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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and thank you for standing by. Welcome to IWG plc Third Quarter Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Mark Dixon, CEO of IWG.
Thank you, operator. Thank you, Nadia. Good morning, everyone, and thank you for joining this morning's call to discuss our Q3 trading update. I'm joined on the call today by Glyn Hughes, Group CFO, and we'll take questions after these brief introductory comments.Although we remain in a period of heightened macroeconomic uncertainty, and therefore, it's right to remain suitably cautious, I'm pleased to report that our trading performance continues to strengthen during Q3 in all our major markets. September was an outstanding month on all counts. Hybrid working is becoming increasingly relevant. And more and more, companies of all sizes, and many of you have probably experienced this within your own organizations, are adopting hybrid working as a way to support their workforce in the digital world that we live in today. Our company is the leading global provider of workspace brands. And remember, we've got a network that's unrivaled in its coverage, and we're more than 4x larger than the largest competitor. We're perfectly positioned to support companies as they make this change.Demand for our services continue to accelerate, and we've seen unprecedented growth with new enterprise clients. And we gained, as we mentioned on the half year, 900 clients in the first half. In the third quarter alone, we've added a further 1,100 customers. And as we see many companies turn towards hybrid working, we're also seeing many of our existing clients expanding their operations with us. And this is what's underpinning the growth as more and more companies moving towards the platform.So today, just where are we in terms of our relationships with the Fortune 500 as a measure, today, we've got a business relationship with 83% of the Fortune 500, and of course, with many, many other companies as well. So we've had an acceleration in our improvements in occupancy. The sequential month-to-month improvement we've seen since March got stronger in Q3. The pre-2020 average occupancy for the quarter was 71.2%, so that's the average, but the exit rate in September was 72.5%, that for the pre-2020, which is a sort of good marker of performance. It's a stable group. No new centers added.So these positive trends in occupancy are also being accompanied by strong pickup in the consumption of ancillary services, and we announced already in Q2 an increase in meeting room and day office. We've seen similarly strong increase, in fact, an improving increase in Q3 over Q2 with a 30.5% rise. So basically, we've got all 3 key indicators moving forward with occupancy improving with an accelerated pace; the reduction in discounts, therefore, price improving; and then services revenues starting to build back as more and more people come back to the centers.Together, this has delivered a 5.2% quarter-on-quarter increase in revenue from all of our open centers. You'll see today -- in today's announcement, we've provided a system-wide revenue indicator, and that's across the whole estate for the first time. So this is showing all the revenue that's going across the platform, and this is going to be particularly important to give a scale of the business activity as we reduce our own centers by franchising, and franchising and partnerships become a much larger part of how we operate the business as we pivot towards more and more capital-light growth.So we'll update on that regularly going forward. And as you'll see in today's announcement, a lot more franchising partner agreements being signed. All of these with either no or much lower capital investment being required, so capital-light programs working well. And looking forward -- and we're already into the fourth quarter obviously, and looking forward to 2022, we've got a really excellent pipeline for further growth in the same manner. So we started to pick up momentum -- more and more momentum on the growth side.Turning to cost. As we've mentioned many times over the past 15 months, we've really focused on the cost efficiency of our business, and we remain on track to achieve the targeted annualized run rate cost savings of about GBP 320 million by the end of the year. So with the clear inflection in revenue accumulating in September being really an outstanding month on all counts and our good progress on cost savings, we're really starting to see a strong and improving cash flow from operations each month, this before investment in growth. And this is giving us real confidence as we move into 2022.So just moving to that investment in growth. And remember, this year has seen more investment in sort of more capital-heavy growth as we finished off the program that we'd signed up to in previous years. So these are the centers we decided were worth keeping, great sites, good markets that we continue to invest in. So 2021 is a change over year where you still have the old type of growth but you've got a lot of the new type of growth, i.e., capital-light growth. And so the investment this year is a little higher for the same amount of growth.So this year's net cash investment in growth, GBP 141.5 million for the 9 months ended in September, and this includes a net investment in construction about GBP 79 million and the rest being the associated investment in operating costs, et cetera, for those centers during the period.So we would have been -- had we not done that growth, GBP 141 million, GBP 142 million better off in cash. And these were all investments that we felt were the right things to do even in the difficult circumstances we've seen over the past year, 15 months. But the good news is, as we move forward, there's less and less of these sort of more capital-heavy investments, and we're much more on to the capital-light model, and that will become the norm as we move through 2022.Overall, we've maintained our strong financial position, net debt remaining broadly the same since June, and that's after that investment in new centers.And just to conclude, moving away from the Q3 trading results, we have announced in today's update that we're undertaking a preliminary review to assess the strategic and commercial rationale for separating the digital and technology assets into -- of the company into a separately identified and independent business. And we're also looking at the potential to leverage the intellectual property of the group, along with the ownership structure of the property portfolio.Over the past 30-odd years in business, we've built quite valuable underlying assets in the business that we feel could be obscured by the existing group structure. So detailed work is being undertaken at the moment to assess the feasibility of the separation, and we expect to be able to update on the progress in the first half of next year.Although there's still -- just moving back to the results, although there's still macro uncertainty, we're very pleased in the way our trading performance has strengthened throughout the third quarter, with both all 3 indicators, occupancy, pricing and servicing -- services all coming back strongly month-on-month with a very good September, and that's followed through into what we can see in the fourth quarter.So to note, whilst we're doing well on all these indicators, we still haven't reached the pre-pandemic levels. But these positive trends are closing the gap quickly, and we expect to make further progress as we go through the remaining part of this year and into 2022. And the strength of these trends gives us confidence in delivering the results for 2021 in line with our expectations, and the momentum will set very strong foundations for a continued recovery in 2022.And with that, I thank you all, and we'll hand back to the operator and open the call for questions for Glyn and myself. Thank you, operator.
[Operator Instructions] The first question comes from the line of Andy Grobler from Crédit Suisse.
Just 3 for me, if I may. The first one, just predictably, I guess, on the separation announcement. Could you give us a bit more detail about the scale or the potential scale of that separation and also the motivation for doing it?Secondly, the wins for enterprise clients, very strong during the quarter. Could you just, again, give us a bit more detail about what those enterprise clients want? Is it just access or potential access to the network? Or are they specifically taking space?And then lastly, you reported the system-wide revenues. So there's about just under GBP 70 million difference between that system-wide revenue number and the group revenues. Can you just break that down between franchise and JVs or any other metrics? And will you be able to give us that data going back historically?
Thanks, Andy. So let's just deal with the enterprise customers. First of all, what are they buying? They are buying access. So we've got more customers just buying access across the network. A lot of wins in that area. They're also buying hub-and-spoke, where they are adopting a much more distributed work setup with more people working for much more local offices. And behind this strong demand from workers who are resisting in many countries, it's not all countries, but many countries, the resisting companies asking them to sort of commute back to offices. And really, the enemy underlying all of these moves is commuting. And so long commutes will be dramatically reduced in years to come. And so in order to do that, you -- companies are supplying hub-and-spoke offices, where people rather than commute long distances will go into a local office, and we're seeing a lot of that.We're also seeing companies downsizing, where they just basically used to have everyone in one office, maybe in a city center or in a number of city center offices that want to then downsize and get flexible by -- and sort of give up long-term leases, fixed leases and move to a much, much more flexible and service-type platform. So we're seeing all 3 of those from enterprise customers. And then just all standard use, disaster recovery, all the basic products that we do, enterprises are buying all of those in addition.In terms of the separation, whilst we can't go into the detail because we're in the process of doing the strategic review at the moment, but we believe that there's value in -- underlying in a lot of the technology. If you imagine, we've been investing about GBP 50 million a year for many years in our technology platform, and that has, we believe, more value than is being seen by the market. It's very hard to see it because we're not separating it. So this -- one of the key things is the technology, on the one side. And then, of course, we have both our property investments and our property commitments on the other side which can obscure the underlying result.So when we grow the business, that creates an instability in the numbers that we're looking at ways to reduce that in this review. So we're working through it. And we believe that there's definitely something there to go for. And as we've said, we'll update in the first half of next year. In the meantime, we focus fully on performance, cash flow, and that's the sort of main day job every day, and that's coming back strongly.Third question, Andy, I wrote it here. What was it?
Just the difference between the system-wide revenues and the reported.
We won't -- I don't think we'll break it out because it's just too much detail, but if it's meaningful, we'll take a look at that. But it's -- as we look at it today, if we look at the pipeline going forward, I would say that very few JVs, mostly these are management agreements and franchising. So those are the -- and large part of the sort of the work we're looking at now is that. And the -- and I would say that it's about 50-50 between the 2. So -- and many of the franchises, just to be very clear, are people that own buildings. So they're sort of -- I mean, I signed off 2 this morning through the investment committee. And these are 2 people, 2 separate people actually, buildings in the U.S. which is starting to gain traction now, which is pleasing.
And just on that franchise, those franchise revenues, just given how much focus there is on that shift towards asset-light and franchising in general, will you split it out a bit more clearly and potentially give us some historical data around that? Because it's really interesting as that changed and evolved.
Well, that sort of -- that brings us back to the strategic review and allows us to separate these revenues, Andy, so we can be much clearer, and we can go back on that. So we've actually got some exciting -- so once you clear away IFRS 16 and all this noise around leases, you've got some very exciting growth businesses sitting right underneath, but you can't see them today. So that is part of the review. It's sort of clearing away so that you can see this very exciting franchise management business we have, and you can see our digital platform and its income possibilities.
The next question comes from the line of Steve Woolf from Numis Securities.
Thanks for the color on the strategic review. If I could sort of just push you a little further in terms of what's the sort of the scale of the assets we're talking about. We can see the gross and net book value of the property, obviously, on the balance sheet. Are the option to sell, leaseback to put them in separate JVs? And then how is extracting the value of the investment that you've already put into some of those entities?And then just on the technology piece, just thoughts on how you would actually go about extracting some of the value. Are we thinking about sort of separating out the value of some of the platforms themselves that you're using, whether it's on a booking screen or something like that? Just what sort of technology assets are you referring to?And then just 2 very simple follow-ups, just a percentage of revenue generated by enterprise customers now. And then as ancillary revenues pick up, what proportion of either centers or group revenues come from ancillary revenues as well?
Okay. Okay. Let's just -- can you push me further on the separation? Look, the property side is -- that's very clear to us that there's sort of uncomplicate and there's definite value which is sort of hidden today that we think will help if it's made clearer. So -- and the tech is -- I mean this is -- we've got the best tech in the industry by a long way. It's -- this continued investment over many years has created the best platform with all -- many, many applications and lots of very high value-added features that have uses that are beyond what we are doing. And we believe that there is potentially value there, and that's what we're working at the moment. There's lots of comparative valuations out there, Steve. There's people that are sort of getting into this sort of area, lots of startups, and they're raising money in the hundreds of millions for money and investments, but they have no scale and they have no -- they have a fraction of what we have. And it's that, that sort of we're working on as we do our strategic review to ensure that we have something here that is -- it is separable. It is a business that it can stand on its own right, and it has its own future, and it's got some future growth. What's clear and what underpins the whole thing is that there's a global move amongst the workforce driven by companies, driven by people and driven by the environment to move towards a different way of working. And that trend, that move will not stop.So there's lots of opportunities to participate in that sort of very exciting change in the sort of macro change, which will have huge ramifications for real estate, in particular, and for companies. And this gives us more than one bite at the cherry. We've got a very, very attractive and growing franchise business and management business, but there's opportunities to participate beyond that. And that's what we're looking at as we do the tech review.Enterprise, I don't know the accurate number, but it's going to be about -- it was 50% before, it's more than 50% now.
50% of overall group revenues?
Yes.
Does that include the -- that's total enterprise customers or just the enterprise activity like the access cards and things like that?
It's all of the revenues. It's about 50% of revenues, it was, but it's been increasing. So there's a move towards, let's say, larger companies. When we're talking about enterprise, we're talking about larger companies using us in more places, an enterprise customers using us across the network. And so this -- that is growing month-on-month.Startups, smaller companies, have always used us. The changes that enterprise customers, that is the larger companies, are now using us increasingly for the first time and then increasing their scale with us. So that is changing. That's making the revenues sort of move to sort of the companies you've known as opposed to companies you wouldn't.Ancillary revenues were -- I think pre-crisis were about, Glyn, I think about 26%?
28%, Mark, pre-COVID, yes.
28%, right. And I would say that they will definitely come back to 28%, and it could be -- there would be more as -- because they're being supplemented by a lot more drop in revenue. So people that has become officeless so they don't have a fixed office anymore, they drop in and use offices. So that part of the business will continue to grow. So we're optimistic that as we go into '22, we will have -- continue to build. Remember we forecast sort of mid '22 for a sort of back on to full power performance, and -- but it should be enhanced as we get beyond that by 2 things, basically, better ancillary revenue. And remember, our drop in -- so all of our membership drop in and sort of all access, that all comes into ancillary. So that's not counted in office revenue, even though people are using offices some of the time because it's shorter-term revenue. When we give you occupancy, that is long-term occupancy. It's not the short-term stuff. But we expect that, that will come back. So we expect to get better revenues and sort of more richer revenue as we go through '22 with lower costs that we've talked about many times. And we've closed many of the underperforming centers and improve them. The estate is about the same as it was when we started the crisis, but we've added a lot more great centers. So we've improved the stock and to be a better stock and you've lost a lot of the marginals. So on a multisite business like ours, that gives us a greater propensity for margins as we go through '22. That, plus inflation, which we've got some of the world where we have inflation-linked rents and some of the world that we don't. So in a world of inflation, there's that, that we expect. And we're already anticipating that there's more potential upside from that. So we're quite optimistic.We caveat that by saying, of course, we could face more headwinds through more potential lockdowns from COVID-19, but that seems to have reduced quite a lot into November, December. We're seeing much less than we did. So we're sort of set in quite a good position as we report this quarter.
One final follow up. You mentioned the investment of GBP 145 million year-to-date with a total number of sort of CapEx, OpEx investment. Where do you see that at full year? And then you mentioned it moving more capital-light and the heavy spends done. Where would that number be as a comparison for full year '22 at this stage in your mind?
For the remaining quarter, Glyn, you've got a number on that?
Yes. Broadly, we're assuming a similar run rate to what we see in the first 3. So the GBP 141 million equivalent will be circa GBP 170 million to GBP 175 million for the full year.
Yes. And then a lot less, it'll be less for -- look, it will likely be the same amount that you get 3x more growth for it. So we're still doing some -- we're doing some leases, not very many, but in where we get fantastic terms, we've got to sort of brave the effects of GAAP and IFRS 16 and sort of do them because they are compelling in terms of what our criteria all about return on capital.So this is -- essentially, as we enter 2022, people will tell you, commentators talk about the real estate market being robust. It is not. It is a -- it's people talking it up. It's very, very weak. And many owners are now looking at the possibilities of finding another way to create cash flow on buildings, which is these are attractive circumstances for us. Some of them actually need a lease. They can't -- they need a lease. Even though they might want to do a management deal, their funding doesn't allow it, et cetera, et cetera.So -- but it will be -- we get a lot more growth for a lot less money. Hard for us to predict. All I can tell you today is that we have a big pipeline of really attractive franchise deals, management deals and less of leases but a few leases.
The next question comes from the line of Samuel Dindol from Stifel.
Three questions from me. Firstly, on the master franchise agreements, would you have any color on any ongoing discussions there and potential time lines?Secondly, you mentioned access passes in your previous answer, and that's not included in the occupancy. Would you have any sense of what percentage that would add sort of day to day currently for occupancy? That'd be quite interesting.And then finally, I think 70% of centers in Q3 were from partnerships and franchising. Should we expect it to go to sort of 90% plus in the coming years with a bit of leasing or...
Sorry, what was that 70% you said?
70% in Q3 of the newly added centers with partners or franchisees, I just wondered, does that get to sort of 90% in the next couple of years with some leasing but a great effect on that? Any color there would be great.
Okay. Thanks. Yes. Thanks, Sam. MFAs, there's a couple of discussions ongoing, small ones but nothing to affect us. There's probably 4 that are underway at the moment but not sort of major countries. These are couple of mediums to smalls.In terms of the -- and just looking at that again, we've got a fast improving business, and we're quite sort of optimistic as we look forward to 2022. So our position improves, we will get more value as we get into next year anyway. So deals can always be done, but it's just a question of getting the right terms.If we look at all access, if you look at -- this membership drop in and so on, this is around 1%, just over 1%, 1.5%. We expect this could go to 4% of available workstations. So we think there's a lot more that can come through here. And then looking forward to next year, I would say that it would be more likely to be in the 80% to 90% range. Look, it just depends. It's very hard to tell, and it depends how good the terms can be on leases.The problems with leases are altered -- even if we're totally risk managed on them, as we are always, and as you've seen us manage leases over the past 15 months because of the structure, the problem is that they carry a heavy weight in noncash losses and IFRS 16 and the distortion of capping and so on rather than cash. And it's -- but they are -- the terms are the best I've seen in 30 years, there's no question. So it's a question of picking them out and taking a few of them. So -- but we want to keep to our capital-light strategy is working. And the more effort, the more resource we put into it, the more openings we're finding. So I would expect that, that would be 80% to 90% next year, that type of growth at 10%, 15% of leases.
The next question comes from the line of Calum Battersby from Berenberg.
Just 2 questions from me, please. So firstly, just wondering if you could give any more detail on the business model for the Worka app that you mentioned in the press. Wondering if the ambition is that this will largely be made up of third-party operators. And kind of could we confirm if you have any third-party operators on the app at the moment?And then secondly, kind of just a follow-up on one of the earlier questions. From what you're seeing in terms of service or ancillary revenues as office comes back, I was wondering how that relates to, let's say, physical in-office occupancy. So if the average tenant is only actually in the office, let's say, 3 times a week in 2022, does that mean that the ancillary revenues don't recover to precrisis levels? Or are you seeing that tenants are actually spending relatively more in the times that they go into the offices?
Okay. Just dealing with the second question, the majority of everything we do are subscription revenues. So it's not relevant whether someone is in 1 day, 5 days, doesn't really matter. So almost everything -- I mean, that there are a few things that are associated with actual physical occupancy, but those are a few. And they tend to be very low-margin services if they are. So that, point 1.Point 2, the people -- we've been actually surprised by this sort of the level of physical occupancy and the days is sort of different trends in different places, but people are tending to do more on the days they're in. So there's more people in. And it's quite different country by country and even regions of country. But we are adapting our products to meet these requirements. We're launching -- we have launched and we've got more product adaptations and launches to provide customers what they need and allow us to yield more from the network that this is our sort of day-on-day focus.We've also -- we've got quite a bit of upside that we expect to get in '22 just through further digitalization of everything that we do in terms of reducing leakage. And we think that's got a good upside for us in '22. This is just -- these are minor leakages but across millions of people, that makes quite a big difference. So yes, I mean, look, the marketplace has changed, but we're changing with it. We're adapting, and we're confident that those revenues will come back.And for example, and just we're adding more meeting rooms. And so we're converting more of the inventory into meeting rooms and collaboration rooms because those people that do come in, we don't have enough meeting rooms. So we are adding more meeting rooms and charging more for the meeting rooms that people want and because we've seen pinch points already in the past months with having not enough rooms. It's a great problem to have, but we need to adapt inventory to meet that, which is quite straightforward for us to do.In terms of then -- look, the -- with regard to the Worka app, any comments on it are way too premature. And what was released or what's picked up -- it wasn't released but -- to Sky News which is totally premature. And these were just -- we're taking soundings in the market to establish what things could be worth and how to go about bringing potentially parts of the business to market that have a different value to the value that we have today. But -- so we can't really comment on anything in detail there, apologies. But we will update as soon as we possibly can.
The next question comes from the line of Michael Donnelly from Investec.
Two quick ones from me. First of all, Mark, you said that you had some inflation linkage in your revenues there. So can you just give us a rough idea of what proportion of total revenues are inflation-linked?And the second question is, you've spoken in the past about 28% of revenues roughly being ancillary, and the 28% [ in '20 ] were subscription-based revenues. Is there any linkage or is that synonymous anyway with what you affirmed in the statement today as digital and technology assets? Is there any sort of linkage between those 2 areas? It's just a question about language more than anything else that we can use to infer perhaps what the quantum, the magnitude of the value associated with digital and technology assets might have been.
On that second question, I can't really help you on that. And as I said to Calum, as soon as we've got and what we wanted to do is just bring the market up to date with the fact that we are doing a very detailed review of the possibilities, and -- but to go into any detail, you can't really -- it's very hard to disentangle what we're doing from today's numbers. And that's part of the problem. It's -- we need a wholesale representation, if you like, of the business. Even if we did nothing and there were no actual splits presenting the business in a clearer format, so investors can see exactly what's going on and where the value is and could be in the future would, at a minimum, be helpful. And this is our endeavor here.In terms of -- look, we're taking a view that -- I mean, we're already seeing inflation, and we expect '22 will be a year of inflation. What's very important is we anticipate this well in advance. It takes time for us to build our order books, and our order books have about 1 year in length. And so it's important to anticipate and we're anticipating, we have been already, even though we're sort of coming from the sort of depths of March all the way through to September, from really the summer onwards, we've been working on inflation and how to introduce it into what we're doing.So inflation effects, we would -- in terms of the way we look at the world, will affect, I think, almost all our operations in different quantums. Inflation will be -- we already deal with massive inflation in some of the markets. Remember, we're in 120 countries. So it's something we're very used to dealing with in unstable inflationary countries. But that sort of unstable nature of the business in terms of pricing and inflation coming in, we're anticipating that now and building it in.In the beginning, for the first years, it's advantageous. But then as you're in pricing, in particular with rents, adjust, it takes longer, so you get this sort of time lag. But -- so it may help margin in the medium term. You have to anticipate it for the future.
[Operator Instructions] The next question comes from the line of Daniel Cowan from HSBC.
I've got 2 questions. One is on pricing. Just I guess, following up on the discussion about inflation. I think in August, you said that the -- your average new sales prices in June had started to exceed the embedded price in the network. I was just wondering how that's continued in Q3. Where are we in terms of the discounts that you're applying? And how close are we to, I guess, seeing "normal levels of discounting" in the business?And the second question is just a simple one on competition and how you're seeing behaviors in your key markets, please.
All right. Okay. On pricing, so we have, since August, consistently sold at a higher price than the embedded book. So we've got rising price. And what we said -- I mean, we said it a long while back actually that we would expect price to come back to sort of normal level by midpoint '22. Now just to give an indicator, the price improvement in September, prices sold in September were 30% better than the prices we sold out in March. So you've got a huge difference. And that is just the reduction in the discount. So that's without price rise. That's just a reduction in discounting, and since we've further tightened into October and we're sort of tightening up all the time.As -- and some markets, we're running out of stock, so again, that becomes even more important. So -- and pricing for us is -- that's an everyday adjustment. So this is very liquid with a lot of customers, a lot of transactions. So the prices are moving daily, and they've continued to -- with better momentum in sales, less stock available, that helps. I think with the competition, which is a very interesting question, Daniel, this falls into 2 areas. I mean, you've got people that are unfortunately in a sort of death row where they need cash. They haven't got any money. They need cash. And so they sell at any price.That's sporadic now. Some of them have gone by the wayside. We've picked some of them up. But it's still out there. It's parts of London, for example, and bits and pieces around the world. But I think WeWork, they've certainly got more discipline in what they're doing. Overall, you still see some unsustainable pricing where they are still pricing below cost but below even rent costs. So that's, I think, in markets where they have a particular oversupply. But -- so overall, I think the market as well, apart from people that just need cash at any -- they're just -- price is not an issue. It's just they need cash to pay bills. That's sort of slowly going away. And you've got more discipline with more people, I think, getting more occupied, so pricing overall becomes easier.
And the last question comes from the line of James Zaremba from Barclays.
Yes. Three questions, please. One, just on the franchise business, just wondering about how the pipeline converts into openings. So I guess my current thinking is you've got a pipeline of around 500 agreements for, I guess, roughly about 5 this year. So does that sort of imply, I guess, 100 openings next year, if that sounds reasonable?The second one, just getting back to the group investments. And just -- I just wanted to clarify how much of the GBP 140 million was capitalized versus expensed. And in terms of the expensed amount, I guess, how that compares to pre-COVID levels in 2019, for example?And then the last question, The Telegraph seemed to be writing kind of persistent number of articles about legal proceedings in relation to one of your Jersey-based entities. So I was just wondering if there's been a provision taken there, or if it's just a nonmaterial matter.
The franchise pipeline openings next year, I think there's about 700 in the pipelines in there, Glyn, I think that's the number, of which there's 700 committed-ish, and it's on about a 5-year program, it depends who they are, what they are. So that's sort of low hundreds. There's more availability real estate. So openings are picking up now. There's more openings because people are getting more confident. They may have bought the rights, so they're getting more confident now than -- plus, we've got new franchise.So I would say that 100 will be absolutely the bottom case more likely to be 2x that, I would say. We're getting a lot more people that actually have buildings and they own buildings. That obviously accelerates the openings. It's when people are going to find buildings, that takes longer. But I would say that number is more likely to be -- it's going to be between 100 and 200, but more likely at the upper end of that in franchise terms. And it could be about the same in management deals, sort of just double that. And we've got a great pipeline on that, that strengthen daily. So quite confident in our outlook there.In terms of the GBP 140 million, Glyn, do you want to just deal with that one, please?
Yes, that's fine. So the GBP 140 million, 1/2 of that effectively relates to capital expenditure and hence, it's capitalized. The rest relates to cash investment in growth centers, including working capital and the operating cost of running those centers, but circa half of that number is capitalized.
I'm sorry to...
It's hard assets on the balance sheet capitalized.
And in terms of, I guess, as you, I guess, open less of your own or lease centers next year and certainly a significant step-down in previous years, just wondering how much of a, I guess, cost benefit that is versus, let's say, 2019. Is that sort of within the GBP 320 million savings? Is this sort of a separate?
It's separate, nothing to do with the GBP 320 million.
Yes, exactly. It's independent of that.
I mean, look, the way you've got to look at it is you've got a business -- I mean, you've got a business here that you've got an improving cash flow, EBITDA, cash flow coming from much improved estate that's recovering. It's in the right marketplace. There's lots more demand for this. We have the world's best platform. There's a lot of good things here, but it's all about now rebuilding and then going beyond where we had the EBITDA and the cash flow before. So that's just get the yield out of what you already have.Then one of the problems, if you look back on the business, has been in order to grow, we've had to reinvest capital. So it's capital that goes out. And this brings with it sort of GAAP losses, opening losses as you add more centers. Now with capital-light, with the management contract or with franchising, there is no -- there's no loss. It's actually positive from day -- not from day 1 but close to day 1. And so you get a much smaller effect from this capital investment cycle that has -- is one of the things that's obscured value in the past.We want to avoid that coming back again. So you effectively get a franchise and management business here with a great platform, growing at hopefully, we can get it to 20% growth a year, minimum 10%, and that's a much easier thing to predict. So if you don't have the economics, you take the cyclicality and the investment cyclicality out of it, it's a different business. So that's one of the things that we're reviewing and considering.But notwithstanding that, next year will be -- should be a very good year if we're able to continue to recover and get beyond in terms of EBITDA production from the existing estate that we have, and we can grow in a much more capital-light weight even than this year, where you've got very little capital going out and very little sort of losses, operational losses that are sort of detracting from the result. You get a much cleaner number. That's our objective.Third question, I mean, The Telegraph keeps cracking at this one, but we -- all of the things that we've done are -- if it needs a provision, everything has been provisioned. And these are people -- overall, we've managed to do what we had to do with everyone moving forward with us. But there will always be some people that want to take a legal route, and we have to follow that. There's nothing we can really do about it. But we do not think in any way this is a material point.
There are no further questions from our participants. I would like to hand over back the call to our speaker for closing remarks.
Okay. Well, thank you all very much for your very detailed questions, and thank you, Glyn, for joining me today, and thank you, operator, for adjudicating the call. And as usual, both Glyn, Wayne and myself will be available later on today if you have any follow-up questions that we can help you with. And thanks very much for your time this morning. Bye-bye.
Thank you.
That does conclude the conference for today. Thank you for participating. You may all disconnect. Have a nice day. Dear hosts, please stand by.