Earnings Call Transcript - RTO Q3 2025

Operator, Operator

Good morning, everyone, and welcome to the Rentokil Q3 Trading Update Call. My name is Rita, and I will be coordinating your call today. I will now hand you over to your host, Andy Ransom, Chief Executive Officer at Rentokil, to begin. So, please go ahead, Andy.

Andrew Ransom, CEO

Thank you very much. Good morning, everyone. And before we begin, as always, can I just draw your attention to the usual cautionary statement contained in our trading update this morning as it also applies to this call. I'm going to start off with some brief opening remarks, and then Paul and I will be pleased to take any questions. We're encouraged by our performance in the third quarter as the overall positive trends that we described at our interim results have continued into the second half of the year and leave us on track to deliver our 2025 results in line with market expectations. For the 3 months to the 30th of September, group revenue was $1.8 billion, representing year-on-year growth of 4.6%. Organic revenue grew 3.4%, with an improvement in North America to 3.4%, and organic growth across our international businesses of 3.3%. Looking at our performance in North America in more detail. Pest Control Services organic growth was 1.8%, which compares favorably to the 0.3% seen in the second quarter. North America Business Services organic revenue growth was particularly strong in the third quarter, up 11.9%. Back in March, we discussed how we were evolving our North America strategy to drive enhanced lead generation and a lower cost per lead. This was a comprehensive overhaul of how we were growing the business, informed by our learnings in 2024. And this revised strategy included raising the bar on improving colleague retention and driving up customer retention, enhancing our digital marketing to realize the benefits from better organic lead generation and higher quality, lower cost paid for leads, and evolved satellite branch strategy to improve customer proximity and local search visibility, and moving our sales operating model back under the branch managers to drive more accountability and visibility of results. At the half year stage, this plan showed early signs of yielding results with the improvements that we saw in lead flow in June. And it's pleasing to see that this improved performance has continued. Following the lead flow growth in June, we delivered year-on-year growth in lead flow throughout the third quarter as we focused on improving organic leads and on better targeted lower cost paid leads. We also now reported 11 consecutive quarters of improving colleague retention. And importantly, our customer retention rate has nudged up again from the half year stage to 80.9%, where investment in the customer sales team, in particular, is having an impact. The rollout of satellite branches is on track with 139 in operation, delivering improved lead generation through a stronger local presence together with higher volume, higher rated customer reviews, and we continue to target opening 150 satellite branches this year. Finally, the door-to-door pilot continued in 25 sales territories, and we're encouraged by the results, and we're planning an expansion of this pilot in 2026. Standing back, you'll remember that we talked about our core challenge and core opportunity to sustainably improve our North American organic revenue growth, being shifting the contract portfolio into consistent and healthy growth through customer retention, through pricing and through winning new customer contracts. So we are pleased to see that improvement in customer retention. We also continue to deliver on pricing discipline, achieving price increases a little above the rate of inflation. And combined with the higher volume of new leads, we did see an improvement in contract portfolio net gain performance during the quarter. For a business driving value through a contract portfolio, it's this quarterly sequential improvement which will, over time, translate into stronger top line growth. The focus now is about taking the learnings from these actions and planning for 2026 as we hit Q4, which is a seasonally quieter quarter. We've also noted for Q4 that 2024 benefited from one-off emergency mosquito control work driven by an exceptional hurricane season last year. And this is not currently expected to repeat, impacting Q4 organic growth by about 60 basis points, albeit in dollar terms, it's actually very small in the context of the U.S. business as a whole. Turning now to our International businesses, which obviously we now report excluding France Workwear with the sale completed at the end of the third quarter. International revenue grew by 4.6% with organic growth of 3.3%. Europe sustained strong growth from the first half into the third quarter, particularly in the Southern European markets of Spain, Portugal and Greece. The U.K. also saw growth improve with continued strong performance in our core Pest Control and Plants businesses, and an improved performance in the lower-growth Property Services business. Growth in the Pacific region, though, remains below the average for International. Good growth in core Pest Control and Ambius was offset by adverse weather impacts on our rural and track spray businesses. In terms of category performance, Pest Control organic revenue growth for the group was 3.4%, driven by good momentum in North America. Hygiene & Wellbeing grew by 3% organically, an improvement from the 0.9% in the first half as market conditions improved in the Pacific and in the U.K., in Sub-Saharan Africa regions, which returned to growth in the quarter. On M&A, we completed 3 deals in the quarter, taking the total number of deals completed this year to 21 and representing annualized revenue in the year before acquisition of around $39 million. We were pleased to complete the France Workwear sale with the receipt of $397 million of initial cash proceeds. As a result of ongoing cash generation and the disposal proceeds, net debt at the end of the quarter was $3.9 billion. Looking forward, our outlook for the remainder of the year remains unchanged. Current trading is in line with our expectations. And we expect to deliver financial results for the full year, in line with market expectations. Beyond 2025, our cost efficiency initiatives remain on track to deliver the $100 million cost reduction by the end of 2026, and to achieve an operating margin in North America above 20% post 2026. In summary, the third quarter demonstrates a continuation of the positive momentum we began to see in the first half of the year. The International business is performing solidly and they are encouraging, but still early signs that the revised strategy we're implementing to improve sales execution and to evolve our digital marketing capabilities are beginning to have a positive impact in North America. So with that, let me hand back to the operator to manage the Q&A. Thank you.

Operator, Operator

The first question comes from Annelies Vermeulen with Morgan Stanley.

Annelies Vermeulen, Analyst

I have 3 questions, please. So firstly, Andy, you mentioned net gain in contracting portfolio, improvement in performance in Q3. Could you talk a little bit about jobbing versus contracting growth? Did you see growth in both elements in the quarter? Or was one stronger than the other? And then secondly, sort of related, if you could comment on the performance of resi versus commercial versus termites. Again, was there anything or any one area that drove more of an improvement in the quarter relative to another? And then lastly, just putting it all together, you've spoken about improved lead flow, improved customer retention, the customer saves program, etc. So when we think about this improvement in the growth and the step-up versus Q2, could you talk a little bit about your sense of how much of the improvement in the growth is both in new customers and how much of it is the improvement you think in customer saves and customer retention?

Andrew Ransom, CEO

Thanks, Annelies. We can probably do an hour just attempting to answer that question, which I promise I won't. But there's a lot in there. I'll try and give you a little bit of color. Look, as you correctly identified, getting the business into positive, healthy, consistent net gain in the portfolio is what we need to see in the business to get the sorts of levels of organic growth that this business is capable of. So it was really pleasing to see that improvement in net gain. And just to remind colleagues on the line, the business – most of the questions I'm sure will be about North America, but the business in the U.S. is approximately 75% of the revenues under contract and 25% is jobbing. And so as I said at the half year, I'm not overly concerned about the jobbing side of the business. We can always produce jobs in the business. What we have to do is to get that healthy positive net gain back into the business, and we have to get volume growth back into the business. Without giving you specific data, jobbing was pretty good in the third quarter. As I said, don't worry too much about jobbing. But we did see – so jobbing was above the average rate of growth that we've shown you there. But the net gain was the best we've had in the business for a little while, and it was encouraging to see that. What we now need to see is can we continue net gain in the portfolio into the fourth quarter and into the first quarter? Or does it revert to net loss? So that's the key thing that I'm looking for in the business. But the answer is we saw good jobbing, but we also saw an improvement in the portfolio. The resi, termite, commercial, we actually saw improvements in all of those. Termite had not been great in Q2, from memory, and H1. So termite performed better in the third quarter. But resi was also encouraging, and that's important to see in the business as well. Commercial was steady. Lead flow, yes, look, I think it's important that we get revenue growth both from our existing customer base. But the critical thing here is we have to find new customers and new customers to add into the contract portfolio base. Typically, with your existing customers, your opportunity is to keep them longer. Your opportunity is to upsell more services to them and your opportunity is to price to them. That's the role that the existing customers play in revenue growth. But it's the new customers that we have to infill into the portfolio. So again, without giving you numbers, we were encouraged in the third quarter by what we saw, but we are a long way from where we need to be. So if you just do the math quickly, we've got price above the rate of inflation, but we grew 1.8%. So you can do the math yourself. That tells you we've still got a level of volume decline, but the decline was an improved rate of decline, if I'm clear on that. It was better than it has been, but we need to see that move into positive territory. That's why we're really saying this is early days here. We are pleased. We're not satisfied, and we're not complacent because we got a lot to do. But it's the positive momentum we've seen in net gain in the portfolio, which is what we are looking for and what we'll be pushing to see what we can do in the off quarters in the quiet season.

Operator, Operator

Your next question comes from Will Kirkness with Bernstein Societe Generale Group.

William Kirkness, Analyst

I've got 2 questions, please. Firstly, on pricing and your initiatives there. What's the balance between lowering price to take share? And then any price reductions you're having to put in because of the customer saves initiative versus pushing through price increases? And then secondly, I know it's just a trading statement, but I wondered if you could talk about progress on levers to improve free cash flow.

Andrew Ransom, CEO

Thanks, Will. I'll hand those both to Paul, I think.

Paul Edgecliffe-Johnson, CFO

Thanks, Andy, and thanks, Will. So on pricing, really what we're seeing here, and we talk about pricing being a little better than inflation is better pricing strategy. We have a new pricing lead in North America, and we are using the data that we have in the business better to identify where opportunities are. This isn't just a vanilla approach that you ask everybody to pay a little more. It's more sophisticated where there are pockets of opportunities where we can see different types of customers, different market types, and then deploying different pricing strategies against different customers. So it's sophisticated. There is more to go with it. We will continue to roll that out. And we're pleased with the performance in these states at the moment. And in terms of price promotion and trying to win volume on the back of reduced pricing, you will always have a component of that business, but that's not what has been driving the percentage there. In terms of the levers to drive free cash flow, you've heard me speak before about how important I think this is in the business. And there's an opportunity in working capital to drive that. There's also an opportunity in our capital expenditure and to make sure that we are getting the best returns on capital from what's being deployed. So we're pulling all those levers. I quoted the net debt number at the end of the period, and we'll come back obviously at the full year and I'll talk about the cash flow in more detail. We're making progress, and the machine is definitely moving. So look forward to talking more about that in March with the full year results.

Operator, Operator

We now have Suhasini Varanasi with Goldman Sachs on the line.

Suhasini Varanasi, Analyst

I have 3, please. Clearly, you have seen a very good improvement in growth. Can you maybe discuss the expectations into the next quarter? I appreciate that you have a potential drag of 60 bps from the mosquito business. But given the underlying improvement that you saw in the third quarter, is there any reason to believe that the growth will not be at least as good as third quarter in the next one? And the second one is on 2026. It's just not on financials, but given the success that you have seen on door-to-door, satellite branches, etc., can you maybe share some initial thoughts on how you're thinking about investments going into '26 and the plans for funding around that? And the third one, you previously stated your margin target for more than 20% beyond 2026. Can you maybe just remind us about the building blocks that will get you there, starting with the top line?

Andrew Ransom, CEO

Thanks, Suhasini. I'll address the first two questions and then let Paul handle the third. Paul and I are not in the same location, so the sound quality isn't great. I'm not certain if you can adjust your position near the mic, but let's continue. Regarding your first question on growth in the fourth quarter, I've painfully learned that making precise forecasts about organic growth is likely not worth our time. We've struggled to provide accurate predictions in recent quarters, and I won’t attempt that now. However, I can share some general observations. Are we satisfied with lead flow and our improved methods for both organic search and our new pay approach? Yes, we are, and we mentioned that at the mid-year. We were asked if weather might be influencing our results, and we acknowledged that while it's possible, we are implementing changes and seeing positive outcomes. I anticipate that progress will continue. As we enter winter and the off-season, it's harder to predict. You've pointed out the 60 basis points drag due to mosquito-related work from last year's major hurricane season, which is one factor to consider. As I mentioned in response to Annelies' question, we're looking for momentum in our portfolio. If we sell a contract for $1,200, we receive $100 of that each month for the next year. Conversely, if we close a job for $1,200, we recognize the full income immediately. Hence, building our portfolio is vital for maintaining momentum into next year. I don't foresee any fundamental changes for our business in the fourth quarter; however, given the off-season and the drag we mentioned, we’ll have to wait and see. Regarding our door-to-door and satellite initiatives, we’ll be heading to America next week with the Board, followed by visits from the American team to London a few weeks later. During the budget process in a month, we’ll focus on two main questions: how many more satellites we want to open and evaluating the encouraging data from satellites established 12 to 9 months ago. These satellites are reaching a maturation phase, requiring sufficient 5-star reviews for optimal performance. Therefore, it's likely that we will decide to open more satellites next year, and it could be a substantial number, although we haven’t finalized our calculations yet. There is a limit to how many cities can be optimized for these satellites, and we’ll clarify that in the coming month. By the time we return to discuss the preliminary results, we’ll have answers ready. Similarly, we characterized the door-to-door approach this summer as a pilot, and we're pleased with how it performed in 25 territories. It's very likely we will expand this to more areas next year. Importantly, the door-to-door model doesn’t require a significant upfront investment. It involves engaging a third party whose sales force conducts the door-to-door selling on our behalf, branding it with our service proposition, and compensating them based on successful outcomes. Thus, it doesn’t expand our sales force directly but affects our P&L differently. We’ll have a clearer understanding of our plans soon, and we need to finalize our strategy for 2026 by the end of 2025. We'll be ready to share our targets for sales territories for 2026 in our next update. I’m confident it will exceed our 2025 targets. Now, over to you, Paul, regarding the margins.

Paul Edgecliffe-Johnson, CFO

Thanks, Andy. And I'll try and speak up and hopefully, you can hear me a little more clearly. So it's the same story, as I talked about at the prelims back in March and the interims in August. But as we look at the business and we look at what we had historically talked about as our integration savings, we will take the 2024 cost base, and after 2026, we will have been able to have taken out $100 million of cost from that cost base. There will, of course, be inflation in the cost base, but that should give everybody a good indicator of where we think the numbers will be on the cost side for 2027. And then the margin piece, getting to 20%, that is our intention. Obviously, it does require growth in the business through the balance of this year and into next year and in 2027. But that is what we're targeting for. We think targets like that are important, and we can see a clear line of sight to it. Of course, nothing is ever done until it's done, but that is what we are shooting to.

Operator, Operator

Our next question comes from Oliver Davies with Rothschild & Co.

Oliver Davies, Analyst

Just one for me. I guess, would you be able to give us an update on the Terminix integration, how the commercial branches integration has gone this year, and then the plan for 2026 in terms of residential branches and also the changes to technician pay plans?

Andrew Ransom, CEO

Thank you, Oliver. It's a valid question. We haven't shared extensive details since this is a Q3 trading update. To describe our status, I'm pleased with our progress. We've resumed commercial activities as we planned, focusing on the simpler aspects, particularly on commercial-only branches that require a transition to the Pest Pack software version. This approach has started well, with no issues reported, and we'll carry this momentum into next year. Reflecting on the integrations completed before our pause at the start of the year, we achieved strong cost savings and improved margins. However, we were disappointed with lead flow and customer retention. In response, we've developed a comprehensive action plan to ensure future integrations benefit from cost efficiencies without negatively affecting lead flow. The satellite strategy was partly a reaction to these challenges and aimed at improving customer retention. We're steadily progressing with the further integration without rushing, as it's crucial to get it right. Our focus aligns with the overall cost reduction that Paul mentioned. Some savings will stem from branch integration, but we also identified numerous other opportunities, which gives us confidence in achieving the $100 million target and a 20% margin. As you noted, integration is multifaceted. It involves more than just systems; it covers pay plans, branding, route optimization, and other elements. I'm optimistic about the integration's various aspects, including recent pay plan discussions in New York, which we aim to finalize soon for the 2026 budget. We've also made good headway on branding. To summarize, we have a complex situation, but we're taking the necessary time to ensure success. The restart is going well, and while details for 2026 are still being finalized through the budget process, we will provide updates with the preliminary results.

Operator, Operator

The next question comes from James Rose with Barclays.

James Rosenthal, Analyst

I've just got one, please. It's on reinvestments, and I appreciate your high-level thoughts there. When would it make sense to increase spend in marketing and sales, for example? And related to that, I mean, the 20% margin target you've got, I assume that assumes turn to volume growth at some point. Is that deliverable, do you think, within the same envelope of marketing spend as it is now? Or does it assume some expansion and some reinvestment over time?

Andrew Ransom, CEO

Thank you, James. I appreciate that. Paul, if you have a different opinion or a better response, feel free to jump in afterward. This is an interesting question. Marketing, especially, presents constant challenges. Paul has often pointed out that with marketing expenditures, half of it is typically wasted, but the tricky part is identifying which half. Understanding the effectiveness of marketing spend is notoriously tough. Are we achieving the returns on investment that we expect? We're significantly improving our ability to assess that. We're gaining better insights into where our money goes and what returns we receive. Our data capabilities are enhancing as well, and we've brought on a data specialist. We are getting better at tracking where our funds are allocated and what those investments yield across various channels, not just digital. This progress is encouraging. Consequently, if we reach a level of certainty that an extra dollar invested in a specific channel or strategy will yield a robust return, we can consider whether that dollar will lead to job creation, contracts, short-term returns, or long-term contract value. If we can identify that additional dollar, it opens up choices for us. We can decide whether to invest more to drive growth. To be clear, we haven't finalized next year's budget yet, but we'll explore these questions collaboratively with our team, examining all channels. As for the $100 million that Paul mentioned and the post-2026 margin, it certainly hinges on growth, but whether that means seeking volume growth or overall growth isn't entirely clear yet. It requires growth, and we're on track to achieve it. There may be some skepticism about believing it when we see it, which is reasonable, but we have a plan to reach that margin. Growth is necessary but doesn't need to be excessive. So, I can't say definitively if we will increase marketing spend, but if we can prove the returns from various channels—and we're getting better at doing that—we definitely have the option to proceed. We'll determine this in the budgeting process, but we shouldn't lose sight of our goal to hit that 20% margin target post-2026.

Operator, Operator

We now have Nicole Manion with UBS on the line.

Nicole Manion, Analyst

Two questions from me, please. They are follow-ups on some of the previous ones. So sorry if there's some familiar ground. Firstly, on the pay and retention side, just based on your previous answer, Andy, is it fair to say that within the overall colleague retention number for North America, technician retention is also still going up? And are you still in the pilot or discussion phase for pay for most technicians? Or are there some cases where you've already made changes, I guess, with some of the new joiners, perhaps their pay structure maybe reflects more of what it is you're intending to move towards for everyone? Or is that not the case? And then secondly, I appreciate you've touched quite a bit on satellite branches. Maybe just one more specific question there. You've got obviously a decent sample size now from the past 9 months or so. Can you comment on how you think they're working, maybe especially those that have been live for longer and just essentially whether you think they're meeting what your initial expectations of what you thought they could do were?

Andrew Ransom, CEO

Thanks, Nicole. Yes, we are seeing improvements in colleague retention, particularly in the U.S. Pest Control sector, especially among technicians. Yesterday, I noted that North America has improved its position in colleague retention, moving off the bottom of our internal rankings. Unfortunately, the Pacific region remains at the bottom, but they haven't worsened; North America has just done better. This improvement is very encouraging. I've often noted that in a business like ours, high turnover can make operations difficult. The rise in retention rates over the past 11 quarters is a sign of progress. We're close to reaching the group average in the U.S. It's important to mention that the universal pay plans for sales and service have not been fully implemented yet, with only about 10% of the North America team benefiting from the new plan. Therefore, the increase in retention can’t solely be attributed to changes in pay. We have made some adjustments to compensation for new sales hires and have altered the fixed versus variable pay structure, affecting our sales team. However, the pay for service staff hasn’t been modified yet. We aim to review this during the upcoming budget season. There’s a possibility of accelerating the rollout of the pay plans, especially for sales and service, but that decision is still pending. I'm very pleased with the improvements in colleague retention across the U.S. Regarding our satellite branches, we initially closed several locations after acquisitions and co-located branches, which didn’t immediately impact our search performance. However, we later observed a decline. Therefore, we've placed satellite branches in areas where we previously had physical locations, specifically in more affluent neighborhoods, as we find our services are more readily accepted there. Initially, activity at these satellites may be low because big search engines do not immediately recognize them. It can take time for them to mature and start generating customer reviews, which helps our visibility. We direct customers from nearby larger branches to the new satellites to establish a connection. Once we gather sufficient reviews, the search engines will begin to recognize these locations. The lead flow from satellites opened a year or nine months ago is now strong, which gives us confidence in the newer branches. Overall, this strategy is one aspect of our comprehensive marketing and operational approach. The advancements in AI and its effects on search engine results are also significant, prompting us to adapt our website content to align with these changes. While satellites are important, our broader organic search efforts are even more vital.

Operator, Operator

The next question on the phone line comes from Allen Wells of Jefferies.

Allen Wells, Analyst

Andy, just 2 quick ones from me. Apologies if I missed this in the comments earlier, but could you just maybe comment a little bit about the shape of both the North American organic growth and the lead generation as you move through the quarter? I guess I'm kind of looking for like exit rates for Q3. You helpfully gave some lead generation numbers, which I think were up 6 and a bit percent in June. So just any comments on how that trend has carried on sequentially through the quarter? And then the second question, do we need to be mindful of anything on the higher growth in business services in U.S. Pest, which is obviously slightly lower margin. and the nonrepeat of the Vector Control, which again, I'm not sure if that's also slightly higher margin. Anything we just need to be mindful of on the second half margins in North America from the impact from that? Or is it too small and won't really be noticeable?

Andrew Ransom, CEO

Thank you, Allen. I want to clarify that we won’t provide a detailed month-by-month breakdown. We highlighted the progress during the interims mainly to demonstrate our significant shift from a negative year-on-year lead flow in the first quarter to a positive one in June. The critical takeaway is that we moved out of negative territory into positive growth. Throughout the third quarter, we maintained positive lead flow each month. While I won't provide extensive commentary, it's worth noting that August was not as strong as September, partly due to an extra trading day in September. However, we were overall satisfied with our search performance during those months. It's important to understand that we're analyzing daily data on lead flow in our U.S. business. Factors like last year's spending on paid search and even weather conditions can significantly influence search volumes, leading to considerable volatility. The key point is that we're seeing positive effects from our efforts, and these changes are not just coincidental. However, we must also keep in mind that we’re entering the off-season and winter, which could impact performance. Regarding high-growth business services, it's worth mentioning that about half of the Business Services segment consists of our Products Distribution business, which operates at a margin of roughly 6% to 7%. This segment performed exceptionally well in the third quarter, but I advise against assuming that the level of organic growth we saw will persist. Success in business is rarely consistent, and while everything came together for us in the third quarter, I urge caution in projecting that into the fourth quarter. Additionally, it's true that the margins on Distribution and some Vector Control services are lower than the North American average. Nonetheless, we expect to meet full-year 2025 market expectations, and that reflects our current standing.

Operator, Operator

Our final question from the phone lines comes from Carl Raynsford with Berenberg.

Carl Raynsford, Analyst

I have two clarification questions. First, could you explain your comments about the improvement? Was that observed across North America or just in the contracted portfolio? Second, when you mention net gain, it implies winning more than losing, suggesting positive volume, but you indicate the math shows negative volume. I may be misunderstanding this, so a clarification on that calculation would be appreciated. Also, regarding North American growth, you noted jobbing was above 1.8%, which suggests contracts must be below that. However, you mention there has been sequential growth. Could you clarify the Q1 and Q2 numbers for contracted growth? I understand you previously mentioned minus 0.2% for H1. Any information on both of these points would be very helpful.

Andrew Ransom, CEO

I'll attempt to address your question about Q1 and Q2, though I might not capture everything perfectly. Let me clarify the situation regarding our net gain. We’ve been primarily discussing our North American Pest Control operations. Approximately 75% of our revenue comes from our contract portfolio, which means on January 1, we have a set amount of business under contract that will generate revenue throughout the year, assuming no changes. However, there are variables that affect this. First, is customer retention. If we manage to keep a larger proportion of our customers based on value compared to the previous year, we enhance the value of our contracts. For example, achieving a retention rate from 80% to nearly 81%, with an aim to reach 85% in the coming years, boosts our revenue from this portfolio. Improving customer retention is critical for net gain. Secondly, we implement annual price increases for our contracted customers, which contributes positively. Conversely, if we offer discounts to retain contracts, that would negatively impact our revenue. The third component is acquiring new business, which is essential and ties into lead flow. This is about selling new contracts, making the distinction between net gain and revenue significant. For instance, if I sell a contract for $1,200 in July, I'll recognize $600 in revenue during the second half of that year and the remaining $600 in the first half of next year. Essentially, net gain reflects our business performance during the period and indicates whether our contracted business is growing compared to the last assessment. Maintaining high retention rates, steady pricing, and adding more contracts than we lose are all vital. We closely track new contract sales as a percentage of our overall portfolio since outperforming terminations is crucial for achieving net gain. Achieving net gain this time sets us up for better future performance, assuming we maintain our portfolio momentum. In terms of specifics, our organic growth stands at 1.8%, but we are aware of some issues impacting overall revenue from our pest control in the U.S. The situation is improving, and we need to focus on enhancing net gain in Q4 and Q1, which are typically slower periods. If successful, this will position us favorably for a stronger performance in Q2 and Q3 next year. While I can't delve deeper into the numbers during this call, I'm open to discussing any questions you may have afterward.

Carl Raynsford, Analyst

Just the other on the North American growth. I know you said you can't answer Q1, Q2. So was the comment you're making really against the H1 number, the contracted side?

Andrew Ransom, CEO

Yes, I won't go into details about each quarter or the portfolio specifics, and I don’t have the exact figures at the moment, but we did see an improvement in net gain. The second quarter outperformed the first, and the third quarter was better than the second. Please continue.

Operator, Operator

We have a question from the webcast from James. Following the big increase in the legacy termite provision in the first half was in large part driven by a step-up in cost per claim, can you provide any insight into trends in cost per claim during Q3?

Andrew Ransom, CEO

I'm going to keep that one really simple. No. We tend to do balance sheet items at the half year, and we'll pick that up with the prelims. Were there any other questions online?

Paul Edgecliffe-Johnson, CFO

No, Andy. We're all out. We're all good online.

Operator, Operator

I would like to conclude as there are no more questions on the phone line. I will now hand it back to Andy for some final closing comments.

Andrew Ransom, CEO

My final closing comments. Thank you. Thank you very much for attending today. Thank you for your questions. Thank you for your interest in the company, as always. And we look forward to hopefully making progress in the fourth quarter and updating you on that with the prelims early next year. Thanks very much, everyone.