International Workplace Group plc (IWG) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to today's IWG Q1 Trading Update Conference Call. [Operator Instructions ] I must advise you that this conference is being recorded today on Tuesday, the 26th of April 2022. I would now like to turn the conference over to your speaker today, Mark Dixon. Please go ahead.

Thank you, operator, and good morning, everyone, and welcome to today's call on our first quarter trading update. I'm joined on the call today by Glyn Hughes, the Group Chief Financial Officer, and we'll take questions at the end of this call. We announced just over a month ago that we ended 2021 strongly. And this has provided a great start for us in 2022 with the momentum we saw last year continuing into this year with strong revenue growth. As you can see, we're printing here system-wide. Revenue is up over 18%, with the net revenues, that is the centers. The revenues, excluding closures, up 23% at actual currency and 22.5% constant. So a very good performance in the first quarter. As you know, revenue is driven by 3 things: occupancy, price and then service revenues, and these numbers that we're printing this morning as a result of all 3 coming through now. So occupancy continued to improve through the first quarter with very strong positive trends in pricing. For the first time in Q1, we saw the embedded price picking up every month and that sort of continued to-date. Embedded prices, the key measure, the pricing of sales and renewals was strong at the end of last year, it really only started to impact the revenues during 2022. So we're not there yet on the embedded price. We're still only 90% of the pre-pandemic levels, but we are making progress, and that is coming back month-on-month. Now bearing in mind that we're in an inflationary economy, we'll have to go past getting back to pre-pandemic levels. So we need to get back to 100% and then get to 110%, 115% of pre-pandemic and we expect to be able to do that. It's a timing issue. It just takes time every month. We need to doggedly move -- renew new price levels up, that is happening and that the revenue increases will continue throughout the year. So really good news on both occupancy of price. Now joined albeit with the expected length we talked about by growth in revenue on services. And this is happening across multiple service lines. So really for the first time, we can report that all the service lines are now moving in the right direction. So meeting room, well up, virtual office has been good throughout membership. Does these benefit from people working from home or working hybrid, but we're seeing other F&B and parking revenues coming up. And if you -- and for us, that's very important. These are high-margin revenue contributors. So we're very pleased to see that they are moving in the right direction. Still not back to pre-pandemic or above, but certainly moving in the right direction. We expect that to continue as we move through the year. So costs, a few minutes here, a few lines on cost. Substantial -- we've made substantial progress, as we've described before, in reducing costs. But we are seeing higher inflationary pressures across some of our cost categories. And this is going to present us with some headwind during 2022, it will pass through into pricing, but it's the timing difference that will give us some headwind during the course of this year. But we're confident we can pass through these increased costs over time to customers in higher price. On the market itself, more and more companies globally are embracing hybrid working. And the uncertain situation, let's say, economically that is the market we're in during 2022 is helping that. So companies -- it's pushing companies to make earlier decisions about the move to hybrid. They already know it's what their people want. And now they're accelerating things because of the cost benefits. A lot of companies are under pressure due to inflation and possibly impacts they're getting on top line as well. And so they're looking for cost savings. Hybrid presents a really great opportunity to change the way they work and lower costs, obtain better staff and so better team members. So we're uniquely placed to capitalize on these structural tailwinds that are growing. And so from a demand point of view, we've never been in a better place, and this is very positive as we come into 2022. So translating that into revenue that's happening. We've added over 1,000 new enterprise customers. And remember, enterprise customers are people using us in a systematic way, not just individual large companies making 1 deal, these are over multiple sites. So we've added 1,000, and we've had at least 1,000 who have substantially expanded their business with us during the same period. So we're getting very good traction with companies that are moving to hybrid. And remember, the inertia, the reason they're not all changing immediately is because they all have commitments and leases elsewhere, and it takes time for them to get out of those commitments and that slows down the conversion, but it is picking up. So all of that very good news. I think the second good news that we have today is around our ability to grow the network in a capital-light way. So we've made excellent progress in Q1, 78% of the locations were either franchise or partnered. And we've got a really strong pipeline now of new openings that will come online during the course of this year and into next year. And this is really unprecedented. You'll see this story grow during the course of 2022, and it's quite an exciting development. So again, we continue to move to our short-term goal of getting the mix by the end of the year to 50-50. And in terms of partnered franchised and company-owned units, we've got some activity here that will help on small MFAs where we're in discussion on those. And that's a master franchise agreement, mainly for smaller countries, but everything helps. And so positive news. We are saying today that we're slightly higher on cost on the investment in people, and this is basically to move the growth faster in this capital-light area. It requires a full-on sales force globally, which we've been building, and we're slightly ahead on hiring. We're not hiring more people. We're slightly ahead of the curve on bringing people on that just will increase the cost marginally this year. But the deals we're doing, the management contracts we're taking on create very attractive repeat revenues recurring benefits for years to come. So these will be, we believe, excellent investments in terms of return on any capital we invest this year. And please remember that the interest in hybrid is not just coming from corporations customers. It's coming from the property industry as well who can see the market changing and are very open to partnering with us in order to participate in this new way that companies want to use real estate. So -- and it is, by far, the most exciting area of development that I've seen in the 30 years I've been doing the business since people are coming to us in unprecedented numbers. And so it bodes well for the future. Instant Group management team has made great progress. I mean, it's still very new, but they have already integrated our digital assets -- some of our digital assets. They've also done 2 mergers in the very short time since we announced the deal, merging in Davinci, which is the leading global aggregator for virtual offices and also merging in Coworker, which is the largest co-working aggregator globally. So 2 very positive deals and they have a great pipeline of additional deals that will help build up that company. And as we've said before, this is a company that's been prepared for separate IPO within 2 years. And again, we're very happy with the start that the team has made there, and well set for the future. Very briefly on new center investments. Although we are doing a lot of management deals and a lot of franchising, there are still some centers we are investing in, in certain markets, a much reduced CapEx on new centers at just under GBP 25 million. And this is lower than all previous years. So it's -- there will be a lot less CapEx than in our prepandemic years as we have moved much more towards capital light. Financial position. A good one with net debt at GBP 764 million. This includes, of course, the financing related to Instant. It's -- just finally here, obviously, uncertain time in -- in a time of change in many markets, we're calling out that even though the COVID seems to have passed, there are still lockdown down restrictions in particular place -- cities rather than countries. You're all aware of what's happening in China but there are also varying degrees of restriction, whether that's vaccine requirements, mask requirements and so on. These are lingering in various cities or countries around the world. So that, plus geopolitical uncertainty, that's there in the background. But -- and all of this creates some headwind. But I'm very pleased with our performance in the first quarter because in spite of that, you can see here a very strong print in terms of the revenue. But it's there in the background, and we continue to remain cautious as to how this develops during the year. But just to be absolutely clear, it's there, and we continue to trade well in spite of this. So in conclusion, we're making great progress against our strategic initiatives that we set out in the full year. And we're looking forward with cautious optimism at the coming quarters. We're very clear that we are at this crossroads, more and more companies seek to push and develop hybrid working in the companies and more property owners want to provide it. Our platform in between the 2, whether that's with IWG or whether that's with Instant Office allows that transformation to take place. So in a very exciting time. And with that, I'll pass back to the operator and open up for questions.

[Operator Instructions ] We'll now move to our first question.

Michael Donnelly from Investec. Just 2 quick questions, Mark. First of all, on the Davinci and Coworker mergers, should we think about them as bringing incremental clients onto the new merged platform? Or is it more a case of enhanced functionality for existing and future clients? And then the second question is, could you give us just a little bit more detail perhaps by the number and the type of people you're hiring to fill the strong demand. I think you said that it's sales, but if you could just give us a bit more color on how many of them...

Let me do the second first. Look, what we've got is an acceleration in the amount of work that needs to happen to deliver the centers themselves. So we've got -- and that's because we've got more take-up of partnering happening earlier. So it's good news, but it does take more people. So more salespeople hired earlier is leading to more deals happening earlier, which we then have to set up. There is a mitigation in that the partnering deals do have a cash -- an upfront cash contribution to us. And then clearly, afterwards, there is a management fee, the management fee, it takes time to build. So you get a sort of lag in the middle because we're paid as a percentage of revenue, and it takes time to build up that revenue, there's just a lag in the middle. So overall, it's a small impact on cost, but it's there. So we're just calling that out. This is an investment. It's an investment in the future. And it's the same investment we talked about before. It's just happening a little more quickly. And it's that all the things, it involves additional people more than anything else. In terms of -- in terms then of moving to Davinci and to Coworker, the Instant management team's plan is to -- you should imagine it like a menu of all the things that companies or partners may want in a hybrid world. And one of the things they want is a virtual office company. And Davinci, as an example, is the leading virtual office company in the world. So merging that in gives them a new service that they can offer, their operators, and they're working with the world that they're aggregating for the operator world. And so this gives them an important new service that they can market. It will take time to build that up. Davinci is successful, but relatively small in global terms, but is growing quickly. And it just gives them a whole new skill set as does Coworker. So -- and they were more like this. So you just -- they're just filling in the menu of the thing -- the services they know that their partners or their customers want and bringing in the right partner companies to do that.

It's Dan Cowan from HSBC. I've got 2 questions, please. The first one is how long would you expect it to take to pass through the cost inflation that you've called out this morning, please? I know it takes a...

Okay, it's excellent question. Look, the first -- where it's about 90% of prepandemic price today. And when moving the price forward every month and it's going to take us into the fourth quarter before we recover completely on price, just that's how long it takes. And but by the fourth quarter, we'll be -- the way things are set at the moment will be above -- will start to go above the prepandemic price, and then we're into sort of making up for inflation, and that's -- so I would say by halfway through '23, we will have covered the inflation as well. If the inflation stays, we expect it to. And there are movements in our business both ways. So we can -- just for clarity, we are seeing -- although we're seeing inflation in heat, light, power, people, there is some -- and there is some inflation in rents, in particular, in index-linked countries. And we see some inflation in very suburban and regional locations, very small, but there are also in the larger cities rents have started to decline, and we're adjusting for that. So it's not completely inflationary field, but there will be an impact this year in higher costs. It's a small impact, just to be clear, but it would just slow us down slightly, but we'll make that back. In the end, we are a cost-plus business. So that it all has to be passed through to the customer eventually.

Yes, and second question is just on EBITDA in Q1. If you can give us idea?

Sorry, what's that, I missed that.

So the question is on EBITDA -- EBITDA in Q1. Roughly, was that profitable, not profitable?

Well, definitely -- in Q1, definitely.

Can you move back on profit?

Yes, very -- I mean EBITDA level, very strong and improved the additional revenue just pretty much, not all of it, you've got, again, some higher inflationary pressure, but nearly all of it just comes -- drop straight through.

Steve Woolf from Numis. A couple from me. First of all, can you give us the occupancy numbers for the pre-2020 estate? I know mature to be a rolling feast. But it was that state that you flagged at the full year results as an exit occupancy of 74.5%. So I just wanted to see where we are with that. Secondly, in terms of the net debt number. Just trying to check the bridge, if I can, during Q1, if net debt was GBP 764, as all of the financing of GBP 270 for the Instant Group gone in. So you're left with about GBP 500 million compared to GBP 400 million at the end of last year. So any bridge you can help with that. And then on to those inflationary pressures, what level of inflation have you priced in just so we can sort of have a view roughly as to where -- if that rises or comes back during the year would be helpful to know.

So Glyn, on occupancy.

Yes, so occupancy on the mature estate is 75% to 76% on average for the quarter, but growing as we exit the quarter and coming to Q2.

And that Glyn, just to check, that's on the pre-2020 estate, not that perfect not the number, the best in this one.

Correct.

That's great. That's one. On net debt, you've got basically it's chiefly working capital?

Yes, we haven't -- we -- standard for the course. We have a working capital outflow in Q1 which then reverses during the years, and the net debt the number that you quoted, obviously incorporates the financing element, for instance, that you referenced.

Yes, that's perfect on that one. And then those inflationary pressures, what level have you broadly I appreciate that's a broad brush number, but if you've got an idea of what we should be looking at in case the world changes one way or the other.

Well, it's -- we're saying it's a marginal effect. I mean, we already knew there was inflation. It's just the inflation level is slightly higher than we originally -- we're just -- we're calling it out that it could be an issue. And it's not necessarily an issue right today, but we're feeling that it could be an issue as we go through the year.

Okay. And then just one final one. Into the capital-light model that obviously has been sort of accelerated in certainly the past couple of years. Have you got an EBIT number in mind for the capital-light openings versus a traditional office opening. I'm just trying to get a feel for where...

We sort of called that out in the strategic review. So let me have a go at answering that. I mean this is -- if you look at it just on average broadly, what we're saying is over the next years, we'd expect to open around about 2,000 centers and they would be performing fully because you make money from the revenue that those centers produce, not by opening them. You've got to actually build the revenue. But by '24, you would expect that these would be contributing system-wide revenue of gain, around GBP 2 billion in system-wide revenue, and would be producing a contribution in the 200. That's contribution. That's not profit because you have some additional overhead and so on. But -- and that is for that -- these are centers that have no -- there's no investment. So they are purely management deals. And that becomes a higher proportion of what you're doing. So you'll see we're still investing in a very, very selective small groups of centers. We're doing a lot of variable rent deals, which are -- it's a sort of synthetic lease with variable rent, has a small amount of IFRS 16 rent and then you've got your pure partnership deals and your pure franchise deals, which are the ones I'm discussing there. But the benefits you'll see also in '23. The ones we opened this year, you'll see a benefit in '23 and the full benefit that is just going back to the strategic review numbers put forward. It's the full benefits in '24, but that's just because you've got more openings but the openings even this year will be fairly significant with the impacts coming some this year and quite a lot in '23 as well.

Calum Battersby from Berenberg. Can I just please ask 3 questions. So firstly, just to follow up on some of the last questions. Could you please explain how much of your own rental bill is on inflation linked mechanisms? And then more broadly, what we should expect the cost of your own leases to move up by this year ? And then secondly, on the target you talked about now a couple of times to get to a 50-50 split of franchise and partnered sites by the end of the year. Would you mind giving us some more color on exactly how you expect this to be achieved, i.e., should we assume that this target implies that you think significant master franchising deals will be completed by the end of the year? And then thirdly, it looks like we've seen a slight slowdown in the occupancy growth in Q1 compared to what we saw in Q3 and Q4 last year. Just wanted to check this and see if there's any kind of explanation given. And if you think that growth is going to pick up again through the remainder of the year.

I'll deal with the last one first. You're quite right. There's a slight change in occupancy growth but it's a blip, it's not -- that -- and it's because of price. So you've got harder price increase and a slight reduction in occupancy growth. The occupancy growth has picked up again since then. So it's -- that is well spotted, but it's more of a blip. Doesn't affect revenue because price picks up the gap. So that's occupancy. In terms of inflation of rents, as I mentioned earlier, the -- we've -- this is a moving feast. And you've got rents coming down -- very clearly going down and you've got inflation linked rents. Now it doesn't all come through sort of with night following day, there's all sorts of variations. But it's about -- it's less than 1/3 of the estate that is inflation linked. And in fact, those tend to be -- they're in the more developed countries. The U.S. importantly, is not inflation linked neither is the U.K. So they're set rents. And so they don't go up, the inflation is already in. And that -- so those are the 2 biggest markets that were helped by inflation. But overall, the rental, we budgeted for small rental average increases, but -- and that's what we expect. It's not really from there because the rents are much more fixed and there's -- it's more the oncosts heat, light, power, people and basically maintenance CapEx. These are the things that are much more in the short-term inflation zone. How do we get to 50-50, Calum? It's a combination of more partnering and franchise new deals. And I laid out the full year that we expect it to do about GBP 50 million. It's an estimate but GBP 50 million of MFA sales. So there's no major ones in there, but it's a combination of smaller ones. And it's a combination of those, so more franchise, more partnering, a few MFAs. We're already at 34%. So it just starts to close down. And just to be clear, so the target is to get close to 50-50. We may not make the 50-50, but we will get close.

It's Sam Dindol from Stifel. A couple of questions from me. Firstly, I think you said embedded prices 10% below prepandemic levels. Could you give a similar figure to service revenue in terms of what's the percentage below prepandemic? And would it be sense presume that gets back to prepandemic levels also in Q4 like pricing? And then secondly, on the Davinci and Coworker deals for the Instant Group. Are you able to say what your consideration was for those deals? And should we expect that to change sort of the pro forma EBITDA for Instant Group. I think you previously said GBP 50 million to GBP 60 million achievable in 2022?

Right. So first of all, service, we are about -- we're missing about 1/3 of the revenue and the revenue prepandemic was 28% of the overall revenue. So a little over 9% of revenue missing there. Now the key thing, Sam, is there's revenue and revenue. So the -- what we're expecting to come back now is some of the higher-margin revenue. Things like coffee and actually revenues from people, more people being in the buildings and consuming. So -- but that is coming back steadily. And as we go through the year, that's really the last foot to drop, if you like, in terms of the revenue recovery. And we're still about 1/3 short on that. Sorry, what was your second question?

Just around Davinci and Coworker acquisitions, can you give any color on operation?

On that, there is no impact in terms of -- because as the -- so you get a dilution effect. So the way we -- the management team there are growing it is by merging in rather than spending cash. So -- and everyone remains incentivized, and they -- you sort of have a group of companies that head towards an IPO exit. So it's -- so there's no real movement in the overall impact to our shareholders, that is IWG shareholders, in terms of our EBITDA and earnings. That makes sense?

Just a follow-up. So you had 85% of the component combination ...

Yes. So as we merge more things in, our percentage will reduce. And of course, we have an interest. We economically benefit from anything that is merged in, but it does dilute -- it doesn't -- if we bring in 100% of something, we're not diluted by that 100%, is 100% less something because we're providing the vehicle.

Got it. That's very helpful.

Yes, but you will see more of these incoming mergers, sometimes with a small amount of cash, but mostly they are mergers so that in the same way, as we did the deal originally with Instant, it's keeping management teams in these different segment businesses fully incentivized towards the IPO. And you're not letting people cash out early on.

It's Andy Grobler from Credit Suisse. Just a couple if I may, Mark, just following up from the previous question about merging in Davinci and Coworker. What are the plans over the next 18 months or so in terms of where do you think through these mergers, you can get the Instant Group EBITDA to and what kind of proportion of that holding will IWG shareholders have? And then secondly, again on kind of the strategic plan, you've talked about the 2,000 franchised openings over the next couple of years. Having opened about 28 in Q1. How do you get that acceleration? Because that's to go from 28 to a run rate of 250 a quarter is a big jump. Where is that going to come from?

I'll deal with the second one first. It's coming from having more people. So basically, people selling in -- more people selling. Those people have only come online. There were a few at the end of last year, more in Q1. There will be more in Q2, and they start so that we clear those deals that are coming in. So it takes time for them to open. There's quite a few deals that have already been signed that will open later on in the year. So that will -- that pipeline is starting to convert well. And we're getting multiple -- this is the first deal, then you get multiple deals. So -- and just to give you an example, on the part on this management contract arrangement. The first centers are only opening right now. So this is the time lag for them to be built and so on. It's still much quicker than franchising. Even quicker than doing our own, but it takes time for it to roll in. So that will build quarter-on-quarter, and we're very clear about that. But you've got to put the infrastructure in place to do it. And that's why we're saying there's going to be a little bit earlier cost, but the pipeline is very, very strong, particularly in the United States, which is our key market.

And just on that, can I ask in terms of incentive schemes for these people, is that 2,000 kind of a firm fixed target where people are going to get paid if they achieve it? Or is it -- or should we see it as a kind of the [indiscernible].

Yes. High in the sky target, that's all. It's a failure if we don't reach that because of the resources we're putting into it, you want to get that outcome. And as I say to you it's simple numbers game as I explained before. We have a certain number of deals that we expect each person to do. The early people are looking like they're going to do that, but there's not enough of them to sort of create a solid model, but I'm clear having understanding sales and what these people are doing. And we've got a very strong management team around it that we're in a very good position to achieve this. And as I said in earlier comments, the property industry itself, that is investors, people that own buildings and now becoming fully aware to the fact that their market's changed, and they need to be providing hybrid and they've got to be doing that on the platform. And so that's -- we're very clear that, that's going to be -- that's only going to get stronger and so on. So it's -- this is not -- we would not be investing in the people and the backup where we're not super clear that we can use this method to accelerate. the already. Franchising was good. It just takes a long time for you to get -- for the franchisees to find centers to open. The fastest ones to open were always the people that own the property, and we just really cut the middle man, if you like out and just said, let's just go direct to property owners and do it. And that is proving to be the right thing to do. So it's that plus a few of our own centers and there will be some M&A as we go through this year because there's still some distress out there in the market.

Okay. And on the...

On the Instant plans, I mean, look, I'm reluctant to be put on the spot here, Andy. So okay, but overall, if you remember what we've -- what my words were on previous calls, I said, look, the target here is for it to be worth GBP 1 to GBP 3 to IWG shareholders. Now so just part of that, how do we get there? We get there by building more things on to the already strong platform that Instant Office have. They're already market leader, but they need more attachments. So you sort of create a bigger and bigger boats so that you can go to -- you do your IPO with more substantial revenue and more substantial EBITDA. And we think that the revenues need to be in excess of GBP 1 billion. The EBITDA needs to be well in excess of GBP 100 million. And that's the sort of minimum. 2x of both of those would be even better. And it's that plus growth rates plus being a purely digital play. You just don't have the encumbrance of leases and IFRS 16, et cetera. And there's a long runway in front for digital expansion. That's what will give us the right multiple or an attractive multiple. So it's a combination of those things. I mean the team there are very focused on doing it.

And I know those are kind of example numbers, so excuse me if this is a bit picky, but that -- those numbers suggest a EBITDA margin of kind of 10% and Instant was more high double digit ? Are we assuming .

No, let's -- that's because they're in development. No, the -- all of the things they're doing essentially the margins are in the 40%, 50% range. It's just whether or not you've actually -- because you're viewing growth assumes all the cost of growth as well. But your sort of -- your margins are in the 40%, 50% range, some are 60% that's the digital margin range, as you know.

[indiscernible]. Just on the debt, is that peak for the year now?

I would -- yes, good question. Glyn?

Yes. Sorry, the question was, has that peaked ?

Yes, it must be because they're making now solid EBITDA. So you basically -- unless we start to spend more money, you're absolutely. You've got the...

Yes. We're forecasting a gradual from here on in reduction in net debt for the balance for the remainder of the year.

[Operator Instructions]

Steve from Numis again. Just following up on Andy's question about the opening of the 2,000 over the next 2 years. You mentioned there in the sales team, development managers are incentivized. What are they incentivized on? Is it just purely to get to that 2,000 -- or is it returns, cash, i.e., margin, other basis as well just to get some context?

Okay. It's -- right, so they are incentivized on a variety of things, Steve, the -- if you imagine what they're getting is how we make money is on revenue and we get a percentage of revenue. So there's a lot of difference between a small center and a large center. So the incentives are based around the number of square meter square feet you bring in and what the gross revenue will be from those, okay? All these -- even though the management deals, they still go through the investment committee. Our key issue here is not to waste time on things that might not have a risk of not performing for the investor, for the owner because we know from experience that these can be very time consuming. So it's better not to do them. So they go through investment committee. The sales guys and the whole team are incentivized on the number of square meters they bring in and the number of deals because there is an upfront payment on deals as well, which goes some way towards covering the short-term costs. And it varies. A center in India has a completely different profile to a center done in the U.S. We have quite a lot of openings coming in India from this, which is good. We grow India capital light. It's a huge market, and that is the way you'd want to do it because we don't want to be putting capital into India, for example, but we do want to expand it. So there are many moving parts. But essentially, the guys are paid on the number of square meters. And of course, on the success of those units in terms of their revenue production.

Okay. Have you got a rough idea of to disclose how many sort of people you have been putting it in throughout the year is the target? Or you mentioned you've gone sort of earlier than expected with some of those investments. Is there an idea of how large that corporate development team is now?

It's the -- we're having to -- because we've got more -- we're having to add more support people to support getting them open. So there's 2 parts to it. But you're talking about sort of 300 people. Some of them are in our service center. The salespeople are much more expensive than support people and it's just an accelerator. It just comes earlier in the year, that's all. So these are small single millions of additional costs. We're just calling it out.

Got you. okay. That 300 people is the existing size of the team effectively?

No, not now. That's what it will be that shortly.

Okay, got you. That's not the end game this year. Okay.

Yes, and it's just coming where we would have expected to have done that in sort of be there by Q4, we're going to be there by the end of Q2. So it just -- you just get more cost this year. But it's more cost this year because we've got a lot more centers coming in, which in turn is -- it's good news. Remember the winner in this business, it's not -- it's the one that's got the most coverage. You need everything else, of course, but coverage trumps everything. This is McDonald's any other fast food company, they win through coverage. You've got to have the right products, but it's coverage. And it doesn't matter what you do. If you're not open in that market, you're not going to take any money. And people want to work quite literally from everywhere today.

Mark, it's Andy again. Sorry to come back to this. Just so I'm clear. In these centers, in these couple of thousand centers you're looking to open, how are they split between kind of franchised and managed? And just from a financial perspective, I know that system-wide revenues may be the same, but for the income accruing back to IWG Group, how is that fee different? Because I always thought the managed were quite a lot lower than the franchise.

No, opposite. So the fees are higher on managed than franchise because we're managing. It's, by definition, a managed franchise.

Okay? Right. So your fees would be 15% or so on managed?

Yes, 15%, 16%.

Okay.

Because we're fully managing those, we're providing sort of full service. This is to property owners who don't have any of the facilities to do it. If you look at the franchise partners, some of them do have. They've already got franchise businesses so they'll have some of the people that they need already. So that's the difference but the partnering that is the managed franchise will far outweigh the franchising. So franchising is moving as before, it's still good. But the managed is rapidly accelerating. And the key difference is we're managing buildings that are already there. So by definition, the owner already has the building, he already has the vacancy. He wants to get open as quickly as possible to convert his vacancy into revenue. So it's completely much, much quicker to market and gives us what we need is A, the coverage; and B, the revenues and part of that revenue.

We have one more question.

It's Dan Cowan again from HSBC. Sorry, another follow-up on this 2,000. You said, Mark, that managed centers will overtake with outpaced franchise in the next couple of years. How much quicker are they to generate revenues in the franchise? What's the difference in...

6 months difference.

So it's 18 months for...

No, it's not that. No, it doesn't take longer to fill -- sorry, let me just be very clear. It doesn't take any longer to fill them. Franchise center -- whatever the deal, franchise, managed, or our own center, they will fill up at the same rate. It's the -- if we sign up a franchisee and it doesn't have a building, it takes him time to find a building, and that's the time lag. So you'll see we've signed up a lot of franchise deals already. There's a big pipeline but the frustration is it takes them quite a while to find the buildings? And by what we could see last year is by every building owner of the refranchise, they've opened quickly. So we started to focus more on doing that. And now we've moved the program to just almost purely focused on that because what counts for us is open centers, not signing the rights to centers. So this accelerates the openings, therefore, the revenue. Okay. Well, thank you very much for those questions this morning. As usual, we'll be available for any follow-ups you may have. Thank you very much. Bye-bye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.