The impressive growth trajectory enjoyed by workspace provider IWG (IWG) in 2017 has come to a sudden end. Management issued a shock profit warning which sent shares down by a third in just one day. The problem? The recovery of the group’s mature business – offices owned for a full twelve month period prior to the start of the financial year – has not recovered as anticipated due to faltering sales activity. As a consequence, mature revenues in the year to September 2017 remained broadly in line with the first half’s disappointing performance, declining 1.9 per cent in constant currency.
Elsewhere a weak London property market and recent natural disasters have dragged on growth. Operating profits are now expected at £160-£170m, well below Stifel’s previous forecasts of £216m. The broker now thinks “the carry of additional overheads, a step-up in investment [and] further opening costs”, will plague next year’s performance.
But management has attempted to reassure that “this is in part potentially a timing issue” as sales activity has been very strong in October. Sales at all of the group’s currently operational centres were up 4.4 per cent at constant currencies in the third quarter of 2017.
