IWG FY profit drops but outlook upbeat

FTSE 250 office space provider IWG posted a 14% drop in full-year pre-tax profit on Tuesday following a weak third-quarter for its mature business in the UK, with London a weak spot, although it struck an upbeat note on the outlook.

In the year to the end of December 2017, pre-tax profit fell to £149.4m from £173.7m the year before, with earnings per share down to 12.4p from 14.9p.

Still, revenue was up 5.3% to £2.35bn, or 1.9% at constant currency, and the company lifted its dividend per share by 12% to 5.70p.

Chief executive Mark Dixon said: "2017 was an important year for the flexible workspace industry globally and we remain confident that IWG will continue to drive, and benefit from, the accelerating customer demand and growth of flexible working. With the competitive advantage from our operational scale, global network and quality of service and technology, we are optimally positioned to benefit from these long-term structural growth drivers.

"While 2017 was not without its challenges, the improved revenue performance in Q4 on the back of a strong uplift in sales activity provides a strong platform for growth in 2018. Sales activity trends remain good and we anticipate improved revenue growth during the year. These trends, together with the very positive outlook for our industry, are reflected in our decision to increase the dividend by 12%, and maintain our progressive dividend policy."

In the UK, revenue from all the open centres increased 1.6% to £425.8m, with total revenue, including closed centres, down by 4.8% to £440.0m. Revenue from the mature business in the UK fell 2.9% to £398.2m following a weak third quarter.

IWG said its business in London and the rest of the UK differed. Revenue outside London increased and saw sequential quarterly year-on-year improvement, but mature revenue in the capital dropped "significantly" and was particularly weak throughout the second half. Even within the London market there were varied performances, with softer demand experienced in the City.

Although enquiry levels remained weak compared to the rest of the UK, there was a distinct improvement in average deal size in the fourth quarter. IWG said the absence of larger deals in London had been a particular issue, especially in the third quarter.

Looking ahead, the company said: "Our confidence is well-placed. All the evidence suggests that we are fast approaching a tipping point which will see the flexible workspace option, in which we are the leading global supplier, become the norm for progressive businesses worldwide as they seek flexibility, employee satisfaction and cost efficiency."