IWG Plc

LSE:IWG

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Trading Update of IWG Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, 5th of November 2019. I would now like to hand the conference over to your first speaker today, Mark Dixon. Thank you. Please go ahead.

[Mark Dixon, CEO & Director]

Thank you very much, operator, and good morning, everyone, and thank you for joining us this morning to discuss our third quarter trading update. I'm joined on the call today by Eric Hageman, our CFO. Firstly, I'd like to take you through the key points from the update, and then I'll hand over the call to Eric to comment on the financial performance, and then we'll open up, as usual, for questions. For me, the key message today is about the scale of the momentum that we have in building our business, both on the supply side and the demand side. From a demand point of view, you can see here in these numbers, we're trading strongly with excellent revenue growth that's the best we've seen for a long while, which is translating through into occupancy.We're also growing our enterprise account business. So this is the business we're doing with larger accounts where we're gaining more accounts and doing more business with the ones we already have and that's been very pleasing, continued development there. So on the demand side, we're well set, and we've got good momentum.On the supply side, whilst you continue to see us invest in centers, you can also see continued progress in the partnering with franchise partners of our business. And most recently, of course, Switzerland on Monday with the Safra and Peress Group -- groups, very, very strong real estate partners, who will, we think, will charge -- supercharge the growth in Switzerland. And we'll get to our target much more quickly to become -- to have full market coverage in Switzerland. So these partnerships, yes, they bring in -- return our capital. But the most important thing is they're a great platform for future growth. And as we do more of these, I'm particularly optimistic that the combination of ourselves with these partners will see a step change in growth.We've also made great progress in investing capital, and you'll see here, we'll talk about the recent investments trading very well. And at the same time, we have rationalized our networks, reducing by about 4% in square meters the space we have at some cost, but certainly the right thing to do to improve the future profitability. And then finally, we've generated a record amount of cash through both our trading and the franchise strategy working together.So as I speak to you today, we are in a fantastic financial position, and that would, of course, improve by the year-end. So let me just turn first to the trading performance. Pleased to report that sales activity is good across the group, and this continues to deliver strong revenue growth.The momentum here is broadly based. It's not in any particular place. It's pretty much across the board. And again, likewise, enterprise accounts broadly based is not any particular country. And what we can see here, especially with enterprise accounts, is that more and more companies are adopting a flexible outsourced approach. The basics really make it appealing. It's cheaper. It's off the balance sheet, easier to do and reduce or even eliminate IFRS, and it's very popular, we think. So we continue to see momentum build in that area.That trend's translated into revenue growth from all open centers at 15.5% at constant currency, much more at actual currency. It's up almost to 20% at actual. And that if you look at the first 3 quarters, good revenue growth, 15% so far in the 9 months, 18% at actual rates. This is coming from many countries. But if you look at, I mean, just the sort of larger market groupings, it's the Americas and EMEA that are really providing the best contribution.And what we can also see is the newer centers, i.e., the '18s and the '19s shaping up to be excellent investments in terms of returns on capital. So we have been doing a lot of the right things in the past few years. On the pre-'18 business, revenues in the third quarter were up 3.3% on the pre-'18s. So -- and that 7% at actual rates. This is good, bearing in mind that we're now starting to anniversary against stronger comparatives because we significantly improved trading performance in the second half of '18.Also pleased to report that the U.K. business contributed to the group's pre-'18 revenue growth in the third quarter. Still early days, and particularly with the many, many macro uncertainties around, maybe a little bit too early to call, but certainly, the U.K. business in the second half of this year has traded much better. And it seems that we may have passed the inflation point. And the work that we did, and we took you through in previous calls and presentations, is starting to have very much the desired positive effects on the business.A big lever we have to drive even better momentum in the business is increasing occupancy. And this is again the whole business rather than just the U.K. Pre-'18 occupancy has increased by 2.2 percentage points to 76.4% in Q3. And this -- just to give this a comparison, it's the highest level we've seen in like-for-like occupancy since Q4 '16. Many countries have driven this occupancy momentum. We put a few notable contributors in today's statement. Brazil, and this is not a country like the U.K. where we put a lot of actions in place to improve performance and that's worked well as well as China, you wouldn't expect it there, but has done very well, India, North America, Spain and Switzerland. And as we've said also, great improvement in the U.K. occupancy numbers. Year-to-date occupancy is at 76%. And although this represents an excellent year-on-year improvement of 3.1 percentage points, we believe there's still a lot more headroom to improve this further. And we are laser-focused on this.Excuse me, just one moment, I'm going to change phones because I can hear interference.Okay. Another strength of our business model is the quantum of revenue we derived from ancillary services is more than 120 lines of ancillary activity. And approximately -- this is approximately 27% of group revenue coming from these services. This is one of the things that we believe to be well above average in our industry and gives us a strong and unique competitive advantage. And it's a key characteristic that underpins a profitable and cash-generative business model. We continue to focus on this continually adjusting and adding new services that we believe customers want and enhance the overall model.We've continued to develop our network to grow in the right places with the right brands, so multi-brand growth. 66 new locations were added in Q3, taking the total of new openings to 180 for the year. Importantly, about 1/3 of these were the various forms of partnering to achieve much more asset-light growth. In Q3, we added 2.2 million square feet of space, taking the year-to-date total to 5.2 million square feet. And we're now at 60 -- just over 60 million square feet across the network with 3,348 locations. The 66 locations added in Q3 were all organic. We're, however, seeing increasing opportunities to grow our business and develop our multi-brand strategy further via M&A.And as we had anticipated, many companies that entered this market are now struggling, and this presents us with opportunities. For example, since the third quarter, we acquired clubhouse in the U.K. from the administrator. We can bolt this business into our existing platform to generate attractive returns, but it also adds a brand, which we believe we can roll out internationally in years to come. And we're working on a number of other similar opportunities at the moment, one of which has already been made public, which is Central Working in the U.K. It's about operator #7 in the U.K. And we think that in 2020, there will be -- we should have a good flow coming from this area as the market inevitably consolidates in the sort of post WeWork scene that we're in at the moment. We've also made excellent progress in rationalizing our network to improve value generation. So we've taken out about 4% of the network, underperforming marginal sites. And this -- although we take pains as we do that, mainly noncash pain, we're writing off some assets that we can't reuse. This will add to returns in future years.In line with our strategy of low-risk and more capital-light growth, we're experiencing excellent momentum in our franchising activities. Interest is very strong. And we significantly grew this year in this area. Our team, by putting in the experienced M&A team, one of our problems has been and it's a quality problem, but quite frustrating is that we've got so much demand, we just didn't have enough people to deal with it. We now have those people, and we are dealing with it. Again, the move here is not just trying to sell our businesses for cash. This is all about finding the right partner. And if we find the right partners that really sets us up for the next stage of our businesses growth, which we think will be the most exciting stage that we've seen so far.And again, we announced on Monday, Switzerland, this goes along with Japan and Taiwan already completed, but also multiple other smaller franchise agreements. We've now got 26 franchise partners across 31 countries. And most importantly, combined commitments to add over 313 new centers and that excludes anything in Switzerland, which has not concluded yet, we've signed but not completed. So as announced today or yesterday, the strategic partnership with Safra and Peress Group. This is -- we have 38 centers in Switzerland, gross consideration, CHF 120 million, about GBP 94 million, completion at the end of the month, fantastic partner, lots of real estate experience based in Switzerland. Peress Group and Safra have been huge opportunities going forward. Switzerland is a great market. We'll complete it more quickly with this partner.Through our improved tradings, moving to cash, our improved trading and our franchising strategy, clearly record cash generation. Cash flow preinvestment and growth totaled GBP 466 million or just over 52p a share. And this doesn't include the CHF 120 million gross proceeds from Switzerland that we'll complete at the end of the month. What it does leave us in is a very strong financial position. Net debt substantially reduced year-to-date to GBP 301 million, which represents a leverage ratio of just 0.8% -- 0.8x sorry. And this ratio is at 0.4x if you take the property away from that. The property sits on our balance sheet at the moment.With Switzerland, the debt will reduce 2.2x. So we're in a pretty good position, I think, cash-wise. And we also have very strong debt capacity to use if we need it and the right opportunities come along.In summary, the good sales activity has translated into strong sales revenue as occupancy increases and our newer locations develop strongly. We've grown the network coverage through company-owned investment and growing momentum in franchising and with all of that record cash generation. So good financial position, and I think prospects looking very exciting as we go into 2020. And with that, I'll hand over to Eric to discuss the performance in more detail.

[Eric Hageman, CFO & Director]

Thank you, Mark, and good morning to everyone on today's call. I will look at the financial performance in some more detail. Let's start with the third quarter, specifically. Group revenue in Q3 increased 9.4% at constant currency and with a tailwind from prevailing exchange rate was up 13.2% at actual rates to GBP 692.3 million in the third quarter. Revenue from open centers, a better indicator of the future, was up 19.5% at actual and 15.5% at constant currency. Still on Q3, pre-2018 like-for-like revenue growth was up 3.3% or 7% at actual rates. This reflects the ongoing development of the new [ OE ] groups added to this space, but also, as Mark just said, the much improved trading performance of the business, which we saw in the second half of last year.Occupancy for the third quarter increased 2.2 percentage points to 76.4%. Many countries have contributed to this improvement. And as we say in today's statement, including the U.K. It may be premature to call this an inflection point for our U.K. business, but it's very encouraging to see positive evidence that the actions taken in the U.K. are benefiting our performance.Let's now look at the first 9 months performance. Group revenue for the 9 months to 30th of September increased 9.9% at constant currency or 12.6% at actual rates to GBP 1.99 billion. Revenue growth from open centers over the same period was very strong at 15.4% or 18.3% at actual rates. Pre-2018 revenue increased to GBP 1,724.8 million, up from GBP 1.6 billion last year, which is an increase of 4.7% at constant and 7.3% at actual rates. The improvement in occupancy is also reflected over this 9 months and with an increase of 3.1 percentage points to 76%.On investments, we invested GBP 249.9 million of net growth CapEx after partner contributions of GBP 165.9 million in developing a leading network in the 9 months to September. The investment in Q3 was GBP 64.4 million net of partner contribution and GBP 134.9 million gross. These numbers illustrate the growing contribution to our network growth from our partners.We also have more visibility at the end of October over our growth pipeline for the whole of 2019. Currently, we see net growth CapEx for 2019 of approximately GBP 280 million and that's roughly 260 locations and 7.5 million of square feet of new space.As Mark said, we have been increasingly proactive and accelerated the rationalization of our network. In total, we've rationalized approximately 4% of the network year-to-date. We expect this activity to continue in the fourth quarter and into the early part of 2020. Whilst these actions have a very positive impact on the future performance of the business and shareholder creation in the future. There is in the short term, a negative impact on profitability. In the 9 months to 30th of September, this impact was just below GBP 28 million. There will be more to come as this rationalization program continues in the remainder of the year.And to end with our financial strength and the signing of our first strategic franchise deals, which raised gross proceeds of GBP 436.8 billion, that's the sum of Japan, Taiwan and Switzerland. We made it clear that with our interim results that we are focused on shareholder returns. So as well as committed to sustainable and progressive dividend policy, we believe excess cash should be returned to shareholders. To this end, in August, we announced GBP 100 million share repurchase program. During the third quarter, we acquired approximately 5.5 million shares for a total consideration of GBP 22.4 million. This share repurchase program continues in the fourth quarter. Thank you. And I will now hand back to Mark.

[Mark Dixon, CEO & Director]

Thanks, Eric. So in conclusion, we remain confident in our leading global position in this exciting market. Sales activity has been showing very good momentum across all the trading groups from the pre-'18 to the later groups of '18 and '19. Occupancy continues to improve as that translates. We've got strong momentum in our enterprise account business, larger accounts, we're winning more accounts and doing business with the accounts we already have, as more and more of them decide to either expand or convert to a more outsourced approach to larger parts of their business. The forward order book, very healthy and in a much stronger position [ that's been ] for several years as we look out to 2020. We've got excellent momentum in the franchising model. And we look forward to reporting further progress as we go through the next couple of years. I've said on many occasions, this will take a couple of years to execute as we are very, very choosy when it comes to who we are partnering with.Financial position is strong, a prudent approach to risk and a balance between growing and giving returns to investors. So we're very carefully weighing things up as we go forward now. New accounting rules are helping us. More and more companies are starting to look at this and these long-term leasing liabilities that are translating onto the balance sheet will start looking more and more like debt as the years go by.And I think the other big change is really that underlying everything apart from lower cost is that there certainly seems to now be more of a trend for workers wanting to work closer to home, not at home and companies starting to consider whether that helps in sort of saving the planet if they can reduce commuting. Underlying that, of course, it's much cheaper, and it's what the workers want. So it can be quite an interesting mix. But certainly, in particular, in the U.S., we can see companies starting to think and act that way, which could be very good for us. And again, what's important then is a lot more development into smaller towns and cities, so that you can actually have somewhere to work closer to where people live. So we are the industry leader. We've got a great business. We're confident in our ability to continue to grow as we move forward. We think we've ticked many boxes. We're paranoid in terms of our -- the way we think about our business and what can affect us. But we've spent our time ticking the positive boxes. This is a business that benefits from scale, but it's not just about size. You need to be diversified, you need to be global, you need to have multi-brands so you can give a lot more choice to customers in price and work style. And you need to get those ancillary revenues. If you don't, then you have no possibility of making money in our view.We think that the timing is working on our side at the moment. We think there's going to be a very big opportunity in years to come, both in growing through our franchise partners in consolidating the industry. And we think, overall, the interest in the industry as a whole from a customer demand point of view will just continue to grow. But companies will be -- the customers will be looking much more to the quality of the provider and not just the notoriety of a provider.We -- so with all that in mind, we're quite excited and optimistic about the future, but at the same time, we remain cautious on the point we are in the cycle. And so we remain steadfastly in cautious mode. We continue to grow, but we do so in a way that is very risk-averse. And we're very focused on return on capital. And this is the discussions we have with our franchise partners all around the same as they grow their businesses. It is all about maximizing return and minimizing risk.That being said, we are in -- as we come towards the end of 2019, in the best position we've been in for many, many years. And so it is with some cautious optimism we look out to next year.And with that, I'll hand back to the operator, who would explain the procedure for asking questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Alexander Mees from JPMorgan.

[Alexander Mees, Head of UK Small and Mid Cap Research]

Two questions, please. Just firstly, Mark, I'm not sure if it's possible to generalize about pricing. But given occupancy is strong, I wonder if you can pull out any general statements about the direction of pricing at the moment, particularly given your comments around the economic cycle? And secondly, I wonder if you could just explain a little bit more of the rationale behind the accelerated rationalization of the network, just with regard to how it fits into the strategy around franchising, please?

[Mark Dixon, CEO & Director]

Okay. Pricing is -- we're gaining occupancy at slightly improved pricing is the short answer. We -- you'll notice that we don't talk about pricing in this document, and that is because we -- it's mainly occupancy, small pricing. Clearly, as the -- if we move the occupancy further forward, there may be more pricing opportunities. But thus far, this is about occupancy. So our objective is to continue to move that occupancy up through next year. And maybe there will be some pricing opportunity. There's typically -- again, I'm generalizing, but there's a lack of property inflation, which is -- on average, we're not seeing rents move up, the underlying rents. And that would be one of the causes of price increase, we're not seeing that. In fact, I would say that we're seeing quite benign average rental increase. We've got quite a lot going down now, which helps us. I think on the rationalization, this is basically a painful exercise. I mean, I've talked about this on several occasions on previous calls and meetings. This is sort of tidying up older centers and marginal performance. It hasn't really got anything to do with the franchising business, but it has got to do with just the maximization of profit. It is a long process, and it's one that started over a year ago pretty much when I sort of came back and got much more involved in running the business and sort of post the -- going right back to the private equity interest. And this was a job we had to, do and it's a job that private equity would have done. We've just got on and done it. So it's closing marginals and retaining the revenue. So it costs money in the short term, not really cash but write-offs. The returns on that cost of write-off are attractive, but it just takes time to do. There's a bit more to do this year. We should be pretty complete on this by the end of H -- Q1, Q2 next year. It's just the final part to do.

[Operator]

Your next question comes from the line of Michael Donnelly.

[Michael Donnelly, Research Analyst]

Just 2 from me. Eric, could you give us some guidance, what the average fit-out cost per square foot is and for the franchising locations that you've been dealing with this year? And the second question is on the GBP 28 million of broadly noncash costs for the rationalization. Can you just, in any way, split that out into profits and the closure costs. So profit or the loss that you're removing from the P&L? And then the one-offs that you take above the line to close them down?

[Mark Dixon, CEO & Director]

Maybe, Eric, I'll just first -- just a question, so your question on the fit-out costs for franchisees, just explain that for me?

[Michael Donnelly, Research Analyst]

So the total fit-out cost per square foot for the locations as they accelerate their growth and -- which is part of the rationale for doing the deals, I'm just wondering how much and not necessarily who contributed, but how much it's likely to cost on average to fit-out each location?

[Mark Dixon, CEO & Director]

So it's for a franchisee, not for us, because if it's a franchisee, we do not put the investment in it. It's the franchisee who is investing the capital.

[Michael Donnelly, Research Analyst]

And how much would it be per square foot, roughly?

[Mark Dixon, CEO & Director]

It can be anything from GBP 0 to GBP 40. If you are getting this done, it's about GBP 40. It depends where it is, what it is. I mean that's -- it's a very elastic number. The cost of doing it in Brunei are not the same as the cost of doing it in Central London, for example.

[Michael Donnelly, Research Analyst]

Understood. That's really helpful.

[Mark Dixon, CEO & Director]

The key -- look, when we're working with franchisees, franchise partners, these are business people with business, but it's just -- its return on capital. So it's -- what this business enjoys and always has done is if it's run properly, you get exceptionally high returns on capital invested, pretty much lever -- without calculating any additional benefit from leverage. And that is what the franchise partners are interested in. If they can invest and make returns on capital that are unleveraged 20% plus, that's what -- that's why they invest. So they buy the platform, make a return on that, but it's about completing the platform, scale benefits in a country as well. And done well, it just becomes a very beneficial both return on capital. And then finally, you get -- the icing on the cake is the national network where you get even higher returns because you have full coverage. So yes, it's -- maybe we can talk to you about that offline, Michael, and give you a bit more information. In terms then of the -- if you take the GBP 28 million, just to understand your question, you're saying, of the GBP 28 million, the benefit sort of conversion into profit or...

[Michael Donnelly, Research Analyst]

No. Is all the GBP 28 million a one-off noncash costs associated with closure? Because presumably, you're also losing some -- let's say, they were all breakeven, then it will be 0 profit and would be in that. So is the number GBP 0 million plus GBP 28 million? Or is it GBP 1 million plus GBP 27 million or is it minus GBP 1 million plus GBP 29 million?

[Mark Dixon, CEO & Director]

It's very -- why don't you want to have -- sorry, Eric, do you want to have word at that one?

[Eric Hageman, CFO & Director]

Yes, we'll try to find out what exactly the split is. And it's much more closure cost than profit leakage, if you will, but rather than guessing, I will give you the right -- make sure I give the right number.

[Mark Dixon, CEO & Director]

There is hardly any profit leakage. Otherwise, you wouldn't be closing them.

[Eric Hageman, CFO & Director]

Yes.

[Mark Dixon, CEO & Director]

So we just take...

[Michael Donnelly, Research Analyst]

That's great.

[Mark Dixon, CEO & Director]

Yes. We're taking a much more aggressive stance. And we know we're just running the business incredibly tightly. So very often, the marginals can be because someone tries to increase the rent on us. But whereas before we may have weathered it, we don't now. We just move... [indiscernible]

[Eric Hageman, CFO & Director]

Maybe a bit of color around these costs. So it works out to be, what is it, GBP 8 million or GBP 9 million a quarter, roughly. And I think if you look at where we are doing those and 138 that we've closed so far this year. It's very evenly split in those 4 regions and across the Americas, Asia, EMEA and the U.K., roughly 30 to 35 per region. So it is across the board costing similar money for those regions as well. And as we said, it is related to closure costs and there will be no reason to close something that is making a profit for us.

[Operator]

Next question comes from the line of Kartik Kumar from Artemis.

[Kartik Kumar, Analyst]

Mark, I'm just wondering if you could comment on the impact WeWork had on the market and particularly perhaps on you in the last few weeks. I'm sort of referring to reading about winning business in Canada for Spaces and the sort of FT articles about slowing down capacity growth in London.And then the second question, I was just wondering if you could comment briefly on -- a bit more on the inorganic opportunities that you mentioned. So you take Central Working. So I was just wondering what the economics look like when you bought them and what the return on capital is? And also, what the sort of pipeline of opportunities in terms of scale might be there?

[Mark Dixon, CEO & Director]

Good question. Let me deal with the WeWork one first. WeWork are in the process of reorganizing, we know that. Good new management, Marcelo Claure is, we think, an excellent manager. But there's a huge legacy problem, sort of mountainous problem that has to be dealt with, which is all the commitments to leases, and lots of, some profitable, but a lot of loss-making operations. So it will take them time to reorganize. And clearly, there's been damage to the brand. That has led to a flight to quality. So first impact is companies that were going to them and I'm more cautious about going to them. They've also sort of put their prices to the right level and aren't giving crazy discounts and/or broker discounts and all sorts of things that they were using to buy the market. And just to be clear, when you look at our third quarter numbers, most of that third quarter was with WeWork going to absolute extremes in terms of trying to drive revenue growth, and yet, we had very good revenue growth. The impact of WeWork doesn't really affect the third quarter because it happened at the end of it. So -- but what it has done is led to more demand for us. And it's created an even brighter spotlight on the industry. My taxi driver on the way to the airport on Sunday, black cab driver was telling me, he didn't know who I was, he was telling me about WeWork. And I'm not sure if that's a good thing or a bad thing, by the way. But he -- the knowledge of the industry went up by many notches during that whole period. That is definitely helping us. But the key benefit is yet to come. So one of the things that WeWork was doing was giving people hope. So lots of people, lots of investors backed entrepreneurs who set up in this industry, multitude of them. They put good money in, a bit like SoftBank but small scale, and banked on people that said they were entrepreneurs, but many of them couldn't run a business. And so it is an easy business, low barriers to entry, lots of very high barriers to making money. So the effect of WeWork is it -- sort of the balloon got punctured, which was the balloon that said, "Yes, you could be -- you could sell your business at 20x revenue," that became myth. And the reality of you need a business that actually makes some money, otherwise, it's worthless, and investors have stopped investing. So that -- investors now will not buy in any more generally to these sort of hockey sticks that never arrive in the hope of an exit valuation. So we -- there's a steady stream of people that are in financial difficulty now. Clubhouse, we did. Central Working, we're doing at the moment. There's a number of others -- and it's not -- it's worldwide as well. So that is the real effect. And so it will lead to consolidation. We've been -- why would we want it? The economics are for them, generally, even if they're good at running the business and most are average, some poor, they have -- they don't have any economies of scale. Their overhead completely submerges any gross margin they have. So it's just a loss-making proposition. So -- but clearly, if you can use synergies, these things can have value. Central Working has value, but you have to eliminate the cost. Otherwise, it has -- it is never going to work. So on the one hand, I think there will be many of these opportunities will arrive in the next 12 months. On the other hand, there will be perhaps more significant opportunities to consolidate from other players that maybe are good players. There will be -- there's always a possibility of events unfolding. We are an industry where scale is a key winning factor. So there could be some of the other players that we have been talking to over the years that sort of may come to the party in 2020, '21. And we're in a very good position to have the right discussion at the right price at the right time. So I think inorganic growth could be a bigger factor in the coming year. And this, we would do just -- it doesn't interfere with franchising because we would do this with our franchise partners when those opportunities come up.

[Kartik Kumar, Analyst]

Got it. May I just follow-up on one point. I was just wondering how -- if you could possibly comment on how competitive Switzerland was? Because I know you previously made the comment that Japan was competitive from the franchise...

[Mark Dixon, CEO & Director]

Switzerland was also competitive. Yes. So we had a number of bars for Switzerland, it wasn't one.

[Eric Hageman, CFO & Director]

In the end, we chose one to go exclusive with us. You typically do in these projects to run them down to a handful and then you choose one. And with that, we did a deal.

[Operator]

Your next question comes from the line Andy Grobler from Crédit Suisse.

[Andrew Charles Grobler, Analyst]

Just one from me, if I may. Just in terms of the franchising deals. Could you talk a little bit about your -- the pipeline of deals that are out there? And also the extent to which the partners you're talking to are property-related counterparties rather than people with franchise experience? And I suppose as an add-on to that, to what extent are those partners looking at the revenue synergies for their existing business by owning part of IWG rather than just the assets themselves?

[Mark Dixon, CEO & Director]

Sorry, what was the last one? The...

[Andrew Charles Grobler, Analyst]

When your partners are looking to buy a company -- a range of master franchise agreements with you, to what extent are they thinking about the revenue synergies for their existing business?

[Mark Dixon, CEO & Director]

Just maybe deal with that first, Steve. It's -- yes, it is interesting that some, not all, but some of the franchise partners see it as a very synergistic with -- they like to buy and own property. And they can add this into properties they own or would want to buy. So that is an interesting -- this is -- it's sort of -- they can and will, I think combine, not all of them, but will combine some property ownership with the operation.I think -- and to answer to the first part of your question that it's a mix between the 2 franchise specialists and real estate specialists. And some of the real estate specialists, some in the middle do both the real estate specialist and franchise specialists, but it's about 50-50. And if you look at some of the bigger ones, you've got people coming at them very much from a property angle and where they have substantial funds, that -- it makes a lot of sense. If you believe that this is the real estate of the future, the ability to combine both can make the returns even more attractive because it adds a whole new level of efficiency.

[Andrew Charles Grobler, Analyst]

And in terms of the pipeline, over the next 6 months, how you think that'll shape up?

[Mark Dixon, CEO & Director]

Well, look, the pipeline is busy. What we don't want to do is get into any sort of situation where we're overpromising here. We'll do the deals as they -- look, the underlying business is doing very well anyway. So there's no rush. So it is all of that -- we've got lots of things now underway, lots of discussions, some transactions underway. They take time. And -- but we would expect that there'll be a steady stream throughout the next year of announcements as we do small and large arrangements. And -- but it is time-consuming. Every one of these partnerships is very, very important. It's a big investment for them. And it's a big commitment also from us. So we're being again careful in what we do. But so far, so good. I mean the partners we have so far excellent. And they're accelerating growth, lots of good ideas on how to improve things. So it's very symbiotic. I'm seeing that sum of the parts is more than just a financial transaction here.

[Operator]

There are no further questions at this time, please continue.

[Mark Dixon, CEO & Director]

Okay. If there's no further questions, I thank you all very much for your time this morning. And as always, we'll be available if you have any follow-up questions, so that we can clarify in the coming days. Thank you all very much for joining.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.