International Workplace Group lowers earnings forecast

Office space rental company International Workplace Group now expects its full-year profit to be at the lower end of market forecasts.

While the group said demand for hybrid labor remained robust, it told investors inflationary pressures were limiting its ability to fully recover from the Covid-19 pandemic.

The group now expects its adjusted core profit for the full year to be at the lower end of the forecast, between £304m and £380m.

IWG shares were down 2.16% or 2.85p at 129.15p this morning, after falling more than 57% last year.

In an update for the quarter to September 30, the group said revenue rose 25% year-on-year to £737million.

The IWG reported a resurgence of “unfunded” deals. These contracts typically involve a fee structure, no capital expenditure by IWG, and no lease liabilities.

The group closed 252 small-cap contracts in the first nine months of the year, accounting for around 90% of all new deals.

Group boss Mark Dixon said: “The significant shift to hybrid working is driving strong demand for our flexible working products and creating a long-term tailwind for IWG as businesses around the world respond to the twin effects of economic uncertainty and their employees’ desire to work flexibly.

“To meet this demand, our innovative small-cap growth strategy allows us to capitalize on the growing pipeline of commercial property owners and landlords looking to maximize their returns by partnering with IWG.

“The third quarter showed continued strong revenue growth, improved margins and underlying cash generation. We are well positioned to deliver full year results and enter 2023 with a solid foundation to generate additional growth and reduce leverage.

Victoria Scholar, Head of Investments at Interactive Investor, said: “The global leader in hybrid workspaces is grappling with the structural decline in demand for office space post-pandemic.

“Covid-19 has accelerated an existing trend which was the shift from office work to home working and hybrid working arrangements.

“Commercial property has struggled considerably as many households have sought larger flats and houses to accommodate a home office outside major cities such as London.

“Like many businesses, IWG has also been struggling with macroeconomic headwinds, including a slowing UK economic outlook and rising inflation, which is driving up costs sharply.

“IWG has gone through an extremely difficult time during the pandemic, but stocks have now fallen below their 2020 lows as the rally in late 2020 and early 2021 proved to be short-lived. The stock has been under pressure since April last year, with shares having fallen around 60% in the past year.