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IWG PLC  -  IWG   

Annual Financial Report Announcement

Released 07:00 28-Feb-2017

RNS Number : 9903X
IWG PLC
28 February 2017
 

28 February 2017

 

IWG plc - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2016

 

 

A transformational year:

Improved efficiency, strong profitability and good cash generation, increased dividend and improved returns

 

IWG plc, the global leader in the fast-growing Workspace-as-a-Service (WaaS) sector, today announces its annual results for the year ended 31 December 2016.

 

Key highlights:

·  Improved post-tax cash returns on pre-12 investments to 25.1%(i)

·  Group revenue up 5.5%(ii) to £2,233.4m and underlying operating profit up 14%(ii) to £186.2m

·  Overheads reduced 13%(ii); down 300bp as a percentage of revenue to 11.7%

·  Generated £286.1m or 30.8p per share of cash in 2016 (before net growth capital expenditure, share buybacks, dividends and disposal proceeds), an increase of 33%.

·  Underlying earnings per share up 34% to 15.0p

·  Conservative balance sheet maintained with net debt of £151.3m (0.4x underlying net debt:EBITDA)

·  Key banking facility increased to £550.0m and maturity extended to 2021, with option to extend to 2023

·  13% increase in full year dividend to 5.1p (2015 : 4.5p)

·  Current trading in-line with management expectations

£m

 2016

 2015

% change actual currency

% change constant currency

Revenue

2,233.4

1,927.0

15.9%

5.5%

Gross profit

448.8

428.4

5%

(4)%

Underlying overheads

(261.8)

(283.9)

(8)%

(13)%

Underlying operating profit (Inc. JV)

186.2

144.8

29%

14%

Non-recurring items (iii)

(1.0)

15.3

 

 

Reported operating profit (Inc. JV)

185.2

160.1

16%

3%

Underlying profit before tax

174.7

130.4

34%

 

Reported profit before tax

173.7

145.7

19%

 

Underlying earnings per share (p)

15.0

11.2

34%

 

Reported earnings per share (p)

14.9

12.8

16%

 

Dividend per share (p)

5.1

4.5

13%

 

Underlying EBITDA

380.7

290.0

31%

18%

Post-tax cash return on Investment (i)

25.1%

23.1%

Up 200bp

 

Cash flow before net growth capex and dividends

286.1

215.7

33%

 

Net debt

151.3

190.6

 

 

Net debt : EBITDA (x) (underlying)

0.40

0.66

 

 

(i)  Calculated as: EBITDA less amortisation of partner contributions, less tax based on EBIT, less net maintenance capital expenditure / growth capital less partner contribution. Returns based on those locations open on or before 31 December 2011.

(ii) At constant currency

(iii) See note 6 to the accounts

Operational highlights

·  Returns on new investment benefiting from operational scale and efficiency

·  6% increase in the network. 231 new locations in 2016.

·  Net growth capital expenditure of £162.3m

·  Now in 2,926 locations, across 1,029 towns and cities in over 100 countries

·  Continued investment in innovating new products and services and developing new location formats

·  New city cluster field structure implemented in 2016

·  Key focus on risk management

·  IWG plc introduced as the new holding company of the Group

 

Mark Dixon, Chief Executive of IWG plc, said:

"Overall, our focus during 2016 - particularly in the first quarter - was on standardising our business to make it more easily scalable during 2017 and the years ahead. As such, 2016 was a transformative year that I am confident will underpin strong progress from the first half of 2017.

I am pleased with the progress we have made in the last year, and am confident that during 2017 and beyond we will continue to benefit from the significant structural growth opportunities that the WaaS sector offers. As we expand further through accumulating new sites, strengthening our commitment to partnering with the global property industry, we will further extend our existing competitive advantage. I am confident that our improved cost structure will continue to deliver higher productivity and enhanced efficiency and deliver further benefits as we scale.

Above all, I believe that our strengthening leadership position, our commitment to innovation and the flexibility we bring to fulfilling the needs of our customers means that we remain very well placed to deliver attractive returns for shareholders.

Looking ahead to 2017, we have started to see a pick-up in sales activity in some of our key markets, which is encouraging and, we believe, validates the significant actions we have taken during 2016. Although it is still early in the new financial year and sales activity levels take time to feed through, we anticipate an improvement in performance through the course of the year. Overall, the trading outlook for 2017 remains in line with management's expectations."

Details of results presentation

Mark Dixon, Chief Executive Officer, and Dominik de Daniel, Chief Financial Officer and Chief Operating Officer, are hosting a presentation today for analysts and investors at 10.00am. The presentation will take place at CityPoint, 1 Ropemaker Street, EC2Y 9HT.

For those unable to attend the presentation, please contact Jessica Ayres to obtain details for the webcast or conference call: jayres@brunswickgroup.com or +44 (0) 20 7396 7466

For further information, please contact:
 

IWG plc Tel: +41(0) 41 723 2353

Mark Dixon, Chief Executive Officer
Dominik de Daniel, Chief Financial Officer & Chief Operating Officer
Wayne Gerry, Group Investor Relations Director

Brunswick Tel: +44(0) 20 7404 5959

Nick Cosgrove
Simone Selzer

For more information, please visit www.iwgplc.com

 

 

 

Chairman's Statement

A year of substantial development

Once again, we have delivered against our strategy as demonstrated by a strong set of financial results as well as the further growth of our business and our global network. It was particularly pleasing to see our concerted efforts to improve efficiency result in lower overheads whilst we also continued significant growth in the number of our locations.

Revenue for the 2016 financial year increased to £2,233.4m (2015: £1,927.0m), an increase of 5.5% at constant currency (up 15.9% at actual rates). With the improved operational efficiency, underlying operating profit grew 14% at constant currency to £186.2m (a 29% improvement at actual rates). Underlying profit before tax increased 34% to £174.7m. Our cash performance was again strong. Cash flow before growth capital expenditure, share repurchases and dividends increased 33% to £286.1m. This strong financial performance has driven a further increase in our post-tax cash returns on net growth investment.

These strong results were achieved alongside further strategic development of our business, growing our network with the addition of 231 new locations, refining our formats to benefit our customers, introducing innovative new solutions, driving operational efficiencies through initiatives including a new city clustered field structure and capital efficiencies by focusing on partnering with property owners. Throughout all these activities, our strong cash generation and disciplined investment approach have once more enabled us to maintain a robust capital structure.

New name

One highly visible change that took place during the year was the change in name to IWG plc (International Workplace Group) for the new holding company of the Group. There were several reasons for this move which supports our provision of flexible workplace solutions under multiple brands, including Regus, Spaces, Signature, OpenOffice, Kora and MOS. In the Board's view, while Regus will remain one of our flagship brands, we can better serve customers and optimise growth and returns by offering a segmented portfolio of workplace formats and solutions.

IWG is a Jersey-incorporated company with its head office in Switzerland. The choice of Switzerland reflects, among other factors, the increasing presence of senior management located in Switzerland as the Group continues to streamline its organisation in order to achieve synergies of scale while developing worldwide.

Strategy

Our strategy uniquely positions us to both drive and benefit from the exciting developments and growth in the flexible workspace market. We have continued our efforts to enhance our operating model with a focus on simplicity, scalability, people, cost control, risk management and great customer experience.

We are actively pursuing our partnering approach to investment, in which we will increasingly become the facilitator between the property investor and the end customer. We made good progress in this area during 2016, targeting property owners with a view to partnering with them in the expansion of our national networks across the world and entry into new markets. This will have the effect of improving returns and reducing risk across the business. Our approach to enhancing property returns will also allow us to invest on an opportunistic basis directly in properties where the return is attractive.

Our large global footprint gives us the ability to constantly review our investments in growth by region, by country and by city. Our agile approach means that we can rapidly adjust our investments based on evolving market conditions.

Board

I would like to thank my Board colleagues for their valuable contributions during the year, which helped the Group deliver another strong set of results for the benefit of our customers, our business partners, our employees and our shareholders.

On 17 February 2017 we announced that Lance Browne has resigned as a Non-Executive Director effective from the annual general meeting on 16 May 2017. I wish to thank Lance for his wisdom, insight and support in his role as Senior Independent Director as well as his many contributions to the Group's overall success. I look forward to working with François Pauly who will be proposed for the role of Senior Independent Director with effect from Lance's resignation.

People

Each year our success is driven by the commitment and skill of our talented and experienced people. An engaged and dedicated workforce is vital to us achieving our global growth aspirations. We recently concluded our annual senior leadership conference, with active participation of almost 200 colleagues from around the world. The capabilities and enthusiasm displayed there renewed my confidence in our ability to continue to execute our strategy. Our success is testament to our people in every market and at every level. I would like to thank them on behalf of the Board for their strong performance and implementation of significant initiatives in what has been a transformational year for the Group, solidly positioning IWG for future growth.

Dividend

We continue our commitment to a sustainable and progressive dividend in recognition of our confidence in the long-term performance of the business and the strength of the Group's financial position. The Board is recommending a 15% increase in the final dividend to 3.55p. Subject to the approval of shareholders at the 2016 AGM, this will be paid on 26 May 2017 to shareholders on the register at the close of business on 28 April 2017. This represents an increase in the full-year dividend of over 13% to 5.10p (2015: 4.50p).

Douglas Sutherland

Chairman

28 February 2017

 

Chief Executive Officer's review

Another year of high-quality growth

During 2016, we successfully expanded our business as the market leader in one of the fastest growing sectors of the global commercial property industry. This is the flexible workspace or 'Workspace-as-a-Service' (WaaS) sector, which we pioneered under our long-established Regus brand and will continue to lead under our new holding company, IWG plc (International Workplace Group).

A fast-evolving market sector

The WaaS sector is a vibrant, modernising force in workplace provision across the world. Technology increasingly frees organisations and individuals from the shackles of the fixed lease, allowing them to work in more productive and satisfying ways.

Quite simply, companies don't need their people to be in one place anymore and, as generations emerge that have only ever known the liberating effects of technology, the wide availability of flexible workspaces is enabling a way of working that is continuing to grow rapidly.

A 2016 research paper from J.P. Morgan states, "we believe that the impact of the internet on transaction costs will result in a greater number of smaller firms/tenants seeking divisible, modular and flexible office space. Concurrently, we expect larger firms will downsize, using technology such as Artificial Intelligence, machine learning and algorithms, while opening up previously closed networks to engage in the 21st century economy."

The paper also states: "the long lease to a large single tenant is at risk … and business models not positioned to embrace the flexible workspace era will risk being underexposed to a quickly growing and vibrant part of the emerging office market."

I could not agree more. In this new world, technology in the shape of increasing numbers of apps, VoIP (voice over internet protocol) solutions and instant messaging opportunities are making physical distance irrelevant. All that's required is a fast and stable internet connection. This is equally important to increasingly dispersed corporations and to the growing number of self-employed workers, who are looking for co-working spaces as an alternative to working exclusively from home.

Our investment case

At IWG, we are giving employers and employees what they want and need. We are the primary enablers of this revolution in how people are working globally. We have more flexible workspaces worldwide than anyone else, serving organisations of all sizes. We also have a strong and growing portfolio of brands to meet the needs of the market. And our economies of scale, years of experience, organisational agility and focus on customer needs make us less costly and easier to work with.

With the workplace revolution, our investment case continues to strengthen. We have detailed plans to extend our current lead, in existing and new markets across the world. We are increasingly positioned as the "intermediary" that brings together our property-owner partners with end customers - supplying one with strong cash flow and the other with workspace flexibility and access to different formats. Our advantages are tangible and important: we can expand faster than our competitors; our operational efficiency is better and improving all the time as we work to streamline our management processes. The relevance and quality of our service offering is compelling.

These advantages - scale, maturity, brands, technological leadership, efficiency and agility - were all reflected in our financial performance during 2016, when we successfully achieved the increased revenue and reduced cost-base we targeted to deliver improved margins and returns.

Strong financial performance

The post-tax cash return on net growth investment from locations opened on or before 31 December 2011 improved to 25.1% from the 23.1% achieved in 2015 on the same estate. Rolling this estate forward one year, the 2016 post-tax cash return on net growth investment from locations opened on or before 31 December 2012 was 23.6% (2015: 21.5%).

Group revenue increased by 5.5% at constant currency to £2,233.4m (2015: £1,927.0m) (up 15.9% at actual rates).

Whilst we experienced a deceleration in revenue progression throughout the course of 2016, this reflected a number of factors including the base-line effect of prior year acquisitions and softening demand in certain geographic markets. We also took a more cautious and selective approach to growth and, in certain instances, sought to consolidate locations.

Although a higher level of closures has reduced Group revenues, it has been the right thing to do for the profitability of our business. This, together with the very strong control of overhead costs which actually reduced by 13% at constant currency, has delivered a 14% constant currency increase in underlying operating profit to £186.2m (2015: £144.8m) (up 29% at actual rates). Overheads as a percentage of revenues have reduced three percentage points from 14.7% to 11.7%, which is a strong performance and one on which we can continue to build.

During 2016 we invested £162.3m of net growth capital expenditure, adding a further 231 locations to the network, which stood at 2,926 locations at the end of the year. As expected this reflects a more selective approach to new location openings, increasing traction on partnering deals which result in less capital intensity of new openings and a significantly lower level of acquisition growth.

 

Group income statement

£m

2016

2015

% Change actual
currency

% Change constant currency

Revenue

2,233.4

1,927.0

15.9%

5.5%

Gross profit (centre contribution)

448.8

428.4

5%

(4)%

Overheads (inc. R&D)

(261.8)

(283.9)

(8)%

(13)%

Underlying operating profit*

186.2

144.8

29%

14%

Non-recurring items

(1.0)

15.3

-

-

Operating profit

185.2

160.1

16%

3%

Underlying profit before tax

174.7

130.4

34%

 

Profit before tax

173.7

145.7

19%

 

Underlying taxation

(34.9)

(25.9)

 

 

Taxation

(34.9)

(25.8)

 

 

Underlying profit after tax for the year

139.8

104.5

34%

 

Profit after tax for the year

138.8

119.9

16%

 

Underlying EBITDA

380.7

290.0

31%

18%

EBITDA

379.7

305.3

24%

 

* After contribution from joint ventures

Converting profit into cash remains an attractive feature of our business model. We increased our cash flow before investment in growth capital expenditure, dividends and buying back shares by 33% to £286.1m (2015: £215.7m). This scale of cash generation more than funded our growth programme, the buyback of shares and the continuation of our progressive dividend policy. Consequently, our net debt position reduced from an opening position of £190.6m at 1 January 2016 to £151.3m at 31 December, 2016. This represents an underlying Group net debt to EBITDA leverage of 0.4 times, which is well below our internal 1.5 times limit and reflects the continuation of our prudent approach to the Group's capital structure.

Performance by region

This year's results represent an endorsement of our strategy and investment case, as IWG drives growth alongside greater overhead efficiency and improved returns. We added 231 new locations during the year and we selectively entered a new national market with Barbados. The rate of growth was, however, deliberately tempered in response to increased macro-economic and geopolitical uncertainties in certain geographies in order to maintain the quality of our new locations and returns on investment, with more partnering deals and the roll out of our Spaces format.

We also benefited from the scale and spread of our global footprint. In last year's report, for example, I referred to the need to be 'watchful' in our Asia Pacific region, due to the slowing Chinese economy. This did cause some challenges during 2016, which we successfully managed by taking early action and improving efficiencies across the Group.

On a regional basis, mature* revenues and contribution can be analysed as follows:

 

Revenue

Contribution

Mature gross margin (%)

£m

2016

2015

2016

2015

2016

2015

Americas

826.2

747.8

188.0

181.9

22.8%

24.3%

EMEA

406.9

372.7

104.1

91.8

25.6%

24.6%

Asia Pacific

293.2

265.5

72.9

66.2

24.9%

24.9%

UK

358.5

361.2

83.9

84.3

23.4%

23.3%

Other

6.8

2.9

6.8

1.0

 

 

Total

 1,891.6

 1,750.1

455.7

425.2

24.1%

24.3%

* Centres open on or before 31 December 2014.

Americas

Mature revenues in the Americas, our largest region, declined 2.2% at constant currency to £826.2m (up 10.5% at actual rates). Total revenues for the region were up 4.8% at constant currency to £923.0m (up 18.5% at actual rates). This performance reflects a better relative result in the US offset by more pronounced weakness in other parts of the region, most notably in Mexico, Brazil and Canada which saw a further deceleration during the fourth quarter. Mexico has been a difficult market, with the weak currency impacting business activity, and Brazil has continued to struggle in a recessionary environment. In Canada our business has been affected by challenging market conditions around the oil industry, particularly in Western Canada.

Performance across the US was, however, mixed with several very good areas and some much weaker, as management were challenged with implementing the changes to the field structure across a very large business, which extended into the fourth quarter as anticipated. Although these moves have led to strong cost savings at the centre level, in the near-term these have been offset by the impact of some related distraction and the need to grow into the capacity that has been introduced in recent years through the growth programme.

Notwithstanding this, there has been a gradual improvement in sales activity and deals won since October. Whilst this is encouraging, and suggests the fourth quarter was a low point for our performance in the region, it does take a period of time for this to materialise in our revenues, so we would expect a steady rebuilding throughout the coming year.

Although the mature gross profit margin for the region declined from 24.3% to 22.8%, overhead cost savings have been material in the Americas. Average mature occupancy was 78.8% (2015: 81.0%).

We added 86 new locations into the region during the course of the year. We are expanding into more parts of the region geographically and rolling out our Spaces format. In total we had 1,212 locations in the Americas at 31 December 2016.

EMEA

EMEA experienced a mixed performance. Mature revenues for the region declined 2.2% at constant currency to £406.9m (up 9.2% at actual rates). Total revenues for EMEA increased 5.0% at constant currency to £476.8m (up 17.3% at actual rates). The mature gross profit margin improved from 24.6% to 25.6% and gross profit increased 2% on a constant currency basis. Overhead savings have been strong in the region and this has helped the operating profit performance. Mature occupancy increased from 76.4% to 78.5%. We added 80 locations to the network during 2016, including some small acquisitions towards the end of the year. At 31 December 2016 we had 794 locations in EMEA.

Trading across this diverse region has been mixed. Our overall performance in Northern and Southern Europe has been good. Russia, on the other hand, has been a very difficult market as a result of the economic environment and the weakness of the Rouble against the US dollar, and required significant reorganisation during the period. Turkey has also been a more challenging market, as too has been the Middle East region with a weak oil & gas industry.

 

We are now starting to see a gradual improvement in sales activity in several larger markets in Europe.

Asia Pacific

Mature revenues in Asia Pacific declined 2.7% at constant currency to £293.2m (up 10.4% at actual rates). Total revenues for the region were £363.2m, an increase of 10.6% at constant currency (up 25.6% at actual rates). Mature occupancy was 78.8% (2015: 79.4%) and the gross profit margin was maintained at 24.9%. While we still see a significant opportunity for long-term growth in this region, we approached 2016 with a little more caution and selectivity, with a particular focus on partnering deals. As a result, we added 54 new locations during 2016 compared to 146 in 2015. In total we had 590 locations across the region at 31 December 2016.

Individual market performances during the period have been varied. Our businesses in India and Hong Kong improved their performance and our business in Japan was stable and in line with the Group performance. We experienced a deceleration in growth in our businesses in China and Australia. Both these markets weakened throughout the year, leading to a very weak fourth quarter. The slowdown in growth in China has been well documented and similarly for Australia with its exposure to natural resources. Notwithstanding the external factors that have presented a challenge to some of our businesses in the region, we have taken early action to introduce changes to improve the management team in the region.

UK

Mature revenue in the UK declined 0.7% to £358.5m, which is a better performance than the 1.7% mature revenue decline in constant currency for the Group overall. The mature gross profit margin remained strong at 23.4% (2015: 23.3%), while mature occupancy reduced from 80.5% to 75.4%. This reduction partly reflects a 5% increase in available inventory and the decision to selectively increase pricing in certain locations. Total revenues in the UK increased 2.9% to £462.1m (2015: £449.2m). After a relatively stable performance for the first nine months, we started to experience some pressure on revenue growth in the fourth quarter. Another contributing factor to the decline in overall revenue growth in the UK has been the large number of location closures and the more selective approach to growth. In addition to complying with the Competition and Markets Authority ruling to dispose of certain acquired locations in the UK, we took the opportunity to consolidate and refresh some of our existing estate. This has given rise to a higher than normal number of closures. During 2016 we added 11 new locations but closed 28 locations. This reduced the number of UK locations from 347 to 330 at 31 December 2016. Although the closures had a negative impact on total revenues, they helped to improve the gross profit. The UK is a very operationally efficient business, and with its further contribution to the Group's strong overhead performance, operating profits increased significantly.

 

We believe our cautious approach to the UK market was absolutely the right thing to have done, although it has contributed to a more challenging short-term outlook for revenue growth.

Strategic direction

Our strategy directly addresses the clear drivers of growth in the flexible workspace market. Despite our status as the clear global market leader by some distance, the size of the market opportunity ahead and the relatively early stage in customer adoption of WaaS mean we have significant scope for growth. Even in our most mature market, the UK, there is substantial growth potential, while the USA, China and India between them offer scope to become far more significant parts of our global business.

To help us accelerate our progress towards our goals, we made some important changes to our business model during 2016, including:

·  partnering with property owners and funders to bring investors together with our fast-growing customer base;

·  educating business about the growing opportunities available within the WaaS sector; and

·  accelerating the digitisation of our business to drive efficiencies and better service.

We are determined to lead and benefit from the disruptive power of digital technology and its impact on our industry.

As I have already said, we are committed to further improving our position as the global leader of the WaaS sector. And it almost goes without saying that to be relevant to corporations' and workers' needs, physical space must keep pace with technological change. This belief is at the heart of our business today.

We are not merely exploiting the disruptive impact of the digital revolution on traditional working practices. We are also using digital technologies to change how we operate and improve what we have to offer our customers.

This is why we are constantly developing new digital platforms, apps and customer communications. By doing this, and by expanding our global network of locations sited in the places people want to be, we are committed to staying ahead of any competition.

We demonstrated our organisational agility by focusing more closely than ever before on partnering with others in the property industry. This gathered pace during the second half of the year and partnering is set to take on a more important role in delivering our future development.

We placed great emphasis, particularly in the early months of 2016, on standardising our business and processes to enhance the scalability of our business as we focus on delivering high-quality growth. Cost reductions were also a helpful by-product of our work on re-engineering our field structure, in which we started using a city clustering approach to the local management of our locations. While this was primarily introduced to generate higher productivity and better customer service, it has also significantly improved the cost structure of the business. In fact, partly as a result of this initiative, our overhead costs fell by 13%, at constant currency, during 2016 despite a 6% increase in the size of the network.

Products and innovation

We continued to be active in innovation during 2016, thanks to our determination to offer customers the opportunity to become more productive, more quickly than ever before and at the lowest possible cost.

As a company built on giving employers and employees what they want, we are in constant communication with customers to identify new products and services that would help add value to their operations and streamline their interactions with us.

During 2016, such innovation extended beyond technology to embrace developments including:

·  cutting-edge location designs that reflect what companies and employees are looking for, such as the co-working format;

·  constant enhancements to our formats, to ensure we are offering bespoke environments to the different constituents of our market;

·  an award-winning workplace recovery solution;

·  developing digital access control solutions;

·  a proactive approach to measuring customer satisfaction and implementing feedback in ever-improving service levels; and

·  a simplified pricing model.

We believe this will help ensure we can support any organisation's workspace needs, anywhere in the world. And, by helping customers participate in shared communities, we are enabling them to extract more value from their relationship with us and one another through the co-promotion of their products and services.

Staying ahead of the game

Overall, our focus during 2016 - particularly in the first quarter - was on standardising our business to make it more easily scalable during 2017 and the years ahead. As such, 2016 was a transformative year that I am confident will underpin strong progress from the first half of 2017.

I am pleased with the progress we have made in the last year, and am confident that during 2017 and beyond we will continue to benefit from the significant structural growth opportunities that the WaaS sector offers. As we expand further through accumulating new sites, strengthening our commitment to partnering with the global property industry, we will further extend our existing competitive advantage. I am confident that our improved cost structure will continue to deliver higher productivity and enhanced efficiency and deliver further benefits as we scale.

Above all, I believe that our strengthening leadership position, our commitment to innovation and the flexibility we bring to fulfilling the needs of our customers means that we remain very well placed to deliver attractive returns for shareholders.

Looking ahead to 2017, we have started to see a pick-up in sales activity in some of our key markets, which is encouraging and, we believe, validates the significant actions we have taken during 2016. Although it is still early in the new financial year and sales activity levels take time to feed through, we anticipate an improvement in performance through the course of the year. Overall, the trading outlook for 2017 remains in line with management's expectations.

Mark Dixon

Chief Executive Officer

28 February 2017

 

Chief Financial Officer's review

Strong cost discipline driving profit growth, cash generation and attractive returns

This has been a year of significant transition, with many important changes implemented which we are confident will build further on the strong returns on investment the business has delivered during 2016. Our cost leadership has been enhanced and we have reduced overheads as a percentage of revenues by three percentage points to 11.7% and target further improvement.

Return on investment

Our strategic focus remains on driving returns that achieve our post-tax cash payback criteria, which typically is within four years. We have made further progress against this goal in 2016. For the 12 months to 31 December 2016, the Group delivered a record post-tax cash return on net growth investment of 25.1% in respect of locations opened on or before 31 December 2011 (up from 23.1% on the same estate for the 12 months to 31 December 2015). Moving the aggregated estate forward and incorporating the centres opened during 2012, the Group delivered a post-tax cash return on net growth investment of 23.6% in respect of all locations opened on or before 31 December 2012 (the equivalent return for the 12 months to 31 December 2015 on the same estate was 21.5%).

This very strong performance reflects the underlying progress in the profitability of the Group from the continued focus on efficiency and productivity, and the economies of scale on overheads that we enjoy as the Group continues to grow.

The table below shows the status of our centre openings by year of opening. There has been good progress in the development of returns for centres added in 2012, 2013, 2014 and 2015 as they continue to progress towards full maturity.

2016 Post-tax cash return(1) on net investment by year group - 12 months to 31 December 2016

Year of opening

08 & earlier

09

10

11

12

13

14

15

16

Post-tax cash return

25.4%

14.3%

31.1%

21.3%

16.6%

13.9%

10.0%

(2.6)%

(15.8)%

Net growth investment on locations opened in year(2)
£m

541.3

20.8

52.5

77.4

142.0

238.6

159.9

259.0

130.8

 

2015 Post-tax cash return on net investment by year group - 12 months to 31 December 2015

Year of opening

08 & earlier

09

10

11

12

13

14

15

16

Post-tax cash return

24.4%

9.8%

20.4%

20.3%

13.3%

11.2%

(8.0)%

(9.3)%

-

Net growth investment on locations opened in year(2)
£m

550.1

20.7

52.5

79.1

144.3

245.5

161.0

247.9

-

(1)  These returns are based on the post-tax cash return divided by the net growth capital investment. The post-tax return is calculated as the EBITDA achieved, less the amortisation of any partner capital contribution, less tax based on the EBIT and after deducting maintenance capital expenditure. Net growth capital expenditure is the growth capital after any partner contributions. We believe this provides an appropriate and conservative measure of cash return.

(2)  Note these amounts relate to net investment based on the year of opening of the centre. Depending on the timing of opening, some capital expenditure can be incurred in the calendar year before or after opening.

Developing the network

We continued to grow our unrivalled network and this remains a strategic priority. Increasing the depth and breadth of our geographic scope, and addressing different styles of working and price points, is a major differentiator for IWG and provides a competitive advantage as well as building further resilience into the business. However, we rightly approached 2016 with a high level of vigilance. We have always maintained a sharp focus on our investment decision-making, reflecting its critical importance to maintaining the strong returns into the future with our new investments. Notwithstanding this, we were even more selective during 2016 given the uncertain macro-economic environment and geopolitical issues in certain markets.

During 2016, we invested £162.3m of net growth capital expenditure. This included expenditure on locations opened in 2015 and to be opened in 2017 of £54.1m. The majority of the remaining investment related to the 231 locations added to the network in 2016, including a net investment of £12.5m in property assets. These locations added approximately 3.4m sq ft, taking the Group's total space globally to almost 48m sq ft as at 31 December 2016. The significant majority of these locations were organic openings. This is in contrast to 2015 when we invested net growth capital expenditure of £284.9m, including £99.4m on acquisitions, adding 554 locations, the equivalent of 7.7m sq ft of space. Another important focus area was the roll out of our Spaces format, which represented approximately 25% of the net growth capital expenditure. We remain confident that the returns from these investments will, in due course, be in line with the returns we generate on our historic investments.

We continue to have a good pipeline of new openings. As of 22 February we had visibility on net growth capital expenditure so far for 2017 of approximately £120m, representing approximately 250 locations and 4.0m sq ft of additional space. Notably, we have a strong pipeline of locations within our Spaces co-working format. Although these represent just over 15% of the total locations we currently see in the pipeline, each individual Spaces location, however, can be a factor of approximately three times larger than the average footprint of a Regus location. Consequently, these Spaces locations account for approximately 40% of the current pipeline of net growth capital expenditure.

Operational developments

We are constantly striving to improve our business and future potential returns. Whilst this is an ongoing process, we implemented changes to the operational field structure during 2016, introducing a city cluster approach to the management and organisation of our locations. With the in-field selling resource focused on a specific number of locations, we believe this will better promote the active marketing of the whole range of what is offered by the entire city cluster, including format and price point. Moreover, the unrivalled scale of our business provides us with the opportunity to automate more processes to allow our employees to have greater focus on customer service across more than one location. We believe this will generate many positives for our business, including improved cost efficiency in the field, better productivity and a sharper focus on 'selling the city' to unlock the full benefit of our broad offering. We have also implemented important changes to the compensation structure for our colleagues operating our locations by moving away from a largely sales commission-based bonus system to one based on financial performance. We believe this will be important and better align business behaviour with the interests of our shareholders. 2016 was therefore a transformational year and these changes are now fully embedded into the business.

Non-recurring items

For 2016 we have reported a net loss on non-recurring items of £1.0m. This non-recurring loss is in respect of three items: the receipt of funds following the settlement of a third-party litigation in the UK; additional provision relating to a litigation action in California; and a loss on disposal of specific assets and liabilities acquired as part of the Avanta acquisition which were disposed of in the second half of the year following the UK Competition and Markets Authority inquiry.

The non-recurring gain of £15.3m in 2015 reflected the £21.3m gain after expenses on the sale of various portfolios of property assets less two negative non-recurring items relating to a litigation action in California and the Competition and

Markets Authority's review of the acquisition of Avanta in the UK, which reduced the overall net gain by £6m.

Except where specifically mentioned, the following commentary and profit and loss analysis exclude the impact of these non-recurring items.

Financial performance

Group income statement (before non-recurring items)

£m

 2016
Underlying

 2015

Underlying

% Change actual
currency

% Change constant currency

Revenue

2,233.4

1,927.0

15.9%

5.5%

Gross profit (centre contribution)

448.8

428.4

5%

(4)%

Overheads (including R&D)

(261.8)

(283.9)

(8)%

(13)%

Joint ventures

(0.8)

0.3

 

 

Operating profit

186.2

144.8

29%

14%

Net finance costs

(11.5)

(14.4)

 

 

Profit before tax

174.7

130.4

34%

 

Taxation

(34.9)

(25.9)

 

 

Effective tax rate

20.0%

19.9%

 

 

Profit for the period

139.8

104.5

34%

 

Basic EPS (p)

 15.0

11.2

34%

 

Depreciation & amortisation

194.5

145.2

 

 

EBITDA

380.7

290.0

31%

18%

Revenue

Group revenues increased 5.5% at constant currency to £2,233.4m (2015: £1,927.0m), an increase of 15.9% at actual rates. This revenue growth reflects the growing contribution from additional locations. This also represents a sequential deceleration in growth over the course of the year. There were a number of contributing factors to this deceleration.

There was the base-line effect of acquisitions, the impact of a higher level of closures, together with some softening in market conditions across certain geographies. These softer conditions accentuated the normal impact on the business of absorbing the significant network growth in recent years. Mature revenues (from 2,153 like-for-like locations added on or before 31 December 2014) declined 1.7% at constant currency to £1,891.6m (2015: £1,750.1m), up 8.1% at actual rates. Mature occupancy was 78.2% (2015: 79.6%).

Gross profit

Group gross profit declined 4% at constant currency rates to £448.8m (2015: £428.4m), up 5% at actual rates. The reduction in Group gross margin from 22.2% to 20.1% largely reflects the dilution from a relatively large number of financially immature locations within the overall estate resulting from the significant investment in growing the network over recent years. The mature gross margin remained relatively stable at 24.1% (2015: 24.3%).

Gross margin

£m

Mature
centres
 2016

New
centres
 2016

Closed
centres
 2016

Total
 2016

Revenue

1,891.6

309.3

32.5

2,233.4

Cost of sales

(1,435.9)

(322.2)

(26.5)

(1,784.6)

Gross profit (centre contribution)

455.7

(12.9)

6.0

448.8

Gross margin

24.1%

(4.2)%

18.5%

20.1%

 

 

Mature
centres
 2015

New
centres
 2015

Closed
centres
 2015

Total
 2015

Revenue

1,750.1

108.5

68.4

1,927.0

Cost of sales

(1,324.9)

(120.5)

(53.2)

(1,498.6)

Gross profit (centre contribution)

425.2

(12.0)

15.2

428.4

Gross margin

24.3%

(11.1)%

22.2%

22.2%

Overhead efficiency improves further

As anticipated, the Group has made further strong progress in relation to overhead efficiency, thereby building on the achievements in recent years. We have not only continued to reduce total overheads as a percentage of revenues from 14.7% in 2015 to 11.7%, the absolute level of investment in overheads reduced by 13% in constant currency terms to £261.8m (2015: £283.9m) (down 8% at actual rates). Changes implemented to our business model and structure during 2016 to further improve the Group's productivity and financial performance also created further overhead efficiency.

We continue to maintain a strong focus on overhead discipline and anticipate further scale benefits.

Operating profit (excluding non-recurring items)

As a result of the very strong control of overheads, the incremental gross profit has dropped through to augment the Group operating profit, which increased 14% at constant currency to £186.2m (2015: £144.8m), an increase of 29% at actual rates. Consequently, the underlying Group operating margin increased from 7.5% in 2015 to 8.3% in 2016.

Net finance costs

The Group's net finance costs decreased 20% to £11.5m (2015: £14.4m). This reflects, in part, the reduction in net debt from an opening position of £190.6m to £151.3m as at 31 December 2016 and lower funding costs in general. Following the weakness of sterling after the result of the UK Referendum on EU membership, there has been a favourable foreign exchange movement.

Tax

The underlying effective tax rate for the year was 20.0% (2015: 19.9%). The Group's reported tax rate was 20.1% (2015: 17.7%). Our expectation is that the effective tax rate will remain around 20%.

Earnings per share

Earnings per share increased significantly to 14.9p (2015: 12.8p). Excluding the non-recurring items, underlying Group earnings per share increased 34% to 15.0p, reflecting the strong growth in underlying Group operating profit and the favourable foreign exchange tailwind.

The weighted average number of shares for the year was 929,830,458 (2015: 933,457,741). The weighted average number of shares for diluted earnings per share was 944,015,143 (2015: 953,678,034). As at 31 December 2016 the total number of shares in issue was 923,357,438.

In the period up to 19 December 2016, when the Scheme of Arrangement to create IWG plc as the new holding company became effective, Regus purchased 11,834,627 shares at a cost of £31.1m designated to be held in treasury to satisfy future exercises under various Group long-term incentive schemes. Over the same period, Regus utilised 4,712,856 shares from treasury to satisfy such exercises. At 19 December 2016, 27,612,384 were held as treasury shares. All these shares were cancelled as part of the Group reorganisation and Scheme of Arrangement.

In the period from 19 December 2016 to 31 December 2016, IWG plc purchased 1,280,032 shares designated to be held in treasury at a cost of £3.1m and 109,333 treasury shares were used to satisfy the exercise of share awards by employees.

Cash flow and funding

With the growth in profitability, cash generation has been very strong during 2016. This ability to convert profits into cash continues to be a highly attractive feature of our business model. Cash generated before the net investment in growth capital expenditure, dividends and share repurchases, and excluding the non-recurring material £80m disposal proceeds, net of expenses, received in 2015, increased 33% in 2016 to £286.1m (2015: £215.7m), reflecting the strong growth in underlying Group operating profit and very strong cash conversion. As well as the normal positive working capital development stemming from our network growth programme and the maturation of these locations, we have also benefitted from more specific focus to unlock working capital.

With our more selective approach to network growth during 2016 and increased traction on our strategic priority of targeting less capital intensive growth, Group net debt decreased from £190.6m at 31 December 2015 to £151.3m at 31 December 2016. This decrease comes after taking the growth capital expenditure into account, and after paying dividends of £43.3m and spending £38.6m mainly on a combination of buying our own shares, as noted opposite, and settlement of employee share options. This represents an underlying Group net debt: EBITDA leverage ratio of 0.4 times, which is a very conservative level, well below our internal 1.5 times limit and reflects our continued prudent approach to the Group's capital structure. Whilst our approach to our net indebtedness has been prudent, we continue to recognise the long-term benefit of also operating with an efficient balance sheet.

In May 2016, we extended and amended our key Revolving Credit Facility. The facility was increased from £320.0m to £550.0m and the maturity extended to 2021 (previously 2020), with an option to extend until 2023. The facility is denominated in sterling but can be drawn in several major currencies. This financing further improved our debt maturity profile and provides the Group with adequate financial headroom to pursue its strategy. With this facility in place, the Group took the opportunity to settle the €210m Schuldschein debt securities prior to their final maturity.

Cash flow

The table below reflects the Group's cash flow:

£m

 2016

 2015

Group EBITDA

380.7

290.0

Working capital

104.2

103.5

Less: growth-related partner contributions

(66.1)

(59.8)

Maintenance capital expenditure

(86.7)

(74.9)

Taxation

(31.5)

(29.1)

Finance costs

(16.1)

(13.2)

Other items

1.6

(0.8)

Cash flow before growth capital expenditure, share repurchases, dividends and non-recurring disposal proceeds

286.1

215.7

 

 

 

Gross growth capital expenditure

(228.4)

(344.7)

Less: growth-related partner contributions

66.1

59.8

Net growth capital expenditure(5)

(162.3)

(284.9)

 

 

 

Total net cash flow from operations

123.8

(69.2)

 

 

 

Non-recurring disposal proceeds

-

84.0

Less: costs of disposal

      -

(4.0)

Corporate financing activities

(38.6)

(32.0)

Dividend

(43.3)

(38.8)

Opening net cash/debt

(190.6)

(138.0)

Exchange movements

(2.6)

7.4

Closing net debt

(151.3)

(190.6)

(5) Net growth capital expenditure of £162.3m relates to the cash outflow in 2016. Accordingly, it includes capital expenditure related to locations opened in 2015 and to be added in 2017 of £54.1m. The majority of the remaining investment relates to the [231] locations added in 2016, including a net investment in property assets of £12.5m. The total net investment in the 2016 additions amounts to £130.8m so far.

Foreign exchange

The Group's results are exposed to translation risk from the movement in currencies. During 2016 key individual currency exchange rates have moved, as shown in the table below. The subsequent weakness in sterling following the UK Referendum on EU membership in June provided a more positive boost to the translation of our significant international earnings.

Overall, the favourable impact of the movement in exchange rates increased reported revenue, gross profit and operating profit by £199.7m, £36.3m and £20.5m respectively.

Foreign exchange rates

 

 

At 31 December

 

Annual average

 

Per £ sterling

2016

2015

%

2016

2015

%

US dollar

1.24

1.48

(16)%

1.35

1.53

(12)%

Euro

1.17

1.36

(14)%

1.22

1.38

(12)%

Japanese yen

145

179

(19)%

147

185

(21)%

Risk management

The principal risks and uncertainties affecting the Group remain broadly unchanged. A detailed assessment of the principal risks and uncertainties which could impact the Group's long-term performance and the risk management structure in place to identify, manage and mitigate such risks can be found on pages 27 to 32 and 46 to 48 of the Annual Report and Accounts.

Related parties

There have been no changes to the type of related party transactions entered into by the Group that had a material effect on the financial statements for the period ended 31 December 2016. Details of related party transactions that have taken place in the period can be found in note 30 to the 2016 Annual Report and Accounts.

Dividends

Consistent with IWG's progressive dividend policy and subject to shareholder approval, we will increase the final dividend for 2016 by approximately 15% to 3.55p (2015: 3.10p). This will be paid on Friday, 26 May 2017, to shareholders on the register at the close of business on Friday 28 April 2017. This represents an increase in the full-year dividend of approximately 13%, taking it from 4.50p for 2015 to 5.10p for 2016.

Dominik de Daniel

Chief Financial Officer and Chief Operating Officer

28 February 2017

 

 

Consolidated income statement

 

 

Year ended 31 Dec 2016

Year ended 31 Dec 2015

Continuing operations

Notes

Before non-recurring items

Non-recurring items
(note 6)

Total
£m

Before non-recurring items

Non-recurring items
(note 6)

Total
£m

Revenue

3

2,233.4

-

2,233.4

1,927.0

-

1,927.0

Cost of sales

 

(1,784.6)

-

(1,784.6)

(1,498.6)

-

(1,498.6)

Gross profit (centre contribution)

 

448.8

-

448.8

428.4

-

428.4

Selling, general and administration expenses

 

(258.9)

(1.0)

(259.9)

(273.6)

15.3

(258.3)

Research and development expenses

 

(2.9)

-

(2.9)

(10.3)

-

(10.3)

Share of (loss)/profit of equity-accounted investees, net of tax

20

(0.8)

-

(0.8)

0.3

-

0.3

Operating profit

5

186.2

(1.0)

185.2

144.8

15.3

160.1

Finance expense

8

(11.6)

-

(11.6)

(15.0)

-

(15.0)

Finance income

8

0.1

-

0.1

0.6

-

0.6

Net finance expense

 

(11.5)

-

(11.5)

(14.4)

-

(14.4)

Profit before tax for the year

 

174.7

(1.0)

173.7

130.4

15.3

145.7

Income tax expense

9

(34.9)

-

(34.9)

(25.9)

0.1

(25.8)

Profit after tax for the year

 

139.8

(1.0)

138.8

104.5

15.4

119.9

 

 

 

 

 

 

 

 

Profit attributable to:

 

 

 

 

 

 

 

Equity shareholders of the parent

 

139.8

(1.0)

138.8

104.5

15.4

119.9

Non-controlling interests

 

-

-

-

-

-

-

Profit after tax for the year

 

139.8

(1.0)

138.8

104.5

15.4

119.9

 

 

 

 

 

 

 

 

Earnings per ordinary share (EPS):

 

 

 

 

 

 

 

Basic (p)

10

 

 

14.9

 

 

12.8

Diluted (p)

10

 

 

14.7

 

 

12.6

 

 

Consolidated statement of comprehensive income

 

Notes

Year ended
31 Dec 2016
£m

Year ended
31 Dec 2015
£m

Profit for the year

 

138.8

119.9

 

 

 

 

Other comprehensive income that is or may be reclassified to profit or loss in
subsequent periods:

 

 

 

Cash flow hedges - recycled through the income statement, net of income tax

 

2.1

-

Cash flow hedges - effective portion of changes in fair value, net of income tax

 

(0.3)

0.6

Foreign currency translation differences for foreign operations

 

90.2

(5.3)

Items of other comprehensive income that are or may be reclassified to profit
or loss in subsequent periods

 

92.0

(4.7)

 

 

 

 

Other comprehensive income that will never be reclassified to profit or loss in
subsequent periods:

 

 

 

Re-measurement of defined benefit liability, net of income tax

25

-

(0.3)

Items of other comprehensive income that will never be reclassified to profit
or loss in subsequent periods

 

-

(0.3)

Other comprehensive income for the period, net of income tax

 

92.0

(5.0)

Total comprehensive income for the year

 

230.8

114.9

 

 

 

 

Total comprehensive income attributable to:

 

 

 

Equity shareholders of the parent

 

230.8

114.9

Non-controlling interests

 

-

-

Total comprehensive income for the year

 

230.8

114.9

 

Consolidated statement of changes in equity

 

Issued share capital
£m

Treasury shares
£m

Foreign currency translation reserve
£m

Hedging reserve
£m

Revaluation reserve
£m

Other reserves
£m

Retained earnings
£m

Total shareholders' equity(1)

£m

Non-controlling interests
£m

Total
equity
£m

Balance at 1 January 2015

9.5

(19.9)

12.7

(2.7)

10.5

15.3

512.0

537.4

-

537.4

Total comprehensive income for the year:

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

-

119.9

119.9

-

119.9

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

Re-measurement of defined benefit liability, net of income tax (note 25)

-

-

-

-

-

-

(0.3)

(0.3)

-

(0.3)

Cash flow hedges - effective portion of changes in fair value, net of income tax

-

-

-

0.6

-

-

-

0.6

-

0.6

Foreign currency translation differences for foreign operations

-

-

(5.3)

-

-

-

-

(5.3)

-

(5.3)

Total other comprehensive income, net

-

-

(5.3)

0.6

-

-

119.6

114.9

-

114.9

Total comprehensive income for the year

-

-

(5.3)

0.6

-

-

119.6

114.9

-

114.9

Transactions with owners, recorded
directly in equity

 

 

 

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

2.2

2.2

-

2.2

Ordinary dividend paid (note 11)

-

-

-

-

-

(38.8)

(38.8)

-

(38.8)

Purchase of shares

-

(24.5)

-

-

-

(11.9)

(36.4)

-

(36.4)

Proceeds from exercise of share awards

-

1.5

-

-

-

-

2.9

4.4

-

4.4

Balance at 31 December 2015

9.5

(42.9)

7.4

(2.1)

10.5

15.3

586.0

583.7

-

583.7

Total comprehensive income for the year:

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

138.8

138.8

-

138.8

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Cash flow hedges - recycled through the income statement

-

-

-

2.1

-

-

-

2.1

-

2.1

Cash flow hedges - effective portion of changes in fair value, net of income tax

-

-

-

(0.3)

-

-

-

(0.3)

-

(0.3)

Foreign currency translation differences for foreign operations

-

-

90.2

-

-

-

-

90.2

-

90.2

Total other comprehensive income, net

-

-

90.2

1.8

-

-

138.8

230.8

-

230.8

Total comprehensive income for the year

-

-

90.2

1.8

-

-

138.8

230.8

-

230.8

Transactions with owners, recorded
directly in equity

 

 

 

 

 

 

 

 

 

 

Share-based payments

-

-

-

-

-

2.4

2.4

-

2.4

Ordinary dividend paid (note 11)

-

-

-

-

-

(43.3)

(43.3)

-

(43.3)

Purchase of shares

-

(34.2)

-

-

-

(1.3)

(35.5)

-

(35.5)

Proceeds from exercise of share awards

-

8.5

-

-

-

(4.6)

3.9

-

3.9

Cancellation of treasury shares

(0.3)

65.7

-

-

-

-

(65.4)

-

-

-

Balance at 31 December 2016

9.2

(2.9)

97.6

(0.3)

10.5

15.3

612.6

742.0

-

742.0

1. Attributable to equity holders of the parent

On 19 December 2016, the Group entered into a court approved Scheme of Arrangement. As a result of the Scheme of Arrangement shares in Regus plc were cancelled and shares in the new Group holding company, IWG plc, were issued on the basis of one IWG plc share (nominal value one pence) for one share previously held in Regus plc (nominal value one pence). As a result, the shareholders of Regus plc became the shareholders of IWG plc. The establishment of IWG plc as the new parent company was accounted for as a common control transaction under IFRS and consequently the aggregate of the Group reserves have been attributable to IWG plc.

At 31 December 2016, treasury shares represent 1,170,699 (2015: 20,490,613) ordinary shares of the Group that were acquired for the purposes of the Group's
employee share option plans and the share buy-back programme. During the year, prior to the Scheme of Arrangement on 19 December 2016, 11,834,627 (2015: 9,543,800) shares were purchased in the open market and 4,712,856 (2015: 1,936,642) treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. Subsequent to the Scheme of Arrangement, a further 1,280,032 shares were purchased in the open market and 109,333 treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 28 February 2017, 1,013,938 treasury shares were held.

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and
joint ventures.

The revaluation reserve arose on the restatement of the assets and liabilities of the UK associate from historic to fair value at the time of the acquisition of the
outstanding 58% interest on 19 April 2006. Other reserves include £37.9m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5m
relating to merger reserves and £0.1m to the redemption of preference shares partly offset by £29.2m arising from the Scheme of Arrangement undertaken in 2003.

 

Consolidated balance sheet

 

Notes

As at
31 Dec 2016
£m

As at
31 Dec 2015
£m

Non-current assets

 

 

 

Goodwill

12

685.3

612.2

Other intangible assets

13

52.8

53.8

Property, plant and equipment

14

1,194.4

917.0

Deferred tax assets

9

29.3

36.4

Other long-term receivables

15

83.7

63.0

Investments in joint ventures

20

13.6

5.6

Total non-current assets

 

2,059.1

1,688.0

 

 

 

 

Current assets

 

 

 

Trade and other receivables

16

517.1

557.8

Corporation tax receivable

9

34.8

17.9

Cash and cash equivalents

22

50.1

63.9

Total current assets

 

602.0

639.6

Total assets

 

2,661.1

2,327.6

 

 

 

 

Current liabilities

 

 

 

Trade and other payables (incl. customer deposits)

17

875.2

816.5

Deferred income

 

276.4

240.7

Corporation tax payable

9

17.7

14.0

Bank and other loans

18

7.8

9.2

Provisions

19

6.0

5.3

Total current liabilities

 

1,183.1

1,085.7

 

 

 

 

Non-current liabilities

 

 

 

Other payables

17

532.1

383.8

Non-current derivative financial liabilities

23

0.3

15.0

Bank and other loans

18

193.6

245.3

Deferred tax liability

9

2.4

1.6

Provisions

19

3.4

7.6

Provision for deficit on joint ventures

20

3.4

4.1

Retirement benefit obligations

25

0.8

0.8

Total non-current liabilities

 

736.0

658.2

Total liabilities

 

1,919.1

1,743.9

 

 

 

 

Total equity

 

 

 

Issued share capital

21

9.2

9.5

Treasury shares

21

(2.9)

(42.9)

Foreign currency translation reserve

 

97.6

7.4

Hedging reserve

 

(0.3)

(2.1)

Revaluation reserve

 

10.5

10.5

Other reserves

 

15.3

15.3

Retained earnings

 

612.6

586.0

Total shareholders' equity

 

742.0

583.7

Non-controlling interests

 

-

-

Total equity

 

742.0

583.7

Total equity and liabilities

 

2,661.1

2,327.6

Approved by the Board on 28 February 2017

 

Mark Dixon

Dominik de Daniel

Chief Executive Officer

Chief Financial Officer and Chief Operating Officer

 

Consolidated statement of cash flows

 

Notes

Year ended
31 Dec 2016
£m

Year ended
31 Dec 2015
£m

Operating activities

 

 

 

Profit before tax for the year

 

173.7

145.7

Adjustments for:

 

 

 

Net finance expense

8

11.5

14.4

Share of loss/(profit) of equity-accounted investees, net of tax

20

0.8

(0.3)

Depreciation charge

5, 14

181.8

134.2

Loss/(gain) on disposal of property, plant and equipment

5

1.0

(0.3)

Impairment of property, plant and equipment

14

-

0.9

Amortisation of intangible assets

5, 13

12.7

11.0

Amortisation of acquired lease fair value adjustments

5

(3.1)

(4.6)

(Decrease)/increase in provisions

19

(3.2)

2.8

Share-based payments

 

2.4

2.2

Other non-cash movements

 

(3.4)

(3.0)

Operating cash flows before movements in working capital

 

374.2

303.0

Decrease/(increase) in trade and other receivables

 

81.0

(121.5)

Increase in trade and other payables

 

23.2

221.0

Cash generated from operations (before assets held for sale)

 

478.4

402.5

Loss/(profit) on disposal of assets held for sale

6

2.2

(21.3)

Cash generated from operations

 

480.6

381.2

Interest paid

 

(16.2)

(13.8)

Tax paid

 

(31.5)

(29.1)

Net cash inflow from operating activities

 

432.9

338.3

 

 

 

 

Investing activities

 

 

 

Purchase of subsidiary undertakings (net of cash acquired)

26

(8.9)

(99.4)

Proceeds on the sale of assets held for sale

6

3.3

84.0

Dividends received from joint ventures

20

0.9

-

Purchase of joint ventures

20

(1.3)

(1.9)

Proceeds on sale of property, plant and equipment

 

16.1

9.5

Purchase of property, plant and equipment

14

(313.8)

(311.5)

Purchase of intangible assets

13

(5.5)

(8.7)

Interest received

8

0.1

0.6

Net cash outflow from investing activities

 

(309.1)

(327.4)

 

 

 

 

Financing activities

 

 

 

Net proceeds from issue of loans

 

599.8

383.2

Repayment of loans

 

(670.0)

(330.5)

Repayment of principal under finance leases

 

-

(0.1)

Settlement of financial derivatives

 

(7.0)

-

Purchase of shares

 

(35.5)

(36.4)

Proceeds from exercise of share awards

 

3.9

4.4

Payment of ordinary dividend

11

(43.3)

(38.8)

Net cash outflow from financing activities

 

(152.1)

(18.2)

 

 

 

 

Net decrease in cash and cash equivalents

 

(28.3)

(7.3)

Cash and cash equivalents at beginning of year

 

63.9

72.8

Effect of exchange rate fluctuations on cash held

 

14.5

(1.6)

Cash and cash equivalents at end of year

22

50.1

63.9

 

Notes to the accounts

1. Authorisation of financial statements

The Group and Company financial statements for the year ended 31 December 2016 were authorised for issue by the Board of Directors on 28 February 2017 and the balance sheets were signed on the Board's behalf by Mark Dixon and Dominik de Daniel. IWG plc is a public limited company incorporated in Jersey and registered and domiciled in Switzerland. The Company's ordinary shares are traded on the London Stock Exchange.

IWG plc owns a network of business centres which are leased to a variety of business customers. Information on the Group's structure is provided in note 31, and information on other related party relationships of the Group is provided in note 30.

The Group financial statements have been prepared and approved by the Directors in accordance with Companies (Jersey) Law 1991 and International Financial Reporting Standards as adopted by the European Union ('Adopted IFRSs'). The Company prepares its parent company annual accounts in accordance with the Swiss Code of Obligations; extracts from these are presented on page 113.

2. Accounting policies

Basis of preparation

The Group financial statements consolidate those of the parent company and its subsidiaries (together referred to as the 'Group') and equity account the Group's interest in the associate and joint ventures. The extract from the parent company annual accounts presents information about the Company as a separate entity and not about its Group.

The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements. Amendments to adopted IFRSs issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) with an effective date from 1 January 2016 did not have a material effect on the Group financial statements, unless otherwise indicated.

The following standards, interpretations and amendments to standards were adopted by the Group for periods commencing on or after 1 January 2016:

IAS 1

Disclosure Initiative (Amendment to IAS 1)

IAS 16

Revaluation method - proportionate restatement of accumulated depreciation - Amendments to IAS 16

IAS 38

Revaluation method - proportionate restatement of accumulated amortisation - Amendments to IAS 38

IFRS 11

Accounting for Acquisitions of interests in Joint operations - Amendments to IFRS 11

IFRS 14

Regulatory Deferral Accounts

Various

Annual Improvements (2012 - 2014 Cycle)

Judgements made by the Directors in the application of these accounting policies that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 32.

The consolidated financial statements are prepared on a historical cost basis, with the exception of certain financial assets and liabilities that are measured at fair value as described in note 23.

The Directors, having made appropriate enquiries, have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the consolidated financial statements on pages 66 to 112.

In adopting the going concern basis for preparing the consolidated financial statements, the Directors have considered the further information included in the business activities commentary as set out on pages 14 to 17 as well as the Group's principal risks and uncertainties as set out on pages 28 to 32.

Further details on the going concern basis of preparation can be found in note 23 to the notes to the consolidated financial statements on page 92.

These Group consolidated financial statements are presented in pounds sterling (£), which is IWG plc's functional currency, and all values are in million pounds, rounded to one decimal place, except where indicated otherwise.

The attributable results of those companies acquired or disposed of during the year are included for the periods of ownership.

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies.

The consolidated financial statements include the Group's share of the total recognised income and expense of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases or the associate qualifies as a disposal group at which point the investment is carried at the lower of fair value less costs to sell and carrying value.

Joint ventures that are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The consolidated financial statements include the Group's share of the total recognised gains and losses of joint ventures on an equity accounted basis, from the date that joint control commences until the date that joint control ceases or the joint venture qualifies as a disposal group at which point the investment is carried at the lower of fair value less costs to sell and carrying value.

When the Group's share of losses exceeds its interest in a joint venture, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of a joint venture.

On 19 April 2006, the Group acquired the remaining 58% of the shares of the UK business that were not already owned by the Group. As a result the Group fully consolidated the UK business from that date. The acquisition was accounted for through the purchase method and as a consequence the entire assets and liabilities of the UK business were revalued to fair value. The effect of these adjustments on the 42% of the UK business already owned was reflected in the revaluation reserve.

On 14 October 2008, Regus plc acquired the entire share capital of Regus Group plc in exchange for the issue of new shares of Regus plc on the basis of one share in Regus plc for one share held previously in Regus Group plc. At the date of the transaction, Regus plc had nominal assets and liabilities and therefore the transaction was accounted for as a reverse acquisition of Regus plc by Regus Group plc. Consequently, no fair value acquisition adjustments were required and the aggregate of the Group reserves have been attributed to Regus plc.

On 19 December 2016, under a Scheme of Arrangement between Regus plc, the former holding company of the Group, and its shareholders, under Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by The Royal Court of Jersey, all the issued shares in Regus plc were cancelled and an equivalent number of new shares in Regus plc were issued to IWG plc in consideration for the allotment to shareholders of one ordinary share in IWG plc for each ordinary share in Regus plc that they held on the record date 18 December 2016. The establishment of IWG plc as the new parent company was accounted for as a common control transaction under IFRS. Consequently, no fair value acquisition adjustments were required and the aggregate of the Group reserves have been attributed to IWG plc.

IFRSs not yet effective

Except for IFRS 16 Leases, the following new or amended standards and interpretations that are mandatory for 2017 annual periods
(and future years) are not expected to have a material impact on the Company:

IAS 7

Disclosure Initiative - Amendments to IAS 7

1 January 2017

IAS 12

Recognition of Deferred Tax Assets for Unrealised losses - Amendments to IAS 12

1 January 2017

IFRS 9

Financial Instruments

1 January 2018

IFRS 15

Revenue from Contracts with Customers

1 January 2018

IFRS 16

Leases

1 January 2019

The adoption of IFRS 16 will result in the recognition of a significant right-of-use asset together with corresponding lease liabilities. The Group is in the process of quantifying the related impact.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Basis of consolidation

Subsidiaries are entities controlled by the Group. Control exists when the Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences. The results are consolidated until the date control ceases or the subsidiary qualifies as a disposal group, at which point the assets and liabilities are carried at the lower of fair value less costs to sell and carrying value.

Impairment of non-financial assets

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount was estimated at 30 September 2016. At each reporting date, the Group reviews the carrying amount of these assets to determine whether there is an indicator of impairment. If any indicator is identified then the assets' recoverable amount is re-evaluated.

The carrying amount of the Group's other non-financial assets (other than deferred tax assets) are reviewed at the reporting date to determine whether there is an indicator of impairment. If any such indication exists, the asset's recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount. Impairment losses are recognised in the income statement.

A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Group has identified individual business centres as the CGU.

We evaluate the potential impairment of property, plant and equipment at the centre (CGU) level where there are indicators of impairment.

Centres (CGUs) are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed.

Individual fittings and equipment in our centres or elsewhere in the business that become obsolete or are damaged are assessed and impaired where appropriate.

Calculation of recoverable amount

The recoverable amount of relevant assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Goodwill

All business combinations are accounted for using the purchase method. Goodwill is initially measured at cost, being the excess of the aggregate of the fair value of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

Positive goodwill is stated at cost less any provision for impairment in value. An impairment test is carried out annually and, in addition, whenever indicators exist that the carrying amount may not be recoverable.

Intangible assets

Intangible assets acquired separately from the business are capitalised at cost. Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if their fair value can be identified and measured reliably on initial recognition.

Intangible assets are amortised on a straight-line basis over the estimated useful life of the assets as follows:

Brand - Regus brand

Indefinite life

Brand - Other acquired brands

20 years

Computer software

Up to 5 years

Customer lists

2 years

Management agreements

Minimum duration of the contract

Amortisation of intangible assets is expensed through administration expenses in the income statement.

Acquisitions of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary.

Assets held for sale

Assets held for sale are measured at the lower of the carrying value of the identified asset and its fair value less cost to sell.

Leases

Plant and equipment leases for which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases, including all of the Group's property leases, are categorised as operating leases.

Operating leases

Minimum lease payments under operating leases are recognised in the income statement on a straight-line basis over the lease term.
Lease incentives, including partner contributions and rent-free periods, are included in the calculation of minimum lease payments. The commencement of the lease term is the date from which the Group is entitled to use the leased asset. The lease term is the non-cancellable period of the lease, together with any further periods for which the Group has the option to continue to lease the asset and when at the inception of the lease it is reasonably certain that the Group will exercise that option.

Contingent rentals include rent increases based on future inflation indices or non-guaranteed rental payments based on centre turnover or profitability and are excluded from the calculation of minimum lease payments. Contingent rentals are recognised in the income statement as they are incurred.

Onerous lease provisions are an estimate of the net amounts payable under the terms of the lease to the first break point, discounted at
an appropriate pre-tax rate that reflects the time value of money and the risks specific to the liability.

Partner contributions

Partner contributions are contributions from our business partners (property owners and landlords) towards the initial costs of opening a business centre, including the fit-out of the property and the losses that we incur early in the centre life. The partner contribution is treated as a lease incentive and is amortised over the period of the lease.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:

Buildings

50 years

Leasehold improvements

10 years

Furniture

10 years

Office equipment and telephones

5 years

Computer hardware

3 - 5 years

Revenue

Revenue from the provision of services to customers is measured at the fair value of consideration received or receivable (excluding
sales taxes). Where rent-free periods are granted to customers, rental income is spread on a straight-line basis over the length of the customer contract.

·  Workstations

Workstation revenue is recognised when the provision of the service is rendered. Amounts invoiced in advance are accounted for as deferred income and recognised as revenue upon provision of the service.

·  Customer service income

Service income (including the rental of meeting rooms) is recognised as services are rendered. In circumstances where IWG acts as an agent for the sale and purchase of goods to customers, only the commission fee earned is recognised as revenue.

·  Management and franchise fees

Fees received for the provision of initial and subsequent services are recognised as revenue as the services are rendered. Fees charged for the use of continuing rights granted by the agreement, or for other services provided during the period of the agreement, are recognised as revenue as the services are provided or the rights used.

·  Membership card income

Revenue from the sale of membership cards is deferred and recognised over the period that the benefits of the membership card are expected to be provided.

These categories represent all material sources of revenue earned from the provision of global workplace solutions.

Employee benefits

The majority of the Group's pension plans are of the defined contribution type. For these plans the Group's contribution and other paid and unpaid benefits earned by the employees are charged to the income statement as incurred.

The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.

Re-measurements, comprising actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets, excluding net interest, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income (OCI) in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Service costs are recognised in profit or loss, and include current and past service costs as well as gains and losses on curtailments.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under 'cost of sales', 'selling, general and administration expenses' and 'research and development expenses' in the consolidated income statement: service costs comprising current service costs; past service costs;
and gains and losses on curtailments and non-routine settlements.

Settlements of defined benefit schemes are recognised in the period in which the settlement occurs.

Share-based payments

The share option programme entitles certain employees and Directors to acquire shares of the ultimate parent company; these awards are granted by the ultimate parent and are equity settled.

The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes valuation model or the Monte Carlo method, taking into account the terms and conditions upon which the options were granted.

The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.

Options under the Co-investment Plan (CIP) are granted by the Company to certain employees and are equity settled. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at grant date and spread over the period during which the employees become unconditionally entitled to payment. The fair value of the share appreciation rights is measured based on the Monte Carlo valuation model, taking into account the terms and conditions upon which the instruments were granted.

Taxation

Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets and liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised for all unused tax losses only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Restructuring provisions are made for direct expenditures of a business reorganisation where the plans are sufficiently detailed and well advanced and where the appropriate communication to those affected has been undertaken at the reporting date.

Provision is made for onerous contracts to the extent that the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be delivered, discounted using an appropriate weighted average cost of capital.

Equity

Equity instruments issued by the Group are recorded at the value of proceeds received, net of direct issue costs.

When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within retained earnings.

Net finance expenses

Interest charges and income are accounted for in the income statement on an accruals basis. Financing transaction costs that relate to financial liabilities are charged to interest expense using the effective interest rate method and are recognised within the carrying value of the related financial liability on the balance sheet. Fees paid for the arrangement of credit facilities are recognised as a prepayment and recognised through the finance expense over the term of the facility. In the event of a facility being drawn the relevant unamortised portion of the fee is recognised within the carrying value of the financial liability and charged to the interest expense using the effective interest rate method.

Where assets or liabilities on the Group balance sheet are carried at net present value, the increase in the amount due to unwinding the discount is recognised as a finance expense or finance income as appropriate.

Costs arising on bank guarantees and letters of credit and foreign exchange gains or losses are included in other finance costs (note 8).

Interest bearing borrowings and other financial liabilities

Financial liabilities, including interest bearing borrowings, are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, financial liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest rate method.

The Group derecognises financial liabilities when the Group's obligations are discharged, cancelled or expired.

Financial liabilities are classified as financial liabilities at fair value through profit or loss where the liability is either held for trading or is designated as held at fair value through profit or loss on initial recognition. Financial liabilities at fair value through profit or loss are stated at fair value with any resultant gain or loss recognised in the income statement.

Non-recurring items

Significant, infrequent transactions not indicative of the underlying performance of the consolidated Group are reported separately as non-recurring items.

Financial assets

Financial assets are classified either at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets or loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined on initial recognition.

Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income, are recognised in profit or loss.

Held-to-maturity financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised costs using the effective interest rate method.

Available-for-sale financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognised in OCI and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest rate method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when recognition would be immaterial.

Customer deposits

Deposits received from customers against non-performance of the contract are held on the balance sheet as a current liability until they are returned to the customer at the end of their relationship with the Group.

Foreign currency transactions and foreign operations

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the closing rate of exchange at the balance sheet date and the gains or losses on translation are taken to the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The results and cash flows of foreign operations are translated using the average rate for the period. Assets and liabilities, including goodwill and fair value adjustments, of foreign operations are translated using the closing rate, with all exchange differences arising on consolidation being recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. Exchange differences are released to the income statement on disposal.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and are subject to an insignificant risk of changes in value.

Derivative financial instruments

The Group's policy on the use of derivative financial instruments can be found in note 23. Derivative financial instruments are measured initially at fair value and changes in the fair value are recognised through profit or loss unless the derivative financial instrument has been designated as a cash flow hedge whereby the effective portion of changes in the fair value are deferred in equity.

Foreign currency translation rates

 

At 31 December

Annual average

 

2016

2015

2016

2015

US dollar

1.24

1.48

1.35

1.53

Euro

1.17

1.36

1.22

1.38

Japanese yen

145

179

147

185

3. Segmental analysis - statutory basis

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including those that relate to transactions with other operating segments. An operating segment's results are reviewed regularly by the chief operating decision maker (the Board of Directors of the Group) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

The business is run on a worldwide basis but managed through four principal geographical segments: Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; and the United Kingdom. These geographical segments exclude the Group's non-trading, holding and corporate management companies. The results of business centres in each of these regions form the basis for reporting geographical results to the chief operating decision maker. All reportable segments are involved in the provision of global workplace solutions.

The Group's reportable segments operate in different markets and are managed separately because of the different economic characteristics that exist in each of those markets. Each reportable segment has its own discrete senior management team responsible for the performance of the segment.

The accounting policies of the operating segments are the same as those described in the Annual Report and Accounts for the Group for the year ended 31 December 2015. The performance of each segment is assessed on the basis of the segment operating profit, which excludes internal revenue, corporate overheads and foreign exchange gains and losses arising on transactions with other operating segments.

 

 

Americas

EMEA

Asia Pacific

United Kingdom

All other operating segments

Total

 

2016
£m

2015
£m

2016
£m

2015
£m

2016
£m

2015
£m

2016
£m

2015
£m

2016
£m

2015
£m

2016
£m

2015
£m

Revenues from
external customers

923.0

779.2

476.8

406.6

363.2

289.1

462.1

449.2

8.3

2.9

2,233.4

1,927.0

Revenues from
internal customers

-

-

0.1

0.3

-

-

1.0

1.2

-

-

1.1

1.5

Segment revenues

923.0

779.2

476.9

406.9

363.2

289.1

463.1

450.4

8.3

2.9

2,234.5

1,928.5

Gross profit
(centre contribution)

161.0

171.0

101.6

90.5

67.5

58.2

110.4

107.7

5.9

(0.2)

446.4

427.2

Reportable segment profit (before joint venture)

103.0

99.7

48.4

40.5

36.8

26.0

92.7

84.6

(13.3)

(12.0)

267.6

238.8

Share of (loss)/profit of joint ventures

-

-

(0.7)

1.1

-

-

(0.1)

(0.8)

-

-

(0.8)

0.3

Finance expense

(0.2)

(0.2)

(0.3)

(0.4)

(1.5)

(1.3)

(0.9)

(1.6)

-

-

(2.9)

(3.5)

Finance income

-

-

0.1

0.5

-

-

-

-

-

-

0.1

0.5

Depreciation and amortisation

101.9

72.2

28.6

21.9

26.3

19.0

29.3

25.2

5.9

4.9

192.0

143.2

Taxation expense

(13.9)

(9.2)

(1.8)

(3.6)

(2.9)

(3.5)

(1.0)

(2.6)

(15.3)

(6.9)

(34.9)

(25.8)

Assets

1,748.6

1,247.1

603.1

506.6

390.4

321.4

837.4

842.1

1.5

1.7

3,581.0

2,918.9

Liabilities

(1,745.4)

(1,118.0)

(761.6)

(611.9)

(446.0)

(327.8)

(751.1)

(811.8)

(0.1)

(0.2)

(3,704.2)

(2,869.7)

Net assets/(liabilities)

3.2

129.1

(158.5)

(105.3)

(55.6)

(6.4)

86.3

30.3

1.4

1.5

(123.2)

49.2

Non-current
asset additions

163.4

146.9

47.6

48.4

38.5

58.9

37.9

46.6

-

-

287.4

300.8

Revenue in the "All other operating segments" category is generated from services related to the provision of workplace solutions, including fees earned from franchise agreements and commissions earned from the sale of outsourced workplace solution products. Revenue from internal customers is determined by reference to current market prices.

4. Segmental analysis - entity-wide disclosures

The Group's primary activity and only business segment is the provision of global workplace solutions, therefore all revenue is attributed to a single group of similar products and services. It is not meaningful to separate this group into further categories of products. Revenue is recognised where the service is provided.

The Group has a diversified customer base and no single customer contributes a material percentage of the Group's revenue.

The Group's revenue from external customers and non-current assets analysed by foreign country is as follows:

 

2016

2015

£m

External
revenue

Non-current 
assets(1)

External
revenue

Non-current   
assets(1)

Country of tax domicile - Switzerland (2015: Luxembourg)

25.1

14.5

6.2

2.5

United States of America

766.6

930.0

636.3

720.5

United Kingdom

462.1

347.1

449.2

282.2

All other countries

979.6

738.2

835.3

646.4

 

2,233.4

2,029.8

1,927.0

1,651.6

1. Excluding deferred tax assets.

 

 

 

2016

£m

Revenue

Gross profit (centre contribution)

Operating profit
before joint venture

Share of
joint venture
loss

Operating profit

Finance expense

Finance income

Depreciation and amortisation

Profit
before tax

Reportable segment results

2,234.5

446.4

267.6

(0.8)

266.8

(2.9)

0.1

192.0

264.0

Exclude: Internal revenue

(1.1)

(1.1)

-

-

-

-

-

-

-

Corporate overheads

-

3.5

(80.6)

-

(80.6)

(13.3)

-

2.5

(93.9)

Foreign exchange gains and losses

-

-

-

-

-

4.6

-

-

4.6

Non-recurring items

-

-

(1.0)

-

(1.0)

-

-

-

(1.0)

Published Group total

2,233.4

448.8

186.0

(0.8)

185.2

(11.6)

0.1

194.5

173.7

                     

 

 

 

2015

£m

Revenue

Gross profit (centre contribution)

Operating profit
before joint venture

Share of
joint
venture profit

Operating profit

Finance expense

Finance income

Depreciation and amortisation

Profit
before tax

Reportable segment results

1,928.5

427.2

238.8

0.3

239.1

(3.5)

0.5

143.2

236.1

Exclude: Internal revenue

(1.5)

(1.5)

-

-

-

-

-

-

-

Corporate overheads

-

2.7

(94.3)

-

(94.3)

(12.5)

0.1

2.0

(106.7)

Foreign exchange gains and losses

-

-

-

-

-

1.0

-

-

1.0

Non-recurring items

-

-

15.3

-

15.3

-

-

-

15.3

Published Group total

1,927.0

428.4

159.8

0.3

160.1

(15.0)

0.6

145.2

145.7

 

 

2016

£m

Assets

Liabilities

Net assets/
(liabilities)

Reportable segment results

3,581.0

(3,704.2)

(123.2)

Exclude: Segmental inter-company amounts

(1,035.9)

1,989.6

953.7

Corporate overhead assets and liabilities (excluding amounts due to/from reportable segments):

 

 

 

Cash

21.4

-

21.4

Deferred taxation

17.0

-

17.0

Bank and other loans

-

(184.7)

(184.7)

Other

77.6

(19.8)

57.8

Published Group total

2,661.1

(1,919.1)

742.0

 

 

2015

£m

Assets

Liabilities

Net assets/ (liabilities)

Reportable segment results

2,918.9

(2,869.7)

49.2

Exclude: Segmental inter-company amounts

(726.0)

1,429.3

703.3

Corporate overhead assets and liabilities (excluding amounts due to/from reportable segments):

 

 

 

Cash

29.8

-

29.8

Deferred taxation

24.3

-

24.3

Bank and other loans

-

(234.4)

(234.4)

Other

80.6

(69.1)

11.5

Published Group total

2,327.6

(1,743.9)

583.7

 

5. Operating profit

Operating profit has been arrived at after charging/(crediting):

 

Notes

2016
£m

2015
£m

Depreciation on property, plant and equipment

14

181.8

134.2

Amortisation of intangibles

13

12.7

11.0

Provision for bad debts

23

10.3

6.5

Loss/(profit) on disposal of property, plant and equipment

14

1.0

(0.3)

Impairment of property, plant and equipment

 

-

0.9

Rents payable in respect of operating leases

 

 

 

Property

 

822.3

657.5

Contingent rents paid

 

36.7

38.4

Equipment

 

3.4

2.9

Amortisation of partner contributions

 

(50.2)

(35.6)

Amortisation of acquired lease fair value adjustments

 

(3.1)

(4.6)

Staff costs

7

335.6

356.4

 

 

2016
£m

2015
£m

Fees payable to the Group's auditor and its associates for the audit of the Group accounts

0.9

0.8

Fees payable to the Group's auditor and its associates for other services:

 

 

The audit of the Company's subsidiaries pursuant to legislation

1.4

1.0

Other services pursuant to legislation:

 

 

Tax services

-

-

Other services

0.4

-

6. Non-recurring items

 

 

2016
£m

2015
£m

Disposal of assets held for sale

 

(2.2)

21.3

Proceeds from litigation settlement

 

2.5

-

California class action

 

(1.3)

(3.2)

Competition & Markets Authority investigation

 

-

(2.8)

(Loss)/profit on non-recurring items

 

(1.0)

15.3

Disposal of assets held for sale

The following major classes of assets and liabilities were disposed of as part of the assets held for sale:

 

2016
£m

2015
£m

Assets

 

 

Goodwill (note 12)

4.5

10.3

Property, plant and equipment

1.4

-

Trade and other receivables

0.5

49.6

Assets held for sale

6.4

59.9

 

 

 

Liabilities

 

 

Trade and other payables

(0.9)

(1.2)

Liabilities held for sale

(0.9)

(1.2)

 

 

 

Net assets held for sale

5.5

58.7

Disposal related costs

-

4.0

 

 

 

Proceeds on disposal

3.3

84.0

(Loss)/profit on disposal

(2.2)

21.3

During 2016 the Group disposed of specific assets and liabilities acquired as part of the Avanta Services Offices Group plc acquisition in accordance with the agreed settlement with the United Kingdom Competition & Markets Authority for a consideration of £3.3m.

During 2014 the Group completed a project to dispose of the assets and liabilities of specific non-core operations to release the related capital originally invested in these operations. The sale of these assets and liabilities, which were previously classified as assets held for sale, completed during February 2015 for a consideration of £84.0m and a non-recurring profit of £21.3m after expenses.

Proceeds from litigation settlement

A settlement agreement between former shareholders and directors of a company acquired by the Group was reached during 2016. This settlement entitled IWG to a share of the reparations agreed, with £2.5m received during the year.

California class action

During 2015 a class action was filed against the Group alleging a breach of labour regulations in California. While the outcome of this legal action remains uncertain, the Group has provided for an additional £1.3m in respect of any potential settlement and related legal costs.

Competition & Markets Authority investigation

The United Kingdom Competition & Markets Authority initiated an inquiry into competition in the serviced offices industry after the Group acquired Avanta Serviced Offices Group plc during 2015. This inquiry was completed in early 2016. During 2015 the Group provided for £2.8m in respect of related legal costs.

7. Staff costs

 

2016
£m

2015
£m

The aggregate payroll costs were as follows:

 

 

Wages and salaries

282.2

302.5

Social security

45.6

46.5

Pension costs

5.4

5.2

Share-based payments

2.4

2.2

 

335.6

356.4

 

 

2016
Average
full time equivalents

2015
Average
full time equivalents

The average number of persons employed by the Group (including Executive Directors), analysed by category and geography, was as follows:

 

 

Centre staff

6,551

6,842

Sales and marketing staff

425

467

Finance staff

768

778

Other staff

864

1,203

 

8,608

9,290

 

 

 

Americas

2,802

3,064

EMEA

2,044

2,107

Asia Pacific

1,746

1,832

United Kingdom

907

996

Corporate functions

1,109

1,291

 

8,608

9,290

Details of Directors' emoluments and interests are given on pages 50 to 60 in the Remuneration Report, with audited schedules identified where relevant.

8. Net finance expense

 

2016
£m

2015
£m

Interest payable and similar charges on bank loans and corporate borrowings

(7.4)

(9.5)

Interest payable and similar charges on finance leases

-

-

Total interest expense

(7.4)

(9.5)

Other finance costs (including foreign exchange)

(3.3)

(3.9)

Unwinding of discount rates

(0.9)

(1.6)

Total finance expense

(11.6)

(15.0)

Total interest income

0.1

0.6

Unwinding of discount rates

-

-

Total finance income

0.1

0.6

Net finance expense

(11.5)

(14.4)

9. Taxation

(a) Analysis of charge in the year

 

2016
£m

2015
£m

Current taxation

 

 

Corporate income tax

(30.4)

(18.1)

Previously unrecognised tax losses and other differences

1.5

(3.0)

Over/(under) provision in respect of prior years

4.4

(3.5)

Total current taxation

(24.5)

(24.6)

Deferred taxation

 

 

Origination and reversal of temporary differences

(12.2)

(11.3)

Previously unrecognised tax losses and other differences

1.4

11.2

Over/ (under) provision in respect of prior years

0.4

(1.1)

Total deferred taxation

(10.4)

(1.2)

Tax charge on profit

(34.9)

(25.8)

(b) Reconciliation of taxation charge

 

2016

2015

 

£m

%

£m

%

Profit before tax

173.7

 

145.7

 

Tax on profit at 14.6% (2015: 29.22%)

(25.4)

(14.6)

(42.6)

(29.2)

Tax effects of:

 

 

 

 

Expenses not deductible for tax purposes

(26.5)

(15.3)

(8.6)

(5.9)

Items not chargeable for tax purposes

33.8

19.5

40.2

27.6

Non-recurring items not chargeable for tax purposes

-

-

4.6

3.2

Recognition of previously unrecognised deferred tax assets

2.9

1.7

8.2

5.6

Movements in temporary differences in the year not recognised in deferred tax

(85.5)

(49.2)

(23.3)

(16.0)

Adjustment to tax charge in respect of previous years

4.8

2.7

(4.6)

(3.2)

Differences in tax rates on overseas earnings

61.0

35.1

0.3

0.2

 

(34.9)

(20.1)

(25.8)

(17.7)

The applicable tax rate is determined based on the tax rate in the canton of Zug in Switzerland (2015: Luxembourg) which was the statutory tax rate applicable in the country of domicile of the parent company of the Group for the financial year.

(c) Factors that may affect the future tax charge

Unrecognised tax losses to carry forward against certain future overseas corporation tax liabilities have the following expiration dates:

 

2016
£m

2015
£m

2016

-

3.4

2017

7.3

6.3

2018

8.2

10.1

2019

15.6

18.9

2020

57.2

45.3

2021

37.8

8.8

2022

18.8

13.8

2023

21.7

12.2

2024 and later

92.4

41.8

 

259.0

160.6

Available indefinitely

453.9

226.6

Tax losses available to carry forward

712.9

387.2

Amount of tax losses recognised in deferred tax assets

131.2

113.4

Total tax losses available to carry forward

844.1

500.6

 

The following deferred tax assets have not been recognised due to uncertainties over recoverability.

 

2016
£m

2015
£m

Intangibles

22.0

26.7

Accelerated capital allowances

24.5

19.4

Tax losses

187.7

101.2

Rent

11.3

9.2

Short-term temporary differences

8.2

8.2

 

253.7

164.7

Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each reporting period.

(d) Corporation tax

 

2016
£m

2015
£m

Corporation tax payable

(17.7)

(14.0)

Corporation tax receivable

34.8

17.9

(e) Deferred taxation

The movement in deferred tax is analysed below:

 

Intangibles
£m

Property,
plant and equipment
£m

Tax losses
£m

Rent
£m

Short-term temporary differences
£m

Total
£m

Deferred tax asset

 

 

 

 

 

 

At 1 January 2015

(34.4)

11.4

31.4

36.7

(5.1)

40.0

Current year movement

(2.0)

(9.7)

(3.3)

11.4

3.5

(0.1)

Prior year movement

-

(5.6)

4.0

(0.2)

-

(1.8)

Transfers

-

(0.4)

0.8

0.4

(0.2)

0.6

Exchange movement

(3.2)

(0.1)

(0.9)

2.2

(0.3)

(2.3)

At 1 January 2016

(39.6)

(4.4)

32.0

50.5

(2.1)

36.4

Current year movement

(4.0)

(14.0)

(3.2)

9.6

1.7

(9.9)

Prior year movement

-

(1.3)

3.9

-

(2.2)

0.4

Transfers

0.3

(0.1)

(0.3)

(0.2)

0.5

0.2

Exchange movement

(11.5)

(0.7)

1.9

9.9

2.6

2.2

At 31 December 2016

(54.8)

(20.5)

34.3

69.8

0.5

29.3

Deferred tax liability

 

 

 

 

 

 

At 1 January 2015

(0.2)

(1.1)

0.3

0.3

(1.5)

(2.2)

Current year movement

-

(1.0)

1.1

0.2

(0.3)

-

Prior year movement

-

1.6

-

-

(0.9)

0.7

Transfers

-

0.4

(0.8)

(0.4)

0.2

(0.6)

Exchange movement

0.2

(1.4)

0.1

(0.1)

1.7

0.5

At 1 January 2016

-

(1.5)

0.7

-

(0.8)

(1.6)

Current year movement

(0.1)

(1.9)

1.3

(0.4)

0.2

(0.9)

Prior year movement

-

0.1

(0.1)

-

-

-

Transfers

(0.3)

0.2

0.2

0.2

(0.5)

(0.2)

Exchange movement

-

(0.1)

0.3

-

0.1

0.3

At 31 December 2016

(0.4)

(3.2)

2.4

(0.2)

(1.0)

(2.4)

The movements in deferred taxes included above are after the offset of deferred tax assets and deferred tax liabilities where there
is a legally enforceable right to set off and they relate to income taxes levied by the same taxation authority.

Deferred tax assets recognised on short-term temporary differences consist predominantly of provisions deductible when paid.
Deferred tax assets have been recognised in excess of deferred tax liabilities on the basis that there are forecast taxable profits
in the entities concerned.

At the balance sheet date, the temporary difference arising from unremitted earnings of overseas subsidiaries was £94.1m
(2015: £189.9m). The only tax that would arise on these reserves would be non-creditable withholding tax.

10. Earnings per ordinary share (basic and diluted)

 

2016

2015

Profit attributable to equity shareholders of the parent (£m)

138.8

119.9

Weighted average number of shares outstanding during the year

929,830,458

933,457,741

Average market price of one share during the year

283.67p

270.09p

Weighted average number of shares under option during the year

26,744,249

33,758,590

Exercise price for shares under option during the year

133.74p

130.10p

 

 

Profit

Earnings per share

 

2016
£m

2015
£m

2016
pence

2015
pence

Basic and diluted profit for the year attributable to shareholders and
basic earnings per share

138.8

119.9

14.9

12.8

Diluted earnings per share

 

 

14.7

12.6

Basic and diluted profit for the year attributable to shareholders and
basic earnings per share (before non-recurring items)

139.8

104.5

15.0

11.2

Diluted earnings per share (before non-recurring items)

 

 

14.8

11.0

Weighted average number of shares for basic EPS (number)

 

 

929,830,458

933,457,741

Weighted average number of shares under option during the year

 

 

26,744,249

33,758,590

Weighted average number of shares that would have been issued at average market price

 

 

(14,295,963)

(18,516,654)

Weighted average number of awards under the CIP and LTIP

 

 

1,736,399

4,978,357

Weighted average number of shares for diluted EPS (number)

 

 

944,015,143

953,678,034

Options are considered dilutive when they would result in the issue of ordinary shares for less than the market price of ordinary shares in the period. The amount of the dilution is taken to be the average market price of shares during the period minus the exercise price. There were no significant options considered anti-dilutive at the reporting date.

11. Dividends

 

2016

2015

Dividends per ordinary share proposed

3.55p

3.10p

Interim dividends per ordinary share declared and paid during the year

1.55p

1.40p

Dividends of £43.3m were paid during the year (2015: £38.8m). The Company has proposed to shareholders that a final dividend of
3.55p per share will be paid (2015: 3.10p). Subject to shareholder approval, it is expected that the dividend will be paid on 26 May 2017.

12. Goodwill

 

£m

Cost

 

At 1 January 2015

497.2

Recognised on acquisition of subsidiaries

110.6

Exchange differences

4.4

At 31 December 2015

612.2

Recognised on acquisition of subsidiaries(1)

6.8

Disposals

(1.3)

Transferred to assets held for sale (note 6)

(4.5)

Exchange differences

72.1

At 31 December 2016

685.3

Net book value

 

At 31 December 2015

612.2

At 31 December 2016

685.3

1. Net of £3.2m derecognised on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis

Cash-generating units (CGUs), defined as individual business centres, are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed. Goodwill acquired through business combinations is held at a country level and is subject to impairment reviews based on the cash flows of the CGUs within that country.

The goodwill attributable to the reportable business segments is as follows:

Carrying amount of goodwill included within the:

2016
£m

2015
£m

Americas business segment

311.1

260.2

EMEA business segment

119.4

100.4

Asia Pacific business segment

35.4

29.9

UK business segment

219.4

221.7

 

685.3

612.2

The carrying value of goodwill and indefinite life intangibles allocated to two countries, the USA and the UK, is material relative to the total carrying value comprising 74% of the total. The remaining 26% of the carrying value is allocated to a further 40 countries. The goodwill and indefinite life intangibles allocated to the USA and the UK are set out below:

 

Goodwill
£m

Intangible
assets
£m

2016
£m

2015
£m

USA

286.3

-

286.3

240.0

UK

219.4

11.2

230.6

232.9

Other countries

179.6

-

179.6

150.5

 

685.3

11.2

696.5

623.4

The indefinite life intangible asset relates to the brand value arising from the acquisition of the remaining 58% of the UK business in the year ended 31 December 2006 (see note 13).

The value in use for each country has been determined using a model which derives the individual value in use for each country from the value in use of the Group as a whole. Although the model includes budgets and forecasts prepared by management it also reflects external factors, such as capital market risk pricing as reflected in the market capitalisation of the Group and prevailing tax rates, which have been used to determine the risk adjusted discount rate for the Group. Management believes that the projected cash flows are a reasonable reflection of the likely outcomes over the medium to long term. In the event that trading conditions deteriorate beyond the assumptions used in the projected cash flows, it is also possible that impairment charges could arise in future periods.

The following key assumptions have been used in calculating value in use for each country:

·  Future cash flows are based on forecasts prepared by management. The model excludes cost savings and restructurings that are anticipated but had not been committed to at the date of the determination of the value in use. Thereafter, forecasts have been prepared by management for a further four years from 2017 that reflect an average annual growth rate of 3% (2016: 3%);

·  These forecasts exclude the impact of acquisitive growth expected to take place in future periods;

·  Management consider these projections to be a reasonable projection of margins expected at the mid-cycle position. Cash flows beyond 2019 have been extrapolated using a 2% growth rate which management believes is a reasonable long-term growth rate for any of the markets in which the relevant countries operate. A terminal value is included in the assessment, reflecting the Group's expectation that it will continue to operate in these markets and the long-term nature of the businesses; and

·  The Group applies a country specific pre-tax discount rate to the pre-tax cash flows for each country. The country specific discount rate is based on the underlying weighted average cost of capital (WACC) for the Group. The Group WACC is then adjusted for each country to reflect the assessed market risk specific to that country. The Group pre-tax WACC decreased from 12.7% in 2015 to 11.3% in 2016 (post-tax WACC: 9.0%). The country specific pre-tax WACC reflecting the respective market risk adjustment has been set between 10.7% and 14.2% (2015: 12.1% to 17.3%).

The amounts by which the values in use exceed the carrying amounts of goodwill are sufficiently large to enable the Directors to conclude that a reasonably possible change in the key assumptions would not result in an impairment charge in any of the countries. Foreseeable events are unlikely to result in a change in the projections of such a significant nature as to result in the goodwill carrying amount exceeding their recoverable amount. The forecast models used in assessing the impairment of goodwill are based on the related business centre structure at the end of the year. These models therefore do not reflect the expected improvement in margin as new centres mature.

The US model assumes an average centre contribution of 20% over the next five years. Revenue grows at 2.5% and costs grow at 1.5% per annum from 2017. A terminal value centre gross margin of 21% is adopted from 2021, with a 2% long-term growth rate assumed on revenue and cost into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 14% (2015: 16%).

The UK model assumes an average centre contribution of 21% over the next 5 years. Revenue and costs grow at 3% per annum from 2017. A terminal value centre gross margin of 21% is adopted from 2021, with a 2% long-term growth rate assumed on revenue and cost into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 11% (2015: 13%).

Management has considered the following sensitivities:

Market growth and WIPOW - Management has considered the impact of a variance in market growth and WIPOW. The value in use calculation shows that if the long-term growth rate was reduced to nil, the recoverable amount of the US and UK would still be greater than their carrying value.

Discount rate - Management has considered the impact of an increase in the discount rate applied to the calculation. The value in use calculation shows that for the recoverable amount to be less than its carrying value, the pre-tax discount rate would have to be increased to 24% (2015: 30%) for the US and 38% (2015: 36%) for the UK.

13. Other intangible assets

 

Brand
£m

Customer
lists
£m

Software
£m

Total
£m

Cost

 

 

 

 

At 1 January 2015

54.1

24.9

51.2

130.2

Additions at cost

-

-

8.7

8.7

Acquisition of subsidiaries

-

4.1

-

4.1

Exchange rate movements

2.2

(0.2)

(1.2)

0.8

At 31 December 2015

56.3

28.8

58.7

143.8

Additions at cost

0.2

-

5.3

5.5

Acquisition of subsidiaries(1)

-

1.1

-

1.1

Disposals

-

(0.1)

(0.3)

(0.4)

Exchange rate movements

8.8

2.8

2.9

14.5

At 31 December 2016

65.3

32.6

66.6

164.5

 

 

 

 

 

Amortisation

 

 

 

 

At 1 January 2015

22.3

23.2

32.0

77.5

Charge for year

2.2

2.9

5.9

11.0

Exchange rate movements

1.1

0.4

-

1.5

At 31 December 2015

25.6

26.5

37.9

90.0

Charge for year

2.5

2.4

7.8

12.7

Disposals

-

(0.1)

-

(0.1)

Exchange rate movements

5.2

2.6

1.3

9.1

At 31 December 2016

33.3

31.4

47.0

111.7

 

 

 

 

 

Net book value

 

 

 

 

At 1 January 2015

31.8

1.7

19.2

52.7

At 31 December 2015

30.7

2.3

20.8

53.8

At 31 December 2016

32.0

1.2

19.6

52.8

1. Includes £1.0m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis

Included within the brand value is £11.2m relating to the acquisition of the remaining 58% of the UK business in the year ended 31 December 2006. The Regus brand acquired in this transaction is assumed to have an indefinite useful life due to the fact that the value of the brand is intrinsically linked to the continuing operation of the Group.

As a result of the Regus brand acquired with the UK business having an indefinite useful life no amortisation is charged but the carrying value is assessed for impairment on an annual basis. The brand was tested at the balance sheet date against the recoverable amount of the UK business segment at the same time as the goodwill arising on the acquisition of the UK business (see note 12).

The remaining amortisation life for non-indefinite life brands is eight years.

14. Property, plant and equipment

 

Land and buildings
£m

Leasehold improvements
£m

Furniture and equipment
£m

Computer hardware
£m

Total
£m

Cost

 

 

 

 

 

At 1 January 2015

2.6

904.0

430.9

75.8

1,413.3

Additions

11.4

220.0

61.6

18.5

311.5

Acquisition of subsidiaries

-

18.1

3.3

2.0

23.4

Disposals

(2.6)

(9.6)

(2.0)

(0.2)

(14.4)

Exchange rate movements

-

3.5

3.3

(1.2)

5.6

At 1 January 2016

11.4

1,136.0

497.1

94.9

1,739.4

Additions

26.3

215.7

57.9

13.9

313.8

Acquisition of subsidiaries(1)

-

2.6

0.6

0.7

3.9

Disposals

(11.4)

(20.0)

(10.7)

(2.9)

(45.0)

Exchange rate movements

-

198.9

83.3

16.1

298.3

At 31 December 2016

26.3

1,533.2

628.2

122.7

2,310.4

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

At 1 January 2015

0.2

389.8

253.7

50.8

694.5

Charge for the year

-

85.1

37.4

11.7

134.2

Impairment

-

0.9

-

-

0.9

Disposals

(0.2)

(3.9)

(1.1)

-

(5.2)

Exchange rate movements

-

(2.0)

0.6

(0.6)

(2.0)

At 1 January 2016

-

469.9

290.6

61.9

822.4

Charge for the year

0.4

116.4

49.4

15.6

181.8

Disposals

-

(14.9)

(8.9)

(3.0)

(26.8)

Exchange rate movements

-

81.0

47.8

9.8

138.6

At 31 December 2016

0.4

652.4

378.9

84.3

1,116.0

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 1 January 2015

2.4

514.2

177.2

25.0

718.8

At 31 December 2015

11.4

666.1

206.5

33.0

917.0

At 31 December 2016

25.9

880.8

249.3

38.4

1,194.4

1. Includes £1.5m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis

Additions include £nil in respect of assets acquired under finance leases (2015: £nil).

15. Other long-term receivables

 

2016
£m

2015
£m

Deposits held by landlords against rent obligations

78.2

53.5

Amounts owed by joint ventures

0.2

4.0

Acquired lease fair value asset

5.3

5.5

 

83.7

63.0

16. Trade and other receivables

 

2016
£m

2015
£m

Trade receivables

202.6

206.2

Amounts owed by joint ventures

7.7

4.9

Other receivables

76.2

102.6

Acquired lease fair value asset

1.7

2.5

Deposits held by landlords against rent obligations

7.6

15.8

Prepayments and accrued income

171.8

158.5

VAT recoverable

49.5

67.3

 

517.1

557.8

17. Trade and other payables (including customer deposits)

 

2016
£m

2015
£m

Trade payables

60.3

94.2

VAT payable

53.1

60.8

Other tax and social security

9.0

10.4

Customer deposits

421.0

331.6

Deferred partner contributions

68.5

48.3

Amounts owed to joint ventures

1.6

1.6

Rent accruals

137.4

112.2

Acquired lease fair value liability

3.2

3.7

Other accruals

111.1

133.0

Other payables

10.0

20.7

Total current

875.2

816.5

 

 

2016
£m

2015
£m

Deferred partner contributions

265.4

199.5

Rent accruals

250.9

169.6

Acquired lease fair value liability

8.3

11.0

Other payables

7.5

3.7

Total non-current

532.1

383.8

18. Borrowings

The Group's total loan and borrowing position at 31 December 2016 and at 31 December 2015 had the following maturity profiles:

Bank and other loans

 

2016
£m

2015
£m

Repayments falling due as follows:

 

 

Amounts falling due after more than one year:

 

 

In more than one year but not more than two years

6.9

124.1

In more than two years but not more than five years

186.7

88.0

In more than five years

-

33.2

Total non-current

193.6

245.3

Total current

7.8

9.2

Total bank and other loans

201.4

254.5

19. Provisions

 

2016

2015

 

Onerous
 leases and closures
£m

Other
£m

Total
£m

Onerous
leases and closures
£m

Other
£m

Total
£m

At 1 January

7.7

5.2

12.9

4.0

2.9

6.9

Acquired in the period

-

-

-

3.0

0.1

3.1

Provided in the period

2.3

3.0

5.3

3.9

2.9

6.8

Utilised in the period

(1.4)

(1.6)

(3.0)

-

-

-

Provisions released

(5.1)

(0.4)

(5.5)

(3.2)

(0.8)

(4.0)

Exchange differences

-

 (0.3)

(0.3)

-

0.1

0.1

At 31 December

3.5

5.9

9.4

7.7

5.2

12.9

Analysed between:

 

 

 

 

 

 

Current

0.3

5.7

6.0

0.4

4.9

5.3

Non-current

3.2

0.2

3.4

7.3

0.3

7.6

At 31 December

3.5

5.9

9.4

7.7

5.2

12.9

Onerous leases and closures

Provisions for onerous leases and closure costs relate to the estimated future costs of centre closures and onerous property leases. The maximum period over which the provisions are expected to be utilised expires by 31 December 2025.

Other

Other provisions include the estimated costs of claims against the Group outstanding at the year end, of which, due to their nature, the maximum period over which they are expected to be utilised is uncertain.

20. Investments in joint ventures

 

Investments in joint ventures
£m

Provision for deficit in
joint ventures
£m

Total
£m

At 1 January 2015

0.7

(0.7)

-

Additions

1.9

-

1.9

Share of profit

3.2

(2.9)

0.3

Other

-

(0.5)

(0.5)

Exchange rate movements

(0.2)

-

(0.2)

At 31 December 2015

5.6

(4.1)

1.5

Additions

6.8

-

6.8

Dividends received

(0.9)

-

(0.9)

Share of loss

(1.5)

0.7

(0.8)

Disposal of investment

3.0

-

3.0

Exchange rate movements

0.6

-

0.6

At 31 December 2016

13.6

(3.4)

10.2

The Group has 41 joint ventures at the reporting date all of which are individually immaterial. The Group has a legal obligation in respect of its share of any deficits recognised by these operations.

The results of the joint ventures below are the full results of the joint ventures and do not represent the effective share:

 

2016
£m

2015
£m

Income statement

 

 

Revenue

23.5

27.6

Expenses

(22.5)

(24.9)

Profit before tax for the year

1.0

2.7

Tax charge

(0.7)

(0.5)

Profit after tax for the year

0.3

2.2

Net assets/(liabilities)

 

 

Non-current assets

12.2

8.4

Current assets

28.0

27.1

Current liabilities

(30.3)

(32.6)

Non-current liabilities

(2.1)

(9.7)

Net assets

7.8

(6.8)

21. Share capital

Ordinary equity share capital

 

2016

2015

 

Number

Nominal value
£m

Number

Nominal value
£m

Authorised

 

 

 

 

Ordinary 1p shares in Regus plc at 1 January 2016 and
19 December 2016

8,000,000,000

80.0

8,000,000,000

80.0

Ordinary 1p shares in IWG plc at 19 December 2016 and
31 December 2016

8,000,000,000

80.0

-

-

Issued and fully paid up

 

 

 

 

Ordinary 1p shares in Regus plc at 1 January

950,969,822

9.5

950,969,822

9.5

Cancellation of 1p shares in Regus plc held in treasury

(27,612,384)

(0.3)

-

-

Ordinary shares in IWG plc issued on formation of the company

923,357,438

9.2

-

-

Ordinary shares in Regus plc exchanged for ordinary shares in IWG plc

(923,357,438)

(9.2)

-

-

Ordinary 1p shares in IWG plc at 31 December 2016

923,357,438

9.2

-

-

On 19 December 2016 under a Scheme of Arrangement between Regus plc, the former holding company of the Group, and its shareholders, under Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by The Royal Court of Jersey, all the issued shares in Regus plc were cancelled and an equivalent number of new shares in Regus plc were issued to IWG plc in consideration for the allotment to shareholders of one ordinary share in IWG plc for each ordinary share in Regus plc that they held on the record date, 18 December 2016. As a result IWG plc acquired all of the issued share capital of Regus plc in exchange for the issue of shares in IWG plc in the ratio of one IWG plc share for one Regus plc share.

Treasury share transactions involving Regus plc shares between 1 January 2016 and 19 December 2016

In the period ending 19 December 2016, 11,834,627 (year ended 31 December 2015: 9,543,800) shares were purchased in the open market by Regus plc and 4,712,856 (year ended 31 December 2015: 1,936,642) treasury shares held by Regus plc were utilised to satisfy the exercise of share awards by employees. At 19 December 2016, 27,612,384 (year ended 31 December 2015: 20,490,613) shares were held as treasury shares. These shares were cancelled as part of the Group reorganisation and Scheme of Arrangement. The holders of ordinary shares in Regus plc were entitled to receive such dividends as were declared by the Company and were entitled to one vote per share at meetings of the Company. Treasury shares did not carry such rights until reissued.

Treasury share transactions involving IWG plc shares between 19 December 2016 and 31 December 2016

In the period from 19 December 2016 to 31 December 2016, 1,280,032 shares were purchased in the open market by IWG plc and 109,333 treasury shares held by IWG plc were utilised to satisfy the exercise of share awards by employees. At 28 February 2017, 1,013,938 shares were held as treasury shares. The holders of ordinary shares in IWG plc are entitled to receive such dividends
as are declared by the Company and are entitled to one vote per share at meetings of the Company. Treasury shares do not carry
such rights until reissued.

 

2016

2015

 

Number of shares


£m

Number of shares


£m

1 January

20,490,613

42.9

12,883,455

19.9

Purchase of treasury shares in Regus plc

11,834,627

31.1

9,543,800

24.5

Treasury shares in Regus plc utilised

(4,712,856)

(8.3)

(1,936,642)

(1.5)

Cancellation of treasury shares in Regus plc

(27,612,384)

(65.7)

-

-

Purchase of treasury shares in IWG plc

1,280,032

3.1

-

-

Treasury shares in IWG plc utilised

(109,333)

(0.2)

-

-

31 December

1,170,699

2.9

20,490,613

42.9

In addition to the treasury share transactions, the Group purchased 467,291 (2015: 4,451,486) shares on the open market at a cost of £1.3m (2015: £11.9m) to directly settle the exercise of share awards by employees.

22. Analysis of financial assets/(liabilities)

 

 

At
1 Jan 2016
£m

Cash flow
£m

Exchange movements
£m

At
31 Dec 2016
£m

Cash and cash equivalents

 

63.9

(28.3)

14.5

50.1

Gross cash

 

63.9

(28.3)

14.5

50.1

Debt due within one year

 

(9.2)

2.1

(0.7)

(7.8)

Debt due after one year

 

(245.3)

68.1

(16.4)

(193.6)

 

 

(254.5)

70.2

(17.1)

(201.4)

Net financial assets/(liabilities)

 

(190.6)

41.9

(2.6)

(151.3)

Cash and cash equivalent balances held by the Group that are not available for use amounted to £11.3m at 31 December 2016 (2015: £16.0m). Of this balance, £9.6m (2015: £12.5m) is pledged as security against outstanding bank guarantees and a further £1.7m (2015: £3.5m) is pledged against various other commitments of the Group.

23. Financial instruments and financial risk management

The objectives, policies and strategies applied by the Group with respect to financial instruments and the management of capital are determined at Group level. The Group's Board maintains responsibility for the risk management strategy of the Group and the Chief Financial Officer is responsible for policy on a day-to-day basis. The Chief Financial Officer and Group Treasurer review the Group's risk management strategy and policies on an ongoing basis. The Board has delegated to the Group Audit Committee the responsibility for applying an effective system of internal control and compliance with the Group's risk management policies.

Exposure to credit, interest rate and currency risks arise in the normal course of business.

Going concern

The Strategic Report on pages 1 to 32 of the Annual Report and Accounts sets out the Group's strategy and the factors that are likely to affect the future performance and position of the business. The financial review on pages 22 to 26 within the Strategic Report reviews the trading performance, financial position, and cash flows of the Group. During the year ended 31 December 2016, despite the Group making a significant investment in growth, the Group's net debt position decreased by £39.3m to a net debt position of £151.3m as at 31 December 2016. The investment in growth is funded by a combination of cash flow generated from the Group's mature business centres and debt. The Group has a £550.0m revolving credit facility provided by a group of relationship banks with a final maturity extended until 2021, with a further option to extend to 2023. As at 31 December 2016, £299.4m was available and undrawn.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Credit risk

Credit risk could occur where a customer or counterparty defaults under the contractual terms of a financial instrument and arises principally in relation to customer contracts and the Group's cash deposits.

A diversified customer base, requirement for customer deposits, and payments in advance on workstation contracts minimise the Group's exposure to customer credit risk. No single customer contributes a material percentage of the Group's revenue. The Group's policy is to provide against trade receivables when specific debts are judged to be irrecoverable or where formal recovery procedures have commenced. A provision is created where debts are more than three months overdue which reflects the Group's historical experience of the likelihood of recoverability of these trade receivables. These provisions are reviewed on an ongoing basis to assess changes in the likelihood of recoverability.

The maximum exposure to credit risk for trade receivables at the reporting date, analysed by geographic region, is summarised below.

 

2016
£m

2015
£m

Americas

37.8

41.2

EMEA

71.1

68.9

Asia Pacific

41.8

33.7

UK

51.9

62.4

 

202.6

206.2

All of the Group's trade receivables relate to customers purchasing workplace solutions and associated services and no individual customer has a material balance owing as a trade receivable.

The ageing of trade receivables at 31 December was:

 

Gross
2016
£m

Provision
2016
£m

Gross
2015
£m

Provision
2015
£m

Not overdue

124.1

-

158.4

-

Past due 0 - 30 days

43.9

(0.1)

31.2

-

Past due 31 - 60 days

12.0

-

7.4

-

More than 60 days

41.7

(19.0)

20.8

(11.6)

 

221.7

(19.1)

217.8

(11.6)

At 31 December 2016, the Group maintained a provision of £19.1m against potential bad debts (2015: £11.6m) arising from trade receivables. The Group had provided £10.3m (2015: £6.5m) in the year and utilised £4.5m (2015: £3.2m). Customer deposits of £421.0m (2015: £331.6m) are held by the Group, mitigating the risk of default.

The Group believes no provision is generally required for trade receivables that are not overdue as the Group collects the majority of its revenue in advance of the provision of office services and requires deposits from its customers.

Cash investments and derivative financial instruments are only transacted with counterparties of sound credit ratings, and management does not expect any of these counterparties to fail to meet their obligations.

Liquidity risk

The Group manages liquidity risk by closely monitoring the global cash position, the available and undrawn credit facilities, and forecast capital expenditure and expects to have sufficient liquidity to meet its financial obligations as they fall due. The Group has free cash and liquid investments (excluding blocked cash) of £38.8m (2015: £47.9m). In addition to cash and liquid investments, the Group had £299.4m available and undrawn under its committed borrowings. The Directors consider the Group has adequate liquidity to meet day-to-day requirements.

The Group maintains a revolving credit facility provided by a group of international banks. During the year, the amount of the facility was increased from £320.0m to £550.0m and the maturity extended until 2021, with a further option to extend to 2023. Following the extension of the credit facility, the "Schuldschein" EUR 210.0m (£162.7m) debt securities issued in 2014 and the associated hedging were repaid in full. As at 31 December 2016, £299.4m was available and undrawn under this revolving credit facility.

The debt provided under the bank facility is floating rate, however, as part of the Group's balance sheet management and to protect against a future increase in interest rates, £70m and $30m were swapped into a fixed rate liability for a three-year period with an average fixed rate of respectively 0.7% and 1.8% (excluding funding margin).

Although the Group has net current liabilities of £581.1m (2015: £446.1m), the Group does not consider that this gives rise to a liquidity risk. A large proportion of the net current liabilities comprise non-cash liabilities such as deferred income which will be recognised in future periods through the income statement. Although the Group holds customer deposits of £421.0m (2015: £331.6m) these are spread across a large number of customers and no deposit held for an individual customer is material. Therefore, the Group does not believe the balance represents a liquidity risk. The net current liabilities, excluding deferred income, were £304.7m at 31 December 2016 (2015: £205.4m).

Market risk

The Group is exposed to market risk primarily related to foreign currency exchange rates, interest rates, and the market value of our investments in financial assets. These exposures are actively managed by the Group treasury department in accordance with a written policy approved by the Board of Directors. The Group does not use financial derivatives for trading or speculative reasons.

Interest rate risk

The Group manages its exposure to interest rate risk through the relative proportions of fixed rate debt and floating rate debt. The surplus cash balances are invested short-term, and at the end of 2016 no cash was invested for a period exceeding three months.

Foreign currency risk

The Group is exposed to foreign currency exchange rate movements. The majority of day-to-day transactions of overseas subsidiaries are carried out in local currency and the underlying foreign exchange exposure is small. Transactional exposures do arise in some countries where it is local market practice for a proportion of the payables or receivables to be in other than the functional currency of the affiliate. Intercompany charging, funding, and cash management activity may also lead to foreign exchange exposures. It is the policy of the Group to seek to minimise such transactional exposures through careful management of non-local currency assets and liabilities, thereby minimising the potential volatility in the income statement. Net investments in IWG affiliates with a functional currency other than sterling are of a long-term nature and the Group does not normally hedge such foreign currency translation exposures.

From time to time the Group uses short-term derivative financial instruments to manage its transactional foreign exchange
exposures where these exposures cannot be eliminated through balancing the underlying risks. No transactions of a speculative
nature are undertaken.

The foreign currency exposure arising from open third party transactions held in a currency other than the functional currency of the related entity is summarised as follows:

 

2016

£m

GBP

JPY

EUR

USD

Trade and other receivables

-

-

15.1

19.1

Trade and other payables

(0.5)

(0.1)

(26.5)

(18.7)

Net statement of financial position exposure

(0.5)

(0.1)

(11.4)

0.4

 

2015

£m

GBP

JPY

EUR

USD

Trade and other receivables

-

-

9.1

16.4

Trade and other payables

(1.4)

(1.2)

(21.9)

(19.4)

Net statement of financial position exposure

(1.4)

(1.2)

(12.8)

(3.0)

Other market risks

The Group does not hold any available-for-sale equity securities and is therefore not subject to risks of changes in equity prices in the income statement.

Sensitivity analysis

For the year ended 31 December 2016, it is estimated that a general increase of one percentage point in interest rates would have decreased the Group's profit before tax by approximately £1.9 m (2015: decrease of £1.7m) with a corresponding decrease in total equity.

It is estimated that a five percentage point weakening in the value of the US dollar against sterling would have decreased the Group's profit before tax by approximately £8.8m for the year ended 31 December 2016 (2015: decrease of £6.0m). It is estimated that a five percentage point weakening in the value of the euro against sterling would have decreased the Group's profit before tax by approximately £2.7m for the year ended 31 December 2016 (2015: decrease of £1.8m).

It is estimated that a five percentage point weakening in the value of the US dollar against sterling would have decreased the Group's total equity by approximately £11.3m for the year ended 31 December 2016 (2015: £10.7m). It is estimated that a five percentage point weakening in the value of the euro against sterling would have decreased the Group's total equity by approximately £0.4m for the year ended 31 December 2016 (2015: £5.9m).

Capital management

The Group's parent company is listed on the UK stock exchange and the Board's policy is to maintain a strong capital base. The Chief Financial Officer monitors the diversity of the Group's major shareholders and further details of the Group's communication with key investors can be found in the Corporate Governance Report on page 43. In 2006, the Board approved the commencement of a progressive dividend policy to enhance the total return to shareholders.

The Group's Chief Executive Officer, Mark Dixon, is the major shareholder of the Company and all executive members of the Board hold shares in the Company. Details of the Directors' shareholdings can be found in the report of the Remuneration Committee on pages 50 to 60. In addition, the Group operates various share option plans for key management and other senior employees.

Treasury share transactions involving Regus plc shares between 1 January 2016 and 19 December 2016

In the period ended 19 December 2016, 11,834,627 (year ended 31 December 2015: 9,543,800) shares were purchased in the open market by Regus plc and 4,712,856 (year ended 31 December 2015: 1,936,642) treasury shares held by Regus plc were utilised to satisfy the exercise of share awards by employees. At 19 December 2016, 27,612,384 (year ended 31 December 2015: 20,490,613) shares were held as treasury shares. These shares were cancelled as part of the Group reorganisation and Scheme of Arrangement described in note 21.

Treasury share transactions involving IWG plc shares between 19 December 2016 and 31 December 2016

In the period from 19 December 2016 to 31 December 2016, 1,280,032 shares were purchased in the open market by IWG plc and 109,333 treasury shares held by IWG plc were utilised to satisfy the exercise of share awards by employees. At 28 February 2017, 1,013,938 shares were held as treasury shares.

The Company declared an interim dividend of 1.55p per share (2015: 1.40p) during the year ended 31 December 2016 and proposed a final dividend of 3.55p per share (2015: 3.10p per share), a 15% increase on the 2015 dividend.

The Group's objective when managing capital (equity and borrowings) is to safeguard the Group's ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The Group has a net debt position of £151.3m at the end of 2016 (2015: £190.6m) and £299.4m (2015: £205.1m) of committed undrawn borrowings.

Effective interest rates

In respect of financial assets and financial liabilities, the following table indicates their effective interest rates at the balance sheet
date and the periods in which they mature. Interest payments are excluded from the table.

The undiscounted cash flow of these instruments is not materially different from the carrying value.

As at 31 December 2016

 

Effective
interest
rate
%(1)

Carrying
value
£m

Contractual
cash flow
£m

Less than
1 year
£m

1-2 years
£m

2-5 years
£m

More than
5 years
£m

Cash and cash equivalents

0.0%

50.1

50.1

50.1

-

-

-

Trade and other receivables

-

418.5

437.6

359.4

39.1

39.1

-

Financial assets(2)

 

468.6

487.7

409.5

39.1

39.1

-

 

 

 

 

 

 

 

 

Non-derivative financial liabilities(1):

 

 

 

 

 

 

 

Bank loans and corporate borrowings

2.9%

(193.6)

(193.6)

-

(6.9)

(186.7)

-

Other loans

4.6%

(7.8)

(7.8)

(7.8)

-

-

-

Customer deposits

-

(421.0)

(421.0)

(421.0)

-

-

-

Trade and other payables

-

(136.5)

(136.5)

(128.6)

(7.9)

-

-

 

 

 

 

 

 

 

 

Derivative financial liabilities:

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

 

 

 

 

 

 

•      Outflow

-

-

-

-

-

-

-

•      Inflow

-

-

-

-

-

-

-

Interest rate swaps

 

 

 

 

 

 

 

•      Outflow

-

(0.3)

(0.3)

-

-

(0.3)

-

•      Inflow

-

-

-

-

-

-

-

Financial liabilities

 

(759.2)

(759.2)

(557.4)

(14.8)

(187.0)

-

1. All financial instruments are classified as variable rate instruments.

2. Financial assets are all held at amortised cost.

As at 31 December 2015

 

Effective
interest rate
%(1)

Carrying
value
£m

Contractual
cash flow
£m

Less than
1 year
£m

1-2 years
£m

2-5 years
£m

More than
5 years
£m

Cash and cash equivalents

0.4%

63.9

63.9

63.9

-

-

-

Trade and other receivables

-

454.0

465.6

408.4

26.7

30.5

-

Financial assets(2)

 

517.9

529.5

472.3

26.7

30.5

-

 

 

 

 

 

 

 

 

Non-derivative financial liabilities(1):

 

 

 

 

 

 

 

Bank loans and corporate borrowings

4.0%

(245.3)

(245.3)

-

(124.1)

(88.0)

(33.2)

Other loans

12.4%

(9.2)

(9.2)

(9.2)

-

-

-

Customer deposits

-

(331.6)

(331.6)

(331.6)

-

-

-

Trade and other payables

-

(191.5)

(191.5)

(187.8)

(3.7)

-

-

 

 

 

 

 

 

 

 

Derivative financial liabilities:

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

 

 

 

 

 

 

- Outflow

-

(14.2)

(135.3)

-

(135.3)

-

-

- Inflow

-

-

121.1

-

121.1

-

-

Interest rate swaps

 

 

 

 

 

 

 

- Outflow

-

(0.8)

(0.8)

-

-

(0.8)

-

- Inflow

-

-

-

-

-

-

-

Financial liabilities

 

(792.6)

(792.6)

(528.6)

(142.0)

(88.8)

(33.2)

1. All financial instruments are classified as variable rate instruments

2. Financial assets are all held at amortised cost

Fair value disclosures

The fair values together with the carrying amounts shown in the balance sheet are as follows:

31 December 2016

Carrying amount

Fair value

£m

Loans and receivables

Other financial liabilities

Fair value -hedging instruments

Total

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

50.1

-

-

50.1

-

-

-

-

Trade and other receivables

418.5

-

-

418.5

Bank loans and corporate borrowings

-

(193.6)

-

(193.6)

Other loans

 

(7.8)

-

(7.8)

Customer deposits

-

(421.0)

-

(421.0)

Trade and other payables

-

(136.5)

-

(136.5)

Derivative financial liabilities

-

-

(0.3)

(0.3)

-

(0.3)

-

(0.3)

 

468.6

(758.9)

(0.3)

(290.6)

-

(0.3)

-

(0.3)

Unrecognised gain

 

 

 

 

 

 

 

-

 

31 December 2015

Carrying amount

Fair value

£m

Loans and receivables

Other
financial liabilities

Fair value - hedging instruments

Total

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

63.9

-

-

63.9

-

-

-

-

Trade and other receivables

454.0

-

-

454.0

Bank loans and corporate borrowings

-

(245.3)

-

(245.3)

Other loans

 

(9.2)

-

(9.2)

Customer deposits

-

(331.6)

-

(331.6)

Trade and other payables

-

(191.5)

-

(191.5)

Derivative financial liabilities

-

-

(15.0)

(15.0)

-

(15.0)

-

(15.0)

 

517.9

(777.6)

(15.0)

(274.7)

-

(15.0)

-

(15.0)

Unrecognised gain

 

 

 

 

 

 

 

-

During the years ended 31 December 2015 and 31 December 2016, there were no transfers between levels for fair value measured instruments, and no financial instruments requiring level 3 fair value measurements were held.

Valuation techniques

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

·  Level 1: quoted prices in active markets for identical assets or liabilities;

·  Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly; and

·  Level 3: inputs for the asset or liability that are not based on observable market data.

The following tables show the valuation techniques used in measuring level 2 fair values and methods used for financial assets and liabilities not measured at fair value:

Type

Valuation technique

Cash and cash equivalents, trade and other receivables/payables and customer deposits

For cash and cash equivalents, receivables/payables with a remaining life of less than one year and customer deposits, the book value approximates the fair value because of their short-term nature.

Loans and overdrafts

The fair value of bank loans, overdrafts and other loans approximates the carrying value because interest rates are at floating rates where payments are reset to market rates at intervals of less than one year.

Foreign exchange contracts and interest rate swaps

The fair values are based on a combination of broker quotes, forward pricing and swap models.

There was no significant unobservable input used in our valuation techniques.

Derivative financial instruments

The following table summarises the notional amount of the open contracts as at the reporting date:

 

2016
EUR m

2015
EUR m

Derivatives used for cash flow hedging

-

210.0

 

2016
GBP m

2015
GBP m

Derivatives used for cash flow hedging

70.0

-

 

2016
USD m

2015
USD m

Derivatives used for cash flow hedging

30.0

-

Committed borrowings

 

2016
Facility
£m

2016
Available
£m

2015
Facility
£m

2015
Available
£m

Schuldschein loan note

-

-

154.2

-

Revolving credit facility

550.0

299.4

320.0

205.1

Guarantee and letter of credit facility

-

-

75.0

4.6

Total

550.0

299.4

549.2

209.7

The Group maintains a revolving credit facility provided by a group of international banks. During the year, the amount of the facility was increased from £320.0m to £550.0m and the maturity extended until 2021, with a further option to extend to 2023. Following the extension of the credit facility, the "Schuldschein" EUR 210.0m (£162.7m) debt securities issued in 2014 and the associated hedging were repaid in full. As at 31 December, £299.4m was available and undrawn under this facility.

The debt provided under the credit facility is floating rate, however, as part of the Group's balance sheet management and to protect against a future increase in interest rates, £70m and $30m were swapped into a fixed rate liability for a three-year period with an average fixed rate of respectively 0.7% and 1.8% (excluding funding margin).

The £550.0m revolving credit facility is subject to financial covenants relating to net debt to EBITDA, and EBITDA plus rent to interest plus rent. The Group is in compliance with all covenant requirements.

24. Share-based payments

There are three share-based payment plans, details of which are outlined below:

Plan 1: IWG Group Share Option Plan

During 2004 the Group established the IWG Group Share Option Plan that entitles Executive Directors and certain employees to purchase shares in IWG plc (previously Regus plc). In accordance with this programme, holders of vested options are entitled to purchase shares at the market price of the shares at the day before the date of grant.

The IWG Group also operates the IWG Group Share Option Plan (France) which is included within the numbers for the IWG Share Option Plan disclosed above. The terms of the IWG Share Option Plan (France) are materially the same as the IWG Group Share Option Plan with the exception that they are only exercisable from the fourth anniversary of the date of grant, assuming the performance conditions have been met.

Reconciliation of outstanding share options

 

2016

2015

 

Number of
share options

Weighted average
exercise price per share

Number of
share options

Weighted average
exercise price
per share

At 1 January

29,494,624

155.35

36,096,491

144.20

Granted during the year

1,848,431

301.59

1,906,565

250.80

Lapsed during the year

(2,972,532)

190.48

(4,062,226)

205.94

Exercised during the year

(3,850,899)

101.69

(4,446,206)

95.12

Outstanding at 31 December

24,519,624

169.62

29,494,624

155.35

Exercisable at 31 December

6,357,981

119.87

2,853,016

100.00

 

Date of grant

Numbers
granted

Weighted average
exercise price per share

Lapsed

Exercised

At 31 Dec 2016

Exercisable from

Expiry date

23/03/2010

3,986,000

100.50

(3,463,777)

(410,255)

111,968

23/03/2013

23/03/2020

28/06/2010

617,961

75.00

(546,198)

(50,413)

21,350

28/06/2013

28/06/2020

01/09/2010

160,646

69.10

(146,728)

(9,856)

4,062

01/09/2013

01/09/2020

01/04/2011

2,400,000

114.90

(954,402)

(481,866)

963,732

01/04/2014

01/04/2021

30/06/2011

9,867,539

109.50

(4,900,647)

(3,361,911)

1,604,981

30/06/2014

30/06/2021

31/08/2011

300,000

67.00

-

(300,000)

-

31/08/2014

31/08/2021

02/09/2011

1,000,000

74.35

(92,667)

(907,333)

-

01/09/2014

02/09/2021

13/06/2012

11,189,000

84.95

(3,765,180)

(3,081,614)

4,342,206

13/06/2015

13/06/2022

12/06/2013

7,741,000

155.60

(3,306,265)

(609,927)

3,824,808

12/06/2016

12/06/2023

18/11/2013

600,000

191.90

(575,000)

-

25,000

18/11/2016

17/11/2023

18/12/2013

1,000,000

195.00

-

-

1,000,000

18/12/2016

17/12/2023

20/05/2014

1,845,500

187.20

(1,578,400)

-

267,100

20/05/2017

19/05/2024

05/11/2014

12,875,796

186.00

(2,414,810)

-

10,460,986

05/11/2017

04/11/2024

19/05/2015

1,906,565

250.80

(1,686,565)

-

220,000

19/05/2018

18/05/2025

22/12/2015

1,154,646

322.20

-

-

1,154,646

22/12/2018

22/12/2025

29/06/2016

444,196

272.50

(175,000)

-

269,196

29/06/2019

29/06/2026

28/09/2016

249,589

258.00

-

-

249,589

28/09/2019

28/09/2026

Total

57,338,438

142.14

(23,605,639)

(9,213,175)

24,519,624

 

 

Nil options awarded during the year under the IWG Share Option Plan (France) are included in the above table (2015: Nil), nil lapsed during the year (2015: 33,603) and nil were exercised during the year (2015: 13,861).

Performance conditions for share options

March, June and September 2010 share option plan

The Group and regional performance targets for the options awarded in March, June and September 2010, based on a combination of EPS and the IWG Total Shareholder Return (TSR) % achieved relative to the FTSE All Share Total Return index is at least at the median over
the performance period for the year ending 2010, were partially met. Those options that are eligible to vest have vested as follows:

 

Proportion
to vest

2013

1/3

2014

1/3

2015

1/3

April 2011 share option plan

The performance targets for the options awarded in April 2011, based on pre-growth profit for the year ending 31 December 2011,
were partially met. Those options that are eligible to vest have vested as follows:

 

Proportion
to vest

April 2014

1/3

April 2015

1/3

April 2016

1/3

June 2011 share option plan

The Group and regional performance targets for the options awarded in June 2011, based on pre-growth profit for the year ending
31 December 2011, were partially met. Those options that are eligible to vest have vested as follows:

 

Proportion
to vest

June 2014

1/3

June 2015

1/3

June 2016

1/3

August 2011 share option plan

The options awarded in August 2011 were conditional on the ongoing employment of the related employee for a specified period of time. Once this condition is satisfied, those options that are eligible to vest have vested as follows:

 

Proportion
to vest

August 2014

1/3

August 2015

1/3

August 2016

1/3

September 2011 share option plan

The performance targets for the options awarded in September 2011, based on the pre-growth operating profit for the year ending
31 December 2012, were partially met. Those options that are eligible to vest have vested as follows:

 

Proportion
to vest

September 2014

1/3

September 2015

1/3

September 2016

1/3

June 2012 share option plan

The Group performance targets for the options awarded in June 2012, based on pre-growth profit for the year ending 31 December 2012, were partially met. Once performance conditions are satisfied, those options that are eligible to vest will vest as follows:

 

Proportion
to vest

June 2015

1/3

June 2016

1/3

June 2017

1/3

24. Share-based payments (continued)

June 2013 share option plan

The Group performance targets for the options awarded in June 2013, based on Group operating profit for the year ending
31 December 2013, were partially met. Those options that are eligible to vest will vest as follows:

 

Proportion
to vest

June 2016

1/3

June 2017

1/3

June 2018

1/3

November 2013 share option plan

The options awarded in November 2013 are partly subject to a performance target based on the earnings before tax for the years ending 31 December 2016 and 31 December 2017, such that the number of shares vesting will be subject to the satisfaction of
a pre-determined earnings before tax target in 2016 and 2017.

Once performance conditions are satisfied, those options that are eligible to vest will vest on the anniversary of the grant date in the year following achievement of one or more of the target thresholds. Those options not subject to the performance targets are eligible to be exercised in three equal tranches from the third anniversary of the grant date.

December 2013 share option plan

The options awarded in December 2013 are subject to a performance target based on the earnings before tax for the years ending
31 December 2018 and 31 December 2021, such that the number of shares vesting will be subject to the satisfaction of a pre-determined earnings before tax target in 2018 and 2021.

Once performance conditions are satisfied, those options that are eligible to vest will vest on the anniversary of the grant date in the
year following attainment of one or more of the target thresholds. Those options not subject to the performance targets are eligible to
be exercised in three equal tranches from the third anniversary of the grant date.

May 2014 share option plan

The options awarded in May 2014 are conditional on the ongoing employment of the related employees for a specified period of time. Once this condition is satisfied, those options that are eligible to vest will vest as follows:

 

Proportion
to vest

May 2017

1/3

May 2018

1/3

May 2019

1/3

November 2014 share option plan

The options awarded in November 2014 are conditional on the ongoing employment of the related employees and the achievement of margin targets. The dates and percentage of options vesting are dependent on the year in which the margin targets are achieved, the earliest dates on which the options are eligible to vest is as follows:

 

Proportion
to vest

November 2017

1/5

November 2018

1/5

November 2019

1/5

November 2020

1/5

November 2021

1/5

May 2015 share option plan

The options awarded in May 2015 are conditional on the ongoing employment of the related employees and the achievement of margin targets. The dates and percentage of options vesting are dependent on the year in which the margin targets are achieved, the earliest dates on which the options are eligible to vest is as follows:

 

Proportion
to vest

May 2018

1/5

May 2019

1/5

May 2020

1/5

May 2021

1/5

May 2022

1/5

December 2015 share option plan

The options awarded in December 2015 are subject to Group performance targets based on Group operating profit for the year ending 31 December 2016. Once performance conditions are satisfied those options that are eligible to vest will vest as follows:

 

Proportion
to vest

December 2018

1/5

December 2019

1/5

December 2020

1/5

December 2021

1/5

December 2022

1/5

June 2016 share option plan

The options awarded in June 2016 are subject to Group performance targets based on Group operating profit for the year ending
31 December 2016. Once performance conditions are satisfied those options that are eligible to vest will vest as follows:

 

Proportion
to vest

June 2019

1/5

June 2020

1/5

June 2021

1/5

June 2022

1/5

June 2023

1/5

September 2016 share option plan

The options awarded in September 2016 are conditional on the ongoing employment of the related employee for a specified period of time. Once this condition is satisfied, those options that are eligible to vest will vest as follows:

 

Proportion
to vest

September 2019

1/5

September 2020

1/5

September 2021

1/5

September 2022

1/5

September 2023

1/5

Measurement of fair values

The fair value of the rights granted through the employee share purchase plan was measured based on the Monte Carlo simulation or the Black-Scholes formula. The expected volatility is based on the historic volatility adjusted for any abnormal movement in share prices.

The inputs to the model are as follows:

 

September 2016

June
2016

December 2015

May
2015

November 2014

May
2014

December 2013

Share price on grant date

258.00p

272.50p

322.20p

250.80p

188.40p

191.00p

195.00p

Exercise price

258.00p

272.50p

322.20p

250.80p

186.00p

187.20p

195.00p

Expected volatility

27.45% - 32.35%

27.71% - 34.81%

24.80% - 37.08%

27.23% - 30.12%

24.67% - 33.53%

27.30%- 41.91%

32.91%

Number of simulations

-

-

-

-

-

-

-

Number of companies

-

-

-

-

-

-

-

Option life

3-7 years

3-7 years

3-7 years

3-7 years

3-7 years

3-5 years

5-8 years

Expected dividend

1.80%

1.71%

1.40%

1.59%

2.02%

2.00%

1.46%

Fair value of option at time of grant

40.96p - 67.89p

44.28p - 78.68p

29.76p -90.61p

42.35p - 69.12p

27.24p - 54.58p

30.80p- 59.63p

52.41p - 65.95p

Risk-free interest rate

0.09% - 0.38%

0.14% - 0.39%

0.14% - 0.21%

0.81% - 1.53%

0.90% - 1.81%

0.99%-1.47%

1.57%- 2.30p

 

 

November 2013

June
2013

June
2012

September
2011

August
2011

June
2011

Share price on grant date

191.90p

158.00p

88.55p

72.50p

75.90p

110.70p

Exercise price

191.90p

155.60p

84.95p

74.35p

67.00p

109.50p

Expected volatility

32.69%

40.31%-48.98%

47.87%-52.74%

52.59%-46.08%

52.61%-46.13%

51.55%-44.99%

Number of simulations

-

30,000

30,000

30,000

30,000

30,000

Number of companies

-

-

-

-

-

-

Option life

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

Expected dividend

1.46%

2.03%

3.27%

3.66%

3.49%

2.35%

Fair value of option at time of grant

45.73p

39.21p- 58.39p

29.88p- 31.12p

22.89p- 22.71p

27.32p-27.01p

39.41p- 40.96p

Risk-free interest rate

1.22%

0.67%- 1.20%

0.65%- 1.11%

1.16%- 1.75%

1.29%-1.91%

1.81%- 2.57%

 

 

April 2011

September 2010

June 2010

March2010

 

 

 

EPS

TSR

EPS

TSR

EPS

TSR

Share price on grant date

 

116.30p

70.60p

70.60p

73.20p

73.20p

94.00p

94.00p

Exercise price

 

114.90p

69.10p

69.10p

75.00p

75.00p

100.50p

100.50p

Expected volatility

 

51.23%-45.54%

50.28%-45.61%

50.28%-45.61%

46.18%-54.32%

46.99%-56.36%

47.02%- 64.82%

46.74%- 55.98%

Number of simulations

 

30,000

30,000

30,000

30,000

30,000

30,000

30,000

Number of companies

 

-

FTSE All Share Index

FTSE All Share Index

FTSE All Share Index

FTSE All Share Index

FTSE All Share Index

FTSE All Share Index

Option life

 

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

Expected dividend

 

2.24%

3.40%

3.40%

3.28%

3.28%

2.55%

2.55%

Fair value of option at time of grant

 

42.19p- 44.80p

22.80p- 23.60p

21.51p- 21.51p

35.20p- 42.70p

12.40p- 17.40p

45.49p- 61.77p

19.50p- 26.30p

Risk-free interest rate

 

2.33%- 3.04%

1.51%-2.17%

1.51%-2.17%

2.76%- 3.05%

2.76%- 3.05%

3.07%- 3.38%

3.07%- 3.38%

Plan 2: IWG plc Co-Investment Plan (CIP) and Performance Share Plan (PSP)

The CIP operates in conjunction with the annual bonus whereby a gross bonus of up to 50% of basic annual salary will be taken as a deferred amount of shares (Investment Shares) to be released at the end of a defined period of not less than three years, with the balance paid in cash. Awards of Matching Shares are linked to the number of Investment Shares awarded and will vest depending on the Company's future performance. The maximum number of Matching Shares which can be awarded to a participant in any calendar year under the CIP is 200% of salary. As such, the maximum number of Matching Shares which can be awarded, based on Investment Shares awarded, is in the ratio of 4:1.

The PSP provides for the Remuneration Committee to make stand-alone awards, based on normal plan limits, up to a maximum of 250% of base salary.

Reconciliation of outstanding share awards

 

2016

2015

 

Number of awards

Number of awards

At 1 January

3,673,686

5,760,289

CIP awards granted during the year

-

1,039,760

PSP awards granted during the year

1,038,179

-

Lapsed during the year

(9,129)

(1,251,818)

Exercised during the year

(1,410,080)

(1,874,545)

Outstanding at 31 December

3,292,656

3,673,686

Exercisable at 31 December

-

-

The weighted average share price at the date of exercise for share awards and options exercised during the year ended 31 December 2016 was 302.63p (2015: 244.98p).

Plan

Date of grant

Numbers
granted

Lapsed

Exercised

At 31 Dec
2016

Release date

PSP

03/03/2016

1,038,179

-

-

1,038,179

03/03/2021

 

Plan

Date of grant

Numbers
granted

Lapsed

Exercised

At 31 Dec
2016

Release date

CIP: Matching shares

18/03/2008

5,922,916

(3,748,117)

(1,954,010)

220,789

 See below(1)

CIP: Matching shares

23/03/2009

8,614,284

(5,440,175)

(2,820,200)

353,909

 See below(1)

CIP: Investment shares

06/03/2013

304,294

-

(304,294)

-

06/03/2016

CIP: Matching shares

06/03/2013

1,217,176

(317,687)

(396,595)

502,894

See below(2)

CIP: Investment shares

05/03/2014

161,922

-

(58,871)

103,051

05/03/2017

CIP: Matching shares

05/03/2014

647,688

(235,484)

-

412,204

See below(3)

CIP: Investment shares

04/03/2015

207,952

-

(75,626)

132,326

04/03/2018

CIP: Matching shares

04/03/2015

831,808

(302,504)

-

529,304

See below(4)

 

 

17,908,040

(10,043,967)

(5,609,596)

2,254,477

 

1. As indicated in the Remuneration Report in the Annual Report for the year ended 31 December 2009, the Remuneration Committee felt it inappropriate to set specific performance conditions for Matching Shares under the CIP which were awarded in March 2008 and March 2009

2. The release dates for the three tranches of the March 2013 CIP Matching Shares are 6 March 2016, 6 March 2017 and 6 March 2018 respectively

3. The release dates for the three tranches of the March 2014 CIP Matching Shares are 5 March 2017, 5 March 2018 and 5 March 2019 respectively

4. The release date for the Matching Share awards of the March 2015 CIP is 4 March 2020

Measurement of fair values

The fair value of the rights granted through the employee share purchase plan was measured based on the Monte Carlo simulation.

The inputs to the model are as follows:

 

03/03/2016

04/03/2015

05/03/2014

06/03/2013

23/03/2009

18/03/2008

 

PSP

CIP

CIP

CIP

CIP(1)

CIP(1)

Share price on grant date

300.00p

225.00p

253.30p

143.50p

65.50p

80.50p

Exercise price

Nil

Nil

Nil

Nil

Nil

Nil

Number of simulations

250,000

250,000

250,000

250,000

200,000

200,000

Number of companies

32

32

32

32

32

36

Award life

5 years

3 years

3 years

3 years

3 years

3 years

Expected dividend

1.5%

1.78%

1.66%

2.23%

2.72%

1.19%

Fair value of award at time of grant

183.08p- 277.36p

75.67p-114.6p

83.11p-214.33p

83.11p-134.21p

47.97p

61.21%

Risk-free interest rate

0.86%

1.01%

0.99%-1.47%

0.35%

1.92%

3.86%

1. The CIP Matching Shares and Share Option Plan awards made in 2008 and 2009 did not have performance conditions set by the Remuneration Committee
at the date of the award. A valuation was performed for those awards based on the terms that applied to similar awards made in previous years. The Remuneration Committee set the performance conditions for the awards made in 2008 and 2009 effective from 22 March 2010 and the valuation of these awards was updated in the year ended 31 December 2010.

It is recognised by the Remuneration Committee that the additional EPS targets represent a highly challenging goal and consequently, in determining whether they have been met, the Committee will exercise its discretion. The overall aim is that the relevant EPS targets must have been met on a run-rate or underlying basis. As such, an adjusted measure of EPS will be calculated to assess the underlying performance of the business.

While the Remuneration Committee reserves the right to adjust EPS as it sees fit at the time, by way of example, the following adjustments may be considered for the 2008 and 2009 grants:

·  In a fast-growing company such as IWG, costs are necessarily incurred in one year to drive profits in future years. Thus it is important to ensure management is not incentivised to cut back on these investments to meet EPS targets in any one year. Accordingly, those costs, incurred in the vesting year, which it considers necessary to drive future growth, will be excluded from the EPS calculation. These would include, inter alia, the costs of the business development departments, excess marketing expenditures and current year losses from investing in new locations;

·  Any one-off or non-recurring costs will be excluded;

·  It is expected that in the relevant periods the cash tax rate will rise as cumulative tax losses are utilised, thereby increasing progressively the challenge of achieving a 14p EPS target. This will then be further complicated by the need to recognise deferred tax assets as the business strengthens, reducing the accounting rate of tax in one year and increasing it in the next. To provide greater clarity and incentive to management, EPS will be calculated based upon the cash tax rate up to a maximum of 30%; and

·  The Remuneration Committee is of the opinion that the EPS and performance targets are a transparent and accurate measure of the Company's performance at this time and are the key corporate metrics for driving long-term shareholder value. In addition, the TSR condition will ensure that executives are encouraged to focus on ensuring that the Company's return to shareholders is competitive compared to comparable companies.

The performance conditions are as follows:

2008 and 2009 CIP Investment and matching grants

The Remuneration Committee agreed to the following modifications to the awards made in 2008 and 2009 and that the following performance conditions would apply to these awards effective from 22 March 2010.

The total number of matching awards made in 2008 and 2009 to each participant was divided into three separate equal amounts and was subject to future performance periods of three, four and five years respectively. Thus, conditional on meeting the performance targets, the first amount vested in March 2013, the second vested in March 2014 and the third vested in March 2015. These vesting dates relate to the financial years ending 31 December 2012, 31 December 2013 and 31 December 2014 respectively. The vesting of these awards was subject to the achievement of challenging corporate performance targets. 75% of each of the three amounts was subject to defined adjusted earnings per share (EPS) targets over the respective performance periods. The remaining 25% of each were subject to relative total shareholder return (TSR) targets over the respective periods. The targets were as follows:

 

Adjusted EPS targets for the financial years ending

% of awards eligible for vesting

2012

2013

2014

25%

15p

17p

18p

50%

16p

20p

22p

75%

17p

23p

26p

100%

18p

26p

30p

 

% of awards eligible for vesting

IWG TSR % achieved relative to
FTSE All Share Total Return index(1)

Nil

Equal to or below the index

25%

Above 100% but below 101%

Increments of 0.75%

For each complete 1% above 100%

100%

200% or above

1. Over the three-, four- or five-year performance period.

2013 CIP Investment and matching grants

The total number of matching awards made in 2013 to each participant was divided into three separate equal amounts and is subject to future performance periods of three, four and five years respectively. Thus, conditional on meeting the performance targets, the first amount will vest in March 2016, the second will vest in March 2017 and the third will vest in March 2018. These vesting dates relate to
the financial years ending 31 December 2015, 31 December 2016 and 31 December 2017 respectively. The vesting of these awards is subject to the achievement of challenging corporate performance targets. 75% of each of the three amounts is subject to defined adjusted earnings per share (EPS) targets over the respective performance periods. The remaining 25% of each will be subject to relative total shareholder return (TSR) targets over the respective periods. The targets are as follows:

 

Adjusted EPS targets for the financial years ending

% of awards eligible for vesting

2015

2016

2017

25%

12.0p

14.0p

16.0p

50%

12.6p

14.6p

16.6p

75%

13.3p

15.3p

17.3p

100%

14.0p

16.0p

18.0p

No shares will vest in each respective year unless the minimum adjusted EPS target for that year is achieved.

% of awards eligible for vesting

IWG TSR % achieved relative to   
FTSE All Share Total Return index(1)

Below index

0%

Equal to index

25%

Equal to index + 15% p.a.

100%

1. Over the three-, four- or five-year performance period.

2014 CIP Investment and matching grants

The total number of matching awards made in 2014 to each participant was divided into three separate equal amounts and is subject to future performance periods of three, four and five years respectively. Thus, conditional on meeting the performance targets, the first amount will vest in March 2017, the second will vest in March 2018 and the third will vest in March 2019. These vesting dates relate to the financial years ending 31 December 2016, 31 December 2017 and 31 December 2018 respectively. The vesting of these awards is subject to the achievement of challenging corporate performance targets. 75% of each of the three amounts is subject to defined adjusted earnings per share (EPS) targets over the respective performance periods. The remaining 25% of each will be subject to relative total shareholder return (TSR) targets over the respective periods. The targets are as follows:

 

Adjusted EPS targets for the financial years ending

% of awards eligible for vesting

2016

2017

2018

25%

14.3p

16.1p

17.1p

50%

15.2p

17.4p

18.9p

75%

16.1p

18.8p

20.7p

100%

17.0p

20.2p

22.5p

No shares will vest in each respective year unless the minimum adjusted EPS target for that year is achieved.

% of awards eligible for vesting

IWG TSR % achieved relative to   
FTSE All Share Total Return index(1)

Below index

0%

Median

25%

Upper quartile or above

100%

1. Over the three-, four- or five-year performance period.

2015 CIP Investment and matching grants

The total number of matching awards made in 2015 to each participant is subject to a future performance period of three years. Conditional on meeting the performance targets, the matching shares will vest in March 2020. The vesting date relates to the adjusted earnings per share (EPS) performance in the last finance year of the performance period, being 31 December 2017. The vesting of these awards is subject to the achievement of challenging corporate performance targets. 75% is subject to defined adjusted EPS targets over the performance period. The remaining 25% will be subject to relative total shareholder return (TSR) targets over the period. The targets are as follows:

% of awards eligible for vesting

Compound annual growth in adjusted EPS
 over the performance period

25%

24%

100%

32%

The target is based on compound annual growth from an equivalent "base year" EPS figure for 2014 of 7.4p.

% of awards eligible for vesting

IWG TSR % achieved relative to
FTSE 350 Index (excluding financial services and mining companies)

Below index

0%

Median

25%

Upper quartile or above

100%

2016 PSP Investment grant

The total number of shares awarded are subject to three different performance conditions. These conditions are measured over three financial years commencing on 1 January 2016. Thus, conditional on meeting these performance targets, these shares will vest in March 2021. One third is subject to defined earnings per share (EPS) conditions, one third is subject to relative total shareholder return (TSR) conditions and one third is subject to return on investment (ROI) conditions.

The EPS condition is based on the compound annual growth in EPS over the performance period measured from EPS in the financial year ending 31 December 2015 as follows:

Vesting scale

% of one third of the award that vest

25%

100%

Between 5% and 25%

On a straight-line basis between 0% and 100%

5%

0%

The TSR condition is based on the performance of the Group's TSR against the median TSR of the comparator group as follows:

Vesting scale

% of one third of the award that vest

TSR growth exceeds the median by 10% or more

100%

TSR growth exceeds the median by less than 10%

On a straight-line basis between 25% and 100%

TSR ranked at median

25%

TSR growth is ranked below the median

0%

The ROI condition is based on the ROI improvement over the performance period relative to ROI for the financial year ending 31 December 2015 as follows:

Vesting scale

% of one third of the award that vest

ROI improvement exceeds 2015 ROI plus 300 basis points

100%

ROI improvement exceeds 2015 ROI by less than 300 basis points

On a straight-line basis between 0% and 100%

ROI is equal to or less than the 2015 ROI

0%

Plan 3: One-Off Award

In November 2015, an award of 328,751 ordinary shares of 1p each in the Company was granted to the Company's Chief Financial Officer and Chief Operating Officer, Dominik de Daniel. The award was structured as a conditional award and was granted under a one-off award arrangement established under Listing Rule 9.4.2(2).

In the normal course of events the award will vest over five years, if and to the extent to which performance conditions are achieved. The applicable performance target is set out below:

Performance metric

Target

Vesting at target

Compound annual growth in EPS over the performance period

5%

100%

Reconciliation of outstanding share options

 

2016

2015

 

Number of awards

Number of awards

At 1 January

328,751

-

One-off award granted during the year

-

328,751

Lapsed during the year

-

-

Exercised during the year

-

-

Outstanding at 31 December

328,751

328,751

Exercisable at 31 December

-

-

25. Retirement benefit obligations

The Group accounts for the Swiss and Philippines pension plans as defined benefit plans under IAS 19 (2011) - Employee Benefits.

The reconciliation of the net defined benefit asset/(liability) and its components are as follows:

 

2016
£m

2015
£m

Fair value of plan assets

5.8

3.9

Present value of obligations

(6.6)

(4.7)

Net funded obligations

(0.8)

(0.8)

26. Acquisitions

Current period acquisitions

During the year ended 31 December 2016 the Group made a number of individually immaterial acquisitions for a total consideration
of £10.8m.

£m

Book value

Provisional
fair value adjustments

Provisional
fair value

Net assets acquired

 

 

 

Intangible assets

-

0.1

0.1

Property, plant and equipment

2.4

-

2.4

Cash

1.2

-

1.2

Other current and non-current assets

2.6

-

2.6

Current liabilities

(5.4)

-

(5.4)

Non-current liabilities

(0.1)

-

(0.1)

 

0.7

0.1

0.8

Goodwill arising on acquisition

 

 

10.0

Total consideration

 

 

10.8

Less: Fair value adjustment of historical investment in acquired joint venture

 

 

(2.5)

Less: Contingent consideration

 

 

(0.9)

 

 

 

7.4

Cash flow on acquisition

 

 

 

Cash paid

 

 

7.4

Net cash outflow

 

 

7.4

The goodwill arising on the above acquisitions reflects the anticipated future benefits IWG can obtain from operating the businesses more efficiently, primarily through increasing occupancy and the addition of value-adding products and services. £0.1 m of the above goodwill is expected to be deductible for tax purposes.

If the above acquisitions had occurred on 1 January 2016, the revenue and net retained profit arising from these acquisitions would have been £10.1m and £0.2m respectively. In the year, the equity acquisitions contributed revenue of £3.7m and net retained loss of £0.5m.

There was £0.9m contingent consideration arising on the 2016 acquisitions. Contingent consideration of £2.7m (2015: £1.1m) was also paid during the current year with respect to milestones achieved on prior year acquisitions.

The acquisition costs associated with these transactions were £0.5m, recorded within administration expenses within the consolidated income statement.

For a number of the acquisitions in 2016, the fair value of assets acquired has only been provisionally assessed at the reporting date. The main changes in the provisional fair values expected are for the fair value of the leases (asset or liability), customer relationships and plant, property and equipment. The final assessment of the fair value of these assets will be made within 12 months of the acquisition date and, any adjustments reported in future reports.

The Group continued to complete acquisition transactions subsequent to 31 December 2016, which will be accounted for in accordance with IFRS 3. Due to the timing of these transactions, it is not practical to disclose the information associated with the initial accounting for these acquisitions.

Prior period acquisitions

During the year ended 31 December 2015 the Group made a number of individually immaterial acquisitions for a total consideration of £124.8m.

£m

Book value

Provisional
fair value adjustments

Provisional
fair value

Final
fair value adjustments

Final
fair value

Net assets acquired

 

 

 

 

 

Intangible assets

-

2.6

2.6

1.0

3.6

Property, plant and equipment

27.5

(3.2)

24.3

1.5

25.8

Cash

25.5

-

25.5

-

25.5

Other current and non-current assets

18.0

3.8

21.8

0.5

22.3

Current liabilities

(48.3)

-

(48.3)

1.6

(46.7)

Non-current liabilities

(7.7)

(0.4)

(8.1)

(1.4)

(9.5)

 

15.0

2.8

17.8

3.2

21.0

Goodwill arising on acquisition

 

 

107.0

(3.2)

103.8

Total consideration

 

 

124.8

-

124.8

Less: Contingent consideration

 

 

(1.0)

 

(1.0)

 

 

 

123.8

 

123.8

Cash flow on acquisition

 

 

 

 

 

Cash paid

 

 

123.8

 

123.8

Net cash outflow

 

 

123.8

 

123.8

The goodwill arising on the above acquisitions reflects the anticipated future benefits IWG can obtain from operating the businesses more efficiently, primarily through increasing occupancy and the addition of value-adding products and services. £37.2m of the above goodwill is expected to be deductible for tax purposes.

If the above acquisitions had occurred on 1 January 2015, the revenue and net retained profit arising from these acquisitions would have been £94.1m and £2.1m respectively. In the year, the equity acquisitions contributed revenue of £68.1m and net retained loss of £3.0m.

There was £1.0m contingent consideration arising on the above acquisitions.

The acquisition costs associated with these transactions were £3.8m, recorded within administration expenses within the consolidated income statement.

The prior year comparative information has not been restated due to the immaterial nature of the final fair value adjustments recognised in 2016.

27. Capital commitments

 

2016
£m

2015
£m

Contracts placed for future capital expenditure not provided for in the financial statements

42.6

46.7

These commitments are principally in respect of fit out obligations on new centres opening in 2017. In addition, our share of the capital commitments of joint ventures amounted to £nil at 31 December 2016 (2015: £2.0m).

28. Non-cancellable operating lease commitments

As at the reporting date the Group was committed to making the following payments in respect of operating leases:

 

2016

2015

 

Property
£m

Motor vehicles, plant and equipment
£m

Total
£m

Property
£m

Motor vehicles, plant and equipment
£m

Total
£m

Lease obligations falling due:

 

 

 

 

 

 

Within one year

882.4

1.3

883.7

715.7

1.3

717.0

Between one and five years

2,386.9

1.0

2,387.9

2,029.0

2.0

2,031.0

After five years

1,170.4

-

1,170.4

922.7

-

922.7

 

4,439.7

2.3

4,442.0

3,667.4

3.3

3,670.7

Non-cancellable operating lease commitments exclude future contingent rental amounts such as the variable amounts payable under performance-based leases, where the rents vary in line with a centre's performance.

The Group's non-cancellable operating lease commitments do not generally include purchase options nor do they impose restrictions on the Group regarding dividends, debt or further leasing.

29. Contingent assets and liabilities

The Group has bank guarantees and letters of credit held with certain banks, substantially in support of leasehold contracts with a variety of landlords, amounting to £151.7m (2015: £122.8m). There are no material lawsuits pending against the Group.

30. Related parties

Parent and subsidiary entities

The consolidated financial statements include the results of the Group and its subsidiaries listed in note 31.

Joint ventures

The following table provides the total amount of transactions that have been entered into with related parties for the relevant
financial year.

£m

Management fees received from related parties

Amounts
owed by
related party

Amounts
owed to
related party

2016

 

 

 

Joint ventures

2.9

8.6

8.0

2015

 

 

 

Joint ventures

2.2

7.2

7.6

As at 31 December 2016, £nil of the amounts due to the Group have been provided for (2015: £nil). All outstanding balances with these related parties are priced on an arm's length basis. None of the balances are secured.

Key management personnel

No loans or credit transactions were outstanding with Directors or officers of the Company at the end of the year or arose during the year, that are required to be disclosed.

Compensation of key management personnel (including Directors):

Key management personnel include those personnel (including Directors) that have responsibility and authority for planning, directing and controlling the activities of the Group:

 

2016
£m

2015
£m

Short-term employee benefits

12.7

11.3

Retirement benefit obligations

0.5

0.4

Share-based payments

0.5

0.7

 

13.7

12.4

Share-based payments included in the table above reflect the accounting charge in the year. The full fair value of awards granted in
the year was £2.9m (2015: £3.5m). These awards are subject to performance conditions and vest over three, four and five years from the award date.

Transactions with related parties

During the year ended 31 December 2016 the Group acquired goods and services from a company indirectly controlled by a Director
of the Company amounting to £30,228 (2015: £15,466). There was a £27,720 balance outstanding at the year end (2015: £15,466).

All outstanding balances with these related parties are priced on an arm's length basis and are to be settled in cash. None of the balances are secured.

31. Principal Group companies

The Group's principal subsidiary undertakings at 31 December 2016, their principal activities and countries of incorporation are set
out below:

Name of undertaking

Country of incorporation

% of ordinary share and votes held

 

Name of undertaking

Country of incorporation

% of ordinary share and votes held

Principal activity - Trading
companies

 

 

 

Principal activity - Management companies (continued)

 

 

Regus do Brasil Ltda

Brazil

100

 

Regus Management (UK) Ltd

United Kingdom

100

HQ Do Brazil Administracao de bens e servicos Ltda

Brazil

100

 

Serviced Office Property Managers Ltd

Regus Management Group LLC

United Kingdom

United States

100

100

Regus Paris SAS

France

100

 

Principal activity - Holding and finance companies

 

 

Regus GmbH & Co. KG

Germany

100

 

 

 

Excellent Business Centres GmbH

Germany

100

 

RGN Limited Partner Holdings Corp

Canada

100

Regus Business Centres Italia Srl

Italy

100

 

Umbrella International Holdings AG

Switzerland

100

Regus Japan KK

Japan

100

 

Regus Group Limited

United Kingdom

100

Regus Management de Mexico,SA de CV

Mexico

100

 

Regus H Holdings Ltd

United Kingdom

100

Regus Amsterdam BV

Netherlands

100

 

Regus H Holdings LLC

United States

100

Regus Australia Management Pty

Australia

100

 

Regus Corporation LLC

United States

100

Regus Management Singapore Pte Ltd

Singapore

100

 

Umbrella Group

Luxembourg

100

Regus Management Group (Pty) Ltd

South Africa

100

 

Umbrella Global Holdings

Luxembourg

100

Regus HK Management Ltd

Hong Kong

100

 

Regus Plc

Luxembourg

100

Regus Business Centre SA

Switzerland

100

 

Umbrella Holdings Sarl

Luxembourg

100

Regus Management (Sweden) AB

Sweden

100

 

 

 

 

ABC Business Centres Limited

United Kingdom

100

 

 

 

 

KBC Holdings Limited

United Kingdom

100

 

 

 

 

Avanta Managed Offices Ltd

United Kingdom

100

 

 

 

 

MWB Business Exchange Centres Ltd

United Kingdom

100

 

 

 

 

Stonemartin Corporate Centre Limited

United Kingdom

100

 

 

 

 

HQ Global Workplaces LLC

United States

100

 

 

 

 

RGN-BSuites Holdings, LLC

United States

100

 

 

 

 

RGN National Business Centre LLC

United States

100

 

 

 

 

Office Suites Plus Properties LLC

United States

100

 

 

 

 

Regus Business Centres LLC

United States

100

 

 

 

 

Principal activity - Management companies

 

 

 

 

 

 

Centros de Negocios Regus SA de CV

Mexico

100

 

 

 

 

Regus Business Centres SA de CV

Mexico

100

 

 

 

 

RBW Global Sarl

Luxembourg

100

 

 

 

 

Pathway Finance Sarl

Luxembourg

100

 

 

 

 

Regus Service Centre Philippines BV

Philippines

100

 

 

 

 

Regus Global Management Centre SA

Switzerland

100

 

 

 

 

Regus Group Services Ltd

United Kingdom

100

 

 

 

 

32. Key judgemental areas adopted in preparing these accounts

The preparation of consolidated financial statements in accordance with IFRS requires management to make certain judgements and assumptions that affect reported amounts and related disclosures.

Fair value accounting for business combinations

For each business combination, we assess the fair values of assets and liabilities acquired. Where there is not an active market in the category of the non-current assets typically acquired with a business centre or where the books and records of the acquired company do not provide sufficient information to derive an accurate valuation, management calculates an estimated fair value based on available information and experience.

The main categories of acquired non-current assets where management's judgement has an impact on the amounts recorded include tangible fixed assets, customer list intangibles and the fair market value of leasehold assets and liabilities. For significant business combinations management also obtains third-party valuations to provide additional guidance as to the appropriate valuation to be included in the financial statements.

Valuation of intangibles and goodwill

We evaluate the fair value of goodwill and other intangible assets to assess potential impairments on an annual basis, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. We evaluate the carrying value of goodwill based on our CGUs aggregated at a country level and make that determination based upon future cash flow projections which assume certain growth projections which may or may not occur. We record an impairment loss for goodwill when the carrying value of the asset is less than its estimated recoverable amount. Further details of the methodology and assumptions applied to the impairment review in the year ended 31 December 2016, including the sensitivity to changes in those assumptions, can be found in note 12.

Impairment of property, plant and equipment

We evaluate the potential impairment of property, plant and equipment at a centre (CGU) level where there are indicators of impairment at the balance sheet date. In the assessment of value-in-use, key judgemental areas in determining future cash flow projections include: an assessment of the location of the centre; the local economic situation; competition; local environmental factors; the management of the centre; and future changes in occupancy, revenue and costs of the centre.

Tax assets and liabilities

We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and
other expectations about future outcomes. Changes in existing laws and rates, and their related interpretations, and future business
results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents management's best estimate of future events that can be appropriately reflected in the accounting estimates. It is current Group policy to recognise a deferred tax asset when it is probable that future taxable profits will be available against which the assets can be used. The Group considers it probable if the entity has made a taxable profit in the previous year and is forecast to continue to make a profit in the foreseeable future. Where appropriate, the Group assesses the potential risk of future tax liabilities arising from the operation of its business in multiple tax jurisdictions and includes provisions within tax liabilities for those risks that can be estimated reliably. Changes in existing tax laws can affect large international groups similar to IWG and could result in significant additional tax liabilities over and above those already provided for.

Onerous lease provisions

We have identified certain poor performing centres where the lease is considered onerous, i.e. the Group does not expect to recover the unavoidable lease costs up to the first break point. The accounts include a provision for our estimate of the net amounts payable under the terms of the lease to the first break point, discounted at the Group weighted average cost of capital, where appropriate.

Dilapidations

Certain of our leases with landlords include a clause obliging the Group to hand the property back in the condition as at the date of signing the lease. The costs to bring the property back to that condition are not known until the Group exits the property so the Group estimates the costs at each balance sheet date. However, given that landlords often regard the nature of changes made to properties as improvements, the Group estimates that it is unlikely that any material dilapidation payments will be necessary. Consequently, provision has been made only for those potential dilapidation payments when it is probable that an outflow will occur and can be reliably estimated.

 

Parent company accounts

Summarised extract of Company balance sheet
(prepared under the Swiss Code of Obligations)

 

 

As at
31 Dec 2016 (Swiss Code of Obligations)
£m

Assets

 

 

Trade and other receivables

 

8.5

Total current assets

 

8.5

Investments

 

2,296.4

Total non-current assets

 

2,296.4

 

 

 

Total assets

 

2,304.9

 

 

 

Trade and other payables

 

3.3

Total short-term liabilities

 

3.3

Long-term interest bearing liabilities

 

2.6

Total long-term liabilities

 

2.6

 

 

 

Total liabilities

 

5.9

 

 

 

Issued share capital

 

9.2

Legal capital reserves

 

-

Reserves from capital contributions

 

2,295.4

Loss for the period

 

(2.7)

Treasury shares

 

(2.9)

Total shareholders' equity

 

2,299.0

 

 

 

Total liabilities and shareholders' equity

 

2,304.9

Approved by the Board on 28 February 2017

 

Mark Dixon

Dominik de Daniel

Chief Executive Officer

Chief Financial Officer and Chief Operating Officer

Accounting policies

Basis of preparation

These financial statements were prepared according to the principles of the Swiss Law on Accounting and Financial Reporting (32nd title of the Swiss Code of Obligations).

The Company is included in the consolidated financial statements of IWG plc.

The balance sheet has been extracted from the non-statutory accounts of IWG plc prepared under the Swiss Code of Obligations for the period ended 31 December 2016, which are available from the Company's registered office, Dammstrasse 19, CH-6300, Zug, Switzerland.

 

Segmental analysis

Segmental analysis - management basis (unaudited)

 

 

Americas
2016

EMEA
2016

Asia Pacific
2016

United
Kingdom
2016

Other
2016

Total
2016

 

Mature(1)

 

 

 

 

 

 

 

Workstations(4)

138,433

71,159

66,928

56,000

-

332,520

 

Occupancy (%)

78.8%

78.5%

78.8%

75.4%

-

78.2%

 

Revenue (£m)

826.2

406.9

293.2

358.5

6.8

1,891.6

 

Contribution (£m)

188.0

104.1

72.9

83.9

4.4

453.3

 

REVPOW

7,572

7,283

5,559

8,489

-

7,277

 

 

 

 

 

 

 

 

 

2015 Expansions(2)

 

 

 

 

 

 

 

Workstations(4)

26,891

16,542

22,138

10,539

-

76,110

 

Occupancy (%)

58.3%

63.5%

51.1%

76.1%

-

59.8%

 

Revenue (£m)

81.1

63.0

55.8

72.6

-

272.5

 

Contribution (£m)

(12.2)

3.7

(1.6)

17.3

-

7.2

 

 

 

 

 

 

 

 

 

2016 Expansions(2)

 

 

 

 

 

 

 

Workstations(4)

7,718

4,005

4,325

3,080

-

19,128

 

Occupancy (%)

30.4%

34.2%

31.0%

57.2%

-

35.6%

 

Revenue (£m)

12.1

6.2

7.6

9.4

1.5

36.8

 

Contribution (£m)(5)

(12.9)

(5.2)

(3.4)

(0.1)

1.5

(20.1)

 

 

 

 

 

 

 

 

 

Closures

 

 

 

 

 

 

 

Workstations(4)

886

280

1,739

2,877

-

5,782

 

Occupancy (%)

63.3%

57.5%

72.5%

81.3%

-

74.7%

 

Revenue (£m)

3.6

0.7

6.6

21.6

-

32.5

 

Contribution (£m)

(1.9)

(1.0)

(0.4)

9.3

-

6.0

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Workstations(4)

173,928

91,986

95,130

72,496

-

433,540

 

Occupancy (%)

73.4%

73.8%

70.1%

75.0%

-

73.0%

 

Revenue (£m)

923.0

476.8

363.2

462.1

8.3

2,233.4

 

Contribution (£m)

161.0

101.6

67.5

110.4

5.9

446.4

 

Unallocated contribution (£m)

-

-

-

-

-

2.4

 

REVPAW (£)

5,307

5,183

3,818

6,374

-

5,151

 

 

 

 

 

 

 

 

 

Period end workstations(6)

 

 

 

 

 

 

 

Mature

139,919

72,652

67,554

57,832

-

337,957

 

2015 Expansions

28,107

16,826

22,408

11,659

-

79,000

 

2016 Expansions

14,415

7,290

8,665

3,849

-

34,219

 

Total

182,441

96,768

98,627

73,340

-

451,176

 

 

Segmental analysis - management basis (unaudited)

 

 

Americas
2015

EMEA
2015

Asia Pacific
2015

United
Kingdom
2015

Other
2015

Total
2015

 

Mature(1)

 

 

 

 

 

 

 

Workstations(4)

136,632

69,449

66,443

53,329

-

325,853

 

Occupancy (%)

81.0%

76.4%

79.4%

80.5%

-

79.6%

 

Revenue (£m)

747.8

372.7

265.5

361.2

2.9

1,750.1

 

Contribution (£m)

181.9

91.8

66.2

84.3

(0.2)

424.0

 

REVPOW

6,757

7,024

5,033

8,414

-

6,747

 

 

 

 

 

 

 

 

 

2015 Expansions(2)

 

 

 

 

 

 

 

Workstations(4)

10,514

7,189

9,178

6,292

-

33,173

 

Occupancy (%)

48.5%

51.6%

32.8%

81.4%

-

51.1%

 

Revenue (£m)

22.5

29.2

13.0

43.8

-

108.5

 

Contribution (£m)

(9.2)

(0.5)

(8.9)

6.6

-

(12.0)

 

 

 

 

 

 

 

 

 

Closures(3)

 

 

 

 

 

 

 

Workstations(4)

2,268

1,263

2,950

6,100

-

12,581

 

Occupancy (%)

73.0%

64.5%

80.7%

81.9%

-

78.3%

 

Revenue (£m)

8.9

4.7

10.6

44.2

-

68.4

 

Contribution (£m)

(1.7)

(0.8)

0.9

16.8

-

15.2

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Workstations(4)

149,414

77,901

78,571

65,721

-

371,607

 

Occupancy (%)

78.5%

73.9%

74.0%

80.7%

-

77.0%

 

Revenue (£m)

779.2

406.6

289.1

449.2

2.9

1,927.0

 

Contribution (£m)

171.0

90.5

58.2

107.7

(0.2)

427.2

 

Unallocated contribution (£m)

-

-

-

-

-

1.2

 

REVPAW (£)

5,215

5,219

3,679

6,835

-

5,186

Notes:

2. The mature business comprises centres not opened in the current or previous financial year

3. Expansions include new centres opened and acquired businesses

4. A closure for the 2015 comparative data is defined as a centre closed during the period from 1 January 2015 to 31 December 2016

5. Workstation numbers are calculated as the weighted average for the year

6. 2016 expansions includes any costs incurred in 2016 for centres which will open in 2017

7. Workstations available at period end

 

Post-tax cash return on net investment

The purpose of this unaudited page is to reconcile some of the key numbers used in the returns calculation back to the Group's audited statutory accounts, and thereby, give the reader greater insight into the returns calculation drivers. The methodology and rationale for the calculation are discussed in the Chief Financial Officer's review on page 22 of these accounts.

Description

Reference

2013 Aggregation

2014 Expansions

2015 Expansions

2016 Expansions

2017 Expansions

Closures

Total

Post-tax cash return on net investment

 

21.5%

10.0%

(2.6%)

(15.8%)

-

-

13.7%

 

 

 

 

 

 

 

 

 

Revenue

Income statement, p66

1,678.2

213.4

272.5

36.8

-

32.5

2,233.4

Centre contribution

Income statement, p66

419.0

36.7

7.2

(19.0)

(1.1)

6.0

448.8

(Profit)/loss on disposal of assets

EBIT reconciliation (analysed below)

(0.5)

-

-

-

-

1.5

1.0

Underlying centre contribution

 

418.5

36.7

7.2

(19.0)

(1.1)

7.5

449.8

Selling, general and administration expenses(1)

Income statement, p66

(165.3)

(30.8)

(49.6)

(13.2)

(0.1)

(2.8)

(261.8)

EBIT

EBIT reconciliation (analysed below)

253.2

5.9

(42.4)

(32.2)

(1.2)

4.7

188.0

Depreciation and amortisation

Note 5, p79

124.6

23.2

34.0

8.3

-

4.4

194.5

Amortisation of partner contributions

Note 5, p79

(32.3)

(6.7)

(7.9)

(3.2)

-

(0.1)

(50.2)

Amortisation of acquired lease fair value adjustments

Note 5, p79

(3.8)

(0.3)

1.0

-

-

-

(3.1)

Non-cash items

 

88.5

16.2

27.1

5.1

-

4.3

141.2

Taxation(2)

 

(50.7)

(1.2)

8.5

6.4

0.2

(0.9)

(37.7)

Adjusted net cash profit

 

291.0

20.9

(6.8)

(20.7)

(1.0)

8.1

291.5

Maintenance capital expenditure

Capital expenditure (analysed below)

81.0

5.7

-

-

-

-

86.7

Partner contributions

Partner contributions (analysed below)

(20.4)

(0.8)

-

-

-

-

(21.2)

Net maintenance capital expenditure

 

60.6

4.9

-

-

-

-

65.5

Post-tax cash return

 

230.4

16.0

(6.8)

(20.7)

(1.0)

8.1

226.0

 

 

 

 

 

 

 

 

 

Growth capital expenditure

Capital expenditure (analysed below)

1,247.4

207.0

325.0

183.7

30.0

-

1,993.1

Partner contributions(3)

Partner contributions (analysed below)

(174.8)

(47.1)

(66.0)

(52.9)

(3.3)

-

(344.1)

Net investment

 

1,072.6

159.9

259.0

130.8

26.7

-

1,649.0

1. Including research and development expenses

2. Based on EBIT at the Group's long-term effective tax rate of 20%

3. The 2015 expansions includes £9.9m of partner contributions arising in 2016

 

2016

 

 

 

 

 

 

 

Movement in capital expenditure

2013 Aggregation

2014 Expansions

2015 Expansions

2016 Expansions

2017 Expansions

Closures

Total

2015 Growth capital expenditure

1,272.5

208.4

305.2

9.5

-

-

1,795.6

2016 Capital expenditure(4)

-

-

37.3

148.6

30.0

-

215.9

Properties acquired

-

-

-

25.6

-

-

25.6

Property disposals

-

-

(11.4)

-

-

-

(11.4)

Centre closures(5)

(25.1)

(1.4)

(6.1)

-

-

-

(32.6)

2016 Growth capital expenditure

1,247.4

207.0

325.0

183.7

30.0

-

1,993.1

4. 2017 expansions relate to costs and investments incurred in 2016 for centres which will open in 2017

5. The growth capital expenditure for an estate is reduced by the investment in centres closed during the year, but only where that investment has been fully recovered

2016

EBIT reconciliation

Reference

£m

EBIT (before non-recurring items)

 

188.0

Loss on disposal of assets

Note 5, p79

(1.0)

Share of profit on joint ventures

Income statement, p66

(0.8)

Operating profit

Income statement, p66

186.2

 

2016

Partner contributions

Reference

£m

Opening partner contributions

 

247.8

·  Current

Note 17, p88

48.3

·  Non-current

Note 17, p88

199.5

Acquired in the period

 

-

Received in the period

 

87.3

·  2014 expansions and before

 

21.2

·  2015 expansions(3)

 

9.9

·  2016 expansions

 

52.9

·  2017 expansions

 

3.3

Utilised in the period

Note 5, p79

(50.2)

Exchange differences

 

49.0

Closing partner contributions

 

333.9

·  Current

Note 17, p88

68.5

·  Non-current

Note 17, p88

265.4

2016

Capital expenditure

Reference

£m

Maintenance capital expenditure

CFO review, p25

86.7

Growth capital expenditure

CFO review, p25

228.4

·  2016 Capital expenditure

 

215.9

·  Properties acquired

 

25.6

·  Proceeds on property disposals(6)

 

(13.1)

Total capital expenditure

 

315.1

Analysed as

 

 

·  Purchase of subsidiary undertakings

Cash flow, p70

8.9

·  Purchase of property, plant and equipment

Cash flow, p70

Note 14, p87

313.8

·  Purchase of intangible assets

Cash flow, p70

Note 13, p86

5.5

·  Proceeds on property disposals(6)

 

(13.1)

6. The proceeds on the property disposal of £13.1m is included in the proceeds on disposal of property, plant and equipment in the Group Cash Flow statement on page 70

 

Five-year summary

Full year ended
31 Dec 2016
£m

Full year ended
31 Dec 2015
£m

Full year ended
31 Dec 2014
£m

Full year ended
31 Dec 2013
£m

Full year ended
31 Dec 2012
£m

Income statement

 

 

 

 

 

Revenue

2,233.4

1,927.0

1,676.1

1,533.5

1,244.1

(1,784.6)

(1,498.6)

(1,293.0)

(1,159.7)

(923.4)

Gross profit (centre contribution)

448.8

428.4

383.1

373.8

320.7

Administration expenses before non-recurring expenses

(258.9)

(273.6)

(270.9)

(275.9)

(225.7)

Research and development

(2.9)

(10.3)

(8.7)

(7.2)

(4.5)

Operating profit (before non-recurring items)

187.0

144.5

103.5

90.7

90.5

(1.0)

15.3

-

-

-

186.0

159.8

103.5

90.7

90.5

(0.8)

0.3

0.8

0.1

(0.3)

Profit before financing costs

185.2

160.1

104.3

90.8

90.2

Finance expense

(11.6)

(15.0)

(17.3)

(10.5)

(5.9)

0.1

0.6

0.1

1.2

0.8

Profit before tax for the year

173.7

145.7

87.1

81.5

85.1

(34.9)

(25.8)

(17.2)

(14.6)

(14.2)

138.8

119.9

69.9

66.9

70.9

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

Equity shareholders of the parent

138.8

119.9

69.9

66.9

70.9

-

-

-

-

-

138.8

119.9

69.9

66.9

70.9

 

 

 

 

 

 

Earnings per ordinary share (EPS):

 

 

 

 

 

Basic (p)

14.9p

12.8p

7.4p

7.1p

7.5p

Diluted (p)

14.7p

12.6p

7.2p

7.0p

7.5p

929,830

933,458

944,082

943,775

941,922

 

 

 

 

 

 

Balance sheet data (as at 31 December)

 

 

 

 

 

Intangible assets

738.1

666.0

549.9

491.7

363.9

Property, plant and equipment

1,194.4

917.0

718.8

608.7

437.5

Deferred tax assets

29.3

36.4

40.0

33.4

33.9

Other assets

649.2

644.3

565.2

423.8

333.9

50.1

63.9

72.8

84.7

132.3

2,661.1

2,327.6

1,946.7

1,642.3

1,301.5

Current liabilities

1,183.1

1,085.7

891.9

758.8

612.5

Non-current liabilities

736.0

658.2

517.4

369.3

161.6

742.0

583.7

537.4

514.2

527.4

2,661.1

2,327.6

1,946.7

1,642.3

1,301.5

 

 

Directors' statements

Statement of Directors' responsibilities in respect of the Annual Report and financial statements

The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare the Group financial statements for each financial year. Under that law, they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the EU and applicable law.

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and its profit or loss for the period. In preparing each of the Group financial statements, the Directors are required to:

·  select suitable accounting policies and then apply them consistently;

·  make judgements and estimates that are reasonable and prudent;

·  for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted bythe EU; and

·  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that its financial statements comply with the Companies (Jersey) Law 1991 and Article 4 of the IAS Regulation. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, a Strategic Report, a Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's websites.

Legislation in the UK and Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Statutory statement as to disclosure to auditor

The Directors who held office at the date of approval of these Directors' statements confirm that:

·  so far as they are each aware, there is no relevant audit information of which the Group's auditor is unaware; and

·  each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Group's auditor is aware of that information.

These financial statements have been approved by the Directors of the Company. The Directors confirm that the financial statements have been prepared in accordance with applicable law and regulations.

Statement of responsibility

We confirm that to the best of our knowledge:

·  the financial statements prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

·  the Directors' Report, including content contained by reference, includes a fair review of the development and performance of the business and the position of the Group taken as a whole, together with a description of the principal risks and uncertainties that
they face; and

·  the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

 

By order of the Board

 

Mark Dixon

Chief Executive Officer

 

Dominik de Daniel

Chief Financial Officer
and Chief Operating Officer

28 February 2017


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