Friday 11 October 2019 9:28 am | Updated: Friday 11 October 2019 9:36 am

Wework’s European operational losses skyrocket 900 per cent

Huge rises in staff costs and management fees related to Wework’s stratospheric expansion plans have sunk its internal division to an £80m loss.

2018 filings for Wework International reported an 898 per cent increase in overall losses to £75.9m, up from £7.6m a year earlier.

Wework International is a UK-registered holding body which looks after internal costs for Wework’s European operations such as payroll, marketing and start-up expenses not connected to buildings.

It previously filed consolidated accounts as part of the entire group, but changes in parent firm the We Company’s structure in 2018 now separates out the company’s internal UK and European costs.

The significant increase in losses was largely powered by a rise in “management fee expenses” – a fee charged by the We Company for support services – which increased from £1.7m to £48.4m.

However as a result of Wework’s major expansion efforts, staff costs for internal operations doubled last year to £31.9m, from £15.3m a year earlier, with total staff hired by Wework HQ more than doubling to 440 in 12 months.

In the UK alone, Wework had 39 locations, active or in the pipeline, with around 35,000 members by the end of December 2018. This was an increase of 31 per cent from the 27 locations reported in 2017, when Wework had roughly 23,000 members.

Revenue at Wework International, which is generated by services provided to Wework locations around Europe such as a portion of building management profit and intellectual property, rose 89 per cent to £35.8m, up from £18.9m in 2017.

Its total costs hit £109.8m, up from £25.7m in 2017.

“[The company] made no money and is now haemorrhaging profits,” explained Andrew Snowden, partner and head of tax at accountancy firm UHY Hacker Young. As a result of this, Wework International was not required to pay corporation tax.

However Wework’s future appeared to brighten in London, where demand for shared office space led three of its largest buildings to report a profit last year.

Individual filings showed its Eastbourne Terrace building in Paddington swung to a profit of £3.3m last year, up from a loss of £2.8m in 2017, on revenue generated by membership fees of £17.2m.

Profit at Moor Place, Wework’s largest building in the UK, continued to rise to reach £3.7m, up from £1.6m, while Waterhouse Square in Holborn more than doubled its profit to £3.8m.

The filings follow a decision by the We Company to shelve plans to debut on Wall Street last month, as a result of a lack of investor interest and a steadily falling valuation.

Once valued at $47bn in a private financing earlier this year, the We Company is now reported to be valued at around $10bn.

The move has placed pressure on the We Company’s largest backer Softbank, which has ploughed more than $10bn in capital into the workspace giant.

The parent firm generated a loss of $905m in the first six months of 2019, compared with $723m in the same period a year earlier. Its founder Adam Neumann stepped down as chief executive last week following the IPO’s postponement.

Wework said in a statement: “The 2018 Companies House filings demonstrate our commitment to the UK and focus on a great member experience. Last year, we continued to see strong demand and increased the number of buildings and members, which drove solid financial performance. As these filings show, our core business continues to perform well and we are excited about the opportunities we see in London and other cities across the UK.”

“Wework International Limited is a services holding company that primarily exists to hold centralised set-up costs for UK and European operations, and receives revenues only as a small percentage of building profits, collected as a management fee. Its financial performance is therefore not a representation of the health and profitability of the overall UK business.”

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