Workspace Group Plc ($WKP)

Good morning. Welcome. Thank you very much for coming. My name is Charlie Green. I'm the CEO of Workspace. I'd like to introduce Tom Edwards-Moss, our CFO. And today, we're going to be talking to you about our full year results for full year '26. We're going to run through those, and Tom will run through in detail. I'll just sort of give an overview and touch on the summary. We'll talk about where this business is today. And then I very much want the thrust -- whilst we are referencing our full year 2026 numbers, I think the thrust of the presentation today is really about what is this business and where can we take this business, and how do we move forward, and what does that look like? Tom and I have been with the business for 4 months. I am a little over 4 months. Tom is a little shy of 4 months. I would say that in that period, we've worked very, very hard to get a very deep understanding of this business. That means we've looked at the financials. So we've really dug into the underlying performance of this business. We've really understood the balance sheet, and we've done the modeling to look at how we can take this business forward, what that looks like. We've looked at the product. We've looked at the buildings. We've looked at what is Workspace today, because we need to understand where we are today in order to understand where we're going to take this business moving forward. And we've looked at the demand. That's the demand. Who are our customers today, what do they want, what do they need? And as importantly, we looked at the demand of the wider market. And just by way of a little bit of background, I really know this market. I really understand this market. So I worked in this sector, in the flex sector for over 25 years. So I have a deep understanding of actually what Workspace needs to do. And I'm very clear on what's required for us to get there. If we look at a very sort of broad overview of the business, it's been a difficult year. Full year '26 results has been quite tough. So we are down, and we'll touch on the numbers, but we're down on our trading profit after interest, down 9.4%. So what that tells us is we have to reposition this business. The opening slide is a transformation to an earnings-focused business. This is a transformation. It's really important to be clear. But if we look at the second box here, actually, our starting point is stable. And that's really important as well, because this isn't a transformation, because it's a knee-jerk to -- because we're on a slide or on tilt and we're moving backwards at pace. We're actually in a strong stable position. Now stability is great. We'd rather be in a stable position up here. So we have to move towards that. But as a platform, as a baseline, I think we're in a really good place. And we're not doing this for the sake of doing this. The market opportunity is significant. So we'll talk about what that market is, and that is both a medium-term transformation, because it will take some time. There's also some near-term gain that we can achieve as well, which we'll talk about. And just to touch on very high level, Tom is about to go into the detail. And Tom, by the way, I think we have established in the 4 months, a very strong working relationship, and I think that he's really very good. And I'm very grateful to have Tom by my side as we move forward because, of course, the financials are so important. The balance sheet is so important. We are down on our occupancy year-on-year by 1.4%. So we're low. We want to be in the high 80s. We're 81.6% at the moment, but it's okay because we're sort of solid. Our trading profit down 9.4%, as I said. So Tom, I've set you up now. Sorry about that. But over to you to run through the numbers.

Thank you, Charlie, and good morning. As Charlie said, the focus of this presentation is on the future and our plans for the business. We have the opportunity to recycle capital into low-risk refurbishment projects and generate returns to shareholders well in excess of our cost of capital. But first, to look at the FY '26 numbers. Net rental income was GBP 113.4 million, down 7.1% on prior year. Stripping out the impact of disposals, the underlying net rental income decline was 2.4% year-on-year. Admin expenses and finance costs reduced, taking trading profit after interest to GBP 60.5 million, down 9.4%. And after revaluations, losses on disposals and exceptional items, the loss before tax for the year was GBP 120.5 million. As we announced in our Q4 trading update, we have returned to a dividend policy of 1.2x earnings cover. This allows us to retain enough of our funds from operations to cover maintenance CapEx while balancing this with returns to shareholders. And on this basis, we've declared a final dividend per share of 16.7p, which gives a full year dividend per share of 26.1p per share, down 8.1% on prior year. On the balance sheet, we saw a 7% decline in property portfolio to GBP 2.1 billion. Net debt reduced 7.6% due to disposals to GBP 758 million, and net assets reduced 11.6% to GBP 1.3 billion, with EPRA NTA per share at GBP 6.87, down 11.2%. Just to dig into the portfolio valuation in a little bit more detail. As I said, there was a 7% like-for-like decline in portfolio value. This was driven by decreases in ERVs, most of which came in -- or more of which came in the first half of the year. If we look at the stabilized portfolio, which is the majority of the assets, the decline was 5.6%. And as you will see, there was some inward movement on yields. That occurred in the first half of the year and was really due to a slight difference in values when we rotated them. And if we look at our largest 15 assets, they performed better with an average 3% decline over the year and 1% in the second half. Turning to our debt position. At March 2026, we had GBP 761 million of drawn debt, which gives available liquidity of over GBP 240 million and significant headroom on our covenants. We've recently exercised the extension option on our GBP 200 million revolving credit facility, moving the maturity back by 1 year to June 2030. We have no maturities in 2026, and our 2027 maturities can be covered out of existing liquidity. So we have some flexibility as we assess our refinancing options. And we've also announced today that we're moving our credit rating to Fitch, which is initiated today at a BBB- with a stable outlook. Fitch rates more of the U.K. property sector, and we believe their methodology is more appropriate for a company of Workspace's scale. So a few financial points to leave you with. We're moving to focus on earnings as our key performance indicator to manage the business. As guided in the Q4 trading update, we're expecting a substantial step-down in trading profit in FY '27. We're expecting CapEx of around GBP 55 million during the year as we start to invest in improving the portfolio. And as you can see on the slide, the majority of that is in value-add projects. And we'll be funding our accretive investments and increasing balance sheet capacity through completing the GBP 75 million of disposals as planned, and we also have a further GBP 100 million of disposals under consideration. And as I said already, we're actively assessing our refinancing options. FY '27 will be a year of transition. There are a lot of moving parts, and we'll keep you updated as the year progresses. We have the opportunity to invest substantially ahead of our cost of capital and drive returns to shareholders, and we're excited for the future. With that, I'll hand back to Charlie.

Thanks, Tom. We'll get into those returns, and we'll look at them shortly. But I think important to look at Workspace today and sort of just examine where we are. Workspace is 40 years old. In fact, I know Workspace really, really well because I did consultancy for the business before I set up my own business, which was The Office Group. It is now with Fora, but before that, in many ways, what informed much of what we did in our business was how Workspace approached the market. They were market leaders. They were pioneers in flex. In fact, they understood brand better than anybody else in the real estate market. But I think it's also fair to say that in that success, they sort of stayed where they were and the market has evolved. There's lots of reasons why the market has changed, but principally, occupiers have altered everything. So occupiers are driving what is now being provided in all sectors and very clearly expressed in the office world. So Workspace have sort of stayed over here, and we'll talk about then how we move forward from that point. And the flex market, and this is a really exciting point, because the flex market is structurally growing. So we're moving into that market. We're there now, but we need to really be actively moving into that market and adapting to the changes. We have the strategy to do that. And that is about modernizing this business, elevating the product, improving the product, and creating a product that very much is relevant to today's market. That is then going to drive our occupancy, and that's going to drive our pricing. This is really a slide, I think, important to demonstrate sort of where we are today. And again, just to emphasize the point that we are stable. So our inquiries year-to-date are pretty much in line with year-on-year. We always have a spike in June. So for the quarter, it will move on up. Our letting is actually slightly higher in terms of conversion, so a slightly strong conversion rate. That's a good indicator that actually the quality of our inquiries are good quality, strong inquiries. Our occupancy for the stabilized portfolio, 81.6%, again, quite flat, and that's okay, a slight downward trend in our rent per square foot. And that's because previously as a business, we've used the policy of using rent as a lever to drive occupancy. So we reduced rent to drive occupancy does work, but not sustainable in the long term or the medium term because ultimately, the financials start to fall away from you. And this is a really important slide and we've anonymized the buildings, because we're showing here the delta between the lowest rent paid in the building and the highest rent paid in the building. We've anonymized this because we actually have some customers in the room and we don't want them to think that they're overpaying.

These top 10 buildings.

Thank you, Tom. This is the top 10 buildings that we have that generate close to 50% of our revenue. So really interesting to focus on these buildings. And I guess the dots are important to examine, because they represent the average rent. The point being that the delta between the lowest rent we're achieving in a building and the highest rent we're achieving is very, very wide, and we need to narrow that and move that average rent up. And there's a reason, I think, that we have that delta, and that is because historically, we've been quite complex in how we structure our pricing. We're not consistent in our pricing. So we have some leases inside the act, some outside the act. We have some rents where you pay a service charge on top, sometimes that's capped, sometimes it's not. Sometimes it's included. Sometimes we include WiFi, sometimes we include electricity. It really is a little too complex. So we believe that we can restructure the pricing. And I had a call from one of our customers in one of our buildings, which I seem to get quite a lot of these days, and that's fine. I'm very open to having those calls. And she had a business where her office was directly next door to an exact replica of her office, and she found out we were charging them an all-inclusive price, and she was paying her electricity separately. And she was furious. She was furious because she thought she was paying more than them. In fact, when she learned that she wasn't, it was the same cost in total, she was relieved. But she was furious, she was pissed off because she was having to deal with the electricity, she was having to deal with red letter reminders on her electricity. People want life to be easier. It is our role in providing the space, providing the buildings to make that life easier. We're not doing it at the moment or not as well as we should. So we have that opportunity. And I think in simplifying our pricing structure, it allows us to build in an operating margin, and that's a critical point. So we can start to drive that price upwards. This is near-term upside. So we have the medium-term transformation, but we also -- and this process has started. We're doing this now, and we'll roll this out through all the renewals and all the new lettings that we're doing. I think when we talk about transforming Workspace, we should understand what the market is and what the market wants. And so when we think about occupiers today, they're seeking more. They're seeking better. And I think that there's been an overarching theme following the pandemic that there's been a sort of flight to quality, where all occupiers, agnostic of size, want better and want more, whether you're a corporate in Prime West End or whether you're a start-up that's taking space in Clerkenwell. If I just run through these. Design, people want sort of the aesthetic, they want a better aesthetic, but they also want a better functionality of that space. How are we thinking about work behavior, the need for privacy, acoustic privacy, visual privacy as people are working, and how are we responding to that and adapting to that change. Service, we have to learn from the hospitality industry. So we have to understand how better to care for our customers. Amenities are really important, but it's also important that we're balanced on that. But the top of every list of amenities that people are seeking occupiers want are meeting rooms. Convenience is about reducing friction. It is about making life easier. Tech and AI is the same. How do we use tech, how do customers benefit from tech that makes their lives easier. And brand is -- this is an area that the real estate industry hasn't really grasped, the operators have, but customers need brand resonance. They need to understand who they are actually dealing with. It's the ability to penetrate a market. And value is not about budget. Value is not about cheap. Value is about the return on the pound that is spent. And I would argue that we've moved away -- this market is moving away actually from a flight to quality that we've seen post pandemic to a flight to value, as people seek better value from their space. So with all that said, where do we sit in the market? So Workspace, if you think of it on this scale, Workspace have been here for many years. The market has moved away from them. So it's our role now to bring Workspace towards these other operators. Many other brands are available, we've just got a short selection here, but these operate at the premium end of the market. And they're very good, especially Fora, but I'm slightly biased there. And GPE have captured sort of this managed part of the market, so it sits slightly behind the service. And we need to move towards them, but we don't want to be them. We don't want to compete with them. We don't want to imitate them. In fact, if we get this right, we can own this category. And we're calling this category the best value category. And just to repeat, this is not about cheap. This is not about budget. This is about giving people the best value. That means that we're targeting our small business SME start-up scale-up market. That is our market. It always has been our market. We'll continue to target that. We're just going to give them something that's better. The product then and how we actually deliver on that is we're going to sort of split the product into 2. Space is really about saying we have 81.6% occupancy. We need to protect that. We need to protect that income. So we'll continue our repricing, reframing the pricing in a simple offer, which is space. Space is really still appealing to that customer base today, but we'll build in that operating margin. That is room only. And then we're going to be investing in this elevated product of managed. And that is where we just deliver more. We fit out the offices. We put in the furniture. We might build in meeting rooms, phone booths. We'll put plants, we'll put artwork, and we'll do the cleaning, we'll do the maintenance. We'll give more shared spaces. Both of these will have access to building amenities. And then there's the opportunity to drive additional revenue, something that we're not really tapping into enough at the moment, but there's an opportunity that we estimate to be around 3% to 5%. And I think that just goes straight to the bottom line. And if it's the highest sought after amenity, we've got some extraordinary buildings and some really -- it's not for every building, but the buildings that are in the strong locations where we can create these spaces, we're going to start to drive revenue. In order to get there, we've announced -- we know that we've got the GBP 200 million of disposals. That's in the strategy already. We're on track to deliver that by year-end '27. We are then considering an additional GBP 100 million of disposals over and above that. And then how are we going to use the money? Well, there's looking at our balance sheet and then there's investing in the buildings. We want to make sure that we're doing refurbishments only. That is low risk for a high return. We don't want to be taking on new build projects or cutting corners in this market. Construction costs are just too high for us to embark on those sorts of projects. We'll be investing in the offices themselves, so doing the design and the fit out, we'll be investing in people. We have some skills gaps. We need to add. So we provided a contingency that allows us to add the right kind of core skills and deliver the tools to our team and give them the training and the L&D. I'll come on to tech in a little bit. It deserves its own slide. And we're going to rebrand this business, and that's underway. And our brand is our culture and our brand is our ability to connect with our audience. So it's a critical move for us to get right, and we're really excited by it. And it's a customer of ours who's actually doing that work for us, which I think is important too, because then they understand us and who we want to be and who we're connecting with. Just to touch on the technology piece. We are embarking on a number of projects, and we're using Agentic AI for inquiries out of office hours. Actually, lots of people are doing that. It's really effective, going very, very well. We're deploying AI to our credit control to manage our debt. We think that, that is going to actually really deliver some results for us. And we're looking at our facilities management and how can we just be better at delivering a level of service using AI, capturing data to make better informed decisions, and really culturally, I want everybody at the business to really embrace AI, to be thinking about AI in the every day. And if we can get people individually to do that, then I think corporately, we start to reap the benefits of that. So we've targeted 4 buildings, and 4 buildings are our case study buildings. And we've created a contiguous space, some chunks of vacant space within each of these buildings, and we'll talk about the returns and Tom will talk about the returns in a sec. And with Salisbury House, where we're obviously here today, we have an average rent of GBP 68 a foot in this building, and other operators who are in Prime City Grade A space are achieving gross rents of around GBP 300 a foot. So we have an opportunity here to say, okay, we can improve our offer and we can create something that is quite significantly discounted to the prime and yet we're in this core city location. So there's a real opportunity for upside here. This building is 220,000 square feet. We have 5 meeting rooms. It's not enough. We should have 25 meeting rooms. We know that meeting rooms generate a greater revenue per square foot than an office in the same room at a 55% utilization, and that your optimal utilization should be 65% to 68%. We know that 50% of our income comes from inside the building, 50% comes from outside the building. This is industry information. So if we know this, let's generate more revenue by delivering more amenity, which in turn is more accretive to the offices and starts to drive rents in the offices above. We are working at Cargo Works, which is close to Waterloo Station. Edinburgh House, which is actually outside of our top 10 revenue-generating buildings, but I think important to try and demonstrate how we can do this in the more peripheral locations. And then Centro in Camden, Centro actually is where our head office is. Centro is 205,000, 210,000 square feet. It doesn't have a heart. It's just offices. We need to create experiences for people. We need to deliver something that actually compels people to come back to the office, to come to the buildings. And that is about how we make people feel. So with Centro, we're going to be activating the ground floor where we're going to be putting in a bakery with likely some really, really unhealthy food. But it's okay because we're going to have a wellness hub next to it to just balance that out. And we're going to put in a meeting and event hub, and we'll think about how we use that space when it's not being used for events, and we'll do pop-ups and galleries. And all of that, which is revenue generating in isolation, is accretive to the offices upstairs. How are we creating a better experience for people who are coming to our buildings. And that's just good business. That means that we're going to let up spaces more quickly and at higher revenues. Tom, go through the numbers, if you wouldn't mind.

Yes. On the returns, so across the 4 buildings, relatively modest CapEx in what are low-risk refurbishments. So in total, we're under GBP 20 million across the 4, and we believe the returns we can generate from that are very substantial. So incremental yields on cost of mid-teens or better and unlevered target IRRs of early teens as well, or in some cases, better, particularly Salisbury House, where we're considerably ahead of that. So those are substantial returns for little risk.

And then I think when you look at the wider portfolio, this is not just about saying here are 4 buildings, we'll work on this and we'll deliver this in the medium term. We're looking at the entire portfolio, where can we make improvements? Where do we have tired common areas, poor entrances where we can just lift it up by being very smart about how we spend our money. So I think we need to be really careful about how we invest our cash. And I think I bring to this business a founder mentality. I'm good at being careful about how we spend money, and I'll view that to the team to make sure that we're really on top of it and still create space that actually starts to drive rents, because we're giving something to the tenants, we're improving the experience. So really, this is about driving improvements across the portfolio. If we have an empty office that has been empty for 2 years, and we have some of those, how are we thinking about actually investing in that office and see how it lets when we actually add something. I'll let Tom talk through the bridging on this, but this is an important slide because this is our ambition. So if we think about where we want to be in the medium term, that sort of 4- to 6-year period, because Tom won't let me give a defined date on which to deliver, because apparently, I'll get in trouble if we don't get it. But this is about understanding how we can drive our revenue then from a trading profit before interest, which we think is the right metric to really then give a transparent view of the performance of this business. Tom, do you want to chat through it?

Yes. So starting place reported trading profit before interest at March of around GBP 90 million. Stripping out disposals made in the year and also nonrecurring items, that's more like GBP 80 million. And I suppose we put in a stairway of the different items, different levers will drive substantial uplift in earnings over time. And what I would say is this is illustrative. So the size of the box is the same. There will be different weightings to each, but really, it's across occupancy growth. We're at 81.6% today on stabilized portfolio, just under 80% on the whole portfolio. So there's a significant opportunity to get that back up to probably where we've historically been, which is closer to 90%. We have in our portfolio and in our existing leases, contracted rent increases after year 1. That will continue in future. So there's an element of that, which will drive income. And then the big piece, enhanced products and pricing, as we've spoken about, and we will be recycling capital out of existing assets into that over time. And as we said then, there's also operational efficiencies and the additional revenue of meeting rooms, et cetera. So taking all that together, that comes to our medium-term ambition of over GBP 125 million, which should be more than 50% up on the GBP 80 million we're starting place from.

Yes. Important to add, not to scale, but also important to add that when we start to get this right and we've rebranded this business and we can deliver the returns that we're aiming for, this isn't just about building on the organic portfolio that we have. This is about saying we can be a bigger business, but we're only going to be a bigger business if we get the fundamentals right. But I think that ambition then to take this business forward beyond the portfolio that we have today is really important. I think to summarize, really, the market that we are in that is there to take advantage of is structurally growing. That flex market is structurally growing. We have an extraordinary portfolio. These buildings are really quite something. And I think that if we take advantage of our scale, which allows us really to then own this best value category and own it in a way where nobody else is really going for this area of the market, and yet it's the biggest pool of demand for office space in London. It's an extraordinary opportunity. There's low-risk, high-return investments that will maximize earnings. And if we get our earnings right, then that has a positive impact on our capital values as well. And I think just to close and to repeat, I'm really, really clear on what we need to do, and that clarity comes from the experience that I've got. This is not a standing start. I'm not coming and starting in this business 4 months ago and trying to figure this out. I already knew what the answer was. The nuance then is how we execute on that. And I think with that clarity, with a great team, for which I'm really grateful for the hard work that's gone into today, and the hard work that's got us to that stabilized position, I think it's really a very exciting and interesting opportunity moving forward. We'd love to take some questions. I say love, it depends on the question, but we're going to take a seat and field some questions. Thank you very much.

Denese Newton from Stifel. Just going back to that sort of segment of the market that you're looking to operate in, moving up the sort of value chain. I think you just said that that's the biggest addressable market you see in sort of flexible space and that no one else is really taking advantage of it. So where are those customers going at the moment?

Well, I think that the opportunity is to create the product that they are sort of needing and wanting. And I think it's quite disparate at the moment. So some of them are in our buildings, some of them are in other buildings in our areas. Some are in areas that we are not in, but we hope to attract them to our buildings. So the market is very strong, very much there. I think there's a debate that's been ongoing for too many years actually on sort of the return to work, the hybrid work, the remote working. And actually, what we know is if we get our product right, that people actually will attract them to our buildings. This is about giving a tool to employers to say, okay, you want your people to come in. Well, it's not for us to tell people they should be in for 3 days or 5 days. Our responsibility as a provider of space and owner of these assets is to say, this is the best possible environment that you can have that we're creating for you and then it's over to you.

Okay. And I just got a second question just on your medium-term target, so hitting that GBP 125 million in 4 to 6 years. Do you see that as a sort of steady progression? Or are you expecting that the real fruits of that will come towards the end of that period once you put the investment in?

I think there will be some time, Denese, to see it. I mean, as Charlie said, there are things we can do in the near term. But I think if we're going to really achieve much higher pricing, that does require us to invest money in buildings. And that is, even if it's not huge capital, but that will take time to deliver. So it will be, I think, more back-end weighted.

Ashnaa Vyas from Deutsche Numis. Just 2 questions. One on the quantum of CapEx we should expect over the medium term as you transform the portfolio. And the second one, if you could talk a bit more about the rental uplift that you can achieve on your managed offer versus the space only on a net basis?

Well, I'll let Tom answer on the CapEx. On the rental uplifts, on the managed space, we should be almost seeing a sort of a net position, a premium to ERV rents of around really 30% to 40% over and above what we've been achieving on a traditional basis. I think in terms of the delta between space and managed, it's not a question that you can answer, because we have to look at every individual asset. So I can answer on an individual asset basis. But I think there isn't a blanket approach that allows us to give an answer on that, because some buildings will be all managed, some buildings will be all space, and some will have a mix. And then that's where you'll see the delta. But that will be driven by sort of where they are in the buildings and the quality of that space.

On the CapEx, all right, you're behind the pillar, I'm behind the pillar. Let me move a bit. We're budgeting, as I said, GBP 55 million for this year, which over GBP 40 million is value-add CapEx. In the future years, we expect that to be more like GBP 45 million, so just over GBP 30 million of value-add CapEx per year. What I would say, though, is there are moving parts to this. So if we can find opportunities to deploy more capital more quickly, generate greater returns, we will do that. So I think it will grow over time. But I suppose when we look at the moment of that plan, it's really around GBP 200 million or so of CapEx over the 5 years.

It's Tom Musson at Berenberg. Can I just follow up on the GBP 125 million trading profit target, which is pre-interest. Are you able to give us a sense at the moment of what your internal modeling is suggesting for that profit journey? Because you guide to the step-down in FY '27 profits, but then FY '28, I presume you have the annualization of this year's disposals, higher debt costs, I guess, as well if you need to start addressing the green bond ahead of time using facilities. So just trying to search maybe for where you expect profitability to trough out and at what level before the benefits of those investments start coming through?

I think as we look here, given the refinancing, I think it's likely to be FY '28, because there will be refinancing we do over the next 12 to 18 months, Tom, which will have a significant impact in FY '28. So I think we will start seeing operating improvements through '27 and into '28, but I suspect that will be outweighed by the impact of the refinancing we need to do.

Got it. And separately, can you give a sense of what proportion of your tenants benefit at the moment from small business rates relief? Just because wondering whether the Valuation Office's decision to reclassify serviced offices and co-working spaces as single properties rather than multiple spaces is impacting you at all? Have you had to support any tenants? Or has there been any sort of reduced interest in smaller units as a result of that?

No. In actual fact, our position has been quite neutral on that. Because we let our spaces on leases typically, then they're all considered to be individual hereditaments. So to date, we've had our customers pay the rates themselves, so that we are not being then considered under this change in policy where the building is considered as a single hereditament, and we'll continue to do that. I think the industry actually is seeing a change where the clients or the customers will be responsible for their rates, but there's a pass-through element. So we may, moving forward, manage that for them, but we're literally a conduit. So it's still their responsibility. If the rates goes up, it's their responsibility. If it comes down, it's to their benefit. But we just then become a conduit for the payment of that. So we don't see any need to sort of anticipate any sort of provision against any risk on that.

Okay. That's clear. And maybe last one, if I can. You've decided to switch your credit rating to Fitch from S&P. What's different about Fitch's methodology that means you think it's more appropriate for a business of your scale?

It's really the size point, Tom. S&P has a -- kind of starts penalizing you if you get below a certain scale, which we're very close to, whereas that isn't the way the Fitch model works. So given that we expect that we will be making further disposals, as we said today, we are just conscious that we're right at the bottom end already of S&P's scale matrix before they start expecting more from you in terms of credit metrics, and we have more flexibility under Fitch. They also cover more of the U.K. real estate sector.

Hemant Kotak from Kolytics. Charlie, just going back to what you were saying earlier. So you've obviously got a lot of experience in this area, as you've alluded to. How has the industry changed? Because obviously, when you founded The Office Group, it was less competitive. These concepts were really quite new. Is it more competitive now? Is there a different playbook now?

I think the playbook is different because it's responding to the changing needs of occupiers. So that's really driving all the changes. Is it more competitive? There are certainly more operators in the sector. I always believe in The Office Group, and I think this applies to Workspace as well that we should have an awareness of our competition, but we should not be making decisions based on our competition. We have our portfolio. It's a great portfolio. We need to be the very best version of ourselves. And so we can learn from others. When I think back to 2011, when I first went to New York and I met WeWork and Adam Neumann, and we didn't want to be them. In fact, in some ways, we liked being not them. But we learned about actually having a bit more courage to go further to be more bold with what we were trying to do. So we'll probably take more lessons from outside the office world than from inside the office world. And I think also where we're aiming with this business of owning that best value category and targeting the SME market, there isn't a lot of competition. There are some independents, but our scale is what gives us the significant advantage. If we get our branding right, the ability to penetrate the market, competition doesn't actually come into the vernacular for us other than, and not in an arrogant way, but other than to just be aware of what's happening in the market, but we really should dominate, and that's our objective.

Okay. When I look at the ERV numbers for what's happened to your business, I think it was about down 3% for the smaller space and 5% on the bigger space. And you look at competitors, that was up. So could you just help us understand where that path is going forward and somebody to help us understand what the delta was?

So I think that's a reflection of our buildings and our locations. So what we've seen in the macro market, and our market follows the macro market, the macro market of Core West and Prime West and Prime City is a very short supply. And so the macro market then feeds through to the flex market. So that short supply has meant that actually the sort of the best operators in those locations are going to start to be driving up occupancy and they're going to be driving up rents. What we believe is going to be the trend moving forward is that because of that short supply and because of bigger macro factors that are softening yields and construction costs and cost of debt, really, the only lever for the traditional market is to drive rent. And again, that flows through to the flex world. As therefore, the space becomes much more expensive, this kind of flight to quality that I mentioned that moves towards a flight to value, that is really the driver for that. And we'll see that actually there will be a ripple effect where we see the demand for offices start to move out from prime and move more towards our secondary locations. Of course, we're in a Prime City location now, but this is really our only zone 1 asset. So we're excited about that trend moving forward.

I think the other thing, Hemant, just to say is given that price has been used as a lever over the last few months for occupancy, which we say we're moving away from, that has ultimately created evidence which has been used by our valuers as well. So that's another reason why I think you've seen our ERVs going down. And as we say, we don't expect that that's going to be the way we run things going forward.

Great. And just one final question, if I may, on dividends. So I think there's been some discussions around where you expect your pre-interest profit to go to. And then obviously, we just talked about the cost elements, the interest costs and things like that. Where do you expect your dividend to be? And you've reduced your dividend for this year versus last year. Was there a scope to reduce it more this year, so you sort of put a floor on it, or within the REIT rules? And how do you see the dividend playing out in the future?

Well, I think the policy shift we've done, Hemant, ties dividends directly to earnings. So earnings will be 1.2x the dividend. So I'm not going to give specific guidance on what I think is going to happen to the dividend, because I'm then doing the same for earnings. In answer to your question about FY '26 and what we've done around for us, 1.2x earnings is around the right level to maintain our compliance with the REIT regime going forward. We have a little bit of extra capacity this year if we wanted to reduce it further, but we set a consistent policy. We're not going to chop and change for 1 year.

Matt Norris from Gravis. Looking at Slide 22 and the rollout of the strategy, you've identified a gap in the market. Is the strategy bold enough? Why not more than GBP 200 million of CapEx? Why not faster than 5 years?

Well, I think the process has started now. So when I talk about, on Page 23, the sort of rolling the improvements out throughout the portfolio, I think that's part of that. And these buildings have offered up vacant space, so we can get on to that very, very quickly. I think we'll assess more, and that's why we're considering an additional GBP 100 million of disposals to look at where else we can push this and drive change quicker. But I think that the nature of real estate is that you identify the space, you get vacant possession of some, you design it, you get on site, you do the works, and then you launch it, and then you fill it. This is not going to happen too quickly, and we think the medium term is the right time frame for us to examine that. I think, Greg, we got questions coming in?

Yes, we've got a number of questions come in. So a couple of questions from Bjorn Zietsman at Panmure Liberum. He asks, firstly, about the assets under consideration for disposal. Could you talk about what types of assets are being targeted? How should we think about the characteristics of those assets being sold versus those being retained and reinvested into? And could you also give a sense of how much of the disposal program relates to assets acquired through the McKay transaction?

Well, I think the first thing to say is that there are no trophy assets. So everything is up for consideration, and that's an important point. But we are looking at sort of the brand and the cohesiveness of this business and therefore, examining all the properties and how they sit within our strategy as a whole. I think it's really important as a brand that we have that consistency. And of course, we're looking at sort of running the numbers and modeling all the buildings, so that we understand what the potential upside is if we invest in those buildings. So the driver is to maximize shareholder returns. The driver is to maximize earnings and drive for capital values. In terms of the McKay portfolio, we have a number of those assets that are in negotiation, under offer, and under contract. So it's probably a better question to answer in a few weeks' time. But I think when we dispose of the ones that we're in negotiations on, we'll be left with 3 maybe.

Bjorn also asks about the earnings focus that's been a key focus of today's presentation. Could you expand on what that means in practice and what changes operationally versus the way Workspace has been run historically? And what do you think has prevented the business from fully optimizing earnings in the past? What gives you the confidence that the actions being taken today can unlock the opportunity that you see?

I think it's really hard for me to speak to the past, having not been here. But what I can say is that for me running this business, earnings is about, in many ways, it's about cash. And that is understanding that actually if we're driving our revenue, how we're thinking about both our OpEx and our CapEx, but with the focus on OpEx to then deliver the earnings. The earnings is our profitability in real terms, and cash is such a strong representation of that. So for me, there's a cultural shift and to make sure that everybody is buying into that to be really efficient. And just some simple things like our procurement, how do we procure, so many different things, whether it's our cleaning supplies or a furniture, we haven't been thinking about that in the right way, and we need to be more commercial. So there's a commerciality here that sort of I think the ethos of that to bring the discipline Tom definitely brings. So we're really aligned on that. And that to me is really how we can focus on earnings.

The question from Sarim Chaudhry from Jefferies, who asks, can you provide some color to your EPRA cost ratio and the impact that AI can have on lowering your cost base?

Why don't you take on the EPRA? For AI on the cost base, I mean, I'm not sure anybody who's got the crystal ball that can really accurately predict how we're going to make efficiencies and savings. But I would say that this is not to replace people. AI for us is a tool to make us better at what we do, and we should, therefore, make cost efficiencies through that. In terms of the EPRA?

I mean it depends which are the 2 measures you're looking at, but if we're including direct vacancy, we're kind of high 20s, I think. And if we're excluding it, we will be closer to 20%, which is not out of line with where other peers in the industry are. But it is something we look at closely, and we'll continue to do so.

A couple of questions from Adam Shapton at Green Street, who asks, could you talk more about the competitive environment in the value segment? Do you think most operators are meeting their cost of capital at current market rents? And are you seeing new entrants?

Again, hard to talk about other operators. The competitive arena, maybe if I answer it this way, there's a lot of sort of talk about the statistics of how much of the traditional market flex will consume. And a lot of numbers get thrown out and the one that people land on tends to be 20%. And so that's good. That's nice. It's a good, big chunk of the market. In my view, I actually think that if you look particularly at the sub-5,000 square foot market, that you could invert that and that flex should be actually taking 80% of the market. So when we talk about competition, this is then the norm and the mainstream as we move forward. So I guess, the breadth of the market means that there's room for lots of players in the market.

And another question from Adam who asks, what do you model for overheads by, say, FY '29? In the bridge slide, you say investment in people, but also operational efficiencies, for example?

I think we're really modeling that overhead should be effectively not keeping pace with inflation over time. That's really probably the best way of answering that one.

There's a question from Paul May at Barclays who asks, specifically, when will we see the first returns coming through from the proof-of-concept schemes case studies? Is there any risk as you transition, you remain behind the increased competition that appears to have a head start in the structurally supported segment?

So I think on the case studies that we'll start to evidence the performance of those within the next 12 to 18 months. And that's just by virtue of the fact that we have construction work to carry out. But no, I don't think we'll fall behind because, in fact, in many ways, I think we'll lead the way, because we have this near-term upside, that's about our pricing structure and looking at the rest of the portfolio. We're going to start to show evidence of this quite quickly, I would say. And it may be piecemeal, but in time, that will all come together. I don't see us falling behind at all. I think in many ways, others may take our lead.

And the final question is an anonymous one that asks, how have you sized the further GBP 100 million of disposals?

I would say that, that's under consideration. So we have a number of assets that we're looking at of varying lot sizes. So it was reported that we were selling Salisbury House. We're not, but we might. But for now, we're investing in this building. That's obviously sort of a significant lot size. And I think on the smaller lot sizes, what we've seen evidence in our disposals on the GBP 200 million, with the GBP 75 million balance that we're moving through, is that the buyers for this kind of lot size of between sort of GBP 5 million and GBP 30 million to GBP 40 million. Actually, there are some cash buyers out there. That size of buyer seems to be quite comfortable in that market. So we're seeing good interest in that. Are there any other questions from the room?

No.

In which case, I think I need another coffee. So thank you all very much for coming, and I look forward to seeing you all again soon. Thank you.