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IWG swings to operating loss as Covid hits workspace demand

By Josh White

Date: Tuesday 04 Aug 2020

LONDON (ShareCast) - (Sharecast News) - IWG reported a "good first half performance" given the impact of the Covid-19 pandemic on Tuesday, with revenue rising 3.5% year-on-year to 1.32bn, although it swung to an operating loss as many of its clients' workforces stayed home.
The FTSE 250 workspace operator said open centre revenue was ahead 10.2% to 1.3bn for the six months ended 30 June, having risen 17.7% in the first quarter and 2.5% in the second.

On an IAS 17 basis, the company swung to an operating loss in the first half of 19.2m, from a profit of 43.3m a year earlier, while its losses per share came in at 22.7p, compared to earnings of 32.9p a year earlier.

Revenue for pre-2019 operations, being operations that were open before the end of the 2019 financial year and had continued into the new year, was ahead 0.2% at 1.16bn, having risen 7.6% in the first quarter, and falling 7.4% in the second quarter.

Occupancy for pre-2019 operations was up 4.1 percentage points to 75.9%, compared to 71.8% for same period in 2019.

IWG said it had seen "strong demand" for home working and virtual office products, with customer growth for virtual offices around 15% year-on-year in June.

It also said it generated positive cash for every month in the first half, with adjusted cash flow before net growth capital expenditure, repurchases and dividends coming in at 125.4m in an IAS 17 basis, up from 83.4m.

The company said its adjusted EBITDA for the first half was 137.4m, down from 189.8m, while its net debt narrowed to 15.9m on an IAS 17 basis, compared to 298.1m.

IWG said it took "comprehensive actions" to reduce costs, and improve its cash flow and liquidity in the face of the Covid-19 crisis, with 180m in cash savings made from operations thus far, as the board was focussing on achieving further savings.

Further specific coronavirus-related actions were announced on Tuesday, including a 29.1m charge for expected credit losses, transaction costs for deferred deals, restructuring costs and goodwill impairment, and a 126.7m provision to provide for network rationalisation.

Looking ahead, IWG claimed it was "well-placed" to capture significantly increased growth opportunities, reporting that existing strong demand had been supplemented by more enterprise accounts looking at greater distributed working.

It also noted the greater requirement for more flexible space, and a desire among companies for for improved cost efficiency.

The firm had strengthened its financial position following a 320m equity placing, in a bid to accelerate future organic and inorganic growth, and said it had 830.3m of available liquidity, having reduced its net debt.

On the franchise front, IWG said it added six new franchise partners and an additional 30 committed locations during the first half, with the board saying that franchising remained a "key focus area" for growth, as master franchise discussions were ongoing.

The board said 2020 would be "a year of challenge and transition", with significant actions being taken to strengthen the business, adding that a stronger 2021 performance would be underpinned by cost savings and expected improved revenue growth, supplemented by increased growth opportunities.

IWG said it was "uniquely positioned" to help companies adapt to the new world of working post Covid-19.

"The new world of working is changing dramatically and the long-term structural drivers for our industry are strengthening which is very encouraging," said chief executive officer Mark Dixon.

"However, whilst the Covid-19 pandemic continues, we expect our third quarter to be particularly challenging. We therefore remain sharply focused on maximising further cost savings in the coming months to build on the 180m of cash savings achieved through the extensive actions already taken."

"The current environment is presenting an increased number of attractive organic and inorganic opportunities to accelerate the growth and development of the business and our equity placing in May has strengthened our ability to capitalise on these opportunities."

Dixon said the company's commitment to unlock "significant" shareholder value through the move to a franchise model had not diminished, with the firm continuing to sign franchise deals in all regions, while conversations on potential master franchise agreements were ongoing.

"In the new world of working post Covid-19 , offices will still be needed but there will be a greater requirement for more flexible space.

"More companies will have distributed workforces with more satellite offices, more employees working closer to home or continuing to work from home.

"With our decentralised portfolio of workplace locations in over 1,100 towns and cities, both urban and suburban, we are uniquely positioned to help companies adapt to a new world of working."

At 1015 BST, shares in IWG were down 6.91% at 210p.

Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are delayed by at least 15 minutes.


IWG Market Data

Currency UK Pounds
Price 313.60p
Change Today -5.20p
52 Week High 383.60p
52 Week Low 222.60p
Volume 1,222,596
Shares Issued 1,007.37m
Market Cap 3,159.11m

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What The Brokers Say

Strong Buy 5
Buy 1
Neutral 4
Sell 0
Strong Sell 0
Total 10
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IWG Dividends

  Latest Previous
  Interim Final
Ex-Div 05-Sep-19 25-Apr-19
Paid 04-Oct-19 24-May-19
Amount 2.15p 4.35p

Trades for 30-Jul-2021

Time Volume / Share Price
16:35 609,857 @ 313.60p
16:29 323 @ 315.50p
16:29 182 @ 315.50p
16:29 129 @ 315.50p
16:29 425 @ 315.50p

IWG Key Personnel

Chair Douglas Sutherland
CEO Mark Dixon
CFO Glyn Hughes