Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Co-working group IWG, which owns the Regus and Spaces brands, has pledged to simplify its financial reporting and reduce debt as it takes steps towards quitting the London market for the US.
The WeWork rival will this year switch to reporting its financial results in US dollars, and expects to take a decision by June about whether to change to the American GAAP accounting standard, the company said on Tuesday. It held a capital markets day in New York in December.
Chief executive Mark Dixon said “the final step is to consider moving the listing from [the London Stock Exchange] to one of the US exchanges . . . that is certainly a consideration for the board and our investors at a later stage”.
He added that the company did not expect to change its listing in the “short term” but might benefit from a “deeper market” in the US as it tried to position itself as a high-growth platform business.
IWG is listed in London but headquartered in Switzerland, and at present derives 40 per cent of its revenues for its co-working network from the Americas.
IWG would add to the growing list of companies quitting the London market in search of higher valuations and great liquidity abroad, particularly in the US. Telecoms group Spirent Communications will leave the UK market if a £1bn takeover offer from a US rival, separately announced on Tuesday, goes ahead.
Dixon’s comments came as IWG reported an 8 per cent growth in revenues to £3.3bn in 2023, excluding foreign currency fluctuations.
Despite this, IWG’s loss before tax from continuing operations for the year widened 80 per cent to £189mn, taking a hit from £149mn in one-off “rationalisations”, such as costs from closing centres, as well as higher finance costs.
IWG shares fell about 5 per cent in morning trading.
Dixon said the reported loss was “not a ‘problem number’” and that higher interest rates were having an “arbitrary effect” on earnings because of the accounting treatment of the company’s lease liabilities on properties it runs.
“What we have today is very strong cash flow, that is really what investors are focused on,” he said.
Dixon said IWG would aim to reduce debt to 1 times earnings before interest, taxes, depreciation and amortisation, from 1.5 times at present, “because of the amount of interest that we are paying”.
The effective interest rate on the company’s “bank loans and corporate borrowings” rose to 8 per cent, from 4.8 per cent in 2022. The interest bill on these borrowings rose 45 per cent to £55mn. The company ended the year with £110mn in cash, down from £161mn a year earlier.
IWG reduced its net financial debt 14.6 per cent in 2023 to £608mn. The company last year repaid a £330mn bridge facility taken out in connection with the acquisition of Instant Group, in part by adding to its revolving credit facility, which matures next year.
The company added 867 new locations in 2023, taking its total to 3,514 sites worldwide.
IWG has been moving away from the conventional co-working model of taking long-term leases from landlords and then letting out space on a short-term basis to clients. The mismatch between long-term liabilities and variable income contributed to the downfall of WeWork, which filed for bankruptcy last year.
More than 90 per cent of IWG’s site openings last year were on new “capital light” arrangements, such as partnership deals with landlords, but 58 per cent of its total locations still use the conventional model.
The company has stopped reporting the occupancy rate for its co-working centres, switching instead this quarter to revenue per available room, a metric used in the hotel industry.
“One of the key things investors are asking us for is to make our reporting clearer and consistent. That’s what we’re doing,” Dixon said.
