Workspace Group Stock

Good morning. Welcome. Thank you very much for coming. My name is Charlie Green. I'm the CEO of Workspace. I'd like to introduce Tom Edwards-Moss, our CFO. And today, we're going to be talking to you about our full year results for full year '26. We're going to run through those, and Tom will run through in detail. I'll just sort of give an overview and touch on the summary. We'll talk about where this business is today. And then I very much want the thrust -- whilst we are referencing our full year 2026 numbers, I think the thrust of the presentation today is really about what is this business and where can we take this business, and how do we move forward, and what does that look like?

Tom and I have been with the business for 4 months. I am a little over 4 months. Tom is a little shy of 4 months. I would say that in that period, we've worked very, very hard to get a very deep understanding of this business. That means we've looked at the financials. So we've really dug into the underlying performance of this business. We've really understood the balance sheet, and we've done the modeling to look at how we can take this business forward, what that looks like. We've looked at the product. We've looked at the buildings. We've looked at what is Workspace today, because we need to understand where we are today in order to understand where we're going to take this business moving forward.

And we've looked at the demand. That's the demand. Who are our customers today, what do they want, what do they need? And as importantly, we looked at the demand of the wider market. And just by way of a little bit of background, I really know this market. I really understand this market. So I worked in this sector, in the flex sector for over 25 years. So I have a deep understanding of actually what Workspace needs to do. And I'm very clear on what's required for us to get there.

If we look at a very sort of broad overview of the business, it's been a difficult year. Full year '26 results has been quite tough. So we are down, and we'll touch on the numbers, but we're down on our trading profit after interest, down 9.4%. So what that tells us is we have to reposition this business. The opening slide is a transformation to an earnings-focused business. This is a transformation. It's really important to be clear. But if we look at the second box here, actually, our starting point is stable. And that's really important as well, because this isn't a transformation, because it's a knee-jerk to -- because we're on a slide or on tilt and we're moving backwards at pace. We're actually in a strong stable position. Now stability is great. We'd rather be in a stable position up here. So we have to move towards that. But as a platform, as a baseline, I think we're in a really good place.

And we're not doing this for the sake of doing this. The market opportunity is significant. So we'll talk about what that market is, and that is both a medium-term transformation, because it will take some time. There's also some near-term gain that we can achieve as well, which we'll talk about. And just to touch on very high level, Tom is about to go into the detail. And Tom, by the way, I think we have established in the 4 months, a very strong working relationship, and I think that he's really very good. And I'm very grateful to have Tom by my side as we move forward because, of course, the financials are so important. The balance sheet is so important. We are down on our occupancy year-on-year by 1.4%. So we're low. We want to be in the high 80s. We're 81.6% at the moment, but it's okay because we're sort of solid. Our trading profit down 9.4%, as I said. So Tom, I've set you up now. Sorry about that. But over to you to run through the numbers.

Thank you, Charlie, and good morning. As Charlie said, the focus of this presentation is on the future and our plans for the business. We have the opportunity to recycle capital into low-risk refurbishment projects and generate returns to shareholders well in excess of our cost of capital. But first, to look at the FY '26 numbers.

Net rental income was GBP 113.4 million, down 7.1% on prior year. Stripping out the impact of disposals, the underlying net rental income decline was 2.4% year-on-year. Admin expenses and finance costs reduced, taking trading profit after interest to GBP 60.5 million, down 9.4%. And after revaluations, losses on disposals and exceptional items, the loss before tax for the year was GBP 120.5 million.

As we announced in our Q4 trading update, we have returned to a dividend policy of 1.2x earnings cover. This allows us to retain enough of our funds from operations to cover maintenance CapEx while balancing this with returns to shareholders. And on this basis, we've declared a final dividend per share of 16.7p, which gives a full year dividend per share of 26.1p per share, down 8.1% on prior year. On the balance sheet, we saw a 7% decline in property portfolio to GBP 2.1 billion. Net debt reduced 7.6% due to disposals to GBP 758 million, and net assets reduced 11.6% to GBP 1.3 billion, with EPRA NTA per share at GBP 6.87, down 11.2%.

Just to dig into the portfolio valuation in a little bit more detail. As I said, there was a 7% like-for-like decline in portfolio value. This was driven by decreases in ERVs, most of which came in -- or more of which came in the first half of the year. If we look at the stabilized portfolio, which is the majority of the assets, the decline was 5.6%. And as you will see, there was some inward movement on yields. That occurred in the first half of the year and was really due to a slight difference in values when we rotated them. And if we look at our largest 15 assets, they performed better with an average 3% decline over the year and 1% in the second half.

Turning to our debt position. At March 2026, we had GBP 761 million of drawn debt, which gives available liquidity of over GBP 240 million and significant headroom on our covenants. We've recently exercised the extension option on our GBP 200 million revolving credit facility, moving the maturity back by 1 year to June 2030. We have no maturities in 2026, and our 2027 maturities can be covered out of existing liquidity. So we have some flexibility as we assess our refinancing options. And we've also announced today that we're moving our credit rating to Fitch, which is initiated today at a BBB- with a stable outlook. Fitch rates more of the U.K. property sector, and we believe their methodology is more appropriate for a company of Workspace's scale.

So a few financial points to leave you with. We're moving to focus on earnings as our key performance indicator to manage the business. As guided in the Q4 trading update, we're expecting a substantial step-down in trading profit in FY '27. We're expecting CapEx of around GBP 55 million during the year as we start to invest in improving the portfolio. And as you can see on the slide, the majority of that is in value-add projects. And we'll be funding our accretive investments and increasing balance sheet capacity through completing the GBP 75 million of disposals as planned, and we also have a further GBP 100 million of disposals under consideration. And as I said already, we're actively assessing our refinancing options.

FY '27 will be a year of transition. There are a lot of moving parts, and we'll keep you updated as the year progresses. We have the opportunity to invest substantially ahead of our cost of capital and drive returns to shareholders, and we're excited for the future.

With that, I'll hand back to Charlie.

Thanks, Tom. We'll get into those returns, and we'll look at them shortly. But I think important to look at Workspace today and sort of just examine where we are. Workspace is 40 years old. In fact, I know Workspace really, really well because I did consultancy for the business before I set up my own business, which was The Office Group. It is now with Fora, but before that, in many ways, what informed much of what we did in our business was how Workspace approached the market.

They were market leaders. They were pioneers in flex. In fact, they understood brand better than anybody else in the real estate market. But I think it's also fair to say that in that success, they sort of stayed where they were and the market has evolved. There's lots of reasons why the market has changed, but principally, occupiers have altered everything. So occupiers are driving what is now being provided in all sectors and very clearly expressed in the office world. So Workspace have sort of stayed over here, and we'll talk about then how we move forward from that point.

And the flex market, and this is a really exciting point, because the flex market is structurally growing. So we're moving into that market. We're there now, but we need to really be actively moving into that market and adapting to the changes. We have the strategy to do that. And that is about modernizing this business, elevating the product, improving the product, and creating a product that very much is relevant to today's market. That is then going to drive our occupancy, and that's going to drive our pricing.

This is really a slide, I think, important to demonstrate sort of where we are today. And again, just to emphasize the point that we are stable. So our inquiries year-to-date are pretty much in line with year-on-year. We always have a spike in June. So for the quarter, it will move on up. Our letting is actually slightly higher in terms of conversion, so a slightly strong conversion rate. That's a good indicator that actually the quality of our inquiries are good quality, strong inquiries.

Our occupancy for the stabilized portfolio, 81.6%, again, quite flat, and that's okay, a slight downward trend in our rent per square foot. And that's because previously as a business, we've used the policy of using rent as a lever to drive occupancy. So we reduced rent to drive occupancy does work, but not sustainable in the long term or the medium term because ultimately, the financials start to fall away from you.

And this is a really important slide and we've anonymized the buildings, because we're showing here the delta between the lowest rent paid in the building and the highest rent paid in the building. We've anonymized this because we actually have some customers in the room and we don't want them to think that they're overpaying.

These top 10 buildings.

Thank you, Tom. This is the top 10 buildings that we have that generate close to 50% of our revenue. So really interesting to focus on these buildings. And I guess the dots are important to examine, because they represent the average rent. The point being that the delta between the lowest rent we're achieving in a building and the highest rent we're achieving is very, very wide, and we need to narrow that and move that average rent up.

And there's a reason, I think, that we have that delta, and that is because historically, we've been quite complex in how we structure our pricing. We're not consistent in our pricing. So we have some leases inside the act, some outside the act. We have some rents where you pay a service charge on top, sometimes that's capped, sometimes it's not. Sometimes it's included. Sometimes we include WiFi, sometimes we include electricity. It really is a little too complex. So we believe that we can restructure the pricing.

And I had a call from one of our customers in one of our buildings, which I seem to get quite a lot of these days, and that's fine. I'm very open to having those calls. And she had a business where her office was directly next door to an exact replica of her office, and she found out we were charging them an all-inclusive price, and she was paying her electricity separately. And she was furious. She was furious because she thought she was paying more than them. In fact, when she learned that she wasn't, it was the same cost in total, she was relieved. But she was furious, she was pissed off because she was having to deal with the electricity, she was having to deal with red letter reminders on her electricity.

People want life to be easier. It is our role in providing the space, providing the buildings to make that life easier. We're not doing it at the moment or not as well as we should. So we have that opportunity. And I think in simplifying our pricing structure, it allows us to build in an operating margin, and that's a critical point. So we can start to drive that price upwards. This is near-term upside. So we have the medium-term transformation, but we also -- and this process has started. We're doing this now, and we'll roll this out through all the renewals and all the new lettings that we're doing.

I think when we talk about transforming Workspace, we should understand what the market is and what the market wants. And so when we think about occupiers today, they're seeking more. They're seeking better. And I think that there's been an overarching theme following the pandemic that there's been a sort of flight to quality, where all occupiers, agnostic of size, want better and want more, whether you're a corporate in Prime West End or whether you're a start-up that's taking space in Clerkenwell.

If I just run through these. Design, people want sort of the aesthetic, they want a better aesthetic, but they also want a better functionality of that space. How are we thinking about work behavior, the need for privacy, acoustic privacy, visual privacy as people are working, and how are we responding to that and adapting to that change. Service, we have to learn from the hospitality industry. So we have to understand how better to care for our customers. Amenities are really important, but it's also important that we're balanced on that. But the top of every list of amenities that people are seeking occupiers want are meeting rooms.

Convenience is about reducing friction. It is about making life easier. Tech and AI is the same. How do we use tech, how do customers benefit from tech that makes their lives easier. And brand is -- this is an area that the real estate industry hasn't really grasped, the operators have, but customers need brand resonance. They need to understand who they are actually dealing with. It's the ability to penetrate a market. And value is not about budget. Value is not about cheap. Value is about the return on the pound that is spent. And I would argue that we've moved away -- this market is moving away actually from a flight to quality that we've seen post pandemic to a flight to value, as people seek better value from their space.

So with all that said, where do we sit in the market? So Workspace, if you think of it on this scale, Workspace have been here for many years. The market has moved away from them. So it's our role now to bring Workspace towards these other operators. Many other brands are available, we've just got a short selection here, but these operate at the premium end of the market. And they're very good, especially Fora, but I'm slightly biased there.

And GPE have captured sort of this managed part of the market, so it sits slightly behind the service. And we need to move towards them, but we don't want to be them. We don't want to compete with them. We don't want to imitate them. In fact, if we get this right, we can own this category. And we're calling this category the best value category. And just to repeat, this is not about cheap. This is not about budget. This is about giving people the best value. That means that we're targeting our small business SME start-up scale-up market. That is our market. It always has been our market. We'll continue to target that. We're just going to give them something that's better.

The product then and how we actually deliver on that is we're going to sort of split the product into 2. Space is really about saying we have 81.6% occupancy. We need to protect that. We need to protect that income. So we'll continue our repricing, reframing the pricing in a simple offer, which is space. Space is really still appealing to that customer base today, but we'll build in that operating margin. That is room only. And then we're going to be investing in this elevated product of managed. And that is where we just deliver more. We fit out the offices. We put in the furniture. We might build in meeting rooms, phone booths. We'll put plants, we'll put artwork, and we'll do the cleaning, we'll do the maintenance. We'll give more shared spaces. Both of these will have access to building amenities.

And then there's the opportunity to drive additional revenue, something that we're not really tapping into enough at the moment, but there's an opportunity that we estimate to be around 3% to 5%. And I think that just goes straight to the bottom line. And if it's the highest sought after amenity, we've got some extraordinary buildings and some really -- it's not for every building, but the buildings that are in the strong locations where we can create these spaces, we're going to start to drive revenue.

In order to get there, we've announced -- we know that we've got the GBP 200 million of disposals. That's in the strategy already. We're on track to deliver that by year-end '27. We are then considering an additional GBP 100 million of disposals over and above that. And then how are we going to use the money? Well, there's looking at our balance sheet and then there's investing in the buildings. We want to make sure that we're doing refurbishments only. That is low risk for a high return. We don't want to be taking on new build projects or cutting corners in this market. Construction costs are just too high for us to embark on those sorts of projects.

We'll be investing in the offices themselves, so doing the design and the fit out, we'll be investing in people. We have some skills gaps. We need to add. So we provided a contingency that allows us to add the right kind of core skills and deliver the tools to our team and give them the training and the L&D. I'll come on to tech in a little bit. It deserves its own slide. And we're going to rebrand this business, and that's underway. And our brand is our culture and our brand is our ability to connect with our audience. So it's a critical move for us to get right, and we're really excited by it. And it's a customer of ours who's actually doing that work for us, which I think is important too, because then they understand us and who we want to be and who we're connecting with.

Just to touch on the technology piece. We are embarking on a number of projects, and we're using Agentic AI for inquiries out of office hours. Actually, lots of people are doing that. It's really effective, going very, very well. We're deploying AI to our credit control to manage our debt. We think that, that is going to actually really deliver some results for us. And we're looking at our facilities management and how can we just be better at delivering a level of service using AI, capturing data to make better informed decisions, and really culturally, I want everybody at the business to really embrace AI, to be thinking about AI in the every day. And if we can get people individually to do that, then I think corporately, we start to reap the benefits of that.

So we've targeted 4 buildings, and 4 buildings are our case study buildings. And we've created a contiguous space, some chunks of vacant space within each of these buildings, and we'll talk about the returns and Tom will talk about the returns in a sec. And with Salisbury House, where we're obviously here today, we have an average rent of GBP 68 a foot in this building, and other operators who are in Prime City Grade A space are achieving gross rents of around GBP 300 a foot. So we have an opportunity here to say, okay, we can improve our offer and we can create something that is quite significantly discounted to the prime and yet we're in this core city location.

So there's a real opportunity for upside here. This building is 220,000 square feet. We have 5 meeting rooms. It's not enough. We should have 25 meeting rooms. We know that meeting rooms generate a greater revenue per square foot than an office in the same room at a 55% utilization, and that your optimal utilization should be 65% to 68%. We know that 50% of our income comes from inside the building, 50% comes from outside the building. This is industry information. So if we know this, let's generate more revenue by delivering more amenity, which in turn is more accretive to the offices and starts to drive rents in the offices above.

We are working at Cargo Works, which is close to Waterloo Station. Edinburgh House, which is actually outside of our top 10 revenue-generating buildings, but I think important to try and demonstrate how we can do this in the more peripheral locations. And then Centro in Camden, Centro actually is where our head office is. Centro is 205,000, 210,000 square feet. It doesn't have a heart. It's just offices. We need to create experiences for people. We need to deliver something that actually compels people to come back to the office, to come to the buildings. And that is about how we make people feel.

So with Centro, we're going to be activating the ground floor where we're going to be putting in a bakery with likely some really, really unhealthy food. But it's okay because we're going to have a wellness hub next to it to just balance that out. And we're going to put in a meeting and event hub, and we'll think about how we use that space when it's not being used for events, and we'll do pop-ups and galleries. And all of that, which is revenue generating in isolation, is accretive to the offices upstairs. How are we creating a better experience for people who are coming to our buildings. And that's just good business. That means that we're going to let up spaces more quickly and at higher revenues.

Tom, go through the numbers, if you wouldn't mind.

Yes. On the returns, so across the 4 buildings, relatively modest CapEx in what are low-risk refurbishments. So in total, we're under GBP 20 million across the 4, and we believe the returns we can generate from that are very substantial. So incremental yields on cost of mid-teens or better and unlevered target IRRs of early teens as well, or in some cases, better, particularly Salisbury House, where we're considerably ahead of that. So those are substantial returns for little risk.

And then I think when you look at the wider portfolio, this is not just about saying here are 4 buildings, we'll work on this and we'll deliver this in the medium term. We're looking at the entire portfolio, where can we make improvements? Where do we have tired common areas, poor entrances where we can just lift it up by being very smart about how we spend our money. So I think we need to be really careful about how we invest our cash.

And I think I bring to this business a founder mentality. I'm good at being careful about how we spend money, and I'll view that to the team to make sure that we're really on top of it and still create space that actually starts to drive rents, because we're giving something to the tenants, we're improving the experience. So really, this is about driving improvements across the portfolio. If we have an empty office that has been empty for 2 years, and we have some of those, how are we thinking about actually investing in that office and see how it lets when we actually add something.

I'll let Tom talk through the bridging on this, but this is an important slide because this is our ambition. So if we think about where we want to be in the medium term, that sort of 4- to 6-year period, because Tom won't let me give a defined date on which to deliver, because apparently, I'll get in trouble if we don't get it. But this is about understanding how we can drive our revenue then from a trading profit before interest, which we think is the right metric to really then give a transparent view of the performance of this business. Tom, do you want to chat through it?

Yes. So starting place reported trading profit before interest at March of around GBP 90 million. Stripping out disposals made in the year and also nonrecurring items, that's more like GBP 80 million. And I suppose we put in a stairway of the different items, different levers will drive substantial uplift in earnings over time. And what I would say is this is illustrative. So the size of the box is the same. There will be different weightings to each, but really, it's across occupancy growth. We're at 81.6% today on stabilized portfolio, just under 80% on the whole portfolio. So there's a significant opportunity to get that back up to probably where we've historically been, which is closer to 90%.

We have in our portfolio and in our existing leases, contracted rent increases after year 1. That will continue in future. So there's an element of that, which will drive income. And then the big piece, enhanced products and pricing, as we've spoken about, and we will be recycling capital out of existing assets into that over time. And as we said then, there's also operational efficiencies and the additional revenue of meeting rooms, et cetera. So taking all that together, that comes to our medium-term ambition of over GBP 125 million, which should be more than 50% up on the GBP 80 million we're starting place from.

Yes. Important to add, not to scale, but also important to add that when we start to get this right and we've rebranded this business and we can deliver the returns that we're aiming for, this isn't just about building on the organic portfolio that we have. This is about saying we can be a bigger business, but we're only going to be a bigger business if we get the fundamentals right. But I think that ambition then to take this business forward beyond the portfolio that we have today is really important.

I think to summarize, really, the market that we are in that is there to take advantage of is structurally growing. That flex market is structurally growing. We have an extraordinary portfolio. These buildings are really quite something. And I think that if we take advantage of our scale, which allows us really to then own this best value category and own it in a way where nobody else is really going for this area of the market, and yet it's the biggest pool of demand for office space in London. It's an extraordinary opportunity. There's low-risk, high-return investments that will maximize earnings. And if we get our earnings right, then that has a positive impact on our capital values as well.

And I think just to close and to repeat, I'm really, really clear on what we need to do, and that clarity comes from the experience that I've got. This is not a standing start. I'm not coming and starting in this business 4 months ago and trying to figure this out. I already knew what the answer was. The nuance then is how we execute on that. And I think with that clarity, with a great team, for which I'm really grateful for the hard work that's gone into today, and the hard work that's got us to that stabilized position, I think it's really a very exciting and interesting opportunity moving forward.

We'd love to take some questions. I say love, it depends on the question, but we're going to take a seat and field some questions. Thank you very much.

Denese Newton from Stifel. Just going back to that sort of segment of the market that you're looking to operate in, moving up the sort of value chain. I think you just said that that's the biggest addressable market you see in sort of flexible space and that no one else is really taking advantage of it. So where are those customers going at the moment?

Well, I think that the opportunity is to create the product that they are sort of needing and wanting. And I think it's quite disparate at the moment. So some of them are in our buildings, some of them are in other buildings in our areas. Some are in areas that we are not in, but we hope to attract them to our buildings. So the market is very strong, very much there. I think there's a debate that's been ongoing for too many years actually on sort of the return to work, the hybrid work, the remote working. And actually, what we know is if we get our product right, that people actually will attract them to our buildings. This is about giving a tool to employers to say, okay, you want your people to come in. Well, it's not for us to tell people they should be in for 3 days or 5 days. Our responsibility as a provider of space and owner of these assets is to say, this is the best possible environment that you can have that we're creating for you and then it's over to you.

Okay. And I just got a second question just on your medium-term target, so hitting that GBP 125 million in 4 to 6 years. Do you see that as a sort of steady progression? Or are you expecting that the real fruits of that will come towards the end of that period once you put the investment in?

I think there will be some time, Denese, to see it. I mean, as Charlie said, there are things we can do in the near term. But I think if we're going to really achieve much higher pricing, that does require us to invest money in buildings. And that is, even if it's not huge capital, but that will take time to deliver. So it will be, I think, more back-end weighted.

Ashnaa Vyas from Deutsche Numis. Just 2 questions. One on the quantum of CapEx we should expect over the medium term as you transform the portfolio. And the second one, if you could talk a bit more about the rental uplift that you can achieve on your managed offer versus the space only on a net basis?

Well, I'll let Tom answer on the CapEx. On the rental uplifts, on the managed space, we should be almost seeing a sort of a net position, a premium to ERV rents of around really 30% to 40% over and above what we've been achieving on a traditional basis. I think in terms of the delta between space and managed, it's not a question that you can answer, because we have to look at every individual asset. So I can answer on an individual asset basis. But I think there isn't a blanket approach that allows us to give an answer on that, because some buildings will be all managed, some buildings will be all space, and some will have a mix. And then that's where you'll see the delta. But that will be driven by sort of where they are in the buildings and the quality of that space.

On the CapEx, all right, you're behind the pillar, I'm behind the pillar. Let me move a bit. We're budgeting, as I said, GBP 55 million for this year, which over GBP 40 million is value-add CapEx. In the future years, we expect that to be more like GBP 45 million, so just over GBP 30 million of value-add CapEx per year. What I would say, though, is there are moving parts to this. So if we can find opportunities to deploy more capital more quickly, generate greater returns, we will do that. So I think it will grow over time. But I suppose when we look at the moment of that plan, it's really around GBP 200 million or so of CapEx over the 5 years.

It's Tom Musson at Berenberg. Can I just follow up on the GBP 125 million trading profit target, which is pre-interest. Are you able to give us a sense at the moment of what your internal modeling is suggesting for that profit journey? Because you guide to the step-down in FY '27 profits, but then FY '28, I presume you have the annualization of this year's disposals, higher debt costs, I guess, as well if you need to start addressing the green bond ahead of time using facilities. So just trying to search maybe for where you expect profitability to trough out and at what level before the benefits of those investments start coming through?

I think as we look here, given the refinancing, I think it's likely to be FY '28, because there will be refinancing we do over the next 12 to 18 months, Tom, which will have a significant impact in FY '28. So I think we will start seeing operating improvements through '27 and into '28, but I suspect that will be outweighed by the impact of the refinancing we need to do.

Got it. And separately, can you give a sense of what proportion of your tenants benefit at the moment from small business rates relief? Just because wondering whether the Valuation Office's decision to reclassify serviced offices and co-working spaces as single properties rather than multiple spaces is impacting you at all? Have you had to support any tenants? Or has there been any sort of reduced interest in smaller units as a result of that?

No. In actual fact, our position has been quite neutral on that. Because we let our spaces on leases typically, then they're all considered to be individual hereditaments. So to date, we've had our customers pay the rates themselves, so that we are not being then considered under this change in policy where the building is considered as a single hereditament, and we'll continue to do that. I think the industry actually is seeing a change where the clients or the customers will be responsible for their rates, but there's a pass-through element.

So we may, moving forward, manage that for them, but we're literally a conduit. So it's still their responsibility. If the rates goes up, it's their responsibility. If it comes down, it's to their benefit. But we just then become a conduit for the payment of that. So we don't see any need to sort of anticipate any sort of provision against any risk on that.

Okay. That's clear. And maybe last one, if I can. You've decided to switch your credit rating to Fitch from S&P. What's different about Fitch's methodology that means you think it's more appropriate for a business of your scale?

It's really the size point, Tom. S&P has a -- kind of starts penalizing you if you get below a certain scale, which we're very close to, whereas that isn't the way the Fitch model works. So given that we expect that we will be making further disposals, as we said today, we are just conscious that we're right at the bottom end already of S&P's scale matrix before they start expecting more from you in terms of credit metrics, and we have more flexibility under Fitch. They also cover more of the U.K. real estate sector.

Hemant Kotak from Kolytics. Charlie, just going back to what you were saying earlier. So you've obviously got a lot of experience in this area, as you've alluded to. How has the industry changed? Because obviously, when you founded The Office Group, it was less competitive. These concepts were really quite new. Is it more competitive now? Is there a different playbook now?

I think the playbook is different because it's responding to the changing needs of occupiers. So that's really driving all the changes. Is it more competitive? There are certainly more operators in the sector. I always believe in The Office Group, and I think this applies to Workspace as well that we should have an awareness of our competition, but we should not be making decisions based on our competition. We have our portfolio. It's a great portfolio. We need to be the very best version of ourselves. And so we can learn from others.

When I think back to 2011, when I first went to New York and I met WeWork and Adam Neumann, and we didn't want to be them. In fact, in some ways, we liked being not them. But we learned about actually having a bit more courage to go further to be more bold with what we were trying to do. So we'll probably take more lessons from outside the office world than from inside the office world. And I think also where we're aiming with this business of owning that best value category and targeting the SME market, there isn't a lot of competition. There are some independents, but our scale is what gives us the significant advantage. If we get our branding right, the ability to penetrate the market, competition doesn't actually come into the vernacular for us other than, and not in an arrogant way, but other than to just be aware of what's happening in the market, but we really should dominate, and that's our objective.

Okay. When I look at the ERV numbers for what's happened to your business, I think it was about down 3% for the smaller space and 5% on the bigger space. And you look at competitors, that was up. So could you just help us understand where that path is going forward and somebody to help us understand what the delta was?

So I think that's a reflection of our buildings and our locations. So what we've seen in the macro market, and our market follows the macro market, the macro market of Core West and Prime West and Prime City is a very short supply. And so the macro market then feeds through to the flex market. So that short supply has meant that actually the sort of the best operators in those locations are going to start to be driving up occupancy and they're going to be driving up rents.

What we believe is going to be the trend moving forward is that because of that short supply and because of bigger macro factors that are softening yields and construction costs and cost of debt, really, the only lever for the traditional market is to drive rent. And again, that flows through to the flex world.

As therefore, the space becomes much more expensive, this kind of flight to quality that I mentioned that moves towards a flight to value, that is really the driver for that. And we'll see that actually there will be a ripple effect where we see the demand for offices start to move out from prime and move more towards our secondary locations. Of course, we're in a Prime City location now, but this is really our only zone 1 asset. So we're excited about that trend moving forward.

I think the other thing, Hemant, just to say is given that price has been used as a lever over the last few months for occupancy, which we say we're moving away from, that has ultimately created evidence which has been used by our valuers as well. So that's another reason why I think you've seen our ERVs going down. And as we say, we don't expect that that's going to be the way we run things going forward.

Great. And just one final question, if I may, on dividends. So I think there's been some discussions around where you expect your pre-interest profit to go to. And then obviously, we just talked about the cost elements, the interest costs and things like that. Where do you expect your dividend to be? And you've reduced your dividend for this year versus last year. Was there a scope to reduce it more this year, so you sort of put a floor on it, or within the REIT rules? And how do you see the dividend playing out in the future?

Well, I think the policy shift we've done, Hemant, ties dividends directly to earnings. So earnings will be 1.2x the dividend. So I'm not going to give specific guidance on what I think is going to happen to the dividend, because I'm then doing the same for earnings. In answer to your question about FY '26 and what we've done around for us, 1.2x earnings is around the right level to maintain our compliance with the REIT regime going forward. We have a little bit of extra capacity this year if we wanted to reduce it further, but we set a consistent policy. We're not going to chop and change for 1 year.

Matt Norris from Gravis. Looking at Slide 22 and the rollout of the strategy, you've identified a gap in the market. Is the strategy bold enough? Why not more than GBP 200 million of CapEx? Why not faster than 5 years?

Well, I think the process has started now. So when I talk about, on Page 23, the sort of rolling the improvements out throughout the portfolio, I think that's part of that. And these buildings have offered up vacant space, so we can get on to that very, very quickly. I think we'll assess more, and that's why we're considering an additional GBP 100 million of disposals to look at where else we can push this and drive change quicker. But I think that the nature of real estate is that you identify the space, you get vacant possession of some, you design it, you get on site, you do the works, and then you launch it, and then you fill it. This is not going to happen too quickly, and we think the medium term is the right time frame for us to examine that.

I think, Greg, we got questions coming in?

Yes, we've got a number of questions come in. So a couple of questions from Bjorn Zietsman at Panmure Liberum. He asks, firstly, about the assets under consideration for disposal. Could you talk about what types of assets are being targeted? How should we think about the characteristics of those assets being sold versus those being retained and reinvested into? And could you also give a sense of how much of the disposal program relates to assets acquired through the McKay transaction?

Well, I think the first thing to say is that there are no trophy assets. So everything is up for consideration, and that's an important point. But we are looking at sort of the brand and the cohesiveness of this business and therefore, examining all the properties and how they sit within our strategy as a whole. I think it's really important as a brand that we have that consistency.

And of course, we're looking at sort of running the numbers and modeling all the buildings, so that we understand what the potential upside is if we invest in those buildings. So the driver is to maximize shareholder returns. The driver is to maximize earnings and drive for capital values.

In terms of the McKay portfolio, we have a number of those assets that are in negotiation, under offer, and under contract. So it's probably a better question to answer in a few weeks' time. But I think when we dispose of the ones that we're in negotiations on, we'll be left with 3 maybe.

Bjorn also asks about the earnings focus that's been a key focus of today's presentation. Could you expand on what that means in practice and what changes operationally versus the way Workspace has been run historically? And what do you think has prevented the business from fully optimizing earnings in the past? What gives you the confidence that the actions being taken today can unlock the opportunity that you see?

I think it's really hard for me to speak to the past, having not been here. But what I can say is that for me running this business, earnings is about, in many ways, it's about cash. And that is understanding that actually if we're driving our revenue, how we're thinking about both our OpEx and our CapEx, but with the focus on OpEx to then deliver the earnings. The earnings is our profitability in real terms, and cash is such a strong representation of that. So for me, there's a cultural shift and to make sure that everybody is buying into that to be really efficient.

And just some simple things like our procurement, how do we procure, so many different things, whether it's our cleaning supplies or a furniture, we haven't been thinking about that in the right way, and we need to be more commercial. So there's a commerciality here that sort of I think the ethos of that to bring the discipline Tom definitely brings. So we're really aligned on that. And that to me is really how we can focus on earnings.

The question from Sarim Chaudhry from Jefferies, who asks, can you provide some color to your EPRA cost ratio and the impact that AI can have on lowering your cost base?

Why don't you take on the EPRA? For AI on the cost base, I mean, I'm not sure anybody who's got the crystal ball that can really accurately predict how we're going to make efficiencies and savings. But I would say that this is not to replace people. AI for us is a tool to make us better at what we do, and we should, therefore, make cost efficiencies through that. In terms of the EPRA?

I mean it depends which are the 2 measures you're looking at, but if we're including direct vacancy, we're kind of high 20s, I think. And if we're excluding it, we will be closer to 20%, which is not out of line with where other peers in the industry are. But it is something we look at closely, and we'll continue to do so.

A couple of questions from Adam Shapton at Green Street, who asks, could you talk more about the competitive environment in the value segment? Do you think most operators are meeting their cost of capital at current market rents? And are you seeing new entrants?

Again, hard to talk about other operators. The competitive arena, maybe if I answer it this way, there's a lot of sort of talk about the statistics of how much of the traditional market flex will consume. And a lot of numbers get thrown out and the one that people land on tends to be 20%. And so that's good. That's nice. It's a good, big chunk of the market. In my view, I actually think that if you look particularly at the sub-5,000 square foot market, that you could invert that and that flex should be actually taking 80% of the market. So when we talk about competition, this is then the norm and the mainstream as we move forward. So I guess, the breadth of the market means that there's room for lots of players in the market.

And another question from Adam who asks, what do you model for overheads by, say, FY '29? In the bridge slide, you say investment in people, but also operational efficiencies, for example?

I think we're really modeling that overhead should be effectively not keeping pace with inflation over time. That's really probably the best way of answering that one.

There's a question from Paul May at Barclays who asks, specifically, when will we see the first returns coming through from the proof-of-concept schemes case studies? Is there any risk as you transition, you remain behind the increased competition that appears to have a head start in the structurally supported segment?

So I think on the case studies that we'll start to evidence the performance of those within the next 12 to 18 months. And that's just by virtue of the fact that we have construction work to carry out. But no, I don't think we'll fall behind because, in fact, in many ways, I think we'll lead the way, because we have this near-term upside, that's about our pricing structure and looking at the rest of the portfolio. We're going to start to show evidence of this quite quickly, I would say. And it may be piecemeal, but in time, that will all come together. I don't see us falling behind at all. I think in many ways, others may take our lead.

And the final question is an anonymous one that asks, how have you sized the further GBP 100 million of disposals?

I would say that, that's under consideration. So we have a number of assets that we're looking at of varying lot sizes. So it was reported that we were selling Salisbury House. We're not, but we might. But for now, we're investing in this building. That's obviously sort of a significant lot size. And I think on the smaller lot sizes, what we've seen evidence in our disposals on the GBP 200 million, with the GBP 75 million balance that we're moving through, is that the buyers for this kind of lot size of between sort of GBP 5 million and GBP 30 million to GBP 40 million. Actually, there are some cash buyers out there. That size of buyer seems to be quite comfortable in that market. So we're seeing good interest in that.

Are there any other questions from the room?

No.

In which case, I think I need another coffee. So thank you all very much for coming, and I look forward to seeing you all again soon. Thank you.

Good morning, and welcome. It's great to see so many familiar faces here in our events center 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 in -- 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 5 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 stabilizing then rebuilding occupancy. But before I go into that, I'll summarize 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 GBP 2 million annualized. We've held our dividend flat and it's well underpinned by our cash flow because we understand how hugely important dividend is to our shareholders.

On the dark blue line, Dave will talk through this in detail. but our valuation movement has been driven by lower occupancy and contracted rent along with a fall in ARVs, 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 I 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 lease -- standard lease model. This is the 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 Lawrence says, we are operating in a softer economy, and we are seeing some customers deferring decisions in the run-up to -- in the uncertainty area 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 2.

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 Center 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, GBP 0.5 million to GBP 67.3 million. The total rental income was down 2.9% to GBP 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 annualized savings of GBP 2 million. Net finance costs increased by GBP 1 million, reflecting -- sorry, a decrease in capitalized interest following the completion of Leroy House in October 2024 and also an increase in the average interest rate following repayment of GBP 80 million or 3.3% private placement notes in August 2025.

Overall, trading profit after interest was therefore down 6.4% to GBP 30.6 million, with adjusted underlying earnings per share down to 15.8p. There were one-off costs of GBP 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 GBP 71.1 million. Taking into account the trading profit performance and confidence in the longer-term prospects for the company, we will be paying an interim dividend of 9.4p per share, in line with 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 GBP 833 million with NTA per share of GBP 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 at the 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 accounts for around 3/4 of the overall value. And 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 6 months, we have successfully refinanced GBP 200 million of bank facilities, extending the maturity until 2029 as well as extending the maturity of a further GBP 215 million of facilities by one year. The facilities have the option to extend the 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 GBP 80 million of private placement notes.

Looking forward, the softer economy and ongoing macroeconomic uncertainty continues 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 6-month benefit of the cost efficiencies that we implemented in the first half of the year.

We expect full year capital expenditure of around GBP 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 3 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're 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 5 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 stabilizing and then rebuilding occupancy. There are two drivers to our occupancy, new customers and retaining our existing customers. Many people don't realize 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 will 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 5.5 years on an initial 2-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 are in our centers daily. Therefore, the function and presentation of our buildings is absolutely critical, as is the service they receive from our center 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 center 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 -- is already up 2% to 85%. In October, when our center 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 centers 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 spent GBP 700,000 on high-impact areas, including breakout areas, receptions, meeting rooms and formal seating areas, corridors and putting new phone booths in.

Over the leather market, sorry, pleasingly, our NPS at Vox has improved to plus 78 from plus 41 just a year ago. And over The Leather Market, our NPS has increased to plus 37 from plus 16, a year ago. Occupancy at other market is 82% and being transparent marginally down. However, that is mostly driven by the impact of a fail customers 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 centers and presentation. Francesca, who is our General Manager at Vox Studio, has some fascinating insights of our own on the impacts.

[Presentation]

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 -- 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 Screenworks.

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 incentivization 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 trialing new initiatives like furnishing units, inclusive deals and more flexible terms. And as you heard from Francesca, the center 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. Elodie, 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 Elodie. 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 CGIs 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 center teams, shifting accountability to the call face and incentivizing 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 GBP 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 GBP 140 million 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 2-year target of GBP 200 million, which equates to circa 30 -- sorry, 20 assets. We sold GBP 52 million so far this year, which is broadly in line with book value. That's on top of the GBP 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 will 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 have 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 project, 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 hinderlands out of Zone 1 through to Zone 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 socializing.

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 3 elements started together immediately. We're confident in our ability to fix occupancy and deliver capital recycling to optimize 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 capitalize 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. Qube is an example. More on that in a moment. Micro storage is another example. There are others we are monitoring, targeting 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 Qube. 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 and Elephant & Castle. Our deal with Qube at the Old Dairy is one of a pipeline of sites we've identified in London as we support Qube's growth with our real estate and modest amounts of capital.

The 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 Qube facility. We're also exploring ways of working together, including creating podcast studios in our assets that are operated or powered by Qube. 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 was the founder there, which is a phenomenal success story within 5 short years. He's just sold that business for GBP 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 our strategy session, which we got really good feedback from. And every time we take sell-side or investors 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 largest 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.

[Presentation]

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. And 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.

Can I just ask that we introduce ourselves for those on the webcast, everyone knows who's asking the question. Thank you.

Neil Green from JPMorgan. Two, please. First, on the occupancy side, given your lease break profile, you're 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 trough at, please?

And secondly, encouragingly leasing activity has 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 3 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.

Yes.

Yes. And the third one is how the deals post the period close effectively, how they look against ERV. I think Dave is probably reasonably well positioned to answer that as well. But picking up the first one, we've been very transparent about 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 offices, 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 monitoring very, very closely.

So I think after those 2 large occupiers, we stepped down a long way into the sort of 10,000 to 15,000, if that makes sense. There aren't many of those in our portfolio either. And then we stepped down again into the sort of 5,000 to 8,000 square foot mark. The sweet spot of our business remains 300 to 1,200 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. [indiscernible] has elected to stay, we've moved out of our corporate space in Kennington to facilitate their expansion. But there are other cases where 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 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 large unit demand and where that's taking place, we've been comparing that to the alternative of subdividing units. Hopefully, that answers that question.

Dave, I might hand over to you. We're being very careful about guiding to a trough in occupancy as you would appreciate.

Yes. I mean, I think it would be rash to guide to a trough against the macro that we've seen, particularly a week before budget. Having said that, we are very focused, as we've talked about on what we can control and 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 leaving 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 after the budget, but when we speak to the customers, they are positive about the -- overwhelmingly, they are positive about their prospects for growth next year. So I think that augurs well for next year.

In terms of ERVs and pricing where we're seeing, as we saw ERV's down in the first half, and that's really been driven by the deals we're doing. We are still doing deals at the -- I mean for us, as Lawrence 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 have fun to stay in the business, there's 2 levers effectively; occupancy and rate. And if occupancy comes up a little bit, we let rate off, rebuild occupancy, pull rate on effectively. So as you preset, 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 realized with the pilot projects is that where we're investing and improving the environment, those rent increases at the end of that 2-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 you're investing in the building.

Denese down the front here, I think.

Denese 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?

Yes. I think if you -- in recent times, the last few years -- sorry, retention has slipped. There's no question. And I think going back just before I joined, we had several months where retention numbers were meaningfully lower than that 82%. And as I mentioned earlier, there are really 2 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/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 is here in the audience today is overseeing the sales function until James Graham arrives and doing a great job. We've been forensic in going through line by line, those customers. And as Francesca mentioned, we've moved from being reactive to a proactive. We're positively engaging with our customers 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. It's 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. The CEOs are in our business, in our centers 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 center managers, and we're seeing benefits. So it is a key area of focus for us.

Adam Shapton at Green Street. Two questions. One -- the first one is technical one 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, in 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. We have -- this year, we have 2 valuers. So we have Knight Frank as well as CBRE valuing different parts of the portfolio. They both do Red Book, very similar approach, but slightly different assumptions. So there is -- within there, an assumption around void, yes, for different properties, units, et cetera. The key driver, though, really is the occupancy as we say, contracted rent at the moment. That's really what's driving the -- it's less about the endpoint. It's much more about the fact that the occupancy at the moment is lower.

Yes. Okay. So my question was, has that assumption changed in the last 2 years?

No.

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 a structural occupancy number. Is that still right? Is that what your value is assuming?

So long-term average is that, Dave, is 90%.

Yes. 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. And then on retentions and renewals, it's great to see the number increasing. If you split out those renewals from your like-for-like numbers, is it -- 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. So -- and I know you mentioned there's people increasing and decreasing in GLA, but what's the renewal spread [indiscernible]?

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 square foot and I renewed, what's the renewal spread, is it -- versus previous passing?

So it's -- 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 large 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 sweet spot of our business, we've got more leverage there, if you appreciate.

And we -- the renewal spreads will get the 5% kickers in the -- on the first anniversary, as you appreciate, standard lease model 2 years ,5% uplift year 1. And then effectively, we go to market at -- when I say market, it's not a true market review, but we're able to set a rent at the end of that period. So we -- as I say, 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.

Yes, there's definitely a difference between small and large, absolutely. I mean you can see that in the ERV spreads that I talked about for the smaller units, it's a much smaller decrease. And in terms of -- 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.

It's James Carswell from Peel Hunt. Just on the occupancy, can we just 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% like-for-like number you bought today and likewise Qube, which I think was post period end. The benefit of that is still to come in the occupancy number. Is that correct?

Yes.

Yes. So actually, while the expansion actually is post the end of September, so that's not in the September occupancy number. And you're right, Qube, 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, we'll be replacing occupied space.

Okay. Perfect. And then I mean similar question to Denese, maybe on the conversion rates, I mean, it's obviously great to see it improving. How -- what's the kind of holy grail in terms of the conversion rate, do you think you can...

Converting 18% roughly, [indiscernible], we have deals that come into the system. We think there's capacity to improve that, get to 20%, get to 22% as I think it's in that sort of league, if that makes sense. The flex industry use a whole variety of 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 little challenging. But we think there is definitely further improvement to come from conversion. Well, I think that's fair. Yes.

And I think back to the point of our potential pricing as we start to see occupancy increasing, there will be more aggressive on pricing, which you expect to see coming down. Our priority at the moment is to bring in customers, build occupancy and the point's made already once we've got that customer in place, then we can start to work with that customer, expand that customer.

Perfect. And then just final question on business rates. I think I'm around thinking there's some changes to operators and landlords that issue licenses 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 a market?

The leases give us an advantage in terms of mitigation, but the -- I think all the pressure that you're seeing at the moment, and I suspect what you're referring to, James, the flexible space organization, effectively owners organization called [ Flexor. ] And in fact, one of our team members is Chair of [ Flexor ] this year. They are lobbying government very, very actively. There's councils approach these things differently as you'd appreciate. 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 the business rate should only apply to the desks. So -- because that's the least area. So if you go to one of those operators' websites, they're leasing space by the desk perfectly. 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 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 yes, we're -- this current issue that's getting all the press, it does not have an impact on us.

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 be required to drive your inquiry levels to the levels that they are? I 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 and other areas, not just generating inquiries, but in supporting retention as well?

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 trialing other what we call AI verticals. So we showed you today that we can do in 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 hugely excited, as you appreciate, because they're running a sound studio or they've got a podcaster or whatever it is or they are 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 special reasoning. They've got a more regular type layer. 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 guests I can fit in, 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 and 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 3 weeks. We didn't exercise a few months ago. It was done in hours. And 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 would appreciate. We're pushing to 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 the 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 wanted 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, deliver the next phase of innovation and what they're doing. So where the bit that gets in the way, effectively, that makes sense there'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 9:00 at night or 10:00 at night. They've their dinner sitting at home, 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, there's 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?

So the -- on your question about cost, roughly the equivalent cost of one sort of inquiries agent or in fact, less annualized. But importantly, it's not about replacing people. It's about freeing up that team to do higher value work. So first implementation of Elodie 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 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, Elodie agent to sit on the home page, 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.

Any other questions from the floor? I'm not sure if we have any questions from the webcast? Clare is going to translate it..

Just one question. Have -- from Richard Williams of QuotedData. Have we had any dialogue with Saba Capital, new shareholder?

We haven't, at this stage, met with Saba. We've had some e-mail communication with Saba. We anticipate meeting them at some stage during the road show. But at this point, we haven't 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 5 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 human beings, 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, there'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.

This presentation has now ended.