Q1 2020 Earnings Call
[music].
Welcome to crush many Wakefield first quarter 2020 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remark that'd be a question and answer section if you'd like to ask a question. During this time simply per star followed by the number one on your telephone keypad, if you'd like to withdraw your question press. The pound key it is now my pleasure to introduce Latin texture had an investor relations and global controller for crushed.
Wakefield Mr. Texture, you may begin the conference.
Thank you are welcome to Crishman Wakefield first quarter 2020 earnings conference call.
Earlier today, we issued a press release announcing our financial results for that period.
It's released can be found on our industrial relations website belong with today's presentation, you can use Apollo wall.
He's materials can be found at I.R. dot cushioning Wakefield Dot com.
He turned to the page label forward looking state.
The data presentation things forward looking statements based on our current forecast and that makes a future events.
He statements should be considered estimates only an actual results may differ materially.
During today's call, we refer to non gap financial measures adopt one by S.C.C. guidelines.
Conciliations and definition of gaps and non yet financial measures and be found within the financial tables of our earnings release and appendix up today's presentation.
So please note that throughout the presentation comparison in growth rates Archie comparable period of 2019 in our local currency.
But those of you following along with a presentation, we will begin on a spot.
Like from the call over to our executive Chairman and C.O. <unk>.
And thank you all for joining us today.
This call is going to be a bit different in most or any calls that week.
Some metrics information, we typically provide.
Value at the moment in particular prior data as an indicator of feature.
Other metrics, we don't usually.
Significant important for the moment.
We're going to cover those matters, we think matter most.
You are of course welcome to ask whatever your wife.
We will answer what we can.
I want to begin today by recognizing in thanking or many thousands Krishna Wakefield colleagues.
<unk> level of bravery encourage.
Commitment to their jobs, and our clients, which frankly.
Anything any of us could have expected.
Well most of the spent the past almost two months in our homes with our families.
These thousands of employees went to work each and every day.
Taking care of the 5 million square feet of buildings, we maintain.
The half of our many clients.
Some of these facilities.
Yeah.
<unk>.
<unk>.
Worse. This pandemic that's brought to bear on the world.
To each and every one of you.
<unk>.
And every one of your 53000 colleagues Krishna Wakefield.
Thank you.
You weren't example for us all.
And your bravery and commitment will never be forgotten.
I can speak from experience it sounded advice and inability to solve problems in a challenging in a certain time is a critical differentiator to our clients.
I believe this crisis ultimately drive.
Increasing volume of activity.
To the big free from.
<unk>.
Oh Wow.
Krishna Wakefield.
Which each cause that unique capabilities to serve clients in these unsettled times.
In addition.
Leave this pandemic will further accelerate differentiation between these three large firms.
And the rest.
Perhaps most encouraging to our has been the differentiation we had to cheat you're Krishna Wakefield among the big three.
You two are generally acknowledged global leadership position.
On the complex topic, how the mobile workforce returns to the workplace.
Two weeks ago, we hosted a web cast to walk landlord and occupier clients through best practices from our almost 300 page manual on reopening in the workplace.
We expect it a few hundred people on the call and instead, we got over 12000 callers representing over 8000 company.
And of course, many of these companies and callers were likely current clients of our competitors, who ended up turning to cushman, a wakefield for advice and counsel.
Despite the economic slowdown there's still much work to be doing business is continue to run.
These are still operational and in need of maintenance sanitation and cleaning.
When the time cons, many places of work will reopen resuming business going environment.
That would feel like anything but normal.
We have remained agile in our response to the pandemic and are uniquely positioned to lead recovery readiness effort.
Our clients.
We are playing or learning from our experience in China.
Well, we completed moving 10000 companies.
Nearly 1 million people.
Back into 800 million square feet of buildings, we manage in China.
And we are using those insights and best practices.
To provide our clients customized.
Cost effective solutions.
Returning to work.
Additionally, we forms the recovery readiness task force.
Of our top experts to lead the development of best practices products and partnerships.
To prepare clients for post cobin 19 recovery.
And the eventual return to the workplace.
From our earliest days of creating the new Krishna Wakefield.
We built this from on the learning from the past.
Specifically.
The learning from the downturn to 2000 through 2002.
And then the global financial crisis in 2008 through 2010.
We focused on building a firm with a large amount of recurring revenue.
Wrong liquidity and.
Senior management team that have been battle tested do the best and the worst our industry his face.
Because of this we built ample liquidity, including cash our balance sheet in a large revolver, which we've expanded overtime.
We did this so that when a blocks one event occurs as they will undo.
We not only do not need to worry about liquidity issues, we have surplus liquidity, which we can deploy towards a creative.
Attractive investment.
Finally.
As we have clearly stated from our very first road show.
We focus on operating margins and in turn expense management.
As a day to day practice.
All of this put us going a somewhat unique position in late March when the scale. This pandemic became clear.
We had also just completed most of the action.
Related to our November 2019, strategic realignment inefficiency program.
We're all the cost reductions are expected to be permanent.
No well other firms are only recently beginning their plans on austerity.
<unk>, our plans months before the market turn down.
And as I mentioned above.
Because this team has led three of the largest firms in this industry.
The playbook on additional temporary and permanent cost reductions is well known by US all and was implemented immediately.
These reductions cover all the usual categories and span across the organization.
These two large actions.
The 2019 strategic realignment program.
And the additional austerity program are anticipated to have an annual impact.
Over $400 million.
Although there will be some ramp up over time.
Expect the impact of these actions to be significant.
In the second quarter.
He's benefit.
In addition to the expected reduction in fee or her variable compensation expense.
And the reduce spend on materials.
Subcontractors indirect client labor that follow from lower revenue.
In addition, we immediately adjusted our models on company performance.
Krishna Wakefield, we run free models annually for the firm.
Or downside case has always been built on metrics that approximated a rough mid point.
Between the G.F.C. in the downturn of 2000 in 2002.
Or base cases always our annual operating plan.
And while our upside case isn't much of a focus.
And good years. It does set a range of possibilities should mark is performed better than expectation.
We managed liquidity always against our downside case.
And our day to day expense and capital allocation against our Bayes case.
But when the downturn hitting March.
We simply adjusted these models down.
Well, we are not going to share the specific inputs to these models, we will say that the downside models such a low point that we feel will not be hit.
Thinking about as a stress test of performance.
Cash flow and liquidity.
So our playbook is fairly simple.
Tasks liquidity against a worst case scenario.
That has a low chance of occurring.
Managed to business against they lowered base case.
Hope for more optimistic upside case to occur, but never ever count on it.
To put it clearly.
We have a formula for financially managing our business that we feel as a distinct differentiator and competitive advantage for our company.
Are approaches scientific.
Data driven.
And conservative.
With that let me speak again to our firm's liquidity.
At the end of the first quarter, we had around $1.4 billion and liquidity our balance sheet.
And recently expanded our revolver to $1 billion.
And we priced r. term loan saving over $13 million in annual interest expense.
In summary.
Christian awake other that much stronger company than it or are two largest peers were in the global financial crisis with more than Apple liquidity and.
Diversified revenue base weighted towards recurring revenue.
Now we get some color on overall business activity and quiet engagement over the past month.
First let me begin with our biggest business by revenue, which is our property facilities and project management business or P.M. at them.
Which represents almost half of our overall revenue.
As many of you know the services that comprise most of the segment or in many cases essential.
And required.
As part of the operation of a commercial building.
For example, cleaning.
Security and building maintenance are all functions.
That are required a building owners at all times.
Additionally, as you know these services are executed on a contract basis with highly visible revenue streams.
A date, we have seen no negative material change in a real news on the renewal rates on contracts with our P.M.F.M. clients.
And in fact Cushman, a wake up was working with many of our larger global Occupier services class.
Strategic space planning.
Or returned to work for their employees as quarantine restrictions around the world.
Begin to left.
Our next largest businesses are leasing service line, which accounts for approximately 30% of.
Of our total fee revenue.
As we have noted in the past.
We believe approximately three quarters of aggregate leasing volume is represented by renewal of current leases.
We have cited this in the past as have our competition.
To note that a significant portion of our overall leasing volume is highly visible in nature.
Across our leaving business, we have seen deals that were in process slow but not stop.
And some deals large and small continued to be completed.
And periods of uncertainty clients, often prolong lease for new decisions, which could delay, but rarely cancelled transactions.
We can say with certainty that are leasing professionals remain an active dialogue.
Because real estate owners and occupiers on deals.
For renewal.
And for new.
Long term space planning requirements.
Lastly, let me speak to our capital markets and our evaluation service wise, which represent the smallest proportion of our total revenue and roughly 15% and 8% respectively.
In the short term, we expect capital markets revenues be more impacted than leasing.
We expect the second quarter to have the most significant impact on our capital markets business in terms of year over year decline.
With some sort of recovery in relative terms during the rest of 2020 and be on.
Not to give you some contact on how recent events have impacted our results. Let me provide some color and trends in the first quarter.
I will begin by saying that R.P.M.F.M. and valuation service lines all perform strongly over the first quarter.
Leasing showed some weakness in March but we were also covering a very strong first quarter 2019 for leasing both in the Americas and globally.
Roughly half of the 2% decline in our first quarter revenues was driven by the deconsolidation of R.P.M.F.M. revenues in China.
As a result of setting up the Bankey joint venture.
However, the joint venture was acquitted to even in the corner.
Double speak to this impact in more detail.
A brokerage businesses after a solid start to the year experience sharp declines in March.
We've seen revenue in March declined 28%.
Capital markets was down about 13% for the month.
Certainly a precursor for super declines to come.
P.M.F.M., including the impact of the 90 joint venture.
And valuation in other were up mid single digits.
Over last year in March.
Finally, before I turned the call to dunk into detail our financial.
Let me speak briefly to our 2020 outlook.
As you saw from our earnings release, we are with drawing or full your guidance getting the lack of visibility to revenues.
What we can provide or the following expectations.
First.
Not surprisingly.
The second quarter to experience the sharpest relative decline in revenues versus prior year, especially.
In our brokerage service lines.
We would expect the impact of capital markets to be higher than leasing in the short term.
We expect P.M.F.M. to remain relatively stable.
During 2020.
However, there are some room for optimism that the declines in future quarters will be less.
Although it this time.
We do not know how this will play out.
We can't tell exactly what the depth of the decline and revenues will be or how revenue trends will impact our mix.
But as a rule of thumb and given our diversified business mix indecisive cost action.
We would expect to even to decline in 2020.
As a percent of our fee revenue decline.
To be in the mid 20% range.
We are confident in our company.
Our employees and our ability to serve our clients no matter, what the coming months may Brian.
Our actions have in fact based indecisive.
And our financial strength is not in doubt.
Or senior executive team has extensive experience imagine through downturn.
And Chris went away for a little continue to play a strong leadership role and helping our clients and our industry manage through this period.
Into recovery.
And with that let me turn to call. The Duncan discuss our financial result in more detail Duncan.
Thanks.
I'm good afternoon, everyone.
It's all covering our first quarter results and the trends we are experiencing in the business.
Want to expand on a couple of items that bat mentioned.
Liquidity.
Onshore position is stone.
Ended the third quarter with $1.4 billion of liquidity, consisting of cash on hand, a $380 million and a revolving credit facility of one point.
<unk>.
We had no outstanding borrowings on our revolver.
We completed our IPO with a very strong financial position and since then we haven't homestyle liquidity, most notably by increasing the capacity of our of all the to a billion dollars late last year.
Liquidity position has been built to be more than adequate to thunder operational requirements.
Economic downturn impacting our results.
Full view.
Liquidity is available to Thunder investments such as infill I'm in a in the consolidating industry and we have seen in the past that such opportunities can come along at any time.
In response to the current economic crisis, we have built several scenarios of the impact on our business in the show two medium term.
These are updated with new data and assumptions on a regular basis.
It is I believe based on our current scenarios that we have ample liquidity to withstand the impact of the current economic outlook, but a mall, although we have suspended almost all investment in the short term, we will stand ready to take advantage of attractive opportunities should they arise provided us scenarios continue to be supportive.
We would consider adding additional debt capital to further enhance our liquidity position to support a financial flexibility if markets become attractive.
I would remind you.
That appeared and financial leverage covenant, he's only applicable to the company if we exceed $408 million a borrowings on on evolving credit facility that is 40% of the borrowing capacity, which we also don't expect to occur.
Second cost actions.
Here and earnings coal in February we announced actions focused on strategic K. realigning business.
Significant pillar of this was focused on driving operating efficiency in both employee unknown employee costs.
By the end of March we had completed a substantial portion of these actions, which we'd compston. They expect to produce benefits dancing in the second quarter ramping through throughout 2020, and reaching full or run right benefit in the top of Twentytwenty womb.
As you would expect some us as soon as it became apparent decoded pandemic would impact how businesses outside of China.
<unk> plans and took actions to reduce costs over and above a previously disclosed program.
Included and almost total reduction in travel and entertainment and events would you spend on third party supplies imposition of fellows and part time work schedules in impacted businesses and executive and stuff compensation cuts.
Taken together, we expect that I'll post actions will exceed $400 million, an annualized impact and that the impact discrete d. and the second quarter will be more than $75 million.
In addition, we will cost see a lot of cost come out as revenues decline across different service lines and geography.
Will include a broken commissions Fianna profit shares direct client later and materials on third party subcontractor coasts.
We have also taken steps to reduce our capital and other investments bend, they're not currently investing in in fill M&A as no attractive targets are currently available. Although we did announce for deals early in the first quarter Precrisis the substantially all the capital deployed in P.M.F.M. satisfying.
Would that backdrop on page age, we summarize a key financial data for the first quota.
Hey revenue of $1.3 billion was down approximately $52 million or 2% as compared to last year.
<unk> decline was attributable to the D. consolidation of a P.M.F.M. business in China as a result of the joint venture we formed with bank of services.
Oh six of January 2020 company formed a new asset services joint venture with them for service, leading Chinese real estate provider.
This joint venture has more than 1000 commercial property and facility management projects you know the eight t. cities across grade to China with more than 20000 employees.
The company owns a 35% interest in this joint venture and accounts, which investments using the equity method of accounting.
As J.D. was a creative suggested even in the quota.
In the first quarter P.M.F.M. growth was in the mid single digits, including the impact to the bank T.J.V.
This growth as well as our growth and evaluation and other services line helped too upset weakness in a brokerage business is well eating was down 18% and capital markets 4%.
Yeah.
There's court suggested either dollar $70 million was down 19% as compared to pry, yeah, primarily due to lower leasing and capital market scheme avenues, most notably in March partially offset by the early impact of some of our cost reductions.
Moving onto pages, nine and 10, where we show fee revenue growth rates by segment.
<unk>.
As I mentioned I'll leasing in capital market said, its lines were down 18% and 4% respect to be for the courtship.
This decline was driven by activity in the month of March largely in on America's image segments.
Globally, reaching was down 28% in the month of March Similarly capital markets was down 13% globally in the month of March principally in in a pack regions.
Of setting these trends was growth in a P.M.F.M. said Islam.
Well then P.M.F.N. facility services represents just under half of this satisfying speed revenue.
She said it seems we typically felt to form a sub contract.
Services to a major operations in both the America's on a pack.
This business generate solid cash flow on a stable revenue stream and on an annualized basis typically has low single digit growth.
He revenue growth in facility services was 8% for the first cause it didn't buy new business wins and expanded scope in some contracts.
The best about P.N.S.M. said this line, which comprises occupied outsourcing property management and project management operations.
No single digit rate and a low double digit rate, excluding the impact of the revenue contribution to the joint venture in China.
Would that we will start a more detailed view of a segment starting with the Americas on page 12.
He revenue in America segment was down 1% of the quota lower leasing activity down 20% was partially offset by P.M.S.N. capital markets and valuation, another which were out 9%, 5% and 7% respectively.
Leasing business, we lap to very strong cool to end 2019 in which the school to growth is 21%.
Substantially all of the decline and leasing revenue was in March.
Within our America's P.N.F.M. service line of facility services operations represent a little over half the Buffy revenue.
So she services feed revenue was up low double digits from growth that existing clients and new business wins.
The rest at the P.M.F.M. satisfying grew as a high single digit rate.
Both in capital markets at 5%, which principally driven by the continued the mention of recent broker investments that began positively impacting our results and the fourth quarter last year.
America's just you need a dog $64 million was down 8%, primarily due to the impact of lower brokerage revenue.
Moving onto me on page that tea.
Hey, revenue increase 5% that but double digit growth in L.P.N.F. and said his lines, which was at 25% as well as a valuation another status line, which was up 6%.
Setting these trends were a capital markets and leasing status lines, which were down 16% and 14% respectively.
Adjusted even though it was a loss of $3 million, a deterioration of $3 million principally due to low brokerage revenue in March.
Napa Asia Pacific segment on page 14.
He revenues down 14%, principally due to the impact of the joint venture formation in China, as well as lower leaking and capital markets activity of 12% and 42% respectively.
Capital markets was down primarily due to a slow down in activity in Hong Kong.
Beside the impact to the joint formation in China, P.M.S.N. grew roughly as a high single digit rate for the quota.
P.M.F.M. represents roughly two thirds of puppy revenue for the segment facilities services operations in a pack down 5%.
Adjusted either dog $10 million was down 44% for the quota primarily due to the impact of low brokerage revenue.
Turning out to page 15.
In summary, the club at 19 pandemic has disrupted global economic activity on an unprecedented scale.
Near 10 business outlook environment remains highly uncertain and we'd have limited line of sight to revenue trends, especially in our brokerage business.
Such where withdrawing I'll guidance for Twentytwenty.
We expect the most to v. eight year over year declines to be in the second quota as the trend we saw in March in a global brokerage status lines continues.
Manage hated the decline is unclear, but we would generally expect the decline capital markets to be higher matching leasing.
Based on various economic forecasts, we would expect the degree of year over year brokerage revenue declines in <unk> has to be less if they're not in the second P.M.S.N. represents roughly half about total revenue and is expected to be relatively stable during twentytwenty.
You can imagine it's just hard to predict the trajectory of revenue with all that just going on.
About using different scenarios and baking in that significant cost actions, we had taken to mitigate the revenue declines we expect to see in the near to medium term, we think that as a rule of thumb adjusted EBITDA could decline and twentytwenty as a percentage be revenue decline by an amount in the mid twenties.
It depends on a variety of factors as you can imagine, including the severity of revenue declines timing of a recovery and the mix of businesses affected over time.
As breaths said, you can be confident that would ever the pandemic outcome, an economic impact we will continue to focus on the welfare of our employees supporting our clients.
Natural strength about company and our profitability.
Twentytwenty for the long term.
And with that I'll turn the cold back to the operator that the Q. and a portion of today's cool.
Thank you as a reminder to ask a question you any depressed star one on your telephone to withdraw your question press the pound key please stand by we <unk> roster.
Your first question comes from <unk> from J.P. Morgan Your line it open.
Okay. Thank you.
My first question relates to the cost savings and the either the margin brackets. You gave appreciate the incremental margin in the mid twenties that you highlighted how do we think about the cost savings and whether that's kind of loaded into using that as a bracket or is that.
Phasing it up to $400 million kind of.
You know separate from that.
Eliminate I'm gonna, let Dante's Brett [noise] before I turned to call the Duncan I do want to mention.
During our prepared comics, we got some notes that we were not coming through clearly on this line we apologize for that.
<unk> remind everyone Anthony on the call that Ah Argh script will be posted on our I our website and just a few minutes are going to apologize for the quality the phone call I don't currently handle that question.
Yeah. Thank sound to me so yeah. So the the dancers. It's all in right. So that that we talked about the annualized spaces at $400 million a savings that is how does include that in that sort of mid twenties rule of thumb. So that is off to taking account of those cost reductions.
Okay, and then how how much like that $400 million.
How much did you end up spending or do you anticipate spending to achieve that and is it to kinda number that that should stick like for instance, if you had done that.
They're 18 months ago would would you have just added that amount of money to your 2019 needed like the cash we think about that.
Yeah. So it makes a things right. So if you go back my bone up to four writing school and the best today, we talked about the.
Cost reductions were doing as part of the <unk> and I think we may disclose yeah, what we expect.
You know this kind of the cost to achieve for that to be you know in an eight k. right about that time I've forgotten exactly what we just closed around that but it's you know is.
A significant amount of money according to to sort of a cheetah savings as you might expect severance and things of that nature a lot of the savings were now putting in place in response to the crisis. We face it includes things like which usually travel and entertainment reducing events I think I went through a list of clothes and.
Stuff compensation cuts and part time work and you know so there isn't that chick frankly, a great deal of cost to achieve associated with a lot of that on the other hand, some of those costs of the kind of costs that somewhat activity driven so.
Tivity pretends some of those costs might come back so little bit of that is directly in response to the fact that we're running essentially a you know a business is facing up no revenue so responding to that so it's a it's a different nature of cost so.
It's it's it's a less of a it's a different sort of cost action that respect.
Okay, and then expressed a question for me commute some sense as to how much of a sales and leasing for you always driven by say the office business versus industrial versus say retail.
Sure I'd be happy to handle that so if you look at that the company.
And I'll just give you America by far the biggest business about 56% is offered 18% industrial.
Very small about 6%.
Oh, 5% is land and then not 16% would be multi family sales.
Okay. Thank you.
And that doesn't have as if the Americas to say now yeah.
Your next question comes from a line of <unk> from Morgan Stanley. Your line is open.
Thanks to Dayton, the the questions.
I just wanted to clarify on the costs I I guess, maybe just stepping back could you give it a sense. If we look at so the cost to services and the G.N.A.
Can you give it a sense of truly you know what is what it sort of they but I mean commissions, obviously move but I know there are differences by geography, where maybe there's a more <unk> be versus the mission in C.A.G.O. parts of Asia. So can you give me the rough sent it gets break it outputs anyway. They truly what is very bad which is what it's big.
And then a bug from just natural costs coming down because indoor activity. What other steps can you day 'cause you mean, you just see depressed dictate activity for prolonged period this year.
Duncan.
<unk>.
You hit the regional.
His question on the regional condition rate. However, you want to hit that I'll take a second.
Yeah. So you know obviously a lot a lot of the disruption we're expecting to see you know this year was going to be around brokerage service lines and brokerage satisfying compensation does vary as you mentioned by region by by by business and it. It. It is very bad in the U.S.. It's it's it's substantially older Commission kind of based system. So obviously those commissions come down as revenue comes down.
Down it's it's a it's such a variable cost.
You know in Europe, we and and some parts of Asia. It as a profit share type arrangement for a lot of the C.N.N.. So again as profit essentially gets.
Produced by by Law revenue, we would expect profit share to be reduced as well. So that's kind of a variable it doesn't come down as much as revenues. It comes down what sort of profit that they share and so that's that's how that gets would use but obviously that's going to get produced substantially as revenue comes down and then there are other commission arrangements different kinds of arrangements.
Salary and bonus type arrangements smell, the smaller nature, but generally speaking.
People do a kind of facing brokerage tight revenues and then reductions in that beverage type type revenue, we might expect to see that that that kind of cost is going to come out with that revenue right. Then obviously, we have some other costs in a P.M.F.M. service lines and all the P.M.F.M., it's going to be frankly fatty stable over the but it will be some <unk>.
Goes up so pockets what goes down you know what when you have is where it's coming down there's a lot of direct client late Toby Toby conceivable products there'll be passed through labor.
<unk>, it's passed through so that's what we're going to come out when the revenue comes out so that kind of as low cost depending on how much revenue comes out that without direct costs comes out with that when it when it comes to the costs sections were taking.
Respect to that $400 million a manual I savings. We talk about you know that is all coming out of what you might think call. Those you know fixed in the context of is no variable right now some of it's it's some it's semi fixed some of it's sort of fixed right. So obviously is a lot less activity around boxing around traveling entertainment around around <unk>.
Then I mean, one could think of some of that as as coming out more could think of that as activity driven and <unk> semi semi variables any fixed in nature, but it that's coming out as part of that $400 million Manualize, we're talking about.
I just on the on the things you do as if if this becomes more prolonged that person got say just to add onto Duncan comments, even in their jurisdictions, where we have feared paid a salary and then a profit shares out what they do there is they will move the salaries down as well so each region.
It did they certainly don't move in lock step and I can't pray that 50 per cent of every brokerage dollar is going to go away that is a case in the U.S. actually more than that but in Europe. For instance, they will move down salaries on for years, just as if it were a bit of a commission. So these numbers are very very significant not.
Yeah, we're not going to get nervous because we don't know what they'll be in that and bucket because they depend on revenue declined, but certainly you could imagine that bucket being equal to or greater than 400 million. We talked about in <unk> work at cost action and then think about duration here. We've we have already through the work that we started in November.
From 19, we already into our great benefit already did a very significant a realignment of accompany networks and I've done there are many more projects associated with that project that we expect to commands and complete over the next couple of years regardless of.
The duration of of this downturn so.
The what I'm trying to make you that is that we have always been you know that we have always been very very vigilant around running this business with a proper cost structure that is going to be the case, good marketing bad so where did the duration of this downturn is two quarters or eight corridors our efforts around those cost management issue.
These are are gonna be relatively the same certainly last point I'll make yes road went to Hell and a hand basket like it did.
The G.S.C. there are a number of other measures that you can take that are temporary but at the moment, we don't see that as being the case.
Okay Fair enough and then I guess, just you talk I mean, you mentioned that I guess in the release all it so that you're you know whether to Eric eventually good advantage of any opportunities that may arise when they do arise in terms of them. Any can you may be just give it a little bit more color in terms of priorities.
Bite you know maybe because it says that the site's what would you be focused on that that say six months from now are coming out of that.
And when you're looking to go externally.
Sure well.
Great question, it's a bit of a complex 21st again by saying that our priorities for that company have not changed and we have then.
Focused is you know.
I'm continuing to build out first a recurring revenue business scientists property management facilities management and certainly.
The high quality property management business came to market today or in six months or in a year, we'd be very interested in that business regardless of market cycle.
But then there are opportunities there generational and I remember when I was running another from in this industry back into G.S.C.
We've got to the G.S.C. or put a lot of work into that.
And shortly after that we began coming out of G.S.C., a generational opportunity arose which was the Dutch government asking I.N.G. to dispose of their real estate investment management business, which $365 million. A day you around we did not expect to see that coming ever yet with an opportunity that.
<unk> very attractive I send it transformed.
Asset management business at that other from so.
Impossible to say what will come from this downturn, if anything the longer the downturn laugh the more opportunities will come from distress.
Fairly short downturn, maybe very few certainly the distress would come from the usual places so businesses in our industry that are only capital markets businesses are going to get hammered and those businesses. You know, we don't know what capital markets revenues are going to do but certainly.
At least for a short period of time, they they could be very very low. So we're watching those businesses that don't have a lot of recurring revenue.
Brokerage company or in the marketplace, they're going to feel the pain much much worse.
Than the big three firms will will be watching those firms carefully but the the primary priorities for the company I haven't changed we love the recurring revenue businesses.
We would be interested in asset management, it's something particularly attracted came at great pricing probably won't but you never know and then if there's real distress in the marketplace and we can buy very cheaply. Some folks that are on the ropes. We would look at those probably across all of our business life.
Great and then just lost one if I may it it's a early debate and one which it'd probably take.
I used to play out, but this whole work from home experience and the potential impact the how people and <unk> and employers use their office space and and maybe impacts their property management, just just any early or hide it was hot based on conversations you with me have AD with them get would keep ending.
Sure so.
You're saying that this is a very fluid Ah conversation.
I would tell you that in the early days all of six seven weeks ago. Many companies in many C.E.O.'s, we're talking about the fact that they were surprised at how well they were able to operate their companies with all of their employees are most their employees working from home, which then led to the immediate.
I think this real reaction of G.
It just works this well this way why would that leave from these people at home and <unk> my footprint that conversation here to change demonstrably.
Change for a couple reasons. The first is that as a those same C.E.O.'s and those same businesses begin to work with their real estate department internally or advisers like us.
They realized wants it to create the unacceptable floor plan in two weeks or three weeks from now they can't accommodate half of their current employees at once a year and tell me. He said bred into a very large bank you could Brett right now our math our people tell us we would need to double our global footprint.
To put people in our from back to work you said, we're not going to do that you can we may have to take additional space and we're looking at some of the they can we work space and some other things, but what we're going to do is rotate our employees through the building and we may have no more than 25% or 30% of our workforce in a building at any given time.
But very few about workforce will be at home permanently I think that is analogous to what generally people are talking about in the market certainly we all learned over the last eight weeks that.
The productivity.
Of people at home right now is much higher I think than any of us thought it would be but I do not believe that is fundamentally change the view of of large corporations that there are very big benefit them larger back to the synergy and having people work in the same proximity to synergy that comes comes from that might.
Is that you will see.
Incremental impact on office usage.
I think it will be in a single digits, but what we are going to see is a very very different way in which that space gets used the number of people that are in that space at any given time those things those things are changing for sure.
Great. Thank you so much.
Your next question comes from line, if Josh Lammers from Lincoln Blair. Your line is helping.
Great things.
You know so obviously the impact of cobin on Ah leasing and sales itself may pass for most of the quarter.
So I'm wondering if you would say that.
The results, they're sort of a good proxy for sales and leasing outlook in other regions.
Or is there a difference and maybe product diversification or regional coverage.
That would cause a difference in results there versus other countries reasons.
I'm, sorry, so you're you're asking did I'm, sorry, you're asking did.
If they ask a question again I'm not sure I'm falling yeah, yeah, yeah. So just to put it more basically I'm just wondering if we can use kind of a pack sales and leasing result.
Sort of a died or proxy for other regional outlooks, and becoming quarters or whether there's a difference in you know product exposure property exposure original coverage in that region region that might cause a difference and results <unk>, Yeah, I told me to take that.
I'm sure go ahead.
So so <unk> I think we are going is if if if China's recovering first maybe we can use that as a future indicate to what why happened invest the world is that kind of the question.
Well the results that was sort of that we're that we're experiencing the first quarter recognizing that you know trying to for the for the most part it back in general you know covert impact and results.
Throughout the first quarter as opposed to just the tail end marks.
Where it was felt something America. So I'm just wondering right again I know, it's it's probably too early to tell but just trying to get a gauge for you know maybe how pipeline to look for for right for weeks in sales on the region. So and so yeah. Okay. So I'll give you a couple okay I'll I'll <unk> I think so took a packing q. <unk> indecent capital.
I I don't think you should really read across too much that one of the big impacts for example.
<unk> in a package capital markets isn't last year, we hadn't incredibly strong Hong Kong Q. on an obviously Hong Kong doesn't do Kobe has gone through a lot of disruption and second half 2019, and that <unk> disrupted capital markets in the face cost one on a relative basis or the first quarter last year. So I don't really think.
You can read across too much in terms of trends in decent capital markets as to what they'll be having said that I think what we said about trends in the will generally in leasing a capital markets probably apply to all regions at least in the short term, which is we're expecting to see Q.T.B.A. you know a bad quota in terms of like comparing to last year I really.
Severe downtown bits with what's going on a G.D.P. and we would expect that to be putting mostly to end. The second courtship probably also to be declined the so called Tibet, maybe slightly less so it's right now I think we're expecting cute you can be really bad worse than we saw in March in a Gemini speaking I I think it it.
Say in April.
We also so trends you know probably 40% plus globally.
And Lacey and capital markets decline bus is supposed to last year.
I think that's that's probably reflective of of of of some of the trends. We saw this month, which oversees bayes worse than we saw in March.
So that's probably probably about a day to point for you nothing to mention about eight packing Q1, I know you referred to brokerage, but just to make sure you understand what the reasons yeah, probably the only reason really why property associates management looks like it was down is because of the Vancouver J.B. must be set in the script actually excluded that property management infest caught who was up.
Probably not high single digits.
Yeah.
<unk>.
I think it'd be more helpful, but by the way you're exactly right.
Great looking day pack when I would.
If it were me and I were building models and trying to track shape. It there.
Downturn in recovery, you're going to be far better served looking at the available public data for C.B.R.E.N.J.L.L. 2008 through 2010, and when I would point you to would be the sequential declines.
And it doesn't property sale revenues and leasing revenues.
Over that period of time in here.
Personal no one knows.
<unk> second quarter is going to look like and certainly no one knows what third fourth quarter and then next years for three quarters, what looks like at the moment I think there's a decent consensus view, which again could change tomorrow that but yep.
Oh this downturn across those same business lines and older business lines of these businesses Kerry could be similar but the duration should be much shorter so that downturn in G.S.C. seven quarters of sequential capital markets declines yet six quarters of sequential leasing declines.
We don't want at the moment see that in this down here, we see something materially shorter than that but the sequential quarter of a quarter declines where you're you're declines by quarter of those revenue lines.
There's not a lot of a lot of justification to think leasing is going to behave much differently capital markets. This time around could do better because of the massive amount similar to the system, which is crazy crudity and also the banking system right now isn't terrific shape, we we don't have a seizure.
Capital markets like we did that.
Sure.
Right well. Thank you very much for that response and then just quickly you know you touched on you know the expanded conversations that you're having with with the owners and and occupiers in so I'm. Just wondering if you can comment on you know bit more than what you're seeing as far as top of the found a lead generation in the outsourcing business and is there any way for you to frame that level of.
Increase demand.
You know relative to kind of past couple of horror growth or prior gross.
The way that it's it's very hard to do that but I can at least give you. Some some guide codes.
Tends to happen in a downturn like this is that there's very little churn.
And there's contractor thing about this way if you're.
You know pick your favorite owner and you have a property management contract on with your provider that is coming up for a a re look in July it's not likely you're going to change providers. It's just not now also in the property management space.
Most of those contracts tend to turn over when a building. So so for a while there's not gonna be much of that either so what does that mean it means that contract <unk> by the big players the big Curry should be quite low however.
If you're a big building owner or if you're a large corporation is hired a from facilities management or property management, and let's say you didn't hire one of the big three and now you're looking at smaller less well capitalised from it's not unlikely that you might make a change now there's always a flight.
Quality in these downturns ask my reference that gain of our call Tonight, There's always a flight quality and then there will be goes from that looked at <unk>.
By outsourcing for the first time and that really it answers your question, which is.
We're going to see I believe over the next as as this.
He's out a change of contracts from smaller less well capitalised competitors to the degree we're gonna see very little churn.
Contract from there and we will likely see some providers begin to hours for some components of their footprint for the first time our people working mother like we're we're still at like at home right. So really there's very little.
Going on in conversations around letting out new business, but as the days go on as people get back into the offices.
We should be able to give you a better answer on that on the next quarter's call.
Thank you for your time.
Yeah.
And if you'd like to ask a question. Please press start and then number one.
<unk>. Your next question comes from line I've got harder from Credit Suisse. Your line is open.
Thanks, obviously, knowing that kind of the bigger number is kind of certain at this point, but no. That's how should we think about.
Not slow and kind of the different group for true return password for it they are remember.
Okay.
That's a good question. Thank so you know.
Well try to help you with <unk> that would keep it out we'll try to help you with any but so obviously a big driver of cash flow is is would that detrimental and we don't really know what revenues going to do but you know we're trying to give you. Some sensitivity for how you can think about that in terms of how to go from that to free cash flow all the elements of cash flow generally speaking you know working.
Capital in the company is goes up with revenue So guess what working capital goes down when revenue goes down so we should see across the yeah working capital as a source generally speaking of of of of cash flow, we've cut down cap packs capital expenditures from our normal one to one to have potential revenue that's off.
Being cut to the bare bones now how many things that absolutely essential being done so I'd expect it to be less than usual.
We've all so <unk> suspended in because there's no tried to targets and then fill out Monday. So we're not be spending money you know on investment right now, which is obviously pleased to be significant by the cash what that we normally spend our interest rate expense, we would use that.
From lost Yeah, I think maybe about $15 million by repricing our debt January by 50 basis points, and we would expect a cash taxes. This year to be quite a lot less than we otherwise would have seen given that you know profit before taxes, probably going to be less. So generally speaking miserable helps you know thing was seeing is.
The benefits coming through.
I'm just in terms of schemes that governments around the world putting in place to help companies to to get different deductions and <unk> mania, all the tech side and payroll tax type side, where there's been you know different <unk> countries around the world to provided you know incentives and benefits and stuff, which is which is able to companies were able to take advantage of so.
Speaking I would say that is that while the bit dollars a primary drive.
Obviously a of of cash flow a lot of things were taking action on in terms of Oh those items I, just mentioned or sources. So that she a meteor H.B. impact on cash flow for the yeah, which I think it's one of the reasons why no law scenarios, we feel very comfortable to we have ample liquidity and I'm really not seeing that as being particularly.
Big drive at this year from I sort of liquidity point of view I I can give us a little confidence that we can continue to to see that as a social financial strengthening forward.
Great interest is there any kind of lemonade that that you had kind of previously announced that still world needs to be kind of paid for that that hasn't already close just anything else on cash for promote perspective.
Not really no. We we always have a little bit differ consideration from prior years, you know deals we typically do quite a lot of deals with us maybe an out so.
You know defect consideration and the might be some of that to see it but not in the very material context.
Great. Thank you.
There are no further questions at this time, Mr. <unk>, why I turn the call back over to you.
Thank you very much push ever calling again, we look forward to talking to you in three mind, hopefully we'll have a lot more data.
Sites and that kind of everyone stay well they say thank you.
Ladies and gentlemen, <unk> today's conference call. Thank you for participating you may now discount.
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