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.

The impact has been incredibly positive and we have seen a positive outcome also in the sense of community has created because customers feel much more confident to bring people in and to spend much more time with us. My role has completely changed because before I was much more reactive, while now I'm much more proactive. The pilot has brought up also a much bigger view of our revenue, of our loss and earnings. It has empowered me to actually bring all this knowledge into customers' meetings, to understand their needs, listen to them and feedback and get the best outcome for both of us. When it comes to a renewal, when it comes to an expansion, what I try to do is to listen to the needs but also match our Vox Studio commercial goals. Since the pilot started, I've managed to expand five customers. They all were looking for a larger space and because they love the new setting of Vox Studio, how it does look, they have decided to expand with us.

It's been really, really positive feedback. The customers really love the new space. So I think it's just a real good experience and a good first impression when people walk through the door. It's a real wow factor now.

Fantastic. Turning to new customers. In a competitive market, how do we improve our performance in attracting new customers to our platform? It's not simply about the number of inquiries, rather the quality and relevance of those inquiries. I'm pleased to say Will and the team are rising to the challenge. We are leveraging a huge amount of third party data and market research more than at any time in our history to increase our market share of London's creators, makers, disruptors and innovators. This has led to a 20% increase in first choice consideration in our brand tracking over the course of the last financial year to date. This remains significantly ahead of our largest flex peers. The broadcast video on-demand ad campaign that I know many of you have seen has resulted in a 22% increase in booked viewings during the campaign period. Our new drive on targeted social and digital ads has delivered a 40% increase in click-through rate to our website from LinkedIn. Whilst our website accounts for circa 60% of all our leasing deals, brokers remain important, especially in our larger spaces. Our increased focus on engagement with these firms has seen viewings from brokers up 12% over the period. And our focus on local marketing has driven an increase in walk-in viewings, especially at our lower occupancy sites, including The Chocolate Factory, Westbourne Studios and Screamworks. Better leads are translating to better conversion. We're working across the board. We're training and coaching our sales team and building a more commercial mindset. We've reviewed their incentivisation and we're taking a more pragmatic approach to commercial terms. We've freed the leasing team up from expansions, contractions and renewals to focus on new business solely. We're trialling new initiatives like furnishing units, inclusive deals and more flexible terms. And as you heard from Francesca, the centre teams also have an important role to play. They're busy taking viewings, proactively improving units based on feedback from customers, viewings and from our sales and leasing teams, and they're undertaking common area upgrades and maintenance on a more regular basis. We're doubling down on technology, and I'm really excited about how we're using AI. Elody, our sales agent, is accelerating conversion, working 24 hours a day when our SME customers are online. Viewings on a Monday are up 25%, and there is more to come from Elody. We're also using AI to generate floor plans and unit layouts, along with this cool tool. that enables our sales team to present the unit in several different design and layout options for our customers that struggle with spatial reasoning. You'll see the majority of our units on the website now have CGI's to help with space planning. We have more improvements coming with our customer site, including a new landing page and improved navigation. And I'm pleased to say we've launched the new landing page today. So what are the next steps on FIX? As I've said, empowering our centre teams, shifting accountability to the coalface and incentivising them to provide better customer experiences whilst driving revenue. And it's working. We're going to roll out this evolution of the structure across our portfolio. This creates a need for better data and revenue management tools, which we are continuing to enhance and roll out. And finally, this focus on driving revenue is being supported by our first head of revenue, James Graham, who joins us from IWG in early January. James will oversee the sales and retention initiatives across the platform. As you can see, we are 120% focused and moving at pace to address the occupancy challenge. Importantly, we're making progress, but we appreciate we have a lot of work to do. turning now to accelerate this is about optimizing our 2.3 billion of real estate portfolio and our platform we're fond of saying we have two verticals in our business a super fast moving dynamic operating business which delivers circa 140 million pounds of revenue a year sitting next to that a real estate investment business that optimizes our real estate portfolio And these two verticals are supported by a series of corporate functions. I just want to take a moment to remind everyone of our conviction-led approach following the extensive portfolio review we did earlier this year. We're on track to meet our two-year target of £200 million, which equates to circa 20 assets. We've sold 52 million so far this year, which is broadly in line with book value. That's on top of the 100 million of disposals we made last year. Most of these assets are outside London, they're smaller, they're not in our SME business format, and they don't speak to our target customers. We have a further pipeline of disposals and we're constantly reviewing our portfolio with a very critical eye. We'll not shy away from recycling more, including the change of use opportunities where we believe the SME market has shifted in that location. Capital discipline is always important, especially given where we are in our recovery. As we stand here today, one of the best uses of our capital is rebuilding occupancy and letting up the space we already own. The swing from vacant to occupied is circa 130% of the rent when we include the empty business rates and service charge liabilities. Whether this is investing in pilot type projects that you've just seen or the subdivision of larger spaces into our smaller studio formats, the impacts on occupancy, income, income growth, adjusted profit and valuations is meaningful. This includes investing modest amounts on new sources of demand to accelerate our rebuilding of occupancy. Importantly, we don't have any further large projects, as Dave mentioned, beyond the completion in the coming months of the Biscuit Factory and Atelier House in Camden. Instead, we are focused 100% on leasing the floor space we already own, which means we have structurally lower capex commitments for the next phase of our recovery. We've guided to lower leverage, reducing our interest drag and improving our balance sheet metrics. and we have a proud history of dividends and dividend growth, which are fully covered by our trading profit. Our guiding focus is on ensuring we always have the most appropriate capital structure and on delivering shareholder returns. Accelerate also incorporates the next phase of our pilot projects, which is now moving into business as usual, following their success. We've selected China Works and Cargo Works in Southwark. These are beautiful, characterful workspace buildings in amazing locations in what I call London's creative hinterlands, out of Zone 1 through to Zones 3 and 4. These are locations where our extensive research tells us there is a high proportion of our target SME customers and their staff living, working and socialising. Growing occupancy through targeted investment in high impact areas enables us to drive income growth. These projects are high impact, they're efficient use of capital with modest investment delivering tangible near-term results on both conversion and retention. We said when we launched our strategy, all three elements started together immediately. We're confident in our ability to fix occupancy and deliver capital recycling to optimise our portfolio and our platform. We're going to be creative and entrepreneurial where we see growth opportunities within our capital constraints that deliver immediate impact on our occupancy. There are ways that we can capitalise on our unique real estate customer base, adding other complementary formats to our larger campuses that create new sources of demand and provide services to both existing and potential customers. Cube is an example, more on that in a moment. MicroStorage is another example. There are others we are monitoring, targeting efficient, different high growth sectors within London's dynamic and growing SME space. We believe we are uniquely positioned to access these opportunities as both owner and operator of our buildings. Turning now to Kube. This is a great example of our strategy at work. We're unlocking an exciting new source of demand for London's growing content creators. Many don't know London is one of the world's leading locations for content, and there are well-established flex platforms, including the Ministry in Elephant and Castle. Our deal with Cube at the Old Dairy is one of a pipeline of sites we've identified in London, as we support Cube's growth with our real estate and modest amounts of capital. combined investment is less than it would cost us to fit out the space and we're excited by the halo opportunities we can create for like-minded businesses to locate near the cube facility we're also exploring ways of working together including creating podcast studios in our assets that are operated or powered by cube And we're looking forward to learning from each other operationally over the coming months. And we welcome Amin and Nick to the Workspace platform. Turning now to next steps, one of the most insightful things for me over the last 12 months and the most eye-opening things has been to get out into our buildings and visit our customers and just see how truly diverse and successful some of them are. We've started a podcast series, and I think some of you have seen the wild podcast I've done with Charlie, who is the founder there, which is a phenomenal success story. Within five short years, he's just sold that business for £230 million to Unilever. And there are many others within our business. And one of our challenges is how do we get the workspace story and how diverse our customer base is and how our studio spaces are used by such a variety of different people in such a variety of different ways. And we kicked off a video at a strategy session which we got really good feedback from. And every time we take... sell side or investors off to um off to our buildings they always come back surprised pleasantly surprised about what they've seen in fact we had an investor tour a few weeks ago one of our larger shareholders and he said to me after walking around the leather market he said this restores my faith in london so we've got a video for you just to provide more insight into the types of customers we host on our platform and what they're doing with their businesses

People need an incentive to come in and quality of space is a huge part of that. But in addition to that, community and engaging on a human level, that's what's really, really important. We were in desperate need of a space for ourself that we could create our own identity. We've curated our space. We can work with materials and colors and finishes and create palettes and moods that work for our projects.

Our neon branding and the furniture we've managed to put into the space well really reflects our brand identity. We were able to build our own office cubicle for our founder and director and we've also fit a sort of wine bar setup here in the office which I think is pretty unique. Having the space to do it in workspace has been key.

We love working here at Workspace because we have been able to adapt this so completely to our business needs. Being able to exist in a space that allows us to do all of those things is really special.

With Workspace being such a community for us as jewellers, we have the luxury of having our fine metal casters within the same building. We have diamond setters, mounters, engravers and polishers. It's all under one roof. This is really the perks of being in this building. We're a community. We're always going to be part of that community as long as we're in Workspace.

We've met a lot of businesses and been able to collaborate with them as well, which has only helped grow our business more.

This is the second space that we've had in this particular building since we moved in. And I think that was one of the things that really appealed to us is that flexibility that as the team grows, as the business grows, we can also move into larger spaces.

From year one to now, we've grown at 400% year on year. What's been brilliant about working for Workspace with that growth is now we're starting to hire people. So we're going to go from three to six people in about three months. When we found Workspace, it was just amazing because it was somewhere we could call home as a brand.

It all happens at Workspace.

Fantastic.

We remain laser focused on our fix, accelerate and scale strategy, starting with rebuilding occupancy, which will drive a recovery in earnings and deliver shareholder value. To put the occupancy challenge in perspective, if we converted every single inquiry we had in a single month, we wouldn't have an occupancy challenge. Now, I appreciate we're not going to do that, but it gives you some indication of the volume that we're dealing with in terms of inquiries and the deliverability of what we need to do. We're closer to our customers than we've ever been and we're far more responsive. This is giving me confidence that we're seeing the early signs of progress as we presented today. However, I am aware it's early days and we have a lot to do. We're clear what it is that we need to do and how we are going to execute and we are executing at pace. I'd like to move now to Q&A, and we'll start with questions on the floor, and then we'll move across to the webcast. Thank you. Could I just ask that we introduce ourselves? For those on the webcast, everyone knows who's asking the question. Thank you.

Good morning. Neil Green from JP Morgan. Two, please. Firstly, on the occupancy side, given your lease break profile, you were able to flag the large unit vacations well ahead of time. So we saw that coming. Have you seen or are you watching any further potential large unit lease breaks potentially back in the second half or first half of next year? And generally, any comments you may have around when and what level occupancy might drop out, please. And secondly, encouraging to see leasing activity is continued post-period end and you've got some space under offer. But interesting to see if you can tell us any more around how those leases compare to ERV, given the ERV impact on the values in the first half, please.

So there's probably three questions there. Maybe I'll have a shot at the first one, Dave. The second one, Neil, just remind me again. Second question. Occupancy and trough. And the third one is how the deals post the period close effectively, how they look against ERV. I think Dave's probably reasonably well positioned to answer that as well. But picking up the first one, we've been very transparent about you know one of the key drivers of occupancy during this last period has been the vacation of a large occupier in camden which is where obviously our new office is and there's a reason for that there aren't too many 45 000 square foot occupiers within our portfolio there's one other large occupier in west london that we're we're monitoring very very closely So I think after those two large occupiers, we step down a long way into the sort of 10 to 15 thousands, if that makes sense. There aren't many of those in our portfolio either. And then we step down again into the sort of five to 8000 square foot mark. the sweet spot of our business remains 300 to 1200 square foot units but as you would appreciate businesses come in and scale with us effectively and there's many great examples some of them stay with us wild is elected to stay we've moved out of our corporate space in um in kennington to facilitate their expansion but there are other cases where that business is sold effectively and that's what success looks like for our sme customers is some form of exit and as you appreciate there are times where part of that exit is that that business gets gets taken up into the mothership as we call it effectively and we get that space back and the process starts again with dividing the space back up into small units we are being far more pragmatic we've seen some improvement in larger unit demand and where that's taking place we've been you know look comparing that to the to the alternative of subdividing units hopefully that answers that question dave i might hand over to you um we're being very careful about guiding to a trough in occupancies you would appreciate

Yeah, I think it would be rash to go to a trough against the macro that we've seen, particularly a week before a budget. Having said that, we are very focused, as we've talked about, on what we can control on the drivers and the early indications, and they are early indications, are positive. The visibility, as Lawrence talked about, in terms of the large units, which have been a big driver of the movement in the first half, are much less in the second half, which is positive. So I think we're controlling the things we can control and moving those in the right direction, absolutely. I think the other thing I would say is that there is uncertainty. As I said, I think it has resulted in some customers and potential customers deferring decisions until you know after after the budget but when we speak to the customers they are positive about their you know overwhelmingly they are positive about their prospects for growth next year so I think that augurs well for for next year in terms of ERVs and work pricing where we're seeing you know as we saw ERVs down in the first half, and that's really been driven by the deals we're doing. We are still doing deals at that level. I mean, for us, as Lauren says, the key focus at the moment is on driving occupancy. You have 130% return on driving it, and that is wholly our focus. So we are being creative about how we deliver that occupancy. Pricing is one of those factors. So we will continue to be pragmatic on pricing.

Just to add to that, we're fond of saying in the business there's two levers effectively, occupancy and rate. And if occupancy comes off a little bit, we let rate off, rebuild occupancy, pull rate on effectively. So as you appreciate, supply demand economics fundamentally within the building. So where we have tension, we can drive better rental outcomes. There's no question. What we've also realised with the pilot projects is that where we're investing and improving the environment, those rent increases at the end of that two-year lease are much easier for us to achieve. And we're getting feedback from our customers saying, I'm okay with paying a 5% or 6% increase because I've seen your investing in the building.

Denise down the front here, I think.

Good morning. Denise Newton from Stifel. I had a question. Obviously, you started to disclose retention rates, which is a new metric and will be a good guide for trends in occupancy. I just wondered, with the current rate at sort of 85%, where should we benchmark that against sort of historic retention rates? And what do you think would be a realistic target for improvement in that? And how would that then impact occupancy?

Yeah. In recent times, the last few years, retention has slipped, there's no question. And I think going back just before I joined, we had several months where retention numbers were were meaningfully lower than that 82%. And as I mentioned earlier, there are really two key drivers to occupancy, what we're putting in from the top, new business, and what we're losing effectively. And as you'd appreciate, in a competitive slash uncertain market, the cost of customer acquisition goes up, as you would appreciate, retaining more existing customers is fundamental to us. We have seen periods where, and obviously we're providing averages over the reporting period, we have seen months where we're getting closer towards 90%, but we're not guiding to a target at this juncture. We have gone through forensically and Will's here in the audience today's overseeing the sales function until James Graham arrives and doing a great job we've been forensic and going through line by line those customers and as Francesca mentioned we've moved from being reactive to proactive we're positively engaging with our customers and to establish what their intentions are in advance of these lease events and seeing how we can go in and help. And sometimes help looks like contraction, sometimes help looks like expansion. Just to expand on that for a moment, the balance over the period of expansions versus contractions has been positive to expansions about 60 40 effectively is the ratio we're running at the moment so it's another metric which we think is important so we'll continue to update and report against these retention numbers i think it's early for us to be providing a guide we're doing better than we have done in recent history effectively but we think there's a lot more that we can be doing and as i say the pilot projects retention has improved effectively is running above the averages. So that's what's giving us confidence, not just the physical changes, but the resource changes, taking the responsibility from the leasing team effectively across into that team. And if you think about it, Francesca knows these people personally. These CEOs are in our business, in our centres every day. She sees them, she knows them. So now she's empowered to have those discussions as well as part of the wider discussions. And we're seeing the same in leather market. And we've now handed that, we've already handed that across to the other centre managers and we're seeing benefits. So it is a key area of focus for us.

Thanks. Good morning. Adam Shapton at Green Street. Two questions. The first one is technical and on valuation. And I might make a fool of myself with this question. But am I right in thinking that there's a structural occupancy assumption in the valuation that the valuers take and presumably you agree with them?

I mean, they obviously form an independent view. I mean, our view as directors is obviously it has to be materially and we have to be comfortable with it. But different valuers take different approaches. This year we have two valuers. So we have Knight Frank as well as CBRE valuing different parts of the portfolio. They both do Redbook, very similar approach, but slightly different assumptions. So there is within there an assumption around void, yes, for different properties, units, etc. The key driver, though, really, is the occupancy. So contracted rent at the moment, that's really what's driving the... It's less about the end point, it's much more about the fact that the occupancy at the moment is lower.

My question was, has that assumption changed in the last two years? In your statements, you very consistently pointed to where income would be at 90% occupancy, which you might say is leading people to think about that as the structural occupancy number. Is that still right? Is that what your value is assuming?

That's our long-term average, isn't it, Dave, is 90%. Yeah, and I don't think there's been a fundamental shift. It's more the fact that we have a new valuer who has a slightly different approach. That's all. Okay, that's clear. Thank you.

And then on retentions and renewals, it's great to see the number increasing. If you split out those renewals for like numbers, are you able to say, what your renewal rates would be versus previous passing. So I know within your like-for-likes, you've got step-ups, right, and fixed increases within terms. And I know you mentioned there's people increasing and decreasing in GLA, but What's the renewal spread?

Typically, we're better to be dealing with the existing customer from a commercial terms outcome than a new customer, typically.

Sorry, let's say I'm paying 50 a square foot and I've renewed. What's the renewal spread? Is it versus previous passing?

So the renewal spread is different. I don't have the numbers at my fingertips. The renewal spreads look different with the smaller units compared to the larger units. We're being a lot more pragmatic on large units at the moment. And there's more competition in that large unit space, if that makes sense. So we're being a lot more pragmatic there. I don't have the average with me. But what we know is that small unit sweet spot of our business We've got more leverage there, if you appreciate. And the renewal spreads, we'll get the 5% kickers on the first anniversary, as you appreciate. Standard lease model, two years, 5% uplift year one. And then, effectively, we go to market. When I say market, it's not a true market review, but we're to... we're able to set a rent at the end of that period. We're typically renewing at passing or marginally above is my understanding. On the small units, the large units is where we still have some pressure.

There's definitely a difference between small and large, absolutely. You can see that in the RV spreads that I talked about. For the smaller units, it's a much smaller decrease. I think your question around existing versus new deals. We are and always have been very transparent on pricing. Our pricing, you can see it on the website, our customers talk to each other fundamentally. So yes, we're doing some promotions and deals and so new customers may benefit from some of those, but there isn't as big a difference as you might perhaps imagine.

Good morning, it's James Carswell from Pilhunt. Just on the Occupancy, just to make sure I'm thinking about this correctly, the expansion of Wild Cosmetics and then your own move to Canada, that's presumably in the 80% light-flight number you bought today, and then likewise Cube, which I think was post-period end. It was. The benefit of that is still to come in the Occupancy number, is that correct?

Yeah. Yeah, so actually while the expansions actually is post the end of September, so that's not in the September occupancy number. And you're right, Cube, no, that is not in there either. But neither is, so they will be taking space in the old dairy, but that space is currently occupied. So effectively it will be replacing occupied space.

Okay, perfect. Thank you. And then I've been sending a question to Denise, maybe on the conversion rates. I mean, it's... Obviously, great to see it improving. What's the holy grail in terms of the conversion rate do you think you can get to?

We're converting 18% roughly, Will, aren't we, of deals that come into the system. We think there's capacity to improve that, get to 20, get to 22. I think it's in that sort of league, if that makes sense. the flex industry use a whole variety of different different measures some are looking at conversion from viewing some are looking at conversion from inquiry as you would appreciate so us getting accurate benchmarks is a is a little challenging but we think there is definitely further improvement to come from conversion will i think that's fair yeah

And I think that's the point of our intention. As we start to see occupancy increasing, then we'll be more aggressive on pricing, which then means you'd expect to see conversion coming down. Our priority at the moment is to bring in customers, build occupancy, and to the point of being ready once we've got that customer in place, then we can start to work with that customer, expand that customer, and push rents up over time.

Perfect. And then just final question on business rates. I think I'm right in thinking there's some changes to operators and landlords that issue licences rather than leases. I think you typically issue leases, so it doesn't impact yourselves. But, I mean, does that give you a bit of a competitive advantage where some of your peers are going to have to potentially pass it on to customers, or is that a very different space and not really in your market?

The leases give us an advantage in terms of mitigation, but the... I think all the press that you're seeing at the moment, and I suspect what you're referring to, James, the flexible space organisation effectively owner's organisation called flexa and in fact one of our team members is chair of flexa this year um they are um uh they've uh they're lobbying government very very actively um there's councils approach these things differently you should appreciate and there's enough ambiguity in the business rating system to allow for that to happen but it really has a big impact on those operators that run hot desks and my understanding of it is that previously the hot desk flex operators of which we're not one as you'd appreciate have been run an argument successfully with councils that that the business rate should only apply to the desks So, because that's the leased area. So if you go to one of those operators' websites, they're leasing space by the desk, effectively. The fact that it sits in a wider environment with a whole lot of amenity, they've argued that it's really just the desk that should be rated. My understanding is it's either City of London or Camden has effectively... argued with one of the other flex operators and imposed a rating charge on them and that ignores that and says no no we're charging on the entire floor plate effectively rates so it's a significant impact as you'd appreciate fortunately we are not That's not how our business operates. We don't run a hot desk model effectively, so it doesn't have a direct bearing on us. As you would appreciate, we do a lot of work around business rates. We have a business rate team. We have people that help us with that. So, yeah, this current issue that's getting all the press does not have an impact on us.

Thank you.

Hi, morning. It's Tom Musson at Berenberg. Curious, I suppose, just on your sales agent, Elodie, how much does that cost to run? What's the sort of equivalent number of people you might think it'd be required to drive your inquiry levels to the levels that they are? Wanted to just get a sense of the efficiency gain there. And is there a lot more that can be done here going forward with AI in other areas, not just generating inquiries, but in supporting retention as well? Yeah.

So I'll get Will to answer some of the specifics around that. I'll give him a moment. But just to pick up the use of firstly the use of AI in the business, which was the last point that I think you made, we are trialling other what we call AI verticals. So we showed you today that we can do a unit overlay now effectively that helps our customers because you appreciate some of our creatives will look at a blank space and see that is huge. excited as you appreciate because they're running a sound studio or they've got they're a podcaster or whatever it is or they're an influencer and they're creating an infinity wall so that they can promote their product in there there's so many different uses so being able to provide a blank space option is we believe is important effectively however There is also a percentage of the market that doesn't have that spatial reasoning. They've got a more regular type layout. They want some desks in there effectively. So how do we help them envisage? They look at a blank space. I don't know how many desks I can fit in there. I don't know how many people I can get in there. How can we help them at that point on the website? That is absolutely critical. And that's where that AI is helping us. We've also been using AI in space planning, which has been phenomenal. So we take a blank floor. and we say, right, we need to subdivide this into our standard small unit format. That used to take three weeks. We did an exercise a few months ago. It was done in hours. and to about 98% accuracy once we gave it the parameters. So that is another area. We think our business should lend itself very, very well to AI applications. We have a very high volume of small transactions that are very similar as you'd appreciate. We're pushing through 120, 130 leasing deals a month as you would appreciate. I was looking at some numbers from one of our peers the other day, one of our listed peers. We do as many deals in a month as they did in a year. So it's not the same value of deals as you would appreciate, but the deal volume is enormous. So that also would suggest that AI applications will have the ability to make a very positive impact on our efficiency and speed, effectively. Just before I hand over to Will on this specific question about the costs of Elodie and what the next evolution of that is, I just want to remind you, and this is where our customer is so different. I mentioned earlier, We deal with the CEOs and owners of these businesses. They're in and out of our businesses constantly. Typically, they start as small businesses. So we're part of what they call business administration. It's not their core business, effectively. They're trying to make money, promote their product, grow sales. You deliver the next phase of innovation in what they're doing. So we're the bit that gets in the way, if that makes sense. It's a bit of administration that we need, like VAT returns that they need to deal with. So often we find that they're coming online to us at 9 o'clock at night or 10 o'clock at night. They've had their dinner, sitting at home, like, right, I need to deal with my space requirements. So of course, the difference between we'll get back to you tomorrow and we can deal with it immediately or Elodie can deal with a lot of it immediately and there's further evolutions in Elodie, will make an enormous difference because getting someone booked in in a competitive environment versus I'll call you back tomorrow is a huge, that could be the difference between winning that piece of business and not winning that piece of business. But I'll hand over to Will, he's the expert in this area, Will.

Hi. So on your question about cost, roughly the equivalent cost of one sort of inquiries agent, or in fact less annualised. But importantly, it's not about replacing people. It's about freeing up that team to do higher value work. So the first implementation of L&D was really over the weekend, which is why we saw the big impact on Monday mornings for viewings booked in. So triaging inquiries, initial inquiries, going back quickly, capturing them in that window of opportunity to then pass them on to the team to complete the conversion into the sales team. We have a version as well for meeting rooms. We also have a version for broker interactions. Each one trained specifically against the requirements for those incoming inbound queries. We're also training it on outbound, which will be something we'll be rolling out in time. And we are just in the final stages of testing our agent, LED agents, to sit on the homepage to capture that first contact and help people through that. initial sort of top of funnel, if you like, conversion. Beyond that, as Lawrence touched on, we are trialing AI in a range of different places, automating campaign creation. We talked about the image creation. So it's something that's absolutely integral to our plans going forward.

It's very helpful. Thanks.

Thank you. Any other questions from the floor? I'm not sure if we have any questions on the webcast. Claire is going to translate it. Thanks, Claire.

Just one question. From Richard Williams at Quota Data, have we had any dialogue with Saba Capital, new shareholder?

We haven't, at this stage, met with Saba. We've had some email communication with Saba. We anticipate meeting them at some stage during the roadshow, but at this point we haven't had any detailed conversations or dialogue with Saba.

That's it. Any other questions?

there's no other questions for the floor i'd like to close today's presentation i'd firstly like to acknowledge the enormous amount of work that's gone into delivering this first five months of strategy implementation by our team across the business and we acknowledge change is a difficult thing it takes a lot of energy i think as as human beings we're we're wired um we're wired to resist it so We fully appreciate the enormous amount of change that we're making in the business and the response to the team has been phenomenal. And as you can see from these results, we're very pleased. We know there's a lot to do. We know there's a long way to go, but I think we've made a really strong start. So I just want to acknowledge the team, firstly. Secondly, to acknowledge the team that's got us here today. It's been lots of late nights. We fully appreciate. And thirdly, to thank all of our shareholders and the stakeholders, the people in this room for your time today and your continued support. We greatly appreciate it. Thank you. We look forward to seeing you at the next update. Thank you very much.