This Is A Critical Study Of Iwg
This is a critical study of IWG plc’s financial performance of the year 2016 and 2017, which is compared with one of the significant competitors in co-working space and offices, Servcorp. The two companies are compared on the basis of their offerings and are analysed on the sales contribution by region and products. The globally dynamic environment and the constantly changing consumer preferences have forced both the companies, IWG and Servcorp to be innovative with their offerings and compete with each other on global markets.
The International Workplace Group is a global workplace platform that was founded in Belgium in the year 1989. IWG is currently present at the FTSE 250 and is also listed on the London Stock Exchange. IWG provides office spaces to various clients on a contract basis. IWG plays a major role in various businesses having over 2300 business client centers with over more than hundred locations. IWG is one the world’s largest workplace provider with great flexible features and offers. IWG improves the productivity skills of businesses helping them to more efficient and fluent. IWG mainly concentrates on their services to Fully Managed Offices, Meeting Spaces and Co-Working. It helps to promote over two million professionals across the globe.
Servcorp is a multinational Workspace provider company with it’s offices scaling around 54 cities with 160+ locations around 23 countries. The company was founded in 1978 in Sydney Australia. It’s current market capitalisation is around 679 million Australian Dollars. It was publicly listed on Australian Securities Exchange in 1999. It is one of the few organisations which has green offices projects around the world. They plant a single tree for every virtual office sold. It is also a charitable organisation which has more 550000$ donated to help various organisations around the world.
It’s main services include providing serviced workspaces such as
• Serviced offices
• Virtual Offices
• Meeting Rooms
• Co-working Space
On a regional basis, mature* revenue and contribution can be analysed as follows: Revenue
Revenue from open centers increased 3.8% at constant currency to £978.1m. Total revenue (including closed centers) in the Americas increased 2.9% at constant currency to £984.8m (up 6.7% at actual rates). Although mature revenue in the region declined 0.5% at constant currency to £926.4m (up 3.2% at actual rates), we experienced a sequential improvement during the year. This resulted in a strong finish to the year with 3.0% growth at constant currency in the fourth quarter. Average mature occupancy for the region was 75.8% (2016: 75.5%). The gross profit margin remained solid at 19.2%. We continued to see an improving performance in the US, our largest region in the Americas, generating £819.6m of total revenue.
EMEA continued to make progress during 2017, with a range of performances in individual markets. Revenue from all open centers increased 7.7% at constant currency to £535.4m. Total revenue increased 6.7% at constant currency to £540.5m (up 13.4% at actual rates). Mature revenue in the region declined 1.0% at constant currency to £486.1m (up 5.3% at actual rates) for the year but moved modestly into growth in Q4.
Revenue from all the open centers increased 5.1% at constant currency to £379.3m. Total revenue in the region increased 2.2% at constant currency to £383.2m (up 5.5% at actual rates). It was also pleasing to see the build-up of momentum in the mature business across several countries, including Japan and Australia. Both ended the year strongly. Some markets, however, like India and China, performed below our expectations.
Revenue from all the open centers increased 1.6% to £425.8m. Total revenue (including closed centers) declined 4.8% to £440.0m. Revenue from the mature business in the UK declined 2.9% to £398.2m after a weak third quarter. There were two contrasting performances from our business in London and that of the rest of the UK, as previously reported. Although enquiry levels remained weak compared to the rest of the UK, there was a distinct improvement in average deal size in the fourth quarter. The absence of larger deals in London had been a particular issue, especially in the third quarter. With the decline in mature revenue, especially in a high value market like London, on a relatively fixed cost base in the near term, the mature gross margin declined from 23.4% to 19.9%. Mature occupancy reduced from 75.6% to 72.1%.
Australia, New Zealand and Southeast Asia
On a like for like basis, net profit before tax performance in ANZ/ SEA has increased by 2%. Australia and New Zealand occupancy is healthy. The region had two new floors open in the first half of the 2017 financial year; in Barangaroo, Sydney and Jakarta, Indonesia.
North Asia, as a whole, produced a pleasing result in the 2017 financial year, reporting like for like net profit before tax growth of 5%. During the year, a new floor was opened in the Tri-Seven Building in Tokyo.
Europe and the Middle East
Like for like floors in the Europe and Middle East segment produced a weaker result in the 2017 financial year. Two new floors in Schuman 3, Brussels were opened during the year.
United States Of America
Notwithstanding acceptable performances across a range of locations, the USA underperformed and has not met its forecast for the 2017 financial year. On a like for like basis, the USA remains EBITDA positive. Our Chief Operating Officer, Mr Marcus Moufarrige, relocated to New York City in March 2017 and is focused on improving the performance of the USA business.
According to the graph shown above, the Gross Profit Margin of IWG has decreased in the year 2017 compared to its margin in 2016 by 3.02%. Whereas, Servcorp also faces a decrease in its gross profit from its previous year by 2.83%. The Operating Profit Margin also shows us that both, IWG and ServCorp faces a small decline when compared to its previous year, IWG by 1.36% and ServCorp by 1.93%.
The Net Profit Margin graph shows us that IWG faces a minor drop in its margin by just 1.37% whereas, ServCorp has improved its value by an increase in the margin by a small percent of 0.46%.
IWG’s Return on Equity contracted by 3.04% when compared to its previous year values. Servcorp’s numbers remain nearly the same for both years. Also, Return on Capital Employed by IWG faces a decrease by 2.62% , whereas ServCorp keeps close to its previous year returns.
The Earning Yield of both companies however followed the same proportion as their earnings per share of the respective companies. Servcorp’s earning yield increased from 5.86% to 7.26% but IWG’s yield had negative impact over the year from 6.06% to 4.82%, also one of the reason for the share price over the years to be flat. But at the end of the year they have sufficient cash and cash equivalents at the end of the year.
IWG’s Earning Per Share was 12.40 pence per share which is significant decrease of 16.77% from the previous year’s EPS of 14.9 pence per share. Also this can be explained by the flat share price of IWG over the last years of 2016 and 2017
However in Servcorp’s EPS increased minutely from 0.404 to 0.414 at 2.4%.
Both companies paid healthy Dividend Yield compared over to last years which indicated a good investor pay-out ratio.
Dividend Per Share is the annual payout of dividend to the company’s investors for every ordinary share they own.Generally dividend is paid to investors annually, and also on special occasions which is called interim dividend payout.Both companies IWG and Servcorp paid decent dividends to their investors. In 2016 and 2017 IWG paid 3.55 pence and 3.95 pence per share. While Servcorp paid 22 cents and 26 cents.
Dividend Cover is the number of times a company is capable of paying the shareholders from the profits earned in the financial year. Here IWG’s 2016 dividend cover was 4.20, which means the company’s profit is 4.20 times more than the amount paid as dividend. It reduced significantly to 3.14 in 2017.While Servcorp’s dividend cover was much less compared to IWG’s at 1.84 and 1.59 in 2016 & 2017 respectively.
Both companies’ Market/Book Ratio is higher than 1 which means both company’s stocks are undervalued and the price are expected to rise if the company starts doing well with increase in profits or a healthy liquidity situation for IWG as it doesn’t has much assets to pay off its liabilities.
The liquidity/current ratio of the company determines how easily it can convert its current assets into cash equivalents to meet its short term obligations and how comfortably it can be ready to go as a going concern.
Here, IWG’s current ratio is 0.54 in 2017 and it didn’t fluctuate much from last year’s ratio of 0.51 while Servcorp’s ratio is much higher at 1.91. As Servcorp’s current ratio is higher they can pay off their short term debts as they have significantly high amount of current assets than their liabilities.