Workspace Group plc

It's great to see so many familiar faces here in our Events Centre in Salisbury House, and a big welcome to those on our webcast this morning. I'm Lawrence Hutchings, Chief Executive, and I'm joined today by Dave Benson, our CFO. This week, Monday to be exact, marks my first anniversary at Workspace. Our agenda for this morning, we have a high level overview of performance in the first half. I'll hand over to Dave to take us through the financials in detail. Then I'll take us through our first update on strategy since we launched back in June, which was five short months ago. And we'll then move to Q&A. It's been a very busy time for Workspace. The economic backdrop continues to be challenging, not least because of the uncertainty around the upcoming budget. So we are controlling the controllables and taking a series of actions to deliver the fix, accelerate and scale strategy that we laid out in June. We're starting with our focus on stabilising, then rebuilding occupancy. But before I go into that, I'll summarise the first half performance, including some early and encouraging success indicators. There should be no surprises on this slide. We are clear on our expectations. The performance in the first half has played out broadly as we expected. Back in June, I said things were going to get tougher before they got better. Let's start with the performance metrics. I'll highlight a few. On the light blue line, like-for-like occupancy is down, as we said. And that's driven a fall in rental income and also in valuations. Importantly, we've taken cost out of the business, so our admin expenses are down 5.6%, roughly £2 million annualised. We've held our dividend flat and it's well underpinned by our cashflow because we understand how hugely important dividend is to our shareholders. On the dark blue line, Dave will talk to this in detail, but our valuation movement has been driven by lower occupancy and contracted rent, along with a fall in ERVs. And this reflects our pragmatic approach to pricing. Although importantly, yields have held broadly flat, I'd like to provide more detail on what's driving the operational business. These are the interesting lead indicators that are referred to and they demonstrate our strategic actions are gaining traction. Conversion and retention are key and together they drive occupancy. Inquiries are down in a softer market, but our conversion is up 1% year on year to 16%, and importantly, in October alone, up another percent to 17%. Retention has also increased, and this is a key focus for us, and I'll go into some detail on that later. A new metric that we're showing this time is our NPS, Net Promoter Score. It's up 14 points to plus 47, which is a great achievement. Our rent per square foot is marginally up. However, that is mostly driven by these fixed 5% annual increases or first year increases that we have in our standard lease model. This is a strength of our business. And it means that we are never far away from some form of reversion opportunity. I'll hand over to Dave to take us through the financials. Thanks, Dave.

Thanks, Lawrence. And good morning, everyone. As Laurence says, we are operating in a softer economy and we are seeing some customers deferring decisions in the run-up to the autumn budget. But against this backdrop, as the top left-hand chart on this slide shows, we had slightly fewer inquiries in the first half of the year compared to the same period last year. However, As Lawrence will cover later, we have been working hard and the inquiry to deal conversion ratio has continued to improve. It's well above historic averages with a significant pickup in quarter two. As expected and highlighted in our quarterly trading updates, we have however seen a fall in like-for-like occupancy down 2.5%. largely driven by large customers leaving the Centro Centre in Camden. Excluding those vacations, like-for-like occupancy would have been down to 81.7%. Like-for-like average rent per square foot was broadly flat, reflecting our selected price reductions and promotions, which have helped to drive New Deal conversion and customer retention. Turning to the income statement, underlying rental income increased slightly, £0.5 million to £67.3 million. The total rental income was down 2.9% to £58.7 million following the disposals made over the last 12 months. This was partly offset by lower administrative expenses where we streamlined our support functions to deliver annualised savings of £2 million. Net finance costs increased by £1 million, reflecting a decrease in capitalised interest following the completion of Leroy House in October 2024, and also an increase in the average interest rate following repayment of £80 million of 3.3% private placement notes in August 2025. Overall, trading profit after interest was therefore down 6.4% to £30.6 million, with adjusted underlying earnings per share down to 15.8 pence. There were one-off costs of £4.5 million in the period, largely in respect of the restructuring of the support functions and the implementation of our new CRM system. And these, together with the decrease in the property valuation, resulted in a loss before tax of £71.1 million. Taking into account the trading profit performance and confidence in the longer-term prospects for the company, we'll be paying an interim dividend of 9.4 pence per share in line with the prior year. On the balance sheet, and notwithstanding the decrease in the property valuation, which I'll come back to in a moment, We've maintained our capital discipline with trading profit funding last year's final dividend and the proceeds from property disposals largely funding capital expenditure, resulting in net debt slightly increasing to £833 million with NTA per share of £7.21. So coming on to the valuation. Overall, we saw an underlying decrease of 4%. reflecting largely lower occupancy. On this slide, we set out the valuation movements by property category. On the left-hand side, you can see the valuation 30th of September, and on the right-hand side, you can see the movements in the period. In the first row is the like-for-like portfolio, which counts around three-quarters of the overall value. As you can see, the like-for-like valuation was down 3%, driven by lower occupancy, with the yield improvements largely offsetting a 2.3% decrease in ERV per square foot. We did continue to see smaller spaces performing relatively more strongly, with units less than 1,000 square feet seeing a decrease of 0.7% in ERV, compared to an average decrease of 3.6% for larger units. We also saw a significantly better than average performance in our high conviction and pilot sites, with the valuation of pilot sites down by just 0.4% and our high conviction down by 1.6% on average. Valuation movements in the non-like-for-like categories were also impacted by decreases in ERV, which in some cases were compounded by yield expansion, particularly in the southeast offices. Turning to debt, we continue to maintain a wide range of facilities with a spread of maturities, largely fixed interest rates and significant headroom. Over the past six months, we have successfully refinanced £200 million of bank facilities, extending the maturity until 2029, as well as extending the maturity of a further £215 million of facilities by one year. The facilities have the option to extend their maturities by a further year, as well as increasing facility amounts subject to lender consent. Overall, this gives us significant flexibility with no additional refinancing required until 2027. As I mentioned before, though, we have seen a small increase in our average cost of debt following the repayment of the 80 million of private placement notes. Looking forwards, the softer economy and ongoing macroeconomic uncertainty to continue to create a tough operating environment. As previously announced, H2 earnings will be impacted by a number of factors, including the lower opening rent roll, although we do expect less pressure on occupancy from large customer vacations in the second half. We will see the increase in the average cost of debt, as mentioned already, but we will also see the full six-month benefit of the cost efficiencies that we implemented in the first half of the year. We expect full-year capital expenditure of around £60 million as we complete our refurbishments at Atelier House and the Biscuit Factory, alongside tactical capital light refurbishments to enhance our offering in our conviction and high conviction buildings. This capital expenditure will be offset by proceeds from property disposals. And I'll now hand back to Lawrence to talk through our strategic progress. Thanks, Dave.

There are three elements to our strategy, fix, accelerate and scale, and they are all underpinned by our objective to achieve operational excellence in our platform. That is the point where we are able to deliver highly efficient, sustainable growth in underlying recurring income. I call this the new workspace, where workspace is once again a clear market leader. We've been working hard to execute over the last five months. I will go into more detail on each element over the next few slides. As we execute, we're starting to see traction and it gives me confidence that we have the right strategy to deliver recovery in income-led shareholder returns. I'll update you first on fix. This is the most critical area of our strategy and it speaks directly to occupancy, which then flows through to income, valuations and shareholder value. We are laser focused on stabilising and then rebuilding occupancy. There are two drivers to our occupancy, new customers and retaining our existing customers. Many people don't realise that in any given year, typically 90% of our revenue comes from our existing customers. So the more we can retain, the better position we'll be in, particularly in a market where the cost of acquiring new customers has grown. Within the retention area is our expansion and contraction of existing customers. We have almost 4,000 customers on our platform and they have a diverse set of needs and requirements. They're dynamic and we support them in a variety of ways. Often this is in the shape of supporting their upsizing when they win a new piece of business or at times when they need to contract before then expanding again. This is part of the appeal of being at Workspace. Interestingly, our customers stay on average five and a half years on an initial two year lease. Our platform and nearly 40 years of experience supporting London's creative SMEs places us in a very strong position. However, experience, legacy and platform in themselves are not enough. So how are we driving these improvements in retention? Our customers are the owners and the CEOs of these businesses. They're in our centres daily. Therefore, the function and presentation of our buildings is absolutely critical, as is the service they receive from our centre teams and especially the people that are on site every day because they interface with them all the time. we've put in place a huge amount of initiatives to support our retention. Our customer teams are taking more responsibility and leveraging their contacts and relationships to deliver expansions, contractions and lease renewals, which were previously run by our head office teams. We've further empowered our centre teams to resolve the issues that come up on the ground. Nothing frustrates our customers more than 40 facilities, so we have to be right on top of it. Our new CRM platform now makes it easier for customers to raise issues and access a range of services and support. We're also delivering more events and value-added services. All of this action is delivering tangible results. Firstly, as I mentioned, like-for-like retention is already up 2% to 85%. In October, when our senior teams took over responsibility for expansions, we saw a 12% increase versus the Q2 monthly average. Our customer satisfaction score is up 1.5% to 91.2% since March. Our cleaning and maintenance score is up 3.9% since March. And finally, our value add offers and skills academy has received a 9.8 out of 10 review from our customers. We're tactically investing in our buildings to create better environments and our pilot projects are the test centres for these improvements and innovations in both our product and experience. We're investing modest sums in the areas that our research and feedback tell us matters most to our SME customers. At Vox, we've seen the most significant changes. This high conviction building has seen occupancy improve 400 basis points to 79% since we launched the project back in June. We've spent £700,000 on high impact areas, including breakout areas, receptions, meeting rooms, informal seating areas, corridors, and putting new phone booths in. Over at the leather market, sorry, pleasingly, our NPS at Vox has improved to plus 78 from plus 41 just a year ago. And over at the leather market, our NPS has increased to plus 37 from plus 16 a year ago. Occupancy at Leather Market is 82%, and being transparent, marginally down. However, that is mostly driven by the impact of a failed customer's business. Importantly, at Leather Market, we have 5,600 square feet of space over offer. That translates under offer, that translates to about 4% in occupancy. However, let's not just listen to my views on the impact and changes that we're making to resourcing in our centres and presentation. Francesca, who is our General Manager at Vox Studio, has some fascinating insights of her own on the impacts.