Earnings Call: H1 2021

Aug 10, 2021

Hello, and welcome to the IWG 2021 Interim Results Call. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded and for the duration of the call, your lines will be on listen only. Call. Conference. I'll now hand you over to your host, Mark Dixon, to begin today's conference. Thank you. Thank you. Thank you, operator, and welcome everybody to today's webcast call. I'm joined on the call today by Glyn Hughes, our Chief Financial Officer. Well, look, the first half of twenty twenty one has been something of a continuation of the unusual times we've all had to navigate over the past 18 months. So the first half Really, 2 very contrasting quarters with the impact of the pandemic still being felt in our business in Q1. But by the end of Q1 and the start of Q2, a very clear inflection point as our business starts to recover with some momentum. So from the worst of times, the business is now moving to better times. Throughout that time, we never wavered in our strong belief in the very positive medium and long term outlook for the business And for our industry and even more so as we move into a post pandemic world. This will be a world where work in the future will become a much more flexible and a much more hybrid type of working. And in that environment, So let's look at some of the financial indicators here. And although year on year revenues are clearly down, The sequential quarter on quarter performance shows a very encouraging trend with revenues higher in Q2 than Q1. All of this driven by a month to month improvement in occupancy since March. And with occupancy going up, we're now able to See very clear movements in pricing, and this is coming about by us reducing some of the discounts and aids that we gave to our customers during the pandemic period. As they go away, Pricing starts to come back. So very strong performance on new sales going into the forward order book. We've also continued to make excellent progress on our cost reduction program. Call. So excluding costs associated with growth of our new centers, we've reduced costs in this half year compared to the same period in 2020 by approximately $190,000,000 And by the end of the year, we estimate that we will have taken Approximately $320,000,000 of cost out of the pre growth business. We have reported a positive EBITDA on a pre IFRS 16 basis. And this reflects the improvement we've observed in Q2. You can see this in the small chart here call. And we've also made really good progress in our pursuit of capital light growth With net spend at about 40% of last year's level, and as I've mentioned on several occasions, this is this spend is mainly coming about Because of the overhang of deals that we had signed up some time back, the real performance of new growth is excellent. The average performance, Which you can see here with 40% of last year's spend, but producing about the same space. So we're getting about 2 times the growth So 2 very different quarters and to emphasize yet again on this contrast, quarter. We saw that very, very clear inflection point. But as we noted in our June update, the pace of recovery We're slower than we had originally expected as new COVID variants emerged in various parts of the world. But in spite of these variants, occupancy has grown and continue to grow And we can see it growing into the future. And with that, service revenue is increasing. And as I've already mentioned, positive momentum also on pricing. And that momentum on pricing saw in June for the first time, the average new selling price exceeding the average embedded price call. And this was the first time we've seen this in 18 months. And although it takes time to watch through, bearing in mind, Our average contract length is 11 to 12 months. It's very much a move in the right direction. And as we've talked overall Of our expected recovery trend, this is the price is the most lagging indicator, but good performance now. If we can continue to do that during the second half and into next year, It really sets us up very well for 2022. Call. So all of these things are still together giving us cautious optimism for The second half, we've got a very strong base of recovery here. So We've got a business that's recovering. We've also got powerful structural tailwinds that are going to help us this year into next year and in the years to come. These tailwinds have been around for some time, But they've clearly strengthened over the past year and a half. And the coverage in more newspapers, TV programs and so on. I've personally done 3 or 4 TV appearances really per week Over the past 6 months and that interest is not going away. There's very much a permanent shift in our direction And you can see it in the unprecedented interest that we can see in our industry. So the vast majority of firms out there today are considering new ways of working And many are doing it. They're doing something about it. So How do we know this? The conversations we're having with companies, and I'm going to talk to you a little bit about that in a moment, are becoming more frequent. Inquiries and sales conversion have now reached to pre-twenty 19 levels. So remember, we're still We haven't exited the pandemic yet. Things are quite tough in some parts of the world, but our inquiries and sales And now back to pre-nineteen or pre pandemic level. So we're in a very good position looking forward. So again, this is another reason for our optimism for the rest of the year into 'twenty two and onwards As more and more companies look to just convert the way they work and move much more onto a platform working much more flexible basis, much more spread and remote working basis for many firms will become the norm. Call. In spite of this, it's worth noting that whilst we are seeing a very good recovery, many of our competitors Who were not in a great position, let's say, prior to the pandemic are starting to Really feel it. You really needed to be in a strong financial position to make your way through this crisis. And even though we're closer to the end, we hope than the beginning, there are quite a number of competitors that have run out of capital And we are working to consolidate them, acquire them, take them over. There's a lot of options out there. So we're getting some quite good traction here, which is pleasing. So if we just take another look at these drivers and just step back a moment and just so in the end, our business is Quite a simple one. You can see here the indicators are all pointing now in the right direction. So occupancy is improving. You can see that very clearly improving month on month as we go through You can see that the embedded price starts to flatten out. So price, even When occupancy goes up, can still go down because you're selling price into the future. But now with the price flattening and the embedded price starting to move up on average, this is a very strong sign for us. And then you can see that the We go through the quarter. And again, this is reflecting a move from more and more firms to a more remote and a more hybrid type of working. And this is one of the clearest indicators that you will see in these numbers. That's why we've added them in for you. So strategic objectives, look, we it's been a difficult year, 18 months, but we have continued to progress against our strategic objectives, which were to continue to develop enterprise development, overall strategy to continue to grow the network. This is critical. We know what companies want is coverage. Coverage wins the day every day. And we need to grow the network whilst reducing our requirement for capital to do so. And then we need to manage costs very carefully. And again, I think we've done a good job here with more to come. So if we just look at these in a little more detail, first customers, It's enterprise customers and customers overall that are driving The revenues and the company's development. And we've had questions earlier on in the year, especially as we started to announce more significant deals with enterprises. And we were talking about the numbers of members that would be using the network or that we're signing up to the network. And I've added this slide in to just give a bit more explanation. I'm going to talk a little bit to a few customer studies in a moment. But So customers, enterprises are using us for a whole variety of products. Even though we may talk about Large numbers of members joining. What they really use us for are these types of product here. So hubs, Drop in, which is day to day use, short term use of meeting rooms, day offices and collaboration suites, Projects are going on in spite of the pandemic and then smaller local headquarters and localized offices. We're seeing a lot of those as companies change The way they set up their companies to support people more locally. And then we're seeing more of a movement now to total space management solutions where we're starting to run not just offer products in our own space, but we're starting to offer management of corporations' own space using our technology. And we've got a number of customers that we are serving now and we've got quite an interesting order book that's starting to develop here. So there's a whole variety of products within these groups that make up our revenue. But it's when companies use us, they're not they're rarely using us for one thing. If you look at one of our biggest clients, They are using us in over 6.50 of our locations in 27 countries. And thousands of our clients are using the network across multiple centers and multiple countries. So it's There is no single rule, but what we are seeing very definitely are companies that are engaging more. We're winning new accounts. We updated the market on a few of these as we've gone through the year. These accounts may they start small or they can start large, but they take time to develop and I'll show you that in a moment. But in the first half, we added 900 new enterprise clients during that period, and that's a record. So we've got just significantly more enterprises joining us and that has been occurring throughout the first half. Also, we've been expanding existing Here's just a few of them. And well over 1,000 of our existing corporate customers significantly increased So look, a few customer examples. And as I've explained before, it's quite difficult for us to give you customer names, because customers clearly are reluctant for There are office strategies to be revealed. So here's just a few examples. And the key thing to pick up From the eight examples that I'm giving you, these are companies that were not using us last year or very had small implementations That are going to multiple locations quite quickly with significant contract values. And so These are across all parts of the every sector. We've got consulting, We've got services providers, IT infrastructure providers, pharmaceutical and on the next page again more technology and then Aerospace and Defense. And you can see here customers expanding number of locations and spend call. And overall, it's across all sectors. So we've got very good movement here. Coming back to the basics, everyone's talking about it. People are inquiring, learning And our sales force are converting and it takes time to develop. But now we've got simultaneous development of lots of companies At the same time, and this is one of the things that underpins our outlook for the second half, continue to develop in spite of a continuing pandemic and into 2022 We expect to see even more wins and expansions occurring. So demand, we're very happy with. The area under management It's also growing strongly. And it is important that we understand that we need to meet A growing demand in the market with more network coverage. So even in this first half, a very difficult half call. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Our Our gross space now exceeds 64,000,000 square feet and we believe that in the second half of this year We should grow the space under management or area under management at about 10% to 15% annualized, that's the annualized growth rate. So that would be a very strong growth rate in the second half. Underpinning this, We're seeing record levels of franchise and management agreements. So these are various capital light as you can get. We've signed some fabulous franchise agreements since the second half. We'll update you on those in the Q3 results. And we've also signed a very exciting MFA joint venture with Hisan So to further develop the Hong Kong and the Greater Bay Area, that's the Greater Bay Area diner. Again, Go into a bit more detail on that later, but these are very exciting developments that help us get more coverage. And as I mentioned earlier, we're also seeing excellent opportunities to take over customer competitors and locations. You can see a few of them here. Some fabulous buildings where competitors have pulled out and We've managed to take these over. And this is occurring in many countries, and we've got a very busy order book in the second half for more of these. And then you've still got more center openings, Again, many of them on either management contracts, joint venture or on a franchise basis. So Lots of exciting developments and we've got things definitely moving in a very attractive direction there. So Capital Life Working, absolutely. It is quite difficult to read this graph, but That very thin black line on the graph, we should have made it thicker because it's a great indicator. You can see the number of square feet added for the cost and you can see that sort of hit the very much the green button in the first half with more square feet being added for less investment than we've ever done before. You can see also on the pie chart that the well over a third already of The estate is now either franchised or managed, so much lower Risk profile, much less impact on IFRS 16, etcetera, etcetera. We expect that to continue apace During the next 18 months with that pie chart eventually Three quarters of it being off the balance sheet, let's say, and only a quarter on. And we We're very confident that we can do this. So again, this is a very important slide. The key in this business is to be able to grow the network and make our capital go much further. We are doing this. A key part of this franchising and we continue to build up momentum with this strategy. We added some really great franchise partners call. In the first half, I've spoken to every one of them. We've got some fantastic business men and women joining us who pretty much universally have excellent business experience overall and very strong local knowledge of their markets. And we're not only signing them up, we're opening some very, very successful centers with these franchisees who then, of course, After one successful one they want to get on and do the second, the third and so on. So we've got good momentum both in signing people, Getting centers open, supporting them and then opening more with them. And this will just gain more and more momentum as we go through this year and into next year. We're doing this in many countries. It's not just one country. And I think importantly, we're starting to gain momentum in the U. S. Our first deal was done in the U. S. In the first half year. A lot of interest in franchise as well. So we're again part of this overall interest in the sector call. It's also helping our growth strategy, bringing in more partners who want to work with us. So a few words on the JV with Hisand. This is an MFA we're retaining a minority stake. And this is really a meeting of A specialist in this market and the Hisan have a huge amount of skill and history in the Hong Kong area and the Greater Bay Area of China. They have significant developments. We have been partnering with them for a long time and this just formalizing it, it's formalizing it more. So the objective here will be to grow into this area. It's a very high growth. It's got a population of 90,000,000 and it's really one of the key hubs in China. So we're very much looking forward to A more rapid development here with our partner. It also brings us some significant capital for The part of the business that we have sold, so it is an MFA in that sense. But the key deliverable here will be additional growth in this exciting part of our world market. And with that, Glyn, I'll hand over to you. Thank you, Mark. Call. Good morning, everyone. Hopefully, you've had an opportunity to look at our results this morning. Clearly, as expected, year on year, the results are down primarily due to the pandemic. Encouraging, however, as Mark alluded to, call. It's a momentum that we've built in the business during the Q2. Revenue from Oakena Sensors in the Q2 was 3.4% higher than quarter 1. And in the like for like pre-twenty 20 estate, Q2 revenue was 1.5% higher than Q1. Call. So all in all, trending in the right direction and largely driven by occupancy improvements, which improved 120 basis points Q1. We're also seeing encouraging trends in pricing as lower levels of discounting have been required relative to the prior year. Call. As Mark referenced, in June, we saw the average new sales price exceed the average price embedded in the forward order book call for the first time since the onset of the pandemic. We've made good progress in our strategy to reduce costs, achieving year on year savings, excluding growth in property and non property costs of approximately €190,000,000 in the first half relative to the first half last year. EBITDA on the mature estate of almost €64,000,000 was pared back to €5,400,000 call. Moving to the revenue bridge. Call. This slide shows the revenue bridge for the first half twenty twenty when the pandemic only kicked in during the Q2, So providing a tough comparative for this year's interim results. On a constant currency basis, We lost $80,000,000 of revenue due to the impact of lower occupancy and a further $98,000,000 due to pricing and customer support measures. Call. Despite these challenges, we continue to invest in the business and these new centers added over $53,000,000 of revenue in the first half. The network rationalization program resulted in a €71,700,000 reduction in revenue. After negative impact from currency headwinds, interim revenue for the half reduced from £1,300,000,000 to just over £1,000,000,000 call. We've made good progress in taking costs out of the business. Excluding costs associated with new centers, We have visibility of reductions in our annualized cost run rate by approximately €320,000,000 €190,000,000 was achieved in the first half and a further €47,000,000 was already recognized in 2020. The remainder is to come. Call. The key components in achieving these savings have been the actions we've taken to close centers that were not profitable, to renegotiate leases call. And to instill a more disciplined approach to expenditure in the business, particularly rents. The cost bridge shows the main buckets of €190,000,000 of savings. We've made good progress in taking costs out of both overheads and center related costs. £144,000,000 of property related savings, twothree from closures and onethree from rent savings in the pre-twenty 20 estate A further €46,000,000 from product costs and overhead savings. €68,000,000 of call. This cost save is offset by the cost associated with new center growth. Finally, we'll take a look at the cash flow bridge. Call. We closed the period with net debt of $414,600,000 having started the period with net debt of Slightly in excess of €351,000,000 As previously disclosed in the Q1, we had a significant outflow of cash relating to the deferral of prior year rents and other expenditure. These rent related outflows resulted for the conclusion successful negotiations with landlords. We've also seen some natural working capital outflow as occupancy declined, call. And as previously disclosed, we received GBP 284,000,000 in relation to the return of monies from an aborted acquisition. Call. I'll now hand the call back to Mark to conclude. Thank you, Glyn. So We've navigated through extremely difficult market conditions, but we're now seeing encouraging trends in the business and we can see forward trends In more adoption of flexible working practices and hybrid working practices has given us a very attractive market future. We can see a very clear inflection point in our business At the end of the Q1, which has continued, so the line has continued to progress right up to today's date. We're seeing unprecedented sales activity as the structural trends we've discussed on many occasions strengthen. And we're seeing lots of good opportunities to grow the business itself by adding new sites, getting far more bang for our pound or our dollar than we've ever seen before. I think most importantly, and as Glyn highlighted, We've shown how it is possible to restructure a business in the most difficult of circumstances During the past 18 months, not only restructure it and reduce costs, but also grow it At the same time, and I think we have a much, much more efficient business as we go into the second half We're going to see significant growth as we go through the rest of this year and into next year. So I think we're well set up for the future. Call. Clearly, the pace of recovery will be determined by the continuing easing or imposing of restrictions, but we do look forward with cautious optimism. Even where we are seeing restrictions We're seeing no worse than flat. And no worse than flat is good. On average, if some locations are flat. We have many that are progressing strongly, so we get an upward trend in the business. So for the time being, we remain very cautiously optimistic in spite of Quite an uneven situation. If things move back to normality, then we're I think we're well set for a more accelerated recovery. But for the moment, we remain cautiously optimistic, not optimistic. Call. So with that, I thank everybody and hand back to the moderator for any questions. Thank you very much. Call. And our first question comes from the line of Michael Donnelly from Investec. Michael, please go ahead. Your line is now unmuted. Thank you, and good morning. Three quick ones on Hisan, please. First of all, Mark, in January, call. You spoke about the 2 rescue takeovers of WeWork Hong Kong Centers. And were all the 32 in today's statements, were they WeWork Centers or historical IWG Centers Or a mixture of both of them. That's the first question. The second one is will Hisand 100% of the growth CapEx in the JV call. And the final question is, can you just remind us how many centers you have in Mainland China, not including the 32 in today's statement. Thank you. Thank you, Michael. Look, we subsequently took over a third WeWorkCentre in Hong Kong and all of those centers are within the HiCent joint venture now. Going forward, we will jointly fund And but we will follow the same strategy that we're using elsewhere in the world, so there'll be more joint venturing, more franchising and so on. And in terms of Greater China, There's about 100 more centers that are not in this group. My question is from the rest of Mainland China. Call. Thank you. Thank you very much. Our next question comes from the line of Steve Wolf from Numis Securities. Steve, please go ahead. Your line is now unmuted. Good morning all. To follow on to Michael's question on Hisan. You mentioned, obviously, they're putting money in. Should we be thinking of this in the same way that we did with Switzerland, Taiwan, Japan in terms of what they might have call. And then could you outline sort of the committed growth targets you've got Relative to the 32 under management that we're looking at 3, 5, 10 a year as opening. And should we think again also that the type of deals going forward. Will it be more the likes of a Hisan? Or is it other sort of infrastructure funds or deals that you've done call. Already, you'd say, Japan, Switzerland with those type of customers. And then secondly, in terms of the expansion. You mentioned the run rate of 10% to 15% annualized locations by the end of the year. So should we be thinking about 3rding 300 to 4 50 locations gross next year. Is that how I understood it? Thanks. Okay. That's a lot of questions there, Steve. You're going to make me work. So first of all, the transaction It is similar to Switzerland and to Japan in terms of multiples, values, etcetera. The only difference is that we've retained parts of the business. We are Very happy to do that in this particular market. It's one of the most dynamic markets in the world at the moment. In terms of the growth in that market, I think that was your second part of your question. We have a business plan to grow that business. But as I've said, we will grow it We'll do more partnerships will be the likelihood here. So the existing partnership would grow, And we'll be bringing more partners in this market. It's a very well established real estate market and there's a lot of interest in New ways of working. And we our objective is to capitalize on that here. Remember, it's 90,000,000 people, and this is one of the wealthiest concentrations of money and business development in the world at the moment. It's the engine room of much of China. In terms of other deals, we have a whole variety of discussions that continue to take place From very small to medium size and none of them are the same, Steve. It really depends on A whole range of questions. Who is the partner? What can they bring? Do they want to take all of it? I'll be consolidating with other operators in order to do it. There's a whole range of questions. There's not Any single role here. I think what's happened over the past 2, 3 years since We started to follow this program is that we've learned a lot more about the art of the possible. As we talk to more people, We become more creative and we get more tools in the toolbox in terms of how we can grow the network. And so in answer to the 3rd part, other deals, yes, there will be more. And but there is no single rule as to how they will come out. And then in terms of the That's a very good question. I think we need to Glyn, I think we need to do a bit more work on that. What I don't want to do is to start to put expectations out there in the market until we're very clear about them. What we can see at the moment is a lot of opportunity as you would expect. We've got strong movement on the demand side And we've got strong movement on the supply side. How that ends up looking in 2022 question. I'd like to do more work on. We're more confident about the second half of twenty twenty one. Bear in mind, we're already 2 months into it And we've got a lot of much we've got a lot better visibility of what's going on here. But so we will look to clarify that in the next few months and give you a better and clearer picture on next year. And really it's not just about the growth, Steve, it's about the cost of the growth. It's about the effects of that growth on our balance sheet, the drag on profits, etcetera, etcetera And the IFRS 16 effects, all of those are the questions really. And it's the return on any capital we do invest, what does that look like? What you will see, and I can say this with confidence, is a much higher percentage of the growth being franchise and that's the more franchisees we partner with this year, they begin to open census And that really is, we are, there's a more and more visibility from these partners both in signing them up and in the opening. And so that I think will be the more franchise partners we have, the more growth we will have in the future And the business will start to look quite different. The pie chart that I showed you in the slides earlier will move rapidly on to a much more of a franchise business than an operating business. I think That's a key part of our strategy, and it's a key part of releasing value, I think, Steve, in the future. Okay. Thanks, Mark, just then just to cross check back on the presentation, the run rate 10% to 15% annualized by the end of the year. Yes. Specifically, what's that 10% to 15% then referencing? That's the number of Square meter square feet added in the second half. Got you. Yes. That's great. Right. 5% to 7.5% added in the second half annualized due to 10% to 15%. Thank you. Thank you very much. Our next question comes from the line of Andy Grobler from Credit Suisse. Andy, please go ahead. Your line is now unmuted. Hi, good morning. Just if I could follow-up on Steve's question from earlier. Call. I guess, I mean, you said you can do a bit more work on this, but if you can give us a bit of guidance about the potential cost of that growth going forward. If I look back 2019, I think you opened about 200 centers and there was a cost of €80,000,000 €85,000,000 at the EBIT level from growth. Is that going to be meaningfully different? And can you kind of give us a framework to think about that as you shift more towards franchising going forward. Secondly, in terms of pricing, you've talked about some of the momentum there. Can you again talk a little around the competitive environment and what your competitors are doing from a pricing perspective, I. Are you seeing different dynamics than much of that competition? And I guess, added to that, how much of the pricing pressure we've seen In the last couple of years is permanent reduction in pricing and how much of it is temporary? Thank you. Okay. Right. So first question, okay. Cost of growth, Meaningful reduction, Steve, Andy. Yes, meaningful reduction. You can see it already in these numbers. If you look at the bridge and the sort of cost of the drag from growth, it's much smaller. The only reason it's there at all is because These were centers that were signed up some time back that happened to open in the second half. There'd be much less in the sorry, in the first half. In the second half, there'd be less Next year, very few at all. So the drag will be meaningfully less. There'll be some, but it'd be meaningfully less like next year. You'll have a lot more franchising. Glyn and I will do some work so that we can give a better indication for that. But you're getting that's the chart that I put in there where you can see The amount of square feet you're getting per dollar will continue to go up and that's a really key indicator. So it's not just the capital, it's the drag as you quite rightly say that starts to go away and Your profits are then out in the open. So meaningfully different, But we're set fair for that even as we speak today. Then pricing, there's a very broad question, Andy, very, very broad. Overall, Look, our pricing is improving, which It's not our pricing improving, it's our discounting becoming less. And for us, the important Rubicon that we need to cross was that we're selling our embedded book of business starts to go up and we're doing that now consistently. Now that's on the back of strong demand for our network. And again, I refer you back to my slides where you can see companies using us across many countries, many locations and growing Their implementations with us, this is critical in terms of how I'm going to answer your question on pricing. When companies are using this on a meaningful basis, the spot price is less important. And they're looking for an average across the network as opposed to one office in one place compared to competition. In terms of where the competition are, there is still heavy discounting in the market, in particular In some of the CBDs where there is an oversupply without any question, because We're still in a position in some CBD markets where even though people are coming back, they're not coming back in enough numbers yet to meaningfully fill up the inventory. So there is pricing pressure in some of those markets. But even in those markets, We have reduced our discounting levels. And We have also, again referring back to our slides, very significantly reduced our breakeven costs in the CBD markets. This is where we've taken a forward view on rents, and we've reduced down to what we think The market will go to in the future rather than the sort of somewhat artificial market that people are talking about today. So we've taken very, very cautious view as to what future rents will be and so on. And that also helps us, Helps us be more competitive, clearly, helps us on the margin and helps us to make a margin where others don't. The provincial markets, again, we have The strongest network provincially, suburbs, countryside, these markets much less affected by price. There we've got much more pricing strength, if you like, than we do In a few of the CBDs, this is getting limited to a few markets. Overall though, I mean, I think the key here, Andy, is at times like this where the global network Nature of our network really pays off because referring going back to my comments, Look, we've got very difficult circumstances in a number of countries today because of continuing restrictions. But even in those markets, we're trading flat, which is very pleasing. But we've got a lot of markets improving. We've got countries improving. We've got the suburbs And the countryside also improving from a stronger base. So it's that sort of variety of outcome Okay. Thanks, Mark. Can I ask a follow-up? Just you mentioned about people coming back to cities or towns or whatever. How do you manage it if they used to be on a kind of full time basis and come back to you and say we just want to be in the office for 3 days a week. How do you balance that out? Is that practical or can they not do that? They can do that and it is practical and they are doing it. Look, it's a simple thing. It's something called mathematics. So this it's basically yield management. It's simple as that. So some days that we can more attractive than others, but the price that we need, We have to gain on the days that people want to be there. So if people want to use come in and use an office for 3 days a week, They effectively are paying for almost a week when they pay for those 3 days. It's not we don't divide the price up Into 5 or divided by 5 and charge that, that would be not possible. In terms of the way the pricing works and the mathematics of this pricing, we've done a lot of work on this, and we will In the end, it's a margin business. And part time use, Some people want that. We have no problem with that, but it's a different pricing mechanism. Okay. Brilliant. Thank you. Thank you very much. Our next question comes from the line of Andrew Sheppard Baron from Peel Hunt. Andrew, please go ahead. Your line is now unmuted. Great. Many thanks and good morning. And by the way, congratulations on all these bridges and the sort of disclosures of embedded price, Etcetera, very useful indeed. Thanks. Just one micro question on those and then a couple of other questions. Firstly, can you just square with me, As I understand it, you've said that occupancy in Q2 is 69, therefore in Q1 it was 67.8. This is for the P-20s. But in Q1, you disclosed that as 66.4%. So what is that? Is there something Some change in definition or some such. But then beyond that, could you just talk a little bit about the time Scale of the time when you think you can get conventionals down to 25%. I think you said Rapidly in sort of some relation to it. I mean presumably that is going to need the U. S. To really fire up and adopt the franchising model. And thirdly, from me, just on the enterprise clients. When you talk about contract value, can you just say, Is that would that be more than 1 year, I. E, we can't just take that as an annual incremental sales? And related to that, What would be the annual sales value of, say, your biggest client? Thanks. Okay. First of all, that technical question on occupancy. Glyn, I'm presuming that's mature to gross, Yes. Well, there's 2 elements. There's a difference between total business and mature. So mature occupancy is typically 200 bps Hi, the total estate. We've also taken the opportunity, which is contained within the press release to disclose The factory square footage or square meter occupancy alongside the workstation metric that we've used in the past. So we provided the comparative data for that. Internally, within the business, we always reference the kind of square meter metric, And that's what's referenced in the trading on the front page of the trading statement. Okay. Thanks. Right. That's 1. Time scale. Let me just talk to this time scale. The majority of growth going forward will be In capital light, franchising, joint ventures, management agreements and the like. If we it's just simply growth rate Over a period of, let's say, 3 years, if the majority of deals are done on that basis, Andrew, You have a total growth, let's say, of 50%, possibly more. And that in its own right will reduce down The amount of sort of leasing that we have on the book. If you then add to that continuing MFAs of various types, That, in addition, will also drive that number down. So it's realistic call. To be looking at a converted business, you will be meaningfully sort of capital light and risk light, if you like, by in 3, 4, 5 years' time. If we continue to do what we're doing now and what we are seeing in the order book. So my expectation would be even on 3 years, It will be meaningfully different and it's just strength of numbers. And in particular, the franchising, the more partners we get, They start to open. We've had quite a few of the early franchisees have open their centers and then bought new areas. And they're now opening those. You should build up more and more momentum In that average, it's standard franchise practice, but that's cumulatively We'll start to make a big difference as we go into the next few years. In terms of contract value, That will be the total contract value from those customers, which could be more than a year, but most of it isn't, Andrew. Most of that would be, I'd say probably 85% of it would be within a year, Less of it longer term. So, you know, answers that question. That's an educated guess. I can't be super specific on that. But just the nature of those contracts Okay. And the biggest one within that, how much how big would the biggest one be, do you think? The biggest one would be around about again $10,000,000 something like that. So It's about a third of a percent of our revenue type thing. Yes. Okay, great. Many thanks. Thank you. We do have more questions on the line, if you'd like to take them. Of course. Question. Excellent. Our next question comes from the line of Daniel Cowen from HSBC. Please go ahead. Your line is now unmuted. Call. Good morning. Can you hear me okay? Yes. Good morning. Thanks for the call. I was going to ask about your enterprise clients, What's the average stay for an enterprise client versus sort of a perhaps a smaller SME client. Is there any noticeable difference in the tenure of these bigger clients? I appreciate this situation, but any differences in behavior there and particularly the duration of the stay? That's the first question. The second one is also on enterprises. I know you've mentioned in the past the cost that you might have had to put into the business to support the growth in enterprise. Can you give us an idea of How much there might be or where you are with adding resources to the enterprise part of the business. And my last question is on M and A. I don't know If it's just me, but you were sounding perhaps a little bit more cautious on M and A or at least the pace of M and A When you spoke to us back in June, Mark, and you're sending a bit more upbeat on that or perhaps As if there's maybe something more imminent now, has anything changed since June apart, obviously, the passage of time? But is there anything that has changed that's perhaps making things easier for you on that front? Okay. Let me deal with the third one first. So this M and A question. I mean, look, We have a significant number of discussions that are going on. Nothing has changed though in the last 2 months. So I think overall, what we're endeavor. Endeavoring to do here is not to overpromise and underdeliver. So this is M and A In its broadest sense, Daniel, it's not these are not significant transactions They are, all of them interesting. And again, they have They fulfill our key objective, which is capital light, growth and coverage. And so lots of stuff going on here. Will it move the bar? Yes. And cumulatively, They could move the bar in second half of this year and into 'twenty two. But there aren't significant Like cash hungry big transactions that are sitting in here. There's a lot of takeovers and a lot of consolidation. Then dealing with enterprise customers, the reality of enterprise customers is they're extremely sticky Because we have the only functioning global network, so once we establish a relationship and we deliver It's not the same people in the same places all the time, but these relationships go on for many, many years. They're not And they will continue to go on until there's another valid global competitor that competes with us. So their overall engagement with It's very long term and that historically has been the case as well. The times they're contracting for would be slightly longer than the average commitment stay. Coming back to Andrew's question earlier, they would tend to contract longer. They're bigger companies. Their planning is different to say a small company that would or a start up that would maybe only commit for 3 months or maybe a month Because they're not sure in which way their business is headed. So the bigger the company, the longer the commitment in terms of the contracts they may take out with us because their planning process is different. And then finally, on a cost basis, look, we've yes, we have invested in support for enterprise customers, support teams and so on and so forth. This but it's not significant Sort of overall investment is not something that we'd say we continue to invest in it and we continue to increase our investment, But this is really our sort of cost of sale being more efficiently spent with enterprise customers as we go forward. We are working on more marketing campaigns aimed at enterprise customers who are all interested. We want to make sure that at the same time they're interested, They know that we exist and that we can be used. So slightly more investment I think in marketing later on in Page 2, then on the sort of underlying cost of sale, people and investment. Call. Thank you. Thank you very much. We have no further questions in the queue. So I'll hand you back over to the hosts. Okay. Well, thank you all very much for your questions today. And thank you, Andrew, Sheppard, Bairn for those compliments. I'm sure that my colleagues, Glyn, will be very happy. I thought also that would be very helpful to bridge this. So thanks for that positive feedback and thank you very much for your time today everyone. And as usual, Glyn and I and Wayne will be available for any further questions during the course of the week. Thank you for your time this morning. Thank you. Call. Thank you very much for joining today's call. You may now disconnect your handsets. Host, please stay on the line. Thank you.