IWG Plc

LSE:IWG

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to this IWG plc Q1 2021 trading update. Can I just remind you that this call is being recorded. [Operator Instructions] I'm now delighted to hand over to Mark Dixon, Chief Executive Officer. Please begin your presentation.

[Mark Dixon, CEO & Executive Director]

Thank you, operator, and welcome, everybody, to today's call on our first quarter trading update. I'm joined on the call today by Glyn Hughes, the group's Chief Financial Officer. And we're going to take questions at the end of my introduction. As expected, Q1 was a very tough quarter as the impacts of the pandemic continued. So we have our toughest quarter comping against what was our best ever start to a year in Q1 of 2020. So this clearly is reflected in the results announced today. In constant currency terms, open revenue was down 16%, and that compared to a near 18% increase in Q1 2020. However, as the quarter progressed, we saw some positive signs start to emerge, most notably in occupancy. So after experiencing gradual sequential declines in like-for-like occupancy since the onset of the pandemic, we saw in February, occupancy stabilized for the first time. In March, we experienced the first positive month-on-month improvement. And this trend has continued into April, and been somewhat stronger. We believe we've reached an inflection point and that this first quarter is the nadir of our performance. With the improvement in occupancy, we're also seeing service revenue slowly returning, and we're starting to see some modest positive movement on price, but I stress these improvements, KPIs will evolve gradually at the beginning, as many markets are still facing restrictions. We have seen evidence of faster springbacks in markets -- in some markets as they reopen, which gives us some optimism for the future. We are reminded almost -- by almost daily media coverage of the positive trends driving demand for our flexible work products, and there's an increasing demand for hybrid working overall, with our network covering 1,129 towns, 1,129 towns, and cities globally, and which no other operator gets close to. We have a quite unique proposition. And this is reflected in the unprecedented demand for enterprise membership deals. In Q1 alone, we signed 54 deals, giving enterprise customers access to our network. And there are many more in the pipeline. So it's early days, but we are encouraged by the early development of these deals and the usage of our products and services by these new members. On network development, we added 43 locations to the network and closed 55. 10 of the new locations came to the acquisition with the #2 operator in Italy, which strengthens our position in an attractive market. So it has always been a very good market for the company. And particularly pleasing is that over 50% of the organic new locations that we opened were added via capital-light deals. So it's a very good trend, which we hope to continue. We've continued to make great progress on franchising despite the pandemic. In Q1, we added 7 new agreements, spanning all 4 regions, including our first 2 agreements in the U.S. These agreements added a further 32 committed locations to the network. In total, we have 645 committed locations. We have 53 franchise agreements, 53 separate franchise partners, and 367 of these committed locations have yet to open. This provides a strong underpin for future growth of our network in the future. The same trends that are driving demand for our products and services have significantly increased the interest in partnering with IWG, and we have a very strong pipeline of potential property and franchise partners that will fuel our growth into the future. As we've previously reported, we have resumed discussions on a number of larger master franchise agreements, several of which are in the final stages of the process, and we hope to announce an update to you in due course on these. We've maintained a strong financial position on a pre-IFRS 16 basis, net debt at the end of March was GBP 288 million, and we had GBP 809 million headroom. The net debt position is an improvement on the GBP 351 million year-end position. Finally, a word on cost savings. It's only the first quarter, but we're tracking well in respect of achieving the annualized cost savings we previously announced, and much more to come yet. The world of work has been permanently changed by the pandemic. The overall geography of work has changed, and greater flexibility is demanded by enterprises and by workers. And this has created a dynamic and very attractive market backdrop for us to grow into in the years to come. Although our business was clearly affected by the pandemic, we were resilient throughout, and we're now starting to see some healthy, albeit gradual improvements in several KPIs. These early signs of improvement continue to take root in many parts of our business. Those areas first affected by the pandemic, mainly Southeast Asia, are coming out of the crisis faster. And our largest business in the U.S., as we said in the statement, is also showing signs of improvements with some markets like Florida and Texas, again seeing healthy growth. Recovery has been slower geographies where restrictions has been prolonged. We have a healthy pipeline of potential franchise partners and JV partners for management contracts, et cetera, and a franchise agreement, as I said earlier, and discussions on several master franchise deals have restarted. And I hope that we can report a continuing stream of positive developments in the coming quarters. Overall, we look forward with cautious optimism to a future where hybrid working becomes the norm, and we lead in this exciting market. I now hand back to the operator to open for questions.

[Operator]

[Operator Instructions] Our first question is from Andy Grobler at Crédit Suisse.

[Andrew Charles Grobler, Analyst]

Can I just ask a couple to start with? You talked about the enterprise deals, the 54 you signed during the period. Can you give us some idea of the kind of size and scale of those -- some of those deals? And what impact you would expect to have on the P&L through this year, maybe into next year? And secondly, a difficult question, I guess. But in the longer term, where would you like to think that occupancy can get back to? And it's really had a tough time through 2020 in the beginning of this year. What is the normalized level in the world we're now in?

[Mark Dixon, CEO & Executive Director]

First of all, actually the answer to both of these questions, I think, are intertwined. So the size of the deals and the impact, overall 54 deals, it's around 700,000 members signed up. A lot of those came at the -- towards the end of the quarter. And we've also had more sign-ups as we've going into the second quarter. So impact comes gradually, because it takes time for us to onboard the members themselves, I mean the company sign-up takes time to get individuals using. But we can see steady improvements week-to-week as more people use and then come back again. So just looking at -- and I talked about this earlier on in the year, we are watching it very carefully, mainly because we have -- our concern is that we won't have enough space. So even though it seems somewhat far-fetched in the moment, where we are today, but when occupancy does come back, that is longer-term occupancy, we want to make sure that we have enough space to continue to service these customers. Overall, look, this short-term use, which is dropping use by members, was under 1% of our revenues before, and therefore, under 1% occupancy. In the future, this could become -- quite easily become 5% occupancy, and maybe even more. And so an additional 5% of high-quality revenue makes a lot of difference. If we then turn to what levels of occupancy we may achieve, we don't want to give guidance on this, but I can -- I can give you a background of what we're thinking. We can see in countries where we're through the pandemic and they're getting back to some kind of normality, the business coming back to its previous levels of occupancy or better. Realistically, when we think about it, we had a business pre the pandemic, and we experienced the strongest quarter in our history, Q1 of 2020. We should be able to build on that. And the demand can only be more than the pre pandemic situation. So the background -- and that is why we're adding new centers, and it's -- I'd point again to Q1, more than 50% was done on capital-light deals. So for the franchise or management contract. We want to do more of that to ensure that we have enough space, which we think will be our problem in the future. Therefore, we are expecting to come back to healthy levels of occupancy. It will take time, but healthy levels of occupancy and a recovering price as we go through the year. And we've said we expect to get back by probably mid-'22 to sort of full power, if you like, and with everything recovering. But you would expect that the average occupation level should be higher because you have this new layer of business through large numbers of hybrid workers who were looking for a home occasionally, sort of spot market. It's going to get much, much larger in the future.

[Andrew Charles Grobler, Analyst]

Talking about occupancy levels in the 85% or so. Is that an option or a possibility for you guys in certain locations?

[Mark Dixon, CEO & Executive Director]

Yes. It's -- but in certain locations, we expect to be 100% occupied. And in some locations, we already are. Gained occupancy is an average, and -- so it's getting all locations up. And I would expect that occupancy levels should recover to the same level and beyond. But yes, 85% should be possible. It's much easier to get higher levels of occupancy when you have a larger spot market, that is people dropping in and booking over the app, that's a very effective way to sort of mop up additional availability.

[Operator]

We'll now take a question from Andrew Shepherd-Barron at Peel Hunt.

[Andrew Shepherd-Barron]

Two questions for me, if I may, just keep the ball rolling. One is a simple question. Can you tell us whether in Q1 you were -- where you were on EBITDA? Was EBITDA negative or positive? Would it be a sort of useful guide to know. And the second for me is on the market of franchise agreements, of course, I was just asking a question on those. Can you just talk a little bit more about it? And do any of -- the potential discussions are there for -- how do they square between brand and territory and sort of potential size or location? Anything you could say would be useful.

[Mark Dixon, CEO & Executive Director]

So EBITDA of the first quarter, sort of marginal EBITDA in Q1. That's right at the bottom. That's the short answer to that. In terms of master franchise agreements, there's a number of them that have resulted, but they are -- and they are spread, and that's parts of -- thinking about it, with the exception of the U.K. sort of discussions going on in each of the 4 regions, for some small and some medium-sized transactions. But what's happening is people -- there's a lot of interest now in what we're doing, as I said in my statement. The people understand. People from the property industry, business people in general, understand that this is going to be a major part of the future of real estate. And so they want to get involved at what they see as being still an early stage. There is going to be a fundamental change in the way companies are working. You'll receive many comments -- commentators that say it's all going to go back to the way it was. It is not. And everything I know in speaking to senior people in many, many companies, all of them universally are adopting hybrid work. It's just a question of how many people they're putting onto it and how long it takes them to do it. But there are very few companies that are not contemplating it for some part of their workforce. So with that interest, this is -- we've got the leading platform. We have technology -- whatever anyone else may playing, our technology works. And that's, as I said in the last call, that is why these large corporations are coming to us because we can put the biggest one we've done, as you know, NTT, we could put 300,000 people, sign them up onto the system, all of these people get a personalized app. And then we've got the biggest spread network in many, many cities. So it's much more useful. And what larger companies don't want is to be dealing with a lot of bit players and have lots of suppliers. They want a platform approach to things. And that is what we have. And so other people can see that as well and want to invest with us to help grow the network. And that is what the next few years is going to be about. It's going to be about partnering in many, many more people to grow this platform as quickly as possible. Because you can only harvest the investment and the technology through having places, enough places and enough -- enough places in enough geographies for people to work. Andrew? Back to you.

[Andrew Shepherd-Barron]

I suppose just on the MFAs again. Thinking about whether or not any of them could be by brand rather than by geography.

[Mark Dixon, CEO & Executive Director]

That's all geography.

[Andrew Shepherd-Barron]

Okay. So it's all geographic. And it's unlikely to be same, I mean...

[Mark Dixon, CEO & Executive Director]

These people -- yes, because people have -- in -- look, the whole -- the brands work together. So they're picking up different parts of the market. That go from budget to top of the range, 5 star to, say, 3 star or 2 star. And you need to have all of those brands in order to hit the different price points and hit different work styles. So in the end, this is all about the effect of conversion of inquiries. Inquiries are expensive, you need variety to convert more. And those brands do exactly that. So people do want the whole plethora of brands. And we're adding more, for example, The Wing, very popular amongst our franchise partners. They -- it's a great addition for them. So a lot of our existing partners will also be opening up Wing clubs. This is the women-only format because it's a great addition to -- it picks off another part of the market, which is a very attractive fund, has very good returns.

[Operator]

Our next question is from the line of Steven Woolf for Numis Securities.

[Steven John Woolf, Analyst]

Just a follow-on from the previous question regarding the openings of new locations. How do you feel now about what you've opened in Q1 with relative to the opportunities you might have for the full year? And then in terms of the closures against that, are we still looking at some of the older parts of the estate that are under slightly more pressure or there's an opportunity to put new brands close to those older locations? And then secondly, in terms of the restructuring, you mentioned that you are quite a way through and on the way to achieving those -- the outlined savings you had targeted previously. Can you just sort of mention whether that is mainly at an in-house level for savings? Or there is still a lot to go through on the landlord side of things?

[Mark Dixon, CEO & Executive Director]

I think just dealing with the growth. It's not an easy one. Some of the older centers actually are the ones that have performed the best throughout the crisis, interestingly enough. And the -- in terms of upgrading the network, we have guided to spending some CapEx this year. That is largely for reinvesting in some of the older locations that happen to be in very good locations, but that is the ones that we're going to keep. We've got many of these better deals to continue, and we then spend some money on this. I think the -- are there going to be additional brands? Possibly, but we're certainly getting a lot of additional centers, we continue to pick up from various competitors, WeWork and many others sort of takeovers that complement the geography the whole time. So overall, we expect to have -- the closures are almost finished. There's a few more left where we're haggling about whether we do or whether we don't. But there's not that many left now. And then it will be -- you'll start to see net growth in the remainder as we come through into the second half. And we've got some exciting stuff going on. That should get us -- we're looking to get a quite a good growth rate subject to us being able to grow in a capital-light way as we go through the balance of the year. In terms of the savings, just stepping to the second part of your question, the savings are largely there. We're just finishing things off. Again, it's -- the legals are being finished off. But we've got a clear line of sight on to where we're going to get to. And the next 6 weeks or so will be about just bringing everything, hopefully, to a close. And then we -- and as I outlined in my comments earlier, we are absolutely in line with the savings that we put forward.

[Operator]

Our next question is from Michael Donnelly at Investec.

[Michael Donnelly, Research Analyst]

Two brief ones for me. First of all, can you tell us how much you delivered in terms of service revenue in Q1? And secondly, you launched HomeToWork in FY '20. We've had a quarter of trading with that now. Can you perhaps give us some economics on how HomeToWork is tracking so far?

[Mark Dixon, CEO & Executive Director]

Okay. Services -- look, services, as we mentioned, the year-end have about halved, and that's a lot of high-quality margin revenue, about half. It's gradually coming back, as I said earlier. So we're starting to see more people having meetings. And we're starting to see more people drinking coffee. But it's going to be a gradual -- it will come back with occupancy. So we're expecting gradual improvements as we go through the balance of the year. What you also heard me say in my statement was that we have seen faster springbacks in some markets. Without going into where they are because it's very early days, but we've seen much quicker pickups in some markets than we had expected or that we were seeing on average. So there is some evidence of when you get through to the other side of the crisis, when things do settle down, that things could come back faster than we expect. We've been in no way want to say that, that will be universal or give any other guidance. And the guidance we're giving, we have all figures which is back to some kind of normality mid-'22. In terms of HomeToWork, this is an experimental product. We're pleased with its progress, but it's not -- it is a means to -- we're only operating it in 2 countries. And it is a means to -- it's an experiment really to see if we can gain new members through this method. So this, again, supplements the enterprise deals we're doing, this is providing a home service. But it's very small numbers, Michael. So nothing that will move the bar. And small amounts of revenue, good membership numbers, but small amounts of revenue so far. It will take some time to build that up. But we will continue with it, and we think it's a service that will be in demand in the future. But it only ever -- it can never make a lot of money because the margin is very small. But it doesn't -- it gets you more members that will drop in. Every homeworker will be someone that will drop in and use an office from time to time, and that's what the objective is there.

[Operator]

A question now from James Zaremba at Barclays.

[James Edward Zaremba, Research Analyst]

Just on franchising business to start. Currently, the sub-franchising agreements, and seems to be on average for, I guess, a handful of centers each time. Should we think of this business being about a large number of partners each for a few centers? Or is there, I guess, a scope to actually sign up some large partners or grow the existing ones here? And I guess as a follow-up to that, would it be operationally, commercially more attractive to do that by supporting a smaller number of large partners as opposed to a large number of small partners? And then just on the membership agreements. In terms of the uptick, you talked about mix there, i.e., what share of revenues, meeting rooms versus kind of offices being booked versus coworking, respectively.

[Mark Dixon, CEO & Executive Director]

Okay. So first of all, yes, interesting question on the franchises. So I've been pleased to see in the past -- I'm just trying to think when -- over the past 3 months, we have had, I think, 2 franchisees to take another block of geography. And typically, these deals are 5 centers or 10. I think we've done one for about 20. That's the biggest one so far. But someone that's taken 5, has taken another 5 and I was encouraged by that, and I think there's another one that took a 5 plus a 5. So that's a sign that they're comfortable with the returns they're making. They want to invest more. Overall, the biggest franchise we're working at the moment. I think we have -- I have to check on this. Wayne, if you could make a note, but we have got one that we've done in India. I think that one's for 40, I'm not sure. And another one is Southeast Asia for another 40. So it really depends on the geography, James, to -- we're going and supporting. It's clearly going depends on geography. Much better to do 40 and concentrate the support for those openings in a particular geographic area than to do 5 on its own. But generally, the 5s that we've done are in our existing geographies where we already have support. These larger ones tend to be on the edge of our geographies, and we need to add support in order to get them going. Coming to membership, it's very early days, and people aren't having that many meetings, but they are using meeting rooms. The meeting room usage hasn't really picked up. It's getting better, but we're not really seeing that coming through as a significant improvement. But again, I would expect that in the future, and we have been adding, even though meeting room usage today is low, we are adding inventory for the second half of the year as we can see signs of it being more -- gaining more occupancy in this area. In terms of what they use, it's across the board. There's a lot of people taking offices. They're taking -- we can see them bringing people together for collaboration in meeting rooms or spaced out when they need more place. And then just drop into our lounges and co-work area, but it's just across the board, slightly more, in revenue terms, slightly more office use than open spaces. But it's early stages. I mean we've had members for a long time. These members are quite different in that they -- it's not a few people from the company. It's the whole company. And that makes it -- it's quite a different mix. So -- but we are tracking it as we go through this quarter.

[Operator]

A question now from Daniel Cowan at HSBC.

[Daniel Thomas Samuel Cowan, UK MidCap Equity Analyst]

I've got 2 questions. One is around pricing, please [ not ]. You mentioned that in certain areas, you're able to judiciously start moving prices. Can you talk us a bit about how that's going for you? I guess how is competition? Is that holding things back? Or is it more to do with where you are in the recovery? And do we get back to pre-crisis pricing for a certain percentage on average? And the second question is on the market franchise, discussions that are ongoing. Can you give us an idea of maybe what percentage of the network of revenues are currently under discussion, please?

[Mark Dixon, CEO & Executive Director]

Okay. Let me deal with the last one first, Daniel. So percentage of the network, we can't give you guidance on that. And again, it's early stages, even though we're in the final stages on some of these, we don't -- until the [ damage ] is done, that they're not done. And so we're making good progress. Discussions are ongoing. But it's going to be, again, all about funding them by partner. It's not about the sale itself, it's finding the right partner that can then expand and make sure we cover that geography. In terms of pricing, now during a crisis like this, what happens is you have a lot of -- there's a lot of pricing pressure as you would expect. And the few people that are out there looking this pricing pressure. So we've been running in some markets with introductory offers basically, and so it's the introductory offers that we have reined in since February. So during March, during April, again, statistically, we put the price up in more centers than we put down. So as, again, you can see an inflection point coming through. Our pricing is done automatically. So it's happening in real time. And as occupancy -- as we start to see conversion, so the pricing strengthens and so on. It's critical, we believe, not to get caught out with fast-returning demand where you don't want to tie in these discounts for too long. And -- so which leads me to your second question, again, will we get back to pre-crisis prices? The answer to that is it's unlikely simply because we've dramatically reduced our rents. And again, anticipating a world where rents in CBDs may be coming down. And therefore, it would be wrong to expect us to get back to the same level of price itself. But we would expect to get to the same level of margin, and maybe better -- coming back to Andy's question earlier, maybe even better margin if we get higher levels of occupancy. So in the end, it's price and occupancy, there's a play here. So we have lower cost base, slightly lower revenues because you have to reflect the market price and the prices we are charging. But a high level of occupancy could help us move the margin up, again not for a while, but hopefully, we'd see that coming through in '22. What we believe is the demand will keep on opening up, and that's really the critical issue here. [ The time ] for enough supply to be pivoted into the market, and we want to be delivering as much as possible, but the whole market will have difficulty, we believe, in supplying to what will be growing demand as more and more companies look to adopt this new way of working.

[Operator]

A question now from Calum Battersby of Berenberg.

[Calum Battersby, Analyst]

Mark, I just had one question, hoping to ask about net debt move in Q1. So just looking at it, when you strip out the return of the investment from the end of last year, it looks like there was approximately a GBP 340 million cash outflow in the first quarter. So just kind of hoping to understand if there are any one-offs in there? Or if that's what we should expect to see is the run rate now until occupancy significantly improves?

[Mark Dixon, CEO & Executive Director]

The -- on this, the -- we always have a cash outflow in Q1. Fair to say, it's exacerbated by the fact that we are closing off a lot of deals or have closed them off in Q1. And so part of the leverage that we have is that we are paying the rent in order to achieve the deal. So we get the benefit going forward, but we're paying the rent going backwards. So there's a sort of delayed cash effect there. In terms of -- we would not expect that same level of cash outflow going forward at all. So we've now -- going forward, we've got benefits of cost savings and the benefits of an improving business. I think, again, in Q1, you've got a number -- you've got acquisitions, several of those that are also adding to cash outflows and so on, and quite a bit of growth. Even though they're capital-light, not capital-free. So it does take some working capital to get it moving and some investments to get it moving. So -- but that, again, is the worst point as far as we can see at the moment in that first quarter.

[Operator]

We'll now take a question from Sam Dindol of Stifel.

[Samuel Frost Dindol, Associate]

A couple of questions from me. Firstly, on capital allocation. I think GBP 30-odd million on M&A, and property deals in the first half. Is there much more coming down the pipe on that? And how do you see sort of future M&A versus shareholder returns given the cash raise last year? And then secondly, on franchising, given sort of WeWork have some more investment from a SPAC, and it's sort of targeting a bit more franchising there. Do you think that will impact competition for franchises in general? Just interesting to get your thoughts around that.

[Mark Dixon, CEO & Executive Director]

I'm hesitating for a moment, Sam. You haven't shocked me with that question, Sam. capital allocation, look, there is a lot going on, and there's a lot of things in play. And this is sort of -- so if it's hard for me to answer that question at the moment. We are -- again, I think we're looking at quite a lot of opportunities and -- but looking at them cautiously. So we have the capital. We are carefully weighing up this very question. But in the end, it's got to meet -- has a high quality for shareholder return for us to do it. What's easy to decide and go ahead with is the capital-light stuff. It's a little more difficult when you are doing M&A, which does require capital. If you look at the deal we did, Sam, in the first quarter, what's attractive to us is if we have a good market position, we can buy the #2. There's -- the synergies are very attractive. You've got to grit your teeth for the initial period because it's, again, a tough market. But we know that historically this is a great market. And it's a market that if you look through so where would we like to be in '22, you would like to be there. So it is a challenge for us to work through how we allocate capital in Q2 and beyond. And rest assured, we are considering it very carefully. And we'll hopefully make the right decisions for shareholders. If we then look to the WeWork franchising sort of idea. I mean first of all, this talk of franchising is -- they haven't done any franchising yet. The deals that look like franchises are then basically getting out of loss-making businesses, but they're not really franchising. They're the opposite to that. And essentially, the -- basically, the WeWork model, if we look at what was reported last year, they lost $3.2 billion -- $3.2 billion of revenue that's not a business that franchisees would want to partner with because they're in business to actually make money, not burn it. So I think -- and the investment overall. Yes, the SPAC's investing, but you've got, what are they raising, GBP 1 billion or so, that's 6 months cash -- that's 6 months cash burn. It's not more than that. So again, we hope their eventual listing does very well. And it's going to create a fantastic comp for us. But when you peel everything to the side here, again, the company has still got gigantic quarterly cash losses. We await to see the interest, what they say in Q4, that will break even, as they say, it will make a profit. But albeit on an adjusted EBITDA basis that we think that's going to be very difficult. But again, we wish them the best. But we don't -- we're not seeing it at the moment in terms of the franchise market. Okay, Sam?

[Samuel Frost Dindol, Associate]

Yes.

[Operator]

Our next question is from Edward Donahue of One Investments.

[Edward Donahue]

Actually most of my questions have been answered. I just have one sort of slightly bigger picture question. I'm trying to think how does the discussion with -- especially on the master franchise level, develop vis-à-vis the membership model growth. Does that change the dynamic of the discussion in the sense of -- and maybe I've got this totally wrong, but I'm thinking the older model would have had a more set level of revenue versus now you have a significant potential spot component. And I'm just wondering how you sort of align all those different dynamics?

[Mark Dixon, CEO & Executive Director]

Well, it's -- it comes back to the question earlier. Basically, the occupancy, I think Steve's opening questions -- Steve Woolf's opening question. The whole dynamic of the business will change. So you will have your long-term occupancy, you will have your services, you will have people working from home that we're supporting. And you have a much more significant spot revenue, which is there and sits on top of the occupancy. And so that boosts the return to a franchise partner. And that is, again, it makes it even more attractive to be part of the network because you're just not going to get that spot revenue if you decide to do-it-yourself or go with the smaller operators. They just cannot provide the coverage. It's a bit like Uber. If you could set up your own Uber, you're just not going to get the same fleet you get from a leading brand with a leading platform with the demand flowing through. So that is why franchisees and master franchises want to work with us and participate in sort of investing in growing a particular geography. It's basic business. Return on capital was good before. It's likely to be better going forward because you -- the markets come to us. That's what happened in 2020 and '21, and it's still happening now. So it's quite a -- it's a more attractive environment than pre pandemic.

[Edward Donahue]

Okay. And then just out to the comments on Florida and Texas. What are you actually seeing there? And are you back up to '19 levels? Or are you still tracking below that? And what is the service income doing in those particular states?

[Mark Dixon, CEO & Executive Director]

Again, so if we look at these states -- I mean I've just picked out those 2 states. I mean the business picked up in California. A little slower in New York. California is quite encouraging, but not to the same extent as Texas and Florida. Basically -- again, a change in geography in the U.S., a lot more people have decided that they can work from Texas or Florida, and are going there and are working. And that's helped in the recovery. So when I'm talking about sort of springbacks, it's -- we're seeing quite a strong recovery in those markets. We just hope then that sort of covers more markets, and we start to see that in more places. But if you look at Florida, it was essentially -- it's more or less business as usual in Florida and in Texas. So as it gets back to that then things start moving again. But so you get back to business as usual, plus you've got a lot of people move from the north to south because of basically lower cost of living, lower taxes, better weather. And you can do your job from Florida, you don't have to be in Connecticut and commute into New York City and so on. So, again, you will see more and more of the geography changing of where people work because of the effects of the use of technology during the pandemic. So we think that the southern states of America would continue to benefit from this continuing migration of companies, and people who work for companies.

[Edward Donahue]

Okay. And the last question, if you don't mind is, just to your comment with regard to sort of the EBITDA for the first quarter, rolling forward for the rest of the year, do you think it is realistic to actually see a positive EBIT for this year? I mean consensus seems to be tracking around about GBP 30-odd million. Do you think that is realistic on the visibility, but at the moment, the cost saving phasing? What do you think, we should sort of take a more cautious view with that, but then the inflection for '22?

[Mark Dixon, CEO & Executive Director]

No. Not. As we've said many, many times, but it's just -- it's moving too quickly for us to give any reasonable guidance. So we'd rather not give any guidance apart from we said that we expect things to get back to sort of full power, if you like, by the middle of '22. So we expect -- I mean you can see it in my statement -- in our statement, I mentioned several times, we're cautiously optimistic. But we don't want to call it too early. We're seeing excellent signs, you can see that also in the statement. That when things come back, they could come back quite well. But it's just too early to say. Remember, we're still right in the eye of the storm.

[Operator]

Ladies and gentlemen, that concludes questions on today's call. I would now like to pass the call back to Mark for any closing comments.

[Mark Dixon, CEO & Executive Director]

Well, thank you very much for your questions, and for joining us this morning. As always, if there's any follow-ups required, Glyn, Wayne, myself will be available for the rest of the day for any other inquiries. So thank you all very much, and goodbye.

[Operator]

Thank you, everybody. You may now disconnect your lines.