Perhaps surprisingly given the global Covid-19 lockdowns, flexible workspace provider IWG (IWG) saw revenue from its open centres increase by 10 per cent at constant currencies in the six months to 30 June, to £1.3bn. This was driven by revenue from ‘Europe, the Middle East and Asia’ (EMEA) – its second largest region – increasing by more than a fifth to £364m.
Open centre’ revenue includes all of the new locations opened in 2019 and the first half of 2020. Looking at ‘pre-2019’ centre revenue – more mature locations – things are less positive. While these sales were flat across the half at £1.16bn, there was a 7 per cent decline in the second quarter thanks to the pandemic. Occupancy did increase by 4.1 percentage points year-on-year to 75.9 per cent, but revenue per occupied workstation fell by 7 per cent to £2,929.
Chief executive Mark Dixon says “we expect our third quarter to be particularly challenging” – the group is guiding to “significant volatility and business disruption” which could flow through into 2021.
The pandemic already triggered £136m of exceptional charges in the first half. This includes a £107m impairment based on plans to rationalise 4 per cent of its network and a £9m provision for customer bad debts. These charges swung IWG to a £91m operating loss, versus a £143m profit a year earlier.
Net debt (excluding lease liabilities) has come down from £294m at the December year-end to £16m, equivalent to 0.7 times cash profits (Ebitda). IWG now has £830m of available liquidity and following a £320m equity placing in May, it is looking to acquire distressed assets. Last year’s final dividend was scrapped to cut costs and there’s no interim payout either.
It would be hyperbole to declare the death of the office, but it would also be naïve to assume that working practices will return to normal post-pandemic. IWG remains confident in the structural growth drivers for the flexible working market – even if more people work from home, a certain amount of office space will still be needed. It is anticipating a pivot in demand away from city centres to more suburban locations as ‘satellite offices’.
