Coworking upgrade pays off for Servcorp with profit up 47 per cent

25 February 2020, Written by Matt Ogg

Coworking upgrade pays off for Servcorp with profit up 47 per cent

While coworking giant WeWork recorded US$1.3 billion worth of losses in the September quarter alone, a smaller Australia-based competitor has been plugging along with revenue and profit on the rise.

In its first half results announcement today, global serviced offices provider Servcorp (ASX: SRV) announced a significant investment in modernising coworking fit-outs is now "materially complete", with 90 locations upgraded to date and five scheduled in FY20.

The Sydney-headquartered company saw revenue hit new heights at $178.8 million, representing a 9 per cent year-on-year rise.

Meanwhile, underlying net profit before tax shot up 47 per cent to $21 million, underpinned by a strong performance in Europe and the Middle East, as well as a solid North Asian contribution that was partially offset by losses in the United States.

The US market has been a thorn in the side of Servcorp, whose model is still yet to find its footing in North America. 

In November, founder and CEO Alf Moufarrige said "drastic action" would be taken in the market if the situation doesn't improve within six months.


How WeWork forced Servcorp's transformation


In the six months to December, the US business continued to underperform. The company says while there were some good intermittent sales months during calendar year, performance deteriorated materially during the first half of FY20.

The group notes the board and senior management are "intensely focussed" on correcting the underperformance in the USA.

Revenue growth rates were 21 per cent in Europe and the Middle East while like-for-like cash earnings surged 164 per cent to $10.3 million.

"The strong first half performance shows that our strategic focus on delivering a premium offering in the flexible workplace sector has paid off," says Moufarrige.

"Like for Like floor occupancy increased by 3 percentage points to 76 per cent, with all floor occupancy of 76 per cent at 31 December 2019.

"Capital expenditure was significantly lower during the half due to the substantial completion of our investment to modernise current fit-outs to incorporate coworking spaces. This investment is successfully meeting the expectations of the modern workforce."

In light of the strong balance sheet, Servcorp lifted its interim dividend to 11 cents per share.

"Our priority for the remainder of FY2020 is to drive further revenue growth as we continue to deliver a compelling offering to our clients across 52 cities and 22 countries," says the executive.

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Author: Matt Ogg

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