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Mark Dixon knows how to weather a crisis. The veteran boss of IWG has seen more than a few. The trend for working from home will be a tough test of the flexible office business. Dixon used an upbeat half-year results presentation to assert that the opportunity is just as great.
Post-pandemic work patterns have been an interesting proof of the unpredictability of mass psychology. Everyone knew offices would reopen. No one could accurately predict levels of occupancy.
These have proved lower than most employers and landlords hoped. Even Zoom, the US videoconferencing business buoyed by lockdowns, is now mandating some compulsory attendance.
Overcapacity abounds, as much as 25-30 per cent in big cities. Some big names in UK banking and professional services are halving their space requirements. The challenge for landlords is to upgrade old stock.
Flexible offices look a like a good option for employers who would rather not commit to long leases. IWG is positioning itself to exploit that. But shareholders have heard that story before. Under its old name of Regus, IWG had big plans when it listed more than two decades ago. Returns to shareholders have been modest.
The company should break even this year after three consecutive annual losses. The share price hovers around decade lows.
Worryingly, a mismatch between long-term leases and short-term tenants is contributing to the ongoing implosion of US flexible space group WeWork.
Tweaks to the model are reducing risk at IWG. A capital-light approach to new deals means that property owners are sharing tenant exposure. In return, they benefit from access to IWG’s skills in running flexible office space cheaply.
IWG is deleveraging. Net debt excluding leases fell £54mn to £658mn in the first half. That is about 1.5 times forecast adjusted ebitda. Include leases, and net debts rise to more than £6bn.
IWG deserves credit for tenacity. But its record suggests it is a specialist with a defensible niche. It is not poised for boom times on the back of WFH.
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