Good morning, everyone, and welcome to our 2019 annual results presentation. 2019. This was the 30th year since we opened our first center in Brussels. It was actually not we, it was me at that time, because it was only me. It's been 30 years that have been transformational as the business has developed. We've seen sweeping changes to the competitive landscape, a radical shift in the way corporations view real estate, and a rapid acceleration of our strategy for growth, and especially, we expect more growth with our pivot towards franchising. The world of work has changed more in the last 10 years than at any time in that past 30 years. We believe the next decade is going to hold even greater change. Most futurists actually agree with this.
Over Christmas into the beginning of a new decade, you see lots of projections, lots of futurists coming up with what they think the next 10 years is about. A lot of them are talking about a change in the way people work, there's digital impacts, and in this case, three out of the four were talking about local working, remote working, distributed working, becoming more of the norm. There's a huge amount of research out there now, more coming, which starts to talk about this fundamental change in the way companies use real estate and the way consumers, those are the people that work in offices, want to use real estate. It becomes something quite different to what it is today. A transformational decade.
To put this into perspective, when I was writing this, I was sort of saying, "Well, what changed in the last decade?" I asked one of my daughters, "Tell me things that weren't there that became big in the last 10 years." I'm not on Instagram, but apparently everyone that's a millennial is, and she said, "Well, Instagram didn't exist. Greta Thunberg was eight years old, and people weren't really talking about the environment 10 years ago. Meat was meat, the popularity of non-meat wasn't there. Emojis weren't there as well." That's one that surprised me because I thought they'd been around for longer. 10 years old. I can say that personally, they've been a real boon to allow me to convey emotion efficiently as a man.
As many futurists are saying, local work is the next big thing, and we believe it's going to be a huge industry. It's about companies wanting to buy real estate as a product, and remote working, it's working from anywhere. That effectively is what digital, that's what the internet allows, but it's just not happening yet because the places to work that are local aren't there yet. That's our job. Today, about 1.2 billion people go to work in an office, and they commute, many of them far from home and at great expense, and they miss time to do what they could be doing when they spend time commuting. There's going to be a very strong demand from workers for this type of distributed work. Not for everyone.
If it makes sense, people are going to demand it, because it's a real benefit to be able to save an hour, two hours, maybe three hours a day, and to not commute. Not every day, quite a few days, work closer to home. Just imagine, you probably came on the train this morning, you've got people traveling on that train carrying a laptop and their phone. Then they get it out on their desk, start working, then they pack it all away again and go home again. Really in a digital world, for a lot of workers, that doesn't make any sense. Plus, it's much cheaper for a company to provide a workspace in Weybridge than it is to have them in Central London. You save half the money straight away, apart from the impact on efficiency. Things are changing.
I think environment, what we've seen in the past six months, is an incredible impact on companies changing their priorities and putting the environment now top. They're looking for anything they can do to do something to preserve the planet in some way. Of course, changing the way employees are working has a big impact, a huge impact. Just stop commuting for some people. It's cheaper for them, which they like, and it helps the environment, and it's what many workers want. It's sort of hitting all three sweet spots at the same time. We saw that in the last year overall, and we saw flexible working becoming more and more mainstream. It's not an exotic fruit anymore. It's right there center stage with all corporates in terms of how they're looking at real estate now.
What I can tell you is, this is the beginning of my fourth decade doing this business. I'm more excited now than at any time, any one of those other decades because it really starts to become the business of the future. We are in a great position to capitalize on this growth market. Last year, the year before, we got a lot of questions about, okay, WeWork, big noise, other competitors, big noise. What are you? When you actually analyze it, look at it, IWG is one of a kind. Absolutely uniquely positioned because one of the biggest advantages we've got is we've been doing this for 30 years. Dealing with coronavirus out there today, we've dealt with SARS, swine flu, we've dealt with volcanoes, earthquakes, cyclones, everything.
This is going to be probably a bigger speed bump, but we have experience at dealing with speed bumps. We're sort of paranoid about everything we do. For 30 years, we're innovating all the time. We're not just standing still. In 30 years, we've got great coverage. People talk about being the biggest renter of space in London or New York. To us, that is meaningless. What companies want is coverage, not dealing with someone that's all over London. We're in a great position, and I think most important, we've got now the ability to scale and to continue to grow returns to shareholders. We've got a very good platform that can convert investment to cash, and with the pivot to franchising, we can release even more cash while we grow.
Just quickly on innovation, just to put it into perspective, last year alone, 2019, we launched 117 new innovations in the 2019 year. We will do probably a few more this year. A lot of these innovations are around technology, but they're also in work practices, becoming more and more efficient in what we do. Effectively, the sort of paranoia that lives in the business is about reducing costs, become more efficient, and gaining new routes to revenue by giving customers more of what they're looking for. Overall, again, I won't go through the whole slide, but there's lots of misunderstandings about what is our business about, what's the industry about. The difference between success and failure, apart from scale, apart from having basic skills, it's about the ability to have many, many sources of revenue.
Most competitors totally miss that, or they don't have the scale to get it. We have 120 revenue lines, not five revenue lines, 120. Lots of small things that add up to our revenue. They give us a lot of safety in what we're doing by providing an extra margin. My belief is the difference between profit and loss are the additional revenue lines. It's not renting the space, it's the additional revenue lines. Quite a few questions this morning. Just to note, are these additional revenue lines, about 28% of revenues, are these revenue lines affected when you have to close centers? Some, actually quite a small number. Most of the revenues that we have are subscription revenues, even for services. We don't like sort of on-demand service. We like subscription, quite a lot of it. Some of it is on-demand.
That would be, I need a meeting room. I need a cup of coffee. Clearly, if the center's closed, then there's no coffee, there's no meetings. The rest is subscriptions run through. Then brands. We're going to talk a little bit more about brands. We believe strongly in having a portfolio of brands. Pretty much all other competitors have one brand. We've got a whole portfolio that allows us to give more choice and get more price reach into the customer base. Quickly on the drivers. We're seeing a profound shift in workplace, how companies work, how people want to work. Environment at the top of the agenda. Companies also looking to buy real estate as a product. They're trying to get cost efficiency. We are much cheaper, 50% or more cheaper. No CapEx, less OpEx, more flexibility. It's everything companies want.
New, modern, well-designed buildings, well-designed workplaces also help individuals become more productive. When workspace is provided as a product and not as a sort of very small sideshow in what's going on in the company, employees are more satisfied and will be more productive. In today's work, just to conclude on this, security again during 2019 became a big issue. I'm talking here about data security. We've done a lot of work to both improve data security, which was already good, but improve it, and we're launching more products this year that give enhanced levels of security to customers. Again, these are just additional revenue lines. These are adaptations that give the customer what they want, more security, and give us a little more revenue. Then finally, and maybe not least, good old IFRS 16.
I never thought I'd say this, but this has been very, very helpful. Because it's put real estate and the real cost of it right up there in front of every CEO and every finance director. Where it was hidden before, it's there up front, and it's forcing companies then to do something about it. Can we do it in different ways so we don't have all this liability that is going to increasingly affect my numbers? Let's get rid of everything we can. There are many forecasts as to how big this industry can be. They all differ, but what they're consistent on is saying there's going to be massive growth in this sector. That flexible workspace, and there are many versions of it, become an increasingly important part of the commercial property market.
I think just after 30 years, what I can tell you is, we're still at the beginning, and this is nowhere near being mature in any way, shape, or form, that most of the growth is yet to come. On brands, it's simply about choice. All customers aren't the same. We've got a big portfolio of brands here. We expect to add more, expect to see more coming on. You're going to see more specialist brands. We launched our first biotech center. It's the first, it's a trial center. They start to become more specialized, more focused on the type of work that a company's doing because they want their people. Biotech handles it differently. The main thing that's different is they're all biotech people there, when they meet for coffee, they're talking biotech. Different companies, same place. Commonality is biotech.
The events we put on, the talks we put on, they're about biotech. Not about finance or about biotech. That's what they're interested in. This is going to be an important differentiator in a competitive market as it grows in the future, having choice for everyone. We pick up more of our inquiries. We can have a high conversion rate for having more brands. The fuel, if you like, these days, and this is the sort of move and the maturing and the underlying change. The real fuel to the growth now and in the future are enterprise-size accounts. From day one, center one in Brussels 30 years ago, a lot of the customers in my center then were large companies. They weren't startups. There is a misnomer, a misunderstanding out there that what we do is for startups and small businesses.
Yes, we do have them. The majority of customers are mid-size and large-size companies. These guys, it's high on their agenda, as I said earlier. We've got lots of great names and lots of names you've never heard of that are growing very quickly in all sorts of sectors. An example here, just to look at Deloitte. You all know Deloitte. An interesting example here, because they had an RFP covering a whole range of solutions they were looking for. We were awarded all three elements, so the entire RFP, we were successful in. All three elements. This was a European RFP. Now we're rolling out across Europe on all three of these, and we're helping them monetize their excess space. Because by becoming more efficient, they release space.
That space we can then monetize for them by opening centers in it for other companies. That's worked very well. There's lots and lots of examples like this. Where are we going to be in 2030, looking back at this decade? Now, big health warning, please do not start writing in 50,000 centers. This is an aspirational target, and really, the reason I talk about at the beginning, things that changed in the last decade is if things go as we expect them to go, the number of centers, the growth rate in our business, in particular as we pivot to franchising, is going to be much higher. Now, can we get it up from 10% - 30%? What we're endeavoring to do is to get closer to 30% and away from 10%. Remember, this is a market coverage business.
The more you have, the more coverage you have, the more useful it is to customers, the more customers use you, the more unique you are. We are extremely focused on both a pivot to franchise and ramping up the growth rate, working with many partners. Remember, for the last 30 years, we've largely grown with our own capital under our own steam. This is partnering with thousands of partners in order to make this happen. This isn't about a few partners. It's not about large MFA deals in big countries. This is about thousands of people that we're partnering with to create a full coverage network. This is certainly, again, our own people internally, this is what we're aiming for. As I repeat, please do not put high numbers in here. What I can confirm is the growth rate will be higher over time.
It's going to get up. 30% would be good. I'd like to report that back to you at some point in the future. Onto the highlights. A transformational year 2019 in many ways, but it also brought record profits and record cash. You can see with that cash, we've reloaded the share repurchase program back to GBP 100 million. Just to, again, word of warning on that, we're not controlling the share buybacks because we've got so much corporate activity going on that we're continually outsiders, so it's mandated. 2019, significant for many reasons, excellent trading throughout the year, improving towards the end of the year, and the pivot to franchising. In the last couple of days, two more countries, very small ones, Gibraltar and Monaco, that have been franchised. Lots and lots of others, and I'll show you those in a moment.
Lots of live negotiations ongoing. As I said at this time last year, have patience. This is all about getting the right partners, and getting the right partner is equally as valuable as the consideration if we're partnering on countries and selling parts of our business. Lots of good work here. Also in network rationalization. This, again, improves the underlying overall performance. It's mostly non-cash, so a heavy cost last year, mostly non-cash. It will benefit us this year. We took the cost last year, benefits coming in this year. We're already seeing that coming through in performance. Again, very strong start to the year. Probably the best we've seen, I don't know, in 10 years. Very good start. This is all pre-coronavirus, which I will come to in a moment. Enterprise accounts, record sales, and they're just growing each month.
Good start to 2020. Onto the numbers themselves. Open center growth, so this excludes closed centers, increased 15%. 30-year business, remember, 30-year-old business, we're still doing double-digit growth. This is double-digit growth with our own capital pretty much. Once we start to get franchising coming on, you're going to get a higher growth rate in group-wide revenues, which feeds through into our fees and so on. Operating profit up 8%. This was, remember, after significant growth into the network, because last year was a big growth year for company-owned units. It's quite a lot of money went in there, both in capital and of course in the earnings drag from those. Earnings drag, Eric will talk to it, but over GBP 100 million of earnings drag because we opened those new centers.
That earnings drag pretty much isn't cash, but it's a drag on a GAAP basis. Financial position strong, leverage 0.7x. Great position to be in as we look forward to a more uncertain future at the moment. We're in a good position. We have a lot of capacity here if opportunities come up to work on these. We've grown the network strongly, 277 locations. That's the next slide. I won't dwell too much on this. 195 closed, 277. Is that net, actually? Is that net added?
That's gross added.
Gross added. Then I'll jump onto franchising. More countries franchised. MFAs, these are the sales. These are master franchise agreements of countries where they tend to buy our business and then refranchise it afterwards. Lots of other activity here. This is really the key to getting that growth rate up. You can see 400 locations here committed, and that's from quite a small number of franchise partners, only 30. It really takes off. It's a multiplier. Each franchise partner is buying 5- 10 blocks or more, and it just takes some time then to open them. On to partnering. I get quite a few questions. Well, okay, franchise seems like a good idea. It's an attractive sector. People are interested in it. If I were a franchisee, what do I get out of it?
Well, as the industry leader, we offer a great many attractions, and the key thing overall is that we help you get started more quickly and be more profitable. It's just our skills over 30 years applied to you as an investor. You don't have to relearn everything. You can just go straight ahead and do it. The combination of their local knowledge and our skill at doing what we do, and our innovation. Remember, it's not just where it is today. We're constantly innovating to improve the platform, improve the model. They get the benefits of this. Look, let's have a look at a few of these guys. Who are they? I think universally today, all the ones we've signed so far are successful business people who already have a number of franchise businesses.
I don't think there's any we've signed where they don't already have successful franchise businesses. They see this as being a business which has very good returns on investment. It is something for the future, it is something they can do. It's a clean business. Most of them are in fast food and coffee, or hotels and so on. They see it as a very good complement. It's a much cleaner business for obvious reasons. We had our franchise conference at the beginning of this year. Meeting these guys, I was inspired as a business person to actually meet these guys. These are very good business people. They're not amateurs. These are not individuals. These are really good people, the ones that we've done so far have been very successful because that combination is a combination that's very powerful.
I'm enthusiastic here that not only can we improve the growth rate, we can find great partners that will all contribute something because, again, innovation can come from many places, and I think these guys will help us innovate as we go forward. Company owned. Over time, the investment in company owned will continue to go down as we have less countries to invest in. Overall growth rate will go up. Our investment as a percentage of that growth rate will go down. It's a matter of time, and that will start this year. We expect less growth this year than last year because clearly we'll have less countries to invest in. Okay. With that, I'll hand over to Eric.
Thanks, Mark. Good morning. All right. In the following couple of slides, I will cover, in essence, two topics with you. First, I'll walk you through the full-year financial highlights of our results. The numbers that I will talk about are based on the former lease standard. I'm picking up on some of the questions we got this morning. We will, for the foreseeable future, publish our accounts in both those standards, as we've done also last year. After discussing the financials, I will update you on the 2019 shareholder cash returns. Let's first have a look at the key points to make on the income statement. As Mark already mentioned, 2019 revenue increased 9.2% at constant currency, 10.4% at actual, to just under GBP 2.7 billion, or up GBP 251 million compared to the same period last year.
Perhaps more important, open center revenue was up GBP 362 million, an increase of 15% at constant currency, with all of our four regions contributing to that performance. As we said on numerous occasions, the best earnings performance indicator of our business is actually pre-2018 EBITDA. In 2019, we generated GBP 472.2 million of EBITDA from a pre-2018 estate, an increase of GBP 67.3 million or up 15% again, compared to the earnings we generated in 2018, hence record profit year. Excluding the gains we made on the MFAs, EBITDA was up 8% to GBP 428.3 million as you can see on this page. Our overheads were up just under GBP 32 million as we continue to invest in building strong foundations for the anticipated future growth of the group in both owned and also the franchise parts of our business.
Measured as a percentage of revenues were up, overheads were up just 22 basis points compared to 2018. Operating profit, as Mark already said, was GBP 137.7 million, and this is after the drag on our earnings from GBP 106.7 million of growth investments and network rationalization cost of GBP 38.5 million. On a regional basis, there were very strong operating improvements in the Americas and EMEA, with particularly strong performance in the U.S., in Canada, Mexico and Brazil on the one hand, and France, Germany, and the Netherlands in Europe, just to call out a few examples. As Mark said, we posted record high profit for the period to the tune of GBP 503.1 million or less, obviously helped by the transactions in Japan, Taiwan, and Switzerland, and this has led to a record statutory EPS.
If you now look at the cash flow statement, we can see record cash generated before investment in growth CapEx, share repurchases and dividends of almost GBP 650 million. This increase is driven by the positive impact from our growth in EBITDA, the decrease in tax, the cash we received from the MFAs, and partly offset by the increase of investments we made in maintenance CapEx and higher finance cost as a result of the increase in our revolver January last year. Our net growth CapEx for 2019 was GBP 389 million. Net debt for 2019 decreased to GBP 294.1. As Mark said, this leads us to a net debt- to-E BITDA ratio of 0.7x, which obviously compares very favorably to the 1.2x that we had at the end of 2018. Cash returns to shareholders.
Based on the record profit and strong cash generation that we've seen in our business last year, we returned overall GBP 107.7 million during the year in cash to our shareholders. If you look at it on a five-year basis, on the left-hand side, you see that's an increase of 105% from first year, 2014, on this page, to 2019. For 2019, we recommend a 10% increase in our final dividend to GBP 0.048, which for the full year means an increase of 10.3% for a full year dividend of GBP 0.0695. In the last five years, this means that our DPS has increased by almost 75%. Finally, based on the strong cash generation that we have seen, we have announced today indeed the increase again to a new GBP 100 million share repurchase program. Basically, we ended yesterday having bought back GBP 66 million, so GBP 34 million to go under the former program.
We've upped that GBP 34 million again to GBP 100 million. With that, I'll come to the end of this section, and we'll now go to Mark for the outlook.
Thank you, Eric. Look, 2019 was a transformational year. It was a great year for the company. Tough in many ways, but very good outcome. We started 2020 with excellent momentum, but we are in uncertain times with the coronavirus outbreak. As a global business, there have been outbreaks in some of the countries and now quite a lot of the countries because obviously it's a fast-moving situation here. We've not seen any immediate impact on our performance, but there will be as the crisis continues to escalate. We're pretty certain that it's going to escalate with the information that we have. Based on our experience in China, we can sort of calculate the effects even. It's too early really to give any exact considerations. Clearly, it will impact the business this year. It's impacting, as I said earlier, parts of the revenues.
There's quite a lot already contracted. We are very diverse, not just in the revenues, but we're also diverse in we're in more than 120 countries. We do think overall that we're playing a very cautious game here. We have put crisis planning into effect really from five, six weeks ago when China started. We have mitigation plans in place. There's numerous things that we have done over the last six weeks. We feel as a company, we're in a good position for whatever comes at us. In the short term, we've seen some positive impact. I emphasize this is short term. We do have quite a significant disaster recovery business, and as buildings sort of become unusable, disaster recovery comes in, and that gives us a small boost to business.
Clearly business goes on and a lot of companies are sitting on the sidelines, so they will go more temporary rather than go long because everyone's waiting to see what's going to happen. There'll be very few long-term leases signed, I would expect, and more companies would come to companies like ours. Just again to caution you, that's a short-term effect. Overall, we're taking a very cautious view on this year's outcome, notwithstanding that we have a very strong forward order book, the best it's been in 10 years and so on. We have to just watch how this thing will develop. On that negative note, after what we hope was a positive presentation here, we're very happy, Eric and I, to answer any questions that you have. Yes, Andy.
I've got a few, but I'll just give you three for the moment. Hi, it's Andy Grobler from Credit Suisse. Just in terms of rationalization costs for 2019, which you called out, what are you looking at for 2020 as of now, would be number one. Number two, just a quick one. Enterprise clients, you've talked about very good momentum. How big is that as a proportion of the business? Three, Japan is the oldest master franchise agreement. How many new centers have been opened in Japan under that agreement as of now?
Right. Rationalization, a lot less this year than last year. There's a whole variety of reasons last year why there were more last year, because every year you have network rationalization. Just to be clear what this is, a lot of it is we're closing old centers and we're opening a new one. It's just upgrading the stock. You get more cost to this when you're doing that before a center's at the end of its life. There was more of that last year. Less this year. There will be some because it's just the program finishing off this year. From a cash point of view, that's the way we look at the world, they are significantly cash- positive, everything we do there. We're not closing things without having good upsides.
That's broadly a half?
I'd say probably it will end up, a half might be on the upside. It depends. Again, these are changing times at the moment, so I don't want to put a number out there, but a little less than half. If you'd have asked me the question in January, I would've said a little less than half that number, which is slightly above what the average is anyway. Don't forget, there's 3,400 buildings they're just cycling through. Okay, question one. Question two, enterprise, depends how you describe it. I think one of the things we are doing, we've invested quite a bit in CRM, so we've got to give better answers to this question. The two key customer types are large enterprise customers and fast-growing.
The future enterprise customers, if you like, are the most attractive customers because they are companies that have a small amount of people, but have a successful business that need more people. Actually, the larger corporates tend to be more difficult because they already have a lot of space, and they can't get rid of it. New companies that are growing, that's probably the second most important area. You would call them enterprises, but they're just not household names. They're not Deloitte, but they're companies with 1,000 people going to 5,000 people. There's a lot of those. Okay. They have no legacy to deal with. Overall, enterprise, more than 50% of the business. Japan's growth rate, we were growing at 10%, they moved it to 20%.
Yeah.
20 +%. Clearly Japan's affected, that may slow down a bit for the next quarter, two quarters, I would have thought for them.
Switzerland is the other example that I looked at myself in anticipation of the question. We opened four in 2017, two in 2018, 13 last year. Just to give you an idea of how quickly things can go from a center perspective.
This year. It's a question of whether the growth rate, that's what you're asking.
Yeah.
Typically, it takes them time to bed it down, but they will grow at a quicker pace, and especially through sub-franchising. To do the whole of Switzerland, to do Zermatt, you sub-franchise that because you need to be local. He will do it. A very impressive team, and they will get Switzerland done far more quickly than we would get it done, and they're local. They know everyone. You've got an impressive team, and you're there every day. You can make big inroads into getting the network done. Everyone's very clear. It's all about network coverage. More is better in this particular thing. More coverage. Okay? Thanks.
Morning.
No. It will be now. Yeah.
Morning. Steve Woolf from Numis. Just a couple at the moment. Could you run through the performance of the mature, the pre-2018s through the year in terms of the constant FX growth, the organic growth, however you're splitting it, combined with the occupancy, which if it's risen nicely through the year, and particularly in Q4, just trying to marry that effect together. Secondly, in terms of the franchising, do you feel it's on pace with the discussions and the execution of those master franchise agreements? Just trying to get a sense of what either might be slowing the process down. Is it the DD on some partners? Does it now make price harder now that the macro and inevitably coronavirus has kicked in, do you think?
It's too early. I'll do mine first.
Yeah, go for it.
It's just too early to say. It's a question of how long it all lasts, how big the speed bump is. What I can tell you is to date, that is today and last night, it doesn't seem to have an effect. Again, just words of caution. In the beginning, I said this is a two- to three-year program. If we get six months of the effects of this, it's still going to be a two- or three-year program. Because the people we're talking to, maybe they'll go a bit slower. That is not the case today. Diligence goes on, and so on. There's a whole variety of things here. It's a major focus for the company and again, I met the franchise team yesterday, in fact.
There's a whole range of deals that we've got done that we haven't announced in here because they were only done yesterday. There's whole lots of them. These are smaller ones. These are not major announceable things. Together though, they're significant. Yeah. It could cause a delay maybe.
The bigger ones that you've done, obviously finishing with Switzerland, how it's really the thinking of those rather than the impact of the coronavirus. It's those discussions that have been ongoing. Have they been going sort of on track to where you would have thought the process, rather than announcing one a month, for example?
It's not a sort of regular thing where you announce one a month. They're all at different speeds, and they're different people, and they're different geographies. The main thing I can tell you is we've got tremendous interest. It's all about finding the right partner, and that partner with the right financing. Again, we want the right partner with the right financing in order to move forward. The key thing for us is not necessarily, it's the right partner, right consideration, right growth plan afterwards. Okay. It is all about the growth. What we don't want to do is shut off the growth. Of course it's likely to just slow things down a bit, but it's not something that's going to stop it. Certainly not the evidence of this week, for example, my experience on Monday.
I was frankly surprised at the level of stuff that we've got actually happening. Anyway, let me leave it at that and pass it over to.
I think we've always said it was going to be a two- to three-year program, right? Like last year, we said we asked for patience and then there was the Japan deal a month later, right? Pre-2018 organic revenue growth was 3.6% for the year, and then the occupancy that goes hand-in-hand was up 310 basis points. As we said at the half -year, and again, this morning, we're very happy with that growth. If you look at H1 or H2 versus H1, they're both very positive quarters. The advantage of H1 was that was comparing to H1 2018, which hadn't the best first six months of the year. H2 2019 is comparing to an incredibly strong H2, if you recall from last year. That's why if you sort of do your quarter by quarter, it sort of feels like something happening there.
Well, the answer is there isn't. They're all positive quarters where we see that pre-2018 estate going from strength to strength.
Thanks.
Yes. Thank you. Just to the front again.
Hello, it's Michael Donnelly from Investec. Just a couple of questions. One for you, Mark. At the time of the Q3 update, I think you said that at that point, when WeWork was kind of beginning to publicly unravel, it was too early to assess the impact, the potentially beneficial impact on your business. Could you give us an update now on Q4 and perhaps Q1, and let us know if you've picked up anything from that ongoing unraveling? The second question is on the 28% and the severity that you spoke about. Could you maybe give us a very broad split between spot and subscription? I think you said the majority was subscription, but would it be sort of 20% versus 8% or something like that?
Do the second one first. It's probably 20% and 8%, I would say. Yeah, 20% subscription, 8%.
If you do 20% that, if you do then look at that is a quarter of my business.
Yeah.
Iit turns out to be around 45% of my total business. Do the math, yeah? That seems to be the right split.
WeWork effect. Of course, we benefited. It's very hard to actually put your finger on the benefits. We had a strong end to the year, strong beginning to this year. Customers, yeah. I think the uncertainty probably helped us. Overall, it's coverage. You've got to remember, these guys talk a big story, but they're incredibly limited in coverage. They talk about everything's pumped up, but they're in a handful of cities, I think 100 cities, and we're in 1,100 cities. That's what the customer's looking for. They're not all looking to be in New York and London, San Francisco. Look, overall, forget about the WeWork unraveling benefit. It's put it in the spotlight. That helped. No, they put a total of $15 billion to get in the spotlight, which wasn't efficient use of capital in our view.
That has been incredibly helpful to us. As the, if you like, the last man standing, which we are, and the market leader, we are seen more now as the authority and a reliable partner. That is what corporates are looking for. They don't want risk. That felt risky, but we'll see what happens. In the end, this industry is going to be very big, and there's going to be lots of competitors, and there will be a few winners. Our aim in everything that we do is to be there and be the winner, and that's the way we've operated the business over the last 30 years, from small beginnings. It's about you've got to be there at the end, and you've got to bring everyone with you. You've got to manage your capital.
If you don't manage your capital, you get carried away in any sense, and you start looking at things that are not return-on-capital -related, you can very quickly lose track. Of course, you've got to manage risk. It's return on capital, risk-adjusted, only way to run, we believe, a business like ours. That's how we run it. It's that invest to get that cash back quickly.
Over here. Question here. Just here. Yep.
Morning, guys. Calum Battersby from Berenberg. Two questions. Firstly, apologies for repeating the last question, but to be slightly more specific on the WeWork impact, has there been any change in price or rationality from their side on services offered that you've seen on the ground that's made any impact? Secondly, just hoping that you could remind us on the flexibility of the cost base. You mentioned that a few of the sites in China have closed down. When that happens, are you able to take any cost out, or do the vast majority of costs in that tend to remain? Thanks.
Okay. Sorry, what was the first one again? You got me.
WeWork. The first one was basically, have you seen them become more rational on price or on the service offering?
The short answer to that is absolutely. All things rational as far as they could. Remember, they've got a lot of people still and a lot of inefficiency, and so it takes time for the message to get through. Absolutely, yes. The playing field got even. That's also very helpful. In terms of mitigation, if you come back to China, if you look at the cycle of China, I believe that in China could be a better outcome than other places because the Chinese government were able to get a hold of this thing. Not at the beginning, they got a hold of it pretty quickly. At the worst for us, this is over a very short period of time, just six weeks, we have 140 centers, just to give you numbers.
90 of the centers were closed for a period of a week. Some a few days, some a week, some two weeks. We only have 28 closed, and they are all in Hubei, which is Wuhan and Chongqing, which are the two most badly affected areas. We expect those to reopen again quite quickly. It's quite a short period of time. It takes a while for the customers to come back in. The major impact is actually on that top part of the revenue, which is occasional revenues, which reduce. They don't go away. They're just less. Mitigation. We have a full mitigate, and effectively, you can mitigate quite some of the costs, not all of the costs. The key one, of course, is the rent. In China, pretty much no one's paying rent.
You just have a period where you've got to have a discussion. That is the mitigation. This is a time when it's very bad, everyone works together. It's not confrontational. Everyone needs to be there at the end, so people work together. Even in China, that's definitely the case. Next one's probably going to be Italy, and so on. Again, we've gained experience. We know what to do in these cases anyway, and we are prepared and ready to go. We're already doing it in China. You just got to act quickly. This is stuff you got to do immediately. You can't sit around and do it a month afterwards. You got to do it as it's happening.
Okay.
Hi. Daniel Cane from Toscaf und. Of the 40 possible transactions that are under discussion, can you tell us how many involve disposal of existing assets?
I would say 30 to a half. That sort of range.
Can you tell us what percentage of 2019 revenues they represent?
I can't. Again, you have to be patient. I'd love to be able to tell you, but I'd like the deals done. I'll tell you. What we don't want to do is lead expectations here, and that's why we've come back every time to, this is a two- to three- year program. It's going to take that time, from the beginning to the end, to get everything done. We've got great momentum, a lot of interest, and we've got some very good people working on it. I'm confident we'll achieve it. The timing is the thing, and in particular with what's going on, that may cause some slippage. I don't want to get hoisted by our own petard by predicting any numbers at all.
Hi, Sam Dindol from Stife l. Three from me. Firstly, you just said 28 centers are closed in China. I don't know if you can give the global figure from the coronavirus perspective.
That is the global figure.
That is the global figure. Okay, thank you.
Sorry. Number of centers. That can change on a day-to-day basis. Remember, some of them, and some of you may have already experienced it if you're in Canary Wharf. Basically, this could be not even your part of the building, it's some other part of the building. You've got to disinfect it all. Today, that's what happens. It could be a closure just for a day while it's all cleaned. Again, we've prepared all of that, so if it happens, we get open again as quickly as possible.
Thanks. Secondly, on Spaces. Are you able to give the run rate revenues, whether we should expect that to grow ahead of group levels for the next few years?
Spaces. Yeah, they'll be ahead. We're opening other brands as well. It's just that, Spaces, we're doing larger centers with Spaces. Overall, whilst the numbers of centers are about 50/50 still, they're larger centers. It becomes more of group revenues. Return on capital, no different. In other words, we just do all Spaces, no Regus, which are the two main growth avenues.
Finally, on franchising, I think Japan was sort of GBP 90 million sales, GBP 20 million EBITDA business. Just looking at the accounts for FY 2020, how will you show that in your accounts? Is that just your share of EBITDA as a line or how will that be shown?
Yeah. I think the other thing, we talked at the beginning about IFRS 16. We do need to work on our accounts as well because they become very complicated because of all these different accounting standards. Over time, one of the effects is that at the end of it, you have almost no IFRS 16 because the lease liabilities aren't there anymore. It'll make the whole story a much simpler one to understand, which I think has been, if I look back over the last decade, is the complexity of a growth business that's returning money to shareholders and investing more money. There's lots of things going on. You end up, as we franchise, with a much simpler investment proposition that is easier for investors, we believe will be easier to understand, in particular in light of IFRS 16 and other things that are brought in.
Questions. Any more questions? Andy.
Just one quick follow-up on franchising. I know Monaco and Gibraltar are pretty small, but could you share any financials with that in terms of EV or sales or centers, please?
I could, but I'm not going to.
No is the answer.
No.
I think it's a similar.
I mean, the people that bought it are the same people that bought Switzerland, it's Safra. It's the same as Switzerland, pretty much. Very small.
We've chosen clearly when it comes to these types of size transactions, don't make a fuss about it. I don't think it makes sense. These are small members. I think the other one, it's quite a private group, who is our partner there. Obviously, just a group, but quite a private group in Switzerland after also. It feels logical not to. No detail, think too much about it.
It's an extension to Switzerland more than anything else. I think they've also got Liechtenstein as well, actually. Which we don't have anything, but they bought the franchise area for that as well. Anything else, ladies, gentlemen? No? Well, thank you all very much for your patience this morning, and thank you for coming.