International Workplace Group plc

Good morning and welcome to the IWG First Half Results 2026 presentation. Hosting today's call will be Christian Schmitz, Chief Executive Officer, and Charlie Steel, Chief Financial Officer, supported by Mark Dixon, Founder and Executive Chair. After the presentation, there will be an opportunity to ask questions. And as a reminder, this call is being recorded. And I'll turn over the call to Christian to begin. Please go ahead.

Good morning, and thank you for joining us. I'm Christian Schmitz. I became chief executive in June. I'll take you through the first half and the strategy, and Charlie will follow with the numbers. I will start with the market. For decades, an office meant a long lease, significant capital, and fixed cost carried whether the space was used or not. That is changing. Companies want real estate as a service. They want to flex up and down. They want to pay for what they use. This shift is structural and we are still early in it. IWG is positioned for it. We have the network, the brands, and the platform. No other operator has comparable coverage. My starting point, therefore, is straightforward. The opportunity ahead of us is larger than the one behind us. And that is exactly why I joined IWG. This slide summarizes the first half. System-wide revenue grew substantially by 11%. Group revenue grew 6%. Company-owned revenue grew 5%. And recurring management fees grew 84%. That is our capital-light recurring high margin income, and it is growing fastest. We returned $100 million to shareholders in the half, and we have announced $150 million buyback for the year. We are reiterating our guidance for 2026 and our medium target of at least $1 billion of EBITDA. The strategy is simple, and it hasn't changed. Expand margins in company-owned. Grow fee income in managed and franchised. Build the most extensive coverage network in the industry. The shift shown on this slide is significant. In the first half of 2023, Managed and franchised was 12% of system revenue, 19% of locations, and 14% of rooms. Today, 22%, 46%, and 32%. Include the pipeline and around 45% of our rooms are managed and franchised. That is a substantial change in three years. We have achieved that while retaining everything we had already built. Company-owned created the brands, the customer base, and the coverage. And that is why partners choose to sign with us. This is our direction of travel. The hotel industry made this transition before us. The leading global operators built brands, distribution, and operating systems, then expanded those networks using third party capital and earned fees. We are following the same path. Rooms under management are climbing fast, and the recurring fees climb behind them as those rooms open and mature. The comparison on the right is instructive. The asset-light total groups earn 40-56% of revenues from fees. They convert 80-98% of EBITDA into free cash flow. They trade on 18-20 times EBITDA. We trade on 5 times. These businesses differ in important respects, and I would not claim otherwise. But the direction of travel is the same. Brands, distribution, scale, partner capital, and recurring fees. Turning to Company Out, where I believe the risk profile is frequently misunderstood. We run it as an operating business, center by center. We see occupancy, price, service revenue, and local costs in every single location. Where a center underperforms, we diagnose it and we remediate it. Where remediation is insufficient, we restructure, transfer, or exit. The profile continues to improve. 26% of the estate is now on variable rent. Pricing is dynamic and demand is drawn from a global platform spanning more than 100 countries. Enterprise is where our scale delivers the most value. Large companies are changing how they buy space. They want flexibility. They want to scale up and down. They want several products in many locations through one relationship. Very few providers can deliver that globally. We can. We also carry the full range of price points from value through to premium. Whatever the budget and whatever the requirement, we have a product that fits. And what they buy is one IWG, one proposition, one family of brands, one global sales channel. Every additional location therefore increases the value of the network to the next enterprise client, makes it harder for others to match. Coverage is a durable, competitive advantage. That is evident in the client base. 85% of the Fortune 500 users average spend is up 7%. And the Fortune 500 is only part of it. Our enterprise base runs much wider than that. 52% of our enterprise clients now use three or more of our product lines. The final figure is the one I would emphasize. A significant part of our growth comes from clients we already serve, taking more of the platform. Permanent offices, short stay space, meeting rooms, membership services. Those relationships deepen each year and deeper relationships are more durable. Sustainability matters increasingly to these clients and is central to how we operate. We recently published a detailed sustainability report setting out our work across this area. This is the right product at the right moment. And on the evidence of the last two years, there's more upside here than we have taken so far. Turning to technology. We already run a great deal of automation across IWG. We are now layering AI on top of it. There are three areas where this delivers value. We automate more internal processes so central costs do not grow in line with the network. Better data supports better pricing, better demand forecasting, and better occupancy management. Pricing alone represents a significant opportunity. Faster, easier, and more consistent service at scale in every location. We already have the scale and the data. The task now is to make the platform more productive so that more of our revenue growth converts into earnings and cash. Taken together, this is how I see the investment case. Growth is accelerating. Earnings quality is improving on two fronts. Company-owned is performing better and recurring fees are becoming a bigger share of the business. The risk profile is lower than the market perceives. Free cash flow is set to grow strongly as the investment we have already made matures. And all buybacks are steadily reducing the share count. To close, cash flow performance is expected to improve in the second half. The structural drivers are moving in our favor and we remain early in that shift. The capitalized strategy is working and you can see it in the numbers. Managed and franchised is scaling fast with over $2 billion of system revenue potential already signed. Company owned is growing revenue with material margin upside still ahead. And the model is resilient with increasing earnings visibility. My priorities are therefore execution, simplification and operational discipline. We will convert this growth into earnings and cash and we will do so consistently. The first half positions us well for the full year. I'm confident in our guidance and I look forward to updating you on our progress. I will now hand over to Charlie who will take us through the financial performance in detail.

Thank you Christian and good morning everyone. I'll now take you through the financial performance in detail, starting with the headline revenue in EBITDA delivery, then the two segments cash flow, leverage, capital structure, capital allocation and the outlook for the rest of 2026 and the medium term. The first half shows strong revenue momentum following our investment into getting the flywheel spinning and our focus in the second half is on converting that growth into cash flow and earnings growth. The first half delivered strong revenue momentum across the group. System-wide revenue increased by 11% to $2.4 billion while adjusted EBITDA increased to $265 million. Network growth remained very strong with 728 new centres signed and 425 opened in the first half. Managed and franchised system-wide revenue increased by 36% while recurring management fees increased by 84% to $35 million. Company-owned revenue grew by 5% to $1.9 billion, and we also returned $109 million to shareholders during the half, comprising $100 million of share buybacks and $9 million of dividends. All of this was done while maintaining our investment grade credit rating, a core part of our guidance. Our first half cash flow profile was affected by the transitory working capital changes around payables that were communicated at Q1, but underlying cash flow is strong, and I'll come to that later. Turning first to managed and franchised. System-wide revenue grew 36% to $535 million and gross profit increased by 48% in the first half to $90 million from $61 million. Within that, recurring management fees grew by 84% and franchising AV fees also continued to grow. Franchise fees are also recurring. So taken together, total recurring fees were $57 million in the first half of 2026. We ended June with approximately 358,000 managed and franchised rooms open, having added around 51,000 net rooms since December. In addition, there are 257,000 rooms in the signed pipeline. This gives us a total of over 610,000 rooms either open or contracted in total. This is also where operating leverage becomes important. As the estate grows, the fee base grows with it, and the capital required to grow the business is limited. That is the core attraction of this model. The open management franchise network is performing as expected, and the maturation profile remains similar across cohorts as can be seen from the chart. This is important because a significant proportion of the estate is still growing. As those rooms mature, they generate additional system revenue and, importantly, additional recurring fee revenue. The managed and franchise segment delivered $535 million of system revenue in the first half, as I've already mentioned. However, once the current open rooms are mature and those in the pipeline are open and mature, potential system revenue for the division is over $2 billion annually. This gives us very substantial embedded growth. That maturity profile also gives us considerable visibility over future management fee growth. Recurring management fees were only $7 million in the first half of 2024. They increased to $19 million in the first half of 2025 and to $35 million in the first half of 2026. We continue to expect $80 million of recurring management fee income for 2026 and $125 million for 2027. That represents roughly six times the 2024 level. It is important to point out the value of rooms is far more important than just purely the quantity. So the number to focus on here is very much the system revenue number and the recurring fees number that comes through from that. The growth has been driven by three factors. The maturation of the existing estate, the opening and maturation of the signed pipeline and new agreements have yet to be signed. There can of course be some short-term variation in the opening dates and the timing of maturity but the underlying trajectory remains very strong. Turning to company owned. Revenue increased by 5% to $1.9 billion. This is in line with our guidance of at least 4% growth for 2026 and this is only to the end of June. Adjusted gross profit increased 4% to $479 million. We are getting good operating leverage here. Rev par increased by 11% reflecting the pricing actions we've discussed previously. REVPAR has been driven by increase across all maturities as well as the closure of low REVPAR rooms and this is an encouraging combination. We have also completed Bolton Centre acquisitions at attractive valuations which provide additional opportunities for margin improvement as we integrate those locations into the IWG platform. Due to the phasing of CAPEX there's been some increase in the first half of 2026 but we maintain a total net CAPEX guidance of $150 million for the year for growth and maintenance CAPEX combined. As we've said previously we operate a flywheel business. At this stage in the year we spoke about incremental investments get the flywheel going quickly last year. This has delivered incremental gross profit in both the company owned and also the managed segments. I expect this to continue in both segments for the rest of 2026. You'll see the forward look on the managed segment. Today I also have contracted visibility to an incremental 30 million dollars in the company owned segment which drops directly to EBITDA. This gives 40 million dollars of additional revenue visibility without any of the initiatives that Christian has in place to deliver for the second half. Now the flywheel is turning we can also focus on becoming more efficient. Many of these cost efficiencies were executed in late June and July and again I have visibility on full year costs. I think we can do more than we've already done so that gives me a lot of confidence for the full year outturn today. On P&L The group has delivered high revenue, high gross profit and stable adjusted EBITDA outcomes despite the additional investment. Systemwide revenue growth was 11% to $2.4 billion, group revenue 6%. The increase in gross profit was offset by the planned increase in SG&A and the additional investment overhead and that's getting more efficient as I just discussed. The key message here is that revenue growth is there. The second half focus is on converting more of that growth into EBITDA, operating profit and cash flow. Cash flow is impacted in the first quarter by the transitory payments changes we discussed at the Q1 stage. Of the $83 million working capital outflow that you can see here, $87 million is linked to the reduction in accounts payable balance and the corresponding reduction in payment days that occurred in the first quarter. You can see that on the balance sheet where the accounts payable balance moved from $297 million at year end to $262 million at 30th of June. And that 30th of June balance includes additional working capital balances being added from the acquisitions. The important point is that this is a timing issue rather than changing the fundamental earning power of the business. We expect H2 cash flow to improve and look much more like Q2 and I've got a lot of confidence in that delivery. Net debt rose materially in Q1 because of that working capital outflow linked to invoicing automation and reduced supply of payment days I just spoke about. We obviously announced that at the Q1 earnings. In the second quarter, cash flow before corporate activities returned to a $36 million inflow. Net debt closed H1 at $880 million, up by $22 million in the quarter after buybacks, dividends and small M&A. We remain committed to maintaining our investment grade credit rating and we expect net debt to EBITDA to finish 2026 slightly elevated versus December 2025. The leverage move across the half is modest once you separate out the moving parts. Starting at 1.35 times net debt to EBITDA at the start of the period, the business absorbed maintenance capex, finance and tax, working capital, growth capex, M&A, non-cash financing items and shareholder returns. Even after all of those items, the half year position only shows a modest increase in leverage on a last 12 months net debt to EBITDA basis. The business has continued to invest, return capital and maintain a disciplined balance sheet at the same time. In July we increased the RCF to a billion dollars and extended it to 2031, so this is after the 2030 corporate bond is expected to mature. We also increased the 2032 corporate bond to 500 million euros from 300 million euros. The 2030 bond remains at 625 million euros and there are no refinancing needs until at least 2030 now. Fitch reaffirmed the investment grade credit rating in June and we remain committed to maintaining our investment grade credit rating. That gives us a much stronger funding profile and a very solid base from which to continue investing in the business and returning capital to shareholders. Our capital allocation framework remains very clear. The first priority is financial resilience. The second is investing in the business and then returning capital to shareholders. We announced a $50 million buyback for 2026 in December, upsized it twice to $150 million in 2026, and we've already spent $100 million of that in the first half, repurchasing 37.9 million shares and reducing the share count by 3.8%. That discipline matters because it means growth and earnings can be translated into a better per share outcome as well as stronger absolute cash generation. We have positive momentum into the second half and we're confident in the FY2026 out term. In summary, our guidance for 2026 is reiterated and remains unchanged. We reiterate adjusted EBITDA guidance of $585 million to $625 million. I've been very clear about how we get there from where we are today. Company-owned revenue of at least 4%. We are on track on that and actually slightly ahead. Recurring management fee income of $80 million. We are on track for that. And $150 million share buyback program for 2026. We still expect margin progression from increased scale efficiencies and we expect incremental EBITDA to translate into cash flow. So the message for the second half is straightforward. The business is growing, the mix is improving, the balance sheet is stronger and we remain confident in the full year outturn on guidance. We also reiterate our medium term adjusted EBITDA guidance of at least a billion dollars with a cash conversion ratio of over 50% at that point. And with that, I'll hand over to questions.