International Workplace Group plc ($IWG)

Good afternoon, ladies and gentlemen, and welcome to the International Workplace Group plc Investor Presentation. [Operator Instructions] Before we begin, I would just like to submit the following poll. I would now like to hand you over to CEO, Mark Dixon. Mark, good afternoon, sir.

Good afternoon. Thank you very much for the introduction, and thank you for joining us this afternoon online here. So just let me kick off with a very brief synopsis of the business, what we're doing. And then we'll go straight into questions, I think, and to give you a chance to ask. I'm sure you've all had a chance to look at the results. But sort of if you stand back and look at what the company is doing, looking at 2025, excellent year in terms of financial results. We hit all of the -- all of our KPIs and provided another year of reliable delivery, and that's what the past years have been about. So '25, a continuation of that. The business itself, if we look at what we're doing, it's absolutely right for today and the environment that we are living in and the environment that companies, our customers are living in, which is an environment that's, let's just say, volatile, slightly more unpredictable than ever before. It's an environment where technology changes things very quickly. Clearly, AI is going to change things even more quickly. And the service that we provide is what companies are looking for. So as we came to the end of last year '25 and into the beginning of this year, record numbers of inquiries are coming in from companies who are looking to change the way that they support their workers and the way they want to consume, in particular, office space facilities and so on, while supporting workers. So what companies are looking for is capital-light products. They want property. They want it to be capitalized. They don't want to invest any money. They want it finished, ready to use. And as I've described to other investors, a bit like renting tools from Ashtead or any tool rental company, even very small tools now get rented, people don't go out and buy them. And it's sort of a common thing. You just rent it, you want it for work. You want it for a flexible amount of time, the time you want it, we better give it back at the end. And you're very happy to do that and to pay an additional margin to do that. Now we make our margins by -- we can do all of the service at a lower price than companies can do it themselves because we have such scale buying power and our method of operating is such honed after over nearly 37 years, just totally efficient in terms of what we offer allows us to give companies not only capital light, but a price -- a cost that is 30% to 50% lower than most can do it themselves. So it's a popular service. It's really easy to use, and that's another thing. Companies don't want the aggravation, the problems that you get through doing -- going through the conventional property market, that is sort of renting space, fitting it out, then having to take it to pieces after us. It just doesn't work for most companies. They -- most of our customers don't want to be involved in the property industry. They do it because they have to, not because they want to. So we take all the pain away, make it easy. Just touching back on AI, there's a scare around that no one's going to be ever working in an office ever again. And -- but generally speaking, technology and AI helps us because -- in 2 ways. First of all, it makes companies smaller, which helps -- it's very much in our line of business. That's what we provide, support for smaller groups of people. We do larger groups, but almost 97% of our business are smaller groups of people. The -- it is flexible. There's not many -- if you talk to CFOs, CEOs and ask them how many people they're going to be employing next year or the year after, universally, they say they're not sure. We offer flexibility that stops them getting caught out with having facilities that they don't need or in the wrong places. So generally speaking, AI helps on the customer side. And certainly, as I mentioned a few moments ago, our inquiry levels at the end of last year and this year are up substantially on previous norms. We're also helped by using AI, and we've touched upon this in some of our presentations this week. We -- as we're a scaled-up business, we have more than 1 million offices. We have large numbers of people. We have large numbers of transactions, about somewhere between 8 million and 9 million customers, depending on how you count them. AI really suits what we're doing. Our ability to automate, our ability to take out cost is greatly enhanced using AI, and we're using it every single month. We had, in fact, this week, middle of this week, a summit with 150 people, our people and all of our subcontractors, looking at how we execute even faster on AI because it's really a series of technologies that really transforms how we can operate our business and how all companies can operate their business. So overall, from a demand side, all of these things are very positive, and that's reflecting into the demand and sales levels that we're achieving. That's number one. And then number two, if we look at the supply side, so this is -- one of the questions is, are we taking any risk in expanding rapidly, our network. So we are adding -- last year, Charlie, what did we add last year? What was the number?

About 3 centers a day were opened last year.

What's that mean? Total. Year?

Just over 800.

Right. So -- and this year, what's that guidance?

More than last year.

Right. So you can expect more -- substantially more than that this year. So the way we're opening these centers is in an extremely low risk or no risk way. And that is we're partnering with the property industry, so with investors. And these investors are pension funds, these investors are owners of current property. And we are converting their properties into managed space of all kinds for this market that wants that product. And we are creating revenue and cash flows for the property industry. And we're doing that very effectively, and you can see that in the presentation when you look at the RevPAR created and so on. So this is allowing us to significantly grow our platforms in each country. We're very focused on completing national networks of centers. We're effectively linking up buildings across the country. If we just look briefly at the U.K., we're up to around 370 buildings. We will add several hundred buildings in this year in '26. The total, in a full, U.K. network is around 2,500. So we're still a fraction of the way to the end. And that is -- you would see, in the U.K. or any country, one of these offers pretty much on -- in every town, village and street corner across the country. It's all about convenience. It's all about linking the properties so that people can use them wherever and whenever they want. So that is a program that's working well and gathers momentum each year. We've managed to do better each year that we go forward. And the key thing on that model, it's cash free. So we are also capital-light in our expansion, and it sort of changes the model. We've got a slide in the presentation that you'll be able to find. Are they seeing the presentation, Richard?

The presentation is available on the Investor Relations website.

Okay, fine. Right. So have a look at that. And you can see the important slide is to see the change in the concentrations. So over time, I think we are at about 50% of all of our centers now are managed with what we've signed up, what we've got open, what we signed up. We expect that to move to about 80% by about 2030. I think it's the guidance, isn't it? Richard, confirm. Yes. So as an investment proposition, whilst the company-owned are very profitable because they've been honed over many, many years, the managed starts to become an ever larger percentage of the whole, which is a favorable outcome for investors -- makes the investment case better. And then finally, on how we look at our business, we look at it quite simply. We're not EBITDA people. We're cash people. So we are very focused, that's Charlie, myself and the management team. On cash flow per share, we're not really -- whatever happens above that is important in its own right, but the key here is cash flow per share. So we are working every day on maximizing the cash flows and every day on buying shares back if the buybacks make sense, and they most certainly do at the moment. So our outcome is more and more cash flow per share as we go through each year. Everything else is insignificant compared to that. And that, I think, is a snapshot. Charlie, is there anything you would like to add?

No, I don't think so. I think, look, we go into 2026 good momentum from '25 as we articulated at the Capital Markets Day. We reiterated guidance for the full year, and we're looking forward to the year ahead.

Mark, Charlie, thank you for that quick overview. One question I just have in is regarding -- is very linked to your comment on cash, Mark. And maybe, Charlie, you could take this. In terms of our $1 billion EBITDA target, could you talk about how much of that will convert to cash in that time frame, please?

Yes. So in the Capital Markets Day presentation, we actually outlined this and there's a bridge that sort of shows how that $1 billion of EBITDA translates into cash. The short answer is 50%. We estimate that around -- we'll continue to have around $100 million of maintenance CapEx each year. That goes up with inflation from this year, just less than $50 million of growth CapEx. The assumption is on that cash conversion that leverage stays flat, but we would expect leverage to increase a bit in line with our capital allocation policy around a trend to delever towards 1x net debt to EBITDA. But clearly, at $1 billion of EBITDA, that means you've got $1 billion -- at least $1 billion of net debt. The amortization of the partner contributions on these properties will continue to unwind, but we'll continue to have an element of those as leases run off and we have new deals that involve some level of cash contribution. Again, we've got a slide that outlines some of the guidance on that at the Capital Markets Day.

Mark, you touched on the flywheel in your initial introduction. Could you expand on the comments you made there and also how we're starting to see more repeat business in terms of some of our partners signing up more locations and more buildings to do partnerships with us, please?

I think -- thanks, Richard. Look, I think it's not that we're now seeing that. We're seeing that from the beginning. We're just seeing more of them because we've got more partners. If you look at the growth, we don't disclose the number, but if you look at the growth we would do this year, a high proportion of it every year is from existing partners who have done 1, 2, 3. I think the largest one, we've done about 20. So we're getting more partners who then do more deals with us, and we continue to add more partners. The property industry is a huge $2 trillion operation globally. And our part of that is the whole of our industry, if you like, all of our competitors combined is significantly less than 2% of the whole market. So there's a massive opportunity for us to expand and convert more of the market into what the customer wants, which is finished product. And to do that, we have to do a great job for partners, and we have to -- and that great job for partners basically is all about them getting cash flows that are the rent or better than the rent. That's what they need. And we're achieving that. So that, I think, answers that question. But it's -- we would not be able to do the numbers we're doing without repeat business.

Thank you, Mark. Charlie, I've just had a question come in regarding the deferred revenue comments that were in the recent numbers. Could you touch on that, please?

Yes, sure. So at the back end of last year, we changed our billing date from the last day of the month to the first day of the month. And the reason for that is that e-invoicing is now being rolled out across a lot more countries and it is becoming mandatory in many more countries. France, for example, is about to go live with that. U.K. is later this decade. And therefore, you need to get all your invoices into the authorities in good time before the end of the month. So we decided that rather than billing people on the 31st of the month, it was better to bill them on the 1st. The date we collect the cash does not change. So let me just take everybody through the accounting entries that happen on this. So previously, we billed people, say, on the 31st of January for usage in March. And you have the double entry at that point, which is, let's just say we're billing 100, 100 of deferred revenue, 100 of accounts receivable because we're billing, so it's an accounts receivable, we haven't received the cash yet. On the 14th or 15th of the month -- and some of it's a little bit late or early depending on the country, we collect the cash. So at that point, your accounts receivable balance moves from 100 to 0 and your cash balance goes up to 100. So you've got 2 balances, obviously, in your balance sheet, as always, you've got your 100 of cash at that point and you've got 100 deferred revenue because you have not received -- you haven't actually delivered the service yet, so you don't see the revenue. And then when you deliver the service during March, you then change it from 100 deferred revenue to run it through the P&L and then it ends up with 100 of cash at the end and 100 of net income through your retained earnings. The new method is only that the 31st of January entries tip into February. So on the 1st of February, you'll have 100 of deferred revenue and 100 of accounts receivable. We still collect the actual cash. So the dollars coming into our bank accounts are still collect on, say, the 15th or 16th. That actually has no difference in that collection whatsoever. So the timing of the cash flow through our accounts is the same. It's just the tips over the month, I would say. So yes, you see it go through the balance sheet because when you get to 31st of December, you've got less accounts receivable and less deferred revenue, but you see that move through the cash flow statement. So it neutralizes that. But as I say, no difference in actually when the cash is collected.

Thank you, Charlie. Also a question regarding our exposure to currencies and also to commodity prices given the obvious moves that we're seeing in the commodity market at the moment and the currency volatility over the last 12, 18 months.

Yes. So I think we've got a slide in that from the full year -- or maybe actually the half year results last year. So in all of the markets we operate in, with a very, very small number of exceptions, we have the same currency for revenues as we do costs. And therefore, the currency exposure is just on the margin -- when that -- the actual amount of the margin, obviously, rather than the percentage of margin. However, we've got a disproportionate amount of overhead that sits in U.S. dollars as a result of centralized costs going through in U.S. dollars. And therefore, what you actually see is that the currency effect largely neutralizes out when it gets to cash flow. But as I said, there's a slide in the half year results that talks about that. And by the way, that was one of the big drivers of our decision to move to U.S. dollars from sterling. The U.K. is an important part of our business, but otherwise very exposed to movements in sterling, in particular around our debt and interest costs. That is now 100% hedged from euros actually largely, which is where we issue our bonds into dollars. And so we've got no FX exposure at all on any of our debt.

Thank you, Charlie. Mark, could you talk to the question regarding the risk of potential cannibalization in our managed partnerships, i.e., the fact there isn't cannibalization risk as we continue to sign and open more locations?

There is cannibalization risk. It's just very small. So clearly, opening up new centers at the rate we're doing can lead to cannibalization, but it's short-term cannibalization. The market is getting bigger all the time, but it's insignificant and it's something we consider anyway during the planning process. So it's not that it doesn't happen. When it does happen, we've generally predicted that that's going to happen, and we take that into consideration.

I've also had a few more questions, Mark, regarding AI, and you obviously touched on it in your introductory commentary. Could you talk to our end market exposure and how AI can be a driver of customer demand going forward, please?

Yes. Look, it's -- and looking at the question, some of the people are asking a question and answering it, which is really helpful. Thank you. The -- look, big picture here, AI will reduce the size of companies. In particular, it will take out the back offices first. Now we do not do back offices. That's -- we're generally on the knowledge worker end and the representative, in the end, people still got to sell things. They've got to show products. They've got to have meetings. You can't do -- you can't sort of show -- display a product to a buyer over AI or the Internet. You can show pictures, but it's more difficult. So there's a lot of physical activity, and that's what we're involved in. It's going to change things without doubt. And as I said, the benefit for us in the foreseeable future is that companies need more flexibility, companies become smaller. And company today that, for example, would have maybe 100 people, 200 people in London, tomorrow will have 20 people in London because it's very expensive to have them there and many of those jobs can be done in other places. The key thing that AI does, it starts to manage productivity and starts to make the management of people much more efficient and you get much more visibility over productivity in the same way that if they were all working in a factory, you can see what the outputs are. So this all plays into what we're doing. There's a question here about sectors. Look, we're doing all sectors, but the types of people we're doing, hard to replace. It will change, but hard to replace. And I think this is all helping us. It doesn't help the property industry, but it helps us as we expand into the property industry.

Thank you, Mark. Another question I had is about our investment in discretionary overheads. And the question is, if signings were to pause, how much of that cost base is truly elastic, i.e., would those costs fall away immediately?

So they wouldn't fall away immediately because a lot of the marketing cost, which is in the discretionary overheads, we incur once the sites open. So if you pause all signings, as an example, you still got the centers that have not yet opened or are still reaching maturity, but we want to put some of our marketing dollars behind. But we could stop that investment immediately. It clearly means that the centers would fill slower than otherwise with that marketing dollars. The cost for the partnership sales managers, though, would fall if we cut all signings completely because clearly, they're employed just to open those centers -- just to sign the centers, sorry.

I think overall, Charlie, the -- if you had a situation which is a sort of meltdown situation, you take a lot more cost out.

So yes, if we're looking at a meltdown situation, yes. So I assume the question was more kind of like what's the underlying sort of steady...

Yes. And steady state, of course, you can take that. And there are other costs that you would take out if you were not growing, it would be totally different cost base. Okay.

And coming back to AI in terms of what we can actually do as a business. And Mark, you spoke about this again earlier in terms of how we can take cost out. But could you also talk to how we can optimize things like pricing by using better technology and AI going forward, please?

Well, we are. And that is -- when you've got -- it sort of puts -- we already have yield management, AI-generated yield management is totally different. That makes -- you're changing prices by second. It's sort of -- it's like airline pricing, but even better. And you can also interpret your customer. It allows you to do both sides of the equation. It's inventory and it's who is the customer and what's their propensity to pay and looks at both sides of it. So that will help. We don't need very big movements in price to make a very big outcome on the business. So that is the priority of all the things we're doing. But we're also -- 70% of our customer queries already are dealt with by AI agents that are infinitely better than people could do. It's in -- we operate in about 40 languages, but the AI agents are in about 55 languages. They're 24 hours a day, 7 days a week. And it's just -- I've listened to them, and they are super professional, learn all the time and customers, very happy with them. There's many things though. AI affects every part of our business and makes either better customer service or you need less people to do the same thing.

Thanks. Charlie, if we just switch over to managed and franchise and the guidance we've given for this year and next year. Could you talk a little bit about the longer-term potential system revenue that we can generate from the division? And also what's the long-term drop-through to EBITDA, please?

Yes, sure. So we've guided the long-term drop-through to EBITDA in a steady state is around 70%. The RevPAR that we've guided to in the medium to long term for mature centers is $250. What we've seen is that that's taken a little bit longer to get to than we originally forecast. So we originally said it's going to be 18 months. It's looking a bit more like 24. But at the same time, what we are also seeing is that, that RevPAR goes through that $250 depending on the mix and the location of those centers. But overall, though, we're seeing that those RevPARs continue to grow very nicely, growing in line with sort of the -- with all the other cohorts as well. So we're very happy with how that's going. But as I said, yes, it drops through to 70% margin in steady state.

And could you also touch on a question I'm getting from a few people about would we look to move some of our company-owned locations into management franchise locations?

So the short answer is no. And the reason for that, and maybe Mark will want to expand on this a little bit as well. But over time, our company-owned locations get less risky because we know them. We know exactly how they operate through recessions, wars, you name it, pandemics, you name it. They are all sitting within their own entities. So they're low risk, and we continue to generate very good cash flow from those entities. The risk in the company-owned entities comes when you're opening lots of locations and spending lots of CapEx, which as people can see from our accounts, we're not doing any longer.

Yes. And just to -- I think, Charlie, you got it. It just -- there's no point. These are low risk and flexible. They're set up over many years to be that. There's no point in moving them to anything else. You might as well take the cash flow because the risk is not that different to manage the franchise in the end because exactly as Charlie said, these are things that we know and know well. They're in the majority, mature or flexible in their nature or both.

And Mark, could you talk about the competitive dynamics in the industry and perhaps touch on why we've seen so little competition in our managed partnership business, please?

It's a strange question. I mean, look, the -- first of all, let's just talk about competition. There's -- the market has competition. There's plenty of competition, but it's all very small. And it's not joined up. It doesn't have platform, generally has high cost. And so the competition is operating at a completely different level to the level that -- we're like in a different market. But we do compete with them. So if you look at a building owner or an investor, they would always work with us given the choice because we just return a higher level of net yield than anyone else. No one can get close to it because we're good at managing costs and we can generate revenue quicker than anyone. And that's what counts. In the end, we have a good reputation. I mean, pretty much every owner that we've worked with always does diligence by calling other people. These aren't things we just sign up overnight. They -- diligence at first. And so -- but look, the market is -- will continue to be competitive. But what we are doing is something that no one else is doing. This is the scale of what we're doing that makes us different.

Thank you, Mark. And that pretty much is all the questions that we've had come in. If you've got any closing remarks for the audience to hear, that would be fantastic.

I think there's a few questions. I mean we're out of time. There's a few questions here that have come and gone. There's some stuff about the war, but just -- I can see them here, just quickly dealing with them. Those -- we're not -- it's a very small part of our business in the Middle East. It's about 2% of revenue, 2.5%. Half of it is franchise. We're not affected. We do have an effect from shipping, but the shipping costs -- we have assembly points in Asia, and that's adding about 5, 6 days to delivery times. They're going around the Cape of Good Hope, not everyone, but quite a few. The shipping costs were absorbed by the suppliers. So no real effect there on our supply chain thus far. And clearly, it affects new sales in the markets that are affected. There are less people doing business today in Dubai than pre-war. But this is, again, a small part of the business. Final comments, Richard, and everyone. Look, we're happy, I think, to answer other questions or talk through with potential investors or existing investors. People require more information. In the end, it's a simple business that we've been doing for a long, long time. It's 37 years since the business was founded. It's a business that we know very well. It's a business that is totally dispersed, more than 120 countries, about 125, in fact, very strong in America. It's about half the business roughly, but very dispersed elsewhere. It's a business for the moment, and for the future because it makes business easier. And that is the thing that we hear our customers saying, they just want everything to be easy and focused on core business. So I'm sort of confident that as we look forward, we'll continue to be able to grow the revenues and the business along with it. So it's a particularly positive time, albeit with extreme global volatility around at the moment. Thank you, Richard. Back to you.

Perfect, guys. If I may just jump back in there. Thank you very much indeed for updating investors this afternoon. On behalf of the management team of International Workplace Group plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.