Servcorp suffers as US business stutters
Serviced office provider Servcorp has been swiftly punished after poor performance during the December quarter in its US operations forced a profit downgrade on Monday.
Listed in Australia and with a global footprint, Servcorp now expects its net profit before tax for this year to come in around $47 million, down from its previous forecast of not less than $56 million.
The comparable 2016 pre-tax result was $48.8 million.
The market responded quickly to the downgrade, wiping more than 19.1 per cent off the stock – which closed at $6.05.
“Anybody that doesn’t meet their numbers gets fairly well punished,” founder and chief executive Alf Moufarrige told The Australian Financial Review.
“On the face of it, it seems to be an over reaction. It’s the first time in nine years we’ve missed our numbers.
“Servcorp’s in reasonable shape. Our future’s still pretty rosy. In the United Kingdom and Japan and [in] a lot of our big markets we are still performing really strongly, even though there is a lot of competition.”
Despite the downgrade cash balances are still expected to rise and Servcorp has increased its forecast interim and final dividends from 11¢ each to 13¢ each per share.
Most of the downgrade stems from Servcorp’s US business. The company has serviced offices in prominent positions there, including in New York’s World Trade Centre and at The Loop in Chicago.
A poor performance in Singapore and Kuala Lumpur also weighed on Servcorp’s expected result.
Servcorp had expected to make around $2 million in the first half from its US operation, but had instead lost around $2.5 million, as well as incurring one-off restructure costs.
Mr Moufarrige did not point to a specific problem with the US business beyond its management. The general manager there has now been replaced by his son, Servcorp’s chief operations officer, Marcus Moufarrige.
“I absolutely have confidence that he will turn it around. If he does that this will just be a blip on Servcorp’s growth road,” Mr Moufarrige said.
The fast growth of co-working hubs globally, including US giant WeWork which is expanding in Australia as well, were not a threat to Servcorp’s business, which also has some co-working space, Mr Moufarrige said.
He noted that the markets where co-working hubs have the most presence, London and Tokyo, were among Servcorp’s best performers.
“We see where those co-working spaces actually create more demand,” he said. “They actually educate the market into shared space.”
