REG - IWG Plc Regus PLC - TRADING UPDATE - 26 April 2022

International WorkplaceAnnouncement

26/04/2022 07:16

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RNS Number : 2823J  IWG PLC  26 April 2022

 

TRADING UPDATE - 26 April 2022

 

IWG plc, the leading global operator of workspace brands, today issues its
trading update for the three months ended 31 March 2022.

 

Good revenue momentum in the quarter continues. Progress on strategy with
faster than expected new capital-light centre growth and merger with Instant.

 

 

 Financial Highlights for the three months ended 31 March 2022

 

·      System-wide revenue increased 18.3% year-on-year, supported by
increased franchising and partnering

·      Revenue excluding closures increased 22.4% year-on-year

·      Pre-2021 revenue and occupancy increased by 15.9% and 780bps to
74.5% respectively

·      Pricing continues to improve month-on-month

·      Substantial progress in reducing costs in line with previously
announced initiatives and related provisions, although increasing inflationary
pressures are creating some headwinds during 2022

·      Net debt, pre-IFRS 16 basis, at 31 March 2022 of £763.8m,
including bridge financing for The Instant Group merger

 

Business Highlights for the three months ended 31 March 2022

 

·      Very strong growth in management agreements and other partnering
deals; excellent pipeline for remainder of year

·      Franchising remains a key focus for growth; 6 agreements and 18
committed locations added

·      Unprecedented demand from enterprise customers; over 1,000 new
enterprise customers signed in Q1

·      Unrivalled national and global network coverage benefitting from
increased adoption of hybrid working

·      Some impact seen from ongoing lockdowns in certain markets, such
as China

·      Opened 36 locations, 78% franchised / partnered; 22 closures in
Q1 with the network rationalisation near complete

·      Total global network at 31 March 2022 was 3,328 locations and
64.4m gross sq. ft.

·      Good progress on integrating IWG's digital assets into The
Instant Group to create the world's leading independent fully integrated
workspace platform

·      Accelerated investment in people and training to meet growth
demands

 

 

First quarter performance

 

As previously reported, we ended 2021 strongly and as expected, that momentum
in the business has carried forward into the first quarter of 2022. Pre-2021
occupancy for Q1 improved 780bps year-on-year to 74.5%, and is 100bps higher
than the average for Q4 2021. New 2021 centre openings are developing strongly
with occupancy rising to over 50% in Q1 2022 compared to an average of 43% in
Q4 2021. The new 2022 openings are exhibiting similarly strong trends.

 

The pace of recovery has naturally varied across the regions, with strong
quarter on quarter improvements in pre-2021 occupancy in countries like
Canada, Germany, India, Italy, Singapore and South Africa, and a slower
recovery in geographies where restrictions have been reintroduced or more
prolonged, such as in Australia, China and Hong Kong. The US, our largest
market, has continued to improve occupancy in Q1 2022 ahead of the level
achieved in Q4 2021.

 

 

 

  £m                             March      March      % change            % change

                                 2022 YTD   2021 YTD   constant currency    actual currency
 System-wide revenue             691.8      581.7      18.3%               18.9%
 Total revenue                   613.7      517.7      17.7%               18.6%
 Revenue (exc. closures)         610.7      495.1      22.4%               23.3%
 Pre-2021 revenue                577.1      494.3      15.9%               16.7%
 Pre-2021 occupancy              74.5%      66.7%                          780bps
 Net Debt (Pre-IFRS 16)          763.8      293.8
 Number of locations             3,328      3,301
 Total gross space (m. sq. ft.)  64.4       63.3

 

The increase in occupancy has been accompanied by a sequential month-on-month
improvement in pricing during Q1 with pricing almost back to 90% of
pre-pandemic levels. New sales and renewal prices continued to increase, and
discounts tightened, helping drive an improvement in the embedded price.
Retention rates in Q1 were strong, slightly higher when compared to the
previous quarter.

 

Following these positive trends, though with the expected lag, has been the
growth in revenue from services across multiple service lines, including
meeting rooms, virtual office, membership, and other customer services.

 

We have continued to see strong demand for our flexible work products with
increasing interest from multi-location enterprise customers as they
increasingly seek to adopt hybrid working. Our unrivalled national and
international network coverage, spanning 1,143 towns and cities, means that we
are uniquely positioned to address these positive demand trends.

 

Whilst we have made substantial progress in reducing costs in line with
previously announced initiatives, in common with many businesses, we are
experiencing higher inflationary pressures across some of our cost categories
which will represent a headwind during 2022.

 

 

Excellent progress on capital-light development of the network

 

During the quarter, we added 36 new locations to the network, 28 of which were
capital-light franchised and managed centres. As a result, net growth
investment in these new centres reduced to £24.7m compared to £46.1m in the
corresponding period last year. Our investment in The Instant Group was
£270.0m.

 

The office market has been irrevocably changed by the pandemic, with hybrid
working becoming the norm. This has driven a significant increase in interest
in partnering with IWG, resulting in a strong pipeline of potential partners
to help us move towards our ambition of achieving a network mix between
company owned and partnered / franchised of close to 50/50 by the end of 2022.
To convert this demand, we have invested faster than initially expected,
including growing the number of business development personnel in the field.

 

Franchising remains a key focus in our pivot to a capital-light operating and
platform business model. During the first quarter, we signed 6 franchise
deals. In total these new agreements added a further 18 committed locations to
the pipeline. As at 31 March 2022 we had 78 franchise agreements, with a total
commitment to open 783 locations. With 474 of these commitments still to open,
this provides a strong underpinning to future capital light growth of our
current global network.

 

As we near the end of the network rationalisation programme we closed 22
locations. In total we grew the network by 0.3m sq. ft. in the quarter.

 

At 31 March 2022 we had an unrivalled network of 3,328 geographically diverse
locations and 64.4m sq. ft. of gross space in the network.

 

Net maintenance capital investment in the network in the three months to 31
March 2022 was £19.9m (Q1 2020: £17.9m).

 

 

The Instant Group

 

Following the announcement of the merger of IWG's digital assets with The
Instant Group on 8 March 2022, the independent Instant management team has
made good progress with developing its strategic plan and integrating IWG's
digital assets. The team has since merged Davinci Virtual Office Solutions
into its online marketplace for flexible workspace, making the platform the
leading aggregator globally for virtual offices. It has also more recently
added the world's largest coworking aggregator, Coworker.com, to its platform,
thereby creating an enhanced marketplace to provide more choice for companies
and individuals as part of their future workplace strategy and helping Instant
accelerate its goal of creating the largest independent marketplace for
flexible workspace.

 

 

Robust financial position maintained

 

As at 31 March 2022 net debt, on a pre-IFRS 16 basis, was £763.8m (31
December 2021: £397.0m), reflecting the financing of the merger with The
Instant Group and the normal Q1 cashflows. The Group has also agreed a
reduction in its revolving credit facility from £950m to £750m in view of
its decreased requirements after the financing of the merger of the Group's
digital assets with The Instant Group.

 

 

Outlook

 

IWG is uniquely placed to capitalise on the strengthening structural tailwinds
as more businesses globally embrace hybrid working. We plan to meet this
demand by increasing the growth and coverage of our network by furthering our
capital-light development and our investment to drive the targeted growth.

 

The trading momentum as we exited 2021, combined with record revenue
visibility provided by the forward order book, has delivered a good start to
2022, with occupancy and pricing moving in the right direction towards
pre-pandemic performance levels and service revenues improving quickly.
However, higher inflationary cost pressures will represent a headwind during
2022. We will also continue to monitor the uncertainty in selected key
markets, notably in China, where lockdown restrictions have been reimposed or
the return to more normalised market conditions has been slower than
previously hoped, together with the increased general geopolitical
uncertainty.

 

With the combination of The Instant Group and the merger of certain IWG
digital and technology assets, we have made a significant step forward in our
strategy to be the global leader in the large, dynamic, and fast-growing
flexible workspace booking platforms market.

 

The Group continues to review the potential to realise value from its property
investing activities. With increasingly more of the new centres focusing on
franchising, partnerships, and management agreements.

 

Overall, we look forward with cautious optimism to the coming quarters.

 

 

 

Conference call details

 

IWG plc will be hosting a call for analysts and investors at 08.30 BST this
morning. Please register for the call via the following link to gain your
unique access code:

 

http://emea.directeventreg.com/registration/3090656
(https://eur03.safelinks.protection.outlook.com/?url=http%3A%2F%2Femea.directeventreg.com%2Fregistration%2F3090656&data=05%7C01%7Cwayne.gerry%40iwgplc.com%7Ccda0ec7117b04d910b6408da221b5741%7C88155c28f750401391d38347ddb3daa7%7C0%7C0%7C637859798074859505%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=9E4UMmt%2FLI6NgUyU4enDMoN8Ls4HX59rnZ7IPsleeHw%3D&reserved=0)

 

A replay facility will be available for 7 days following the call:

 

Replay dial-in numbers:    +44 (0) 33 3300 9785

Access PIN:
3090656

 

 

 

This announcement contains inside information.

 

 

 

For further information, please contact:

 

 IWG plc Tel: + 41 (0) 41 723 2353                Brunswick Tel: + 44 (0) 20 7404 5959

 Mark Dixon, Chief Executive Officer              Nick Cosgrove

 Glyn Hughes, Chief Financial Officer             Peter Hesse

 Wayne Gerry, Group Investor Relations Director

 This trading update contains certain forward looking statements with respect
 to the operations of IWG plc. These statements and forecasts involve risk and
 uncertainty because they relate to events and depend upon circumstances that
 may or may not occur in the future. There are a number of factors that could
 cause actual results or developments to differ materially from those expressed
 or implied by these forward-looking statements and forecasts. Nothing in this
 announcement should be construed as a profit forecast.

 

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