SERVCORP MOVES TO RECTIFY MANAGEMENT ISSUES IN THE USA AFTER TOUGH QUARTER

SERVCORP (ASX: SRV) is trading down almost 20 per cent this afternoon after it announced it would miss its profit guidance, despite the company increasing its dividend.

The serviced office provider expects to report net profit before tax of $47 million, down from previous guidance of $56 million.

While performance in the first quarter was to expectations, the second quarter proved more difficult. The performance of the USA and South East Asia businesses have been described as "unsatisfactory".

The Sydney-based company, which has 154 floors in 53 cities in 23 countries, let go its USA general manager and spent $2.5 million restructuring the business after it missed its targets.

CEO and company founder, Alf Moufarrige (pictured), says he is serious about getting the issues under control. He will send his son and chief operating officer, Marcus Moufarrige, who has 20 years' experience in the business, to New York City for the remainder of 2017.

"We compete across the globe with the same opposition we compete with in the United States," Moufarrige Snr tells Business News Australia.

"London has more serviced offices per square metre than anywhere in the world and we outperformed there - we beat our numbers, and we also beat our numbers in Australia.

"In Tokyo, there are more co-working spaces than anywhere else in the world, and we beat our numbers.

"So, if we have a look at December, by the time we took a hit and got rid of everybody, we made about a doughnut, compared to close to $5 million in July.

"In January, even though the US will still lose overall, operating profit will be normalised."

Moufarrige says the US business had a "management problem" and says Singapore, which he will now oversee, was similar. With Moufarrige Junior in the United States, it is hoped the management issues will be rectified.

Another hit to profits came with the closure of an office in Perth.

Servcorp will increase its full year FY17 dividend to 26c per share, up from 22c per share, and the company hopes to achieve similar franking levels to FY16, and even with the increased dividend, the company will still have around $30 million free cash.

On the ASX this afternoon, the company is trading down 19.23 per cent at $6.035 per share. It is the biggest single-day share price drop for Servcorp in more than five years.

The company has increased its profits from $2.9 million in 2010 to $48.8 million last financial year, and Moufarrige says this year will be the first time the company hasn't met its numbers in 10 years.

"It's a reasonably steep rise, and we happened to trip," says Moufarrige. "We are still up there, we just had a terrible quarter."

"I can't buy shares until after the meeting, which is on 21 February, but if the share price is still here all I can say is that I'm a buyer, not a seller, and I already own 46 million shares."

The company also recently opened a new floor in Chicago, which will also help boost earnings.

Business News Australia