TIDMIWG TIDMTTM
RNS Number : 9529R
IWG PLC
06 March 2019
6 March 2019
IWG plc - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEARED 31
DECEMBER 2018
2018: strong growth trends
IWG plc, the global operator of leading co-work and workspace
brands, today announces its annual results for the year ended
31 December 2018.
Key Highlights:
Strong growth trends, reflecting management initiatives
-- Open centre revenue up 13.3%(i) to GBP2,483.1m
-- Group revenue up 9.7%(i) to a record GBP2,535.4m, with the
rate of revenue growth accelerating throughout the year
-- Mature revenue increased 4.6%(i) to GBP2,237.8m, ending the
year strongly with 8.2%(i) growth in Q4
Profitability in-line with management's expectations
-- Pre-18 EBITDA up 19% to GBP447.4m
-- Group EBITDA increased 4%(i) to GBP389.9m
-- Operating profit of GBP154.1m, in line with management's
expectations
-- Overheads as percentage of revenue down 10bp to 10.0% despite
additional investment to support growth
Strong cash generation and distributions to shareholders
-- Cash flow pre-growth(ii) up 20% to GBP259.2m, 28.6p per
share
-- GBP93.9m returned to shareholders via dividends and share
repurchases, with 11% increase in full year dividend to 6.30p
(2017: 5.70p)
Significant capital investment in network and multi-brand
strategy
-- Net growth capital investment of GBP332.0m, including
significant investment in locations which will open in 2019
-- 299 new locations (290 organic) and 6.8m sq. ft. added in
2018. Now in 3,306 locations worldwide (up 6% from December 2017),
with 57.3m sq. ft. of space (up 10% from December 2017)
-- Strong growth in our large co-working format, Spaces, with
103 new locations, taking the total to 182 and run-rate revenues
have passed GBP281m; exciting plans for our other portfolio brands,
including No. 18
-- Approximately 33% of 2018 network growth delivered through
partnering
-- Current pipeline visibility on 2019 net growth capital
expenditure at the end of February 2019 of approximately GBP200m,
representing 190 locations and 5.2m sq. ft. of additional space
(c.9% growth in space)
Continuing strong returns
-- Attractive post-tax cash returns. Increased return on
pre-2014 investment of 20.6%, up 130bp(iii) ; 2017 and 2018
investments developing well
Balance sheet strength maintained
-- Net debt of GBP460.8m and net debt to EBITDA ratio of
1.2x
-- RCF increased to GBP950m from GBP750m and maturity improved
to 2024, demonstrating continued strong support from lending
banks
% change % change
constant actual
GBPm 2018 2017 currency currency
============================================ ======= ======= ========= =========
Revenue 2,535.4 2,352.3 9.7% 7.8%
Gross profit 409.2 401.6 3% 2%
Overheads (253.7) (237.6) 10% 7%
Operating profit (Inc. JV) 154.1 163.2 (8)% (6)%
Profit before tax 138.7 149.4 (7)%
Earnings per share (p) 11.7 12.4 (6)%
Dividend per share (p) 6.30 5.70 11%
EBITDA 389.9 376.2 4% 4%
Post-tax cash return on Investment(iii) 20.6% 19.3% Up 130bp
Cash flow before net growth capex, buybacks
and dividends 259.2 215.5 20%
Net debt 460.8 296.4
Net debt : EBITDA (x) 1.2 0.8
============================================ ======= ======= ========= =========
(i) At constant currency
(ii) Cash generation before net growth capital expenditure, share repurchases and dividends
(iii) 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 2013.
Prepared on the 12 months ended 31 December 2018 and for 2017 on
the
12 months ended 31 December 2017
Mark Dixon,
Chief Executive of IWG plc, said:
"We have done much to position our business to meet the growing
needs of our customers in the rapidly developing market of
co-working and flexible working and to be well positioned to
benefit from clear structural growth drivers. We delivered record
organic growth in 2018 and invested in the building blocks for 2019
and through our actions we continue to deliver an ever more
streamlined and scalable business model. We will continue to invest
in our business model and, in a disciplined manner, further invest
in our network scale and our multi-brand strategy in the years
ahead. Our investment in developing our partnering capabilities
will be a key enabler of the way that we want to deliver this
growth. As well as having a strong pipeline of IWG-owned locations
for 2019, we are seeing increasing momentum in our partnering
approach with counterparties wanting to operate our brands across a
wide geographic spectrum.
We remain focused on profitable growth, delivering attractive
returns and monetising our leading global network. To achieve this,
we will have a strong focus on margin improvement and a
continuation of our drive for greater efficiency, from good cost
discipline and the scale benefits deriving from our global
platform.
With the continued investment in the building blocks of our
business and with the momentum generated through the year, we have
had a strong start to 2019. The positive trends in global sales
activity have strengthened the order book. The new locations we
added during 2017 and 2018, across our range of formats, are
developing strongly. In markets where we have faced challenges, we
have taken decisive action to bring our performance back on track
with selective closures, refurbishing locations we wish to retain,
adding exciting new locations to the network and investing in the
customer service skills of our people. We are starting to see the
benefits of these initiatives. There are however global
macro-economic and geo-political uncertainties in various parts of
the world, which makes it sensible to develop the business with
some caution. We continue to invest in and develop our partnering
activities which will allow us to deliver more growth with less
capital intensity on our balance sheet.
We remain very confident in our industry and its structural
growth drivers and the strength of our position in the industry
with a growing, profitable and cash generative proven business
model. The Board remains confident in our prospects for the year
ahead and the trading outlook for 2019 remains in line with
management's expectations."
Details of results presentation
Mark Dixon, Chief Executive Officer, and Eric Hageman, Chief
Financial Officer, are hosting a presentation today for analysts
and investors at 11.00am at J.P.Morgan, 60 Victoria Embankment,
London EC4Y 0JP.
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 Brunswick Tel: +44(0) 20 7404 5959
Eric Hageman, Chief Financial Officer Nick Cosgrove
Wayne Gerry, Group Investor Relations
Director Simone Selzer
Matt Young, Group Corporate Affairs
Director
For more information, please visit www.iwgplc.com
Chairman's Statement
Profitable growth and long-term value for our stakeholders
I am pleased to report that after a challenging start to the
year our business responded in a strong and positive manner, to
deliver a continuous improvement in performance, particularly
during the second half of the year. Finishing the year in such a
way provides a very encouraging platform for 2019.
During the year, the attractiveness of our business was
highlighted by the significant levels of interest expressed by
several organisations in potential offers for the Group. In the
event, our Board unanimously determined that shareholder value
would be maximised by executing upon our strategy as an independent
public company. This is driven by our confidence in the long-term
value of the business and our unique position in a high-growth
industry. We believe we are at the most exciting point in a 30-year
journey that has seen us become the outright global leader in the
co-working and flexible workspace sector. This industry is fast
becoming mainstream and benefiting from powerful global trends that
drive long-term demand from every area of the market, from
freelancers to global enterprises.
Looking at our results for 2018, Group revenue increased from
GBP2,352.3m to GBP2,535.4m, an increase of 9.7% at constant
currency. Revenues from all our open centres increased 13.3% at
constant currency to GBP2,483.1m from GBP2,229.9m. The improvement
in the growth rate of these revenues as we moved through the year
was particularly pleasing. The 8% constant currency decline in
operating profit to GBP154.1m (2017: GBP163.2m) was in line with
our expectations, reflecting a strong year of investment in both
our network, marketing and our people to support growth and improve
our customer experience and drive greater scale benefits from our
business model. We also incurred significant costs related to the
potential offers for the Group.
Reflecting the attractive structural growth dynamics of our
industry and the capability of our proven business model to deliver
profitable growth, we continued to build our global and national
networks with the addition of over 6.8m sq. ft. of new space and
299 new locations, taking the total for the Group to 3,306
locations as at 31 December 2018. In improving the breadth of our
offering, we have strengthened our position to meet the growing
demand from our customers globally.
We remain encouraged by the strong development of our newer
centres which validates the Group's strong focus on capital
allocation discipline. This discipline has allowed the Group to
maintain a robust financial position, which was further
strengthened post the year-end with an increase in our Revolving
Credit Facility from GBP750m to GBP950m and an improvement in the
maturity profile with strong support from our lending banks. Based
on the strong cash generation of our business we returned GBP93.9m
during the year to our shareholders through a continuation of our
progressive dividend policy and the repurchase of shares.
Strategy
We offer a variety of attractive workspaces through a range of
brands that respond to different customer needs and are continuing
to rapidly expand our national networks to provide an even broader
choice of convenient working locations. We are confident that the
approach of offering this uniquely broad choice in type and
location of workspace combined with our efforts to continuously
improve the customer experience and enhance our digital platform
are the right actions to maintain our strong leadership position in
the rapidly growing co-working and flexible workspace sector.
Our focus in 2019 and for the foreseeable future remains on
achieving and sustaining the profitable growth that will allow us
to continue investing in the customer experience, our digital
platform, and the development of our employees while delivering
strong returns to our shareholders. To achieve this, we are
focusing more closely on partnering deals with property owners and
investors. We are also strongly promoting opportunities for
partners to share in the growing success of our network across the
world, and we have an excellent pipeline in developing and
developed markets alike. We see this as a very important growth
tool for IWG, and we will be placing even more emphasis upon it
during 2019 and beyond.
Our approach during 2018 was highly successful in markets around
the world. Total revenue growth in the US, which is our largest
market with 1,014 locations, was over 10% at constant currency and
profit growth was even stronger. Total revenue growth in EMEA was
particularly good with a 17.1% increase at constant currency. We
were also delighted by our progress in the Asia Pacific region,
with double-digit revenue growth across our Mature businesses in
Japan, Hong Kong and the Philippines.
As previously highlighted, our business in the UK has faced
challenges in recent times. We took corrective actions to address
these challenges which negatively affected our financial
performance during 2018. We are focused on completing the
revitalising of our UK operations through further selective
closures, refurbishing sites where we wish to remain and investing
more in customer service. Although this will continue to have a
short-term financial impact, these are the right actions to
stimulate long-term profitable growth in the UK. This is supported
by the highly encouraging performance of our new locations in 2017
and 2018, particularly that of our new Spaces sites in London.
Overall, even taking the potential impact of Brexit into account,
we remain positive about the medium to long-term future of the UK
market.
Our Board
The Board was very active during 2018 and performed strongly
throughout what was a very eventful period for the Group. I would
like to thank all my Board colleagues for their significant time
commitments and valuable contributions in addressing the challenges
the Group faced and efforts towards creating an exciting future for
the Group.
I would like to welcome Eric Hageman as our new Chief Financial
Officer. Eric brings us highly relevant expertise and experience
gained in Chief Financial Officer roles at Telecity Group and Royal
KPN. Eric performed strongly as our interim Chief Financial Officer
and will be an excellent long-term addition to the management
team.
A new role has been established with responsibility for Board
engagement with employees and I am delighted that Nina Henderson
has agreed to take this role as well as taking over Board oversight
for the Group's corporate responsibility activities. Nina's
knowledge, experience and passion for these areas makes her well
suited for these roles.
After nine years on the Board, Elmar Heggen will resign as a
Non-Executive Director with effect from our annual general meeting
on 14 May 2019. I would like to thank Elmar for his good counsel,
meaningful insights and recommendations over this period. We are
pleased to announce that Laurie Harris will join IWG as a
Non-Executive Director of the Company and succeed Elmar as Chair of
the Audit Committee. The appointment will take effect from 14 May
2019 and is subject to applicable law including shareholder
approval at the Company's forthcoming annual general meeting.
Laurie has significant executive leadership and boardroom
experience. She currently serves as an Independent Director and
Audit Committee Chair of the board of directors of QBE North
America, an integrated specialist insurer. Previously, Laurie was
with PricewaterhouseCoopers LLP as a Global Engagement Audit
Partner where she helped PricewaterhouseCoopers LLP's larger
clients address and act upon complex business challenges and
opportunities in the United States and internationally. Laurie
advised over 20 Audit Committees of large public companies and
private equity backed entities, including Fortune 100 financial
services companies.
I would also like to thank our former Chief Financial Officer
and Chief Operating Officer, Dominik de Daniel, for his
contributions during his time at IWG.
Our People
In a year that offered plenty of opportunity for distraction,
the focus of our very talented workforce on the key drivers of our
business delivered the performance improvement demonstrated in the
second half of the year. Their energy and commitment are at the
core of our ability to improve the performance of our existing
business while continuing to deliver strong growth. Their tireless
work and creativity are key to our efforts to ensure that our over
2.5 million members in over 110 countries have "a great day at
work".
At our senior leadership conference in Rome during January 2019
there was a new and more intense level of enthusiasm for the future
plans of the Group and a sense of pride in being on the team of the
market leader in our exciting and rapidly growing industry. I see
the effects of this enthusiasm and efforts reflected every day at
every level of the Group and on behalf of the Board would like to
personally thank everybody involved for their continued
contributions and commitment to succeed.
Dividend
We continue with a sustainable and progressive dividend policy
that reflects both our confidence in the long-term prospects of the
business and our desire to reward shareholders for their
loyalty.
We are therefore recommending a 10% increase in the final
dividend to 4.35p. Subject to the approval of shareholders at the
2019 AGM, this will be paid on 24 May 2019 to shareholders on the
register at the close of business on 26 April 2019. This represents
an increase in the full year dividend of 11% to 6.30p (2017:
5.70p).
DOUGLAS SUTHERLAND
CHAIRMAN
6 March 2019
Chief executive officer's review
2018: consistent sequential quarterly improvement
For IWG, 2018 was in many ways a year of significant change and
consistent improvement. Responding to a tough start to the year,
the actions we took during 2018 ensured our performance improved
continuously as the months passed, enabling us to end the year with
record sales and enhanced like-for-like results.
Attractive investment returns
The improvement in our performance throughout the year has
helped to deliver a strong post-tax cash return on net investment
that exceeds the Group's cost of capital. The post-tax cash return
on net growth investment from locations opened on or before 31
December 2013 was 20.6% (2017: 19.3%). Moving the maturity profile
of the estate forward one year to all those locations opened on or
before 31 December 2014, the post-tax cash return was 19.8% (2017:
18.3%). Our post-tax returns are calculated after deducting all net
maintenance capital expenditure incurred in the year. During 2018,
as expected, we invested more in net maintenance capital
expenditure to take the opportunity to refresh some of our existing
locations, particularly in the UK.
Sequentially improving financial performance
Group revenue increased 9.7% at constant currency to
GBP2,535.4m. This performance has been achieved through a
consistent improvement through the course of the year. First
quarter constant currency year-on-year revenue growth was 6.7%,
rising to 7.1% for the half year and to 8.1% for the nine months to
30 September. Year-on-year revenue growth achieved in the fourth
quarter was 14.3%. These Group numbers also include the impact from
closures, which has been significant in 2018, with 118 closures, as
we continued to actively manage our estate. Consequently, a better
indication of the performance of the ongoing business is provided
by the revenues generated by our open centres. On this basis,
revenue increased 13.3%, at constant currency, to GBP2,483.1m
(2017: GBP2,229.9m). Encouragingly, we witnessed the same trend of
improving growth, rising steadily through the year from 9.0% in the
first quarter to 18.5% constant currency growth in the fourth
quarter with all regions contributing.
Group income statement
% Change % Change
(constant (actual
GBPm 2018 2017 currency) currency)
=================================== ======= ======= ========== ==========
Revenue 2,535.4 2,352.3 9.7% 7.8%
Gross profit (centre contribution) 409.2 401.6 3% 2%
Overheads (253.7) (237.6) 10% 7%
=================================== ======= ======= ========== ==========
Operating profit(1) 154.1 163.2 (8)% (6)%
=================================== ======= ======= ========== ==========
Profit before tax 138.7 149.4 (7)%
Taxation (33.0) (35.4)
=================================== ======= ======= ========== ==========
Profit after tax 105.7 114.0 (7)%
EBITDA 389.9 376.2 4% 4%
=================================== ======= ======= ========== ==========
1. Including joint ventures
The Group generated a gross profit of GBP409.2m (2017:
GBP401.6m), an increase of 3% at constant currency. This
performance is after a significant investment in the new 2018
openings and the impact of closures. Excluding these factors, the
gross profit on the pre-2018 business increased by 17% from
GBP394.6m to GBP460.0m.
Gross margin
Revenue
GBPm Gross margin %
======= ======= ========== ================
% Change
(constant
2018 2017 currency) 2018 2017
==================== ======= ======= ========== ======= =======
2015 Aggregation 2,107.7 2,072.2 3.6% 21.6% 20.6%
New 16 130.1 106.5 24.0% 5.4% (12.1)%
New 17 179.9 51.2 354.9% (1.1)% (36.3)%
==================== ======= ======= ========== ======= =======
Pre-18 2,417.7 2,229.9 10.4% 19.0% 17.7%
New 18(2) 65.4 - - (48.2)% -
==================== ======= ======= ========== ======= =======
Open centre revenue 2,483.1 2,229.9 13.3% 17.2% 17.7%
==================== ======= ======= ========== ======= =======
Closures 52.3 122.4 (55.7)% (36.1)% 5.7%
==================== ======= ======= ========== ======= =======
Group 2,535.4 2,352.3 9.7% 16.1% 17.1%
==================== ======= ======= ========== ======= =======
2. New 18 also includes any costs incurred in 2018 for centres
which will open in 2019
Investing in our global platform
To support the ongoing development of the business and
strengthen our global operating platform we selectively invested in
overheads, particularly in our partnering and enterprise account
activities. This investment was made within the strong cost control
framework maintained by the Group. We also incurred significant
costs in respect of the various approaches for the Group. Overall,
overheads increased 10% at constant currency from GBP237.6m to
GBP253.7m. Notwithstanding the increase in overheads, we maintained
our industry leading overhead efficiency with overheads as a
percentage of revenue down 10bp to 10.0% (2017: 10.1%). After the
investment in overheads, together with the start-up costs from new
centres added during the year and the closure of 118 locations,
operating profit declined 8% at constant currency to GBP154.1m
(2017: GBP163.2m). An outcome in line with management's
expectations.
Our growth programme accelerated in 2018 with net growth capital
expenditure of GBP332.0m. This investment reflects a record level
of organic growth and a significant investment in locations due to
open in 2019 resulting from a strong growth pipeline, especially in
our Spaces format. In total we added 299 locations, only nine of
which were acquired, and 6.8m sq. ft. of space.
We generated GBP447.4m of EBITDA from the pre-2018 estate, up
19%. Group EBITDA increased 4% at constant currency to GBP389.9m
(2017: GBP376.2m). These metrics are a good indication of the cash
generation capability of our business model. With a positive
working capital inflow of GBP166.4m and after the overhead
investment noted above, we generated cash of GBP564.0m (2017:
GBP425.8m).
We generated cash flow of GBP259.2m (2017: GBP215.5m) after
increased maintenance capital expenditure, taxation and finance
costs, but before investment in growth capital expenditure,
dividends of GBP53.7m and GBP40.2m on buying back shares. After the
significant investment in these items, Group net debt increased
from an opening position of GBP296.4m to GBP460.8m at 31 December
2018. This represents a net debt to EBITDA leverage ratio of 1.2x,
thereby continuing our prudent approach to the Group's capital
structure. At 31 December 2018, we had approximately GBP140m of
freehold property on the balance sheet.
The market in 2018
Much of this success was due to the strengthened management team
we built during the year, which played a vital role in helping us
drive our improved performance. I would like to record my thanks to
everybody involved for their invaluable contribution.
Overall, this was a year of responding positively to challenging
conditions. I am particularly pleased with the way in which the
business successfully addressed some powerful economic headwinds in
many of the countries where IWG operates.
One of the most telling examples was that of Brazil, where
recessionary forces continued to impact the country during the
year. We completely restructured our business there, increasing its
size significantly. Tangible improvements in performance were
already visible by the end of 2018, and our Brazilian business
appears set for a profitable 2019. We carried out similarly
successful actions in other countries, continuously aiming to make
decisions that improve our profitability across the Group as we
move forward.
The forces accelerating our development
I am particularly struck that a number of forces that might
normally be regarded as barriers to business success have
counter-intuitively acted as growth accelerators for IWG, resulting
in the addition of almost 300 locations to our network in 2018.
First and foremost, our performance during 2018 demonstrates how
the uncertainty brought about by economic challenges can be a
positive force for the Group. It causes individuals and businesses
alike to value even more highly the benefits of flexible workspace
allowing companies of all sizes to respond rapidly and decisively
to fast-changing conditions.
In a similar vein, the new lease accounting standard, IFRS 16,
which came into force on 1 January 2019 is already driving
significant increases in demand for our services from enterprises.
IFRS 16's requirement for organisations to recognise assets and
liabilities for all leases does not extend to those with a duration
of 12 months or less. We believe that this will focus
organisations' attention on the commitment of material capital
investment in long-term leases when property is not their core
competence.
In addition, as global market leader, we are even finding that
competitor activity is helping our business. In particular, we
continue to benefit from the marketing and communications
activities of our smaller rivals as they further raise awareness of
the benefits of co-working and taking a flexible approach to
corporate property. This helped interest in and demand for
co-working rise during the year, and we received record levels of
enquiries as a direct result.
This is far from the only benefit of a competitive market
environment. Competition also forces us to continuously improve,
constantly sharpening our performance across many aspects of what
we have to offer. This is how we ensure our industry-leading
position in areas such as app development, digital interaction with
our customers, improving reporting and other tools for enterprise
accounts, as we continue to deliver an ever more flexible and
easier-to-use customer experience.
Developing the network
We reaccelerated the growth of our network and 2018 was a record
year for organic growth. Increasing the depth and breadth of our
geographic scope, and addressing different styles of working and
price points, is a major differentiator for IWG by providing a
competitive advantage as well as building further resilience into
the business. We continued to maintain a sharp focus on our
investment decision-making process during 2018 and we are seeing
the tangible benefit of this discipline in recent years in the
development profile of our newer year-group cohorts.
We opened 299 new locations during 2018, 290 of which were
organic openings. These locations added approximately 6.8m sq. ft.,
taking the Group's total space globally to 57.3m sq. ft. as at 31
December 2018. Another important focus area was the roll-out of our
Spaces format. During 2018 we accelerated our roll-out of the
Spaces format with the addition of 103 locations, which represented
approximately 56% of the space added. The investment in our Spaces
format during 2018 represented approximately two-thirds of the
Group net growth capital expenditure.
During 2018, we invested GBP332.0m of net growth capital
expenditure. This investment included expenditure on locations
opened before 2018 and to be opened in 2019 of GBP91.6m, higher
than previous years, primarily reflecting the strong pipeline with
which we have entered 2019, most notably in our Spaces brand.
We finished 2018 strongly, with 95 additions in the fourth
quarter. This momentum has continued, and we have a good pipeline
of new openings already for 2019. At the end of February 2019, we
had visibility on 2019 net growth capital expenditure of
approximately GBP200m, representing approximately 190 locations and
5.2m sq. ft. of additional space.
A continuing growth story
During 2018, we increased our emphasis on partnering. Being able
to clearly demonstrate the benefits of customer loyalty has
contributed to the number of parties signing up to partner with us,
which increased significantly during 2018 to create a very strong
forward pipeline.
Much of this success was also due to the efforts of our growing
franchise team, which is set to accelerate our growth further
during 2019 as franchising becomes an increasingly important
element of our growth strategy. In 2018 we signed agreements
covering the development of 49 locations, taking the total for the
Group as at 31 December 2018 to 135 committed locations. We also
saw a strong increase in the number of co-owned locations across
the world as we received unprecedented levels of interest and
commitment from property owners. During the year, some 33% of our
growth was through partnering.
Our 2018 focus was not just about opening new centres. We also
developed our multi-brand strategy which offers a portfolio of
brands to suit every work style and price point. Our multi-brand
portfolio provides unparalleled choice and delivers a global
consistency to provide quality customer experience across all our
brands.
To support our goal of providing our customers with a quality
experience to ensure they have "a great day at work", we have
continued to innovate our platform. We strengthened our
industry-leading and highly scalable digital platform to give
customers an even better experience and access to higher levels of
service which they can self-serve. We launched an account help desk
and provided more centralised call handling. We continued to train
and develop our people, simultaneously providing our
customer-facing employees with the 24/7 global support they need to
drive customer retention by focusing exclusively on meeting
customer needs.
Improving performance at centre level
I am very confident that our centres will continue to perform
well throughout 2019, as we continue to grow and improve. With more
than three decades' experience under our belt of running centres
profitably, our focus will be on improving the performance of all
those centres in our network, regardless of their age. Where
necessary, we will continue to rationalise our network as a means
of optimising its performance. In particular, we are focused on
enhancing the profitability of our UK business through important
investments in both talent and network performance.
One of the most powerful ways of achieving this is through
investing in our people. As the world in which we operate becomes
more competitive, they will be an increasingly important source of
advantage by further engaging our clients. During 2018, we
therefore made significant investments in training and reviewed
compensation across the organisation. I am delighted by their
performance during the year and believe there is even more to come
in 2019 and beyond. I am also very proud of their great work to
meet the needs of our clients and their commitment to supporting
the communities where we operate.
Enterprise accounts
We grew our enterprise accounts team during the year, along with
upgrading our national networks and product offering to meet the
growing demand from enterprises. This is enabling us to build
strategic relationships both nationally and globally.
The opportunity is huge. As we reported in our 2018 interim
results, our largest strategic corporate client uses 100 centres in
32 countries. Many others are using 10 or more centres, both
nationally and in multiple countries. We believe there are many
opportunities to develop other relationships of similar scale
across the world.
Building our brands
Our brand strategy is an important element of our commitment to
profitable growth. We recognise that not all our customers want
exactly the same flexible workspace solutions. This is even true of
different departments within the same organisation. Our multi-brand
offer addresses this issue, and during the year we expanded brands,
including No18 and HQ. We also saw strong growth in our Regus
brand, with 175 new centres, and 103 new locations for our
extremely popular Spaces co-working format.
Solid operating platform
Critically, all our brands are based on the same solid and
highly efficient operating platform across more than 110 countries,
ensuring that our full range of services is available around the
clock. Indeed, our highly trained and skilled people working in
tandem with ever-improving digital capabilities are driving faster
and more accurate response to client needs.
This is the bedrock of our business and the primary focus for
our strategy of continuous improvement across all our sites. It is
also at the heart of our highly efficient operating model and tight
focus on capital discipline, which enables us to centralise
processes from across our network, drive new efficiencies from our
scale and ensure that our future growth is increasingly
profitable.
This is what is making our ambition to be the most efficient
operator become a reality, enabling our customers to find with us
the best possible quality at the best possible price.
Expanding service portfolio
Increasingly, our operating platform is also supporting the
fast-growing universe of ancillary services we offer alongside
office space, which now represents approximately 29% of Group
revenues. I believe that this proportion will continue to rise as
we form increasingly close relationships with enterprise clients
seeking a partner capable of delivering an ever-wider range of
services.
One area of particular growth during 2018 was our
industry-leading workplace-recovery service, available in more than
1,000 towns and cities worldwide, which grew by almost 50% during
the year.
During 2019, we aim to continue introducing further new services
to meet the needs of the 2.5m-plus users and members of our virtual
and physical spaces and services across the world.
Performance by region
Looking to our financial performance in more detail, mature
revenue increased by 4.6% during the year at constant currency,
with sequential improvements in each quarter through the year,
culminating in an 8.2% year-on-year improvement in the fourth
quarter. This sustained improvement throughout the period was
primarily driven by improvements in the Americas and EMEA, which
had a particularly strong second half.
On a regional basis, mature(1) revenue and contribution can be
analysed as follows:
Mature gross
Revenue Contribution margin (%)
============================ ======================== ==============
% Change % Change
(constant (constant
GBPm 2018 2017 currency) 2018 2017 currency) 2018 2017
============= ======= ======= ========== ===== ===== ========== ====== ======
Americas 961.7 930.3 6.6% 207.6 162.3 31% 21.6% 17.4%
EMEA 527.1 493.7 7.2% 128.0 105.9 21% 24.3% 21.5%
Asia Pacific 368.0 361.1 4.5% 76.2 71.4 9% 20.7% 19.8%
UK 376.5 390.3 (3.5)% 49.3 75.2 (34)% 13.1% 19.3%
Other 4.5 3.3 (0.2) (1.2)
Total 2,237.8 2,178.7 4.6% 460.9 413.6 13% 20.6% 19.0%
============= ======= ======= ========== ===== ===== ========== ====== ======
1. Centres open on or before 31 December 2016
Americas
Revenue from open centres increased 12.8% at constant currency
to breach the billion-mark with GBP1,030.1m. Total revenue
(including closed centres) in the Americas increased 9.8% at
constant currency to GBP1,048.5m (up 6.5% at actual rates). Mature
revenue in the region increased 6.6% at constant currency to
GBP961.7m (up 3.4% at actual rates), with good sequential
improvements during the year. This resulted in a strong finish to
the year with 8.4% growth in mature revenue at constant currency in
the fourth quarter.
Average mature occupancy for the region was 75.7% (2017: 74.3%)
and there was a good recovery in the gross margin which increased
significantly from 17.4% to 21.6%.
The US, our largest market, continued to build on the first half
performance, with further sequential quarterly improvements to
finish the year strongly with double-digit constant currency
revenue growth to generate GBP883.7m of total revenue and a record
level of profitability. This overall performance in the US was
underpinned by an improving high single digit mature revenue
growth. Our Canadian business started the year where it finished
2017 with strong double-digit growth in its mature revenue, ending
the year with approximately 17% year-on-year mature revenue growth
in Q4. For the total business growth exceeded 20% in Q4 and
profitability more than doubled. Our business in Latin America
continued to face challenges, particularly in the larger markets of
Brazil and Mexico. In Brazil, our largest market, we restructured
our business by repositioning our estate and re-energised our
in-country colleagues. We are now starting to see early tangible
signs of these actions in our Brazilian performance.
We added 59 new locations during the year, taking the total to
1,284 at 31 December 2018. This includes 37 Spaces. Almost a
quarter of these new locations were through partnering deals of
various types. The focus of growth continued to be the US with the
opening of 34 new locations, which increased the total to
1,014.
EMEA
Our EMEA business has had a strong year overall. Revenue from
all open centres increased 20.7% at constant currency to GBP617.9m.
Total revenue increased 17.1% at constant currency to GBP630.8m (up
16.7% at actual rates). Mature revenue in the region increased 7.2%
at constant currency to GBP527.1m (up 6.8% at actual rates) for the
year. These growth rates reflect a very strong second half
performance with growth accelerating in Q4. With the improvement in
revenue performance, the mature gross margin increased from 21.5%
to 24.3%. Mature occupancy increased from 76.6% to 77.0%.
Reflective of such a diverse region, individual country
performances varied but, overall, the better performance was driven
by continental Europe. France had a very strong second half as it
benefited from, and grew into, the new inventory added in prior
periods. Italy and Germany both had better second half performances
and Switzerland improved its performance as we moved through the
year. Russia is now responding to the actions taken and this helped
its second half performance. There were, however, some more
challenging markets amongst some of the Nordic countries and in
parts of the Middle East and Africa.
We added 148 new locations in EMEA, including 28 Spaces. 29% of
these locations were achieved via various partnering deals. At 31
December 2018 we had 1,013 locations across EMEA.
Asia Pacific
Overall, our Asia Pacific region reported a solid performance.
Revenue from all the open centres increased 13.3% at constant
currency to GBP404.6m. Total revenue in the region increased 10.3%
at constant currency to GBP412.2m (up 7.6% at actual rates) and
revenue performance was stronger in the second half of the year. In
the Mature business, revenue increased 4.5% at constant currency
(up 1.9% at actual rates), with a good Q4 performance of 5.8%
growth to finish the year.
There were good performances from several of the larger
countries across the region. Japan had a very strong year with
double-digit growth across the year in mature revenues. Hong Kong
came back strongly in 2018 and also delivered double-digit growth.
The Philippines too reported good revenue growth, especially in the
first half. China, after a better start, saw growth slow in the
second half and the same occurred in Australia, while India and
Singapore both remained challenged.
Mature occupancy increased from 71.3% to 72.8% and the gross
margin improved from 19.8% to 20.7%.
We added 65 new centres into Asia Pacific, over 46% of these
through partnering. There were 23 Spaces among the new locations,
as we roll out this format globally. As at 31 December 2018 we had
683 centres in the region.
UK
Our UK business has faced challenges which has affected its
financial performance. We are focused on reversing this situation.
We are taking actions to stimulate long-term profitable growth
through a programme of significant repositioning and investment,
both in terms of estate and personnel. We remain optimistic about
the UK market, a view reinforced by the performance of the centres
that we have added during 2017 and 2018. We are now seeing initial
evidence that these actions are now manifesting themselves in
improved performance.
Revenue from all the open centres increased 5.2% to GBP425.6m.
Total revenue (including closed centres) was broadly unchanged at
GBP439.0m (2017: GBP440.0m). Revenue from the Mature business in
the UK declined 3.5% to GBP376.5m. This reflects an improvement in
the second half, with revenue increasing 2.8% in Q4.
In addition to adding new inventory into the UK market,
refurbishing those where we want to retain a presence and selective
closures in order to move back to the desired performance levels,
we have taken the opportunity to invest in our people and their
training. In the near term this investment has increased our cost
base in the UK ahead of the initial revenue recovery. The resultant
increased reduction in gross profit has reduced the mature margin
from 19.3% to 13.1%. These were, however, the right actions to have
taken. Mature occupancy reduced from 71.6% to 68.8%.
We added 27 new locations in the UK, including 15 new Spaces
locations. Over 40% of the new locations were via partnering
agreements. In addition to adding high quality new centres into our
UK business we have been actively repositioning the existing estate
by increased selective investment and, where appropriate, closing
locations. We had 326 locations in the UK at 31 December 2018.
Outlook
We have done much to position our business to meet the growing
needs of our customers in the rapidly developing market of
co-working and flexible working and to be well positioned to
benefit from clear structural growth drivers. We delivered record
organic growth in 2018 and invested in the building blocks for 2019
and through our actions we continue to deliver an ever more
streamlined and scalable business model. We will continue to invest
in our business model and, in a disciplined manner, further invest
in our network scale and our multi-brand strategy in the years
ahead. Our investment in developing our partnering capabilities
will be a key enabler of the way that we want to deliver this
growth. As well as having a strong pipeline of IWG-owned locations
for 2019, we are seeing increasing momentum in our partnering
approach with counterparties wanting to operate our brands across a
wide geographic spectrum.
We remain focused on profitable growth, delivering attractive
returns and monetising our leading global network. To achieve this,
we will have a strong focus on margin improvement and a
continuation of our drive for greater efficiency, from good cost
discipline and the scale benefits deriving from our global
platform.
With the continued investment in the building blocks of our
business and with the momentum generated through the year, we have
had a strong start to 2019. The positive trends in global sales
activity have strengthened the order book. The new locations we
added during 2017 and 2018, across our range of formats, are
developing strongly. In markets where we have faced challenges, we
have taken decisive action to bring our performance back on track
with selective closures, refurbishing locations we wish to retain,
adding exciting new locations to the network and investing in the
customer service skills of our people. We are starting to see the
benefits of these initiatives. There are however global
macro-economic and geo-political uncertainties in various parts of
the world, which makes it sensible to develop the business with
some caution. We continue to invest in and develop our partnering
activities which will allow us to deliver more growth with less
capital intensity on our balance sheet.
We remain very confident in our industry and its structural
growth drivers and the strength of our position in the industry
with a growing, profitable and cash generative proven business
model. The Board remains confident in our prospects for the year
ahead and the trading outlook for 2019 remains in line with
management's expectations.
Mark Dixon
Chief Executive Officer
6 March 2018
Chief Financial Officer's review
Encouraging improvement in performance through the year
2018 can be characterised as a year of consistent improvement
after a more difficult start to the year. This sequential
improvement in our performance not only delivered the stronger
second half result we had anticipated but provides a solid basis
for 2019. This is an encouraging position to be in, with prevailing
macro-economic and geo-political uncertainties in various parts of
the world.
Revenue
Reported Group revenue increased 9.7% at constant currency to
GBP2,535.4m (2017: GBP2,352.3m). Reflecting the uplift in sales
activity experienced since October 2017, revenue growth improved
consecutively in each quarter. After 6.7% year-on-year constant
currency Group revenue growth in the first quarter, this improved
to 7.1% for the half year, 8.1% year-to-date to September 2018 and
closed the year with a strong fourth quarter performance to deliver
the 9.7% growth reported for the whole of 2018. All four regions
contributed to this development. There were good double-digit
improvements in EMEA and Asia Pacific and near double-digit growth
from the Americas. The UK, although marginally down year-on-year,
moved into a positive position in the fourth quarter, a quarter
which also witnessed stronger growth in the other three
regions.
This performance trend was also reflected in open centre revenue
growth which is not impacted by the effect of closures in the same
way as Group revenue. For 2018 constant currency open centre
revenue growth was 13.3% with all regions contributing positively.
Again, the trend in growth improved throughout the year from 9.0%
in the first quarter to 18.5% in the fourth quarter. Key drivers to
this performance have been the conversion of the improved sales
activity into better occupancy in the Mature business and strong
development of the newer locations. The latter is a reflection of
our capital discipline and strong investment processes.
The improved sales activity and the maturation of the 2016-year
group additions delivered the anticipated improvement in mature
revenue. Growth in mature revenues for the year, at constant
currency, was 4.6%. This is a significant improvement on the 2.4%
for the first half of 2018 and was delivered by improvements in all
regions, most significantly from EMEA, with a strong second half
increase, and the Americas. Mature occupancy moved up 50bp to 74.2%
(2017: 73.7%), with the expected decline in occupancy in the UK
more than offset by improvements in the other regions, most notably
the Americas and EMEA.
Financial performance
Group income statement
% Change % Change
(constant (actual
GBPm 2018 2017 currency) currency)
=================================== ======= ======= ========== ==========
Revenue 2,535.4 2,352.3 9.7% 7.8%
Gross profit (centre contribution) 409.2 401.6 3% 2%
Overheads (253.7) (237.6) 10% 7%
Joint ventures (1.4) (0.8)
=================================== ======= ======= ========== ==========
Operating profit 154.1 163.2 (8)% (6)%
Net finance costs (15.4) (13.8)
=================================== ======= ======= ========== ==========
Profit before tax 138.7 149.4 (7)%
Taxation (33.0) (35.4)
Effective tax rate 23.8% 23.7%
=================================== ======= ======= ========== ==========
Profit after tax 105.7 114.0 (7)%
=================================== ======= ======= ========== ==========
Basic EPS (p) 11.7 12.4 (6)%
Depreciation & amortisation 235.8 213.0
EBITDA 389.9 376.2 4% 4%
=================================== ======= ======= ========== ==========
Gross profit
Group gross profit was GBP409.2m (2017: GBP401.6m), up 3% at
constant currency, reflecting a stronger second half performance
after reporting a 5% decline for the first half. There were strong
increases in the Americas and EMEA which more than compensated for
the declines in the UK and Asia Pacific. This continuing
improvement reflects an increase in the gross profit from the
Mature business of GBP47.3m, a higher level of initial losses from
the new centre additions of GBP14.4m and an adverse variance of
GBP25.3m on closed locations. The 160bp improvement in the mature
margin to 20.6% reflects the encouraging development seen through
2018 and provides a good basis for 2019. At the Group level, the
improvement in the mature margin has been negated by the dilutive
impact from closures and new openings, with the associated
investment in pre-recruiting and training additional centre team
members. This has resulted in a reduction in the Group gross margin
from 17.1% to 16.1%.
Gross margin
Mature Closed
GBPm centres New centres centres Total 2018
=================================== ========= =========== ======== ==========
Revenue 2,237.8 245.3 52.3 2,535.4
Cost of sales (1,776.9) (278.7) (70.6) (2,126.2)
=================================== ========= =========== ======== ==========
Gross profit (centre contribution) 460.9 (33.4) (18.3) 409.2
=================================== ========= =========== ======== ==========
Gross margin 20.6% (13.6)% (35.0)% 16.1%
=================================== ========= =========== ======== ==========
Mature Closed
GBPm centres New centres centres Total 2017
=================================== ========= =========== ======== ==========
Revenue 2,178.7 51.2 122.4 2,352.3
Cost of sales (1,765.1) (70.2) (115.4) (1,950.7)
=================================== ========= =========== ======== ==========
Gross profit (centre contribution) 413.6 (19.0) 7.0 401.6
=================================== ========= =========== ======== ==========
Gross margin 19.0% (37.1)% 5.7% 17.1%
=================================== ========= =========== ======== ==========
EBITDA
Group EBITDA increased GBP13.7m to GBP389.9m. With the continued
investment in the building blocks of our business, the increase in
our depreciation and amortisation of GBP22.8m more than offset the
GBP9.1m reduction in operating profit. This higher level of
depreciation reflects the significant investment made in recent
years to grow the business globally. Consequently, a better
indication of the performance of our business is provided by our
pre-18 estate EBITDA. We generated GBP447.4m of EBITDA from our
pre-18 estate, an increase of 19% on the GBP376.2m generated in
2017.
Overhead investment
Measured as a percentage of revenue, overhead reduced 10bp to
10.0% in 2018. Further simplification and centralisation of more
activities is expected to unlock more scale benefits which should
reflect positively on this ratio over the coming years.
As planned, the second half saw a similar investment in
overheads as in the first half with a resultant 10% constant
currency increase for the year to GBP253.7m (2017: GBP237.6m). This
investment is important to build a strong foundation for the
anticipated future growth of the business and the way it will be
delivered. Accordingly, additional headcount investment has gone
into building our partnering and enterprise account teams, as well
as investment into the various activities to support the network
development, including incremental marketing.
Further planned investment in these areas in the current year is
anticipated to be mitigated by improved efficiencies elsewhere in
the business as we continue to benefit from our scale and well
invested operational platform.
Operating profit
Group operating profit reduced GBP9.1m to GBP154.1m from
GBP163.2m. This reflects the combination of a lower gross profit
margin, for reasons previously discussed, and the absolute increase
in overheads as noted above.
It was negatively impacted by closure related provisions of
GBP16.0m, as we continued to actively manage our estate, as well as
costs incurred as part of the interest expressed by several
organisations in potential offers for the Group in 2018. This
impact was offset by the release of inactive customer deposits of
GBP17.6m identified as part of our ongoing active management of
working capital, together with a GBP6.2m beneficial impact from the
recognition of negative goodwill as reported in the interim
results.
On a regional basis, there were very strong operating profit
improvements in both the Americas and EMEA. Conversely, both Asia
Pacific and the UK reported reduced operating profits.
Net finance costs
The Group's net finance costs increased to GBP15.4m (2017:
GBP13.8m). This reflects the higher level of borrowing through 2018
compared to 2017, and the cost of increasing the Revolving Credit
Facility from GBP550m to GBP750m in May 2018. These higher costs
were partially offset by a small positive benefit from foreign
exchange movements.
Tax
The effective tax rate for 2018 of 23.8% is broadly unchanged
(2017: 23.7%). This is marginally higher than anticipated due to
profit mix and some one-off items that can occur in a global
business of this scale. Looking forward at the factors that can
influence the effective tax rate would suggest a similar rate based
on pre IFRS 16 GAAP. However, under IFRS 16 the Group's effective
tax rate may potentially be higher as the profit before tax is
reduced, reflecting the additional finance costs associated with
the lease liability. The extent of this will depend on how local
tax rules treat the IFRS 16 deductions where implemented as well as
the deferred tax impact in respect of countries not adopting the
new standard.
Earnings per share
Group earnings per share for 2018 were 11.7p (2017: 12.4p). This
lower level of earnings per share primarily reflects the lower
profitability, as we continue to build out our network, being
partially offset by the 1% reduction in the weighted average number
of shares outstanding for the year through share repurchases.
The weighted average number of shares for the year was
907,077,048 (2017: 915,676,309). The weighted average number of
shares for diluted earnings per share was 914,206,379 (2017:
926,237,704). As at 31 December 2018 the total number of shares in
issue was 894,620,484.
For the year to 31 December 2018, IWG plc purchased 17,489,685
shares designated to be held in treasury at a cost of GBP40.2m and
1,739,476 treasury shares were used to satisfy the exercise of
share awards by employees. As at 31 December 2018 the Group held
28,736,954 shares in treasury.
Cash flow and funding
A key characteristic of our business model is its cash
generation capability through strong profit conversion. Cash
generated before net investment in growth capital expenditure,
dividends and share repurchases increased by GBP43.7m to GBP259.2m
from GBP215.5m, up 20%. Cash flow per share increased 22% to 28.6p
from 23.5p. This increase arises from the positive impact from the
growth in the Group's EBITDA and the strong working capital inflow,
which is partly offset by the anticipated increase in investment in
maintenance capital expenditure and higher cash outflows in respect
of taxation and finance costs. The greater usage of our Revolving
Credit Facility is the main driver behind the increase in the cash
outflow for finance costs. The strength of the Group's EBITDA
performance, particularly the pre-18 estate, in a year when
operating profit declined, provides a good indication of the scale
of cash generated in the year.
Capital investment
Whilst our strategic focus remains on continuing to target less
capital-intensive growth, our net growth capital investment of
GBP332.0m in 2018 is higher than our previous guidance on pipeline
visibility of c.GBP230m and c.275 locations offering approximately
6.7m sq. ft. of flexible space. There are several contributing
factors to this outcome. Firstly, we opened 299 locations, with a
strong end to the year with 95 locations opened in the fourth
quarter. This momentum at the year-end also resulted in a stronger
pipeline of openings scheduled for 2019 on which a higher level of
capital expenditure was incurred in 2018 than had been assumed in
the pipeline guidance. As these locations were in development and
not opened, there is also a timing difference in relation to the
receipt of partner contributions.
As planned, with our refurbishment programme stepped up during
2018, our investment in maintenance capital expenditure increased
by GBP16.4m to GBP112.0m (2017: GBP95.6m). After partner
contributions received in the year, net maintenance capital
expenditure was GBP88.5m, a GBP15.0m increase on the net investment
in 2017 of GBP73.5m. On a gross and a net basis, the investment in
2018 represented 4.4% and 3.5% of Group revenues. Both percentages
are c.40bp higher than in 2017, which is in line with management's
expectations.
Net debt
Consequently, net debt increased from GBP296.4m at 31 December
2017 to GBP460.8m at 31 December 2018. This increase also comes
after paying dividends of GBP53.7m and spending GBP40.2m on buying
our own shares. Whilst our debt is higher, this still represents a
Group net debt to EBITDA leverage ratio of 1.2 times. Although our
approach to our borrowing continues to be prudent, we continue to
recognise the long-term benefit of also operating with an efficient
balance sheet. As at 31 December 2018 we had approximately GBP140m
of freehold property investment on the balance sheet.
Increased funding support
We continue to enjoy strong support from our banking partners
and in January 2019 we further increased our Revolving Credit
Facility from GBP750m to GBP950m. This facility provides adequate
headroom to continue to execute our growth strategy. We
simultaneously improved the debt maturity profile of this facility
by extending it to 2024 (previously 2023). There are further
options to extend until 2026. The financial covenants on the
increased facility are unchanged and will not be affected by the
implementation of IFRS 16. The facility is still predominantly
denominated in sterling but can be drawn in several major
currencies.
Cash flow
The table below reflects the Group's cash flow:
GBPm 2018 2017
=================================================== ======= =======
Group EBITDA 389.9 376.2
Working capital 166.4 44.2
Less: growth-related partner contributions (144.8) (80.6)
Maintenance capital expenditure (112.0) (95.6)
Taxation (37.1) (22.4)
Finance costs (15.7) (11.9)
Other items 12.5 5.6
=================================================== ======= =======
Cash flow before growth capital expenditure, share
repurchases and dividends 259.2 215.5
Gross growth capital expenditure (476.8) (353.1)
Less: growth-related partner contributions 144.8 80.6
=================================================== ======= =======
Net growth capital expenditure(1) (332.0) (272.5)
Total net cash flow from operations (72.8) (57.0)
Purchase of shares (40.2) (51.1)
Dividend (53.7) (48.5)
Corporate financing activities 1.9 4.2
Opening net debt (296.4) (151.3)
Exchange movement 0.4 7.3
Closing net debt (460.8) (296.4)
=================================================== ======= =======
1. Net growth capital expenditure of GBP332.0m relates to the
cash outflow in 2018. Accordingly, it includes capital expenditure
related to locations opened before 2018 and to be opened in 2019 of
GBP91.6m
Return on investment
Our strong focus on capital discipline is a fundamental part of
our strategy, which is focused on generating attractive returns
from our investments. For the 12 months ended 31 December 2018, the
Group delivered a strong post-tax cash return on net growth
investment of 20.6% in respect of locations opened on or before 31
December 2013 (19.3% on the same estate for the 12 months ended 31
December 2017). This estate encompasses a broad range of centre
vintages, including the very first centre opened 30 years ago, and
some acquired locations going back even further, which are
continuing to contribute strongly to this post-tax cash return.
Moving the aggregated estate forward and incorporating the centres
opened during 2014, the Group delivered a post-tax cash return on
net growth investment of 19.8% (the equivalent return for the 12
months ended 31 December 2017 on the same estate was 18.3%). These
post-tax cash returns are calculated after deducting all the
maintenance capital expenditure invested during 2018. This
investment extends the cash returns we achieve on our centres
including the longer established ones.
The table below shows the status of our centre openings by year
of opening as they continue to progress towards full maturity.
2018 Post-tax cash return(1) on net investment by year group -
12 months to 31 December 2018
'10 and
Year of opening earlier '11 '12 '13 '14 '15 '16 '17 '18
====================== ======== ===== ===== ===== ===== ===== ===== ===== =======
Post-tax cash return 23.2% 15.8% 17.4% 17.5% 14.7% 7.4% 0.6% 0.0% (13.0)%
====================== ======== ===== ===== ===== ===== ===== ===== ===== =======
Net growth investment
on locations opened
in year(2) GBPm 576.7 74.3 133.5 225.9 154.1 252.7 142.3 299.6 252.9
====================== ======== ===== ===== ===== ===== ===== ===== ===== =======
2017 Post-tax cash return on net investment by year group - 12
months to 31 December 2017
'10 and
Year of opening earlier '11 '12 '13 '14 '15 '16 '17 '18
====================== ======== ===== ===== ===== ===== ===== ====== ====== ===
Post-tax cash return 22.2% 16.7% 17.1% 14.0% 11.3% 7.3% (9.6)% (6.9)% -
====================== ======== ===== ===== ===== ===== ===== ====== ====== ===
Net growth investment
on locations opened
in year(2) GBPm 600.0 75.6 137.7 235.1 157.6 262.7 139.7 268.8 -
====================== ======== ===== ===== ===== ===== ===== ====== ====== ===
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.
2. These returns relate to the 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
Foreign exchange
The Group's results are exposed to translation risk from the
movement in currencies. During 2018 key individual currency
exchange rates have moved, as shown in the table below. Overall,
the impact of the movements in key exchange rates was mixed.
Reported revenue and gross profit was lower by GBP45.9m and GBP3.2m
respectively. Operating profit increased by GBP2.6m as the reported
increase in overheads was lower in actual currency terms.
Foreign exchange rates
At 31 December Annual average
================== ==================
Per GBP sterling 2018 2017 % 2018 2017 %
================= ===== ===== ==== ===== ===== ====
US dollar 1.28 1.35 (5)% 1.33 1.30 2%
Euro 1.12 1.13 (1)% 1.13 1.14 (1)%
Japanese yen 141 152 (7)% 147 145 1%
================= ===== ===== ==== ===== ===== ====
Risk management
The principal risks and uncertainties affecting the Group remain
broadly unchanged. A detailed assessment of the principal risks and
uncertainties and the risk management structure in place can be
found on pages 34 to 41 and 59 to 62 of the Annual Report and
Accounts.
Related parties
There have been no changes to the type of related party
transactions entered by the Group that had a material effect on the
financial statements for the period ended 31 December 2018. Details
of related party transactions that have taken place in the period
can be found in note 30 to the 2018 Annual Report and Accounts.
Dividends
We continue our commitment to a sustainable and progressive
dividend policy and, subject to shareholder approval, we will
increase the final dividend for 2018 by 10% to 4.35p (2017: 3.95p).
This will be paid on Friday, 24 May 2019, to shareholders on the
register at the close of business on Friday, 26 April 2018. This
represents an increase in the full-year dividend of 11%, taking it
from 5.70p for 2017 to 6.30p for 2018.
IFRS 16 Leases
IFRS 16 Leases replaces existing lease guidance, including IAS
17 Leases, from 1 January 2019. It introduces a single, on-balance
sheet lease accounting model for lessees while the lessor
accounting remains similar to the current treatment. The Group has
completed its initial assessment of the potential impact of IFRS 16
on its consolidated financial statements and expects to adopt a
right-of-use asset of approximately GBP5.6bn and a related lease
liability of approximately GBP6.2bn as of 1 January 2019.
The recognition of these balances will not impact the overall
cash flows of the Group or cash generation per share. The overall
impact on the income statement of adopting IFRS 16 will be neutral
over the life of a lease but will result in a higher charge in the
earlier years following implementation and a lower charge in later
years. IFRS 16 will have no impact on the Group's strategy,
commercial lease negotiations, growth or banking arrangements.
Further details of this initial assessment, together with the
approach and assumptions adopted by the Group, can be found on the
IFRS 16 pro forma statements later in this release.
IWG plans to manage the business and have internal and
supplemental external reporting on the pre IFRS 16 basis.
The majority of IWG's leases fall within scope of IFRS 16; this
does not impact the flexibility of our leases. 97% of IWG's leases
remain 'flexible', meaning that they are either terminable at our
option within six months and/or located in or assignable to a
stand-alone legal entity, which is not fully cross-guaranteed.
Eric Hageman
Chief Financial Officer
6 March 2019
CONSOLIDATED INCOME STATEMENT
Year ended Year ended
31 Dec 31 Dec
2018 2017
Continuing operations Notes GBPm GBPm
------------------------------------------------- ----- ---------- ----------
Revenue 3 2,535.4 2,352.3
Cost of sales (2,126.2) (1,950.7)
------------------------------------------------- ----- ---------- ----------
Gross profit (centre contribution) 409.2 401.6
Selling, general and administration expenses (253.7) (237.6)
Share of loss of equity-accounted investees, net
of tax 20 (1.4) (0.8)
------------------------------------------------- ----- ---------- ----------
Operating profit 5 154.1 163.2
Finance expense 7 (15.9) (14.1)
Finance income 7 0.5 0.3
------------------------------------------------- ----- ---------- ----------
Net finance expense (15.4) (13.8)
------------------------------------------------- ----- ---------- ----------
Profit before tax for the year 138.7 149.4
Income tax expense 8 (33.0) (35.4)
Profit after tax for the year 105.7 114.0
------------------------------------------------- ----- ---------- ----------
Earnings per ordinary share (EPS):
Basic (p) 9 11.7 12.4
Diluted (p) 9 11.6 12.3
------------------------------------------------- ----- ---------- ----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 Dec 31 Dec
2018 2017
Notes GBPm GBPm
---------------------------------------------------------- ----- ---------- ----------
Profit for the year 105.7 114.0
Other comprehensive income that is or may be reclassified
to profit or loss in subsequent periods:
Cash flow hedges - effective portion of changes
in fair value 0.1 0.5
Foreign currency translation differences for foreign
operations 9.2 (34.4)
---------------------------------------------------------- ----- ---------- ----------
Items that are or may be reclassified to profit
or loss in subsequent periods 9.3 (33.9)
---------------------------------------------------------- ----- ---------- ----------
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 - (0.7)
---------------------------------------------------------- ----- ---------- ----------
Items that will never be reclassified to profit
or loss in subsequent periods - (0.7)
---------------------------------------------------------- ----- ---------- ----------
Other comprehensive income/(loss) for the period,
net of income tax 9.3 (34.6)
---------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year 115.0 79.4
---------------------------------------------------------- ----- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
Issued currency
share Treasury translation Hedging Other Retained Total
capital shares reserve reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Balance at 1 January 2017 9.2 (2.9) 97.6 (0.3) 25.8 612.6 742.0
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Total comprehensive income
for the year:
Profit for the year - - - - - 114.0 114.0
Other comprehensive income:
Re-measurement of the defined
benefit liability, net
of tax (note 25) - - - - - (0.7) (0.7)
Cash flow hedges - effective
portion of changes in fair
value - - - 0.5 - - 0.5
Foreign currency translation
differences for foreign operations - - (34.4) - - - (34.4)
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Other comprehensive (loss)/income,
net of tax - - (34.4) 0.5 - (0.7) (34.6)
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Total comprehensive income
for the year - - (34.4) 0.5 - 113.3 79.4
Share-based payments - - - - - 1.7 1.7
Ordinary dividend paid (note
10) - - - - - (48.5) (48.5)
Purchase of shares (note
21) - (51.1) - - - - (51.1)
Proceeds from exercise of
share awards - 14.4 - - - (10.2) 4.2
Balance at 31 December 2017 9.2 (39.6) 63.2 0.2 25.8 668.9 727.7
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Total comprehensive income
for the year:
Profit for the year - - - - - 105.7 105.7
Other comprehensive income:
Cash flow hedges - effective
portion of changes in
fair value - - - 0.1 - - 0.1
Foreign currency translation
differences for foreign operations - - 9.2 - - - 9.2
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Other comprehensive income,
net of tax - - 9.2 0.1 - - 9.3
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Total comprehensive income
for the year - - 9.2 0.1 - 105.7 115.0
Share-based payments - - - - - 0.5 0.5
Ordinary dividend paid (note
10) - - - - - (53.7) (53.7)
Purchase of shares (note
21) - (40.2) - - - - (40.2)
Proceeds from exercise of
share awards - 5.7 - - - (3.8) 1.9
-------- -------- ------------ -------- --------- --------- -------
Balance at 31 December 2018 9.2 (74.1) 72.4 0.3 25.8 717.6 751.2
------------------------------------ -------- -------- ------------ -------- --------- --------- -------
Other reserves include GBP10.5m for 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, GBP37.9m arising from the Scheme of
Arrangement undertaken on 14 October 2008, GBP6.5m relating to
merger reserves and GBP0.1m to the redemption of preference shares
partly offset by GBP29.2m arising from the Scheme of Arrangement
undertaken in 2003.
CONSOLIDATED BALANCE SHEET
As at As at
31 Dec 31 Dec
2018 2017
Notes GBPm GBPm
--------------------------------------------------- ----- ------- -------
Non-current assets
Goodwill 11 679.2 666.7
Other intangible assets 12 42.5 45.4
Property, plant and equipment 13 1,751.2 1,367.2
Deferred tax assets 8 30.6 23.0
Non-current derivative financial assets 23 0.3 0.2
Other long-term receivables 14 86.0 80.7
Investments in joint ventures 20 12.2 12.4
--------------------------------------------------- ----- ------- -------
Total non-current assets 2,602.0 2,195.6
--------------------------------------------------- ----- ------- -------
Current assets
Trade and other receivables 15 717.5 581.8
Corporation tax receivable 8 32.7 27.6
Cash and cash equivalents 22 69.0 55.0
--------------------------------------------------- ----- ------- -------
Total current assets 819.2 664.4
Total assets 3,421.2 2,860.0
Current liabilities
Trade and other payables (incl. customer deposits) 16 1,058.9 904.8
Deferred income 320.0 285.3
Corporation tax payable 8 31.0 21.6
Bank and other loans 18 9.9 8.5
Provisions 19 9.7 4.5
--------------------------------------------------- ----- ------- -------
Total current liabilities 1,429.5 1,224.7
--------------------------------------------------- ----- ------- -------
Non-current liabilities
Other long-term payables 17 704.2 553.2
Bank and other loans 18 519.9 342.9
Deferred tax liability 8 - 1.3
Provisions 19 9.4 4.9
Provision for deficit in joint ventures 20 5.5 3.8
Retirement benefit obligations 25 1.5 1.5
--------------------------------------------------- ----- ------- -------
Total non-current liabilities 1,240.5 907.6
Total liabilities 2,670.0 2,132.3
Total equity
Issued share capital 21 9.2 9.2
Treasury shares 21 (74.1) (39.6)
Foreign currency translation reserve 72.4 63.2
Hedging reserve 0.3 0.2
Other reserves 25.8 25.8
Retained earnings 717.6 668.9
--------------------------------------------------- ----- ------- -------
Total equity 751.2 727.7
--------------------------------------------------- ----- ------- -------
Total equity and liabilities 3,421.2 2,860.0
--------------------------------------------------- ----- ------- -------
Approved by the Board on 6 March 2019
Mark Dixon ERIC HAGEMAN
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 Dec 31 Dec
2018 2017
Notes GBPm GBPm
------------------------------------------------------ ------ ---------- ----------
Operating activities
Profit before tax for the year 138.7 149.4
Adjustments for:
Net finance expense 7 15.4 13.8
Share of loss of equity-accounted investees, net
of tax 20 1.4 0.8
Depreciation charge 5, 13 225.4 202.1
Loss on impairment of goodwill 11 1.0 -
Loss on disposal of property, plant and equipment 5 13.6 4.3
Loss on disposal of intangible assets 5 0.1 1.6
(Reversal of impairment)/impairment of property,
plant and equipment 5, 13 (0.1) 0.1
Amortisation of intangible assets 5, 12 10.4 10.9
Gain on disposal of other investments (4.3) -
Amortisation of acquired lease fair value adjustments 5 (2.0) (3.6)
Negative goodwill arising on an acquisition 11, 26 (6.2) -
Increase in provisions 19 9.7 -
Share-based payments 0.5 1.7
Other non-cash movements (6.0) 0.5
------------------------------------------------------ ------ ---------- ----------
Operating cash flows before movements in working
capital 397.6 381.6
------------------------------------------------------ ------ ---------- ----------
Increase in trade and other receivables (133.4) (72.1)
Increase in trade and other payables 299.8 116.3
------------------------------------------------------ ------ ---------- ----------
Cash generated from operations 564.0 425.8
------------------------------------------------------ ------ ---------- ----------
Interest paid (16.2) (12.2)
Tax paid (37.1) (22.4)
Net cash inflow from operating activities 510.7 391.2
------------------------------------------------------ ------ ---------- ----------
Investing activities
Purchase of property, plant and equipment 13 (579.6) (344.9)
Purchase of subsidiary undertakings (net of cash
acquired) 26 (2.3) (40.1)
Disposal of other investments 4.4 -
Purchase of intangible assets 12 (6.9) (3.6)
Purchase of joint ventures 20 - (0.3)
Proceeds on sale of property, plant and equipment 0.4 0.5
Interest received 7 0.5 0.3
Net cash outflow from investing activities (583.5) (388.1)
------------------------------------------------------ ------ ---------- ----------
Financing activities
Net proceeds from issue of loans 644.3 651.6
Repayment of loans (467.4) (558.8)
Purchase of treasury shares 21 (40.2) (51.1)
Proceeds from exercise of share awards 1.9 4.2
Payment of ordinary dividend 10 (53.7) (48.5)
Net cash inflow/(outflow) from financing activities 84.9 (2.6)
------------------------------------------------------ ------ ---------- ----------
Net increase in cash and cash equivalents 12.1 0.5
Cash and cash equivalents at the beginning of
the year 55.0 50.1
Effect of exchange rate fluctuations on cash held 1.9 4.4
Cash and cash equivalents at the end of the year 22 69.0 55.0
------------------------------------------------------ ------ ---------- ----------
NOTES TO THE ACCOUNTS
1. Authorisation of financial statements
The Group and Company financial statements for the year ended 31
December 2018 were authorised for issue by the Board of Directors
on 6 March 2019 and the balance sheets were signed on the Board's
behalf by Mark Dixon and Eric Hageman. 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 utilised by
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 accounting
policies based on the Swiss Code of Obligations; extracts from
these are presented on page 131.
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 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 2018 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 2018:
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
------- -------------------------------------
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
85 to 130.
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 22 to 27 as well as the Group's
principal risks and uncertainties as set out on pages 35 to 41.
Further details on the going concern basis of preparation can be
found in note 23 to the notes to the consolidated financial
statements.
These Group consolidated financial statements are presented in
pounds sterling (GBP), 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.
Joint ventures 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.
Impact of the adoption of IFRS 9
The Group adopted IFRS 9 Financial Instruments from 1 January
2018. IFRS 9 Financial Instruments sets out requirements for
recognising and measuring financial assets, financial liabilities
and some contracts to buy and sell non-financial items. This
standard replaced IAS 39 Financial Instruments: Recognition and
Measurement.
Classification - financial assets
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. It contains
three principal classification categories for financial assets:
measured at amortised costs, fair value through other comprehensive
income (OCI) and fair value through the profit or loss. The
standard eliminates the existing IAS 39 categories of held to
maturity, loans and receivables and available for sale.
Under IFRS 9, derivatives embedded in contracts where the host
is a financial asset in the scope of the standard are never
bifurcated. Instead, the hybrid financial instrument as a whole is
assessed for classification.
The new classification requirements didn't have a material
impact on any of its accounting balances. Furthermore, at 31
December 2018, the Group did not have any balances classified as
available-for-sale. Consequently, there are no adjustments to be
recognised in either the income statement or other comprehensive
income.
Classification - financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification of financial liabilities. However, under IAS 39
all fair value changes of liabilities designated as at fair value
through the profit or loss are recognised in profit or loss,
whereas under IFRS 9 these fair value changes are generally
presented as follows:
-- The amount of change in fair value that is attributable to
changes in the credit risk of the liability is presented in other
comprehensive income; and
-- The remaining amount of change in the fair value is presented
in profit or loss.
The Group has not designated any financial liabilities at fair
value through the profit or loss and it has no current intention to
do so. The Group's adoption of IFRS 9 did not result in any change
in the classification of financial liabilities at 1 January 2018.
Consequently, there were no adjustments to be recognised in either
the income statement or other comprehensive income.
Impairment - financial assets
IFRS 9 requires the Group to record expected credit losses on
all of its financial instruments, either on a 12-month or lifetime
basis. The Group applied the simplified approach to trade
receivables and recorded the lifetime expected losses. The Group
determined that due to the nature of its receivables, taking into
account the customer deposits obtained, the impact of applying IFRS
9 did not significantly impact the provision for bad debts.
Hedge accounting
IFRS 9 requires the Group to ensure that hedge accounting
relationships are aligned with the Group's risk management
objectives and strategy and to apply a more qualitative and
forward-looking approach to assessing hedge effectiveness. IFRS 9
also introduces new requirements on rebalancing hedge relationships
and prohibiting voluntary discontinuation of hedge accounting.
Under the new model, it is possible that more risk management
strategies, particularly those involving hedging a risk component
(other than foreign currency risk) of non-financial items, will be
likely to qualify for hedge accounting.
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. The Group designates these derivatives as
fair
value hedges.
The Group determined that all existing hedge relationships that
are currently designated in effective hedging relationships will
continue
to qualify for hedge accounting under IFRS 9. As IFRS 9 does not
change the general principles of how an entity accounts for
effective hedges, applying the hedging requirements of IFRS 9 does
not impact the Group's financial statements.
Impact of the adoption of IFRS 15
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaced
existing revenue recognition guidance, including IAS 18 Revenue,
IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty
Programmes.
The Group is involved in the provision of flexible workspace, as
well as performing related services. Revenue from the provision of
these 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.
The services performed are based on the list price at which the
Group provides the contracted services.
Based on the Group's assessment, the fair value of the service
performed under IAS 18 and the timing of revenue recognised are
consistent with IFRS 15. Therefore, the application of IFRS 15 did
not result in any differences in the timing of the performance and
the recognition of the revenue, for these services.
IFRSs not yet effective
The following new or amended standards and interpretations that
are mandatory for 2019 annual periods (and future years) are not
expected to have a material impact on the Group financial
statements, unless otherwise stated.
IFRS 1 January
16 Leases 2019
IFRIC 1 January
23 Uncertainty over Income Tax Treatments 2019
Long-term Interests in Associates and Joint Ventures (Amendments 1 January
to IAS 28) 2019
Plan Amendments, Curtailment or Settlement (Amendments to 1 January
IAS 19) 2019
1 January
Annual Improvements to IFRSs 2015 - 2017 Cycle 2019
Prepayment features with Negative Compensation (Amendments 1 January
to IFRS 9) 2019
1 January
Amendments to References to Conceptual Framework in IFRS Standards 2019
1 January
IFRS 17 Insurance Contracts 2019
-------------------------------------------------------------------- ---------
There are no other IFRS standards or interpretations that are
not yet effective that would be expected to have a material impact
on the Group.
The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
The impact of these new or amended standards and interpretations
has been considered as follows:
IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17
Leases, IFRIC 4 Determining whether an Arrangement Contains a
Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating
the Substance of Transactions Involving the Legal Form of a
Lease.
The standard is effective for annual periods beginning on or
after 1 January 2019. Early adoption is permitted for entities that
apply IFRS 15 at or before the date of initial application of IFRS
16.
IFRS 16 introduces a single, on-balance sheet lease accounting
model for lessees. A lessee recognises a right-of-use asset
representing its right to use the underlying asset and lease
liability representing its obligation to make lease payments. There
are recognition exemptions for short-term leases and leases of
low-value items. Lessor accounting remains similar to the current
standard (i.e. lessors continue to classify leases as finance or
operating leases).
The Group has completed its initial assessment of the potential
impact on its consolidated financial statements. The actual impact
of applying IFRS 16 on the financial statements in the period of
initial application depends on future economic conditions,
including the Group's borrowing rate and credit rating, external
interest rates, country risk factors, the composition of the
Group's lease portfolio, the Group's assessment of whether it will
exercise any lease renewal options and the extent to which the
Group chooses to use practical expedients and recognition
exemptions. Taking these considerations into account, on
transition:
-- The Group will adopt the modified approach, choosing to
measure the right-of-use asset at the retrospective amount as if
IFRS 16 had been applied from lease commencement date. The
difference between the right-of use asset and the related lease
liability is recognised directly in retained earnings.
-- In determining the right-of-use asset and lease liability to
be recognised, the Group will adopt an incremental borrowing rate
for each lease. This rate has been determined by taking currency
specific interest rates based on 10-year external market rates
(where available, which reflect the average centre lease duration)
and then considering adjustments to reflect subsidiary/country
specific credit ratings and adjustments to reflect the level of
collateral. This incremental borrowing rate will be updated
annually and applied to leases completed in the subsequent
year.
-- The right-of-use asset recognised will be depreciated over
the life of the lease, adjusted for any period between the lease
commencement date and the date the related centre opens, reflecting
the lease related costs directly incurred in preparing the business
centre for trading. The life of the lease reflects the contracted
lease term and any renewal periods that are at IWG's option to
extend.
The most significant impact identified is the right-of-use asset
and related lease liability the Group recognises for its leases in
respect of its global network, which will be recognised based on
the modified retrospective approach. Based on the lease portfolio
at 31 December 2018, the Group expects to report a right-of-use
asset of approximately GBP4,417m to GBP4,882m and a related lease
liability of approximately GBP5,075m to GBP5,609m at 31 December
2019. These balances exclude the impact of any lease terminations,
lease renewals and expected growth in the lease portfolio in 2019.
The recognition of these balances will not impact the overall cash
flows of the Group or cash generation per share. The pro forma
impact from the adoption of IFRS 16 as at 1 January 2019 is
disclosed on pages 136 and 137.
In addition, the nature of expenses related to leases will
change as IFRS 16 replaces the straight-line operating lease
expense with a depreciation charge for right-of-use assets and an
interest expense on the lease liabilities.
The Group has also considered the impact of lessor accounting,
which is not considered to be material.
The Group will adopt the exemptions permitted in respect of
short-term and low value leases, which are not material due to the
relatively low number of these leases.
The Group does not expect the adoption of IFRS 16 to impact its
ability to comply with the covenant requirements on its revolving
credit facility described in note 23.
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 2018. 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 fair value, 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. Negative goodwill is recognised
directly in profit or loss.
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
Minimum duration of
Management agreements 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, at
the Group's option, 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
The Group's primary activity and only business segment is the
provision of global workplace solutions.
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 (contract liability) 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.
The Group has generally concluded that it is the principal in
its revenue arrangement, except where noted above.
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 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' and 'selling, general and administration 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 awards 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 and awards granted under the Group's
share-based payment plans outlined in note 24 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 in respect of
non-market conditions except where forfeiture is due to the expiry
of the option.
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 and closure costs 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.
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 7).
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.
Financial assets
Financial assets are classified as subsequently measured at
amortised cost, fair value through the profit or loss or fair value
through
other comprehensive income (OCI). The classification depends on
the nature and purpose of the financial assets and is determined on
initial recognition.
Financial assets (including trade and other receivables) are
measured at amortised cost if both of the following conditions are
met:
-- The financial asset is held within a business model whose
objective is to hold assets to collect contractual cash flows;
and
-- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
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.
Financial assets (including trade and other receivables) are
measured at fair value through OCI if both of the following
conditions are met:
-- The financial asset is held within a business model whose
objective is achieved by both collecting cash flows and selling
financial assets; and
-- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal
amount outstanding.
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
---------------- ----------------
2018 2017 2018 2017
------------- ------- ------- ------- -------
US dollar 1.28 1.35 1.33 1.30
Euro 1.12 1.13 1.13 1.14
Japanese yen 141 152 147 145
------------- ------- ------- ------- -------
3. Segmental analysis - statutory basis
An operating segment is a component of the Group that engages in
business activities from which it may earn revenue and incur
expenses. 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 (the Group's operating
segments): the Americas; EMEA (Europe, Middle East and Africa);
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 2017.
Americas EMEA Asia Pacific United Kingdom Other Total
------------------ ---------------- ---------------- ---------------- ---------------- --------------------
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- ---------
Revenue from external
customers 1,048.5 984.8 630.8 540.5 412.2 383.2 439.0 440.0 4.9 3.8 2,535.4 2,352.3
Mature(1) 961.7 930.3 527.1 493.7 368.0 361.1 376.5 390.3 4.5 3.3 2,237.8 2,178.7
2017 Expansions(1) 48.6 10.9 70.0 20.2 25.1 5.2 35.8 14.4 0.4 0.5 179.9 51.2
2018 Expansions(1) 19.8 - 20.8 - 11.5 - 13.3 - - - 65.4 -
Closures(1) 18.4 43.6 12.9 26.6 7.6 16.9 13.4 35.3 - - 52.3 122.4
--------------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- ---------
Gross profit (centre
contribution) 173.8 153.2 119.0 97.1 60.8 65.9 55.3 83.6 0.3 1.8 409.2 401.6
Share of loss
of equity-accounted
investees - - (1.3) (0.8) (0.1) - - - - - (1.4) (0.8)
Operating
profit/(loss) 122.6 96.5 57.2 47.7 26.9 34.6 36.1 60.3 (88.7) (75.9) 154.1 163.2
Finance expense (15.9) (14.1)
Finance income 0.5 0.3
--------------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- ---------
Profit before
tax for the year 138.7 149.4
Depreciation and
amortisation 118.3 112.2 40.2 32.8 32.3 29.4 35.0 29.9 10.0 8.7 235.8 213.0
Assets 1,417.4 1,213.2 751.7 573.5 472.5 378.1 672.0 571.1 107.6 124.1 3,421.2 2,860.0
Liabilities (1,042.5) (861.5) (502.9) (386.0) (316.4) (244.1) (310.7) (266.1) (497.5) (374.6) (2,670.0) (2,132.3)
--------------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- ---------
Net
assets/(liabilities) 374.9 351.7 248.8 187.5 156.1 134.0 361.3 305.0 (389.9) (250.5) 751.2 727.7
Non-current asset
additions(2) 228.7 148.6 141.5 83.4 84.1 36.3 112.8 64.6 19.4 15.6 586.5 348.5
--------------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------- ---------
1. Revenue has been disaggregated to reflect the basis on which
it is reported to the chief operating decision maker. Further
information can be found in the unaudited "Segmental analysis --
Management basis" on pages 132 and 133.
2. Excluding deferred taxation
Operating profit in the "Other" category is generated from
services related to the provision of workspace solutions, including
fees from franchise agreements, offset by corporate overheads.
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:
2018 2017
--------------------- ---------------------
External Non-current External Non-current
GBPm revenue assets(1) revenue assets(1)
-------------------------------------- -------- ----------- -------- -----------
Country of tax domicile - Switzerland 32.1 27.0 26.6 22.5
United States of America 883.7 1,022.1 819.6 878.5
United Kingdom 439.0 508.8 440.0 440.1
All other countries 1,180.6 1,013.5 1,066.1 831.5
-------------------------------------- -------- ----------- -------- -----------
2,535.4 2,571.4 2,352.3 2,172.6
-------------------------------------- -------- ----------- -------- -----------
1. Excluding deferred tax assets
5. Operating profit
Operating profit has been arrived at after
charging/(crediting):
2018 2017
Notes GBPm GBPm
------------------------------------------------------ ----- ------- -------
Revenue 2,535.4 2,352.3
Depreciation on property, plant and equipment 13 225.4 202.1
Amortisation of intangibles 12 10.4 10.9
Amortisation of partner contributions (67.5) (60.6)
Property rents payable in respect of operating
leases: 1,072.1 1,003.2
------------------------------------------------------ ----- ------- -------
Property 1,035.4 966.8
Contingent rents paid 36.7 36.4
------------------------------------------------------ ----- ------- -------
Equipment rents payable in respect of operating
leases 3.5 3.4
Staff costs 6 380.9 331.5
Facility and other property costs 383.5 348.7
Expected credit losses of trade receivables 23 17.7 16.2
Loss on disposal of property, plant and equipment 13.6 4.3
Impairment of goodwill 11 1.0 -
Loss on disposal of intangible assets 12 0.1 1.6
(Reversal of impairment)/Impairment of property,
plant and equipment 13 (0.1) 0.1
Amortisation of acquired lease fair value adjustments (2.0) (3.6)
Negative goodwill arising on acquisition 11 (6.2) -
Other costs 347.5 330.5
------------------------------------------------------ ----- ------- -------
155.5 164.0
Share of loss of equity-accounted investees, net
of tax (1.4) (0.8)
------------------------------------------------------ ----- ------- -------
Operating profit 154.1 163.2
------------------------------------------------------ ----- ------- -------
2018 2017
GBPm GBPm
------------------------------------------------------- ----- -----
Fees payable to the Group's auditor and its associates
for the audit of the Group accounts 1.0 0.9
Fees payable to the Group's auditor and its associates
for other services:
The audit of the Company's subsidiaries pursuant to
legislation 2.2 1.7
Other services pursuant to legislation:
Tax services - -
Other services - 0.1
------------------------------------------------------- ----- -----
Change in estimate
During 2018 the Group conducted a review of its customer
deposits for inactive customer accounts. Based on this review, the
Group has released GBP17.6m of such deposits in 2018. This has
resulted in an increase in both revenue and operating profit.
6. Staff costs
2018 2017
GBPm GBPm
--------------------------------------------- ----- -----
The aggregate payroll costs were as follows:
Wages and salaries 324.8 278.6
Social security 50.3 45.9
Pension costs 5.3 5.3
Share-based payments 0.5 1.7
--------------------------------------------- ----- -----
380.9 331.5
--------------------------------------------- ----- -----
2018 2017
Average Average
full full
time equivalents time equivalents
------------------------------------------------------- ----------------- -----------------
The average number of persons employed by the Group
(including Executive Directors), analysed by category
and geography, was as follows:
Centre staff 7,424 6,786
Sales and marketing staff 493 497
Finance staff 791 739
Other staff 907 766
------------------------------------------------------- ----------------- -----------------
9,615 8,788
------------------------------------------------------- ----------------- -----------------
Americas 3,001 2,860
EMEA 2,425 2,161
Asia Pacific 1,670 1,641
United Kingdom 926 848
Corporate functions 1,593 1,278
------------------------------------------------------- ----------------- -----------------
9,615 8,788
------------------------------------------------------- ----------------- -----------------
Details of Directors' emoluments and interests are given on
pages 63 to 77 in the Remuneration Report, with audited schedules
identified where relevant.
7. Net finance expense
2018 2017
GBPm GBPm
------------------------------------------------------- ------ ------
Interest payable and similar charges on bank loans and
corporate borrowings (12.4) (7.5)
Total interest expense (12.4) (7.5)
Other finance costs (including foreign exchange) (3.3) (5.7)
Unwinding of discount rates (0.2) (0.9)
------------------------------------------------------- ------ ------
Total finance expense (15.9) (14.1)
------------------------------------------------------- ------ ------
Total interest income 0.5 0.3
Total finance income 0.5 0.3
------------------------------------------------------- ------ ------
Net finance expense (15.4) (13.8)
------------------------------------------------------- ------ ------
8. Taxation
(a) Analysis of charge in the year
2018 2017
GBPm GBPm
--------------------------------------------------------- ------ ------
Current taxation
Corporate income tax (40.3) (26.8)
Previously unrecognised tax losses and other differences 4.0 1.3
Under provision in respect of prior years (5.3) (5.2)
--------------------------------------------------------- ------ ------
Total current taxation (41.6) (30.7)
--------------------------------------------------------- ------ ------
Deferred taxation
Origination and reversal of temporary differences (0.7) (5.2)
Previously unrecognised tax losses and other differences 9.7 1.0
Under provision in respect of prior years (0.4) (0.5)
--------------------------------------------------------- ------ ------
Total deferred taxation 8.6 (4.7)
--------------------------------------------------------- ------ ------
Tax charge on profit (33.0) (35.4)
--------------------------------------------------------- ------ ------
(b) Reconciliation of taxation charge
2018 2017
--------------- --------------
GBPm % GBPm %
---------------------------------------------- ------- ------ ------ ------
Profit before tax 138.7 149.4
---------------------------------------------- ------- ------ ------ ------
Tax on profit at 14.6% (2017: 14.6%) (20.3) (14.6) (21.8) (14.6)
Tax effects of:
Expenses not deductible for tax purposes (26.2) (18.9) (19.2) (12.8)
Items not chargeable for tax purposes 24.9 18.0 23.4 15.7
Recognition of previously unrecognised
deferred tax assets 13.7 9.9 2.3 1.5
Movements in temporary differences in the
year not recognised in deferred tax (104.1) (75.2) (91.1) (61.0)
Adjustment to tax charge in respect of
previous years (5.7) (4.1) (5.7) (3.8)
Differences in tax rates on overseas earnings 84.7 61.1 76.7 51.3
---------------------------------------------- ------- ------ ------ ------
(33.0) (23.8) (35.4) (23.7)
---------------------------------------------- ------- ------ ------ ------
The applicable tax rate is determined based on the tax rate in
the canton of Zug in Switzerland which is 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:
2018 2017
GBPm GBPm
------------------------------------------------------- ------- -------
2018 - 4.9
2019 5.6 8.1
2020 20.5 54.7
2021 31.7 37.4
2022 40.5 43.4
2023 54.2 22.9
2024 31.5 29.9
2025 37.6 13.4
2026 and later 432.0 222.1
------------------------------------------------------- ------- -------
653.6 436.8
Available indefinitely 671.8 642.4
------------------------------------------------------- ------- -------
Tax losses available to carry forward 1,325.4 1,079.2
------------------------------------------------------- ------- -------
Amount of tax losses recognised in deferred tax assets 207.8 117.0
------------------------------------------------------- ------- -------
Total tax losses available to carry forward 1,533.2 1,196.2
------------------------------------------------------- ------- -------
The following deferred tax assets have not been recognised due
to uncertainties over recoverability.
2018 2017
GBPm GBPm
--------------------------------- ----- -----
Intangibles 17.0 16.9
Accelerated capital allowances 39.3 32.1
Tax losses 336.8 271.5
Rent 7.9 8.7
Short-term temporary differences 9.8 5.5
--------------------------------- ----- -----
410.8 334.7
--------------------------------- ----- -----
Estimates relating to deferred tax assets, including assumptions
about future profitability, are re-evaluated at the end of each
reporting period.
(d) Corporation tax
2018 2017
GBPm GBPm
--------------------------- ------ ------
Corporation tax payable (31.0) (21.6)
Corporation tax receivable 32.7 27.6
--------------------------- ------ ------
(e) Deferred taxation
The movement in deferred tax is analysed below:
Property, Short-term
plant temporary
Intangibles and equipment Tax losses Rent differences Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- -------------- ---------- ------ ------------ -----
Deferred tax asset
At 1 January 2017 (54.8) (20.5) 34.3 69.8 0.5 29.3
Current year movement 19.9 1.3 (5.5) (17.2) (3.1) (4.6)
Prior year movement - (1.6) 0.3 0.4 - (0.9)
Transfers - 2.2 (1.3) (0.5) (0.6) (0.2)
Exchange rate movements 5.5 1.1 (0.9) (5.4) (0.9) (0.6)
------------------------ ----------- -------------- ---------- ------ ------------ -----
At 31 December 2017 (29.4) (17.5) 26.9 47.1 (4.1) 23.0
------------------------ ----------- -------------- ---------- ------ ------------ -----
Current year movement (1.6) (6.2) 19.2 2.7 (6.5) 7.6
Prior year movement 0.1 - (0.3) - (0.2) (0.4)
Transfers (0.1) - - 0.1 0.1 0.1
Exchange rate movements (2.5) (1.1) - 2.5 1.4 0.3
------------------------ ----------- -------------- ---------- ------ ------------ -----
At 31 December 2018 (33.5) (24.8) 45.8 52.4 (9.3) 30.6
------------------------ ----------- -------------- ---------- ------ ------------ -----
Deferred tax liability
At 1 January 2017 (0.4) (3.2) 2.4 (0.2) (1.0) (2.4)
Current year movement (0.1) 0.3 (0.2) 0.6 (0.2) 0.4
Prior year movement - - (0.3) - 0.7 0.4
Transfers - (2.2) 1.3 0.5 0.6 0.2
Exchange rate movements - - - - 0.1 0.1
------------------------ ----------- -------------- ---------- ------ ------------ -----
At 31 December 2017 (0.5) (5.1) 3.2 0.9 0.2 (1.3)
------------------------ ----------- -------------- ---------- ------ ------------ -----
Current year movement (0.1) 0.4 1.8 (0.4) (0.3) 1.4
Prior year movement 0.3 - (0.4) 0.1 - -
Transfers 0.1 - - (0.1) (0.1) (0.1)
Exchange rate movements - - - - - -
------------------------ ----------- -------------- ---------- ------ ------------ -----
At 31 December 2018 (0.2) (4.7) 4.6 0.5 (0.2) -
------------------------ ----------- -------------- ---------- ------ ------------ -----
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.
At the balance sheet date, the temporary difference arising from
unremitted earnings of overseas subsidiaries was GBP23.2m (2017:
GBP19.8m). The only tax that would arise on these reserves would be
non-recoverable withholding tax.
9. Earnings per ordinary share (basic and diluted)
2018 2017
------------------------------------------------------- ----------- ------------
Basic and diluted profit for the year attributable to
shareholders (GBPm) 105.7 114.0
------------------------------------------------------- ----------- ------------
Basic earnings per share (p) 11.7 12.4
Diluted earnings per share (p) 11.6 12.3
------------------------------------------------------- ----------- ------------
Weighted average number of shares for basic EPS 907,077,048 915,676,309
Weighted average number of shares under option 13,715,757 20,223,265
Weighted average number of shares that would have been
issued at average market price (8,736,525) (11,750,214)
Weighted average number of share awards under the CIP,
PSP, DSBP and One-off Award 2,150,099 2,088,344
------------------------------------------------------- ----------- ------------
Weighted average number of shares for diluted EPS 914,206,379 926,237,704
------------------------------------------------------- ----------- ------------
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 material awards considered anti-dilutive at
the reporting date.
The average market price of one share during the year was
253.22p (2017: 285.56p).
10. Dividends
2018 2017
------------------------------------------------------- ----- -----
Dividends per ordinary share proposed 4.35p 3.95p
Interim dividends per ordinary share declared and paid
during the year 1.95p 1.75p
------------------------------------------------------- ----- -----
Dividends of GBP53.7m were paid during the year (2017:
GBP48.5m). The Company has proposed to shareholders that a final
dividend of 4.35p per share will be paid (2017: 3.95p). Subject to
shareholder approval, it is expected that the dividend will be paid
on 24 May 2019.
11. Goodwill
GBPm
---------------------------------------------- ------
Cost
At 1 January 2017 685.3
Recognised on acquisition of subsidiaries 3.3
Exchange rate movements (21.9)
---------------------------------------------- ------
At 31 December 2017 666.7
---------------------------------------------- ------
Recognised on acquisition of subsidiaries (1) (7.5)
Negative goodwill 6.2
Goodwill impairment (1.0)
Exchange rate movements 14.8
---------------------------------------------- ------
At 31 December 2018 679.2
---------------------------------------------- ------
Net book value
At 31 December 2017 666.7
---------------------------------------------- ------
At 31 December 2018 679.2
---------------------------------------------- ------
1. Net of GBP8.5m 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:
2018 2017
Carrying amount of goodwill included within: GBPm GBPm
--------------------------------------------- ----- -----
Americas 299.7 285.8
EMEA 125.4 125.1
Asia 35.2 34.7
United Kingdom 218.9 221.1
--------------------------------------------- ----- -----
679.2 666.7
--------------------------------------------- ----- -----
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 73% of the total.
The remaining 27% of the carrying value is allocated to a further
43 countries. The goodwill and indefinite life intangibles
allocated to the USA and the UK are set out below:
Intangible
Goodwill assets 2018 2017
GBPm GBPm GBPm GBPm
---------------- -------- ---------- ----- -----
USA 277.1 - 277.1 262.4
United Kingdom 218.9 11.2 230.1 232.3
Other countries 183.2 - 183.2 183.2
---------------- -------- ---------- ----- -----
679.2 11.2 690.4 677.9
---------------- -------- ---------- ----- -----
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 12).
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 the
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 2019 that
reflect an average annual growth rate of the three-year average
inflation rate of the country (2017: 3%);
-- These forecasts exclude the impact of acquisitive growth
expected to take place in future periods;
-- Management considers these projections to be a reasonable
projection of margins expected at the mid-cycle position. Cash
flows beyond 2022 have been extrapolated using the same three-year
average inflation 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 increased from 9.9% in 2017 to
10.4% in 2018 (post-tax WACC: 8.3%). The country specific pre-tax
WACC reflecting the respective market risk adjustment has been set
between 9.7% and 14.1% (2017: 9.3% to 12.8%).
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.
The US model assumes an average centre contribution of 17% over
the next five years. Revenue and costs grow at 1.2% per annum from
2019. A terminal value centre gross margin of 17% is adopted from
2023, with a 1.2% long-term growth rate assumed on revenue and
costs into perpetuity. The cash flows have been discounted using a
pre-tax discount rate of 14% (2017: 10%).
The UK model assumes an average centre contribution of 11% over
the next five years. Revenue and costs grow at 2.4% per annum from
2019. A terminal value centre gross margin of 13% is adopted from
2023, with a 2.4% long-term growth rate assumed on revenue and
costs into perpetuity. The cash flows have been discounted using a
pre-tax discount rate of 10% (2017: 10%).
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 20% (2017: 12%) for the US and 12% (2017: 16%) for the
UK.
Occupancy - Management has considered the impact of a variance
in occupancy. The value in use calculation shows that for the
recoverable amount to be less than its carrying value, occupancy
would have to decrease by 4% (2017: 6%) for the US and 2%
(2017: 6%) for the UK.
12. Other intangible assets
Customer
Brand lists Software Total
GBPm GBPm GBPm GBPm
-------------------------------- ----- -------- -------- -----
Cost
At 1 January 2017 65.3 32.6 66.6 164.5
Additions at cost - - 3.6 3.6
Acquisition of subsidiaries - 1.6 - 1.6
Disposals - - (6.6) (6.6)
Exchange rate movements (4.4) (2.0) (3.1) (9.5)
-------------------------------- ----- -------- -------- -----
At 31 December 2017 60.9 32.2 60.5 153.6
-------------------------------- ----- -------- -------- -----
Additions at cost - - 6.9 6.9
Acquisition of subsidiaries (1) - 0.1 - 0.1
Disposals - - (1.8) (1.8)
Exchange rate movements 2.7 0.2 0.5 3.4
-------------------------------- ----- -------- -------- -----
At 31 December 2018 63.6 32.5 66.1 162.2
-------------------------------- ----- -------- -------- -----
Amortisation
At 1 January 2017 33.3 31.4 47.0 111.7
Charge for year 2.6 1.4 6.9 10.9
Disposals - - (5.0) (5.0)
Exchange rate movements (2.9) (1.9) (4.6) (9.4)
-------------------------------- ----- -------- -------- -----
At 31 December 2017 33.0 30.9 44.3 108.2
-------------------------------- ----- -------- -------- -----
Charge for year 2.5 0.8 7.1 10.4
Disposals - - (1.7) (1.7)
Exchange rate movements 1.9 0.6 0.3 2.8
-------------------------------- ----- -------- -------- -----
At 31 December 2018 37.4 32.3 50.0 119.7
-------------------------------- ----- -------- -------- -----
Net book value
At 1 January 2017 32.0 1.2 19.6 52.8
-------------------------------- ----- -------- -------- -----
At 31 December 2017 27.9 1.3 16.2 45.4
-------------------------------- ----- -------- -------- -----
At 31 December 2018 26.2 0.2 16.1 42.5
-------------------------------- ----- -------- -------- -----
1. Includes GBP0.1m on the finalisation of the accounting for
prior year acquisitions previously reported on a provisional
basis
Included within the brand value is GBP11.2m 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 11).
The remaining amortisation life for definite life brands is six
years.
13. Property, plant and equipment
Land and Leasehold Furniture Computer
buildings improvements and equipment hardware Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ---------- ------------- -------------- --------- -------
Cost
At 1 January 2017 26.3 1,533.2 628.2 122.7 2,310.4
Additions 9.5 253.0 71.2 11.2 344.9
Acquisition of subsidiaries 95.5 1.5 2.0 0.2 99.2
Disposals - (16.5) (8.5) (1.4) (26.4)
Exchange rate movements 0.1 (82.9) (32.4) (4.7) (119.9)
-------------------------------- ---------- ------------- -------------- --------- -------
At 31 December 2017 131.4 1,688.3 660.5 128.0 2,608.2
-------------------------------- ---------- ------------- -------------- --------- -------
Additions 6.4 474.1 84.6 14.5 579.6
Acquisition of subsidiaries (1) 8.6 0.2 0.3 - 9.1
Disposals - (125.8) (56.2) (7.0) (189.0)
Exchange rate movements (0.1) 49.0 19.9 1.4 70.2
-------------------------------- ---------- ------------- -------------- --------- -------
At 31 December 2018 146.3 2,085.8 709.1 136.9 3,078.1
-------------------------------- ---------- ------------- -------------- --------- -------
Accumulated depreciation
At 1 January 2017 0.4 652.4 378.9 84.3 1,116.0
Charge for the year 2.0 132.6 51.1 16.4 202.1
Disposals - (12.8) (7.5) (1.3) (21.6)
Impairment - 0.1 - - 0.1
Exchange rate movements - (32.7) (19.8) (3.1) (55.6)
-------------------------------- ---------- ------------- -------------- --------- -------
At 31 December 2017 2.4 739.6 402.7 96.3 1,241.0
-------------------------------- ---------- ------------- -------------- --------- -------
Charge for the year 2.8 155.6 52.3 14.7 225.4
Disposals - (114.4) (53.6) (7.0) (175.0)
Reversal of impairment - (0.1) - - (0.1)
Exchange rate movements 0.1 22.2 11.8 1.5 35.6
-------------------------------- ---------- ------------- -------------- --------- -------
At 31 December 2018 5.3 802.9 413.2 105.5 1,326.9
-------------------------------- ---------- ------------- -------------- --------- -------
Net book value
At 1 January 2017 25.9 880.8 249.3 38.4 1,194.4
-------------------------------- ---------- ------------- -------------- --------- -------
At 31 December 2017 129.0 948.7 257.8 31.7 1,367.2
-------------------------------- ---------- ------------- -------------- --------- -------
At 31 December 2018 141.0 1,282.9 295.9 31.4 1,751.2
-------------------------------- ---------- ------------- -------------- --------- -------
1. Includes GBP8.5m on the finalisation of the accounting for
prior year acquisitions previously reported on a provisional
basis
Additions include GBPnil in respect of assets acquired under
finance leases (2017: GBPnil).
14. Other long-term receivables
2018 2017
GBPm GBPm
---------------------------------------------------- ----- -----
Deposits held by landlords against rent obligations 82.4 76.3
Acquired lease fair value asset 3.6 4.4
86.0 80.7
---------------------------------------------------- ----- -----
15. TRADE AND OTHER RECEIVABLES
2018 2017
GBPm GBPm
---------------------------------------------------- ----- -----
Trade receivables, net 229.8 199.3
Prepayments and accrued income 213.3 167.3
Other receivables 164.3 108.7
VAT recoverable 103.1 98.1
Deposits held by landlords against rent obligations 6.0 7.2
Acquired lease fair value asset 1.0 1.2
-----
717.5 581.8
---------------------------------------------------- ----- -----
16. Trade and other payables (including customer deposits)
2018 2017
GBPm GBPm
------------------------------------ ------- -----
Customer deposits 483.2 429.8
Deferred rents 147.6 121.3
Other accruals 132.3 108.5
Trade payables 110.0 74.0
VAT payable 79.2 90.2
Deferred partner contributions 78.7 59.2
Other payables 21.4 13.7
Other tax and social security 4.8 5.1
Acquired lease fair value liability 1.7 3.0
-------
Total current 1,058.9 904.8
------------------------------------ ------- -----
17. Other long-term payables
2018 2017
GBPm GBPm
------------------------------------ ----- -----
Deferred partner contributions 389.6 293.8
Deferred rents 305.9 244.6
Acquired lease fair value liability 2.3 3.7
Other payables 6.4 11.1
------------------------------------ ----- -----
Total non-current 704.2 553.2
------------------------------------ ----- -----
18. Borrowings
The Group's total loan and borrowing position at 31 December
2018 and at 31 December 2017 had the following maturity
profiles:
Bank and other loans
2018 2017
GBPm GBPm
---------------------------------------------------- ----- -----
Repayments falling due as follows:
In more than one year but not more than two years 8.7 8.9
In more than two years but not more than five years 506.3 329.2
In more than five years 4.9 4.8
---------------------------------------------------- ----- -----
Total non-current 519.9 342.9
Total current 9.9 8.5
---------------------------------------------------- ----- -----
Total bank and other loans 529.8 351.4
---------------------------------------------------- ----- -----
19. Provisions
2018 2017
--------------------------- ---------------------------
Onerous Onerous
leases leases
and closures Other Total and closures Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------- ----- ----- ------------- ----- -----
At 1 January 3.6 5.8 9.4 3.5 5.9 9.4
Provided in the period 16.0 1.3 17.3 3.2 2.1 5.3
Utilised in the period (1.6) (3.8) (5.4) (0.3) (1.0) (1.3)
Provisions released (1.9) (0.3) (2.2) (2.8) (1.2) (4.0)
Exchange rate movements - - - - - -
------------------------ ------------- ----- ----- ------------- ----- -----
At 31 December 16.1 3.0 19.1 3.6 5.8 9.4
------------------------ ------------- ----- ----- ------------- ----- -----
Analysed between:
Current 8.3 1.4 9.7 0.4 4.1 4.5
Non-current 7.8 1.6 9.4 3.2 1.7 4.9
------------------------ ------------- ----- ----- ------------- ----- -----
At 31 December 16.1 3.0 19.1 3.6 5.8 9.4
------------------------ ------------- ----- ----- ------------- ----- -----
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 2026.
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
Provision
for deficit
Investments in
in joint joint
ventures ventures Total
GBPm GBPm GBPm
------------------------ ----------- ------------ -----
At 1 January 2017 13.6 (3.4) 10.2
Additions 0.3 - 0.3
Share of loss (0.4) (0.4) (0.8)
Exchange rate movements (1.1) - (1.1)
------------------------ ----------- ------------ -----
At 31 December 2017 12.4 (3.8) 8.6
------------------------ ----------- ------------ -----
Share of profit/(loss) 0.3 (1.7) (1.4)
Exchange rate movements (0.5) - (0.5)
------------------------ ----------- ------------ -----
At 31 December 2018 12.2 (5.5) 6.7
------------------------ ----------- ------------ -----
The Group has 52 joint ventures (2017: 49) 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:
2018 2017
GBPm GBPm
----------------------------- ------ ------
Income statement
Revenue 27.6 29.9
Expenses (31.1) (31.5)
Loss before tax for the year (3.5) (1.6)
Tax charge (0.3) (0.3)
----------------------------- ------ ------
Loss after tax for the year (3.8) (1.9)
----------------------------- ------ ------
Balance sheet
Non-current assets 15.7 15.0
Current assets 43.5 35.7
Current liabilities (57.0) (46.6)
Non-current liabilities (2.7) (1.5)
----------------------------- ------ ------
Net (liabilities)/assets (0.5) 2.6
----------------------------- ------ ------
21. Share capital
Ordinary equity share capital
2018 2017
---------------------- ----------------------
Nominal Nominal
value value
Number GBPm Number GBPm
--------------------------------- ------------- ------- ------------- -------
Authorised
Ordinary 1p shares in IWG plc at
1 January 8,000,000,000 80.0 8,000,000,000 80.0
Ordinary 1p shares in IWG plc at
31 December 8,000,000,000 80.0 8,000,000,000 80.0
--------------------------------- ------------- ------- ------------- -------
Issued and fully paid up
Ordinary 1p shares in IWG plc at
1 January 923,357,438 9.2 923,357,438 9.2
Ordinary 1p shares in IWG plc at
31 December 923,357,438 9.2 923,357,438 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. 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.
Treasury share transactions involving IWG plc shares between 1
January 2018 and 31 December 2018
During the year, 17,489,685 shares were purchased in the open
market and 1,739,476 treasury shares held by the Group were
utilised
to satisfy the exercise of share awards by employees. As at 6
March 2019, 28,736,954 treasury shares were held. 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.
2018 2017
------------------ -------------------
Number Number
of shares GBPm of shares GBPm
------------------------------------ ----------- ----- ----------- ------
1 January 12,986,745 39.6 1,170,699 2.9
Purchase of treasury shares in IWG
plc 17,489,685 40.2 16,830,000 51.1
Treasury shares in IWG plc utilised (1,739,476) (5.7) (5,013,954) (14.4)
31 December 28,736,954 74.1 12,986,745 39.6
------------------------------------ ----------- ----- ----------- ------
22. Analysis of financial assets/(liabilities)
At At
1 Jan Exchange 31 Dec
2018 Cash flow rate movements 2018
GBPm GBPm GBPm GBPm
----------------------------------- ------- --------- --------------- -------
Cash and cash equivalents 55.0 12.1 1.9 69.0
----------------------------------- ------- --------- --------------- -------
Gross cash 55.0 12.1 1.9 69.0
----------------------------------- ------- --------- --------------- -------
Debt due within one year (8.5) (1.4) - (9.9)
Debt due after one year (342.9) (175.5) (1.5) (519.9)
-------
(351.4) (176.9) (1.5) (529.8)
----------------------------------- ------- --------- --------------- -------
Net financial assets/(liabilities) (296.4) (164.8) 0.4 (460.8)
----------------------------------- ------- --------- --------------- -------
Cash and cash equivalent balances held by the Group that are not
available for use amounted to GBP4.2m at 31 December 2018 (2017:
GBP9.3m). Of this balance, GBP1.9m (2017: GBP7.1m) is pledged as
security against outstanding bank guarantees and a further GBP2.3m
(2017: GBP2.2m) 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 44 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 30 to 33 within the
Strategic Report reviews
the trading performance, financial position and cash flows of
the Group. During the year ended 31 December 2018, the Group made a
significant investment in growth and the Group's net debt position
increased by GBP164.4m to a net debt position of GBP460.8m as
at
31 December 2018. The investment in growth is funded by a
combination of cash flow generated from the Group's mature business
centres and debt. The Group had a GBP750.0m revolving credit
facility provided by a group of relationship banks with a final
maturity in 2023. As at 31 December 2018, GBP125.4m was available
and undrawn. The revolving credit facility was increased from
GBP750.0m to GBP950.0m in January 2019 and the final maturity
extended to 2024 with an option to extend until 2026.
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 taking into account
the customer deposit held is created where debts are more than
three months overdue, which reflects the Group's experience of the
likelihood of recoverability of these trade receivables based on
both historical and forward looking information. 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, not taking into account customer deposits held,
analysed by geographic region, is summarised below.
2018 2017
GBPm GBPm
--------------- ----- -----
Americas 33.3 27.8
EMEA 94.8 75.0
Asia Pacific 51.7 41.6
United Kingdom 50.0 54.9
--------------- ----- -----
229.8 199.3
--------------- ----- -----
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 Provision Gross Provision
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
---------------------- ----- --------- ----- ---------
Not overdue 175.6 - 132.4 -
Past due 0 - 30 days 38.2 - 43.3 -
Past due 31 - 60 days 11.6 - 13.8 -
More than 60 days 26.6 (22.2) 31.6 (21.8)
---------------------- ----- --------- ----- ---------
252.0 (22.2) 221.1 (21.8)
---------------------- ----- --------- ----- ---------
At 31 December 2018, the Group maintained a provision of
GBP22.2m for expected credit losses (2017: GBP21.8m) arising from
trade receivables. The Group had provided GBP17.7m (2017: GBP16.2m)
in the year and utilised GBP17.3m (2017: GBP13.5m). Customer
deposits of GBP483.2m (2017: GBP429.8m) are held by the Group,
mitigating the risk of default.
IFRS 9 requires the Group to record expected credit losses on
all of its receivables, either on a 12-month or lifetime basis. The
Group has applied the simplified approach to all trade receivables,
which requires the recognition of the expected credit loss based on
the lifetime expected losses. The expected credit loss is mitigated
through the invoicing of contracted services in advance and
customer deposits of GBP483.2m (2017: GBP429.8m) held at the end of
the year. The Group believes no provision is generally required for
trade receivables that are not overdue as they are not considered
credit impaired.
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 GBP64.8m (2017: GBP45.7m). In addition to cash and liquid
investments, the Group had GBP125.4m 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. In May, the amount of the facility
was increased from GBP550.0m to GBP750.0m with the final maturity
extended to May 2023. As at 31 December, GBP125.4m was available
and undrawn under this facility. The revolving credit facility was
increased from GBP750.0m to GBP950.0m in January 2019 and the final
maturity extended to 2024 with an option to extend until 2026.
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, GBP70.0m and
$30.0m were swapped into a fixed rate liability for a three-year
period, maturing in 2019 with an average fixed rate of respectively
0.7% and 1.8% (excluding funding margin). A further GBP30.0m
maturing in 2021 was added in 2018 with a fixed rate of 1.2%.
Although the Group has net current liabilities of GBP610.3m
(2017: GBP560.3m), 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. The Group holds customer deposits of GBP483.2m (2017:
GBP429.8m) which 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
GBP290.3m at 31 December 2018 (2017: GBP275.0m).
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. Any
surplus cash balances are invested short-term, and at the end of
2018 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:
2018
---------------------
GBPm GBP EUR USD
--------------------------------------------- ----- ----- ------
Trade and other receivables 1.1 20.8 2.3
Trade and other payables (0.8) (3.9) (8.6)
---------------------------------------------- ----- ----- ------
Net statement of financial position exposure 0.3 16.9 (6.3)
---------------------------------------------- ----- ----- ------
2017
---------------------
GBPm GBP EUR USD
--------------------------------------------- ----- ----- ------
Trade and other receivables 0.1 0.6 16.7
Trade and other payables (6.7) (8.7) (10.4)
---------------------------------------------- ----- ----- ------
Net statement of financial position exposure (6.6) (8.1) 6.3
---------------------------------------------- ----- ----- ------
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 2018, 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
GBP4.0m (2017: decrease of GBP2.6m) 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 GBP13.4m for the year
ended 31 December 2018 (2017: decrease of GBP8.6m). 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 GBP0.8m for the year ended 31 December 2018 (2017:
decrease of GBP1.7m).
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 GBP11.6m for the year ended
31 December 2018 (2017: GBP11.1m). 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 GBP3.0m for the year ended 31 December 2018 (2017:
decrease of GBP1.1m).
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 52. 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. Details of the Directors' shareholdings
can be found in the report of the Remuneration Committee on pages
63 to 77. In addition, the Group operates various share option
plans for key management and other senior employees.
Treasury share transactions involving IWG plc shares between 1
January 2018 and 31 December 2018
During the year, 17,489,685 shares were purchased in the open
market and 1,739,476 treasury shares held by the Group were
utilised
to satisfy the exercise of share awards by employees. As at 31
December 2018, 28,736,954 treasury shares were held.
The Company declared and paid an interim dividend of 1.95p per
share (2017: 1.75p) during the year ended 31 December 2018 and
proposed a final dividend of 4.35p per share (2017: 3.95p per
share), a 10% increase on the 2017 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
GBP460.8m at the end of 2018 (2017: GBP296.4m) and GBP125.4m (2017:
GBP131.8m) of committed undrawn borrowings on the GBP750.0m
revolving credit facility as at the end of the year.
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 and fair values of these instruments
is not materially different from the carrying value.
As at 31 December 2018
Effective Contractual
interest Carrying cash Less than More than
rate value flow 1 year 1-2 years 2-5 years 5 years
% GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Cash and cash equivalents - 69.0 69.0 69.0 - - -
Trade and other receivables(1) - 503.2 525.4 525.4 - - -
Other long-term receivables(2) - 82.4 82.4 - 41.2 41.2 -
Derivative financial
assets:
Interest rate swaps
- - - - - - -
* Outflow
* Inflow - 0.3 0.3 0.3 - - -
=============================== ========= ========= =========== ========= ========= ========= =========
Financial assets(3) 654.9 677.1 594.7 41.2 41.2 -
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Non-derivative financial
liabilities(4):
Bank loans and corporate
borrowings 2.9% (505.4) (505.4) (0.1) (2.0) (503.3) _
Other loans 1.4% (24.4) (24.4) (9.8) (6.7) (3.0) (4.9)
Trade and other payables(5) - (830.9) (830.9) (830.9) - - -
Other long-term payables(5) - (6.4) (6.4) - (6.4) - -
Financial liabilities (1,367.1) (1,367.1) (840.8) (15.1) (506.3) (4.9)
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
As at 31 December 2017
Effective Contractual
interest Carrying cash Less than More than
rate value flow 1 year 1-2 years 2-5 years 5 years
% GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Cash and cash equivalents 0.1% 55.0 55.0 55.0 - - -
Trade and other receivables(1) - 413.3 435.1 435.1 - - -
Other long-term receivables(2) - 76.3 76.3 - 38.1 38.2 -
Derivative financial
assets:
Interest rate swaps
- -
* Outflow - - - - -
* Inflow - 0.2 0.2 0.2 - - -
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Financial assets(3) 544.8 566.6 490.3 38.1 38.2 -
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Non-derivative financial
liabilities(4):
Bank loans and corporate
borrowings 2.5% (330.5) (330.5) - (6.2) (324.3) _
Other loans 1.9% (20.9) (20.9) (8.5) (2.7) (4.9) (4.8)
Trade and other payables(5) - (721.3) (721.3) (721.3) - - -
Other long-term payables(5) - (11.1) (11.1) - (11.1) - -
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Financial liabilities (1,083.8) (1,083.8) (729.8) (20.0) (329.2) (4.8)
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
1. Excluding prepayments and accrued income and acquired lease
fair value asset
2. Excluding acquired lease fair value asset
3. Financial assets are all held at amortised cost
4. All financial instruments are classified as variable rate
instruments
5. Excluding deferred rents, deferred partner contributions and
acquired lease fair value liability
Fair value disclosures
The fair values together with the carrying amounts shown in the
balance sheet are as follows:
31 December 2018 Carrying amount Fair value
---------------------------- ----------------------------------------------------- --------------------------
Cash flow
Cash, Other -
loans financial hedging Level Level Level
GBPm and receivables liabilities instruments Total 1 2 3 Total
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
Cash and cash equivalents 69.0 - - 69.0 - - - -
Trade and other receivables 503.2 - - 503.2 - - - -
Other long-term receivables 82.4 - - 82.4 - - - -
Derivative financial
asset - - 0.3 0.3 - 0.3 - 0.3
Bank loans and corporate
borrowings - (505.4) - (505.4) - - - -
Other loans - (24.4) - (24.4) - - - -
Trade and other payables - (830.9) - (830.9) - - - -
Other long-term payables - (6.4) - (6.4) - - - -
654.6 (1,367.1) 0.3 (712.2) - 0.3 - 0.3
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
Unrecognised gain -
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
31 December 2017 Carrying amount Fair value
---------------------------- ----------------------------------------------------- --------------------------
Cash, Other Cash flow
loans financial - hedging Level Level Level
GBPm and receivables liabilities instruments Total 1 2 3 Total
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
Cash and cash equivalents 55.0 - - 55.0 - - - -
Trade and other receivables 413.3 - - 413.3 - - - -
Other long-term receivables 76.3 - - 76.3 - - - -
Derivative financial
asset - - 0.2 0.2 - 0.2 - 0.2
Bank loans and corporate
borrowings - (330.5) - (330.5) - - - -
Other loans - (20.9) - (20.9) - - - -
Trade and other payables - (721.3) - (721.3) - - - -
Other long-term payables - (11.1) - (11.1) - - - -
544.6 (1,083.8) 0.2 (539.0) - 0.2 - 0.2
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
Unrecognised gain -
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
During the years ended 31 December 2017 and 31 December 2018,
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 For cash and cash equivalents, receivables/payables
and other receivables/payables with a remaining life of less than one
and customer deposits 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 The fair values are based on a combination
interest rate swaps 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:
2018 2017
GBP m GBP m
--------------------------------------- ------ ------
Derivatives used for cash flow hedging 100.0 70.0
--------------------------------------- ------ ------
2018 2017
USD m USD m
--------------------------------------- ------ ------
Derivatives used for cash flow hedging 30.0 30.0
--------------------------------------- ------ ------
Committed borrowings
2018 2018 2017 2017
Facility Available Facility Available
GBPm GBPm GBPm GBPm
-------------------------- --------- ---------- --------- ----------
Revolving credit facility 750.0 125.4 550.0 131.8
-------------------------- --------- ---------- --------- ----------
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 GBP550.0m to GBP750.0m with the final
maturity extended to May 2023. As at 31 December, GBP125.4m was
available and undrawn under this facility. The revolving credit
facility was increased from GBP750.0m to GBP950.0m in January 2019
and the final maturity extended to 2024 with an option to extend
until 2026.
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, GBP70.0m and
$30.0m were swapped into a fixed rate liability for a three-year
period, maturing in 2019 with an average fixed rate of respectively
0.7% and 1.8% (excluding funding margin). A further GBP30.0m
maturing in 2021 was added in 2018 with a fixed rate of 1.2%.
The GBP750.0m 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 four 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. 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
2018 2017
----------------------- -----------------------
Weighted Weighted
Number average Number average
of exercise of exercise
share price per share price
options share options per share
--------------------------- ----------- ---------- ----------- ----------
At 1 January 18,259,790 179.79 24,519,624 169.62
Granted during the year 14,785,127 200.95 2,200,507 244.28
Lapsed during the year (2,159,407) 182.91 (4,475,884) 189.71
Exercised during the year (1,544,288) 129.27 (3,984,457) 107.80
--------------------------- ----------- ---------- ----------- ----------
Outstanding at 31 December 29,341,222 191.87 18,259,790 179.79
--------------------------- ----------- ---------- ----------- ----------
Exercisable at 31 December 5,999,946 136.24 5,622,041 118.81
--------------------------- ----------- ---------- ----------- ----------
Weighted
average
exercise
Numbers price At 31 Dec Exercisable Expiry
Date of grant granted per share Lapsed Exercised 2018 from date
------------------ ---------- ---------- ------------ ------------ ---------- --- ----------- ----------
23/03/2010 3,986,000 100.50 (3,473,779) (425,258) 86,963 (1) 23/03/2013 23/03/2020
28/06/2010 617,961 75.00 (541,798) (57,086) 19,077 (1) 28/06/2013 28/06/2020
01/09/2010 160,646 69.10 (146,728) (13,918) - (1) 01/09/2013 01/09/2020
01/04/2011 2,400,000 114.90 (954,402) (481,866) 963,732 (1) 01/04/2014 01/04/2021
30/06/2011 9,867,539 109.50 (4,905,047) (4,301,951) 660,541 (1) 30/06/2014 30/06/2021
13/06/2012 11,189,000 84.95 (3,805,914) (5,830,003) 1,553,083 (1) 13/06/2015 13/06/2022
12/06/2013 7,741,000 155.60 (4,290,683) (2,185,921) 1,264,396 12/06/2016 12/06/2023
18/11/2013 600,000 191.90 (575,000) - 25,000 (1) 18/11/2016 17/11/2023
18/12/2013 1,000,000 195.00 (750,000) (83,333) 166,667 (1) 18/12/2016 17/12/2023
20/05/2014 1,845,500 187.20 (1,658,500) (106,866) 80,134 20/05/2017 19/05/2024
05/11/2014 12,875,796 186.00 (6,390,041) (48,385) 6,437,370 05/11/2017 04/11/2024
19/05/2015 1,906,565 250.80 (1,829,565) - 77,000 19/05/2018 18/05/2025
22/12/2015 1,154,646 322.20 (320,186) - 834,460 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 (181,367) - 68,222 28/09/2019 28/09/2026
01/03/2017 1,200,000 283.70 - - 1,200,000 01/03/2020 01/03/2027
14/12/2017 1,000,507 197.00 (150,253) - 850,254 14/12/2020 14/12/2027
10/10/2018 685,127 223.20 - - 685,127 10/10/2021 10/10/2028
21/12/2018 (Grant
1) 300,000 203.10 - - 300,000 21/12/2021 21/12/2028
28/12/2018 (Grant
2) 13,800,000 199.80 - - 13,800,000 28/12/2021 28/12/2028
------------------ ---------- ---------- ------------ ------------ ---------- --- ----------- ----------
Total 73,024,072 158.36 (30,148,263) (13,534,587) 29,341,222
------------------ ---------- ---------- ------------ ------------ ---------- --- ----------- ----------
1. All options have vested as of 31 December 2018
Performance conditions for share options
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
---------- ----------
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 Group performance targets for the options awarded in
December 2015, based on Group operating profit for the year
ending
31 December 2016, were met. 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 Group performance targets for the options awarded in June
2016, based on Group operating profit for the year ending 31
December 2016, were met. 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
--------------- ----------
March 2017 share option plan
The total number of shares awarded is subject to three different
performance conditions. These conditions are measured over three
financial years commencing on 1 January 2017. Thus, conditional on
meeting these performance targets, these shares will vest in March
2020. 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 2016 as follows:
% of one third of the award
Vesting scale that vest
------------------ --------------------------------
25% 100%
On a straight-line basis between
Between 5% and 25% 0% and 100%
5% 0%
------------------ --------------------------------
The TSR condition is based on the performance of the Group's TSR
growth against the median TSR growth of the comparator group as
follows:
% of one third of the award
Vesting scale that vest
------------------------------------ --------------------------------
Exceeds the median by 10% or more 100%
On a straight-line basis between
Exceeds the median by less than 10% 25% and 100%
Ranked at median 25%
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 2016 as follows:
% of one third of the award
Vesting scale that vest
---------------------------------------- --------------------------------
Exceeds 2016 ROI plus 300 basis points 100%
Exceeds 2016 ROI by less than 300 basis On a straight-line basis between
points 0% and 100%
Equal to or less than the 2016 ROI 0%
---------------------------------------- --------------------------------
Once this condition is satisfied, those options that are
eligible to vest will vest as follows:
Proportion
to vest
--------------- ----------
September 2020 1/3
September 2021 1/3
September 2022 1/3
--------------- ----------
December 2017 share option plan
The options awarded in December 2017 are conditional on the
ongoing employment of the related employee for a specified period
of time and are also subject to Group performance targets based on
Group operating profit and employee's key performance indicators.
Once performance conditions are satisfied those options that are
eligible to vest will vest as follows:
Proportion
to vest
-------------- ----------
December 2020 1/3
December 2021 1/3
December 2022 1/3
-------------- ----------
October 2018 share option plan
The options awarded in October 2018 are conditional on the
ongoing employment of the related employees for a specified period
of time and are also subject to Group performance targets based on
Group operating profit. Once performance conditions are satisfied
those options that are eligible to vest will vest as follows:
Proportion
to vest
------------- ----------
October 2021 1/3
October 2022 1/3
October 2023 1/3
------------- ----------
December 2018 (Grant 1) share option plan
The options awarded in December 2018 are conditional on the
ongoing employment of the related employee for a specified period
of time and are also subject to the achievement of a TSR
performance condition.
The TSR condition is based on the performance of the Group's TSR
growth against the median TSR growth of the comparator group as
follows:
% of one third of the award
Vesting scale that vest
------------------------------------ --------------------------------
Exceeds the median by 10% or more 100%
On a straight-line basis between
Exceeds the median by less than 10% 25% and 100%
Ranked at median 25%
Ranked below the median 0%
------------------------------------ --------------------------------
Once performance conditions are satisfied those options that are
eligible to vest will vest as follows:
Proportion
to vest
-------------- ----------
December 2021 1/3
December 2022 1/3
December 2023 1/3
-------------- ----------
December 2018 (Grant 2) share option plan
The options awarded in December 2018 are conditional on the
ongoing employment of the related employee for a specified period
of time and are also subject to various non-market performance
targets. Once performance conditions are satisfied, those options
that are eligible to vest will vest as follows:
Proportion
to vest
-------------- ----------
December 2021 1/3
December 2022 1/3
December 2023 1/3
-------------- ----------
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:
December December
2018 2018 October March
(Grant (Grant December September
2) 1) 2018 2017 2017 2016
----------------------------- --------- --------- --------- --------- --------- -----------
Share price on grant date 199.80p 203.10p 223.20p 197.00p 283.70p 258.00p
Exercise price 199.80p 203.10p 223.20p 197.00p 283.70p 258.00p
Expected volatility 37.66% 37.63% 37.15% 33.31% 27.42% 27.45%
- - 44.25% - 43.32% - 35.93% - 29.87% - 32.35%
44.35%
Option life 3-5 years 3-5 years 3-5 years 3-5 years 3-5 years 3-7 years
Expected dividend 2.95% 2.90% 2.64% 2.69% 1.80% 1.80%
Fair value of option at time 58.77p 39.36p 67.69p 40.06p 44.51p 40.96p
of grant - - 46.42p - 78.56p - 44.20p - 76.88p - 67.89p
69.33p
Risk-free interest rate 0.87% - 0.73% 0.70% 0.54% 0.23% 0.09%
1.01% - 0.88% - 0.91% - 0.75% - 0.56% - 0.38%
----------------------------- --------- --------- --------- --------- --------- -----------
June December May November May June
2016 2015 2015 2014 2014 2013
----------------------------- --------- --------- --------- --------- --------- ---------
Share price on grant date 272.50p 322.20p 250.80p 188.40p 191.00p 158.00p
Exercise price 272.50p 322.20p 250.80p 186.00p 187.20p 155.60p
Expected volatility 27.71% 24.80% 27.23% 24.67% 27.30% 40.31%
- 34.81% - 37.08% - 30.12% - 33.53% - 41.91% -48.98%
Option life 3-7 years 3-7 years 3-7 years 3-7 years 3-5 years 3-5 years
Expected dividend 1.71% 1.40% 1.59% 2.02% 2.00% 2.03%
Fair value of option at time 44.28p 29.76p 42.35p 27.24p 30.80p 39.21p
of grant - 78.68p -90.61p - 69.12p - 54.58p - 59.63p - 58.39p
Risk-free interest rate 0.14% 0.14% 0.81% 0.90% 0.99% 0.67%
- 0.39% - 0.21% - 1.53% - 1.81% - 1.47% - 1.20%
----------------------------- --------- --------- --------- --------- --------- ---------
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 of the bonus 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
2018 2017
----------- -----------
Number Number
of awards of awards
----------------------------------- ----------- -----------
At 1 January 3,321,464 3,292,656
PSP awards granted during the year 1,278,350 1,095,406
Lapsed during the year (2,413,376) (37,099)
Exercised during the year (195,188) (1,029,499)
----------------------------------- ----------- -----------
Outstanding at 31 December 1,991,250 3,321,464
----------------------------------- ----------- -----------
Exercisable at 31 December - -
----------------------------------- ----------- -----------
The weighted average share price at the date of exercise for
share awards exercised during the year ended 31 December 2018 was
234.00p (2017: 289.66p).
At 31
Date of Numbers Dec Release
Plan grant granted Lapsed Exercised 2018 date
----- ----------- --------- ----------- --------- --------- ----------
PSP 03/03/2016 1,038,179 (485,600) - 552,579 03/03/2021
PSP 01/03/2017 1,095,406 (512,367) - 583,039 01/03/2022
PSP 07/03/2018 1,278,350 (597,938) - 680,412 07/03/2023
----- ----------- --------- ----------- --------- --------- ----------
3,411,935 (1,595,905) - 1,816,030
----------------- --------- ----------- --------- --------- ----------
At 31
Date of Numbers Dec Release
Plan grant granted Lapsed Exercised 2018 date(1)
----------------------- ----------- --------- ----------- ----------- ------- ----------
CIP: Matching shares 06/03/2013 1,217,176 (506,272) (710,904) - 06/03/2018
CIP: Matching shares 05/03/2014 647,688 (409,984) (100,303) 137,401 05/03/2019
CIP: Investment shares 04/03/2015 207,952 - (207,952) - 04/03/2018
CIP: Matching shares 04/03/2015 831,808 (793,989) - 37,819 04/03/2020
----------------------- ----------- --------- ----------- ----------- ------- ----------
2,904,624 (1,710,245) (1,019,159) 175,220
----------------------------------- --------- ----------- ----------- ------- ----------
1. Based on the outstanding shares as at 31 December 2018
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:
07/03/2018 01/03/2017 03/03/2016 04/03/2015 05/03/2014 06/03/2013
---------- ---------- ---------- ---------- ---------- --------------
PSP PSP PSP CIP CIP CIP
------------------------ ---------- ---------- ---------- ---------- ---------- --------------
Share price on grant
date 240.90p 283.70p 300.00p 225.00p 253.30p 143.50p
Exercise price Nil Nil Nil Nil Nil Nil
Number of simulations 250,000 250,000 250,000 250,000 250,000 250,000
Number of companies 32 32 32 32 32 32
Award life 5 years 5 years 5 years 3 years 3 years 3 years
Expected dividend 2.37% 1.80% 1.50% 1.78% 1.66% 2.23%
Fair value of award at 124.92p- 155.83p- 183.08p- 75.67p- 83.11p-
time of grant 189.26p 236.08p 277.36p 114.6p 214.33p 83.11p-134.21p
0.99%-
Risk-free interest rate 1.21% 0.56% 0.86% 1.01% 1.47% 0.35%
------------------------ ---------- ---------- ---------- ---------- ---------- --------------
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.
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.
IWG TSR % achieved relative
to
FTSE All Share Total
% of awards eligible for vesting 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 financial
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:
Compound annual growth
in adjusted
EPS over the performance
% of awards eligible for vesting 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.
IWG TSR % achieved relative
to
FTSE 350 Index (excluding
financial
services and mining
% of awards eligible for vesting companies)
--------------------------------- ---------------------------
Below index 0%
Median 25%
Upper quartile or above 100%
--------------------------------- ---------------------------
2016 PSP Investment grant
The total number of shares awarded is 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:
% of one third of the award
Vesting scale that vest
------------------ --------------------------------
25% 100%
On a straight-line basis between
Between 5% and 25% 0% and 100%
5% 0%
------------------ --------------------------------
The TSR condition is based on the performance of the Group's TSR
growth against the median TSR growth of the comparator group as
follows:
% of one third of the award
Vesting scale that vest
------------------------------------ --------------------------------
Exceeds the median by 10% or more 100%
On a straight-line basis between
Exceeds the median by less than 10% 25% and 100%
Ranked at median 25%
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:
% of one third of the award
Vesting scale that vest
---------------------------------------- --------------------------------
Exceeds 2015 ROI plus 300 basis points 100%
Exceeds 2015 ROI by less than 300 basis On a straight-line basis between
points 0% and 100%
Equal to or less than the 2015 ROI 0%
---------------------------------------- --------------------------------
2017 PSP Investment grant
The total number of shares awarded is subject to three different
performance conditions. These conditions are measured over three
financial years commencing on 1 January 2017. Thus, conditional on
meeting these performance targets, these shares will vest in March
2022. 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 2016 as follows:
% of one third of the award
Vesting scale that vest
------------------ --------------------------------
25% 100%
On a straight-line basis between
Between 5% and 25% 0% and 100%
5% 0%
------------------ --------------------------------
The TSR condition is based on the performance of the Group's TSR
growth against the median TSR growth of the comparator group as
follows:
% of one third of the award
Vesting scale that vest
------------------------------------ --------------------------------
Exceeds the median by 10% or more 100%
On a straight-line basis between
Exceeds the median by less than 10% 25% and 100%
Ranked at median 25%
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 2016 as follows:
% of one third of the award
Vesting scale that vest
---------------------------------------- --------------------------------
Exceeds 2016 ROI plus 300 basis points 100%
Exceeds 2016 ROI by less than 300 basis On a straight-line basis between
points 0% and 100%
Equal to or less than the 2016 ROI 0%
---------------------------------------- --------------------------------
2018 PSP Investment grant
The total number of shares awarded is subject to three different
performance conditions. These conditions are measured over three
financial years commencing on 1 January 2018. Thus, conditional on
meeting these performance targets, these shares will vest in March
2023. 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 2017 as follows:
% of one third of the award
Vesting scale that vest
------------------ --------------------------------
25% 100%
On a straight-line basis between
Between 5% and 25% 0% and 100%
5% 0%
------------------ --------------------------------
The TSR condition is based on the performance of the Group's TSR
growth against the median TSR growth of the comparator group as
follows:
% of one third of the award
Vesting scale that vest
------------------------------------ --------------------------------
Exceeds the median by 10% or more 100%
On a straight-line basis between
Exceeds the median by less than 10% 25% and 100%
Ranked at median 25%
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 2017 as follows:
% of one third of the award
Vesting scale that vest
---------------------------------------- --------------------------------
Exceeds 2017 ROI plus 300 basis points 100%
Exceeds 2017 ROI by less than 300 basis On a straight-line basis between
points 0% and 100%
Equal to or less than the 2017 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 then 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).
This award lapsed in 2018.
Plan 4: Deferred Shared Bonus Plan
In March 2017, an award of 383,664 ordinary shares of 1p each in
the Company was granted to the Chief Executive Officer, Mark Dixon
and to the Company's then Chief Financial Officer and Chief
Operating Officer, Dominik de Daniel.
The awards are conditional on the ongoing employment of the
related employees for a specified period of time. Once this
condition is satisfied, those awards that are eligible will vest in
March 2020.
Reconciliation of outstanding share options
2018 2017
---------- ----------
Number Number
of awards of awards
----------------------------------- ---------- ----------
At 1 January 383,664 -
DSBP award granted during the year - 383,664
Outstanding at 31 December 383,664 383,664
----------------------------------- ---------- ----------
Exercisable at 31 December - -
----------------------------------- ---------- ----------
Measurement of fair values
The fair value of the rights granted through the employee share
purchase plan was measured based on 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:
March
2017
-------
DBSP
------------------------------------- -------
Share price on grant date 283.70p
Exercise price Nil
Number of simulations -
Number of companies -
Award life 3 years
Expected dividend 1.80%
Fair value of award at time of grant 236.04p
Risk-free interest rate 0.23%
------------------------------------- -------
25. Retirement benefit obligations
The Group accounts for the Swiss and Philippines pension plans
as defined benefit plans under IAS 19 - Employee Benefits.
The reconciliation of the net defined benefit liability and its
components are as follows:
2018 2017
GBPm GBPm
----------------------------- ------ ------
Fair value of plan assets 9.9 8.5
Present value of obligations (11.4) (10.0)
----------------------------- ------ ------
Net funded obligations (1.5) (1.5)
----------------------------- ------ ------
26. Acquisitions
Current period acquisitions
During the year ended 31 December 2018 the Group made various
individually immaterial acquisitions for a total consideration of
GBP1.5m.
Provisional
fair Provisional
value fair
GBPm Book value adjustments value
------------------------------------- ---------- ------------ -----------
Net assets acquired
Intangible assets - - -
Property, plant and equipment 0.6 - 0.6
Cash 0.7 - 0.7
Other current and non-current assets 1.0 - 1.0
Current liabilities (1.7) - (1.7)
Non-current liabilities (0.1) - (0.1)
------------------------------------- ---------- ------------ -----------
0.5 - 0.5
Goodwill arising on acquisition 1.0
------------------------------------- ---------- ------------ -----------
Total consideration 1.5
Less: Contingent consideration 0.3
------------------------------------- ---------- ------------ -----------
1.2
Cash flow on acquisition
Cash paid 1.2
------------------------------------- ---------- ------------ -----------
Net cash outflow 1.2
------------------------------------- ---------- ------------ -----------
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. GBP0.3m of
the above goodwill is expected to be deductible for tax
purposes.
If the above acquisitions had occurred on 1 January 2018, the
revenue and net retained profit arising from these acquisitions
would have been GBP4.6m and GBP0.1m respectively. In the year, the
equity acquisitions contributed revenue of GBP1.7m and net retained
profit of GBP0.6m.
There was GBP0.3m contingent consideration arising on the 2018
acquisitions. Contingent consideration of GBP1.8m (2017: GBP2.1m)
was also paid during the current year with respect to milestones
achieved on prior year acquisitions.
The acquisition costs associated with these transactions were
GBP0.2m, recorded within administration expenses within the
consolidated income statement.
For a number of the acquisitions in 2018, the fair value of
assets acquired has only been provisionally assessed, pending
completion
of a fair value assessment which has not yet been completed due
to the limited time available between the date of acquisitions and
the year-end 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.
Prior period acquisitions
During the year ended 31 December 2017 the Group made various
individually immaterial acquisitions for a total consideration of
GBP43.5m.
Provisional Final
fair Provisional fair Final
value fair value fair
GBPm Book value adjustments value adjustments value
------------------------------------- ---------- ------------ ----------- ------------ ------
Net assets acquired
Intangible assets - 1.5 1.5 0.1 1.6
Property, plant and equipment 98.4 0.6 99.0 8.5 107.5
Cash 5.5 - 5.5 - 5.5
Other current and non-current assets 0.4 0.4 0.8 - 0.8
Current liabilities (6.6) - (6.6) (0.1) (6.7)
Non-current liabilities (60.2) - (60.2) - (60.2)
------------------------------------- ---------- ------------ ----------- ------------ ------
37.5 2.5 40.0 8.5 48.5
Goodwill arising on acquisition 3.5 (8.5) (5.0)
------------------------------------- ---------- ------------ ----------- ------------ ------
Total consideration 43.5 - 43.5
43.5 43.5
Cash flow on acquisition
Cash paid 43.5 43.5
------------------------------------- ---------- ------------ ----------- ------------ ------
Net cash outflow 43.5 43.5
------------------------------------- ---------- ------------ ----------- ------------ ------
Goodwill arising on acquisitions includes negative goodwill of
GBP6.2m recognised as part of the selling, general and
administration expenses line item in the consolidated income
statement. The negative goodwill recognised is primarily due to the
fair value uplift on the acquired properties based on the valuation
provided by external valuation experts.
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. GBP0.4m of
the above goodwill is expected to be deductible for tax
purposes.
If the above acquisitions had occurred on 1 January 2017, the
revenue and net retained profit arising from these acquisitions
would have been GBP19.6m and GBP3.2m respectively. In the year, the
equity acquisitions contributed revenue of GBP11.6m and net
retained profit of GBP3.3m.
There was GBPnil contingent consideration arising on the above
acquisitions. Contingent consideration of GBP2.1m was also paid
during the prior year with respect to milestones achieved on
previous acquisitions.
The acquisition costs associated with these transactions were
GBP1.0m, 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 2018.
27. Capital commitments
2018 2017
GBPm GBPm
---------------------------------------------------- ----- -----
Contracts placed for future capital expenditure not
provided for in the financial statements 79.9 60.9
---------------------------------------------------- ----- -----
These commitments are principally in respect of fit-out
obligations on new centres opening in 2019. There are no capital
commitments in respect of joint ventures at 31 December 2018 (2017:
nil).
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:
2018 2017
------------------------ ------------------------
Property Other Total Property Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ----- ------- -------- ----- -------
Lease obligations falling
due:
Within one year 1,047.8 0.1 1,047.9 914.8 0.5 915.3
Between one and five years 3,119.0 - 3,119.0 2,630.5 0.4 2,630.9
After five years 2,474.7 - 2,474.7 1,511.3 - 1,511.3
--------------------------- -------- ----- ------- -------- ----- -------
6,641.5 0.1 6,641.6 5,056.6 0.9 5,057.5
--------------------------- -------- ----- ------- -------- ----- -------
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 GBP152.7m (2017: GBP142.7m).
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.
Amounts Amounts
Management owed owed
fees received by to
from related related related
GBPm parties party party
--------------- -------------- -------- --------
2018
Joint ventures 2.8 12.8 3.4
--------------- -------------- -------- --------
2017
Joint ventures 3.0 9.0 2.2
--------------- -------------- -------- --------
As at 31 December 2018, none of the amounts due to the Group
have been provided for as the expected credit losses arising on the
balances are considered immaterial (2017: GBPnil). 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:
2018 2017
GBPm GBPm
------------------------------- ----- -----
Short-term employee benefits 7.9 6.7
Retirement benefit obligations 0.4 0.5
Share-based payments 1.0 1.4
------------------------------- ----- -----
9.3 8.6
------------------------------- ----- -----
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 GBP2.1m (2017: GBP3.9m). 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 2018 the Group acquired goods
and services from a company indirectly controlled by a Director
of the Company amounting to GBP43,288 (2017: GBP91,120). There
was a GBP53,630 balance outstanding at the year-end (2017:
GBP9,506).
All transactions 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
2018, their principal activities and countries of incorporation are
set
out below:
% of % of
ordinary ordinary
shares shares
and and
Country votes Country votes
Name of undertaking of incorporation held Name of undertaking of incorporation held
------------------------------ ------------------ --------- ----------------------- ----------------- ---------
Trading companies Management companies
Regus Australia Management RGN Management Limited
Pty Ltd Australia 100 Partnership Canada 100
Regus Belgium SA Belgium 100 Pathway IP Sarl Luxembourg 100
Franchise International
Regus do Brasil Ltda Brazil 100 Sarl Luxembourg 100
Regus Business Service
(Shenzen) Ltd China 100 RBW Global Sarl Luxembourg 100
Regus Service Centre
Regus Management ApS Denmark 100 Philippines B.V. Philippines 100
Regus Management (Finland) Regus Global Management
Oy Finland 100 Centre SA Switzerland 100
Regus HK Management Regus Group Services
Ltd Hong Kong 100 Ltd United Kingdom 100
IW Group Services (UK)
Regus CME Ireland Limited Ireland 100 Ltd United Kingdom 100
Regus Business Centres Regus Management Group
Limited Israel 100 LLC United States 100
Regus Business Centres
Italia Srl Italy 100
Holding and finance
Regus Japan K.K. Japan 100 companies
Regus Management Malaysia
Sdn Bhd Malaysia 100
Regus Management de
Mexico, SA de CV Mexico 100 Umbrella Group Sarl Luxembourg 100
Regus New Zealand Management IWG Global Investments
Ltd New Zealand 100 Sarl Luxembourg 100
Regus Business Centre
Norge AS Norway 100 Regus Plc SA Luxembourg 100
IWG Management Sp. z IWG Group Holdings
o.o. Poland 100 Sarl Luxembourg 100
Regus Management Singapore
Pte Ltd Singapore 100 Pathway Finance Sarl Switzerland 100
Regus Management (Sweden) Pathway Finance EUR
AB Sweden 100 2 Sarl Switzerland 100
Avanta Managed Offices Pathway Finance USD
Ltd United Kingdom 100 2 Sarl Switzerland 100
Basepoint Centres Limited United Kingdom 100 Regus Group Limited United Kingdom 100
HQ Global Workplaces
LLC United States 100 Regus Corporation 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
------------------------------ ------------------ --------- ----------------------- ----------------- ---------
32. Key judgemental and estimates 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 indefinite life
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 2018, including the sensitivity to changes
in those assumptions, can be found in note 11.
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, current 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 such as IWG and could result in
significant additional tax liabilities over and above those already
provided for.
Onerous lease provisions
We evaluate the performance of centres to determine whether any
leases are considered onerous, i.e. the Group does not expect to
recover the unavoidable lease costs up to the first break point at
the Group's option. A provision for our estimate of the net amounts
payable under the terms of the lease to the first break point,
discounted at an appropriate discount rate, is recognised 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. A
provision is recognised 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
(ACCOUNTING POLICIES ARE BASED ON the Swiss Code of
Obligations)
As at As at
31 Dec 31 Dec
2018 2017
GBPm GBPm
------------------------------------------- ------- -------
Trade and other receivables 9.4 9.8
Prepayments 0.2 1.1
------------------------------------------- ------- -------
Total current assets 9.6 10.9
Investments 2,295.4 2,295.4
------------------------------------------- ------- -------
Total non-current assets 2,295.4 2,295.4
Total assets 2,305.0 2,306.3
Trade and other payables 4.3 1.6
Accrued expenses 2.3 1.4
------------------------------------------- ------- -------
Total short-term liabilities 6.6 3.0
Long-term interest bearing liabilities 207.7 106.8
------------------------------------------- ------- -------
Total long-term liabilities 207.7 106.8
Total liabilities 214.3 109.8
------------------------------------------- ------- -------
Issued share capital 9.2 9.2
Legal capital reserves - -
Reserves from capital contributions 2,185.0 2,238.7
Retained earnings (15.1) (3.0)
Loss for the year (14.3) (8.8)
Treasury shares (74.1) (39.6)
------------------------------------------- ------- -------
Total shareholders' equity 2,090.7 2,196.5
Total liabilities and shareholders' equity 2,305.0 2,306.3
------------------------------------------- ------- -------
Approved by the Board on 6 March 2019
Mark Dixon ERIC HAGEMAN
Chief Executive Officer Chief Financial Officer
Accounting policies
Basis of preparation
These financial statements were prepared in accordance with
accounting policies based on 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 for the year ended 31 December 2018, which are
available from the Company's registered office, Dammstrasse 19,
CH-6300, Zug, Switzerland.
SEGMENTAL ANALYSIS
Segmental analysis - management basis (unaudited)
United
Americas EMEA Asia Pacific Kingdom Other Total
2018 2018 2018 2018 2018 2018
--------------------------- -------- ------- ------------ -------- ----- --------
Mature(1)
Workstations(4) 174,629 96,850 92,879 74,106 - 438,464
Occupancy (%) 75.7% 77.0% 72.8% 68.8% - 74.2%
Revenue (GBPm) 961.7 527.1 368.0 376.5 4.5 2,237.8
Contribution (GBPm) 207.6 128.0 76.2 49.3 (0.2) 460.9
REVPOW (GBP) 7,278 7,072 5,440 7,387 - 6,880
2017 Expansions(2)
Workstations(4) 15,703 20,211 9,467 13,721 - 59,102
Occupancy (%) 55.1% 62.4% 52.0% 76.6% - 62.1%
Revenue (GBPm) 48.6 70.0 25.1 35.8 0.4 179.9
Contribution (GBPm) (13.0) 3.1 (3.9) 12.4 0.5 (0.9)
2018 Expansions(2)
Workstations(4) 9,421 15,264 7,989 6,036 - 38,710
Occupancy (%) 37.4% 31.9% 29.4% 30.0% - 32.4%
Revenue (GBPm) 19.8 20.8 11.5 13.3 - 65.4
Contribution (GBPm)(5) (12.3) (8.1) (7.2) (4.9) - (32.4)
Closures(6)
Workstations(4) 3,625 2,828 2,269 2,346 - 11,068
Occupancy (%) 60.5% 61.2% 54.0% 63.4% - 60.0%
Revenue (GBPm) 18.4 12.9 7.6 13.4 - 52.3
Contribution (GBPm) (8.5) (4.0) (4.3) (1.5) - (18.3)
Total
Workstations(4) 203,378 135,153 112,604 96,209 - 547,344
Occupancy (%) 72.0% 69.4% 67.6% 67.3% - 69.6%
Revenue (GBPm) 1,048.5 630.8 412.2 439.0 4.9 2,535.4
Contribution (GBPm) 173.8 119.0 60.8 55.3 0.3 409.2
REVPAW (GBP) 5,155 4,667 3,661 4,563 - 4,632
--------------------------- -------- ------- ------------ -------- ----- --------
Period end workstations(7)
Mature 175,582 99,795 93,805 76,371 - 445,553
2017 Expansions 14,626 19,963 9,694 15,260 - 59,543
2018 Expansions 19,015 35,424 17,565 13,383 - 85,387
Total 209,223 155,182 121,064 105,014 - 590,483
--------------------------- -------- ------- ------------ -------- ----- --------
Segmental analysis - management basis (unaudited)
United
Americas EMEA Asia Pacific Kingdom Other Total
2017 2017 2017 2017 2017 2017
-------------------- -------- ------- ------------ -------- ----- -------
Mature(1)
Workstations(4) 174,309 92,301 92,587 69,713 - 428,910
Occupancy (%) 74.3% 76.6% 71.3% 71.6% - 73.7%
Revenue (GBPm) 930.3 493.7 361.1 390.3 3.3 2,178.7
Contribution (GBPm) 162.3 105.9 71.4 75.2 (1.2) 413.6
REVPOW (GBP) 7,183 6,983 5,470 7,819 - 6,892
2017 Expansions(2)
Workstations(4) 7,309 7,626 3,694 6,641 - 25,270
Occupancy (%) 27.0% 38.4% 25.2% 73.1% - 42.3%
Revenue (GBPm) 10.9 20.2 5.2 14.4 0.5 51.2
Contribution (GBPm) (14.1) (5.5) (5.0) 2.6 3.0 (19.0)
Closures(3)
Workstations(4) 7,060 5,977 4,709 5,164 - 22,910
Occupancy (%) 70.6% 60.3% 67.1% 68.7% - 66.8%
Revenue (GBPm) 43.6 26.6 16.9 35.3 - 122.4
Contribution (GBPm) 5.0 (3.3) (0.5) 5.8 - 7.0
Total
Workstations(4) 188,678 105,904 100,990 81,518 - 477,090
Occupancy (%) 72.3% 73.1% 69.4% 71.5% - 71.7%
Revenue (GBPm) 984.8 540.5 383.2 440.0 3.8 2,352.3
Contribution (GBPm) 153.2 97.1 65.9 83.6 1.8 401.6
REVPAW (GBP) 5,219 5,104 3,794 5,398 - 4,931
-------------------- -------- ------- ------------ -------- ----- -------
Notes:
1. The mature business comprises centres not opened in the
current or previous financial year
2. Expansions include new centres opened and acquired
businesses
3. A closure for the 2017 comparative data is defined as a
centre closed during the period from 1 January 2017 to 31 December
2018
4. Workstation numbers are calculated as the weighted average
for the year
5. 2018 expansions includes any costs incurred in 2018 for
centres which will open in 2019
6. A closure for the 2018 date is defined as a centre closed
during the period from 1 January 2018 to 31 December 2018
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.
2015 2016 2017 2018 2019
Description Reference Aggregation Expansions Expansions Expansions Expansions Closures Total
--------------- ---------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Post-tax cash return
on net investment
(unaudited) 17.6% 0.6% - - - - 9.9%
--------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Income
statement,
Revenue p85 2,107.7 130.1 179.9 65.4 - 52.3 2,535.4
Income
Centre statement,
contribution p85 454.0 6.8 (0.9) (31.4) (1.0) (18.3) 409.2
EBIT
Loss on reconciliation
disposal of (analysed
assets below) 0.4 - - - - 13.2 13.6
Underlying centre
contribution 454.4 6.8 (0.9) (31.4) (1.0) (5.1) 422.8
Selling,
general and Income
administration statement,
expenses(1) p85 (179.4) (20.1) (28.3) (20.9) (0.8) (4.2) (253.7)
--------------- ---------------- ------------ ----------- ----------- ----------- ----------- -------- -------
EBIT
reconciliation
(analysed
EBIT below) 275.0 (13.3) (29.2) (52.3) (1.8) (9.3) 169.1
Depreciation
and
amortisation Note 5, p98 166.0 19.6 31.1 13.6 - 5.5 235.8
Amortisation of
partner
contributions Note 5, p98 (48.3) (6.2) (7.9) (4.7) - (0.4) (67.5)
Amortisation of
acquired
lease fair
value
adjustments Note 5, p98 (2.2) 0.1 0.1 0.1 - (0.1) (2.0)
--------------- ---------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Non-cash items 115.5 13.5 23.3 9.0 - 5.0 166.3
Taxation(2) (54.9) 2.7 5.8 10.5 0.4 1.9 (33.6)
--------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Adjusted net cash
profit 336.6 2.9 (0.1) (32.8) (1.4) (2.4) 301.8
Capital
Maintenance expenditure
capital (analysed
expenditure below) 109.3 2.7 - - - - 112.0
Partner
contributions
Partner (analysed
contributions below) (22.8) (0.7) - - - - (23.5)
--------------- ---------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Net maintenance capital
expenditure 86.5 2.0 - - - - 88.5
--------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Post-tax cash return 249.1 0.9 (0.1) (32.8) (1.4) (2.4) 213.3
--------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Capital
expenditure
Growth capital (analysed
expenditure below) 1,695.7 200.3 384.4 381.1 57.8 - 2,719.3
Partner
contributions
Partner (analysed
contributions below) (278.6) (58.0) (84.8) (128.2) (4.5) - (554.1)
--------------- ---------------- ------------ ----------- ----------- ----------- ----------- -------- -------
Net investment (unaudited) 1,417.1 142.3 299.6 252.9 53.3 - 2,165.2
--------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
1. Including research and development expenses
2. Based on EBIT at the Group's long-term effective tax rate of
20%
2018
Movement in capital expenditure 2015 2016 2017 2018 2019
(unaudited) Aggregation Expansions Expansions Expansions Expansions Closures Total
-------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
December 2017 1,754.5 197.9 343.7 14.0 - - 2,310.1
2018 Capital expenditure(3) 8.0 3.2 40.5 361.7 57.1 - 470.5
Properties acquired - - - 5.6 0.7 - 6.3
Centre closures(4) (66.8) (0.8) 0.2 (0.2) - - (67.6)
-------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
December 2018 1,695.7 200.3 384.4 381.1 57.8 - 2,719.3
-------------------------------- ------------ ----------- ----------- ----------- ----------- -------- -------
3. 2019 expansions relate to costs and investments incurred in
2018 for centres which will open in 2019
4. 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
2018
Movement in partner 2019
contributions 2015 2016 2017 2018 Expansions
(unaudited) Aggregation Expansions Expansions Expansions Closures Total
-------------------------------- ------------ ----------- ----------- ----------- ----------- -------- ------
December 2017 285.8 58.2 74.9 0.6 - - 419.5
2018 Partner contributions 2.8 - 9.9 127.6 4.5 - 144.8
Centre closures(5) (10.0) (0.2) - - - - (10.2)
-------------------------------- ------------ ----------- ----------- ----------- ----------- -------- ------
December 2018 278.6 58.0 84.8 128.2 4.5 - 554.1
-------------------------------- ------------ ----------- ----------- ----------- ----------- -------- ------
5. The partner contributions for an estate are reduced by the
partner contributions for centres closed during the year
2018
EBIT reconciliation (unaudited) Reference GBPm
---------------------------------- ---------------------- ------
EBIT 169.1
Loss on disposal of assets Note 5, p98 (13.6)
Share of profit in joint ventures Income statement, p85 (1.4)
---------------------------------- ---------------------- ------
Operating profit Income statement, p85 154.1
---------------------------------- ---------------------- ------
2018
Partner contributions (unaudited) Reference GBPm
----------------------------------------- -------------- ------
Opening partner contributions 353.0
------
* Current Note 16, p107 59.2
* Non-current Note 17, p107 293.8
------
Acquired in the period -
Received in the period 168.3
------
* Maintenance partner contributions 23.5
* Growth partner contributions 144.8
------
Utilised in the period Note 5, p98 (67.5)
Exchange differences 14.5
--------------------------------------------------------- ------
Closing partner contributions 468.3
--------------------------------------------------------- ------
* Current Note 16, p107 78.7
* Non-current Note 17, p107 389.6
------
2018
Capital expenditure (unaudited) Reference GBPm
------------------------------------------------- ---------------- -----
Maintenance capital expenditure CFO review, p32 112.0
Growth capital expenditure CFO review, p32 476.8
-----
* 2018 Capital expenditure 470.5
* Properties acquired 6.3
------------------------------------------------------------------- -----
Total capital expenditure 588.8
Analysed as
* Purchase of subsidiary undertakings Cash flow, p89 2.3
Cash flow, p89
* Purchase of property, plant and equipment Note 13, p106 579.6
Cash flow, p89
* Purchase of intangible assets Note 12, p105 6.9
------------------------------------------------- ---------------- -----
IFRS 16 PRO FORMA STATEMENTS
consolidated income statement (unaudited)
The purpose of these unaudited pages is to provide a
reconciliation from the 2018 reported financial results to the pro
forma statements in accordance with IFRS 16, and thereby, give the
reader greater insight into the expected impact of IFRS 16 on the
performance of
the Group.
Year ended Year ended
31 Dec Rent & 31 Dec
2018 finance Other 2018 per
As reported costs Depreciation adjustments Taxation IFRS 16
Continuing operations Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----- ------------- --------- ------------ ------------ -------- -----------
Revenue 3 2,535.4 - - (7.0) - 2,528.4
Cost of sales (2,126.2) 1,022.5 (866.1) 32.8 - (1,937.0)
---------------------------------- ----- ------------- --------- ------------ ------------ -------- -----------
Gross profit (centre contribution) 409.2 1,022.5 (866.1) 25.8 - 591.4
Selling, general and
administration
expenses (253.7) - - - - (253.7)
Share of loss of equity-accounted
investees, net of tax 20 (1.4) - - - - (1.4)
---------------------------------- ----- ------------- --------- ------------ ------------ -------- -----------
Operating profit 5 154.1 1,022.5 (866.1) 25.8 - 336.3
Finance expense 7 (15.9) (225.6) - - - (241.5)
Finance income 7 0.5 - - 0.6 - 1.1
---------------------------------- ----- ------------- --------- ------------ ------------ -------- -----------
Net finance expense (15.4) (225.6) - 0.6 - (240.4)
---------------------------------- ----- ------------- --------- ------------ ------------ -------- -----------
Profit before tax for
the year 138.7 796.9 (866.1) 26.4 - 95.9
Income tax expense 8 (33.0) - - - 0.7 (32.3)
Profit after tax for the
year 105.7 796.9 (866.1) 26.4 0.7 63.6
---------------------------------- ----- ------------- --------- ------------ ------------ -------- -----------
Earnings per ordinary
share (EPS):
Basic (p) 9 11.7 7.0
Diluted (p) 9 11.6 7.0
---------------------------------- ----- ------------- --------- ------------ ------------ -------- -----------
Pro forma adjustments recognised
The performance of the Group is impacted by the following
significant adjustments in adopting IFRS 16. The recognition of
these balances will not impact the overall cash flows of the Group
or the cash generation per share.
1. Right-of-use asset & related lease liability
These adjustments reflect the right-of-use asset recognised on
transition, together with the related lease liability. The initial
lease liability is equal to the present value of the lease payments
during the lease term that have not yet been paid. The cost of the
right-of-use asset comprises the amount of the initial measurement
of the lease liability, plus any additional direct costs associated
with setting up the lease. Rent prepayments at the date of
transition have been offset against the value of the liability
recognised.
2. Rent & finance costs
Conventional rent charges recognised in the profit or loss under
IAS 17 are de-recognised on adoption of IFRS 16. The payments
associated with these charges instead form part of the lease
payments used in calculating the right-of-use asset and related
lease liability noted above. The lease liability is measured in
subsequent periods using the effective interest rate method, based
on the applicable interest rate determined at the date of
transition. The related finance costs arising on subsequent
measurement are recognised directly through profit or loss.
3. Depreciation & lease payments
Depreciation on the right-of-use asset recognised is depreciated
over the life of the lease on a straight-line basis, adjusted for
any period between the lease commencement date and the date the
related centre opens, reflecting the lease related costs directly
incurred in preparing the business centre for trading. Lease
payments reduce the lease liability recognised in the balance
sheet.
4. Other adjustments
On transition, the remaining net book value of rent costs
previously capitalised, as costs directly incurred in preparing the
business centre for trading (i.e. as part of property, plant and
equipment), are de-recognised and eliminated directly against
retrained earnings.
Parking related costs previously expensed under IAS 17, but
explicitly detailed within lease agreements, are de-recognised from
profit or loss and included as part of the right-of-use asset and
related lease liability recognised on transition.
IWG acts as a lessor in a handful of instances. On transition,
the difference between the right-of-use asset costs arising on the
head-lease and the related finance lease receivable on the
sub-lease is recognised directly in retained earnings. The income
statement is only impacted by the finance expenses from the
head-lease offset by the finance income from the sub-lease.
5. Taxation
The underlying tax charge is not impacted by IFRS 16 over the
life of the leases but there is expected to be an upward impact on
the expected tax rate (ETR) in the short term. On transition
however, the adoption of IFRS 16 impacts the profitability of
various countries across the Group, resulting in a decrease in the
deferred tax asset recognised in respect of those countries. As
this impact arises on the adoption of IFRS 16, the corresponding
tax adjustment is recognised directly in retained earnings.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
Year
Right-of-use ended
asset 31 Dec
As at & related Rent Depreciation 2018
31 Dec lease & finance & lease Other per IFRS
2018 liability costs payments adjustments Taxation 16
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Non-current assets
Goodwill 11 679.2 - - - - - 679.2
Other intangible assets 12 42.5 - - - - - 42.5
Property, plant and
equipment 13 1,751.2 6,530.8 - (892.0) (135.9) - 7,254.1
Deferred tax assets 8 30.6 - - - - (4.2) 26.4
Non-current derivative
financial assets 23 0.3 - - - - - 0.3
Other long-term
receivables 14 86.0 - - - - - 86.0
Investments in joint
ventures 20 12.2 - - - - - 12.2
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Total non-current
assets 2,602.0 6,530.8 - (892.0) (135.9) (4.2) 8,100.7
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Current assets
Trade and other
receivables 15 717.5 (131.4) (0.8) - 5.5 - 590.8
Corporation tax
receivable 8 32.7 - - - - 0.7 33.4
Cash and cash
equivalents 22 69.0 - - - - - 69.0
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Total current assets 819.2 (131.4) (0.8) - 5.5 0.7 693.2
Total assets 3,421.2 6,399.4 (0.8) (892.0) (130.4) (3.5) 8,793.9
Current liabilities
Trade and other
payables
(incl. customer
deposits) 16 1,058.9 - (163.2) - - - 895.7
Deferred income 320.0 - - - - - 320.0
Corporation tax payable 8 31.0 - - - - - 31.0
Bank and other loans 18 9.9 905.8 - - 12.8 - 928.5
Provisions 19 9.7 - - - - - 9.7
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Total current
liabilities 1,429.5 905.8 (163.2) - 12.8 - 2,184.9
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Non-current liabilities
Other long-term
payables 17 704.2 - (305.9) - - - 398.3
Bank and other loans 18 519.9 6,002.3 231.2 (1,000.9) - - 5,752.5
Deferred tax liability 8 - - - - - - -
Provisions 19 9.4 - - - - - 9.4
Provision for deficit
in joint ventures 20 5.5 - - - - - 5.5
Retirement benefit
obligations 25 1.5 - - - - - 1.5
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Total non-current
liabilities 1,240.5 6,002.3 (74.7) (1,000.9) - - 6,167.2
Total liabilities 2,670.0 6,908.1 (237.9) (1,000.9) 12.8 - 8,352.1
Total equity
Issued share capital 21 9.2 - - - - - 9.2
Treasury shares 21 (74.1) - - - - - (74.1)
Foreign currency
translation
reserve 72.4 - (5.6) (25.9) - - 40.9
Hedging reserve 0.3 - - - - - 0.3
Other reserves 25.8 - - - - - 25.8
Retained earnings 717.6 (508.7) 242.7 134.8 (143.2) (3.5) 439.7
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Reported balance /
profit
for the year 717.6 - 796.9 (866.1) 26.4 0.7 675.5
Directly in reserves -
on adoption of IFRS 16 - (508.7) (554.2) 1,000.9 (169.6) (4.2) (235.8)
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Total equity 751.2 (508.7) 237.1 108.9 (143.2) (3.5) 441.8
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
Total equity and
liabilities 3,421.2 6,399.4 (0.8) (892.0) (130.4) (3.5) 8,793.9
----------------------- ----- ------- ------------ ---------- ------------ ------------ -------- ----------
FIVE-YEAR SUMMARY
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2018 2017 2016 2015 2014
GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- --------- --------- --------- ---------
Income statement (full year ended)
Revenue 2,535.4 2,352.3 2,233.4 1,927.0 1,676.1
Cost of sales (2,126.2) (1,950.7) (1,784.6) (1,498.6) (1,293.0)
----------------------------------- --------- --------- --------- --------- ---------
Gross profit (centre contribution) 409.2 401.6 448.8 428.4 383.1
Administration expenses (253.7) (237.6) (262.8) (268.6) (279.6)
Share of post-tax (loss)/profit
of joint ventures (1.4) (0.8) (0.8) 0.3 0.8
----------------------------------- --------- --------- --------- --------- ---------
Operating profit 154.1 163.2 185.2 160.1 104.3
Finance expense (15.9) (14.1) (11.6) (15.0) (17.3)
Finance income 0.5 0.3 0.1 0.6 0.1
----------------------------------- --------- --------- --------- --------- ---------
Profit before tax for the year 138.7 149.4 173.7 145.7 87.1
Income tax expense (33.0) (35.4) (34.9) (25.8) (17.2)
----------------------------------- --------- --------- --------- --------- ---------
Profit after tax for the year 105.7 114.0 138.8 119.9 69.9
----------------------------------- --------- --------- --------- --------- ---------
Earnings per ordinary share (EPS):
Basic (p) 11.7p 12.4p 14.9p 12.8p 7.4p
Diluted (p) 11.6p 12.3p 14.7p 12.6p 7.2p
Weighted average number of shares
outstanding ('000s) 907,077 915,676 929,830 933,458 944,082
----------------------------------- --------- --------- --------- --------- ---------
Balance sheet data (as at)
Intangible assets 721.7 712.1 738.1 666.0 549.9
Property, plant and equipment 1,751.2 1,367.2 1,194.4 917.0 718.8
Deferred tax assets 30.6 23.0 29.3 36.4 40.0
Other assets 848.7 702.7 649.2 644.3 565.2
Cash and cash equivalents 69.0 55.0 50.1 63.9 72.8
----------------------------------- --------- --------- --------- --------- ---------
Total assets 3,421.2 2,860.0 2,661.1 2,327.6 1,946.7
----------------------------------- --------- --------- --------- --------- ---------
Current liabilities 1,429.5 1,224.7 1,183.1 1,085.7 891.9
Non-current liabilities 1,240.5 907.6 736.0 658.2 517.4
Equity 751.2 727.7 742.0 583.7 537.4
----------------------------------- --------- --------- --------- --------- ---------
Total equity and liabilities 3,421.2 2,860.0 2,661.1 2,327.6 1,946.7
----------------------------------- --------- --------- --------- --------- ---------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LFFFLVDIEIIA
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