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

Good morning, everyone, and welcome to our Full Year Results for 2023. I'm going to present first and then Charlie will tie up, and we'll go for questions. So I think it's a truly fascinating time for the hybrid working industry. And for us as the global leader in this industry, which is moving very quickly, and we'll talk to that today. We're fantastically well positioned to drive both future growth as more and more companies adopt this way of working to keep growing, keep maintaining our market leadership position and improving both our revenues and our profitability over time with the new capital-light model. Last few months, really busy period for us as we ended the year. It was a continuation of what was a great year for the company, strong cash production, really good growth. And lots of strategies developed during the year being put into action that are improving overall operations, and that's continuing into 2024. What you're going to hear from Charlie and I today, though, is quite -- pretty much the same as you would have heard at the Investor Day last year in December. And one of the things we're trying to do is to lock down the reporting, make it simpler and consistently report so that people can follow it. There's a lot going on. We don't really have any peers at all. The only one out there is our friends that WeWork, and they're not really a peer. They're not really in the same industry. So really important that we report in a consistent way. So you know who we are. I'll repeat, market leader in what we believe and others believe will be a mega industry. This is not a small thing. This is not about managed space. This is not about flexible working. This is about a fundamental change in the way companies are going to work and the way people are going to work. So it's a really big thing. It's not small. And it's emerging from two things. One, it's basically companies working much more quickly, needing to be more flexible and technology facilitating a completely different geography of work than was the case 10 or 20 years ago and before. We're the market leader, we're going to continue that. We are growing quickly. We're going to continue to grow quickly. The winner in this industry is the one with the biggest coverage. You need everything else, product development, you need to manage the business well, but more than anything else, you need coverage. That's what companies ask for. Are you here? Are you there? They're not saying, are you just in one place ever. So that's the second thing. And thirdly, and -- we think this is quite unusual. You've got a company with a huge runway ahead that is generating more and more cash as it grows. And you can see that coming through in '23. So we think that will be attractive to investors. Once they believe it will continue, that will be a very attractive thing for more and new investors to come in. We've got great exposure to the U.S. now. So we've got this fantastic network 120 countries, but the powerhouse is the U.S. It's about 50% of the business. It's got the highest growth, it's got -- it hasn't got the best margins because you're averaging out across many, many sites, but it's got high margins. And it's got the U.S. companies that are the greatest adopters of hybrid because it just makes sense. It's cheaper. It's what my people want. I can hire people wherever I want to in the U.S., we like this. Why aren't we doing it? We signed last night -- the last state by the way, a small detail. Anchorage Alaska, we're in Alaska now. So if you do require an outpost there, we are now placed there. We've got a fantastic cost advantage, and I must emphasize this, this is a business that has got a lot of scale, is going to have enormous scale. So we spend a lot of time not just on growing revenue, but on managing costs, every single cost down to fractions of $0.01 or $0.01. How can we lower cost? How can we make our business simpler and easier to run and how can we manage every aspect, and we're getting better and better at it. So there's still more upside in here, in particular, now with the way that we're opening centers. So we're bringing the cost down quite dramatically in how we open your centers. Now we're actually saving money for our partners here, not necessarily for ourselves, but it does allow us to open more centers. We brought the sort of the cash requirement down significantly, and we expect it to come down further in the future. So -- and that is working supply chain, warehousing systems and many things really all lined up to make the opening and operating of centers flow. And we think there's a lot more to come there. And finally, we -- apart from my good self having been doing this for 35 years, we've also got a very good and experienced team around the world. It's not just in one place. And we continue to add to it. So in '23, we added quite a few senior execs, again, with a view to succession planning, with a view to strengthening up. What -- we've got a huge job to do. We must make sure we have the right people doing it. So we've continued to invest in that. This was a slide from the Investor Day. Just to remind you, hybrid is about turning real estate into products that people can buy, companies can buy. That's what it is. So it's fully financed. It's the same way that companies would basically rent a fleet of vans to deliver their goods. They don't buy them anymore. They rent them. They're fully done, fully maintained. That's the way it works. This is a completely outsourced platform. It works. You buy the product you want, you use it for the time you want, and you -- that's it. And it's sort of moving inexorably across the page here to what was a very difficult thing for companies to do: sign a lease, build it, operate it and then get rid of it, inflexible. 2, I buy products to support my workforce. And I buy what I want, where I want it for the time I want it. And that theme, it's an obvious one, gets picked up by more and more companies, which drives the demand, and demand is strong. And over the past 3 months, I've been spending a lot of time analyzing, personally, with a team of people, where are the customers. And the customers have become sophisticated. So it's no longer -- they're not -- no one's looking for offices. They're looking for support for their people. They're looking for products. And so our product development is about providing them exactly what they're looking for. It is never offices. That's just part of the equation. So your -- again, the narrative is important here. And we get questions, Charlie and I, from people and they -- because they've read the latest headline and they say, "Yes, aren't people somehow going back to the office?" and all this stuff. I mean -- but the answer is, yes, they're going to an office. It's just not in the same place. You cannot -- very hard to find in any country, anyone that likes commuting. It's the most unpopular thing, basically taking away 2 hours of a person's life and getting them to pay for the privilege really is not good business. That's not what people want. So what companies are saying is, they want to have a more distributed workforce. They want to provide support for their people, wherever they are, and they want people to be able to use a network of things so that they're productive when they're on the road. And you'll see in the U.S., lots of locations open up within the airports, air side. We've got some European ones coming now. This means -- that so, when you're traveling, when you're away from wherever you work from, normally, you can be productive. No one's wasting time by sort of sitting down in Starbucks and trying to get the Wi-Fi. It's a setup system of places that help people do their work. So it's -- the rhetoric will continue about the sort of -- they have boots here in the U.K., yesterday saying they're going to bring their population, which is 8,000 people, come back to the office in Beeston in Nottingham 5 days a week. But the reality is that, that's not convenient for the people. Most people don't need to do that. Modern companies are investing a lot more money into technology that allows them to hire, train, mentor and manage people without having to sort of have them all in one building where they can somehow feel that they are working because the answer to that is, of course, many of them aren't. They're just there. AI look for the new Microsoft developments are going to completely change this because the -- combined everything you do into product and converts, AI converts into how productive people are. And that's what if you're running a business, that is what you're looking for. I've got the people, are they productive? Not where are they? And can I see them sort of sitting here? That's quite old-fashioned. So lot coming. It's not -- it's a very nuanced setup here because all companies aren't the same and what they're doing aren't the same. But right underneath this, there's a lot of people where this is a real advantage to both the workers and the company, and that is a huge market. So I won't go into all the drivers. If you've got the pack, you can see this, but it's all about the productivity and how happy are the people. And generally, people that haven't wasted a couple of hours a day, they can go to an office and meet other people socially, whether it's from their company or any company and can get sort of looked after, have great Internet, good connectivity, access to a lot of processing power, things like that. That's what they're looking for. We're investing more in health programs to support workers and food programs supporting workers. As we go into '24, we've been testing it for a while; it works. That starts to move the narrative further away from, do you need an office, sir, to how can we make your people happier and more productive. It's a very different conversation. Again, coverage, coverage, coverage and a really good year for signings last year. They're now converting into openings, which are converting into revenue, which is converting into fees. And fees will become a bigger and bigger proportion of our profits in the future as these open and sort of come through. And what's interesting is the numbers we talked about previously are starting to come through. You can see those in the numbers. So as we look forward, the conversion of centers into revenue and into profit is very similar to the numbers we put forward at the beginning as we were starting on this program. So we're quite happy about that. Market leader by an enormous amount. The white line, the signings that haven't opened, but you're just -- I mean, WeWork is contracting. And our growth, just the growth alone is the same size as the three following operators. So you can see that we're just moving ahead. Remember, coverage wins the day. This is not about how big the centers are. It's not -- it's about coverage. Where is it going? Well, we'd like to be up with the multiples of our fellow platform operators. There's many of them. We picked out Uber and Airbnb. Uber, we're using it. And to explain what we do, we're linking up the property industry with users on the other side, whether they're individuals or corporates. Clearly, they've got very different multiples to where we are today, our lowly multiple right in the middle there, the market cap, the result of that, we hope will change over time. If we can report consistently, if we can deliver cash with growth and continue to grow our share of the market in what will become understood as a real thing as opposed to something that feels like the property industry. It's moving away from -- Uber have done this and saying, we're in the taxi business. We're in the food delivery business. We are a platform. We are similar as we move more and more into capital light. So, key thing here really is sort of consistent delivery. And we're doing that on all of these counts on growth, on revenue. And importantly, you can see coming through in '23, very, very pleased with the cash production, and then we're adding a dividend on this year. Charlie is going to talk more about the divisions. But I think everything we said we would do last year, we've done that or better than that. And I think that consistency of delivery now is what we need to keep doing. And again, I've talked about costs, but that -- it's not just about revenue, it's about the management of costs, both for our company-owned and for our partners, making sure that our partners are making great margins, really leads them to do more and more buildings with us, and that's certainly happening. Yes. I mean, Charlie, I'll let you talk about these wonderful statistics and how we're going to make them better. One peer share, get the dividend started. I'm certainly pleased with that as a major shareholder, pay some bills. And I think, look, this is -- we set this out at the Investor Day in the U.S. This is about getting to this medium-term target of $1 billion in EBITDA. And we're making a good start here with a 30% increase -- 34% increase in last year. We're not saying we're going to do that every year, so don't adjust your numbers just yet. But that's -- what is that, Charlie, about a 10% compound?

Just over.

Just over. That's what that line is, but it's about consistent delivery driving it up. It's very possible that we can get there in a reasonable amount of time and beyond it, as Charlie said, when we put this number up. So we just got to keep on doing what we're doing. And by the way, the cash production in here becomes better and better as you start to drive the EBITDA, the cash and the earnings really start to become quite attractive. And you get -- the depreciation coming off will get you more conversion into earnings going forward. And with that, I'll hand over to you, Charlie.

Thanks, Mark. So overall, I think 2023 has been a good year for IWG and we've set out to deliver what we say we're delivering as Mark said, I think we've done that very well, if not better, in places. We've also sort of tried to make things clearer for investors. I think we've done a good job on that. We've still got some way to go with that as well. For example, how the Board is considering changing to U.S. GAAP reporting, for example. And we've also changed to U.S. dollar reporting, which will reduce the FX volatility, but I can talk about that in a little bit. As I mentioned, so really, we're delivering the plan, and we set out the plan at the beginning of the year, and we are delivering on that. So cash flow is building, and that's across all three divisions. CapEx has fallen and will continue to decline, and that's sort of one of the drivers of that increase in cash flow. And net financial debt has come down, and we expect that to continue to fall during 2024. We've committed to build a strong balance sheet. And as part of that, we're looking to target 1x net debt to EBITDA and continue to pay down the debt until we reach that level, after which we said we'll share the proceeds of that growth. And then as Mark mentioned at the end, we're also underpinning all of that by resuming the dividend with a 1P final dividend as a sort of show of confidence in our ability to continue to deliver and where we see the balance sheet today. 9% revenue growth across the group with strong performance from all three divisions. You'll see that the management franchise think unsurprisingly, is the largest one. And I think sort of overall, importantly, the gross margin is also very good across all three divisions as well. In particular, company-owned gross margin has gone up by just over 40% to a 20% gross margin. Big improvement there. And then also Worka and also the management franchise division continuing to deliver on that as well. At the Investor Day, we introduced the new KPI RevPAR. I won't go through this in detail. I think sort of people who have already seen this sort of understand it well, but I think just suffice to say, this is a very well-understood KPI, particularly as a sector such as hotels. And the reason why we like it as well is because it encapsulates all the ancillary revenue that we also get from people being in our buildings, such as sort of from coffee and meeting room space and the like. So we'll continue to report on RevPAR going forwards. Growth across the IWG network has also been good on a RevPAR basis. So the new management franchise rooms coming online. Company-owned continue to improve and obviously, we didn't report RevPAR for Worka because that's a separate business that doesn't have the rooms. Signing is now evolving into opening. So I think -- the way we articulated this at the Investor Day was 2023 was the year of signings, 2024 is the year of openings and then 2025 will be the year of maturity. So you'll start to see the fee revenue coming through in 2024. We expect just north of GBP 25 million of additional fee revenue in 2024, and that will continue to compound as that grows. We're again expecting to sign more and more rooms over the course of 2024 and into 2025, of course. So that will just continue to stack up and continue to grow. I think kind of the one thing I would also say is that total number of deals signed has picked up hugely. Capital-light deals moving to nearly all of the deals that we're doing at the moment, and that's also then being reflected in the cash CapEx cost that's also falling. As Mark said that, we're passing a lot of our knowledge and expertise on costs to our partners one, that's one of the big drivers for partners to partner with IWG. And we are becoming more capital-light that goes with that. So I think as you'll see, becoming much more capital-light in line with our strategy. A few more conventional rooms opened as well. And so these are things that -- specific centers that we've looked at very, very high quality in general. So a good example of that is Battersea Power Station, for those of you who haven't been there, superb new center that's open on South Bank of the Thames, very, very high quality and that sort of is quite a large center as well as the reason why you see the -- a fairly large number of rooms open, but it's a fairly low number of centers that have opened at the same time. But we're really, really pleased with that new investment. Revenue growth driven by all segments sort of show how this has gone up by segment. So we've had a bit of an impact on FX that we called out at the half year, so going through into the second half of the year, the negative FX impact. But there what you'll see is the company-owned and leased up by GBP 185 million on the revenue side, the management franchise fees doing incredibly well as well. Obviously, that's the net results. So the system-wide revenue is much higher than that, that's contributing to that increase. And then Worka as well increasing as expected. I'm now just going to run through the three divisions in turn to show how we've delivered what we promised in some cases, more on those. So management and franchise fee income up GBP 50 million, on the GBP 427 million total of system revenue, a record of just over 100,000 new rooms signed during 2023, up 129% from 2022, really sort of accelerated that signing rate during 2023. But now crucially though, as I mentioned earlier, those signings were evolving into openings. So we've increased the rate at which we are opening rooms by 2.5x in 2023 versus '22. And again, you'll see that happen more again in 2024. RevPAR of GBP 381 in 2023. So that's a per month figure with an estimated RevPAR of GBP 250 once all those pipelines -- rooms in the pipeline have matured. On company-owned and leased, I mentioned, I think, sort of big focus here is on margin, and also the RevPAR that we get from that, but margin is the big outcome of that. At the end of the day, it's margin that pays the bills, as Mark mentioned earlier, a huge improvement in the margins just over 20%. And the RevPAR has also increased. So we're nudging that up was GBP 280 and giving total revenue of GBP 2.59 billion in that division. The costs, including the center maintenance CapEx, very crucial here has been held below inflation driven by higher efficiencies and that sort of despite that high inflationary backdrop. The key thing here is our ability to increase revenue at a lower -- at a higher rate than the level at which we're increasing costs. And the center maintenance CapEx of GBP 41 million during June 2023 as well, which is a fraction of previous CapEx, and I'll come on to that very shortly. Worka, investment continues in this business. Very, very pleased with the continued progress here. We've also made multiple -- very small but important bolt-on acquisitions and continue to expand that platform in line with the strategy, you'll see that we spent just over GBP 20 million on investments into Worka. Very pleased with how that's performing. Revenue is up 18% to GBP 319 million, but also importantly, very high gross profit margins of just over 50% of that business. The one thing we have flagged is, we've got some headwinds coming as some legacy contracts roll off. So basically, some things are coming off. And then we've got the other stuff coming through much higher quality contracts recurring revenue, and we're very, very pleased with how that is progressing at the moment. So we'll see that sort of being flattish during '24, but really sort of seeing that expansion coming through in 2025, both on revenue and also EBITDA. So coming on to investments and I mentioned we are controlling center CapEx as we continue to drive efficiencies. This is the first time we sort really broken out the three types of CapEx, very much the center growth and maintenance, but then also the intangible and sort of M&A side of the CapEx, which has increased over the last year to a total of GBP 82 million. So that includes some -- the bolt-on M&A that I talked about before. But really also seeing that center fit our CapEx go down as we're being highly, highly selective on the new centers that we're looking to build out. So bringing all the divisions together, I think sort of overall, what I'd say here is, we said we'd move out fees and management franchise, and we delivered that. We said we'd improve the margin and company-owned and we delivered that. And we said we'd improve the revenue and the margin coming out of Worka, and we delivered that. So really good delivery across the board, all three divisions. This we expect to continue to see to improve over the course of 2024 and very pleased with the result, and that sort of leads to an adjusted EBITDA of just over GBP 403 million for the year, and I'll come through to sort of the movements in that. Summary P&L, we show this on an IFRS basis. Largely because that's the face of the income statement, but sort of appreciate there's quite a few moving parts in this. So I think the one bit that I would call out here is that the P&L is quite heavily impacted by two particular noncash costs. So the first one is rationalization of GBP 145 million. So basically, this is sort of where we've made some provisions for center closures and written off some sort of small assets. And then also financing costs from an IFRS 16 basis. So these again a noncash cost, GBP 53 million of total cash, which you can see in the RNS in the cash flow statement out of that total of GBP 334 million. So very little of that financing cost is actually a sort of true cash cost. A lot of that is as a result of IFRS 16 liabilities and interest rates rising. So going through the EBITDA. So a 34% increase in EBITDA in the year, great results are moving towards that $1 billion that Mark talked about earlier, and we're very pleased with this result overall. And I think really, this is just an output of the three things I talked about earlier. The margin improvement from the company-owned you see that going up GBP 98 million. Management franchise, we made more investment here in the partnership sales teams that's basically getting the buildings and enabling those signings and enabling those openings. Obviously, that needs some people behind that to do that, and that's the reason why you see some of that cost being front loaded with a small change in the EBITDA over the year and then Worka performing well. FX impact sadly impacted us at GBP 12 million through the -- mainly in the second half of the year. So you'll see, if you look at the first half results, where we did GBP 197 million of EBITDA, very little impact from FX. Second half of the year, that GBP 12 million is pretty much all in the second half of the year. So actually, the half-and-half growth of EBITDA during the course of 2024 was actually better than the face of the numbers which show but on a constant currency basis is very good. However though, I think sort of as Mark mentioned, focus is cash and cash at the end of the day, pays the bills. So cash flow from business activities almost doubled year-on-year, just below GBP 300 million. We had a little bit of working capital inflow due to higher customer deposits and some higher levels of anticipated accruals on electricity. And utilities, we've been very, very conservative in that area. And then that growth CapEx down nearly 50% year-on-year. And that basically that's helping reduce the net financial debt, which is also enabling the resumption in dividends. So very pleased with that. I think -- so the other number I'd call out is that the cash flow, after everything, with the exception of M&A and discretionary growth CapEx, is just over GBP 200 million. And that's sort of really, I'd say, the key numbers for us. That's after interest, after tax, after all the center maintenance GBP 200 million, a great result year-on-year, and that's over double what we did last year on the same basis. Going to the falling CapEx, and I mentioned this already, but I think really the thing I'd note here is that the mix is slightly changing as well. So less money spent on the centers, particularly on new center fit-out, more money being spent on intangibles. We've upgraded a lot of our systems, investments in Worka, very pleased with how that investment is turning out, and you'll see more of that coming during the course of 2024. Net debt fallen dramatically. So I think there are two ways we can look at this. First of all is just on an absolute basis, fallen from GBP 712 million to GBP 608 million over the course of the year. It would have been GBP 522 million had it not been for the two discretionary bits. So that's the growth CapEx and the acquisitions. So it would have been more around kind of like 1.25x net debt to EBITDA. But with that EBITDA growth and the net debt falling, a huge decrease in the net financial debt leverage from 2.3x net debt-to-EBITDA to 1.5x. So well on our way towards that 1x net debt-to-EBITDA target, which we would hope to -- which we expect to sort of make to that sometime during 2025. ESG, very important to us. And as Mark mentioned earlier, people don't like the commute. That has a huge benefit to the environment, they go somewhere closer to home, added bonus that IWG's -- all of IWG's workspaces are carbon neutral. We have maintained our AA MSCI rating for the year, team is telling me about 1/3 of companies have dropped down on that rating this year, so we're very pleased to have maintained that. Still a lot to do, and we're continuing to strive for some increase in the amount of ESG reporting that we're doing, but very pleased with where we are for the year. So I think just talking about outlook for 2024 and beyond what I say is the base message is no change to expectations. We are delivering what we said we're going to deliver. We expect to continue to deliver what we have said we would deliver. So no change in those expectations. Medium-term EBITDA target of $1 billion, including strong cash production. So it requires just over 10% CAGR, as Mark mentioned, from today. It's also farewell to sterling in the reporting. So please update all your numbers to reflect that. And this will be the last time that you'll see sterling numbers come through our financial reporting from now on, it will be dollars. And we hope -- because we're sort of much more naturally hedged operationally with U.S. dollars that we'll see less FX volatility that we've seen. And then all of this is underpinned by the Board recommending a 1P dividend per share with a progressive dividend policy going forward. So excited that, that has been resumed. And as Mark said, he's also very happy as our major shareholder. And with that, we're happy to take some questions.

Have you got a mic, anyone?

Yes. Thanks, guys. It's Michael Donnelly at Investec. Just a couple for me. One on the time frames from signing to opening. Can you just update us on what you're seeing at the moment? Any change from the sort of guidance you gave us last year at the Capital Markets Day? And then on the second one, those legacy contracts in Worka, Charlie, can you just talk us through maybe the quantum, how much they are and how they come about in a transactional business like that one?

Openings. We've looked at the -- it's still on track with what we said. So 10 months and 18 months. When you look at these numbers, it's -- you have -- the numbers don't add up. So that's because of the average is 10 months, some are longer, some are shorter. But we've looked at this in preparation. We thought they're still broadly right. That's the first thing. On Worka, it's -- basically, we had some -- these are sort of managed contracts that rolled off, and we knew they were going to roll off. And the key thing is that the new business, which is better margin, and as Charlie said, is recurring revenues. So those sort of one-off transactions become a smaller and smaller part of the book. And in fact, they're a very small part of the book post '24. You've got the new platform that emerges from where they are. The bolt-on acquisition is also mostly geographic bolt-ons. So they sort of enlarge your target market so that you can sell more of the sort of repeated business, the subscription type businesses, which is what the -- where the real sort of margin is. Otherwise, this is the old transactional stuff. But it's out now, so it comes out and then it's out and then you're on to the new platform. And the actual effect is a higher effect, but it's replaced by new business already. So it's a flat year, not a down year. If that makes sense. We knew this was going to come. It just -- it's come in '24.

Morning. It's Samuel Dindol from Stifel. Three questions from me, please. Firstly, on the franchise and manage centers. I think the mature RevPAR is lower than the current RevPAR. Can you just explain how that works? Secondly, on the franchise and managed, EBITDA was flat year-on-year. When do you expect that to get to breakeven? And is there more investment to go in this year? For the management franchise, when do you expect that to get to the EBITDA breakeven? And then finally, on WeWork, given they need to generate free cash flow, are they pricing more sensibly in the last few months? Or is that -- any commentary about that would be great.

Right. First, RevPAR. I mean that's the reason we're giving RevPAR. If you hear me say it a lot of times, but it's because all centers are not alike. So the reason we're giving what we expect the mature RevPAR will be is so that you should be able to calculate the number of rooms multiplied by the RevPAR multiplied by the average time it takes to get them open will give you the revenue. From the revenue, you can work out what the fee drop-through is, and that gives you a number. But they're just different -- there's different mix, that's all. And some of it is because you've got high Japan in there and things like that in that group. So those franchise businesses that we did way back are in there. They make -- that makes that RevPAR higher. But what we don't want to do is anyone to sort of make any errors in terms of what the future profitability drop-through will be and it should be around about -- as more -- the more we give, the more accurate you should be. But as I said earlier, the sort of estimated profitability is you can see it in the -- already, we can see it and we have more numbers than you do, that it's sort of going to come through roughly in the way we said. And -- so yes, we were happy about it. And we've checked that one happy about that. And it's all then about how many we do. And the mix will change depending on where they are all the time. So much lower values in Egypt compared to ones done in America. We're doing quite a lot in Japan, for example. But in the mix, they get outweighed by what's -- by the lower-cost places. And we've been quite conservative with the expected RevPARs. So we've got room in there. Managed franchise profitability becomes profitable this year. In fact, it already is. So it just -- we have put in a lot of investment and the investment is actually broader than -- this is the investment we see here is the investment in the actual management franchise team that are doing it. We're actually put -- what you can't see is other investments that are in the general overhead on the supply chain, which I talked about, which is sort of pushing really creating a supply chain in order to build very large quantities of centers at low prices. That also have an investment. It's not in there. WeWork pricing. Is it more -- it's a difficult question to answer. It's a smaller problem, put it that way. I hear it less. They are still discounting heavily. So I don't think there's any price rationalization yet. But once they come through the underside, I think then you'll see it more stabilized. But it's a handful of markets really, mainly in the U.S. It's not an important part of our business to me. Steve?

It's Steven Woolf from DB Numis at the moment. Just a couple of following up really on the -- is it possible to have a sort of an EBITDA run rate as we've exited the year? And then attached to that, I guess, the level of discretionary spend you have in the business and whether that probably attaches to the front-ended -- front-loaded investment you're putting in for the sales teams to grow the business. Is there any sense you can give us of sort of how much that is? I'm trying to get at where you might be on underlying EBITDA, if -- when that sort of discretionary costs as it were, some of it falls away?

Yes. In terms of EBITDA run rate, we exited the year at a level that is sort of commensurate with edging up the numbers to get to sort of where management expectations are for the full year. So sort of mid-30s basically on that per month. I think sort of when it comes to discretionary spend, we do have a lot of discretionary spend in the business. So a lot of marketing, for example, is a good example of the discretionary spend, which you can turn on and off now. Obviously, you never want to be tailing that to zero, but you -- but theoretically, you can do. I think probably what you're getting to a little bit more is around the partnership sales team, for example. And look, we want to keep that at that level. We're very pleased with how they're doing, and we're seeing those signings coming through. And also, as I mentioned, you need to have that support as well in openings. And so we've made some investments over the course of 2023 to have a team supporting openings, and that's been very valued by landlords as well. We want to keep this pace of signings and therefore, openings, up though. So we've got no reason to drop that right now. But at the same time, it's [indiscernible] we're seeing that go up with the revenues going up.

I think just to answer that. So we've made in '23 and '22, significant investments, for example, in finance systems because we've got this -- all of this growth means that you have to -- you've got to have a very robust ERP going from end to end. We've got a lot of partners, now more and more partners that require excellent reporting, and that's got to come from that accounting system. So the overall accounting system investment, discretionary -- I mean, it's needed but discretionary about GBP 15 million, GBP 20 million total?

GBP 15 million.

GBP 15 million. So it's GBP 15 million for example. Now that is coming to an end. So that sort of -- that cycle of investment is actually finished...

Just to be clear that, that's in CapEx, not on fixed capital.

Yes. There are other pieces that we're working on that sort of manage the new scale. So it's really important we continue to invest in the platform, and these are more pieces of software that are integrated into the platform to make it work smoother and more efficiently for both us and partners. But -- so we're not saying it's going to go up, Charlie, are we?

No.

Budgeting for it to remain the same. The growth team, we may invest more. And that's just that -- the growth team is about -- that's just a performance outcome. So you invest more to get more. And so we've retained the right to do that. And we have ambitions to get the growth rate at some point higher, and that will need to have a bit more investment to it. But the core is done. It's just incrementally, you're adding to it. Yes.

I've had a couple of questions come in from the audience about [indiscernible] about refinancing in the year. Could you expand on that, please, Charlie?

Yes. So as you will see from our accounts, our financial debt is the non-lease debt is all due at the end -- right at the end of 2025, we're sort of very conscious of that, and we want to increase the tenor of it, and we're looking at getting that done during the financial year 2024. And we'll make a further announcement about it when that is in place to make a further announcement of it, but it's very top of mind.

And a second one I've had from 3-4 people is could you comment on the underlying growth rate in Worka ex the legacy contracts rolling off, please?

So I think sort of overall, we're seeing that division continue to increase, as Mark said earlier, it is actually double-digit growth that goes alongside that on an underlying basis, excluding those legacy contracts. But overall, we're pleased with how that's performing, and it's performing alongside the expectations as Mark outlined earlier.

Any other questions from the room? Andrew?

Just two from me. Andrew Shepherd-Barron, Peel Hunt. Firstly, on U.S. GAAP, do we know a little bit more about how that might affect the accounts going forward? Obviously, a debt situation, but might it have any impact on EBITDA? And when -- and if you can't tell us when might you be able to tell us? And secondly, on Worka M&A, you've talked about needing to do more M&A in the past to round out the business. I presume, therefore, your 10% growth was an underlying ex acquisition growth rate. Can you talk more -- you talked I think also about just sort of doing geographical M&A to round things out. Is that incremental and minor? Or does Worka still need some sort of fundamental bits to put it all together into what you think is the future end product?

I'll do the first one. So U.S. GAAP, we'll make announcement sort of our intentions on that during the first half by which it's sort of -- by the end of June. When we do, we will also do a sort of teach and show the differences. But by and large, it's the same as IAS 17, as in the pre-IFRS reporting that we've done. There are a few differences that come -- that do come through on that, just give one -- for example, you depreciate by the shorter of your depreciation period and the lease period, whereas under IAS 17, you stood over the depreciation period for 10 years in our case. But we'll outline all of those differences. Clearly, though, most importantly, there's no difference in cash flow. And as a business, we're very, very focused on cash, as I mentioned, $200 million -- so GBP 200 million to almost $0.25 billion of cash flow after everything before growth CapEx.

On Worka I think -- and overall, it's U.S. GAAP looking at it, it's sort of harsher but clearer. And that's the key thing. It takes away the IFRS 16 anomalies, which means we're doing two sets of numbers all the time. Those two sets of numbers sort of confuse potential investors because it is complex, whereas U.S. GAAP very simple. Now -- so when we come to Worka, these are small geographic additions. So -- and they add people in the countries and language capabilities. And so you're knitting together a network of these micro -- very small businesses that you can put together and create into something important. So they are small there, but very helpful. The -- that would be probably 2/3 of the acquisition group. 1/3 is products where -- and basically, what we are doing is distributing product for -- because you get -- this is a world of minute companies, sometimes with very good products, but they can't distribute it to the global market because they just don't have enough size and they've only got a single thing that they're doing. So you're bringing together useful things that you can distribute to the whole market. And that would be about 1/3 of it. But most of the growth is organic. So it's not -- this -- the organic growth is really converting what they used to do into products that people can buy. There is also -- not significant, but in the context of our numbers, relatively significant investment also in the platform itself, the Worka platform, which will come through this year, about GBP 3 million, I think, isn't it at GBP 3 million/GBP 4 million?

It's more than that.

It's more than that.

It's about GBP 10 million.

It's about GBP 10 million total?

This year.

No, that was last year, wasn't it?

Sorry, last year it was GBP 10 million.

Last year it was GBP 10 million. This year, it's finishing off, it's less than GBP 10 million.

Right, less than GBP 10 million.

So, you've got an overall -- that's the more significant investment, Andrew, which is in the tech, really, that brings everything together and creates a shop to sell it in simple terms. It sort of becomes an Amazon of everything you need. If you're in this flex work industry, hybrid industry, you've got everything you need in there on both sides of the market. That's what the final part is -- so it's following the plan that we had in the beginning, good management team, very focused. You've got a change of the guard, it's well set up, really good underlying growth. And there's really no change to our investment thesis on this valuable thing to do. It's going to produce a very healthy EBITDA, platform-like EBITDA with very little CapEx in the future and has in this huge marketplace that's emerging, it can keep growing its revenues and its margins. Any other questions? No? Thank you all very much for joining us today. And as usual, Charlie and I will be available if you have any follow-ups. Thank you.