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Office turnaround alludes Regus

RESULTS: Serviced officer supplier Regus is yet to see occupancy rates improve and there could be more pain to come
August 27, 2010

The fall in profits at serviced office group Regus is not quite as alarming if you strip out exceptional items relating to the £15.8m restructuring of the lacklustre UK business. Excluding these one-off charges and gains that boosted the prior-year figures, Regus reported pre-tax profits of £9.7m, albeit down from £50.7m, and the re-jig is now achieving £1m of rent savings per month.

IC TIP: Hold at 65p

The drop in profits was caused by both a decline in occupancy levels and pressure on margins as customers have been achieving cheaper prices. Revenues fell in every region, with Europe, the Middle East and Asia (EMEA) and the UK the biggest laggards, down 12.5 and 9.7 per cent respectively, while Asia Pacific was the only division to see occupancy rates rise.

Despite this tough environment, the group generated cash from operations of £47.1m and invested in 44 new centres, increasing the total to 1,012, with the number of workstations up 3.5 per cent to 167,318, worldwide. What's more, 70 per cent of leases are now on flexible or variable contract agreements and chief executive Mark Dixon expects to open "a centre a day" until the end of the year, as the group "builds stock for when things get better".

KBC Peel Hunt forecasts adjusted pre-tax profits of £40.3m and EPS of 3.2p (£75.3m and 6.2p in 2009).

Regus (RGU)

ORD PRICE:65pMARKET VALUE:£612m
TOUCH:64-65p12-MONTH HIGH:126pLOW: 64p
DIVIDEND YIELD:3.8%PE RATIO:na
NET ASSET VALUE:53p*NET CASH:£224m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200955769.05.70.80
2010516-6.1-0.80.85
% change-8--+6

Ex-div: 8 Sep

Payment: 8 Oct

*Includes intangible assets of £321m, or 34p a share

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