Servcorp profit up despite "severe" impact on coworking

Serviced offices provider Servcorp (ASX: SRV) has seen occupancy levels decline by four percentage points and had to close 29 floors globally due to COVID-19, but the Sydney-based company is optimistic for the year ahead.

After announcing a 28.9 per cent increase in net profit after tax (NPAT) in FY20 to $6.9 million, of which more than $1 million came from JobKeeper, Servcorp expects to remain profitable "even at a low case" in the current financial year.

SRV shares rose 8.8 per cent today to $2.34 each, buoyed by a dividend of 8.7 cents per share and projections more could be in store if the underlying business continues to generate free cash.

The company's revenue rose by 4.6 per cent to $352.9 million, with performance in markets like the Middle East and North Asia - except for a drag on profit in China - pushing sales higher.

"We are still of the view that coworking is an important part of not only our offering but the industry too, and that our investment in reshaping our portfolio for coworking will realise a return on investment in the longer term.

The group opened three new floors in FY20 and expanded two floors, but the pandemic forced the closure of 12 US locations, five in North Asia including four in China and seven in the Australia-NZ-South East Asia segment.

"In the 2020 financial year, net capacity decreased by 749 offices, including 271 in the USA. During the year three floors were opened and 29 floors were closed, including 12 floors closed as part of the restructure in the USA in June 2020," the company said.

"During the 2020 financial year we opened new locations at Madison Avenue in New York and One Museum Place in Shanghai. In addition, two floors were expanded in Hobart and Brisbane locations."

The USA continues to be a thorn in Servcorp's side as the only region that recorded a like-for-like loss in FY20, which deepened by 77 per cent on FY19 to $6.9 million. 

Overall, the restructuring and closure of floors meant the USA operations recorded an even larger deconsolidation loss of $14.3 million for the period.

Servcorp also replaced its USA general manager in April with Colleen Susini, who is based in New York and has extensive flexible workspace industry experience, including with Regus. 

The group explains recent growth in the flexible workspace industry has been underpinned by the expansion of coworking spaces, but the COVID-19 has had a significant impact on these arrangements.

"There has been a severe impact to coworking and we expect the recovery to take significantly longer than our serviced and virtual office offerings," Servcorp says.

"Given the nature of coworking, and its inherent lack of social distancing, it is expected to take significantly longer to recover from COVID-19."

Updated at 3:57pm AEST on 25 August 2020.