Earnings Call: H1 2020

Aug 4, 2020

Hello, and welcome to the IWG Plc Half Year Results Analyst And Investor Presentation. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity If at any point you require assistance, please press star 0 on your telephone keypad and you will be connected to an operator. I will now hand you over to your hosts, Mark Dixon, CEO, and Eric Hargerman, CFO, to begin today's call. Thank you. Thank you, operator, and good morning, everyone. Thank you for joining this call as we present our 2020 interim results virtually for the first time. I'm joined on the call today by Eric Hagman, our CFO, and we'll both be taking questions at the end of the presentation. This has been truly an unprecedented trading period. With experience to manage their way through numerous previous crises, but nothing like we have seen during this COVID 19 pandemic. However, some good news to start, despite the pandemic, we've reported positive revenue growth for H1, quite remarkable in the circumstances and, of course, greatly helped by a record Q1 performance. Total revenue was up 3.5%. Open center revenue up 10.2 percent to 1,300,000,000 and pre-nineteen revenue like pretty much like for like increased by 0.2%. Achieving any sort of revenue growth is a very good result in the circumstances. Indeed, the result could have been better if it were not for the impact of COVID 19 on our variable service revenues, which are not contracted and represent about 10% of group revenue. Excluding the 1 off COVID 19 related adjusting items, which are detailed in today's interim statement, and Eric will talk about later in the call. The pre-nineteen EBITDA was up 17.1 percent to 212,600,000, and we generated cash of $125,400,000. We are in a very strong financial position Net debts are just 15,900,000 as of 30th June, and today is almost 0. With our cash resources and facility headroom, we have 830,000,000 of available liquidity. A good place to be given the opportunities we believe will result from the COVID 19 pandemic. Notwithstanding our strong cash position, we're running the business with a laser focus on cash generation now and into 2021. This is done daily. No stone is left unturned, and this is now the company's lead KPI. As we've said on previous occasions, we ended 2019 strongly, and we brought that momentum into Q1. Making it the best start to the year we've we have experienced so far, with open center revenue up almost 18% and pre-nineteen revenue, which is a true like for like measure, growing at 7.6%. And occupancy itself increased 6.6 percentage points to 78.8%. This demonstrates what this business can do and will do again. The emergence of cope of the COVID 19 pandemic started to impact our business in March, particularly in Asia. And as the number of lockdowns and COVID associated business disruptions increased around the world effect on our business intensified. Overall, the second quarter was a very challenge period and resulted in a 4.4% decline in group revenue. And open center revenue growth was reduced to 2.5 percent for Q2, respectively. We now anticipate these challenging conditions remaining in third quarter. We have, as a consequence, further intensified and cost saving program today, we announced a comprehensive range of actions to reduce costs, improve cash flow, and liquidity. To update, you've achieved a 180,000,000 of savings so far. This number will grow substantially and rapidly in the coming months. We've also announced a 1 off COVID 19 related charge of a 155,800,000 split between cost taken in H1 and a provision for network rationalization during H2. Later, Eric will call out the individual actions that led to this charge. Although the very clear V shaped recovery we saw in China and other Asian markets, although we saw it there, it's not been universal. And it's this that's made q3 a more challenging period than we previously anticipated. We're definitely seeing green shoots were improvement into q 4, and we can see those green shoots today. Inquiries are trending up customer attention is improving week by week, and we experienced enormous interest from more companies looking to work in a more dispersed way our key offering. We have focused on cash, which has been the number one theme for the group. And despite the pandemic, we've generated positive cash flow each month, which is a testament to the huge efforts of our team. And at the same time, we supported tens of thousands of companies bridge, short term financial difficulties, and Eric again will outline some of the things we've done here. That that that focus on the equity placing in May, puts it in an even stronger position financially to look at the growing number of opportunities to accelerate growth, which we will do in a cautious way bearing in mind the current global scenario. Even though we anticipate these growth opportunities, Franchising remains the key driver at the moment, and we've seen continued momentum in of our strategy in this area. In addition, we started to add to the franchising a small number of new centers. So we have been doing acquisitions takeovers and rescues, but so far, that hasn't required any cash. And and almost all of them have not had any IFRS 16 liabilities. There's no rent liability either. So they're they're very good deals. We expect to add more of those in H2. And we will fill gaps and broaden the network as we do it. So both franchising and we've got the beginnings of some consolidation, but it, you know, we're we're taking a cautious stance in doing the the the very straightforward stuff not the more difficult, which will lead to a little bit later on in the year. Now laser focus on focus on cost has been important part of the comprehensive actions we've taken to mitigate the impact. Of the crisis on our revenue. We announced during the capital raise savings of a 150,000,000 achieved so far. We've now reached 180 minute cash savings, and we're looking for much more than this as we believe things may get more challenging before they get better. Just for reference, board remuneration remains at 50%. All capital expenditures are vigorously questioned. And network rationalization whilst the last result will feature more prominently in the months to come. Clearly, the dividend share buybacks remain suspended for the moment. We continue to accelerate and invest in innovation, both in IT and procurement just which really is helping the the the savings and but is hurts us a little on cash flow because we are investing in it. These investments will further enhance our ability to reduce costs, and grow top line in new growth errors, in particular, homework. All projects are rapidly implemented to maximize the short term benefits, by doing all of this, even when our revenue is challenged, we we believe that we will be able to achieve a a a better and better result, through, cost savings going into 2021. And then enhance further as the revenue comes back in. There are well documented structural growth drivers in our industry, and I won't read out the list as we talked about these many times before, but these drivers were already getting more powerful pre COVID. What the pandemic has done has been to, do a better job than any marketing campaign we've ever done. To really generate massive interest, and demand for our services. In particular, in the homework, remote work, and decentralized areas. The growth of remote working and working close to the home is it will be huge in the future. Pretty much all companies are looking. They see this universal. The only thing that slows it down, in fact, is they already have existing commitments and it's that they will make the change if they can now. Obviously growing companies go immediately into this type of working, companies with existing infrastructure need to get out of some of that before they can move. It's definitely what their employees want and increasingly so now They want to work close to home, not all at home, but close to home. And it's what companies want. It improves efficiency. It can improve productivity, and it's a third of the price. So it's a very strong cost driver as well. So watch this spot the way people work are changing when we are ready and able to support this momentum's picking up week by week. And this is an area we are quite excited about, even in the middle of this, terrible storm, as we stand at the moment. We've got a clear view of this new world, post the pandemic. Just for absolute clarity, there will still be a need for offices. It's just that those offices are going to be used differently. There's gonna be much more use of flexible space and drop in space. It's gonna be more distributed, more people working close to the home. The thing people will least want to give up post what they've experienced during the crisis is the ability to not commute. And it's really commuting that's driving many of the decisions. The reason people don't want to come into city centers is more the commute than than the office when they get there. So, you know, one bright spot we've got in addition to homework is the strength of ourselves in suburban areas. So, you know, this is evidenced by, you know, real pickups in Suburban And Provincial towns. Around the country, each country. And, you know, we so we the the good part of our growth strategy with franchising is a lot of the places we're opening, I mean, exactly the places people want to be in the future. So we think this is gonna be one of the lasting legacies from this pandemic, and it will fundamentally change the way people think about work and office and we should be able to benefit this from this, in in years to come. So we're quite quite looking forward to this this new future. Briefly, our network is really helping us. The scale and coverage is really critical. You just don't want to be concentrated into big metropolitan cities at the moment. Those are the places, and they're gonna continue to be difficult places for a few months to come. The discipline of our forward order book also helps. You can see 90% of our forward order book was contracted at the beginning of the pandemic. That's what's helping the revenues, remains stable. So we're very focused on this. We have been for years and we've we've, of course, focused on it looking forward. This plus coverage, you can see here more than 1100 Cities, lots of centers. It's that spread that gives us, a lot of stability which some of our peers do not have. Dealing very briefly with how people are working just to look at the spread, This is a a look here at the Hyde Wickham area. So west of London. This is just around Hydeham. You can see lots of choices for people to work, and they are voting with their feet and going into these centers. You can see the same thing Paris or Dallas. Lots of these we've focused over the years of making sure that we're covering the suburbs, not just C50 Center. Are you Enterprise Wins now? Huge amount of interest at the moment. As I described earlier, but you can see network customers here using the network, hub and spoke, coverage over multiple geographies or national networks. And these these are just a few. There's a lot more coming through, in this area. And, unprecedented interest. So this is a very encouraging sign as we move towards the end of the year. Just dealing with growth, as we said at the time of placing with regards to growth of, you know, everything we said there with regard to growth nothing has changed. The opportunities are all still there. In fact, the number of rescue and M and A opportunities since the placing that are in our sort of pipeline has doubled in that period of time. Where we're focused on are the first two some organic and rescue. You know, these are not these are the ability to grow without taking any Rent liability or IFRS 16 liability with small costs, small CapEx. These are the ones we've been doing in the interim. The rest the larger acquisitions, we're just working there on timing. It's very important to get that timing right. During the whole period though, continued progress with franchising, that is a steady drumbeat that's occurring. We're not doing the large MFAs, of course, although some of those discussions have restarted in the past couple of weeks. It's more the franchising in the provinces first, deals agreed in many countries, and, you know, quite enthusiastic about this area as well. So, you know, we will grow. We're just gonna be very careful at how we do it this year. And with that, I'll hand over to Eric. Thank you very much. Thank you, Mark. Mark, and good morning to you. Let us first have a look at the key points to make on the income statement. The back of a very strong first quarter, our best ever start to the year and a challenging second quarter given COVID-nineteen, we increased revenues by 3.5 percent to just over $1,300,000,000. Open tender revenue was up an impressive $121,500,000, an increase of 10.2% compared to the same period last year, with all four regions contributing positively and with a particularly strong performance in EMEA, Asia Pacific and the UK. As previously mentioned, the best earnings performance indicator of our business is the pre 2019 EBITDA. In the first half of this year, we generated 212,600,000 of EBITDA from a pre-nineteen Estates, up 17% compared to H1 2019. Adjusted operating profit was very much in line with our expectations. And it's important to note that this number includes 6 $9,000,000 investments we made in growth, meaning the new centers in 2019 2020. And one of the network rationalization costs to the tune of 27,700,000 for a total H1 2020 earnings drag of 96,700,000. That is CHF 50,500,000 higher than in the same period last year. As Mark already mentioned in his opening statement, we have taken a charge of $155,800,000 relating to directly attributed gains and expenses resulting from COVID 19. These charges are considered to be adjusting items as they are both significant in nature and value to the results of the group. The adjusting items are as follows: Network rationalization to the tune of 134,500,000 which includes $7,800,000 for charges incurred in the first half of the year and $126,700,000 provision full network rationalization in the second half. We also took a $9,400,000 provision for expected credit losses given that some of the customers may struggle to navigate through these challenging times as one would expect in a recession. We also have $5,800,000 of transaction costs in respect of master franchise agreements that have not yet completed. A small goodwill impairment of $4,900,000 was also taken as we felt now was the time to crack the bullet on some of these files. And lastly, other one off items of 1,200,000, which includes, for example, the charges for corporate restructuring in including severance. In total, $155,800,000 of adjusting items, which you see reflected in the adjusted operating profit and EBITDA for the period. If we now look at our cash flow statement on page 14, notwithstanding the impact of the pandemic we were able to generate cash before net investment and growth CapEx of $125,400,000. Here, we can clearly see the positive impact of the comprehensive actions we have taken to reduce cost, improve cash flow, and liquidity on our numbers. Particularly pleasing is the strong working capital inflow as we continue to actively manage this. As mentioned in the trading statement this morning, we generate cash every month, even during the midst of the pandemic. In combination with the 313,900,000 of cash we raised in May, we have close to 0 net debt at the end of June and today. Equally important is to say that more than 2 months after the race we still have close to 0 NADA. This means we generate, we continue to generate cash as these numbers also include the more than $30,000,000 we have spent on helping our customers during this crisis, cash we spent to finished centers that are opening, and the final cost of standards that we opened some months ago. This is why we have flat cash because we are generating cash that we are then investing. Let me summarize with the following comments. We have a very good balance sheet. We are in an excellent financial position and we are producing cash month after month. You can also be rest assured that we continue to focus on cost savings and that we are doing everything possible to maximize cash flows in the coming months. Let me now hand back to Mark for our outlook and concluding remarks. Mark? Thank you. Thank you, Eric. We remain in challenging times. COVID nineteen today, it looks like it would be more prolonged than we originally anticipated. Clearly, it's, changing on a week by week basis. We now expect to challenge in Q3 and hence the actions we have announced today. These, along with the green shoots shoots we are now seeing in the core business, lead us to believe that we'll see improvements coming through in Q4 and into 2021. What gives us some confidence in that? 1st and foremost cost savings. We updated at the capital raise about 150,000,000 of savings 2 months later with 30,000,000 ahead of that with much more to come. And the entire business is laser focused on gaining efficiencies and without affecting customer service reducing costs. Inquiries are increasing. In fact, interest in what we're doing is was described to me the other day as electric. It's we've never seen anything like it in terms of, especially larger companies coming in with requirements. We are converting into sales, record sales in all of our membership products, our home products, and our super flex products, all at record levels. It's a small part of the business, you know, that It will clearly become a bigger part, but it's still just 8% of revenues today. Customer retention, which is a KPI that we've been looking at closely for obvious reasons, is picking up. And there's lots of opportunities really all over for us to, provide more services to customers going into the future. We were seeing many structural growth drivers pre COVID 19, but it's clear that this has moved up a gear and accelerated. And the changes in the way the world was working, are now gonna become permanent. With interest reaching entirely new levels. And as I said earlier, this bodes very well for 21. Finally, The current environment is presenting significant opportunities for us to accelerate growth and the development of the group. I repeat everything we said that the equity raise remains valid, but it just may take a little longer. After a great start this year, the onset of COVID 19 swift actions we have taken and continue to take has turned 2020 into something. Well, I think this is quite an understatement of a trashed transitional year but we are now absolutely focused on 2021. I'm doing the right things now that we enter 2021 as a more resilient, stronger, more profitable, more cash generative business. Thank you all very much. And with that, we'll Hand back to the operator. Open the call to questions. Thank you very And we do have a couple of questions in the queue already. The first question comes from the line of Michael Donnelly from Investec. Please go ahead. Good morning. Can you hear me? Yes. One question probably for Eric. If I look at the mature book, with, occupancy up and and revenues overall pretty much flat. It looks as if pricing has come down by about 5% Is that 5% the number that you recognize? Eric, I can't hear you. You want me to take it, man? Give us directions. I can take it if you'd like. Yeah. No. I think in general term, people are interested in what you see on pricing. Yes. I think you that number is a number we recognize. You know, clearly, it's more difficult. This is not an easy period to get price rises. So, you've got a decline in price. We have to be more competitive to gain more conversion. So, some of the cost savings be used up with lower prices, but overall occupancy will rise. Got it. Thank you. The next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead. Hi. Good morning, everybody. 3 from me, if I may, for now. Just on the network rationalization, cost and the provision that you've taken, how much of that will be a cash cost in the second half versus non cash cost? Secondly, on, on savings, you've given the target for the full year or the current target. How much of that was taken in the first half of the year and how much will, will be in the second half as a result And then thirdly, just on enterprise, you've talked about, strong rising demand and and inquiries and so forth. Again, could you provide any, any data on that in terms of how big enterprise is, what kind of growth you've seen and so forth? Okay. Just a question 1. Network rationalization. It's about 6040, 5050 to 6040 cash. It could be as high as 60%. It's probably going to be near a 50% cash to just writing off assets. It's it's It it's, the number moves because simply, you know, we more things are added and more things are taken away. So we're we're agreeing deals that get sense as we would have closed off the list, but It's, so it's a it's a moving number, but it is gonna be that sort of range. Cash to not cash. I think the the savings come by definition mostly in the second half, and it's gonna be sort of 1 third, 2 thirds, I would think. But that's a complete guess I don't think we've looked at that number, Eric, have we? No. Not not through that, though. It's just the way for savings. You know, most of the savings are you know, more permanent savings now. Yeah. And, they will come into second half and into 2021. And, again, we're very focused on cash generation now and 2021 in particular, so we can get a good good outcome there. In terms of the data on enterprise, there's a lot of data here. But so look, it what's clear is that enterprise is growing and will grow further. I mean, but it's different demands sometimes. We've got two requirements, for for multiple tens of thousands of people that we're working on today. And, you know, it goes from that extreme to just huge numbers of of smaller groups of people. Coming into the census, particularly in the provinces today. What we can see we're starting to see new company startups, you know, with rising levels of unemployment, you start to see more startups. So over the past couple of weeks, there's been a marked trend that we can see in some countries of that coming through. Overall, inquiry levels have not reached the same levels of last year in aggregate. But they are they are coming up week by week. Although, you know, a second wave or whatever it may be may may dent that in the short term. It's quite related to that and to how people feel. But certainly from an enterprise larger company point of view, it's pretty much up there on the list, top of the list now for many, many companies around the world, and they are engaging with us. We're the market leader. We have the best coverage. You know, we we we have a lot of engagement here. So we're we're watching with interest you know, can we convert some of these really big contracts onto the network? And and, Mark, on that because it's it's a topic you've talked about. For a number of years and obviously more in recent times. But just trying to work out and it's a question that comes up quite frequently is where is your starting point in terms of enterprise clients? Versus, versus SMEs? It's still, you know, it's about 50% of the business. I mean, it really it comes down to the definition of enterprise. What is an enterprise client for us? An enterprise client is someone that's using us in many locations. It's not a company that's just using us in a single location. It's not a small company. It's not an individual. We break our customer base into 3 groups enterprise, very large company companies that just companies using us, but they're companies and individuals. And it's the it's the enterprise segment that that, you know, we is the one that's growing. It's sort of taking more share of the whole and we expect one of the results of of of COVID would be even more interest. So it's from something that was not talked about, you know, people didn't get to real estate. It's high on the list right now, and it's gonna remain there we think for the rest of this year, the companies will continue to change strategies on how they support their people. Okay. Thank you. The next question comes from the line of Dan Walke from Tossker Fund. Please go ahead. Good morning. Couple of questions from me. On the 5,800,000 charge you've taken for deferred deals, Would that have included fees for the sale of the U. S. Business? Yes, it's pretty that is what it is a predominantly I think it was a well kept secret that, yeah, COVID COVID had an impact on that. That's the reason why you can take it as a one off charge. You have to be able to demonstrate that, you know, in touching distance from doing that. So, so the money is not wasted. I think that's the important part. All the work that we did on the counting season deck side is still there and we can still benefit from whenever that transaction becomes inside again, whether that's you know, this year or next year. And I think we we talked about how important master franchises are for in addition to the other things we've talked about, that continues to be the case. So that region is included in the comment master franchise discussions ongoing? Absolutely. Okay. And second question is on the provision. The $127,000,000 provision. It's common practice to provide an idea of the annual benefit, when you're making these sorts of provisions to adjust the size of the business. And I'd say the normal rule of thumb is to get an annual profit benefit in the following year of about one and a half times the provision. So if that were the case, that would give you a benefit of the order of GBP 190,000,000, How does that feel? Is that in the ballpark? Well, no. I'll do that more, Eric. Oh, I would say that might be a little aggressive in the circumstances. You know, I think on a good day, you would not be wrong. I think certainly from a cash position, you would be more than correct. You know, for for cash plus asset write offs, you know, it it's possible. Daniel. It's but everything would have to be going well, and we're sort of, you know, we're quite cautious on that outlook. But certainly, you know, you would expect to, you know, have a one time return, from that investment. In 2021. You know, you could do better, but one would be reasonable. Eric, would you agree with that? Yeah. Absolutely. I think at this moment in time, you know, a bit of prudence is, is smart. And I think if I sort of think about the of travel of that operating profit line that this impacts. I think that's a good number to work with. If you sort of take a number north of 100,000,000 in the year on year comparison. I think it comes close to one time. We obviously want to do better. We will work very hard for it, but at this moment in time, from this point. That is, I think, a good assumption to work with people. The next question comes from the line of Andrew Shepherd Barron from Peel Hunt. Please go ahead. Thank you so much. Go ahead. You're unmuted. It appears we're getting no answer from Andrew's line. So the next question comes from the line of Alan Batiste from Berenberg. Please go ahead. Yes. Great. Just worth checking. Three questions, if I may. You made a couple of references to customer attention against tracking. Just hoping you could give slightly more color there. I want customer attention is in a normal 4 year and what it has been in in recent periods. Secondly, there were some articles from, I believe, at the end of May. Saying that you had taken over an office that we work at vacated in Hong Kong. Just wondering if we were or other competitors, that would be something that you think you might be doing, on mass. And if so, kind of, what the size of this opportunity could be over the coming 6 to 18 months. And then thirdly, one colleague for Eric. In terms of the 9 and a half position for expected credit is just hope he gives, like, more color on how you came to that figure. If the kind of expectation there is that we get recovery from Q4 onwards or if you think kind of bad debt could take off just kind of the, the cost of getting used on for a longer period of time. Okay. Look, on customer attention, we can't give you the record. I could give you the numbers, but that would be too much information. But if you looked at the graph, you you'd see the customer retention has improved each we're looking at it weekly, and it's improved each week over the last 4 weeks. And so it had a shock at the beginning. Customer retention went down. And now it it then it's now recovering week on week. So as I say, it's a key data point. It would be way too much data for us to start sharing, but, you know, that is, you know, that is showing some some positive trends. The second on taking yes. Absolutely. Taking over failed operations. Those ones, we had numerous conversations underway, and some takeovers have already happened. They're just too small to announce. But, again, we're taking a cautious view even on those, even if they're free, but we are doing some where they fill in gaps in the network. The first rework one we did in Hong Kong has done very well. Both we are very happy with it. Our partners are also very happy with it. And, so, you know, they they can work well. It timing's right, the place is right. So but the pipeline has grown substantially in that area. Credit credit losses, Eric. I'll let you. Yeah. Thanks. So very prudent approach of course, very much in line with our thinking of how the recovery will take place, so very much reflecting that challenging Q3. And then improvements in Q4 that we that we have talked about. For me, this is one of the surprising things. If I think about sort of March, April when we first started to take the actions. And this was one that, obviously, you know, everyone was worried about. And The positive surprise that we've seen, and it doesn't really matter which geography you look at, how businesses across the globe, almost irrelevant of their size, how people have been paying us. Of course, they are paying later because, that's happened in an economic economic recession. But they're not paying much later and they're paying pretty much everything, which is why if you look at the size of the balance sheet that we have, or the monthly bill runs that we have that, and 9,500,000 sounds like a small number, but it's it is another example of you know, how, you know, resilient the business model is. So we don't expect that to go up in the remainder of the year. As I said, it's a that's a cautious prudent approach. And, yeah, it's, yeah, we're quite quite happy with it that. What our business shows is that we don't need to do more on this, on this topic. So can, and I'll just come back to your second question just thinking about it a bit more. Look, a feature here, what we have to do as a business is and and we're doing it with franchising in that we grow the business without huge requirements for capital investment. We do not grow our IFRS 16 liability, or have volatility. In the numbers, we did. That's what franchising does. But the deals that we're doing are much more we're doing a lot more management deals and variable deals that have the same characteristics as, franchise. That's why we're doing them without question now. And this is they they don't require capital investment. They do not have a a a rent liability that causes the the IRS liability. And we're putting a lot more focus. We think that going into 21, landlords generally globally are gonna have a problem. Fixed space is gonna become unpopular. Companies are gonna change, but what they're gonna change to needs, our software, our platform, and our expertise So we think we can work on getting a lot more of these franchise like deals in order to grow the network that have, you know, get us to what I count as the promised land. The promised land is grow without having a drag, Eric talks about it in his words, you know, we took a drag of something like 50,000,000 in the first half. From opening new sensors plus the cash cost plus the IFRS 16 liability goes up. And so on. So we need to we've gotta find a way around that. Franchising does it, and I'm quite optimistic that we'll see more of these deals and it gives us far more, sort of attractive and beneficial growth than we have been doing in the recent past. That's, yeah, that's very helpful. Thanks. I'm sorry, folks. I've got a lot to that. It's not implying, say, more deals in the future will be fined as a variable rent with landlords. Is that something that you'd be aiming for? I mean, that you see a Yeah. That's that's a percent of them already are. But that's pretty much all we do at the moment and probably for the rest of this year anyway. So, you know, and and if we can I think my guess is that the property market's gonna be unbelievably weak in 21, really weak? And that is a market where people have to then start being innovative. And working with us is an innovation that gives them cash flow They have to invest a bit to get there, but it's it's gonna become more attractive. And, certainly, that's what we are working towards. And then we can increase the coverage by getting a lot more partnerships than we've. 30% is about in that genre now that, you know, that build that number and build franchise. And and let's sort of slow down this drag that we've had on investing in new centers and all the things I described earlier. And there's a, you know, there's a big pipeline building now, which has been very cautious on what we pick up. Sure. Thank you The next question comes from the line of Steve Wolf from Numis Securities. Please go ahead. A couple from the in terms of the cost savings themselves, can you just sort of outline of that 180,000,000 where we're at the moment how much of that is gonna be benefiting, in 2020? Secondly, in terms of the breakdown, of some of those cost savings, is it possible to sort of give a bit more of a detail on where some of that is, you know, rental savings, internal efficiencies, just some some sort of split, if that's possible. And then finally on the closures, you mentioned in the statement that, 32 are specifically COVID nineteen related. Just to bit more color on exactly what that means relative to maybe a normal closure. Is it centers that you can't actually get to or have, you know, breached something with landlords? Thanks. Mhmm. I'm dealing with the last one first. It's just those centers would not have closed had it not been for COVID nineteen. It's not that they've closed because of COVID 19. It's the effects of COVID 19 meant that we to close them because we couldn't see a future in them. Whereas under normal circumstances, we would have seen a future in them. So that's making that's that's the test that we have to prove. Okay. If we then look at the savings, the 180,000,000 is a 180,000,000 of savings in 2021, some of somewhere in 22. But most of it is 2nd half of 2021. That's where most of the savings hit. Some of them actually are long lasting savings that then continue. But I think shall I get the split? Yeah. If you've got the split, that would help. Yeah. Yeah. So so what I'll do is are with people we said in May. So if you think about the 150 because it's all prorated, pretty much, of the 150 we had in May that was the 100th was related to, and the level of discussion we had at your end abatements, about 30,000,000 were, supplier contracts or procurement savings and then the remainder, I, e, 20,000,000 is people, people related. So, contractors are normally with us. Natural attrition, not hiring, etcetera, etcetera. That's pretty much it. So the bulk of the 180 is related to, the cogs of cogs of goods sold because of, cost of goods sold because of the landlord discussions. And it would be about the same percentage going forward. I mean, there's yeah. It's it's sort of that mix sounds about right looking at what we've achieved. Again, our focus really is on 21 and sort of building the cash flow between now and 21. You know, it's about real cash savings and permanent savings. You know, a deferment is helpful. But it is not a saving. It is a deferment. That helps the cash. So we're really looking we're very focused on permanent savings. And as we said on the on the placing, about half of the the savings were at that time deferment to to longer term savings, pretty much all the savings now are longer term savings because, you know, it's not about deferments anymore. Okay. Let me just go back to that, the 2020 and then the 2021 split of those cost savings. I'm just trying to work out what annualizes into next year as a as a potential going forward saving. Than that. I appreciate the term, Paul. Yeah. I mean, I would deal with it. And then a couple of points then, Eric, you may want to add to that. Look. As Daniel said earlier, Daniel Kane mentioned earlier, you know, the rationalization this year produces a big cash contribution next year because that's all cash. You know, that that's one building block. The cash flow that we have today, you know, we will if we're not spending it then becomes a positive cash flow next year. So with less growth across money, you know, you you start to get more past positive real cash flow from that. Then you've got then the savings on top of that, supply chain, more efficiency less people, and, you know, overhead con con contracting a bit more investment into IT product development, you know, you can sort of build it up into, our internal target for cash in 2021. Now, Eric, I'm not sure what color we want to put on that, if any, but do you want anything you want to add to that? Yeah. I think from my side, of course, we're very laser focused on cash, certainly where we were a couple of months ago. I think now it's sort of shifting gears in into also where where they will then lead for for profitability because that's what you guys are interested. The way I think about it is, just assume whatever number you're thinking of for 2020 in my operating profit. I might just give you a good sense of what you don't need to add on top. So, you said half of the 150 in Maine was permanent for that 75. We've added another 30,000,000 already of which the vast majority, is is permanent. So that has another 30,000,000, that's 105. And then we still have 5 months to go. Right, where where really we are laser focused on getting permanent savings. So whatever comes on top of that, that 1 or 5 is, you know, is the extra EBIT in 21 compared to where we are. Yeah, clearly, that is you know, that is north of where consensus sits at, sits at the norm. That depends on what your starting point for 2020 EBIT is, of course. But that's the way we think about it. When we talk about putting the building blocks in place for a great performance in 2021, yes, there is the cash angle, but there's also this EBIT angle. Perfect. That's great. Thank you. The next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead. Hi, hello again. Sorry, I might be asking the same question as Steve just did, but just for clarity, because you said in the answer to that that the savings came on top of any of the rationalization benefits. And then as you did the bridge, They didn't. So just to clarify, we shouldn't be taking that run rate of savings of say 100,000,000 and then the payback from the network rationalization as well. Those two things are, are combined. And it's just one of those, not not both, And then secondly, and again, just following up from actually from the first question about the 5% price decrease. How much of that is is down to some of your variable income coffee and car parking and so forth, decreasing and how much is kind of like for like workstation pricing? I think look. Eric, stop me if I'm but it it's it's, you know, you should be adding one to the other. Because we haven't yet done the network rationalization. So but you should mitigate, you know, don't let your numbers run away with you because you know, we will have to be more competitive on price. You know, it's going to be a recession period. We're gonna have to be, you know, far more on the front foot with price, you know, going into the coming months and into next year. So, you know, but you get yourself into a very good position and There's certainly a lot of a lot of upside in cash flow from from what we're doing. Yeah. Maybe just to to build on that one way, Andy, to think about it is You you have the cost savings from all sorts of things. Think about the center that we still have but where we haven't negotiated the better contract, that term and saving obviously adds to the kitty. It sounded that previously just to make the board was loss making. I've rationalized it. So no longer exists in my portfolio. Obviously, I have the benefit of that as well. And so in sort of simplest way of thinking about it, if I have one center and I save money on it, that means I have more profit going forward. If I closed the one that actually was a drag on my earnings, that will help me. But it depends on what we end up with, you know, at the full, you know, at the full year, of course. And and that is, I get the, the the unknown factor, but it is, as Mark said, that is a combination of those 2. I think look. Look. I'll ask you last question a moment, but just to echo what Eric's saying, we're taking you know, a super cautious view of everything. So therefore, nothing can be guaranteed. We have to absolutely just get every cost out of the business and that that is a given that has to be done. We so you have to continue to innovate, especially in the homework and the drop in product lines. It's about 8% of the business. Gets with a bit of focus there, we can get very good revenue growth in that area. And, but, you know, there will be an effect on price and so on. So it's, you know, the thing that we can do that is in our control is absolute focus on the cost and product development. Do those 2 things and clearly maximize sales. You know, we could have we're focused on a 21 outcome that is perhaps better than expected to much better than expected. That's where we'd like to end up, from what we're doing. And the the, you know, the much better than expected comes because, you know, basically, the revenue line moves up quicker than we, we, we thought. If you look coming back to your final question, Andy, you know, these, the ancillary service revenue you know, we've lost about 8% of those of our revenues just through that. You know, those are heavily affected. So that's the the sort of spot services. And it is things like coffee because people aren't there. Meeting rooms, people aren't using them. I I say that some people are using them, but not as many as before, you know, that's just more or less straight to the bottom line. So, you know, as that comes back in the months to come, as people start to come back to the city center offices, that will naturally help revenues recover. And and not sorry, just just on that because that, that in of itself is a, that's a big drag on revenue per occupied workstation or revenue per square foot of space. Are you also seeing like for like revenue, so on contract renewals or new, or new deals that are in that region of 5% lower as well? No. It's not renewals. No. They're pretty flat. It's not that. They're not that's not reducing. It's it's just new sales. That's where, you know, the people that want to stay are quite happy to stay, and where we normally get good price rises there, with we're just pretty flat on price rises. It's a slightly it will be slightly up, but it's not down. The next question comes from the line of Sam Daniel from Stifel. Please go ahead. Morning guys. 3 questions from you, please. Firstly, I think you mentioned you invested 30,000,000 to helping customers. Can you give any color on this initiative and get a policy if that's still ongoing? Second, on closures, can you give any color in terms of the 4% in the second half for vision? Is there any sort of particular locality or region that is more impacting? Just that'd be quite interesting. And then finally on MFA looking for next year, given you've previously disclosed it as a a multiple of past sales, would you be tempted to wait until some revenues have gone back to a more normalized level post COVID? Before doing an NFA or just how you think about that would be great. Anyway? Okay. I'll deal with those in reverse. On the MFA, some places, I mean, we have got we are in discussions on a couple of MFAs today. And those places, revenues already have got back to normal. So, those you're quite right. You know, it's it's would be probably not smart to be entering into discussions if there's too much volatility in the numbers. But, as I say, a couple of those places, we're working. They're small, but interesting. They they will help. I think the network rationalization, that's pretty much across the board. Yeah, pretty much across the board. Yeah. There's no particular geographic you know, consultation. So we're not very much prorated to, if you think about EMEA, Asia Pacific, UK, and Americas. If you think about the proportion, as you saw on the pie chart earlier, where we are, that's pretty much what they are happening. Yeah. And then the 30,000,000 is basically this is simply you know, deferments and other to help the ones that, you know, this is very difficult in our business because people are opportunistic. So we'd have to, you know, split people that are in genuine financial difficulties. To people that are just being opportunistic. And, you know, that's where this 30 minute is coming from. They are deferments and other that that that basically allow the customer to survive over this period. In terms, Sam, will there be more again, as Eric mentioned earlier, look, this is a moving feast, isn't it? It's hard for any of us on this call to know what the coming weeks and months will bring. But, you know, this was typically in certain countries, and it's in particular where governments start to intervene and where there's uncertain, you know, outcomes in terms of whether or not people should be paying other people. It's where you get that sort of breakdown where you see more of it. So, I do not from where we are today, Eric, we do not see much more if any more, but I just don't want to be on record to say never on this one because, you know, anything could happen in the coming months. Yes, I think that's right. I think where we stand now, we don't expect it. If things change, things will change. There are currently no questions in the queue. And we've just had another question come through. This comes from the line of Edward Donahue from One Investments. Please go ahead. Good morning. Just going back to the point you made about Metropolitan Centers and Centers and the the lack of activity, what are you seeing on pricing for yourselves in those areas when you were talking about the 5% price decline? What do you be offset of that being what are you seeing with regard to pricing trends in the suburban areas? Yeah. I mean, look, as you would expect, there there's less or no decline in suburban areas the decline is concentrated in those metropolitan areas. You know, we have little competition in the suburbs. More competition in city centers. So Okay then. Yeah. And demands coming back even in the centers, we can see it. Because there's a lot of companies. I mean, a lot of companies down, so So if if they can get out of the lease, they will, but they need to keep something. So we're seeing downsizing, you know, it's not a total one way street. There's a lot of companies doing projects. There's this, you know, certainly the market's moving shorter. No one's going to take long term space at So it's not totally dead. I mean, we are seeing movement and that movement is increasing, but it is done. It's more competitive just to be very clear. And if you don't mind, what level of your square footage or meter bridge? Is what you would classify as suburban versus, the more competitive Metropolitan centers. Probably about, 2 thirds. I would think that's straight off the top of my head. It's maybe 2 thirds or a little bit less than that, you know, maybe 60%. Because it's just by quantum, I mean, if you you you, you know, we've, you know, in the UK, we've got well over 3 hundred locations. And in Central London, there's 50 as an example. But, you know, then you've got Manchester and Birmingham. You know, with Central Birmingham, maybe 8 Central Manchester, another 8. So, yeah, it gives you a sort of yeah. I would say Yeah. 2 thirds, 60% to 2 thirds will be suburban, but from a revenue perspective, it's not 2 thirds of the revenue. Because the Metropolitan districts, well, you know, they have a higher revenue, the base costs are higher, the revenue is high. Great. Thank you very much. Thanks. There are no further questions in the queue. So I'll hand back over to your host for any closing remarks. Well, just like to thank you all for joining us, on this first virtual delivery. Rest assured, we're working hard at it. And, you know, we hope to be able to have better news the next time we report. Thank you very much. Thank you for joining today's call. You may now disconnect your lines.