruitment. And in the first 6 weeks has already generated the first 330 job applications directly into Terminix as a result of the vacancy shared online by colleagues. Colleague retention in Rentokil Initial has remained strong overall at 82.6%, the standout performance coming from our Europe region at 91% and our largest business, North America, delivering a retention rate of 81%. Colleague retention in Terminix now stands at 64%, which despite a year of obvious uncertainty improved by 1% year-on-year and year-to-date has improved a further 1% to 65%. Clearly, the opportunity to materially improve colleague retention in Terminix is as significant as it is exciting. So turning now to pest control. Rentokil, which operates in 90 countries and 97 of the world's largest cities by GDP, had a very strong year with revenue growth of 29%, organic growth of 5.6% and with profits growing also by around 29% and with an adjusted operating margin of 18.6%. In addition to the Terminix deal, we completed 46 bolt-on acquisitions in the year with annualized revenues of GBP 121 million. As you can see on the right-hand side, the growth in our pest control business has been very consistent. And since 2015, we've delivered CAGRs of over 15% for both revenue and for profit. As well as our unmatched position in growth in emerging markets, Rentokil also leads the industry in technology. And as this slide demonstrates, we continue to scale that competitive advantage. We've got around 290,000 pest connection devices now in customers' premises. That's up 24% year-on-year. And PestConnect is typically sold on a 3-year contract basis and underlining the quality of the service, our U.K. business, and that's been the flagship for PestConnect is now seeing higher-than-average customer retention rates in its connected base. Our PestConnect units sent over 300 million messages last year. These are real-time status reports, including whether a unit has been triggered by rodent activity. And this gives us and our customers highly transparent data on the pest control status of their facilities. In addition, we now have 1.2 million customer sites, which have their service data available 24/7 through the myRentokil digital customer portal. And this combination of connected technologies, of customer insight tools and big data analysis will be available to Terminix commercial customers over the course of the integration program. Now as you know, one of the drivers of organic growth is digital innovation. And last year, we've continued to push the boundaries with new technology trials using many digital cameras and artificial intelligence to recognize pests and also to provide an early warning of potential infestation. To date, those trials have been focused on rodent control with technicians and field biologists in the U.K. testing this new technology. However, last year, we acquired Eitan Amichai, the largest pest control company in Israel, which is also the leader in the use of artificial intelligence in pest control. They've moved beyond trials. They have this technology working in around 170 customers, including some major international key accounts. And they've now expanded the systems capabilities to use artificial intelligence also to recognize 7 different types of insects. This is just one example from our innovation pipeline of around 50 projects, and these are designed to support organic growth and customer retention to enhance our productivity and to introduce more sustainable solutions to our customers, making us the global leader in the use of cutting-edge technology in pest control. Let me turn now to Hygiene and Wellbeing where we also continue to make very good progress last year. Revenues increased by 9.3% organically, excluding the emergency COVID disinfection services, which, as expected, were only around GBP 20 million in the year. Profits increased by around 20% year-on-year, with an adjusted operating margin of 19.1% and this accounted for around 1/4 of the group's adjusted operating profit. Revenues in core hygiene services, that's inside the washrooms, grew by 10.4%, with enhanced environments, that's outside of the washroom, up by 8.8%. There were good performances in air care and air purification and also in Ambius, which grew revenues by 15%. Supporting this performance, we've continued to deliver a range of product enhancements, and we've maintained a very high level of customer satisfaction. Our new signature hand-print range is designed to attract younger children's attention and encourage regular handwashing in schools. The new Luna hand driers have hospital-grade HEPA filters and low energy motors. And our myInitial customer portal, which was upgraded in 2022 with an enhanced customer experience is now live in around 20 countries with over 100,000 registered users. And as you can see on the right there, in the year, we exceeded our target for 90% of our hygiene paper to hold appropriate sustainable forestry certification. On Trustpilot, potential new customers can now read over 10,000 customer reviews with an outstanding overall score of 4.9 out of 5 and by our own measure of customer satisfaction, the robust Net Promoter Score. This improved by 3.7 points last year to a high overall score of 47.7. So all in all, a very strong year for Hygiene and Wellbeing. Now turning very briefly to France Workwear. I'm pleased to say this also had an extremely good year benefiting from a strong post-pandemic recovery. Revenues increased by 16.6% year-on-year, all of which was organic, while profits enjoyed a post-COVID recovery and increased by 81.6%. As you can see on the right, both revenue and profit have now exceeded their 2019 pre-pandemic levels. During the year, we've continued to deliver more efficient and sustainable operations. Water consumption in the laundries has been halved over the last 20 years or so due to the installation of modern tunnel washes. And last year, we completed that deployment with our last remaining laundries having these new and highly efficient washing machines installed. So turning now to bolt-on acquisitions, which are, of course, are a core part of our strategy, enabling us to build route density and also to target those higher-growth cities of the future. In 2022, we delivered 52 bolt-on acquisitions with annualized revenues of GBP 125 million, one deal a week for the second year running, demonstrating the strength of our pipeline, and 38 of these deals were completed in our target cities of the future, including in Santiago, in the Klang Valley, in Delhi and Lahore. And based on our most recent annual review, the M&A program continues to deliver revenue and profit ahead of our expectations and with aggregate returns above our acquired IRR hurdle rates. The M&A pipeline remains strong, and our target spend for 2023 is around GBP 250 million, in line with last year's bolt-on program. So we continue to focus on the execution of our strategy, concentrating on people, on safety, on customer service and customer retention, on innovation, on digital, on sales and on sustainability and also on infill M&A. So let's now move on and talk about delivering the pest control powerhouse. You've all heard me talk at length about this incredibly exciting deal. You've heard me talk about the highly complementary fit of the two businesses with Rentokil's core strengths in commercial pest control and Terminix's strong heritage in residential and termite control. You've also heard me talk about the excellent cost synergies and more on that shortly. But today, we're also going to talk about delivering the pest control powerhouse in the context of the significant growth opportunity that being the market leader in the massive North American market and indeed, the global leader will present to us over the coming years. As I'm sure you'll recall, I set out to appoint a senior team in North America comprised of the top talent from both Rentokil and Terminix, and we've achieved that, as you can see on the screen. We were also pleased to have appointed two of Terminix' senior leaders to Rentokil Initial group-wide roles as Group Director for Safety, Health and Environment and as Group Director for Information Security. With the top team in place, we've been able to make great progress on the combined structure of our U.S. pest control operations. We've divided the U.S. into 7 regions each comprising commercial, residential and termite operations, and we've appointed highly experienced operators to head up those regions with each region accounting for between $400 million and $500 million of revenue. Over the next 3 years, we'll be moving from over 600 branches with the average branch delivering annual revenues of about $5 million to around 400 larger branches, each delivering between $8 million and $10 million, enabling us to deliver both density network benefits as well as span of control operational productivity and savings. Our program of this scale obviously requires exceptional governance, and we've put in place a robust structure of program management with key operational leaders from both organizations alongside dedicated functional experts and external experts, all supporting the program from design to implementation. So let me now cover one of the most important charts in the presentation. As I mentioned earlier, we are uplifting our expected annualized net cost synergies from at least $150 million to more than $200 million. As you can see from the chart, most of these synergies come from two broad areas. We'll achieve around $150 million of savings in SG&A and a further $125 million of savings from field operations and from the branch network. So that's a total gross synergies of around $275 million. Offsetting these synergies will be cost investments or negative synergies, if you like, which will go back into the business over the next 3 years. And these are important investments to underpin the synergy delivery, but also to ensure the quality of the enhanced operations going forward. In addition to delivering the net cost synergies of more than $200 million over 2022 to 2023, we also have around $50 million of positive accounting adjustments coming from the move from U.S. GAAP to IFRS. Now if you look down the chart from top to bottom, you'll see that in the period since completion, we've delivered $15 million of SG&A synergies, no synergies yet from the field operations. We've made $2 million of investments into the business, giving us an overall net synergy benefit of $13 million in 2022. Adding to that, we had an $18 million benefit flowing from the accounting adjustments I mentioned earlier. Therefore, in 2022, cost synergies, less investments plus accounting adjustments delivered $31 million to profits in the year. If you look down the 2023 column, you'll see the equivalent contributions we expect to deliver this year with a further $80 million of SG&A savings, the first $10 million of savings from field operations. This year, we expect to make around $30 million of investment into the business, and that gives us a net saving of $60 million in the year ahead, a further $32 million of accounting adjustments over and above the $18 million in 2022, gives us an expected $92 million overall positive impact to our profits in 2023. In the third column there, you can see the benefits of synergy delivery and investments coming through over the 2024 and 2025 period. You'll also note that the one-off cost to achieve the original $150 million of synergies was also $150 million. And this one-off cost to achieve will now increase to around $200 million, in line with our new annualized cost synergy expectations of more than $200 million. Now I'm going to put a little bit more meat on these synergy bones, but I also want to draw your attention to the box on the right-hand side of the chart there. This is a deal that is not just about synergies. This is a deal that is about becoming the powerhouse in pest control, where we also expect to see significant revenue growth opportunities in the post integration phase with our ambition to achieve pest control organic revenue growth in North America at 1.5x the industry growth rate. So looking first SG&A, we've broken that into three main parts: Sales, procurement and support functions, which together will account for around $150 million of gross synergies. In sales, our focus will be driving up sales productivity; improving lead flow to the frontline teams; and sharing best practices across the two organizations. We've already made a very good start in procurement, for example, in aligning fleet policies and appointing a single supplier for North America, whilst also signing a number of product supply deals using our enhanced buyer power. And in the support functions, we're on track to right size the combined organization across our functions and in particular, in HR, IT, finance and marketing to create a structure that will best support our frontline teams. Moving on to the combined field operations, where we plan to create a network of fewer but larger branches with tighter, more dense routes and with good operational leverage across our branch management and support functions. This process will take time as it requires the implementation of a single IT stack; the move to a smaller number of strong brands; the harmonization of frontline paying benefits; and the alignment of customer offerings. We've given ourselves 3 years to complete this part of the project with a disciplined approach that will fully utilize our shared acquisition integration experience in North America and with $125 million of cost synergies being delivered by the end of 2025. So I mentioned a moment ago to enable the success of the integration, we plan to make investments of around $75 million over the next 3 years into the future of our business in North America. These investments include management pay harmonization where we're making good progress with the appointment of the wider management team, frontline pay and benefit alignment, an exciting new innovation center, which will focus on residential termite and vector control, which we plan to open in Dallas later this year with an additional termite facility to be based in Mobile, Alabama. We'll be investing in branding, including down at the branch level, covering vehicles, uniforms and signage. And of course, we're aligning on safety policies with additional personal protection equipment for the combined team, ensuring that all of our employees have the very best and the very safest equipment. So hopefully, that gives you a good understanding of where the synergies are going to come from over what period they're going to be delivered, what investments we need to make into the business. Now as Brett will highlight shortly, termite control. We're going to go back to school for a minute now. You're going to enjoy this. You're going to be talking about this over dinner. Termite control is an outstanding business. When Terminix has long been the market leader in termite. But to appreciate the market, which is going to be new to many of you, but also to understand the accounting for the historical termite claims, I first need to give you a quick primer on this business. So I sit back and relax. In many parts of the world, including in the U.S., of course, termites can have a significant impact on businesses and in particular, on residential properties. To keep things simple, there's three main types of termite: Subterranean, this is the most common type of termite widespread across many states in the U.S., drywood termites. These are common in the states, which are near the Coast, California and Florida, in particular. And thirdly, Formosan. Formosan termites are a particularly aggressive termite and they're found primarily in Alabama, Louisiana, Mississippi and along the Gulf Coast. Now termite control accounts for roughly 1/5 of the U.S. pest control market, and we estimate that it was worth about $2.2 billion last year. So it's a really important market. The reason that termites is such a significant pest is that they consume the cellulose in wood, and they work their way through a building. As you can see there on the chart on the right, in 2021, over 90% of all new homes in the United States were built with wooden frames. If you're unlucky enough to have a termite problem in your building, if it's left untreated, the damage can be very substantial. Again, you can see examples on the screen. So Terminix essentially provides two core services. First one is a basic treatment and a retreatment warranty only service, where a treatment is applied in and around the structures and if termites go on to infest the structure, our only obligation is to come back and to retreat that property in an attempt to eliminate the termites. The second offer is an advanced treatment and retreatment and repair warranty service, where the treatment is applied in and around the structures, but if termites go on to infest those structures, not only will we retreat, but we will also repair the damage that is being caused by the termite under the terms of the warranty. Now to prevent a potential termite problem in the first place, the industry typically offers liquid treatment and a baiting system. And if you have a termite problem, typical solutions range from liquid spot treatments there all the way through to full fumigation of the property and property repair. So if a customer under the advanced repair warranty has a termite problem, they notify that to Terminix. Terminix will open a formal claim. Importantly, this occurred for less than 1% of Terminix's customers last year. Subject matter experts will then talk to the customer about the process to repair the damage and license contractors will carry out the repairs and check that the customer is satisfied with the repairs. In some rare instances, if a dispute arises, the customer may seek legal representation and may potentially file a lawsuit. Now to its credit, Terminix has already put in place several improvements to its termite systems and processes. It's given its technicians enhanced tools and technology. It's completed its transition from a third-party claims management team to an in-house team of experts, and it's proactively offered to provide supplemental treatments to areas with heavy pressure of those Formosan termites, particularly in Mobile, Alabama. In addition, in January of this year, we have introduced a new warranty cap of $250,000 in relation to all new termite residential sales instead of the old uncapped liability commitment. And as I mentioned a moment ago, we'll also shortly be introducing a new termite innovation team to be based in Mobile, Alabama. Now as you can see on the screen there, over the last few years, Terminix has in fact, seen a number of improved trends in the termite claims space. The total number of warranty claims filed by customers has reduced by 35% since 2019 to just over 2,000 claims last year. The number of open claims at the end of last year has reduced to 608 claims. That's a reduction of about 50% since 2019. And looking at the total of filed warranty claims in the critical Mobile Bay area, these have reduced by 59% since 2019 and to 285 last year. Over the same period, the number of complex litigated termite damage claims filed, have remained around the 40 to 55 mark each year. Now obviously, we can't guarantee these positive trends into the future, but we are generally encouraged by these data points, and we're delighted with the termite expertise that we have in the business. Right. So you are now all experts in termite control. You will be talking about it later. I have to briefly mention some accounting. And as you know, I'm not an accountant but here we go. On the U.S. GAAP, the cost to remediate customer claims and to respond to those claims and litigation were effectively expensed by Terminix on a pay-as-you-go through the P&L. Under IFRS accounting, the future liability from existing customers has been modeled, and we've done that in consultation with expert external advisers. And that liability has been put on the balance sheet as is required by IFRS. So there is a chart in the appendix for those particularly interested in the accounting that explains that in excruciating detail for you, but it will explain what that accounting change and why we've made it. So that's it for me on integration synergies, on investments, on the exciting topic of termites and its accounting. And with that, I'm going to hand over to Brett, who's going to talk through growth plan for the North America business. I'll then come back very briefly to round off, and we move into questions. Over to you, Brett.

Thank you, Andy, and good morning, everyone. Over the last year, I've had the pleasure of meeting hundreds of Rentokil colleagues in our North America business and globally have met Rentokil initial leaders and colleagues from around the world. What's really clear to me is that the shared culture of both companies will be an important driver of our success over the next 3 years, similar people doing similar things in similar ways and with a willingness to learn from one another. Globally, pest control is a resilient growth industry, which we expect to deliver a CAGR of around 5% to 6% through to 2027, with the more mature U.S. markets growing at around 5% and the rest of the world at around 6%. This is an attractive market where pest control is a license to operate for many industries. There are 3 segments of the pest control market, commercial, residential and termite control and globally, as you can see on the left-hand side of the chart, each is forecast to grow at around 5.5% to 6% through to 2027. The U.S. accounts for over 50% of the global residential and termite markets and 65% of the U.S. market is in the strong residential and termite markets where, of course, Terminix has core strengths, brand and know-how. Turning to the growth drivers. And here, you can see that the market is being fueled by a number of attractive drivers. Let me draw your attention to 1 or 2 of the drivers. Firstly, in the case of residential in the U.S. and despite the size of the market, there is still relatively low penetration among homeowners with less than 15% of consumers who have professional pest care done for them. Secondly, in the U.S., there is a population migration to the southern states where hot and humid temperatures are also, of course, conducive environments to test. On the commercial side, and as I mentioned earlier, pest control is a nondiscretionary expense for many of our commercial customers as well, there is an increasing regulatory pressure in the case of specialized businesses. There is also increasing awareness of sustainability by our commercial customers and more interest in sustainable solutions. These things, coupled with climate change, population growth and a rising middle class, create a blend of social, economic and regulatory trends that are tailwinds for our business. Today, we estimate that there are around 75,000 pest control companies in the world. Both Terminix and Rentokil have a long history of strong acquisitions and reputations for being good acquirers. So clearly, the pipeline for acquisitions continues to be robust in what remains a highly fragmented market, and there are attractive opportunities for continued growth through tuck-in M&A in the U.S. and beyond. In the U.S., the top 100 pest control companies are also getting larger. With the entry point on the PCT top 100 companies increasing from around $5.6 million in 2016 to around $7.5 million in 2022. So pest control is a thriving, growing market. And of course, following the deal in October, we are now the #1 pest control business in the world. for commercial, residential and termite control. Clearly, one of the reasons why this transaction has a strong financial case are the benefits of scale. In America, we are now 1.5x our nearest rival, and that scale means that we can drive greater purchasing power and build additional local branch density, as Andy has already demonstrated. We can drive more powerful digital marketing with a smaller, more impactful set of brands and of course, to invest in technology in a way that other pest control companies simply can't. So Andy has laid out the integration benefits, but clearly, there is an outstanding organic growth opportunity, too, as we bring together the two companies. Here, you can see our growth plan and the building blocks for organic growth over the next several years. These initiatives and the key enablers that underpin our strategy allow us to build organizational capability to deliver our ambition of organic growth of 1.5x the North America industry rate post integration. I'll briefly touch on each one. You will hear me talk about the Rentokil Terminix way over the next several slides. And it's all about scaling the best of the best our 2 companies offer in a uniform way across the organization. We're looking at core business processes, training, technology enablers and rewards recognition programs to encourage adoption along the way. For colleagues, it means we're training the best practices for both organizations. They are using systems that are seamless, and we have compensation and recognition plans that incentivize our people to execute the process at a very high level. Engaged, motivated and well-trained colleagues will deliver happy customers who will stay with us. For customers, it means their technicians are advising them and offering them superior solutions. It means they have a frictionless customer experience, and they would prefer us to any other pest control company in North America. Currently, our customer retention rate is around the mid-70s. So clearly, we have a material opportunity to drive this up as part of our program. An area of strength and focus of Terminix and residential pest has been the Trusted Advisor Process to drive higher levels of customer penetration, and we plan to scale this program across the combined organization. The Trusted Advisor Process is all about leveraging our technicians to not only perform the service, but also equip them to do a simple inspection around the home and make it easy for them to recommend additional services that we offer to protect the customers' home. Trusted Advisor has been a game changer for our field colleagues. The program makes them better service professionals better at understanding and communicating with our customers, better at demonstrating the expertise and knowledge our technicians have and better at advising our customers. Since launching early last year, Trusted Advisor continues to result in a significant improvement in organic growth and more and more technicians are now seeing how executing this process can also benefit their paychecks. As an example of how significant that opportunity is at scale, in residential pest, we have 4 core services we offer consumers, general pest, termite, mosquito and wildlife control. Currently today, our customers buy, on average, 1.3 of those 4 core services. And we know that every 10 basis points of penetration is equal to about $50 million of revenue. So the more services the customer has, the more connected to us they are and the less likely they are to leave us. Ultimately, customer penetration tightly correlates with customer retention and clearly improve performance. So this will be a big focus for us going forward. The next building block we are focused on is pricing. With the current inflationary environment, we recognize the -- how important robust pricing strategies are in driving growth and protecting our margins. But importantly, we have a very strong portfolio brands and should be proud to charge a premium price because we're delivering the very best service levels through the very best technicians in the industry. We have already begun harmonizing our go-to-market strategy, core consumer offerings and our standard service protocols. So naturally, it's a good time to also harmonize pricing for both new customers and renewals. We are also leveraging Terminix's capability to take a segmentation approach to develop more localized pricing strategies. Turning now to innovation. This is a very exciting opportunity for the Terminix team, we've seen Rentokil's technology and innovations and now have the opportunity to commercialize them in North America. The digital remote monitoring services that Andy mentioned earlier will be an exciting opportunity to drive across the commercial market. We have some groundwork to do first in IT and systems but PestConnect, myRentokil and the data benefits of the Command Center will be heading to North America. As Andy mentioned earlier, we'll be launching later this year in Dallas, North America's dedicated Pest Control Innovation Center with a strong focus on termite, residential pest and vector control. The final organic growth building block is acquiring new customers, both in residential and our commercial markets. On the residential side, we have a great opportunity to harmonize our brands. We currently have more than 80 branded pest control businesses, and we're executing a very thoughtful brand transition strategy. Our 3-year vision is to migrate to Terminix as the primary brand for residential and small to medium-sized enterprises and Rentokil as the brand for our large commercial offerings. We also have the opportunity to become smarter and more sophisticated in digital marketing. This includes finding more effective digital marketing tactics, while strengthening our organic marketing, reducing our cost to acquire a customer and increasing our customer lifetime value. On the commercial side, Rentokil has a great reputation in North America with strong commercial brands and offerings. As I've mentioned before, Rentokil is much more mature in this space, and the quick win for us is to leverage these strong capabilities in commercial and apply them to Terminix. We have the opportunity to be thoughtful about customer segmentation and our go-to-market approach by segment or vertical. We have a clear understanding of the attractive segments and value propositions to win in each. In terms of selling, we have already identified our common technology and processes and are off to the races in harmonizing our approach to local selling. Turning now to the key enablers of growth. As I mentioned earlier, it starts with our colleagues. We have an experienced HR team in place, and they've made a strong start in 2022 against a detailed plan with key aspects, as you can see on the right, set to be completed by the end of 2023. While a longer-term objective is to become the Employer of Choice in North America, we have 3 big pieces of work ahead of us, starting with an early focus on our HR information systems and the onboarding process for new colleagues. Next, we'll be addressing the need to build well-defined career paths for our colleagues in North America. The second enabler of our strategy is technology. I spoke earlier about the Rentokil Terminix Way, while it starts with establishing clear standards and processes and then training to those standards, you must also have the technology in place that will enable this work to be performed in a consistent and efficient manner. The pre-work has now all been completed, and we have really assembled a very impressive team across the organization. They've done tremendous work mapping out the technology road map to deliver best-in-class systems and architecture. We have a clear view on where we're headed from a systems point of view and how to get there. In 2023, we're focusing on migrating existing acquisitions and building out towards a full systems and IT pilot with the first Terminix branch moving to the end-state later this year, of course, ahead of the full-blown migration scheduled for 2024. Turning to the next slide and the final enabler of our strategy, I want to talk about what it means to be the leaders in North America. It means that we have a responsibility of taking on leadership positions. The industry is following this merger very closely. And as the industry leader, there are opportunities for Rentokil Terminix to establish the standards for safety, service, technology and sustainability. For instance, we have committed to developing a plan to achieve net zero with an early focus on fumigation. There is increasingly higher demand for delivering sustainable pest control in North America, and we want to establish Rentokil Terminix as the clear leader. This level of influence and leadership in such a fragmented market creates an incredible competitive advantage for us. So just to pull it all together, there is a strong market growth in the world's largest pest control market with favorable underlying drivers and we have a clear growth plan based on 5 key areas and 3 core enablers. We're excited about the potential for this business. And together, we believe we can achieve our goal of growing 1.5x the industry average post integration. We have a big agenda ahead of us, but I'm very confident that we have the team assembled to deliver it. And with that, I'll hand it back over to Andy to wrap up.

Thank you, Brett. We've taken you through in some detail already 2022, and we delivered an excellent financial and operational performance. You can see that summarized on the chart. And whilst I'm really delighted with that 2022 performance, what I'm really excited about is the opportunity that we've got with the Terminix deal to lead the pest industry and to deliver the growth and the margin expansion opportunities that are summarized on the chart there. We are delivering the powerhouse in pest control. And I look forward to updating you all on our progress on that journey over the next 3 years. So with that, thank you very much indeed. We'll take questions, and we'll start in the room, and then we'll take any additional questions from the online audience.

Great. Thanks, Andy. It's Paul Sullivan from Barclays. Three for me. Firstly, could you talk about the range of outcomes that you envisage for organic revenue growth this year? And how we should be thinking about that? And how should we be thinking of growth as we progress through the year? Secondly, love you to share your thoughts on underlying margin improvement ex synergies for 2023. And then maybe one for Brett. Could you talk about where you are in the sort of underlying turnaround at Terminix and how that's either hindered or enhanced by the integration process?

Paul. Yes. I mean, as you know, we've never commented before, I'm probably not going to start now, on giving an in-year target for organic growth in a particular year, more than -- obviously, we're already in the year and we started just fine. I will make the point sort of linked in a bit on it. The medium-term growth aspiration that we have, I use the words quite carefully, post integration, the only point I would make is any of you who have ever been involved in the integration of a large project, organic growth will not be linear over the next 3 years. It will be a little bit up, little bit down, lilttle bit up, little bit down. And I apologize, you're just going to have to get used to that. And it doesn't mean the wheels will fall off the wagon if it goes down a little bit, and it doesn't mean we're off to the sunny uplands if it goes up a little bit because you're bringing together these operations. And when you do that, you're changing a lot of things. So you're giving customers an excuse to have a thing. So I'm really clear -- the industry growth rates, Brett shared that, I'm really clear what we will deliver overall from pest control in the category, we've shared that. Really clear what the opportunity is, once we've done all the plumbing and put the businesses together, we really will drive that industry leadership and above industry growth. What are we going to do quarter-over-quarter through the course of '23 is, look, if you have strong weather, if you have an early spring, that's great. If you have a late spring, that's not so good. If you have fires, you have storms, it's really difficult to get you that. But all I'd say is that the underlying health of the business is good. But don't -- I say these words, but you won't write them down, will you? Don't worry, if over the course of the next 36 months, you've got a little bit of that. It's nothing to be concerned about. So -- but generally speaking, the business is in a good place. And generally speaking, the growth -- the underlying growth drivers in pest control are really good, really strong. Yes, there's been more price in the last few months than we've seen in historical periods. That probably stays for a little bit until inflation comes off. But underlying growth in the business in the industry is good, underlying growth will be good for us. But whether -- I doubt it will be linear, but don't panic if it's not, but first couple of months started well. Second question for you, Stu?

Yes. So I think that's quite a hard question to answer in the sense that [Indiscernible] of the question was what's happening in underlying margins in 2023. Because we've given a margin target for Rentokil Terminix North America of 19%, and that clearly includes the synergies but also includes an exit rate of 18% in 2023 versus a delivered 17.1% in 2022. So there's an implicit margin progress within that 19% in 2023. The sort of 1/3 of the business that's not Rentokil North America, we've got no reason to believe today now why we won't continue to make good progress on margins. I think at the Capital Markets Day back in 2021, I said I could see how we would make a couple of hundred basis points of improvement over the next few years. Well, we delivered 90 basis points in 2022. So I'm pretty comfortable that we're making the progress we said. But given that 2/3 of it is wrapped up in that broader North American target, I think that's where I'd stay.

Yes. As Paul's third question, I will flip it to Brett and have his view on it. The only point I'd say is, as you get -- when you -- when we were 5 months in, and in 5 months, we've already put a lot of things together. So it becomes increasingly difficult, and we will resist the temptation. We'll have a go today, but we'll resist the temptation going forward, when the question is, oh, that's interesting, but can you tell me what was Terminix versus what was Rentokil, it's just difficult. We've got one management team. We've got one set of branches. And to give you a sort of real world example. Before, we were competing against each other. So we could have a branch there that's Terminix and a branch there that's Rentokil, and we'll be kicking 7 shades of whatever out of each other at branch level. Now we're 2 parts of the same family. So leads can get handed over from this branch to this product. If these guys are busy, they'll hand leads over here if these aren't busy. Where's the organic growth? I don't know. It doesn't matter. It's one business. So Brett, I'm sure, will give you some color on how you are feeling in terms of where that journey has got to. But obviously, some of that is also -- some of the things that Terminix were doing has parked because we've pivoted now into -- we're not quite going in the same direction, but -- Brett?

First of all, great question. Let me go back a second. One of the reason why I was really supportive of this deal was I felt like there was a high congruency here between Andy and I on culture, and really the operating playbook. So the journey that I was put in Terminix on was really executing a playbook that Andy developed and implemented with Rentokil. So I think there's a high degree of alignment between the 2 organizations there. But a couple of areas that I look at, that I feel really good about the progress that's been made. One is around colleague retention. Andy touched on this, the improvements that we've seen there already. There were 2 areas that were creating a drag for Terminix and colleague retention. One was pretty poor onboarding experience for new people to join the company due to lack of training and investments in training. And the second one is our compensation plans were more variable than we would like to see. And so the combination of those 2 things led to higher exit rates with colleagues. So -- over the last year, we went to school and talking with Rentokil about their compensation plans, and made some of those changes already. And you're starting to see the benefits of those changes flowing through on colleague retention. So that's one area I'd point to. Second area around organic growth. As we commented earlier, the performance of the underlying Terminix business was in line with Rentokil in North America, which is an acceleration off of the historical performance of Terminix. Two big drivers there. One is -- we talked about the trusted adviser process, feeling really good about how well that's driving customer penetration. That's leading to improved organic growth rates. And the opportunity for us now is to spread that across both organizations and capitalize on that. So that's one area. And the second area is around commercial. The drag on Terminix organic growth rates historically has been our commercial performance, and that was led by really a lack of investments and capability expertise that we had in that space. So we're already capitalizing on some of the benefits that came from the expertise that we're picking up with Rentokil in the commercial space. So feel really good about where we're at this point in our journey. More broadly speaking, we feel great about the team that we've assembled. The transformation, integration office is really doing some great things. and really excited about the progress that's been made. But more importantly, I think the plan that we have in front of us.

Thanks, Brett.

This is Anvesh Agrawal from Morgan Stanley. Three questions as well. First, can I ask on capital allocation in the future. Now obviously, you plan to spend GBP 250 million on M&A every year. But should we naturally expect the weighting of that to shift to -- shift outside the U.S. with the big deal? And if that is the case, can you comment on sort of multiple and ROIC opportunity related to North America and Asian market, for example? The second question, just following from Paul's question around underlying margin, given GBP 92 million of incremental benefit from Terminix that you're expecting, that would imply -- a 16.5% margin target would imply you're assuming sort of slight decline in underlying margin for FY '23? So maybe some comment there, please. And finally, around the residential business and the inflation in the environment, have you seen any change in the churn rate in that part of the business? Rollins had a bit of a soft Q4 and then they said like January was fine. So wondering what you're seeing there?

Yes, thanks. I'll take the first one and the third one. Stu can talk to margins. Yes, just a minor correction on what you said there. We haven't said we're going to spend GBP 250 million each year. We've said we're going to spend GBP 250 million in '23. Our spend target -- each year when we sit at this meeting, we do the same thing. We tell you what we think we're going to spend in the year that we're in, and that's based on what we can see before us. It's based on what's in the pipeline. It's based on deals we've already signed. It's based on LOIs we've already signed. It's based on reasonable educated guesses as to what's out there. It's not driven by how much can we afford to spend, it's driven by what quality targets are out there that meet our return criteria. I think -- and therefore, next year, maybe it will be GBP 200 million or maybe it will be GBP 400 million, I don't know. I'll tell you next year. But for this year, it's GBP 250 million. I think it's a fair comment that we will be -- we're always selective, but we'll be super selective over the next little while in terms of deals we do in the United States because we're busy. We've got a lot of things to do here and there are a lot of moving pieces. But what we're not going to do is we're not going to miss out on a must-have North American acquisition and let one of our competitors take it because we'll never have that chance again. If it goes to private equity, you can say, well, maybe you'll get another chance if it comes back in the future. But if it goes to one of our competitors, and it's a real top quality asset, we'll buy that. We will take that if we can. And we'll just run it separately. We won't mangle it into the integration flow. We'll just keep that separately. So I think it's a fair comment to say we probably do a little bit less in the States perhaps than we have. But we haven't set a separate internal target that represents that. And we've already done a very nice deal this year in the United States. But certainly, the other colleagues around the group have been given a pretty clear direction. Now as you moment, guys, because if we're going to spend potentially a little bit less in the states, there's more for you guys to go after. And so -- you saw an uptick in European M&A because we've had an M&A in Europe for a long time. I saw a really good year in Asia, and a great pipeline in Asia and Latin America. And finally, we're beginning to see some deals coming through in Hygiene and Wellbeing as well, which is something we haven't really seen so much of. So slight general hand at the teller, I'd say, rather than a radical turn left or turn right but really confident based on what we've already done and based on what we can see in front of us, we'll spend GBP 250 million, give or take, on really good assets. There will be a decent number in the States, but possibly a little bit fewer than normal margins, and then I'll come back to resi.

Yes. So I don't recognize a decline in underlying margins. I think -- if you look at the appendix, you can see that the Terminix margins, we estimate for 2022 on a pro forma basis, we're around 15.5%. Clearly, that is quite significant, and that includes accounting adjustments, by the way. So that has quite a dilutive impact on the full year North American business. So I think once you work that in and do your maths back, then I think you'll see the underlying margins don't decline.

Yes. On resi, I mean, we've got another question that we can see on the screen, which I may as well get it off my chest now because you're all going to ask for it, and I'm not going to give it to you, not because I'm being unreasonable, it's just this, can you give us a split of termite versus residential versus SME and commercial versus commercial versus national -- no, no, can't do that, could but can't. We don't run the business that way. We run the business on a branch-based and we have 600-odd going to 400, and each branch does resi. Each branch does termite. Each branch does commercial SMA. Each branch handles their national accounting. That's how we run our business, and that's how we report on our business. Other competitors run their businesses how they choose to run it and report on their business, how they choose to run on it. And I know it infuriates you because you'd love to make the direct read across. But I've just been giving you data just so you can do your job. I don't use that data for how I do my job. So we're not going to give those breakdowns. Occasionally, of course, we're going to give color. Of course, we will. If one part of the market is behaving completely differently or we're doing particularly well or less well. You saw in the medium-term growth stats that Brett shared really quite an interesting stat that all 3 parts, residential, termite and commercial, are all growing about the same sort of level. So broadly speaking, our business is performing like that. We're still getting to know the business as well. Brett's Terminix business is in the family now, has been a big leader in termite. Rentokil have -- we've been the big guys in commercial, Terminix haven't. So I think we've seen a respectable start to the year. Our products business, our distribution business, is a bit slow. The core business is doing fine after 2 months. I haven't really seen -- Rollins had, what was it, 6 point-something-percent growth in the fourth quarter and the commentary was deceleration of organic growth. I looked at that and said it's a pretty good number. So -- I don't -- I'm not as sensitive to these intra-month intra-group -- intra-quarter movement, so I think the underlying residential business in decent pace. I don't think we've seen a significant negative response to price movement causing customers to react customer retention data is pretty solid. So I think the business, interestingly enough, it is to me anyway -- I had to call out Rentokil to my house yesterday morning. I got a squirrel up in the loft, and so it was a customer yesterday. Admittedly, I got the guy around within half an hour, which may be, okay, preferential treatment, but the bill I got wasn't preferential I tell you that. Where was I going with that? Anyway, but the point is, if you're a residential customer, and you've got a problem, you call around the experts in pest control, and you want it sorted. And it's not -- okay, it's not nothing, but it's not the biggest expenditure you're going to have. So typically, that's why it's such a defensive industry. People need pest control when they need pest control. So I think the industry is in very good health and across the board the wonderful thing about this deal is we've got this complementary fit now between resi and termite meets commercial. But give us 2 or 3 years to bed the whole thing in and then ask me about how the different parts are performing. I would probably give you a more informed answer. Hopefully, that gives you some decent color. Right. Next one? I think -- you decide, I don't want to choose amongst my children here.

It's Oscar from JPMorgan on behalf of Sylvia Barker. Three questions. So the first one on the upgraded -- so GBP 75 million of increased investments. Could you give us a sense of which buckets those fall into? Is it increasing wages? Is it the more physical investments? The second question, maybe for Stuart, is just around the guidance for mid-teens EPS growth next year. Just to be clear, is that on a gross basis? And should we be seeing upgrades to consensus EPS? And then the third question, maybe for Brett, is around digital. So in our view, Rentokil is ahead of the competitors, Rollins and Terminix, in terms of rolling out digital in Europe. Is there a reason why the U.S. market hasn't developed as quickly? Is it technology? Or do you see what you've done in the U.K. being replicable in the U.S.

Thanks, Oscar. You just referred to Terminix as a competitor, but I'm sure -- I'm hoping that's not the case, right? Yes. And best wishes to Sylvia with her maternity leave, by the way. We haven't got it -- given -- the GBP 75 million, by the way, is not an increase of GBP 75 million. We simply didn't give a number when we announced the deal. And it's sort of in line with what we assumed at the time. We didn't give a number. So some of you assumed there would be a number and some of you didn't, but -- and it really is a mix across the board. I mean the one that I'm most excited about is the technology center we're putting into Dallas. We found the building. We now need to kit out the building. We now need to populate the building with equipment and scientists. None of that comes for nothing. And we've got the same story, to a lesser extent, down in Mobile, Alabama. We -- Brett has already sort of partially answered the point about colleague retention, and I've talked about why that's so incredibly important. We have already adjusted the benefit side in America, benefits, you have medical, dental, all of that is incredibly important. Salary is important, but benefits programs very important. So we've already broadly aligned the benefit story between Rentokil and Terminix. Again, doesn't come for free. But we do need to move on to the pay side of it. And we're doing the work on that. And there's been a number of misfires in the industry in the past where you've adjusted a pay plan of technicians and you've made a mess of it. And we're not going to do that so we've got to take our time, pilot it, make sure we get it right. That will also cost a reasonable chunk of that GBP 75 million, but there's a payback for that. If we get it right, colleague retention goes up. And as Brett has already said, if colleague retention goes up, that typically leads to customer retention going up. Management pay is another one that you have to invest in because of the differential. If we've got 7 regional leaders, we have to broadly look at how those regions -- are they the same size of the individuals comparable in terms of what they're going to get paid, et cetera, bonuses and shares and all the rest of it. So those are the key building blocks. And what I will tell you is we won't spend GBP 0.01 of that money poorly and without a really good discipline in terms of return on investment. We're not going to do it just for the sake of it. We're going to do it because we're investing in the fabric of the business. I do think Terminix is a wonderful business with great strengths. But in a few areas, you saw it in colleague retention, you saw it in customer retention, we have to invest to support those if we're going to deliver on the ambition to lead the industry in the way we've shared today. So I don't see it as a bad thing. I actually see it as a really good thing that we're making these investments. So...

I'm sorrt, EPS to Oscar. Look, I think there's -- I haven't got sight of Bloomberg, by the way, so I don't know what Bloomberg says. Might be a little bit stale. We've got FX. When we last gave guidance in November, FX was at $1.10, it's now $1.20-ish. Clearly, interest costs have gone up over that period. So that might not be in people's models. And the technical accounting, the GBP 32 million, probably slightly lower than people have got in their models, I suspect. So in the round, there's -- I think there's some adjustments to be made. But of course, we've got a slightly higher launch pad from 2022 as well. So there's a number of things going on there. I think the key point about EPS is, Andy has laid out the health of the deal, things are going really well. We're very confident about the medium-term value creation, and we think that will be reflected in EPS in both the short and the medium term.

A quick one, Brett, on tech North America.

Sure. Just to go back to the original piece, it's one of the things that got me really excited about this deal again was the investments Andy and Rentokil has made in digital technology. I always felt like in North America, there's clearly a market for that. The value proposition is really compelling. We just didn't -- couldn't afford to make the investments therein given our strength lied in residential and Terminix. But to answer your question directly, I think there's 2 dynamics there. One is, no doubt, I think the customers in North America may be less mature in their thinking around sustainability and the benefits that come from digital than you would find in the European market. Although having said that, they're quickly catching up. It's certainly becoming more of a discussion, I think, every day between our sales colleagues and I would say, larger national accounts, where that value proposition is much more compelling. So we'll start there. As I mentioned earlier in the prepared remarks, we got some infrastructure work we got to do on IT systems and the plumbing to make certain we can adequately support that in scale. But no doubt, I think there's clear compelling value to that proposition here. How that fits into the broader agenda, we'll have to see because we got a large agenda with the integration work. But the technology is going to come to North America. We're excited about it. And there's clear compelling value to do that. So...

This is Suhasini from Goldman Sachs. I also have 3, please. One is on the listing actually. That's -- in the recent months, we've probably seen a number of U.K. companies. trying to pursue a primary listing in the U.S. And given how your profit mix has changed post the deal, is that something that you would considering medium term? Second one is actually on one of the slides where you talked about the advanced treatment. Is it possible to maybe give some color on what percentage of the revenues for Terminix was exposed to that? And has that increased over time, just to assess the risk around that? And the last one, just a couple of housekeeping questions. The GBP 40 million to GBP 45 million of 2022 exceptional items that remained with the creditors, can you give some color on what that is? And is it getting paid in the first half of this year? And on the CapEx guidance, I think you've given it ex leases of GBP 235 million to GBP 245 million. How should we think about the lease payments, please, the principal element?

Yes. Thank you. No, we're not looking at U.S. listing. It's very topical right at the moment. We are happy with our -- not an additional or primary listing. We've got our ADS that we put in place at the time of the transaction, we have that. We've been on in London for decades. We're in our 99th year. We're a proud British company based here and we're not looking to do anything, simple as that. In terms of the percentage, well, probably a difficult one for me to answer. And it really is a super detailed question. So I could ask you -- a quick quiz. Can you name the 3 types of termite? But I won't do that. But -- you're all looking at your shoes now. If I did that, I'd say if you looked at the vast majority of our business and across Rentokil, which of course, has done termite, but not on a grand scan, of course, Terminix as well. The vast majority of claims get resolved very, very cheaply, very modest, but not very much money at all. And I think there's industry standard data out, the 1% to 2%, if you're doing the top across the board. Certainly, the Terminix experience because of the history, because of Mobile, Alabama, because of Formosan and the [ Gulf ] states has been materially higher than that. I don't have the number, but it eb probably around 10 but I would guess, give or take, but don't plummet in your models. But it gives you a sense. It is more expensive. The Formosan does more damage and there's more history here that has been resolved. But the point of -- me putting those charts that show lines that start on the top left and move to the bottom right is showing that the overall exposure to these issues has been declining over recent years. So it's very much part of our plan is to reduce even in the hotspots where we've got Formosan is to reduce the cost of handling those. We've now got benefits of scale across the organization, we're putting R&D and technology into it to come up with better solutions. We've got better buyer power with suppliers. The biggest driver of cost in this piece, I think, is lumber, wood. And of course, the cost of wood has gone up through inflation. That's coming down again now, so you got a whole bunch of moving pieces. But it's much higher at the Formosan end, much, much lower at the regular end. And over time, our plan is to reduce that cost. And I think we've got a good handle on it. Last question was...

Yes. So I'll take the 2 questions. One was about the unwind of the exceptional creditors. Yes, that will be, I think, almost completely in H1 -- I mean, it's easy to forget, we only completed this deal on the 12th of October. So we've got quite a lot of hangover of deal costs and that sort of thing. So that's exclusively H1. Lease CapEx, it's broadly in line with revenue actually because, frankly, it mostly is in technician vans, so maybe an additional GBP 40 million to GBP 50 million on top of the 2022 number.

It's Dominic Edridge from Deutsche. Just a couple of questions for myself. Firstly, in terms of the IT and the integration, what will the output be for the technicians? What are they going to be -- is it fundamentally different to what's going on at Terminix at the moment? And what are they seeing -- I was thinking in the past, I think [indiscernible] in particular, was an issue at Terminix. Secondly, a question on branding. Obviously, Terminix is a very large brand, that's going to be your principal brand. But obviously, there's about 2.5 states where you have an issue and that you have franchise holders for those territories or maybe on a nonexclusive basis. You've also got some very strong brands in Florida and the Northeast. Can you just discuss how you sort of think about that, particularly with the branch network from going from 600 to 400, that's obviously going to be losing 200 branch managers effectively, although people will be going -- and also, that seems fairly aggressive if you do sort of the -- if you do the geospatial, you can see that's fairly aggressive in terms of taking the numbers down. So could you give us an idea of why you've gone that route rather than maybe looking at what Rollins does with Orkin versus its ancillary brands because that may be a better way of gaining share because not everyone loves Terminix, I think it's fair to say, as a brand in the U.S. And then lastly, just on the termite accounting, and apologies for asking on this, from what I understand, it's based on the historical accrual ratio based on your claims rates. Over what period of time would your claims ratio have to improve for the -- you to start changing your accrual rates on your current revenues?

Very well, Stuart, you can take the third of those 3 questions. And I'll start with branding. Yes. In terms of our approach, Terminix is a power brand. It has got phenomenal brand recognition in the United States for pest control, both in terms of prompted and unprompted. I mean, it is a genuine power brand. And I don't recognize the comment that Terminix is not popular with some customers [indiscernible]. I don't recognize that at all. So our belief is that now is the time for us to invest in the brand, and it was -- again, back to the GBP 75 million, and to put real muscle and oomph behind that. And we haven't said we end up with one single brand or 2 brands. We've said we end up with a small number of brands. And therefore, you're quite right. Things like Florida Pest Control, Western Exterminator and even Ehrlich up in the Northeast, are probably brands that are going to be around for some considerable time and maybe forever. But there's a lot of small brands that are very local, and they do need to be -- well, they do need to be harmonized because they soak up a lot of resource. If you're going to support that many brands, you've got to support them on the web, you've got to support them through uniforms and trucks and all the rest of it. So I'm really excited about the branding piece and the opportunity it brings. In terms of how did we get to 400 and have we looked at it this way, I can tell you, we've looked at it every which way. I mean, we've done -- spent an enormous amount of time and effort and some money trying to work out, not just a fit-for-purpose structure that works for the first 12 months, we've designed a structure that will work for the next good few years because we need to grow on to these structures as well. The philosophical bit in there, well, how big should a branch be, and we've got branches in many, many parts of the world and in America, which are battleship branches, very significant. And they work perfectly well, and we've got tiny branches. Our conclusion is to use a span of control methodology that we have the right number of techs, the right number of tech managers, the right number of supervisors, the right support from field biologists, et cetera. So we've created not a perfect structure, but an optimum structure. And we'll move to that over 3 years and change the brand, change the employee terms and conditions, change the customer offering. That's a lot of change that we have to put through over that 3 years. But I think kind of around 400s is the right number. What other competitors choose to do is entirely up to them, and they have different strategies and they have different execution, including different approach to branding. So that was -- and IT, a big part of what we're trying to do, I always talk about this. We make a lot of investment in IT. And we're either -- we're trying to do one of 2 things generally with our IT budget, we're either trying to give the customer the same service, but delivered in a way which is more efficient for us the provider, which basically means productivity, efficiency and making it easier for the technician to do their job, giving them the materials, when they open their phone, it's all there. They know which customer to go. They know what they need to do when they get there. The history of the customer record is all there. So we talk a lot about what's in it for me, what's in it for me and the technician, because if all we've got is technology, that just represents change. Nobody is interested in that. We're giving them technology which will make them more efficient. With that efficiency, you get 1 of 2 benefits if you're a tech, you either get to go home a little bit earlier or you get paid a little bit more because you're doing more work, which is bonus-able. So -- that's the main part of that bit of tech. The other part of the technology is really investing in customer offerings to give the customer a better service. But in terms of the support we're giving technicians, we're broadly going to use the technology base, the platform that we've just spent in Rentokil over the last 3 years putting in across the businesses, the pest control industry standard backbone. And then on that, we're taking apps, if you like -- APIs from Terminix and from Rentokil, cool stuff that helps the salespeople sell more effectively, helps the upsell story that Brett shared in terms of you're a customer for a pest, would you like us to give you a quote for mosquito, et cetera? So that's the approach to take. And the third question, I think, Stu, was for you.

Yes. Back to termite accounting. Let me do this. And I've got another question online actually around why don't we get any accounting benefit after 2024. So let me sort of step -- at the 12th of October, we took on a book of termite customers with Terminix who had an existing contract. Under IFRS, we would have provided for claims on those customers at the point of inception of that contract, okay? So what that means is that we've created a provision reflecting what it would have been under IFRS at the 12th of October. We then have a cash outflow against that provision. That element of the provision at those existing customers only ever gets smaller. And it's based on 2 things. It's based on claims rate and it's claim based on customer retention. So it drops quite quickly and then it's a very long curve because it can go out up to 20 years actually, but it's a very long tail and quite a steep decline. At the same time, from the 12th of October for new customers, we are making a provision at that point for those new customers. And that bit of element, the provision builds. So there's a point at which our new customer provision is above the old customer provision, they cross over and it's P&L neutral at that point. But that -- so the $50 million benefit cumulative in 2023 is the high watermark of accounting benefit that we get and thereafter, cash comes more in line with P&L as that provision declines. So that's the sort of matter of how it works. Clearly, because it's on a reducing balance, we've got to make some judgments around what the claims rates are on those customers and how -- what the propensity of those customers is to renew. We've got a very high level of confidence around that. We've done lots of economic modeling and the statistical modeling, and we've got about a 90% confidence. Now 90% confidence as you can be plus or minus 10% in either direction. So we've made a judgment. We think it's the right broad judgment, but that is subject to a little bit of movement as we move through the subsequent year. So hopefully, that's sort of a reasonably clear explanation of how that dynamic works. And because of that cash headwind, that's the major impact on our reduction of our target cash conversion rate from 90% to 80% for the next couple of years. Thereafter, because it comes more in alignment, we'll -- that will be close enough that we think we can sustain a 90% market -- cash conversion rate, but that's the major dynamic around termites.

Here we go. I'll take this one in the room, and then we'll try and hoover up a few of these on the...

Oliver Davies from Redburn. Just a couple of questions. Can you talk about the current gap between the pricing strategies of sort of Rentokil and Terminix in the U.S., and I guess the potential revenue benefit you could drive there? And then secondly, on pricing, how you think about it this year? Should we expect similar levels to what you sort of put through in the U.S. last year? And how is that split between Rentokil and Terminix? And then I guess following on from that, in terms of improving employee retention, what are you seeing on kind of the wage pressure front and labor availability from technicians?

I'll take the third, and you can...

Yes. So should I go. So I think the gap in pricing is one of methodology more than it is principle. So neither business seeks to increase margin through pricing action, we seek to recover cost inflation. So we don't particularly see a gap there. And I think it's fair to say that our brands in the U.S. broadly our mid-market brands, whereas in much of the world, Rentokil is a premium provider, it's -- that's less true in the U.S. than it is the rest of the world. So what that means is that we've got -- we don't really have a premium difference between the two. So the methodology is really because of history. The Terminix business large homogenous customer base of very similar customers, both in resi, commercial and termite, meaning that they can take quite a centralized approach to pricing and pull levers and manage some of the capability around where pricing is stronger than ours is -- than Rentokil's is. Whereas Rentokil has very strong local ownership. So a lot of our pricing strategies are bottom-up because of our commercial [Indiscernible]. It's about local ownership of a P&L in a branch. So you can see there are actually -- Terminix is really strong in residential pricing, Rentokil really strong in commercial pricing, and we think we can bring those 2 methodologies together and really get some value out of those complementary skills. What do we think we'll get -- and again, we've got a couple of questions around inflation expectations and pricing in 2023. Look, again, I'll come back to methodology. We price on a daily, weekly, monthly basis. So we look at the inflation we're seeing today, and we'll make a judgment about what price increases we have put through to reflect that. So I'm not going to sit here and say, you guys are all out there have a much better view of what the latest view of inflation is in the U.S. or indeed anywhere else in the world. I don't -- I'm not going to make a judgment on that. I don't need to make a judgment on that because whatever we're seeing in front of us at the time and also what we're seeing around wage price pressures, wage cost pressures, we've said most of our wage inflation comes through at the half year, then we'll adjust accordingly through the year. So we'll respond. We'll protect margins as we've demonstrated over the last 2 years, but I'm not going to make a judgment today because I don't need to. And I'm just confident that we'll manage it. And of course, it feels like it's going to come off what we saw in 2022. But at what rate is, I think, frankly, anybody's guess.

Yes. On the employee piece, I mean, it is the biggest chunk of our costs, but we made a move in the middle of the pandemic to move our typical pay increase date from the first of January to the first of July. And that lucky decision has actually proven to be quite helpful because it means it gives us a few months in a year to see what everyone else is doing and how the markets are going. What I will say is we haven't seen very significant pay rises going through in our industry or in our peer industry. We've seen reasonable pay rises going through. So we'll take a decision on exactly what we're going to do for most people in a few months' time. And therefore, we've got time. Based on that, wherever we end up, we'll set the objective for what we need to do in terms of price in the second half of the year to recover it. So -- but at this stage, I'd say, not just in America, but it is something we have to do right across the group, we're pretty experienced at doing that. And I think we do a pretty respectable job. Come back to colleague retention, at the end of 2021 colleague retention in Terminix was 61-point something. And at the end of February, 65. And 4 percentage points of colleague retention is meaningful. That is not irrelevant. That's a significant move. And if we can drive -- if we can have done that between us over the last months during incredibly hot labor markets in part of the states and inflationary environments, yet we've still been able to move up 4 percentage points. That I think is quite an encouraging fact. So that's probably all we've got on that one. Thanks. Stuart, do you want to take a couple or more?

Yes. So I think -- yes, sure. So I'll start at the bottom in the order they were -- it's not even the bottom actually. Have there been any developments in the litigation issues around Terminix business and not honoring their warranties on pest control contracts? What percentage of revenue do these litigation costs represent of the Terminix business that's through SAM from even low?

I think I've dealt with the second half of that question. The first part -- the thing to understand with cases is many customers have had contracts for 5, 10, 15, 20, 30, 40 years. And so when a claim comes in, it could be in relation to a property where the contract was taken out a couple of decades ago. And then you get into -- well, have we got the paperwork, have we got the original inspections, have we got the appropriate contractual documentation? So like with most warranty covers -- you all have a warranty cover on, I don't know, your washing machine, or whatever. Customers' view of what's covered versus the suppliers' view of what's covered will differ from time to time. And then the facts to support the claim and will be up for discussion. So I don't think there's any new news. And I've shared all the new news that I have on the subject of termite litigation, termite trends. But for sure, when customers get unhappy that they've got termite problems and they want to bring a claim under warranty. From time to time, the company will have a different view that it's not covered or it's only partially covered. And that's when you get into some of these disputes. And that's when you get into some litigation as to who's at fault and why the situations occurred. So -- but I don't think there's any new news or new trends which I think was the gist of the question.

Yes. So from Max at North Rock, with the site rationalization, what are the moving parts between the cost savings per site closed, please? SG&A synergies, what were the specific areas where you saw scope to raise this part of the synergies? Pricing a major contributor next year and reps don't read the FT. So what's holding organic below 5% next year?

I'm glad you read that out. I thought you were going to answer it.

Well, I can do that, if you like. So we'll -- let us start with the site rationalization. What are the moving parts behind the cost savings per site close, please. So I think there's 3 levels, as Andy described, to the branch consolidation. One is colocation, bringing sites together, branches together, organizational branches, and putting in the same physical site. And in that way, we save property costs. The second is bringing the management of that branch together, so putting effectively 2 teams under a single operational leadership. So thereby, we save operational leadership and management costs, if you like. And then the third element, as again Andy has described at some length, is around the route density under a single brand and a single operating system such that we can deliver one truly integrated business. And those 3 sort of come through over time. And actually, it's the third element that gives us the biggest opportunity, frankly, and that's why the operational synergy benefits are backloaded for the operations piece. SG&A, I don't think -- one of the specific areas. I think we broadly just upgraded it across the board, honestly. There isn't a single area where we've had a eureka moment that we thought, gosh, we didn't realize that was going to come through. I think it's fair to say, obviously, we delivered more synergies earlier than we were guiding to. But they are the synergies around, I don't know, marketing, around procurement, around vehicle management, that underpin a whole bunch of 2023, but they're not really additional. They're just early delivery of the synergies that we were expecting. So just really, it's just nudging it up across the board, just being more comfortable with the targets we've set across the various central functions. No reps don't read the FT pricing should be a contributor and what's holding organic growth below 5% next year. Well, we -- as Andy said, we haven't given any guidance on organic growth for 2023. So I don't feel the need to respond to that again. Can you talk about the price tailwinds into 2023 by -- this is from Andy Grobler, Exane. Can you talk about price tailwinds into 2023 by end market? I've sort of answered around price. We'll respond as we think fit. And clearly, we get some tailwind from our contract pricing in 2022. But also, we have to respond to jobs pricing. Especially in pest control, jobs can be 20% to 40% of our revenue in any given markets, that can have quite a significant impact on our organic growth and our pricing growth in any particular period. What has been the competitive response to the deal in the U.S.?

Yes. Okay. In a market that's got 18,000 to 20,000 competitors, most of them very, very local. And of course, the big change in the deal is in the residential and termite space. Incredibly difficult to see there's been any competitive response. I mean, what would you do as a competitor? What would you do differently? I mean, these are -- always been very competitive local markets. You pick a town in the United States and Google pest control near me, and see how many come up? Is it 1 or 2? Or is it 15? Well, it's 15, there's always a ton of local competitors. It always has been, always will be. And so if you want to target us differently, what are you going to do? Or what is your strategy? So I don't -- I've heard this question from Andy and others before. I don't really understand what it is that the competitors would do. You could drop your price, but I doubt that. So -- no, I haven't seen any competitive response nor could I honestly, hand on heart, tell you if I were able to see it because you're talking about transaction values of $1,000 down in a branch in Nebraska. So -- no, if we see it, we'll tell you we see it, but we haven't seen it. And on the commercial side -- again, we haven't seen it. A very competitive marketplace, always has been, I suspect always will be. So we try and differentiate on quality. We try and differentiate on service. We try and differentiate on important things, which we think are important, like the planet and sustainability. And other competitors are entitled to their strategies and their tactics. But I haven't noticed that we've been targeted. And so no, we've not seen it.

And then Andy's final question is on cash conversion. Apart from exceptional working capital, what are the moving parts on CapEx depreciation and cash P&L tax to get due to your target? So our target is 90% in the medium term. It maintains that. So the only question for us really is in the short term, why wouldn't we get to that target. Terminix is pest control company, Rentokil North America is a pest control company that has good cash generation characteristics. So really, the only 2 things that dilute that in the short term, the much discussed accounting adjustments for termite warranties where we've got a bit of a headwind and a little bit higher CapEx, as you can imagine, is we're bolting these 2 businesses together, both in IT, vehicles, signage, all those sorts of things. We'll have a little bit of CapEx there, but that's really reflected already in the guidance we've given. So we're very confident about the cash generation in the medium term, it's just going to be slightly softer in the short term.

Stu, I'm going to suggest just to take one more from here, reading the room. And any that's really critical here we'll try and get back to those who have asked them or they can give us a call, give you a call, but I think we've had a good session today. We've provided a ton of information, answered a lot of questions and there's a train strike. So with that in mind, we'll take one more, and take your pick -- make it one for you would be my...

I'll do that. So this is a sensitive one, but -- so I think it's worth doing it. From James Beard at Numis. Can you confirm that your updated free cash flow conversion targets or pre cash exceptionals? You appear to have changed your free cash flow definition from last year to exclude cash exceptionals. Does your current free cash flow definition includes cash payments for termite damage remediation? So I think -- and then some questions around termite accounting, which I think I've covered. So -- yes, our free cash flow does include the cash payments from termite damage. I think that's been clear. We have moved our free cash flow definition to exclude the exceptionals, but that's really because of the cost to achieve. And we don't think -- historically, we've been at about GBP 20 million or so run rate on one-off type costs. So we've been very comfortable it doesn't distort the year-on-year number. But clearly, we're going through a period of a couple of years where that's quite -- so disclosing the free cash flow generation, including those exceptional costs, doesn't feel like the right thing to do. So I think we've been fairly clear in the documentation, and that's the decision we made. So I think, therefore, that is it, Andy.

And breathe. All right. Thank you very much for your interest in the company, your excellent questions. We'll be hanging around here for a little bit. So happy to chat further. And look forward to seeing you again in 6 months' time. Thank you all very much.