IWG PLC (LON:IWG) said it sees “increasing opportunities” to expand through mergers and acquisitions, although the reshaping of its office portfolio this year is hitting profits.
The FTSE 250-listed serviced office company cut 4% of its network in the nine months to 30 September, in Japan and Taiwan, sacrificing £28mln profits in the year to date to focus on long-term returns.
READ: IWG to sell Swiss co-working business for £94mln
Those locations, plus the Swiss deal announced a day earlier, were deemed unfit for the brand or “unlikely to contribute to value creation”, the company said in a trading update on Tuesday.
But IWG said the reshaping of the network “will deliver improved returns and value creation in the future” and is likely to continue into the early part of 2020, with the recently implemented franchising strategy adding to a “strong” financial position that the company will rely on for future expansion.
Revenue in the third quarter was up 9% at constant currency to £692mln, a third of which provided by ancillary services, defined by the company as a “strong and unique competitive advantage”.
Over 60 locations were added in the period, for a worldwide total of 3,348 sites, with pre-2018 like-for-like occupancy at 76%.
“We believe our transition to a franchising model by partnering with a growing and diverse range of third parties will deliver a quicker and more asset light approach to growth, which benefits all stakeholders,” the firm said in a statement, adding it has a “very strong pipeline” of opportunities.
IWG's shares were down 1% to 391.2p on Tuesday morning.
Broker Peel Hunt, which had upped its price target to 500p from 460p after the £94mln sale of the Swiss business, swiftly trimmed its target back to 480p on Tuesday and said the network cuts hungover will start clearing out from the second half of 2020.
The analysts reduced profit before tax estimates by 12% and 6% for this year and next year, to £122mln and £144mln respectively.