A bad day in the office for Mr Dixon as Regus shows it is not recession-proof

Founder of former stock market darling shrugs off cash fears and collapsing share price

Mark Dixon is not in a good mood. In fact, it seems fair to say that the chief executive and founder of Regus, the serviced offices company, is in a very bad mood. He spent yesterday fielding calls from anxious parties, rattled by the further collapse in the group's share price after yet another of its investors chose to bail out amid fears the business that promised to be recession proof would struggle to survive until Christmas, let alone to the end of the recession.

"Bogwash," was how Mr Dixon, the former hot-dog salesman, chose to dismiss the rumours that have swirled round the stock market of late, which have suggested his company was facing a cash crunch. Adopting a curiously combative style for a chief executive of a company that has had such a spectacular riches-to-rags stock market history, Mr Dixon categorically denied that Regus was finding life tough. He even went as far as to warn: "Anyone who writes something today about trading problems is going to look pretty stupid [next month when we report results for quarter three]."

A quick glance at the group's share price chart, however, tells a different story. Regus floated amid much fanfare in October 2000 at 260p per share. That it was the group's second attempt at an initial public offering – the first was delayed after institutions queried the group's ambitious profit targets – should have set alarm bells ringing. But investors were happy enough to buy into what was billed as a recession resilient stock and the shares duly soared to an all-time high of 392p, valuing Mr Dixon's empire of serviced offices at £2.2bn. Yesterday, even after the shares rallied by 23 per cent (to 4p), it was worth just £23.3m. So what went wrong?

Regus, which started life as a lone office in Brussels in 1989, offers companies a flexible way to acquire extra working space. And we're not just talking somewhere to put a few desks. The group's business centres come with bells and whistles attached; from video conferencing to high-speed internet access, cyber cafés to shower facilities (with complimentary toiletries in some cases). Regus's customers are left wanting for nothing. Even, it seems, favourable downward rental reviews.

Naturally enough, for a business that took off in the heady days of the dot.com boom, where companies sprang up over the course of a pint between friends after work, Regus based its business model on the existence of a steady stream of new tenants who would form a queue at the door for the chance to rent a plush office that came pre-packed and ready to go. And indeed, business initially prospered, with strong demand from expanding technology and telecom groups.

The original idea was based not on owning buildings, but renting them with long leases, and then sub-letting them to its customers on short-term lets. This, Regus claimed, was the twist that would mean it could easily weather a business downturn because businesses would clamour for the flexibility of its sites compared with conventional office space. So far, so good.

Determined to be a global player, in the hope that the more countries it had business centres in, the less exposed it was to a downturn in any one country, Regus duly expanded. Today, its website offers potential tenants office space in countries as far afield as Azerbaijan and Chile and as close to home as France and Spain. In total, Regus boasts that it has sites in more than 240 cities in more than 50 countries.

But this exuberant expansion programme, which saw Regus open up about 100 of its serviced business centres in the US alone, turned out to be a clanger. It tied the group into millions and millions of pounds in rental fees just as property markets turned soft and the economic bubble that was fuelling demand for its office space burst.

As one leading property analyst summed it up yesterday: "The business concept is a good one. But they have been badly hurt by taking on too many leases towards the top of the market in the US and then seeing a fall in revenues per available workstation [the company's key sales measure] by the changing economy."

This, even Mr Dixon will admit. "We made a mistake. We over-expanded. We put our hands up and said we were wrong," he said. Having narrowly staved off Chapter 11 bankruptcy for its US operations earlier this year, Regus is now desperately trying to trade its way out of a sticky situation.

Damage limitation action taken since the group reported interim figures in August (losses for the three months ending 30 June of £10.7m against £11.7m the previous quarter), has saved the company about $20m in the US so far, but analysts warn this may not be enough to preserve the company's precious cash pile. In fact, independent analysts at Deutsche Bank fear that a worsening outlook for the US real estate market means that the situation will not improve until "at least the second half of 2003".

The Deutsche Bank analysts add that as more and more office space floods the market, at ever cheaper rents, this means Regus will find it hard to stabilise the revenue it gets from its workstations in the US, which slumped by 25 per cent in the second quarter of 2002 to £24.4m.

Of this week's share price collapse, sparked by 28.5 million shares changing hands on Monday, 16 million of which was a single block trade, which City sources reckon were sold by Insight Investment Management, Mr Dixon is candid. "There is a big misconception over where we are right now. The whole thing is driven by one shareholder selling. The whole thing is magnified by the fact that we have only a very small free float."

He rejects all talk of an impending cash crunch at the group, despite the fact that even its house broker warned last month that a hefty rights issue may be on the cards. "It is a rumour that has got out there and got out of control due to people not being informed about the reality," Mr Dixon said. "If there had been a material change [in the group's position] we would have had to tell the market. The fact that the company has made no announcement tells you a lot."

While Mr Dixon did admit that the group had been busy "rent smoothing" in the UK – persuading its landlords to let it pay rent monthly rather than quarterly – he said it was "bogwash" to infer from that, that the company was worried about running short of funds. He merely reiterated the statement made by Regus last month: if trading conditions deteriorated, it would need to seek external finance.

Owning 64.3 per cent of Regus's share capital, few investors can more concerned about the company's fate than Mr Dixon. He has seen his personal wealth dwindle from a paper fortune of £1.4bn (making him Britain's fifth richest person once); yesterday his stake was worth just £15m. "This is a company where you've got a management team that has more vested interests in getting it right than any other company in the UK. We're just going to have to sweat it out."