UPDATE 3-Office provider Regus speeds expansion, profit to be hit

Tue Aug 26, 2014 5:13am EDT

* Strong demand drives accelerated expansion

* Says new centre openings to crimp 2014 results

* Strong pound also to hit full-year results

* Shares fall more than 7 percent (Adds CEO, analyst comment; updates shares)

By Esha Vaish

Aug 26 (Reuters) - Office provider Regus Plc said it expected to open at least 450 business centres this year, sending its shares down more than 7 percent as it warned the accelerated expansion will hit profits short-term.

Regus, which rents out meeting rooms, business lounges and office space, had previously planned to open at least 300 new centres this year. It opened 448 new centres last year.

New centres take 16 to 18 months to break even and about two years to be fully established, says Regus, which leases to clients such as Google Inc and GlaxoSmithKline Plc .

The company has stepped up expansion to meet increased demand, particularly from technology clients.

Regus has enjoyed strong demand at its established centres, which drove up first-half revenue by 8.1 percent to 804.7 million pounds ($1.3 billion).

Excluding the adverse effect of a rising British pound, it said revenue grew by 16.9 percent.

But analysts said accelerated expansion would inflate costs and rapidly increase net debt, depressing earnings in the short term.

At least 10 percent of the new centres would be in Africa, from where Regus had seen the highest level of growth in percentage terms, Mark Dixon, the billionaire chief executive and founder of the company, told Reuters.

Investec analyst Andrew Gibb cut his forecast for full-year 2014 earnings per share by 34.3 percent to 6.9 pence, citing the cost of expansion, higher interest charges and the impact of currency fluctuations.

Pretax profit fell marginally to 31 million pounds in the six months ended June 30.

Only 14 percent of Regus revenue from established centres - open two years or more - comes from the UK and Ireland, leaving it exposed to a stronger pound for the rest of its business.

The pound rose more than 3.3 percent against the dollar in the first six months of the year.

Andrew Shepherd-Barron, an analyst at brokerage house Peel Hunt, cut his target price on Regus to 275 pence per share from 290 pence, largely due to the strengthening pound.

Shares in Luxembourg-based Regus fell as low as 182.2 pence, making the company one of the top percentage losers on the London Stock Exchange on Tuesday. They traded at 182.93 pence at 0903 GMT.

At Regus' established centres, revenue per occupied workstation jumped 2.3 percent to 3,523 pounds at constant currency during the half year. Occupancy increased to 82 percent from 81.1 percent.

With 'on-the-go' working options gaining popularity, Regus has begun to offer cars set up as offices and also cubicle-sized workboxes at railway stations and libraries.

Employees of technology firms such as Twitter Inc and Toshiba Corp have been quick to embrace flexible working spaces but other customers are also warming to the idea, Dixon said. ($1=0.6028 British Pounds) (Editing by Gopakumar Warrier and Rodney Joyce)

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