IWG shares tumble as revenue, profits disappoint

Workspace provider IWG watched its share price tumble on Tuesday, after it reported a 6% fall in gross profits to £211.3m in the first half, or a 13% drop at constant currencies.

The FTSE 250 company said its revenue for the six months to 30 June was £1.17bn, an 8.5% improvement, although when calculated at constant exchange rates it was a drop of 0.4%.

Its overheads were 9% lower at £124.3m, or 14% lower at constant currencies, while the firm’s operating profit including from joint ventures was £87m - down 2%, or 13% at constant exchange rates.

IWG said its profit before tax for the period was £80.8m, down 4% year-on-year, with earnings per share also falling 4% to 6.9p.

EBITDA was ahead 7% at £190.5m, although at constant exchange rates it was down 3%, and the firm’s post-tax cash return on investment fell 30 basis points to 23.3%.

Cash flow plummeted 38% to £87.4m for the period, and its net debt surged to £306.5m compared to £173.8m at the same time last year.

Its net debt-to-EBITDA ratio for the last 12 months was 0.8x, compared to 0.5x at the same time 12 months ago.

The board declared a dividend per share of 1.75p, a 13% increase on the interim a year ago.

“It is a very exciting time for our industry and, as market leader, we will continue to benefit from the structural growth in the Workspace-as-a-Service market globally,” said chief executive Mark Dixon.

“As expected the improving trend in sales activity at the beginning of the year has led to a gradual improvement in revenue growth throughout the first half, with IWG returning to growth in Q2.

“Current sales activity remains robust and we are therefore confident that our mature business will see growth over the second half of 2017.”

On the operational front, IWG said returns on new investment had benefitted from operational scale and further efficiencies, with the board saying it had an “ongoing focus” on disciplined investment, risk management and maintaining flexibility.

IWG also claimed it had benefitted from the introduction of a new field structure during 2016 during the period.

The company undertook further network expansion and improvement in network quality, with 149 new locations added in the first half.

IWG now had 2,996 locations, up 2% from December 2016, with 481,773 workstations - up 7% - as the company “intensified” the use of space.

The board said it also had a “significant focus” on the roll-out of its large co-working format, Spaces, with 23 new locations and five new countries added in the period.

It claimed to have increased visibility on net growth capital expenditure for the whole of 2017, with pipeline visibility as of 28 July of approximately £240m, representing 310 locations, 5.8m square feet of additional space and property investments.

The company reported “increasing traction” on partnering deals, accounting for approximately half of the organic openings.

“Against the backdrop of improving sales trends we have made the decision to invest in our network to deliver additional earnings growth and shareholder value creation over the medium-term,” Mark Dixon reported.

“In this regard, we decided to opportunistically acquire properties as well as further accelerate our growth.

“The underlying capital efficiency of our business more broadly has improved as IWG is increasingly working with partners in expanding its business.”

He added that, while IWG's “exciting” category of Workspace-as-a-Service continued to develop at pace and attract investment on the back of growing customer demand, the board remained focused on reinforcing its competitive advantage through the quality of its network, quality of service, technology and cost benefits from scale.

“Given the gradual improvement in revenue growth, while continuing to control costs, we anticipate strong cash generation in the second half of the year.

“These trends, together with the positive outlook for our industry, are reflected in our decision to increase the interim dividend by 13%, and maintain our progressive dividend policy.”

As at 1052 BST on Tuesday, shares in IWG were down 8.86% at 312.6p.