Changing the
world of work
ANNUAL REPORT AND ACCOUNTS 2019
2019 highlights
Revenue development (£m)
EBITDA development (£m)
£2,653.0m
£428.3m
2019
2018
2017
2016
2,653.0
2,402.1
2,240.0
2,129.6
2019
2018
2017
2016
*
including discontinued operations
Net growth capital investment (£m)
Number of locations
£389.0m
3,388
2019
2018
2017
2016
389.0
332.0
272.5
162.3
2019
2018
2017
2016
Cash to shareholders (£m)
Total shareholder return
£107.7m
2019
2018
2017
2016
58.2
49.5
53.7
40.2
48.5
51.1
43.3
35.5
Dividends paid in year
Share repurchases
112%
Value (£) (rebased)
250
225
175
150
125
100
428.3* ú
389.9
376.2
379.7
3,388
3,306
3,125
2,926
112%
19%
Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19
IWG plc
FTSE 350 Index
(excl. investment trusts)
Source: FactSet
Value of £100 invested in IWG plc compared with £100
invested in the FTSE 350 (excl. Investment Trusts) Index.
A glossary is included on page 159 which defines various alternative measures used to provide useful and relevant information.
∫ The comparative information has been restated to reflect the impact of discontinued operations.
Results presented in accordance with pre-IFRS 16 standards (as defined in the alternative performance measures section).
IWG plc Annual Report and Accounts 2019
Societal change, focused on a more environmentally sensitive way of
working, as well as the liberating effects of technology, enabling people
to work where and how they want, are just some of the powerful
forces driving demand for flexible workspace across the world.
As a result, businesses have to offer flexibility to remain
competitive and succeed over the long term.
As the leader in flexible workspace, IWG is well-placed
to respond to these trends, providing everyone from freelancers
to global corporations with all the options they need.
We’re not just helping millions of people to be more productive
every day. We’re also supporting them to lead more balanced and
rewarding lives.
Strategic report
1
2
4
12
20
22
24
26
Introduction
Who we are
Changing the world of work
Our brands
Market review
Our business model
Our stakeholders
Franchisees and property owners
Governance
64
66
73
75
Board of Directors
Corporate governance
Nomination Committee report
Audit Committee report
28
30
32
38
40
48
56
79
93
95
How we work
Chairman’s statement
Chief Executive Officer’s review
Strategic objectives and Key
Performance Indicators
Chief Financial Officer’s review
Risk management and principal risks
Environment, people, communities
Directors’ Remuneration report
Directors’ report
Directors’ statements
Financial statements
96
101
102
103
104
105
Independent auditor’s report to the
members of IWG plc
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement
of changes in equity
Consolidated balance sheet
Consolidated statement of cash flows
106 Notes to the accounts
Visit our website iwgplc.com
150
151
154
156
158
Parent company accounts
IFRS 16 pro forma statements
Segmental analysis
Post-tax cash return on net investment
Five-year summary
159 Glossary
160
Shareholder information
iwgplc.com
1
WHO WE ARE
IWG at a glance: the workspace leader
IWG has been helping people
and businesses have a great day
at work for more than 30 years.
Our role is set to get more important than
ever in the future, when workspace will need
to work even harder to better fit customer
needs. Our market is driven by a greater
need for flexibility and agility, for business
growth and productivity, for employee
satisfaction and reducing the impact of
business on our planet.
Over the years, we have established our
position as the global leader in flexible
working.
But our vision extends far beyond this.
To truly meet the demands of the working
world of tomorrow, a much larger footprint
and flexspace infrastructure is required.
Our network
3,388
locations in more than
110 countries
>1,100
cities providing a truly
global footprint
Ever-growing network
277
new openings supporting an ever-growing network
Franchises
245
locations operated by
30
franchise partners across
26
countries
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IWG plc Annual Report and Accounts 2019
Our customers
>2.5m
users of the network
50NPS
Net Promotor Score
70%
retention level
12,000+
employees supporting local
and global businesses
Revenue
£2,653.0m
from continuing operations
Unrivalled global footprint
62.5m
square feet of office, coworking and
meeting space
A diverse portfolio of brands providing customers with unrivalled choice
See page 12 for more information on all of our brands
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHANGING THE WORLD OF WORK
Reducing carbon
emissions and boosting
local economies
At IWG, we are
continuously upgrading
our property portfolio –
investing in state-of-the-art
‘green’ buildings and
closing inefficient, outdated
centres. This is reducing
our carbon footprint. But
far more significant is our
pioneering role in
accelerating the growth of
‘outer-city’ locations: taking
‘flexspaces’ to where people
live, cutting pollution,
reducing inner-city
congestion and boosting
local economies everywhere.
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IWG plc Annual Report and Accounts 2019
7,416 hrs
By allowing people to work closer to
home, a local office space will on
average save workers 7,416 hours in
reduced commuting time, equating to
118 metric tonnes of carbon emissions
per centre per year(1)
121 jobs
On average 121 jobs are
created in local economies that
contain a flexible workspace,
adding $9.62m to the
local economy(1)
Increasingly, it seems incredible that every
day millions of workers across the planet
travel many miles to their place of work.
It’s bad for their health, their happiness
and the environment.
And now we are seeing change, with the
arrival of flexible workspaces everywhere.
Driven by employee demand and the
changing structure of workforces, small
business growth and the adoption of
‘hub-and-spoke’ strategies by corporates,
this trend is set to continue to accelerate fast,
with investor demand for cleaner working
practices and stricter environmental
regulation both playing important roles.
At IWG, our vision of creating 50,000
centres serving every small town and
village is a significant force in driving this
fundamental change, helping create jobs
and value while saving time and cutting
carbon emissions.
1. Source: Regus Economic Survey 2019
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHANGING THE WORLD OF WORK continued
Meeting the
demands of
people and business
The demand for flexible
workspace is rising
exponentially. It’s anticipated
that by 2030, close to a third of
corporate real estate will
comprise of flexible workspace.
As the global leader, IWG has
barely scratched the surface of
the growth opportunities that
present themselves to us. Now,
with the aim of bringing our
services to every community, we
are poised to deliver
unprecedented choice.
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IWG plc Annual Report and Accounts 2019
The experience of our millions of customers
across the world shows that taking a flexible
approach to workspace cuts real estate costs
and allows a tighter focus on the core
business.
But the demand for flexible working is about
far more than finance alone. Increasingly,
it’s about people’s preferences and delivering
a range of societal benefits, especially by
helping to address environmental issues.
A flexible working policy is a proven tool
for attracting and retaining top talent, with
70% of job seekers saying that working
remotely is a must have when considering a
new job. This reflects a natural desire to
reduce commuting time with all its negative
personal, social and environmental impacts.
So the coverage of IWG’s network is
already benefiting individuals, society
and the environment. It’s also helping
organisations meet their Diversity &
Inclusion commitments, enabling new
parents, carers and older workers to
flex their working patterns and enjoy
rewarding careers.
Flexible working is no longer a perk.
It’s essential for modern success.
70%
of job seekers say that
working remotely
is a must-have when
considering a new job(3)
65%
of businesses say that flexible
workspace reduces their Capex/Opex,
helps manage risk and consolidates
their portfolio(2)
2. Source: IWG Global Workplace Survey 2019
3. Source: CBRE Survey US Market 2019
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHANGING THE WORLD OF WORK continued
Driving value
for our customers
and partners
People and businesses performing
at their best. That’s what
flexible working delivers. And
IWG’s approach, from offering
multiple brands and workspace
options to continually investing
in our services, technolog y and
platform, delivers it in more
centres and markets than anybody
else. Now, the growing impact of
our franchising model is set to
bring it to many more, as well
as benefiting our customers,
partners, communities and
shareholders right across
the world.
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IWG plc Annual Report and Accounts 2019
85%
of businesses say they are
more productive due to
flexible working(4)
50NPS
showing high levels of
satisfaction from our
customers worldwide
Observers agree that our franchising model
delivers significantly increased growth
potential alongside greatly reduced risk and
lower capital investment requirements. By
working with ambitious, carefully selected
partners, we immediately realise the value
of the operations we have built. In addition,
we continue to deliver the licensing support
and services that drive franchised network
growth and sustainable, accelerating
income streams.
It’s an approach that ensures our success is
aligned with that of our franchise partners.
And it creates a simple but powerful growth
model, without the need for heavy capital
investment in network expansion and
property maintenance.
We believe this is a compelling message
for everyone – our customers and franchise
partners, our investors and wider
society alike.
It means more opportunities for customers
to access a new and more environmentally
friendly way of working and gain the
productivity and satisfaction benefits of
using our platform and experiencing
our brands in action. More opportunities
for businesses to partner with the company
that’s leading the global real estate market’s
most significant structural shift for
many decades.
More opportunities for investors to
share in the value we generate. And more
opportunities for communities to gain from
less fractured local employment markets,
invigorated local supply chains and
business ecosystems, greater job availability
and a massive reduction in damaging
commuting levels.
4. Source: IWG Global Workplace Survey 2019
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHANGING THE WORLD OF WORK continued
Enabling
smarter working
The continually expanding
and improving range of
flexible working options
available from IWG ensures
benefits for every customer,
from global corporations to
independents. From tailored
office portfolios across several
continents right down to a
single coworking space,
IWG solutions drive
multiple gains for all.
Gains like improved working
environments and financial
effectiveness, heightened
organisational agility,
employee empowerment and
operational excellence.
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IWG plc Annual Report and Accounts 2019
62%
of businesses today say they have
a flexible working strategy(5)
Our ability to help customers become more
successful is based on three core elements:
fantastic working environments; a platform
that unlocks productivity; and a valuable
business community.
None of these would work without our
passionate, customer-focused people and
mutually supportive relationships; our
brands, tailored to every need; and our
continuous investments in technology
and innovation.
It’s our highly efficient operating platform
that keeps IWG driving forwards, with
centralised functions including strategy,
planning and product development that
ensure we can constantly spot and respond
to emerging customer needs. Our global
network of strategically sited Operational
Centres provides centralised sales and 24/7
5. Source: IWG Global Workplace Survey 2019
customer service in 40 languages. And our
Global Service Centre looks after all the
administration, freeing our centre staff to
focus exclusively on our customers.
This is underpinned by our sophisticated
technology infrastructure, our rolling global
training programmes and our ongoing
investments in customer research to ensure
continuous improvement.
These factors have supported our journey
to becoming the leader of a fragmented
global market. And they play a vital role in
attracting new partners as our growth
accelerates.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR BR ANDS
Creating value through our brands
At IWG, we believe that
business success is underpinned
by the effectiveness and
happiness of people. So we’ve
made it our mission to help
millions of people have a great
day at work – every day. Here,
we describe the brands that
help to make this possible.
IWG provides a world-leading commercial
real estate platform, drawing on our 30-year
track record of delivering the best real estate
solution for businesses worldwide. IWG’s
workspace options are risk-free for our
customers, with zero balance sheet impact
and a great solution for people as they are
designed with productivity in mind. They
are simple to use, with a full suite of business
support services that enable people to focus
on their core business and enjoy a great
day at work.
IWG covers a wider breadth of sectors and
locations than any competitor, offering
unparalleled choice to customers through
our unique portfolio of global operating
brands: Regus, Spaces, HQ, Signature and
No18. Our diverse operational portfolio
provides businesses with a variation of
design, fit-out, location, building and
customer base, enabling them to choose a
style which meets their unique needs. For
individuals, IWG offers the ability to touch
down and work in practically every major
town and city in the world. Major corporate
clients can opt for a presence wherever they
need to be, choosing an operating brand
that closely matches the needs of their
organisation and the people working
within it.
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IWG plc Annual Report and Accounts 2019
Work your way
Regus was founded in 1989 and is the
world’s largest provider of flexible workspace
solutions. Regus helps businesses find and
create the right workplace for their people,
offering choice, flexibility, community,
custom workspaces and consistently
professional locations all over the world.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR BR ANDS continued
A unique
entrepreneurial spirit
Spaces was founded in 2006 in Amsterdam.
It creates an environment where people have
freedom to do their jobs however they want
to do them. Each Spaces is designed to offer
a professional and inspirational working
environment full of timeless design classics,
inspiring art and accessories combined with
a strong community programme of
partnerships, professional events and
hospitality services.
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IWG plc Annual Report and Accounts 2019
Where real work gets done
HQ provides efficient, functional space,
offering practical places with all the
essentials businesses need, set up and
ready-to-go. It is currently available in the
UK, Germany, France, North America and
Thailand, and more countries are expected
in 2020.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR BR ANDS continued
Your key to the world’s
ultimate business locations
Signature by Regus was launched in 2018
as Regus’ iconic building brand. It
represents an exclusive selection of
landmark buildings in the most sought-after
locations in the world. Signature by Regus
provides a premium working environment,
with custom designs reflecting the quality
and nature of the building. It provides
businesses with ultimate prestige, offering
an exclusive address and place to work that
truly enhances their reputation.
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IWG plc Annual Report and Accounts 2019
The home for a rewarding
business lifestyle
No18 was launched during 2012 in the
fashion district of Stockholm. The brand
is a blend of curated business club
environments in the best locations, with
first-class service and expansive member
benefits. It’s a uniquely blended workplace,
where people do business and socialise,
moving from premium office to
contemporary restaurant and collaborative
workspaces. No18 is now growing within the
IWG portfolio, with new locations opening
in Asia, Europe and the UK in 2020.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR BR ANDS continued
Expanding our platform
Our domestic office
and coworking brands
In addition to our global brands,
we also operate domestic office and
coworking brands, providing a
unique service in key markets
around the world.
Basepoint Business Centres comprises a
network of locations across England and
Wales, providing multifunctional workspace
to start-ups and SMEs. In addition to office
space, virtual offices and meeting rooms,
Basepoint offers practical business units
which are ideally suited as studio or
workshop space.
More than just a desk, BizDojo is a
coworking and collaboration network.
It is passionate about supporting its diverse
community with an active and collaborative
culture of events, projects, programmes
and networking.
1 1 – 1 4 G R A F T O N S T R E E T
THE OFFICE OPERATORS
The Clubhouse is a leading business club
in London, providing offices, lounge and
meeting space. Designed to meet the
requirements of growing businesses, The
Clubhouse provides a luxurious, professional
space where customers can meet and work
in an inspiring and productive environment.
The Office Operators is based in the
Netherlands and Belgium, specialising
in flexible office space, reception
services and conference products. As
an organisation, it aims to unburden its
customers as much as possible in all facility
and operational matters.
Stop & Work is a flexible working brand
operating in France. Throughout its
locations, it provides a drop-in service and
professional environment for telecommuters
to use open-plan or private workspaces and
meeting rooms. Customers can access
the locations for hours, days or longer
as required.
This flexible workspace brand has locations
exclusively in Japan and Korea. OpenOffice
provides office space, virtual offices and
meeting rooms in a productive, self service
office environment.
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IWG plc Annual Report and Accounts 2019
Our digital
businesses
IWG also operates several digital
businesses, making it easy for our
customers to find and book
workspace online.
Our managed
conventional office space
Meetingo is a digital platform that provides
everything customers need for a successful
meeting, all in one place. With thousands
of meeting rooms to choose from, Meetingo
provides customers with the right space, in
the right place, at the right price. There’s
somewhere for every need, from team
training to five-star board meetings, from
city centres to business parks. Customers
can compare features, locations, pricing and
style of meeting rooms, and can book and
pay in moments.
Whether it’s a new workspace brief or
an adaptation to an existing office, IWG’s
Managed Office Solutions (MOS) can also
provide customised workspaces designed
to every client’s unique requirements.
MOS can provide additional revenue
opportunities for businesses’ surplus space
with the flexibility to re-occupy that space
in future.
Easy Offices is an online broker that makes
it easier for people to find great places to
work. It provides a powerful online search
and comparison tool to help people find
their perfect workspace. Customers can also
contact the team directly for impartial
advice and support.
Rovva is an online toolkit which provides a
range of products and services to help
people take their businesses further –
whether they’re just getting started, trying
to improve efficiency, or exploring new
markets. From virtual offices to telephone
answering. Rovva makes it easy for people
to do better business.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS MARKET REVIEW
The growing flexible workspace market
Key drivers
Impact on our industry
Concern about the environment
• An increasing sense of global citizenship, with a particular focus
on the environment
• Growing awareness and understanding of the environmental crisis,
creating a desire to actively make a change and take positive action
• Desire by millennials and Gen Z to work for environmentally
conscious businesses
• Increasing consumer, shareholder and legislative
demand for reduced environmental impact
• Growing demand for flexible workspace solutions
as businesses and individuals seek to reduce their
carbon footprints
Societal change
• Increasing demand by workers for flexible working options enabling
them to work closer to home
• Growth of small businesses requiring high-quality offices and service
levels in local markets
• Workers rejecting offers of employment without
flexible options, forcing employers to meet demands
• Local communities increasingly require high-
quality workspace
Evolving global economy
• Enterprise companies re-engineering their real estate strategies to reflect
business priorities
• Increasing need for companies to be close to customers in dispersed local
markets across the world
• Growing emphasis on ethical/environmental standards in supplier
selection and management
• Companies taking a portfolio approach to real
estate, seeking a hierarchy of sites from head
office to local offices
• Businesses seeking new ways of building
dispersed customer relationships and delivering
personalised service
• Increasing need for customers to understand and
influence supplier behaviour in local markets
Rapidly advancing technolog y
• Smart technology and universal connectivity enabling people to choose
how, when and where they work
• Companies finding it difficult to identify
appropriate investments in technology
• Keeping up with advances is expensive and the
need to maintain services is mission-critical
• Ability to expand range of digital offerings is
becoming a key differentiator
Demand for more agile property models
• Increased demand for advanced buildings and high-quality, personalised
services in the precise permutation required
• Growing requirement for ‘portfolio’ solutions rather than single-office
provision, enabling rapid shifts in location and scale
• Companies seeking partners who can meet
increasingly rigorous and mission-critical demands
• Growing complexity is increasing the need for
enterprise companies to have a single point of
contact for their property requirements
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IWG plc Annual Report and Accounts 2019
How we are responding
68% of people worldwide see
climate change as a major threat
• Investing in advanced buildings, continuously upgrading
the estate and enabling reduced commuting
Source: Pew Research Center, 2019,
A look at how people around the world
view climate change
• Upgrading or closing inefficient centres to improve
environmental performance across our portfolio
68%
62%
65%
63%
62% of companies worldwide said
they had a flexible working policy
Source: IWG’s Global
Workspace Survey 2019
65% of companies worldwide
said flexible workspace helps
reduce capital and operational
expenditure, manage risk and
consolidate a portfolio
Source: IWG’s Global
Workspace Survey 2019
63% of US companies surveyed
said they had remote workers
Source: Future Workforce Report,
Upwork in 2018
30
25
20
15
10
5
0
2019
2030
30%
of the US office market will be
flexible space by 2030
Source: JLL 2019 Flexing Their
Muscles: Markets to Watch
• Focusing network growth on local markets, enabled and
accelerated by our franchising strategy that will drive
global presence to ca. 50,000 centres
• Ability to leverage scale and brand portfolio to meet
customer needs at every stage of development
• Giving customers the opportunity to share in IWG’s
local environmental and social investment
programmes across the world
• Ability to offer global solutions, including hub-and-spoke
infrastructure to meet regional development plans
• Global network enables regional and local presence
anywhere that’s required, allowing rapid shifts in location,
scale, strategy, customer focus and product development
• With 2.5 million individuals using our services every day, we
have unmatched insight into businesses’ technology needs and
expectations
• We continually invest in world-class, resilient IT
infrastructure, innovative digital offerings and services
at all centres
• With 3,388 centres worldwide (and expanding fast),
we provide the resilience and global infrastructure to
meet all flexible-working needs
• We have the experience, scale and investment power to deliver
and continuously upgrade in line with individual expectations
• Our network comprises every type of building, serving every
kind of business need
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR BUSINESS MODEL
Delivering value through our platform
For over three decades, we have successfully developed our business model to deliver strong returns.
Today, with our unmatched scale, unique multi-brand approach and highly efficient platform
delivering everything partners and customers need, IWG is poised for unprecedented network growth.
What we do
We partner with franchisees and
property owners across the world
to provide the largest network of
flexible workspace for businesses
of every type and size. By using
our unique global infrastructure
to deliver a comprehensive service,
we ensure our partners and end
customers have a great day at work.
Key inputs
Our partner relationships
We recognise that our success depends
on that of our partners, so we use all
our experience and expertise to deliver
the service and support they most need.
Our people
We employ the best people we can find
and help them to achieve their full
potential, so they can drive our and
our partners’ business success.
Our networks
With a vision of having a centre
serving every community, we and our
partners are empowering businesses
and individuals to work flexibly and
productively anywhere in the world.
Our brands
Our growing line-up of global and
local brands segment the markets
where we operate to maximise uptake
and give ourselves and our partners a
unique growth opportunity.
Our formats
Versatile, inspiring and practical,
our formats drive worker satisfaction
and productivity.
Our platform
Our multi-faceted platform provides a
world-class, easy-to-use infrastructure
that delivers simple points of access
and a great user experience.
How we do it
Creating
access to
the flexible
workspace
market
Our
competitive
operating
model
Our
strategic
drivers
See page 38 to read
more about our
strategic priorities
Strong
governance
and risk
management
system
Property owners
Our unique portfolio of brands and formats gives
building owners a choice of flexible workspace solutions
that add value to their properties by maximising their
potential and meeting the needs of the local business
community. Our platform and associated centralised
support functions make implementation straightforward.
Operational
efficiency
Centralised
support functions
We focus on optimising
the performance and
operational effectiveness
of each of our locations.
Combined with a
disciplined approach to
overhead costs, this enables
us to continue delivering
long-term value. Our scaled
platform and centralised
support functions underpin
IWG’s operational
efficiency across the world.
Our support functions
are centralised to ensure
resources are utilised to
maximise value for our
partners, customers and
shareholders. From
procurement to marketing,
our support functions benefit
from economies of scale and
global reach to provide the
business with a consistency
of support and service.
Industry-leading
profitable growth
Best-in-class
cost leadership
Our operating model is underpinned by strong and robust
governance and a rigorous risk management model that
ensures the business is being managed prudently and risks
are appropriately assessed.
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IWG plc Annual Report and Accounts 2019
Value created
Customers
We enable businesses to perform
better, with more flexibility and
agility, staffed by more fulfilled,
effective and loyal people
Partners
We give access to an exciting,
sustainable business opportunity
powered by our global leadership,
unique experience and unrivalled
operating platform
Employees
We recognise the talents of our
diverse and passionate workforce
across the world, enabling our
people to contribute to society
while driving successful careers
Communities
We bring employment
opportunities to the heart of
communities, attracting jobs,
eradicating unnecessary travel
and encouraging societal giving
Shareholders
We deliver sustainable returns via a
progressive dividend policy that’s
enabled by our prudent approach to
investment
Franchise partners
Our franchise partners find it easy to activate our clearly
defined business model, associated brands and marketing
appeal. Building on years of experience and optimisation,
we make it easy for our partners to scale up their operations
and earn attractive returns.
Scaled
platform
Multi-
branded
IWG’s different brands
operate from a single, scaled
and highly efficient global
platform, enabling us to
provide workplace solutions
across the world in line
with every customer’s
requirements.
We recognise there is no
‘one size fits all’ solution,
so we provide our customers
with a choice of workspace
formats through our
different brands, formats and
workspaces to accommodate
their varied needs and
enable them to have a
great day at work.
Global,
multi-brand
network
Strong cash
generation,
enabling
investment
Attractive
shareholder
returns
Importantly, it also ensures that we still benefit
from an entrepreneurial spirit and our ambitions
for future growth.
See pages 48-55 and 66-72 for more on our approach to risk and
governance.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR STAKEHOLDERS
Adding value for our stakeholders
At IWG, we have a strong record of delivering value to our key stakeholders, primarily the five groups
that mean most to us: customers, partners, employees, communities and shareholders.
CUSTOMERS
PARTNERS
COMMUNITIES
Businesses of every size
Attractive business opportunities
Economic benefit
From giant global enterprises to individual
freelancers, businesses benefit in many ways
from working with IWG. As large businesses
increasingly seek more agile property
models across the world, including hub
and spoke solutions serving their regional
organisations, we can help them achieve
rapid shifts in cost, location and scale.
And smaller players gain all the advantages
of a global footprint, business-class
accommodation and customer service
that’s both high-quality and hassle-free.
Our comprehensive platform
We ensure our customers can derive the
greatest benefits from flexible working,
giving them ideal working environments,
world-class IT and security, and streamlined
administration. In short, everything they
need to focus on what really matters:
attracting the best employees, reducing risk
and costs, accelerating time to market and
improving productivity.
For many years, we have offered landlords
of all sizes, across the world, opportunities to
leverage the power of our brands to achieve
and sustain significant and sustainable
revenue streams from their property assets.
Depending on individual circumstances, we
can tailor relationships to fit all
requirements, from straightforward fit-outs
to revenue-sharing and profit-sharing
contracts.
Taking the next step
Now, new opportunities await the right
partners. Demand for flexible workspace
is growing at an exponential rate. To
meet that demand, we are looking to rapidly
expand the network through a global master
franchise programme, selling entire country
operations to partners and enabling them
to run their centres using our brands and
proven platform. This is creating an
altogether new kind of investment
opportunity, allowing franchisees to
benefit by leveraging our scale, brand
awareness and proven business model.
EMPLOYEES
Building loyalty
Our employees are the people who do most
to ensure our customers receive value from
working with us, keeping our centres busy,
fuelling our expansion, making our business
attractive to partners and ultimately
enabling us to deliver superior returns
to our shareholders.
A great day at work
We therefore aim to build loyalty by
focusing on their interests, providing
exciting rewards and opportunities, creating
great working environments and delivering
training and development programmes.
Essentially, we give them a great day at work
so they do the same for our customers.
We are determined to deliver value to the
communities where our centres are based
and aim to achieve this in a number of ways.
First and foremost, our centres attract
employment to the immediate area,
delivering increased value to local
economies.
Environmental gains
Just as important, we give opportunities
to people from our communities to work
locally, cutting back on commuting times
and distances. This in turn has a direct
environmental gain through reduced
carbon emissions.
SHAREHOLDERS
Progressive dividend
We have designed our business model,
strategy and approach to governance as a
means of ensuring that we can consistently
provide shareholders with a progressive and
sustainable dividend policy. This is carefully
balanced with our commitment to investing
in our industry-leading platform, which
includes our centres, our brands, our
technology and above all our people.
Franchising
In a major advance during 2019, our
franchising model has proven that we
can significantly accelerate our expansion
strategy while reducing risk and deploying
less capital. We believe this further
strengthens our ability to reward
shareholders for their ongoing loyalty.
Share repurchase programme
During 2019, we launched a 12-month,
£100m share repurchase programme.
We have now announced our intention to
increase the share repurchase programme
back to £100m (inclusive of the balance
outstanding from the original programme).
It’s our way of demonstrating our confidence
in the future of our business.
24
IWG plc Annual Report and Accounts 2019
Enterprise level solutions across the world
One of the world’s largest professional services firms, uses its close relationship with
IWG to deliver the operational flexibility that an employer with more than 300,000
employees across the world requires. At the time of writing, the firm operates
15 offices in flexible IWG workspaces in countries including the UK, Germany,
Vietnam and Japan. The service portfolio and terms at all sites flex to meet the firms
local requirements. In Canada, for example, 700 of its people are temporarily using
an IWG Spaces building on Vancouver’s resurgent Granville Street, gaining from the
creative energy and community spirit that comes from such a stimulating coworking
environment. In an alternative approach, 300 employees in Northern Ireland are in
a custom-designed building while the firm’s new Belfast headquarters is being built.
The three-year agreement, which involves no capital expenditure for the firm, allows
for further expansion when required. In Switzerland, meanwhile, the firm was
struggling to achieve acceptable occupancy levels for space in its Geneva building
that it has made available to outside organisations. IWG agreed to help, investing in
one floor of the building and coming to a profit-share agreement. A few months after
opening, occupancy is progressing rapidly. Close by, in Lausanne, IWG is creating a
custom-built customer-facing location for the firm; when complete, this will provide a
fully secure, fitted and furnished solution, that can expand or contract in future as
the firms needs change.
iwgplc.com
25
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS FR ANCHISEES AND PROPERT Y OWNERS
Sharing in the success of our growing network
We are keen to create
partnerships that help us grow
our global network. And that
means great opportunities
exist for building owners
and franchisees.
At IWG, partnership is the fuel driving our
global expansion plans. Over more than
30 years, we have built capital-efficient
partnerships with building owners and
landlords all over the world.
And now we’re increasingly working with
franchisees who are keen to share in the
success of our growing network, meeting
burgeoning demand for smarter working
opportunities globally.
Franchise partners
We launched our first ‘master franchise’
agreements during 2019, in Japan, Taiwan
and Switzerland, selling our entire networks
in these territories to long-term partners.
These agreements give them the right to use
the power of our brands and business model
to deliver the strong financial returns and
growth opportunities that they and
their shareholders seek (see the
TKP case study below).
During the past 12 months we have
seen some great break-through
successes, securing new partners
with significant development plans
in the UK, Thailand, the Philippines,
Germany and elsewhere.”
Steve Holloway
Global Franchise Development Director, IWG
TKP: Japan and Taiwan
In its biggest master franchise deal to date, in
May 2019 IWG sold Regus Japan Holdings KK
for £320.3m to TKP Corporation. The
agreement also enables TKP to use IWG’s
high-profile Regus, Spaces, and OpenOffice
brands and its highly efficient operating
platform in all its locations.
Adding the 130-strong Regus network to TKP’s
existing business brought the combined total to
379 centres, providing a powerful platform to
drive growth of the Japanese flexible workspace
market.
According to IWG’s CEO Mark Dixon,
“The transaction realises an attractive valuation
for IWG’s shareholders and reaffirms our
strategy of capital-efficient growth in IWG’s
global network with an increased emphasis
on partnerships.”
Having experienced how IWG’s and the
franchisee’s success go hand in hand, in
September 2019 TKP paid £22.7m for IWG’s
14 centres in Taiwan.
26
IWG plc Annual Report and Accounts 2019
We are incredibly
excited to be
joining Regus
as its first UK
franchise partner.
Regus is a market
leader with a great
franchising model
that we are
confident will
result in a
very fruitful
partnership.”
Jeet Sohal
Managing Director
of franchise partner
ACCA Office Ltd
Following the transaction, we maintain a
close relationship with our master franchise
partners, bringing them the value of our
many years’ experience to support them in
expanding their networks and our brands
into new markets.
And all the while they can use our unique
back-office support, customer service and
enquiry-handling resources to allow them
to focus on building new business and retain
existing customers. It’s an entirely reciprocal
way of working – it drives the uptake of our
brands and services while accelerating
network expansion for our partners
and ourselves.
We successfully agreed new franchise
agreements – with partners wishing to
operate between one and up to around ten
centres – in several countries, including
Spain, the Netherlands, the UK, Germany,
Thailand and the Philippines. And we made
strong progress on further deals, many of
which are on course to be delivered during
2020.
This approach opens up new opportunities
for market entrants and experienced
franchise operators alike who wish to share
the benefits of this exciting new investment
class without the more significant outlay
involved in a master franchise.
Franchise development
Property owners
During 2019, we established a team of 24
franchise business developers, covering
more than 50 countries across the world
who are actively seeking to recruit new
partners and get them set up to successfully
roll out across their regional territories.
Anybody who owns commercial property
anywhere in the world can partner with
IWG, adding value to their properties and
marketing themselves to a global audience
of high-quality commercial tenants.
Our landlord partners not only gain
access to the flexible workspace sector –
the fastest-growing sector of the global
commercial real-estate market; supported
by our experience and infrastructure, they
can transform their properties to create
space and formats in their buildings that
suit a wide range of asset types, locations,
customer needs and price points.
SME Group: UK
A critical part of the success of IWG’s franchise strategy
is to ensure the first openings are really positive.
One of the first franchise openings in the UK market,
in Southgate, is a prime example. This was a territory
secured by established franchise operator SME Group,
which signed up to a 10-centre network in
north-west London.
SME already operates franchises in the UK and Canada for
brands including Pizza Hut, KFC and Costa Coffee. Its first
opening comprised the fifth floor of a building immediately
opposite Southgate train station, offering 12,000 sq. ft. of
space. After only three months of trading, the centre was
already close to 50% occupancy and proving to be a real
commercial success.
SME is now looking to accelerate its growth plans to open
further locations across its regional territory.
iwgplc.com
27
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS HOW WE WORK
A place for business to thrive
IWG’s flexible workspace solutions make it easy for businesses to create space that meets their requirements.
We are located in every major town, city and transport hub worldwide, so start-ups, global companies,
and every business in-between can work wherever they need. Workspace can be booked for as little as
a day, or customers can stay for many years and personalise their office to suit their unique needs.
Coworking
A vibrant community
working within bright,
inspiring coworking
environments. Open
plan or shared office
coworking spaces
available.
• Thousands of
locations
• Hot desk and
dedicated desk
• Networking and
collaboration
Office space
Fully furnished
workspace that’s set up
and ready to use. Ideal
for teams of all sizes.
• Add or remove space
as needs change
• Customisable space
• Flexible terms means
businesses can grow
without risk
Virtual office
A fast way to build
a business presence;
an instant address
and access to
workspace when
needed.
• Thousands
of locations
• Use of global
business lounges
• Mail forwarding
and phone
answering
available
Custom office
Private office space tailored to the
unique needs of our customers.
• Range of layout options
• Collaboration and focus spaces
• Choose furniture and accessories
28
IWG plc Annual Report and Accounts 2019
Membership
Flexible access to
our global network
of workspaces.
• Join via our app
• Memberships for
all budgets
• Work anywhere
in the world
Business lounges
Access to thousands of
business lounges across
the world.
• Use of the entire IWG
network
• Locations all over
the world
• Choose number of visits
a month
Meeting rooms
Inspiring meeting
venues for your next
board meeting,
training session,
interview or pitch.
• Thousands
of rooms
• Configured to
requirements
• Reception team to
greet guests
Workplace recovery
Access serviced workspace
in times of crisis and keep
teams working whatever
happens.
• Guaranteed in
any emergency
• Extensive network
of locations
• 24/7 operational
support
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29
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHAIRMAN’S STATEMENT
The right strategy at the right time
We are proud to
be a business in
which reducing
environmental impact
is an integral part of
the strategy and which
is also strongly
founded on benefits
being shared by all our
stakeholder groups.”
Douglas Sutherland
Chairman
The growth potential for the flexible working sector is now widely understood.
Organisations are increasingly aware of the significant benefits of using
flexible workspace solutions. Landlords and developers are responding to this
expanding demand by incorporating flexible workspace solutions into their
plans.
30
IWG plc Annual Report and Accounts 2019
Our multi-brand offering provides a wide
variety of attractive working environments,
and our plans to accelerate the growth of our
extensive national networks through
franchising are set to strengthen our global
market leading position even further.
Performance 2019
Our results for 2019 are reported under the
new accounting standard for leases, IFRS 16,
and our results for 2018 were not restated
and reflect pre-IFRS 16 (IAS 17) accounting
standards. Comparative information and
commentary is provided on an IAS 17 basis,
because we believe it better represents the
economics of our leases over their life cycle
and is consistent with how we manage
the business.
Our results for 2019 demonstrate strong
revenue growth and record profitability.
Group revenue increased from £2,402.1m to
£2,653.0m, an increase of 9.2% at constant
currency. This revenue performance includes
the impact arising from our decision to
proactively rationalise elements of our global
network. Consequently, the 15.0% constant
currency increase in open centre revenue to
£2,569.8m indicates the strength of the
ongoing business. The record profit before
taxes for 2019 of £430.1m under IFRS 16 and
£489.5m on an IAS 17 basis includes the
profit from the signing of master franchise
agreements during the year which were
reported under discontinued operations.
Operating profit from continuing operations
was £287.9m under IFRS 16. With this being
a transformational year for the Group, which
has involved significant investment, we are
pleased to report an 8% constant currency
increase in operating profit to £137.7m (2018:
£124.9m) on an IAS 17 basis. Excluding
network rationalisation costs, operating profit
was £176.2m.
The inherent cash generation of our business
model, along with the £424.6m of cash from
the completion of master franchise
agreements during the year, leaves the Group
in a strong financial position. Net debt under
IFRS 16 was £6,840.1m and under IAS 17
net debt reduced to £294.1m (2018:
£460.8m), notwithstanding returning
£107.7m to shareholders and continued
investment in our company owned network
and global platform infrastructure.
Strategic update
We are committed to delivering long-term
value to shareholders and understand this
depends on executing against a strategy which
provides value for all our stakeholders:
customers, partners, employees and
communities as well as shareholders.
We also continue to develop our partnering
approach with landlords and suppliers,
building new, broader relationships for the
future. Such relationships have proven to be
mutually beneficial, bringing us access to
buildings and enabling owners and landlords
to promote and expand their position in their
local real estate markets.
We continue to pursue our profitable growth
approach, the advantages of which were very
evident during 2019. Achieving profitable
growth requires significant discipline and
hard work and encompasses much more than
rigorous investment processes alone. We
continue to use our deep industry knowledge
to improve our digital platform and processes
to enhance the customer experience and
improve our employees’ efficiency and job
satisfaction. We are proud to be a business in
which reducing environmental impact is an
integral part of the strategy and which is also
strongly founded on benefits being shared by
all our stakeholder groups.
Customers benefit from our multi-brand
strategy, which provides the largest choice of
working environments for their people. We
offer a far greater choice of location than our
competitors, facilitating shorter commutes
and timely alignment of workspace to
customer needs, reducing costs related to
under-utilised space. Organisations can
therefore reduce their carbon footprint and
save costs while improving employee
satisfaction. When customers put their people
in our flexible workspaces, we understand
their desire to maintain the important aspects
of their own culture. We therefore focus on
customer service and continuously improving
customer experience, delivering a great day at
work whilst not distracting them from their
own objectives.
Our operating model provides the
opportunity for franchisees to invest for
attractive returns while enabling us to
accelerate growth. We gained many new
franchising partnerships during 2019,
including significant master franchising
agreements with TKP covering Japan and
Taiwan and the Safra/Peress Groups for
Switzerland. For the first time, we invited our
franchise partners to our senior leadership
conference, held in Athens in January 2020.
We are very excited about developing close
relationships with them and the opportunities
to learn from one another as we work together
to grow the IWG flexible workspace network.
People update
Accelerating growth clearly means expanding
career opportunities for our people, who are
the key to delivering our strategy and our
success on a daily basis. Their creativity,
energy, commitment and tireless efforts to help
are driving our performance through this
period of rapid change. A new level of
enthusiasm is evident in our people as we look
forward to 2020 and delivering a great day at
work is a clear objective for our own people as
well as our customers. On behalf of the Board,
I would like to give a special thanks to all our
people for their many contributions to our
achievements during 2019.
Board update
We welcomed two new members onto the
Board during 2019: Eric Hageman as Chief
Financial Officer and Laurie Harris as a
Non-Executive Director and Chair of the
Audit Committee. The Board remains very
active as the Group pursues the unique
opportunities currently presented by the rapid
changes in the flexible workspace market. I
would like to thank all my Board colleagues for
their significant time commitments and
valuable contributions during this
transformational period.
Returns to shareholders
We continue to be committed to delivering
cash to shareholders through distributions and
share repurchases. We will continue with our
underlying progressive dividend policy and are
therefore recommending a 10.3% increase in
the final dividend to 4.80p. This represents an
increase in the full year dividend of 10.3% to
6.95p (2018: 6.30p). Having completed
£49.5m of the current share repurchase
programme with the purchase of 12,379,535
shares, we have increased the programme back
to £100m (inclusive of the balance outstanding
from the original programme) in line with our
strategy of delivering cash to shareholders.
DOUGLAS SUTHERLAND
Chairman
3 March 2020
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31
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE OFFICER’S REVIEW
Well positioned in a fast-changing world
2019 was a
transformational year for
IWG, with sweeping
changes to our competitive
landscape, a radical shift
in the perspective of
corporations and a rapid
acceleration of our strategy
for growth.”
Mark Dixon
Chief Executive Officer
Three decades on from the Company’s launch, 2019 proved to be a
transformational year in the development of IWG.
32
IWG plc Annual Report and Accounts 2019
2019 was a transformational year for IWG,
with sweeping changes to our competitive
landscape, a radical shift in the perspective
of corporations and a rapid acceleration of
our strategy for growth. Together, these
developments have validated our long-held
view that we are at the forefront of a
revolution in the global corporate real estate
market that is radically changing how
businesses everywhere think about the
places where their people work.
The positive developments
affecting IWG were reflected
in the strength of our financial
results:
Our results for 2019 are reported under the
new accounting standard for leases, IFRS
16, which became effective from 1 January
2019. Our results for 2018 are not restated
and reflect pre-IFRS 16 accounting
standards. To provide a more insightful view
of the Group’s year-on-year performance,
the impact of IFRS 16 is summarised in the
pro forma statements provided below and in
the Chief Financial Officer’s review. We
believe providing commentary on the results
in accordance with pre-IFRS 16 accounting
standards provides a better representation of
the Group’s performance and is consistent
with how we manage our business day-to-
day and more closely reflects the economics
and cash flows over the life cycle of our leases.
These results also reflect the significant
franchising transactions in Japan, Taiwan
and Switzerland which, in accordance with
IFRS 5, are treated as discontinued
operations. This is purely an accounting
definition and does not reflect the
commercial reality that these operations,
now owned and operated by our partners,
continue to be an important strategic
component of the Group’s overall network.
Group revenue increased 9.2% at constant
currency to £2,653.0m. These Group
numbers include the impact of the proactive
acceleration of the rationalisation of the
network. We rationalised approximately 6%
of our opening network with the closure of
195 centres during the year. Consequently, a
more representative indication of the
performance of the continuing business is
provided by open centre revenue which
increased 15.0%, at constant currency, to
£2,569.8m, with good double-digit growth
maintained throughout the year despite
strengthening comparatives.
Group income statement
Continuing
£m
Revenue
Gross profit (centre contribution)
Overheads
Operating profit(1)
Profit before tax
Taxation
Profit after tax
EBITDA
1. Including joint ventures
2019
(IFRS 16 basis)
2,653.0
566.4
(281.2)
287.9
55.9
IFRS 16
impact
–
(151.3)
(1.1)
(150.2)
63.6
2019
(IAS 17)
2,653.0
415.1
(280.1)
137.7
119.5
15.4
134.9
428.3
2018∫
(IAS 17)
2,402.1
374.5
(248.2)
124.9
109.6
(29.7)
79.9
389.9
% change
(constant currency)
% change
(actual currency)
9.2%
9%
12%
8%
8%
10.4%
11%
13%
10%
9%
69%
10%
After significant investment in the new 2018 and 2019 openings and the impact from the rationalisation programme, the Group generated a
gross profit of £415.1m (2018: £374.5m), an increase of 9% at constant currency. Excluding the impact of our investment in new centres and
the network rationalisation, the gross profit on pre-2018 business increased 17.9% to £495.1m.
Revenue and gross margin
Revenue £m
Gross margin % (IAS 17 basis)
Continuing
2016 Aggregation
New 17
Pre-2018
New 2018
New 2019
Open centre revenue
Closures
Group
iwgplc.com
2019
2,047.0
204.4
2,251.4
236.2
82.2
2,569.8
83.2
2,653.0
2018
% change
(constant currency)
1,980.2
165.3
2,145.5
62.6
–
2,208.1
194.0
2,402.1
2.0%
23.3%
3.6%
278.6%
–
15.0%
(57.2)%
9.2%
2019
22.9%
12.8%
22.0%
(10.5)%
–
17.4%
(37.0)%
15.6%
2018∫
21.3%
–
19.6%
(47.9)%
–
17.6%
(7.6)%
15.6%
33
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS we’ve seen during its lifetime and to consider
the accelerating change we are experiencing
today.
The way the world and our lives have
evolved since 1989 is phenomenal.
The internet has changed all our lives.
The smartphone and social media have
revolutionised how we communicate.
What was unimaginable 30 years ago is
the norm today. And the last decade has
seen the sheer pace of changes ramp up.
But of all those 30 years, I believe that
2019 was the one in which the opinions and
priorities of our partners, our customers and
shareholders underwent the fastest and most
significant change.
Environment: customer
priority number one
All these factors remain important, of
course. But today, a single factor, the
environment, is at the top of just about
every corporate agenda – just as it’s at the
top of ours at IWG. Futurologists, sector
analysts, real estate consultancies and
other experts agree that preoccupations
with environmental issues and worker
satisfaction will be the most powerful
drivers of fundamental change in the
way people work.
And this is set to have a major impact
on companies’ real estate strategies,
significantly increasing their demand for
flexible property solutions. JLL, one of the
CHIEF EXECUTIVE OFFICER’S REVIEW continued
OPEN CENTRE REVENUE
GROWTH
PRE-2018 EBITDA
GROWTH
15%
15%
Group EBITDA increased 8% at constant
currency to £428.3m (2018: £389.9m).
EBITDA generated from the pre-2018 estate
increased 15% from £404.9m to £472.2m.
We have continued to invest significantly in
the ongoing development of the business and
resources to deliver our strategic goals. With
this investment, overheads increased 12% at
constant currency to £280.1m from
£248.2m. This investment continued to be
made within the Group’s strong cost control
framework. Consequently, the resultant
increase in overheads as a percentage of
revenue was 22bps (adjusted after rounding)
to 10.6%.
After this investment in overheads, the
start-up costs of new centre openings and
the impact of the network rationalisation
programme, which resulted in the closure of
195 locations, operating profit increased
8% at constant currency to £137.7m.
Excluding network rationalisation costs,
operating profit was £176.2m.
In addition to investing in our
rationalisation programme, which is already
having a positive effect on the business, we
have continued to invest in adding more
attractive space to our network. Flexibility
in the Group’s lease portfolio, with variable
leases and break clauses, enable the Group
to respond quickly to market challenges. In
2019, we increased our net growth capital
investment to £389.0m from £332.0m in
2018. In addition to adding 277 new
locations and a record 8.4m sq. ft. of
attractive space, the capital expenditure in
2019 includes a significant investment
relating to locations due to open in 2020 and
some that were opened in 2018. Reflecting
the ongoing refurbishment programme,
which we stepped up in 2018, we
additionally invested £147.8m in
maintenance capital expenditure in 2019
(2018: £112.0m).
Cash flow generation remains a very
attractive feature of our business model.
Notwithstanding the increase in
maintenance capital expenditure, we
generated £649.2m of cash flow, including
the £424.6m cash received from the three
master franchise agreements completed in
the year. After the significant investment in
growth capital expenditure, dividends of
£58.2m and share repurchases of £49.5m,
we were able to reduce net debt from an
opening position of £460.8m to £294.1m
at 31 December 2019. This represents a
net debt to EBITDA ratio of 0.7x, which
maintains our prudent approach to the
Group’s capital structure. Additionally,
we continue to hold approximately
£150m of property investments on the
balance sheet.
30 years of accelerating
change
As we marked 30 years since the creation of
the business that is now IWG, 2019 was a
natural moment to reflect on the changes
Spaces – Arizona, USA
34
IWG plc Annual Report and Accounts 2019
world’s largest property brokers, predicts
that the flexible proportion of the US office
stock is set to increase to around 30% by
2030. Others anticipate similar growth.
This presents a significant growth
opportunity for IWG.
In recent years, we have talked about the
‘workspace revolution’ and it is clear that the
world’s largest companies are increasingly
moving away from a large, single head office
to base employees in flex spaces in their own
communities away from large metropolitan
centres. Before the end of this coming
decade, flexible working close to home will
be nothing other than the norm. As a result,
the concept of the commute to work will
become increasingly alien, reducing a major
source of carbon emissions.
As a business, we are doing what we can to
help address the environmental crisis,
upgrading our buildings to reduce power
consumption and cut emissions. As well as
fully meeting the UK Compliance
requirements of the CRC (formerly Carbon
Reduction Commitment) and ESOS
(Energy savings Opportunity Scheme), we
voluntarily disclose our climate change
management strategies to the Carbon
Disclosure Project (CDP) who have assessed
us as “taking coordinated action on climate
issues” and given us a score higher than the
market average.
So, as we enter a new decade, I am very
excited to think that IWG is uniquely placed
to help organisations across the world
reduce their environmental impact by
providing flexible and remote working
capabilities that enable people everywhere
to work closer to home.
Three foundations for growth
For us, it is now a case of fully developing
the infrastructure, the tools and the
capabilities needed to enable this to happen
in every continent, region, country and
community. These are the three key
foundations supporting our growth.
Foundation 1: our global network
The most essential requirement is to create a
global network of physical places for people
to work, and this remains the overriding
priority for IWG. We have spent three
decades growing our centre numbers
significantly. In 2019 we determined to
increase our year-on-year growth rate to
between 20% and 30% during the 2020s, to
accelerate the expansion of our network.
Regus – Manchester, UK
The challenge is not unlike the one that
McDonald’s faced some years ago, realising
that people could only eat their food if they
had easy local access to a restaurant. In
2019, the company had over 38,000
restaurants in over 100 countries and
surpassed $100bn in Systemwide sales. And
the way that McDonald’s rose to the
expansion challenge was the same that we
have adopted – through franchising.
2019 was the year in which our franchising
activities were transformed, with our
product and service offering that positions
us for growth with our franchisees by
aligning our success with theirs. This is
enabling us to find more and more partners
across the world to accelerate network
growth to our target of ca. 50,000 centres,
including master franchise agreements in
Japan, Taiwan and Switzerland. We also
entered into several smaller agreements in
countries including Guyana, the Philippines,
Germany, UK (and more) during 2019,
meaning we now have a total of 30 franchise
partners in 26 countries representing over
7% of our global network.
What is most exciting is that our partners
too are committed to growth, meaning that
we have growing numbers of routes to new
centre openings. This allows us to generate
revenues through franchising, brand
licensing and services provision within a less
capital-intensive framework.
This route to growth creates a platform
business which is higher margin and highly
cash generative as well as much easier for
shareholders to understand and for us to
manage.
Foundation 2: innovation
The second key foundation supporting our
growth is innovation. We made strong
progress during the year in this area,
particularly through embedding digital
technology and methods.
For example, today a single IWG employee
can run one of our centres exclusively
through a single app on a smartphone. That
is transformational, as is our new ‘Design
your own office’ solution which enables
clients to do precisely as the name suggests.
Drawing on our centralised services, they
can choose exactly the furniture and fit-out
they want – at any time during a contract,
not just at renewal. Not only does this add
value for our customers, making them more
likely to stay with us for longer – it also adds
a new income stream for us and provides
further differentiation from our competition.
We also developed several tools to make
interaction easier with those large
companies that increasingly represent more
of our customer base.
Foundation 3: our people
Our people provide us with the third key
foundation, particularly through their
iwgplc.com
35
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE OFFICER’S REVIEW continued
All these requirements play directly into
IWG’s hands. As global market leader, we
are strongly positioned to simply and
cost-effectively create and adapt to their
changing needs and provide a bespoke
network of fully serviced multiple sites that
their people love working in.
Key driver 3: IFRS 16
The third of these key drivers is the IFRS 16
accounting standard. This new standard,
which was effective from 1 January 2019,
requires organisations to recognise assets
and liabilities for leases with a duration of 12
months or more.
As we anticipated when the new standard
was introduced, this has caused
organisations whose main business is not in
property to question the need to commit
material capital investments in long-term
leases. As a result, the flexibility inherent in
working with IWG has become even more
attractive to them, and we are seeing
significant increases in demand for our
services as a consequence.
The role of our brands
While all our customers want flexible
workspace solutions, they do not all want
exactly the same style, working environment
or service portfolio. Different parts of the
same organisation often require an entirely
different style and execution. This is why we
are continuously addressing the make-up of
our unique multi-brand portfolio, which
allows us to meet the needs of business
regardless of scale, market, location or
image.
The value of our brands as corporate
properties was highlighted during 2019
through their important role in attracting
franchise partners and delivering licensed
revenue streams. During the year, we
expanded our brand portfolio, and saw
significant growth for both Regus (with 122
new centres), and for our Spaces coworking
format, which added 117 new locations.
An evolving competitive
landscape
2019 was also a year in which the nature of
our competitive landscape underwent
significant change. I believe this highlighted
the value of our approach over the long term
– growing our model through return on
capital and using a strong balance sheet to
ensure we can deliver against the
expectations we set.
Regus – Kuala Lumpur, Malaysia
relationships with our customers. It is
essential that each one of our customers is
left with a highly favourable impression of
our colleagues, our brands and our company
as a whole.
During 2019, our investments in training to
improve service and enable the use of
efficient digital platforms paid off strongly,
with our Net Promoter Score (NPS) hitting
a record level of 50, up from 35 in 2018.
Driving this even higher remains a key
priority for 2020 and the years ahead.
On a personal level, I am extremely proud
that when asked what their job is for, so
many of our people will respond “To give
our customers a great day at work.” This
demonstrates an essential understanding of
what IWG exists to achieve.
Our key drivers
I have already touched on environmental
considerations as a major driver of IWG’s
growth over the next decade, and I believe
that this is fundamental to our future.
However, there are three other major factors
which will drive our future growth.
Key driver 1: what people want
The first of these is what people want from
their working lives. In our most recent
survey (www.iwgplc.com/global-workspace-
survey-2019) of the most important factors
involved in selecting a job, the desire to work
closer to home was very important.
Essentially, people are telling us not having
to commute is the single factor that would
do most to make their lives better.
The idea of getting up early to jump into
their cars or overcrowded trains and travel
many miles to a workplace will one day soon
seem incredible. This is particularly the case
given the fact that people who do so are
almost invariably carrying with them the
tools – laptops, tablets and smartphones –
that they’ll use to do the work when they get
to their destinations. It simply does not make
sense, and I am delighted that we can offer
an alternative that does – for people and the
planet.
Key driver 2: what companies want
The second force at play is what companies
want. Essentially, they want a
straightforward property “product” that
gives them a range of cost, simplicity,
flexibility and value advantages. Perhaps
most important of all, they want to be able
to hire and retain better people, wherever
they are required all over the world.
36
IWG plc Annual Report and Accounts 2019
The events of 2019 showed the world that, despite our own longevity
and resilience as a business, we continue to be the market leader in an
industry that is not yet mature.”
The events of 2019 showed the world that,
despite our own longevity and resilience as a
business, we continue to be the market
leader in an industry that is not yet mature.
That balance sheet strength and our success
in partnering with new franchisees across
the globe means that we have the capacity to
grow in market environments where others
find it hard to raise funding or deliver on
their aspirations.
The changing marketplace once again
highlighted the dangers that competitors
can face if they underestimate some of the
complexities involved in transforming a
building into a product that people can buy
to experience a great day at work. Our view
remains that while the barriers to entry in
this market continue to be relatively low, the
barriers to success are very high. We uniquely
have the benefits of over 30 years’ experience
and continuous innovation and product
development. As a result, we today deliver
more than 120 service lines, which enhance
our ability to deliver high customer service
while driving around 28% of our revenues.
Our experience also helps us to flourish
even in testing economic conditions that our
competitors find challenging.
For us, economic downturn often delivers
opportunity, and we therefore invest for the worst
of times. In short, I believe that there will be
more market consolidation in the years ahead,
and we are well-placed to take advantage of
any opportunities that this generates.
Looking ahead
2019 has been a transformational year for
IWG. We made significant progress in our
pivot towards becoming a franchised
organisation and delivered strong revenue
growth and record profits. We continue to
see strong demand globally and to welcome
more great partners to the business. As
organisations increasingly seek ways to
address the challenges of climate change, we
believe that more and more are recognising
the role to be played by remote, distributed
and flexible working strategies.
The outbreak of COVID-19 has led to brief
closures of our centres in China and we are
closely reviewing the ongoing developments
worldwide. Whilst we cannot be certain how
long this situation will last; we continue to
monitor the situation and will act swiftly
where necessary to help ensure the safety
and wellbeing of our customers and
employees. We are extremely grateful for the
incredible effort of our teams in dealing with
this global health emergency.
We will continue to work closely with our
partners, develop our network and invest in
our people, our brands and our services, to
ensure that we remain the leading player in
our industry. Even in this period of global,
political and economic uncertainty, we are
confident that the Group will continue to
deliver strong returns for all our
stakeholders, and this is reflected in the
increased proposed dividend and new
£100m share repurchase programme.
MARK DIXON
Chief Executive Officer
3 March 2020
Spaces – Helsinki, Finland
iwgplc.com
37
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS STR ATEGIC OBJECTIVES AND KEY PERFORMANCE INDICATORS
A strategy for sustainable growth
We aim to deliver sustainable
profitable growth for our
investors through providing
customers globally with an
unrivalled choice of convenient
work environments that suit
the full range of workspace
and service needs.
Industry-leading
profitable growth
Best-in-class
cost leadership
Pre-2018 EBITDA
development (£m)
Total overheads as
percentage of revenue (%)
£472.2m
Pre-2018 EBITDA* increase of 15%
at constant currency.
10.6%
Overheads as a % of revenue
well controlled.
2019 – Pre-2018*
2018 – Pre-2017*
2017 – Pre-2016*
2016 – Pre-2015*
472.2
447.3
414.1
406.9
2019
2018
2017
2016
10.6
10.3
10.4
11.9
*
Including only those operations that were
open throughout the period and
pre-IFRS 16
We aim to deliver long-term revenue
growth, driven by expanding our
network coverage in growth markets
and innovating to create incremental
revenue streams. By also focusing
strongly on controlling costs, we aim
to generate profitable growth and
reinvest in the business to continue to
provide attractive shareholder
returns.
Future ambitions and risks
We believe that maintaining our
strong focus on operational efficiency
provides a strong platform to deliver
future profitable growth which
is central to creating further
shareholder value.
We deliver cost leadership through
operational excellence and the
significant economies of scale and
operational leverage that our global
operating platform delivers. This
provides a significant competitive
advantage.
During 2019 further overhead
investment was made to support the
growth in the business, increasing
management resources to facilitate
the pivot towards a franchising model
and the continued development
of enterprise accounts. In total
overheads increased 11.6% at
constant currency to £280.1m
(2018: £248.2m). Measured as
a percentage of revenue Group
overheads increased 22bps (adjusted
after rounding) to 10.6%.
Future ambitions and risks
We will continue to focus on
controlling overheads to deliver
operational efficiency. This will
be balanced with further planned
investment in overhead to improve
the performance of our well-invested
operating platform, processes
and people.
38
IWG plc Annual Report and Accounts 2019
Global multi-brand
network
Strong cash generation,
enabling investment
Attractive shareholder
returns
Location growth
3,388 locations
We continue to add scale, quality,
convenience and choice to our
network in a carefully controlled and
risk-managed way.
3,388
3,306
2019
2018
2017
2016
Cash flow before net growth
capital expenditure, dividends
and share repurchases
£649.2m
During 2019 we generated £649.2m
of cash before growth capital
expenditure, dividends and share
repurchases.
2019
649.2
2018
259.2
3,125
2017
215.5
2,926
2016
286.1
We continued to grow our network
coverage and brand offering to
provide greater choice to more
customers. 2019 was a significant year
in our transition to a franchising
business model. Several franchising
agreements were entered into during
2019, including three master
franchise agreements in respect of
Japan, Taiwan and Switzerland.
Future ambitions and risks
We are clearly focused on accelerating
growth through our franchising
strategy and, with many discussions
taking place, we anticipate delivering
further franchise agreements.
Simultaneously we will continue to
develop our unrivalled brand
portfolio to enhance the choice
available to more customers.
The ability to convert profit into cash
remains an attractive feature of our
business model. Cash generation was
strong in 2019 and further augmented
by the £424.6m of cash proceeds from
the successful completion of three
long-term master franchise
agreements. These cash flows support
the ongoing development of our
business and returns to shareholders
through our progressive dividend
policy and share repurchase
programme.
Future ambitions and risks
With our focus on revenue growth
over the long term and our strong
focus on operational efficiency, our
business model is well-positioned to
continue to convert profit into cash.
We also anticipate that our strategic
pivot towards franchising will release
further significant cash flows over the
medium term with the signing of
new agreements.
Total return to shareholders
£107.7m
Focused on delivering attractive
returns to shareholders through a
progressive dividend policy and share
repurchases.
2019
2018
2017
2016
107.7
93.9
99.6
78.8
Our strong cash generation supports
an attractive profile of returns to
shareholders. During 2019 we
returned £107.7m to shareholders,
an increase of 14.7%, through a
combination of dividends of £58.2m
and share repurchases of £49.5m.
Total shareholder return
Value (£) (rebased)
250
225
175
150
125
100
112%
19%
Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19
IWG plc
FTSE 350 Index
(excl. investment trusts)
Future ambitions and risks
We anticipate continuing to provide
attractive returns to shareholders
with the continuation of a
progressive dividend distribution
and share repurchase programme.
Supplemental returns will be
considered to return excess cash
to shareholders.
iwgplc.com
39
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF FINANCIAL OFFICER’S REVIEW
Strong revenue and operating profit growth
Cash generation continues
to be an attractive feature
of our business model.
Cash generated before net
investment in growth capital
expenditure and dividends
increased by £390.0m to a
record £649.2m including
the completion of the
strategic partnerships in
Japan, Taiwan and
Switzerland.”
Eric Hageman
Chief Financial Officer
Strong revenue, profit and cash flow growth enable continued
investment in our company and increased returns to shareholders.
40
IWG plc Annual Report and Accounts 2019
Group or cash generation per share.
Adoption of IFRS 16 will have no impact
on the Group’s ability to comply with the
covenant requirements of its revolving
credit facility.
Transition to franchising
model
Sale of territories under master franchise
agreements (MFAs) results in accounting for
the activities as discontinued and the profit
on sale and trading performance, for the
period up to sale and
for the prior periods, being treated below
the line.
Only the franchise fees based on system
sales of the territories franchised are
included in Group revenue going forward.
With three MFAs completed in 2019 and the
franchise fees only recorded for part of the
year and therefore not material to the
overall reported result, we believe it is too
early to present system sales and franchise
fees separately. This will continue to be
reviewed as the Group further transitions
towards a predominantly franchised model.
Revenue
Revenue increased by 9.2% at constant
currency (10.4% at actual currency) from
£2,402.1m to £2,653.0m. This increase
was driven by 10.0% constant currency
growth in reported revenues in the Americas
(the Group’s largest market) and 15.8%
growth in EMEA (the Group’s second
largest market).
There is no impact on the Group’s revenue
arising out of the adoption of IFRS 16.
The growth in open centre revenue is
particularly pleasing, with an increase of
15.0% at constant currency to £2,569.8m
(2018: £2,208.1m). This is an important
indicator for future revenue performance
as it is not impacted by the network
rationalisation programme.
Growth in pre-2018 revenue for the year was
3.6% at constant currency (4.9% at actual
rates) to £2,251.4m. This performance has
been delivered by a solid improvement in
the pre-2017 business and the continued
good development of the locations opened
in 2017. Overall, average occupancy for
the pre-2018 business improved 310bps
year-on-year to 76.3% (from 73.2%), with
a year-end exit rate of 78.4%.
Spaces – Texas, USA
Performance review
The review below highlights the reported
results in accordance with IFRS 16 and a
description of the change in profile of the
Group’s results due to the movement in
many of the Group’s metrics as a result of
the adoption of the standard.
Under IFRS 16, while total lease related
charges over the life of a lease remain
unchanged, the lease charges are
characterised as depreciation and financing
expenses with higher total expense in the
early periods of a lease and lower total
expense in the later periods of the lease.
In order to provide greater clarity in
understanding the underlying performance
of the business, the Group has also presented
the results below in accordance with
pre-IFRS 16 accounting standards. The
trading commentary is based on results in
accordance with pre-IFRS 16 accounting
standards, which more closely track with the
cash flows over the life of a lease and are
therefore continuing to be used for
management reporting purposes. All
pre-IFRS 16 numbers in the commentary
below have been marked with(1) to provide
clarity on the basis of preparation.
Change in accounting standard
– IFRS 16 Leases
Our statutory results for the period to 31
December 2019 are reported under the new
accounting standard for leases, IFRS 16. As
the new standard is effective from 1 January
2019, our results for 2018 are not restated
and reflect pre-IFRS 16 accounting
standards. To provide a more insightful view
of the Group’s year-on-year performance,
the impact of IFRS 16 on the current period
results is summarised in the pro forma
statements provided at the end of this
announcement.
IFRS 16 introduces a single, on-balance
sheet accounting model for leases. As
previously announced, in applying the
standard, the Group adopted a modified
retrospective approach, choosing to measure
the right-of-use asset at the retrospective
amount as if IFRS 16 had been applied from
the lease commencement dates. The most
significant impact of this is the Group
recognising a right-of-use asset of £5.1bn
and a related lease liability of £5.6bn at
1 January 2019. Tables summarising the
opening balance sheet impact are presented
in note 2. The recognition of these balances
does not impact the overall cash flows of the
iwgplc.com
41
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF FINANCIAL OFFICER’S REVIEW continued
Group income statement
£m
Revenue
Gross profit (centre contribution)
Overheads
Joint ventures
Operating profit
Net finance costs
Profit before tax from
continuing operations
Taxation
Effective tax rate
Profit after tax from
continuing operations
Profit after tax from
discontinued operations
Profit for the period
Basic EPS (p)
– From continuing operations
– Attributable to shareholders
Depreciation & amortisation
EBITDA
Gross profit
£m
Revenue
Cost of sales
Gross profit (centre contribution)
Gross margin
£m
Revenue
Cost of sales
Gross profit (centre contribution)
Gross margin
2019
(IFRS 16 basis)
2019
IFRS 16 impact
2019
(IAS 17 basis)
2018
As restated
(IAS 17 basis)∫
% change
constant currency
(IAS 17 basis)
% change
actual currency
(IAS 17 basis)
–
(151.3)
1.1
–
(150.2)
213.8
63.6
(6.9)
56.7
(4.2)
52.5
2,653.0
566.4
(281.2)
2.7
287.9
(232.0)
55.9
22.3
(39.9)%
78.2
372.4
450.6
8.8
50.5
1,169.2
1,482.8
2,653.0
2,402.1
415.1
(280.1)
2.7
137.7
(18.2)
119.5
15.4
(12.9)%
134.9
368.2
503.1
15.1
56.4
267.8
428.3
Pre-2018
centres
2019
2,251.4
(1,756.3)
495.1
22.0%
Pre-2018
centres
2018
2,145.5
(1,725.4)
420.1
19.6%
374.5
(248.2)
(1.4)
124.9
(15.3)
109.6
(29.7)
27.1%
79.9
25.8
105.7
8.8
11.7
235.8
389.9
New
centres
2019
318.4
(367.6)
(49.2)
New
centres
2018
62.6
(93.4)
(30.8)
9.2%
9%
12%
8%
10.4%
11%
13%
10%
9%
69%
376%
72%
382%
8%
10%
Closed
centres
2019
83.2
(114.0)
(30.8)
Closed
centres
2018
194.0
(208.8)
(14.8)
Total
2019
(IAS 17 basis)
2,653.0
(2,237.9)
415.1
15.6%
Total
2018
(IAS 17 basis) ∫
2,402.1
(2,027.6)
374.5
15.6%
Gross profit for the period was £415.1m, up
from £374.5m in the corresponding period
in 2018, an increase at constant currency of
9%. This is after a significantly higher
investment in the development of the
network, which resulted in a gross profit
drag on the reported results of £49.2m
compared to £30.8m in 2018, and £30.8m
of network rationalisation costs compared to
£14.8m in 2018. This led to an unchanged
gross margin of 15.6%. Excluding these
two impacts, the gross profit margin for the
pre-2018 centres increased from 19.6% to
22.0%, with a notable improvement in the
Americas and EMEA.
The adoption of IFRS 16 has resulted in an
increase in reported gross profit to £566.4m
as the rent costs previously included in cost
of sales have been replaced by a depreciation
charge on the right-of-use assets and finance
costs arising on the lease liabilities. Only
depreciation is included in cost of sales
recognised under IFRS 16.
During the period, a review of the estimated
useful life for certain asset categories of
property, plant and equipment resulted in a
decreased depreciation expense, recognised
in cost of sales of £14.5m. This change has
no impact on cash flow and further details
can be found in note 5.
The expected credit risk associated with
accounts receivable was also reassessed, with
a £8.2m release of the excess provision
taken to the income statement. These
releases were offset by the ongoing network
rationalisation costs of £30.8m.
42
IWG plc Annual Report and Accounts 2019
Pre-2018 performance by region
On a regional basis, pre-2018 revenue and gross profit can be analysed as follows:
2019
(IFRS 16 basis)
1,079.6
533.9
275.2
353.7
9.0
2,251.4
Revenue £m
IFRS 16 impact
–
–
–
–
–
–
2019
(IAS 17 basis)
1,079.6
533.9
275.2
353.7
9.0
2018
(IAS 17 basis)
% change
constant currency
% change
actual currency
978.4
538.9
267.6
355.7
4.9
7.1%
0.2%
1.8%
(0.6)%
10.3%
(0.9)%
2.8%
(0.6)%
2,251.4
2,145.5
3.6%
4.9%
Gross profit (contribution)
Pre-2018 gross margin (%)
2019
(IFRS 16 basis)
IFRS 16 impact
2019
(IAS 17 basis)
2018
(IAS 17 basis)
% change
constant currency
328.6
150.9
74.8
64.2
12.9
631.4
(76.3)
(25.2)
(24.4)
(10.4)
–
(136.3)
252.3
125.7
50.4
53.8
12.9
495.1
190.9
122.0
45.8
61.1
0.3
420.1
28.1%
4.1%
8.4%
(11.9)%
2019
23.4%
23.5%
18.3%
15.2%
2018
19.5%
22.6%
17.1%
17.2%
16.2%
22.0%
19.6%
Americas
EMEA
Asia Pacific
UK
Other
Total
Americas
EMEA
Asia Pacific
UK
Other
Total
Americas
The Americas, our largest region, which represents c. 45% of the Group revenue, has performed well.
Revenue growth from open centres increased 13.7% at constant currency to reach £1,169.7m, up from £998.2m in the prior year (17.2% at
actual rates). Total revenue (including closed centres) increased 10.0% at constant currency from £1,048.5m to £1,188.5m (13.4% at actual
rates). Pre-2018 revenue in the region increased 7.1% at constant currency to £1,079.6m (10.3% at actual rates).
£m
Total revenue
Open centre revenue
Pre-2018 revenue
Pre-2018 occupancy
Number of centres
2019
1,188.5
1,169.7
1,079.6
78.1%
1,298
2018
1,048.5
998.2
978.4
74.2%
1,284
% change
constant currency
% change
actual currency
10.0%
13.7%
7.1%
–
–
13.4%
17.2%
10.3%
390bps
–
Average occupancy for the region in the pre-2018 business was 78.1% up 390 bps (2018: 74.2%) and there was a very good performance in the
gross margin, which increased significantly from 19.5% to 23.4%.
The US is our largest market in the Americas with total revenue increasing from £883.7m to £999.4m, up 9% at constant currency
(13% at actual rates). Our business in Canada also continued to perform strongly with total revenue growth in double-digits. In Latin
America, we have seen good revenue recovery in Brazil, our largest market in Latin America, following the actions taken in 2018 to
rationalise our network and reposition our Brazilian estate. There was also a strong recovery in Argentina, and Mexico showed good
improvement in the fourth quarter.
A total of 57 new locations were added in the region, including 48 Spaces. These new locations take the total in the region to 1,298 at
31 December 2019 (2018: 1,284).
iwgplc.com
43
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF FINANCIAL OFFICER’S REVIEW continued
EMEA
Trading in EMEA has remained strong. Open centre revenue has increased 19.6% at constant currency to £661.2m. Total revenue increased
15.8%, at constant currency, to £685.1m (14.4% at actual rates). Pre-2018 revenue increased 0.2% at constant currency to £533.9m (down
0.9% at actual rates) as the region annualised against a strong second half performance in 2018. The pre-2018 gross margin improved from
22.6% to 23.5% and average occupancy increased to 76.9%, up 180 bps (2018: 75.1%).
£m
Total revenue
Open centre revenue
Pre-2018 revenue
Pre-2018 occupancy
Number of centres
2019
685.1
661.2
533.9
76.9%
1,096
2018
598.8
559.5
538.9
75.1%
1,013
% change
constant currency
% change
actual currency
15.8%
19.6%
0.2%
–
–
14.4%
18.2%
(0.9)%
180bps
–
The overall performance in the region has continued to be driven by the key markets in continental Europe. France, Germany and the
Netherlands delivered good revenue performances. There were also strong revenue performances from Italy, Spain, Portugal, Ireland,
South Africa and in Russia as it responded positively to the actions taken in 2018 to restore performance. The results for EMEA now exclude
Switzerland following the master franchise agreement with the Safra/Peress Groups, but the country continues to be an important and
integral part of the network in the region.
A total of 145 new locations were added across this region, including 42 Spaces, and approximately one-third of the new locations involved
various forms of partnering deals. These additions took the total number of locations, including franchised, in the region to 1,096 at
31 December 2019 (2018: 1,013).
Asia Pacific
Our business in Asia Pacific has delivered a solid performance overall. Revenue from all open centres increased 16.8% at constant currency
to £326.5m. Total revenue from the region improved by 9.4% at constant currency to £343.9m (10.6% at actual rates). Pre-2018 revenue
was £275.2m (2018: £267.6m) and pre-2018 occupancy increased to 74.1%, up 370 bps (2018: 70.4%). The pre-2018 gross margin improved
from 17.1% to 18.3%.
£m
Total revenue
Open centre revenue
Pre-2018 revenue
Pre-2018 occupancy
Number of centres
2019
343.9
326.5
275.2
74.1%
682
2018
310.9
276.5
267.6
70.4%
683
% change
constant currency
% change
actual currency
9.4%
16.8%
1.8%
–
–
10.6%
18.1%
2.8%
370bps
–
Several key markets contributed to the overall performance in Asia Pacific, including Australia, Thailand, India, New Zealand and South
Korea. The performance of the region now excludes Japan and Taiwan, although these operations continue to be an important strategic
component of the Group’s overall network in the region.
A total of 53 new locations were added in the region, including 15 Spaces. Approximately two-thirds of these new locations involved various
forms of partnering deals. These additions took the total in the region, including franchised, to 682 at 31 December 2019 (2018: 683).
UK
As the year progressed, we started to see encouraging evidence that the programme of actions taken in the UK were starting to have a positive
impact on the overall performance of the business. This was particularly evident in the second half with the business returning to pre-2018
and total revenue growth. Revenue from open centres increased 9.3% to £403.4m at constant currency. This is a good indication of the strong
performance of centres opened in 2018 and 2019 and demonstrates the continuing attractiveness of the UK market. Pre-2018 revenue was
down 0.6% to £353.7m (2018: £355.7m) and total revenue in the UK decreased (2.8)% to £426.5m, reflecting the continued network
rationalisation of 36 locations in the region.
£m
Total revenue
Open centre revenue
Pre-2018 revenue
Pre-2018 occupancy
Number of centres
2019
426.5
403.4
353.7
73.8%
312
2018
439.0
369.0
355.7
70.9%
326
% change
actual currency
(2.8)%
9.3%
(0.6)%
290bps
–
44
IWG plc Annual Report and Accounts 2019
As the year progressed, we started to see
encouraging evidence that the programme of actions
taken in the UK were starting to have a positive
impact on the overall performance of the business.”
Pre-2018 occupancy has increased to 73.8%,
up 290bps (2018: 70.9%). The programme
of actions taken to move the UK business
back towards the desired level of
performance involved significant investment
and this has weighed on the pre-2018 gross
margin, which reduced to 15.2% (2018:
17.2%).
A total of 22 new locations were added in the
UK, including 12 Spaces. Half of these
locations added involved various forms of
partnering. The net of these additions and the
network rationalisation led to an overall
reduction of locations in the region to 312 at 31
December 2019 (326 at 31 December 2018).
EBITDA
EBITDA increased £38.4m to £428.3m,
up 8.0% at constant currency (10% at actual
rates). It is important to note that this
EBITDA number reflects the significant
drag from the investment in growth, which
for the year ended 31 December 2019 was
£48.5m (2018: £39.9m), and a further
£25.2m in respect of the network
rationalisation (2018: £14.1m). The pre-2018
EBITDA, which eliminates these factors
and offers a more representative indication
of the underlying earnings performance of
the business, increased 15% at constant
currency to £472.2m from £404.9m (17% at
actual rates).
EBITDA under IFRS 16 is £1,482.8m, due
to the rental costs under IAS 17 being
replaced by a depreciation charge on the
right-of-use assets and finance costs arising
on the lease liabilities. Both these costs are
excluded from EBITDA.
Overhead investment
As planned, further overhead investment
was made in 2019 to support the growth in
the business, increasing management
resource to facilitate the move towards a
franchising model and the continued
development of enterprise accounts. In total,
overheads increased 12% at constant
currency to £280.1m (2018: £248.2m).
Measured as a percentage of revenue, Group
overheads increased 22bps (adjusted after
rounding) to 10.6%, as we continue to
benefit from our scale.
Operating profit
Operating profit for the year ended 31
December 2019 was £137.7m (2018:
£124.9m). Excluding network rationalisation
costs, operating profit was £176.2m. As well
as the planned increased investment in
overheads, operating profit also reflects a
material drag from our increased growth
investment of £106.7m (2018: £53.0m), in
addition to £38.5m relating to network
rationalisation (2018: £31.9m).
Group operating profit under IFRS 16 is
£287.9m, which is not comparable to the
£124.9m recorded in 2018 as, on adoption
of IFRS 16, the rental costs incurred under
IAS 17 have been replaced by a depreciation
charge on the right-of-use assets and finance
costs on the lease liabilities. Operating profit
is stated before finance costs resulting in an
increase compared to the prior year period.
Net finance costs
The Group’s net finance costs increased to
£18.2m (2018: £15.3m). This primarily
reflects the higher level of average
outstanding debt over the course of the year
before it substantially reduced at year-end,
following the receipt of the proceeds from
the Japanese, Taiwanese and Swiss
partnership agreements, which materially
reduced the utilisation of the revolving
credit facility during the second half. In
addition, there were fees relating to
increasing the revolving credit facility in
January to £950m from £750m.
The Group reported net finance costs under
IFRS 16 for the year to 31 December 2019
of £232.0m. This is not comparable to the
prior year due to the impact of finance costs
arising on the lease liability recognised on
the adoption of IFRS 16. On adoption, the
lease liability is measured at the present value
of the lease payments to be paid during the
lease term, discounted using an incremental
borrowing rate. The lease liability is
subsequently increased by the interest cost on
the lease liability arising from the unwind of
the discounting. This non-cash interest cost is
recognised within finance costs in the profit
and loss account as it unwinds.
Taxation
As part of the Group’s pivot towards
franchising, in 2019 the Group recognised a
deferred tax asset of £89.8m, and a
corresponding deferred tax credit. This
arises in connection with a restructure
during the year involving the move of the
Group’s intellectual property (“IP”) and
franchising arrangements from Luxembourg
to Switzerland. The deferred tax asset
recognised is based on the expected future
taxable profits available to utilise the tax
deductible annual amortisation on the fair
market value of the IP at the date of the
restructuring, which is deductible for Swiss
corporate income tax purposes (see note 8).
Secondly, the tax charge for the year includes
the negative impact of the issue of final
regulations by the US Treasury Department
and the Internal Revenue Service regarding
the base erosion and anti-abuse tax
(“BEAT”). BEAT was introduced as part of
the Tax Cuts and Jobs Act of 2017 and
operates as a minimum tax with the intended
purpose of preventing US corporations from
unduly reducing their US taxable income
through payments to related foreign parties.
On the adoption of IFRS 16, the Group
recognised a deferred tax asset of £86.7m as
at 1 January 2019, accounted for directly in
retained earnings. An additional deferred tax
asset of £6.9m was recognised through the
income statement during the current year.
Overall, the effective tax rate for 2019 was a
credit of 12.9% (2018: a charge of 27.1%).
Dependent upon the continuing ownership of
specific countries or regions in relation to
potential future master franchise agreements,
we currently anticipate an effective tax rate
in future years to be similar to the rate in the
years prior to 2019.
The gains arising on the strategic
partnership transactions were exempt from
tax in accordance with local regulations.
iwgplc.com
45
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF FINANCIAL OFFICER’S REVIEW continued
Earnings per share
Earnings per share increased in the year
ended 31 December 2019 to 56.4p (2018:
11.7p) including the gain on the strategic
partnerships and deferred tax asset benefit.
Diluted earnings per share for the year
were 55.4p (2018: 11.6p). The earnings per
share and diluted earnings per share on a
continuing operations basis for 2019 were
15.1p (2018: 8.8p) and 14.8p (2018: 8.7p)
respectively.
Basic earnings per share under IFRS 16
were 50.5p from profits attributable to
ordinary shareholders and 8.8p from profits
from continuing operations. As noted above,
the adoption of IFRS 16 results in the
acceleration of lease related expenses
(principally depreciation and finance costs)
relative to the recognition pattern for
operating leases under IAS 17, impacting
Group profits and earnings per share under
the new standard.
The weighted average number of shares in
issue for the year was 892,737,688 (2018:
907,077,048). The weighted average number
of shares for diluted earnings per share was
908,939,911 (2018: 914,206,379). Following
the 6 August 2019 announcement of the
commencement of a £100m share
repurchase programme, the Group has
acquired 12,379,535 shares at an average
price of 399.9p, representing an investment
of £49.5m. These shares are designated to
be held in treasury to satisfy future exercises
under various Group long-term incentive
schemes. The Group reissued 2,061,120
shares from treasury to satisfy such exercises
during the year. The share repurchase
programme has continued since the year
end and the current programme runs to 5
August 2020.
Cash flow and funding
Cash generation continues to be an
attractive feature of our business model.
Cash generated before net investment in
growth capital expenditure and dividends
increased by £390.0m to a record £649.2m
including the completion of the strategic
partnerships in Japan, Taiwan and
Switzerland. Consequently, cash flow per
share increased from 28.6p to 72.7p. The
receipt of the cash proceeds following the
completion of the strategic partnerships is
included within other items in the cash flow
statement.
IFRS 16 has no impact on the Group’s cash
flows other than presentation of where items
are classified on the cash flow statement.
2019
(IAS 17 basis)
2018
(IAS 17 basis)
Cash flow
The table below reflects the Group’s cash flow:
£m
EBITDA
Working capital
Growth-related partner contributions
Maintenance capital expenditure
Taxation
Finance costs
Finance lease liability arising on new leases
Other items
2019
(IFRS 16 basis)
1,482.8
(108.0)
–
(108.7)
(48.8)
(20.7)
(2,085.9)
437.7
IFRS 16
impact
(1,054.5)
375.2
(263.0)
(39.1)
–
–
2,085.9
(3.7)
428.3
267.2
(263.0)
(147.8)
(48.8)
(20.7)
–
434.0
Cash f low before growth capital expenditure, share
repurchases and dividends
(451.6)
1,100.8
649.2
Gross growth capital expenditure
Growth-related partner contributions
Net growth capital expenditure
Total net cash f low from operations
Purchase of shares
Dividend
Corporate financing activities
Opening net debt
Exchange movement
Closing net debt
(547.6)
263.0
(284.6)
(736.2)
(49.5)
(58.2)
5.4
(6,104.2)
102.6
(6,840.1)
(104.4)
–
(104.4)
996.4
–
–
–
5,643.4
(93.8)
6,546.0
(652.0)
263.0
(389.0)
260.2
(49.5)
(58.2)
5.4
(460.8)
8.8
(294.1)
389.9
166.4
(144.8)
(112.0)
(37.1)
(15.7)
–
12.5
259.2
(476.8)
144.8
(332.0)
(72.8)
(40.2)
(53.7)
1.9
(296.4)
0.4
(460.8)
46
IWG plc Annual Report and Accounts 2019
Capital investment
During the year, our net growth capital
investment was £389.0m (2018: £332.0m).
Net growth capital expenditure of £389.0m
relates to the cash outflow in 2019.
Accordingly, it includes capital expenditure
related to locations added in 2018 and to
be added in 2020, as well as those added
in 2019. The total net investment in the
period for 2018 and 2020 additions
amounted to £106.3m.
The growth investment made, represented
277 locations and 8.4m sq. ft. of flexible
space. Our current pipeline visibility on net
growth capital investment for the whole of
2020 is approximately £150m, representing
approximately 150 locations and 5.0m sq. ft.
of new space.
As planned, the Group’s refurbishment
programme stepped up in the period with
maintenance capital expenditure increasing
to £147.8m (2018: £112.0m). After partner
contributions received in the year, net
maintenance capital expenditure was
£108.7m (2018: £88.5m), which was in line
with management’s expectations.
Strong funding support
We increased our revolving credit facility in
January 2019 from £750m to £950m and
simultaneously improved the debt maturity
profile by extending it to 2024 (previously
2023), with further options to extend
to 2026.
The financial covenants on the increased
revolving credit facility are unchanged and
are not affected by the lease liabilities
recognised on the adoption of IFRS 16.
Foreign exchange
The Group’s results are exposed to
translation risk from the movement in
currencies. During 2019 key individual
exchange rates have moved, as shown in the
table below. For the year the movement in
key exchange rates provided a tailwind.
Overall, the movement in exchange rates
over the course of the year increased
revenue, gross profit and operating profit by
£30.5m, £5.4m and £2.6m respectively.
Foreign exchange rates
Regus – Caesarea, Israel
Risk management
Effective management of risk is an everyday
activity for the Group and, crucially,
integral to our growth planning. A detailed
assessment of the principal risks and
uncertainties which could impact the
Group’s long-term performance and the risk
management structure in place to identify,
manage and mitigate such risks can be
found on pages 48 to 55.
Brexit
In January 2020, the UK left the EU and
has entered a transition period until the end
of 2020 whilst it negotiates its future trading
relationship with the EU. Whilst these
developments have provided some clarity,
significant uncertainty still remains on the
impact of Brexit which is highlighted in the
Group’s principal risks.
The Group’s dependency on the UK market
has reduced as it has continued to grow in
all markets across the globe. The Group is
also prepared for a range of possibilities on
Brexit including any disruption that may
arise and continues to monitor the situation
carefully.
Coronavirus (COVID-19)
The outbreak of the COVID-19 has led to
brief closures of our centres in China, and a
close review of the ongoing developments
worldwide. Whilst most of the Group’s
At 31 December
Annual average
2019
1.32
1.18
2018
1.28
1.12
%
3.1%
5.4%
2019
1.28
1.14
2018
1.33
1.13
%
(3.8)%
0.9%
Per £ sterling
US dollar
Euro
iwgplc.com
revenue is fixed in the short term, some
service revenue is impacted from these
closures. Whilst we cannot be certain how
long this situation will last, we anticipate
that this will have an adverse effect on
performance but it is too early to determine
the overall impact.
Our focus remains on taking actions and
precautions to help ensure the safety and
wellbeing of our customers and employees.
We continue to monitor the situation, will
act swiftly where necessary and are
extremely grateful for the incredible effort of
our teams in dealing with this global health
emergency.
Related parties
There have been no changes to the type of
related party transactions entered into by
the Group that had a material effect on the
financial statements for the period ended 31
December 2019. Details of related party
transactions that have taken place in the
period can be found in note 30.
Dividends
In line with the Group’s commitment to a
progressive and sustainable dividend policy,
the Board has, subject to shareholder
approval, declared an increase in the final
dividend for 2019 of 10.3% to 4.80p. This
will be paid on Friday, 22 May 2020, to
shareholders on the register at the close of
business on Friday, 24 April 2020. This
represents an increase in the full-year
dividend of 10.3%, taking it from 6.30p to
6.95p for 2019.
ERIC HAGEMAN
Chief Financial Officer
3 March 2020
47
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RISK MANAGEMENT AND PRINCIPAL RISKS
Understanding and managing risk
We apply significant resources
to considering the actual and
potential risks our organisation
faces, calculating their possible
impact and creating strategies
to protect the interests of IWG
and all our stakeholders.
Identification, mitigation and management
of risks are central to our strategy. Our
enterprise-wide risk management process
allows us to understand the nature, scope
and potential impact of our key business
and strategic risks, enabling us to manage
them effectively.
IWG’s business could be affected by
various risks, leading to failure to achieve
strategic targets for growth or loss of
financial standing, cash flow, earnings,
return on investment and reputation.
Not all these risks are wholly within the
Group’s control, and IWG may also be
affected by risks which are not yet
manifested or reasonably foreseeable.
Effective risk management is critical to
achieving our strategic objectives and
protecting our personnel, assets and
reputation. IWG therefore has a
comprehensive approach to risk
management, as set out in more detail in
the Corporate Governance Report on
pages 66 to 72.
A critical part of the risk management
process is to assess the impact and
likelihood of risks occurring so that we
can develop and implement appropriate
mitigation plans.
IWG attempts to minimise the likelihood
and mitigate the impact of all known risks
facing the business. According to the nature
of the risk, IWG may elect to: take or
tolerate it; treat it with controls and
mitigating actions; transfer it to third
parties; or terminate it by ceasing particular
activities or operations. We have zero
tolerance of financial and ethical non-
compliance, and we ensure that Health,
Safety, Environmental and Security risks
are managed to levels that are as low as
reasonably practicable.
While overall responsibility for the risk
management process rests with the Board, it
has delegated responsibility for assurance to
the Audit Committee. Executive
management is responsible for designing,
implementing and maintaining the
necessary systems of internal control.
A list of key risks is prepared and the
Board collectively assesses the severity of
each one, the likelihood of it occurring and
the strength of the controls in place. This
approach allows the effect of any mitigating
procedures to be reflected in the final
assessment. It also recognises that risk
cannot be totally eliminated at an
acceptable cost and that there are some
risks which, with its experience and after
due consideration, the Board will choose
to accept.
Effective risk management requires
awareness and engagement at all levels of
our organisation. It is for this reason that
risk management is incorporated into the
day-to-day management of our business, as
well as being reflected in the Group’s core
processes and controls. The Board oversees
the risk management strategy and the
effectiveness of the Group’s internal control
framework. Risk management is at the heart
of everything we do, particularly as we look
to grow across multiple markets around
the world. For this reason, we conduct
risk assessments throughout the year
as part of our business review process
and of all investment decisions. These
activities include:
• Monthly business reviews for all countries
and Group functions;
• Individual reviews of every new location
investment and all acquisitions;
• An annual budgeting and planning
process for all markets and Group
functions;
• A review in each Audit Committee
meeting of the status of our principal
risks; and
• Annual review of all risks in our
risk register.
Board
• Defines IWG’s risk appetite
and tolerance
• Monitors risk identification
and assessment processes
• Assesses overall effectiveness
of risk management
Audit Committee
• Reviews effectiveness of
internal controls
• Monitors progress against
internal and external audit
recommendations
• Approves the annual internal
and external audit plans
Senior leadership team
• Accountable for the design
and implementation of risk
management processes
and controls
• Accountable for the regular
review and appraisal of
key risks
• Contributes to the
identification and assessment
of key risks
General management
• Responsible for compliance
and ensuring that staff are
adequately trained
Business assurance
function
• Assists management and the
Board in conducting risk studies
• Advises and guides on policies
and internal controls framework
• Drives implementation
of recommendations in
the business
• Tests compliance with
internal controls
48
IWG plc Annual Report and Accounts 2019
PRINCIPAL RISKS
Link to strateg y:
Risk status
Risk likelihood
Risk impact
Industry-leading profitable growth
4
Strong cash generation, enabling investment
Increased
2
Best-in-class cost leadership
Attractive shareholder returns
Global multi-brand network
Same
Decreased
New
High
Medium
Low
High
Medium
Low
Strategic risks
Risk
Mitigation
Changes since 2018
Lease obligations
Link to strateg y:
2 5
The single greatest financial
risk to IWG is represented by
the financial commitments
deriving from the portfolio of
leases held across the Group.
Whilst IWG has demonstrated
consistently that it has a
fundamentally profitable
business model which works in
all geographies, the profitability
of centres is affected by
movements in market rents,
which, in turn, impact the price
at which IWG can sell to
its customers.
The fact that the outstanding
lease terms with our landlords
are, on average, significantly
longer than the outstanding
terms on our contracts with our
customers creates a potential
mismatch if rentals fall
significantly, which can impact
profitability and cash flows.
Economic downturn
Link to strateg y:
52
An economic downturn could
adversely affect the Group’s
operating revenue, thereby
reducing operating profit
performance or, in an
extreme scenario, resulting
in operating losses.
During 2019, the number of ‘flexible’ leases
as a percentage of the total decreased to 95%
from 97%.
Approximately 33% of the leases we entered
into during 2019 were variable in nature.
At the end of 2019, we were operating 3,388
locations in 1,130 towns and cities across
over 110 countries.
This risk is mitigated in a number of ways:
1. 95% of our leases are ‘flexible’, meaning that they are either
terminable at our option within six months and/or located in or
assignable to a standalone legal entity, which is not fully
cross-guaranteed. In this way, individual centres are sustained by
their own profitability and cash flow.
2. Approximately one quarter of all our leases are variable in
nature, which means that payments to landlords vary with
the performance of the relevant centre. In this way the ‘risk’
to profitability and cash flow of that centre from fluctuations
in market rates is softened by the consequent adjustment to
rental costs.
3. The sheer number of leases and geographic diversity of our
business reduces the overall risk to our business as the phasing
of the business cycle and the performance of the commercial
property market often varies from country to country and
region to region.
4. Each year a significant number of leases in our portfolio
reach a natural break point.
The Group has taken a number of actions to mitigate this risk:
1. Approximately 28% of all our leases are variable in nature
and our rental payments, if any, vary with the performance
of the centre.
2. Lease contracts include break clauses when leases can be
terminated at our behest. The Group also looks to stagger
leases in locations where we have multiple centres so that
we can manage our overall inventory in those locations.
3. We review our customer base to assess exposure to a
particular customer or industry group.
4. The increasing geographic spread of the Group’s network
increases the depth and breadth of our business and provides
better protection from an economic downturn in a single
market or region.
During 2019 the number of ‘flexible’
leases as a percentage of the total was 95%.
We also increased the scale of our network
by 2% and added 43 new towns and
cities and two countries.
Our monthly business performance
reviews provide early warning of any impact
on our business performance and allow
management to react with speed. The Board
reviews the potential impact of an economic
downturn and addressed a range of potential
impacts from the COVID-19 outbreak when
making its annual Viability Statement (p.55).
iwgplc.com
49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RISK MANAGEMENT AND PRINCIPAL RISKS continued
PRINCIPAL RISKS continued
Strategic risks
Risk
Emerging trends and
disruptive technolog y
Link to strateg y:
5
New formats and
technological developments
are driving demand for
flexible working. Failure to
recognise these could mean
IWG’s product offering
is sub-optimal.
Increased competition
Link to strateg y:
3
Increased competition
in the serviced office
industry and an inability
to maintain sustainable
competitive advantage
may result in loss of
market share.
Mitigation
Changes since 2018
IWG continually invests in innovation to develop
new products and services to increase its competitive
advantage, protect current revenue and unlock
potential new sources of revenue.
In 2019 IWG continued to invest in research and
development – both to unlock efficiencies as well as
to improve the overall proposition to customers. We
now operate multiple formats and brands that cater to
different customer segments and allow us to set trends
in our industry.
We continuously look at every aspect of our business for
opportunities to leverage technology to automate, simplify
and future-proof our platform. As technology evolves and
matures, even more opportunities arise.
Our app has significantly enhanced functionality to
enable customers to do business with us without friction.
We continue to modernise our internal systems and
processes around the Microsoft Dynamics 365 suite of
products and consolidate our business around a single
view of a customer, no matter where they use us, to
provide a differentiated customer experience.
While physical barriers to entry into the flexible
workspace market at a local level are low, the barriers
to establishing a national or international network are
much higher.
IWG also offers a diverse product range under its
different brands to cater to multiple customer
segments which allows us to capture and maintain
market share across the flexible workspace market.
We continuously review our portfolio to ensure that
our product and services are aligned to customer
expectations and requirements and there are currently
active investment programmes being implemented
across our estate.
While the competitive landscape shifted significantly in
the past few months, we continue to focus our efforts on
offering an unrivalled network and varied product range
to suit the different requirements of our customers.
Accordingly, in 2019 we increased the scale of our network
by 2% and added 43 new towns and cities.
We accelerated the roll-out of our Spaces coworking
format with the opening of 117 new locations and the
development of a strong pipeline for 2020.
We continued to expand our multi-brand offering during
2019 to cater to different customer segments with varied
needs and price points.
We increased our investment in refurbishing existing
network locations during 2019.
Exposure to UK political developments
Link to strateg y:
31
Exposure to UK political
developments including
Brexit.
The Group is continually monitoring political
developments in the UK to identify and assess the
medium- to-long-term implications of Brexit and the
impact that it may have on our business.
Uncertainty over the UK’s eventual relationship with
the EU creates a more uncertain outlook for the UK
economy. Accordingly, the Group has had a prudent
approach to growing its presence in the UK market.
Dependency on the UK market has been reduced by
growth being focused outside the UK. Only 8% of the new
locations added during 2019 were in the UK.
During 2019 the opportunity was taken to consolidate
some locations in the UK. In addition, several locations
were refurbished, and 22 new locations added, more than
half in our Spaces format. Overall our network in the UK
decreased from 326 to 312 locations.
Based on the current position over 36% of our leases with
landlords in the UK are variable in nature.
50
IWG plc Annual Report and Accounts 2019
Strategic risks
Risk
Business planning
and forecasting
Link to strateg y:
21
4 5
Business plans, forecasts and
review processes should provide
timely and reliable information
for short-, mid- and long-term
opportunities and any risks to
performance so that these can be
addressed on a proactive basis.
Franchise
Link to strateg y:
2 3 4 5
As the franchising portfolio of the
business grows, it is important that
we are able to deliver a scaled-up
model to support the transition of
owned businesses along with
ongoing management of the
franchise business.
Financial risks
Risk
Funding
Link to strateg y:
4 5
The Group relies on external
funding to support a net debt
position of £294.1m at the end
of 2019. The loss of these
facilities would cause a liquidity
issue for the Group.
Mitigation
Changes since 2018
IWG maintains a three-year business plan which is
updated and reviewed on an annual basis. We also
use a 12-month rolling forecast which is reviewed
every month based on actual performance.
The forecasting process has been reviewed and tracking
performance against specific budgets and targets in place
was further enhanced.
A Franchise Risk Committee is being formed to
oversee key programmes connected with the
franchising model and ensure that significant risks
are identified and mitigated.
Japan and Taiwan were successfully migrated and
Switzerland migration is currently ongoing.
Mitigation
Changes since 2018
External funding requirements reduced due to cash
generated through the sale of operations in Japan,
Taiwan and Switzerland. Pivoting to a franchise model
will mean that we do not require significant levels of
funding for growth.
The Group has a very strong relationship with its lending
banks.
We increased our committed revolving credit facility
in January 2019 from £750m to £950m and improved the
debt maturity profile by extending it to 2024 (previously
2023). There is an option to extend by a further two years.
IWG had a net debt : EBITDA ratio at 31 December 2019
of 0.7x times. There is significant headroom on the
covenant ratios.
The Group constantly monitors its cash flow and
financial headroom development and maintains
a 12-month rolling forecast and a three-year
strategic outlook. The Group also monitors the
relevant financial ratios against the covenants in
its facilities to ensure the risk of breach is being
managed. The measurement of these covenant
ratios is unaffected by the implementation of
IFRS 16.
The Group also stress tests these forecasts with
downside scenario planning to assess risk and
determine potential action plans.
The Board intends to maintain a prudent
approach to the Group’s capital structure.
Part of the annual planning process is a debt
strategy and action plan to ensure that the Group
will have sufficient funding in place to achieve its
strategic objectives.
The Group also constantly reviews and manages
the maturity profile of its external funding.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RISK MANAGEMENT AND PRINCIPAL RISKS continued
PRINCIPAL RISKS continued
Financial risks
Risk
Exchange rates g
Link to strateg y:
2
5
The principal exposures of the
Group are to the US dollar and
the euro, with approximately
37% of the Group’s revenue
being attributable to the US
dollar and 19% to the euro.
Any depreciation or appreciation
of sterling would have an adverse
or beneficial impact to the
Group’s reported financial
performance and position
respectively. The Group does not
generally hedge the translation
exchange risk of its business
results. Rather, it assumes that
shareholders will take whatever
steps they deem necessary based
on their varied appetites for
exchange risk and differing base
currency investment positions.
Interest rates
Link to strateg y:
2
Operating in a net debt position,
an increase in interest rates
would increase finance costs.
IFRS 16
Link to strateg y:
5
Impact on internal financial
performance review vs IFRS 16
external compliance reporting.
Impact of IFRS 16 external
compliance reporting on
perception of IWG’s financial
performance.
Mitigation
Changes since 2018
Given that transactions generally take place in the functional
currency of Group companies, the Group’s exposure to
transactional foreign exchange risk is limited.
Where possible, the Group attempts to create natural hedges
against currency exposures through matching income and
expenses, and assets and liabilities, in the same currency.
The Group, where deemed appropriate, uses currency swaps
to maintain the currency profile of its external debt.
Overall in 2019 the movement in exchange
rates over the course of the year increased
revenue, gross profit and operating profit by
£30.5m, £5.4m and £2.6m respectively.
The Group constantly monitors its interest rate exposure as
part of its monthly treasury review.
Interest rate exposure decreased due to
reduced reliance on external funding.
As part of the Group’s balance sheet management it utilises
interest rate swaps.
The Group has interest rate protection on
£30m of borrowings until 2021.
We will continue to provide IAS 17 as well as IFRS 16
reported numbers. A process has been established to allow for
current internal reporting to continue unaffected by IFRS 16
external reporting requirements. Reconciliation between
IFRS 16 reported numbers and internal reporting will be
undertaken whenever required for external reporting.
New IFRS 16 software was adopted to
ensure stability of data calculation.
We have continuous engagement with the
stakeholders to explain IFRS 16’s impact
on the Income Statement. Although from
January 2019 onwards we are reporting
under IFRS 16, we have continued to
provide results based on the IAS 17
standard as supplemental information.
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IWG plc Annual Report and Accounts 2019
Operational risks
Risk
Cyber security
Link to strateg y:
2 5
The trend towards an integrated
digital economy and use of
external cloud services combined
with the rise in malicious attacks
and increasing consequential costs
warrants particular attention to
cyber security risks.
Business continuity
Link to strateg y:
32
The Group’s systems and
applications are housed in data
centres. Should the data centres
or other key locations such
as our sales call centres be
impacted as a result of
circumstances outside the
Group’s control there could
be an adverse impact on
the Group’s operations and
therefore its financial results.
Ethics and compliance
Link to strateg y:
2
Ethical misconduct by our
employees or non-compliance
with regulation either
inadvertently, knowingly
or negligently could lead
to financial loss/penalties,
reputational damage, loss
of business and impact on
staff morale.
Mitigation
Changes since 2018
This risk is mitigated as follows:
1. The Group maintains an active information security
programme under the direction of the Group CIO with
oversight by the Information Security Committee and
the Board.
2. We continually monitor our security using internal resources
and external specialists to identify any vulnerabilities.
3. The Group ensures compliance with all major legislation
and directives.
4. The Group maintains a mandatory training programme
to promote staff awareness of information security and
compliance with best practice.
5. Data, systems and access permissions are strictly segregated
to reduce exposure to risk.
6. The Corporate Communications team is constantly
engaged to provide support for any internal and customer-
facing incidents.
The Group continues to implement an
active Infosec programme to make the
business risk-aware and protect our systems
and data from external attacks.
An ongoing penetration testing programme
is in place performed by external security
specialists. This allows us to identify and
address vulnerabilities to emerging cyber
threats on a proactive basis. In addition, we
have deployed Advance Threat Protection
software along with Multi Factor
Authentication and security awareness
campaigns.
IWG has cyber insurance policies in place
which provide immediate response services
in the event of a breach.
IWG manages this risk through:
1. Business continuity plans for our key systems and sites.
2. A detailed service agreement with our external data centre
provider which incorporates appropriate back-up procedures
and controls.
3. Ensuring appropriate business interruption insurance
is in place.
4. Transitioning core infrastructure to cloud-based and
SaaS services.
5. We have contingency plans in place for disruptions to our
people and customers on a centre or geographic cluster basis.
We undertake regular testing of business
continuity procedures to ensure that they are
adequate and appropriate.
Redundant connectivity of independently
routed circuits for our three main sales call
centres is in place.
Driving implementation of a cloud based BCP
solution for our key systems and applications.
A robust supplier selection and evaluation
process continues to be in place with a view to
enhance controls to address the risk of fraud.
Further, all projects are now monitored
and evaluated by a centralised capex
finance team.
A dedicated cost function to review spend
across all categories and detect anomalies or
exceptions is in place.
IWG manages this risk through:
1. Visible ethical leadership.
2. A robust governance framework including a detailed code of
conduct plus policies on gifts and hospitality and bribery and
corruption that are in place and rolled out to all employees
as mandatory training.
3. Centralised procurement contracts with suppliers for key
services and products.
4. Standardised processes to manage and monitor spend
including controls over supplier on-boarding and
payments approval.
5. Regular reviews to monitor effectiveness of controls.
6. Independent and confidential ethics hotline available to
employees, contractors and third parties.
7. Independent investigation of fraud incidents and allegations
of misconduct with Board-level oversight.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RISK MANAGEMENT AND PRINCIPAL RISKS continued
PRINCIPAL RISKS continued
Operational risks
Risk
Data protection and privacy
Link to strateg y:
5
IWG is required to comply with
legislation in the jurisdictions in
which it operates including the new
General Data Protection Regulation
(GDPR) and other local data privacy
laws. Non-compliance and breaches
could result in significant financial
penalties and reputational damage.
Growth risks
Mitigation
Changes since 2018
IWG operates a detailed privacy policy that covers all
aspects of data privacy including and not limited to
personal data, demographic information, financial data,
cookies and other digital markers, marketing
communication etc.
We continue to remain compliant with
GDPR and are proactively reviewing new
local legislations. An annual review of our
compliance processes is performed.
Further, security applications were deployed
such as Advanced Threat Protection.
Risk
Mitigation
Changes since 2018
Ensuring demand is there
to support our growth
Link to strateg y:
31
IWG has undertaken significant
growth to develop local and national
networks. Adding capacity carries the
risk of creating overcapacity. Failure
to fill new centres would create a
negative impact on the Group’s
profitability and cash generation.
On aggregate, our new centres continue
to perform in line with management
expectations and are delivering
attractive returns.
IWG mitigates this risk as follows:
1. Each investment or acquisition proposal is reviewed and
approved by the Investment Committee.
2. A robust business planning and forecasting process is in
place to provide timely and reliable information to address
short- and mid-term opportunities and risks to
performance.
3. A quarterly review process is in place to monitor new
centre performance against the investment case to ensure
that the anticipated returns are being generated.
4. As part of the annual planning process, a growth plan is
agreed for each country which clearly sets out the annual
growth objectives.
Human resources risks
Risk
Mitigation
Changes since 2018
Ability to recruit at the right level
Link to strateg y:
53
Our ability to increase our
management capacity and capabilities
through the hiring of experienced
professionals not only supports our
ability to execute our growth strategy,
but also enables us to improve
succession planning throughout the
Group.
Mitigating actions include:
1. Succession planning discussions are an integral part of
our business planning and review process.
2. Part of the annual planning process is the Human
Resources Plan, and performance against this Plan is
reviewed through the year.
3. Our global performance management system allows us to
keep close to our employees and maintain a two-way
dialogue throughout the year using a regular feedback
process.
4. Regular external and internal evaluation of the
performance of the Board.
Our capability to hire the best talent
continued to increase in 2019. A workforce
plan is in place with key hires planned to
provide complete succession planning and
top talent bandwidth.
We recruit our team with diverse
backgrounds in mind.
The IWG Board has adopted a board
diversity policy.
54
IWG plc Annual Report and Accounts 2019
Human resources
Risk
Training and employee engagement
Link to strateg y:
3
As a service-based business the
strength and capabilities of our
increasingly geographically diverse
team are critical to achieving our
strategic objectives.
Mitigation
Changes since 2018
One of the key items in the Human Resources Plan is the
Global Induction & Training Plan, which sets out the key
objectives for the forthcoming year. Performance against
these objectives is reviewed through the year.
All new employees are surveyed in the first three months
to ensure they have been trained and are receiving
effective support.
Our investment in our new Learning
platform has allowed our employees to learn
through e-learning, videos, case studies and
coaching on the ground rather than by using
prescriptive and traditional training
channels. Since January 2019, we have had
over 2.3 million visits to the IWG Academy.
Our top 320 executives attended our global
leadership conference in January 2019 where
we agreed strategy and future business
priorities.
We also continued the roll-out of our Sales &
Customer Service Training Academy. This
suite of training is pivotal to ensuring that our
team remains focused on our existing and
new customers alike.
In September 2019, we launched our new
management skills training programme with
1,900 people set to attend in 2020.
We will also roll out a virtual induction to
complement the induction that team members
experience on the ground with line managers
and accredited coaches. This means we can
ensure every field team member gets a great
start in IWG.
Viability Statement
In accordance with the provision C.2.2
of the UK Corporate Governance Code,
and considering the Group’s current
position and prospects as outlined in the
Strategic Report and its principal risks
for a period longer than 12 months as
required by the going concern statement,
the Board has a reasonable expectation
that the Group will continue to operate
and meet its liabilities as they fall due,
for the next three years.
The Board’s consideration of the
long-term viability of the Group is an
extension of our business planning process
which includes financial forecasting,
a robust enterprise-wide risk management
programme, regular business performance
reviews and scenario planning.
For the purposes of assessing the Group’s
viability, the Board identified that, of the
principal risks detailed on pages 48 to 55,
the following are the most important to
the assessment of the viability of
the Group:
• impact of an economic downturn
or geo-political events in our major
markets, including the COVID-19
outbreak
• a significant business event leading to
serious reputational and brand damage
• growing competition
The potential impact of each scenario was
modelled on the Group’s revenue, gross
profit, operating profit, net debt and debt
covenants over the three-year forecast
period. The Board subsequently
considered the viability of the Group both
in the context of the individual risks listed
above and in combination of two or more
risks over a range of assumptions.
The stress testing showed that the
Group would be able to withstand any
of the severe but plausible scenarios by
taking management action in the normal
course of business.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ENVIRONMENT, PEOPLE, COMMUNITIES
Our commitment to doing what’s right
With operations in more than 110 countries worldwide, IWG is committed to acting ethically
in all our activities, from how we treat our customers, partners, employees, suppliers, shareholders
and communities to how we work to lessen our environmental impact. In addition, we believe that
over the next decade our developing focus on providing ‘outer-city’ flexible workspace will have a
significant and accelerating positive impact globally on local communities, personal wellbeing and
carbon-reduction efforts.
Environment
At IWG, we look at our
environmental performance in
two ways. First, how we have
decreased our own environmental
impact during the year, through
initiatives including upgrades to
our buildings. And second, how
our solutions help our customer
organisations reduce their impact
across the world.
We have continued to show year-on-year
improvement in reducing our global carbon
footprint and related costs per centre.
An analysis of the global costs of gas and
electricity per workstation have shown a
33% reduction in gas and a 27% reduction
in electricity over the last four years since
the 2016 baseline. A similar analysis of
the usage of water per workstation indicates
an 18% reduction in costs over the same
four years.
These global figures reflect the continuing
improvements we are making in reducing
energy consumption across our global estate
and engaging our clients in our carbon-
reduction strategy.
Overall a total average reduction of 28%
in gas, electricity and water is found since
2016. This is despite the average cost of
utilities rising by more than 20% over the
same period. We have achieved it through
our consistent focus on energy management,
centre refurbishments and centre upgrades.
These actions support the ever-changing
market conditions and advance our efforts
to create a greener, more environmentally
friendly working culture. Improvements
include upgrading centre lighting to LED,
installing automated lighting switching and
upgrading air-conditioning systems and
controls with more efficient plants. A good
example of this is Peter House, Manchester,
in the UK, where we have transformed an
averagely performing building into a
modern, efficient 21st century Spaces centre.
An independent analysis of the energy
consumption before and after the
refurbishment indicates savings in excess
of 40%.
In the UK
We successfully completed the last
cycle of the UK’s CRC Energy
Efficiency Scheme. An independent
analysis has shown that despite
energy supplies increasing by circa
39% in the last five years, our carbon
allowances have decreased by 44%.
Although some of this can be
attributed to the improvement in
carbon conversion factors, IWG can
also demonstrate the effectiveness of
its strategy on carbon and energy
reduction.
We submitted ESOS (Energy Savings
Opportunity Scheme) Phase 2 on
time, and identified further energy
savings of circa 7%. Our Greener
Working programme continues and
will be accelerating in 2020 to cover
staff and client engagement.
IWG recognises the need to support
the global efforts to reduce businesses
impact on climate change. Our
business model directly supports our
global clients’ programmes aimed at
reducing their own carbon emission
through reduced travel, energy-
efficient facilities and improved
communication. Our own
participation continues in the
disclosure of our climate change
commitments through the detailed
CDP disclosure programme (formerly
called the Carbon Disclosure Project).
This year we have expanded our
disclosure to include water security.
We have maintained our strong B
rating received in previous years for
the CDP disclosure which continues
to be higher than both the industry
general average and the European
regional average which is a C.
56
IWG plc Annual Report and Accounts 2019
IWG Total Annual Global Utility Costs (£) per Workstation
2019
2018
2017
2016
17.33
19.86
24.46
25.82
Gas per WS
Electricity per WS
Water per WS
50.25
3.5
57.47
3.66
64.19
3.77
68.81
4.26
IWG UK Yearly Energy Benchmark Analysis (kWh/sq. ft.)
2018/
2019
2017/
2018
2016/
2017
2015/
2016
2014/
2015
13.5
6.8
15.4
16.0
8.0
7.9
17.8
18.8
8.5
9.3
Average Electricity Benchmark (kWh/sq. ft.)
Average Gas Benchmark (kWh/sq. ft.)
Humanitarian relief
Helping people cope with the
aftermath of climate-related
events
Some of our humanitarian activities
during 2019 took place in the aftermath
of serious climate-related events. For
example, when tropical storm Barry
hit North America, IWG gave free
business lounge access to companies
and entrepreneurs in states including
Alabama, Florida and Texas.
We also offered support in multiple
locations affected by Hurricane Dorian
in the eastern US, as well as in Quebec,
Canada, when flooding struck
the region.
As part of this support people could drop
into participating centres free of charge,
use their Wi-Fi, power up their devices
and get a cup of coffee while continuing
to run their businesses. Our colleagues
also made a further significant difference
to affected people in their communities,
collecting donations of food and clothing,
volunteering in soup kitchens and
helping to clean up in the aftermath
of these events.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ENVIRONMENT, PEOPLE, COMMUNITIES continued
People
We consider our impact on
society in two primary ways:
how we ensure our own
people have rewarding and
happy careers with us, while
enabling our customers to
have great days at work; and
how we can ensure that the
presence of our centres directly
benefits our host communities.
IWG’s global network
has allowed me to
expand my career from
the UK market with a
move to Asia. Being part
of a global organisation
allows myself and others
opportunities to grow
as an individual while
taking on new
challenges.”
Darren Rogers
Sales Director
Our talent strategy for 2019 was to ensure
we have great people everywhere, giving
customers a great day at work. This
approach underpins IWG’s global strategy
placing key factors such as recruitment,
talent, diversity, retention and succession-
planning at the heart of our long-term plans.
We are committed to hiring the best talent
available in every market to deliver the
flexibility, service quality and support our
customers need. That is why we have hired
over 2,500 new customer-service people to
create workspaces where customers want
to work.
We continued to strengthen our leadership
team around the world in 2019, with 103
new executives joining IWG management
teams particularly in the areas of franchise
partnership, corporate finance, sales and
leadership. We achieved this through our
internal Executive Search team, who are
experts in their field and save significant
seven-figure sums in executive search fees
each year.
Diversity of talent
IWG is proud to be an employer that fully
embraces diversity. 70 % of our Field
workforce are female out of a customer-
facing team of 9,000. In addition, 40%
of our main Board and senior leadership
teams are female, in key positions including
Chief Sales Officer, Chief Customer Service
Officer and Global Head of Financial
Shared Services.
Succession and international
opportunities
Providing team members with international
opportunities helps us to create a dynamic
workforce. This year, experienced employees
travelled from other markets around
the world to locations including the
Netherlands, Germany, the UK and
Malaysia to work on important projects
such as integrating new acquisitions and
coaching new team members in high-
growth markets.
This secondment activity is pivotal to
running a global company with world-class
processes and market-leading ways of
working. Wherever possible, we promote
from within and celebrate important moves
throughout the business. In 2019 we
facilitated 409 internal promotions.
Graduate intake
In 2019, IWG hired a cadre of graduates
in key functions around the business.
We believe that our investment in these
leaders of the future will reap rewards over
the years to come as the breadth of skills
and experience we require gets greater
each year.
Staff survey
We ran an internal staff survey towards the
end of the year, which showed us that 76%
of our employees would recommend IWG
to their friends and family as an employer
of choice. We will continue to improve
employee engagement at all levels in every
country throughout 2020, driving on with
our commitment to giving all team members
a great day at work.
Training and development
Our IWG Training Academy gained an
84% employee-satisfaction rating in 2019,
and IWG training modules received more
than 2.3 million views. We also launched
a new 12-part management skills training
programme during the year. Over the last
six months, 1,922 people have started this
curriculum as part of our strategy to grow
future leaders from within.
All new team members have a new-starter
training programme specific to their local
market, supported by a coach and formal
accreditation process to ensure our
customer-service teams are ready to
deliver the highest possible standards.
Reward
Reward is another key focus area in our
efforts to attract and retain the best talent.
The competition for talent is unrelenting in
our markets, so we work hard to ensure that
our overall compensation structure is highly
competitive and focused on delivering great
customer experiences. We also ensure that
high-potential people, at every level from
intern to the Executive Committee, are
encouraged to stay with us via attractive
short- and long-term incentives.
It’s by selecting and retaining the right
people, helping them become as good as
they can be and rewarding them fairly, that
IWG ensures the millions of members and
customers who spent time at our centres in
2019 each experienced a great day at work.
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IWG plc Annual Report and Accounts 2019
Education and skills development
Helping underprivileged kids prepare for life
Fundacíon Sí is an NGO with the main objective of promoting the
social inclusion of Argentina’s most vulnerable areas. The organisation
works via volunteers who provide assistance, training, education
and guidance on work culture. Our local team partnered up with
the NGO in the ‘Dijimos Sí’ project, involving the donation of toys,
clothes and school equipment for local kids.
“With small contributions made by many people, very good things
can be achieved such as giving the kids incredible satisfaction.
Very good job Regus staff!”
Belen Alemañy, IDC Argentina SA (IWG client).
Joining the
international task
force has introduced
me to new experiences,
people and challenges
and has provided me
with an incredible
year of professional
and personal growth.”
Greg Rozmarin
Sales Director
Education and skills development
Promoting artistic activities among people with disabilities
The franchise team in Japan, together with their clients, provided support
to ParaArt, an organisation which promotes artistic activities among
people with disabilities. The team provided space in five of their centres
to hold complimentary ParaArt exhibitions for two weeks and created the
opportunity for our clients to provide further support through financial
donations. ParaArt will use the money to improve the ParaArt School,
that helps aspiring artists with disabilities to study and improve
their skills.
Earlier in the year the team in Japan also organised a humanitarian relief
effort across all the centres in the Japan network to provide support for
victims affected by the Kumamoto and Hokkaido earthquakes.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ENVIRONMENT, PEOPLE, COMMUNITIES continued
Entrepreneurship
Helping young people enter the workforce
Our team in Brazil has partnered with the PROA Institute, which
helps low-income young people find their first job, preparing
them for interviews through coaching and by providing them
with smart clothing.
Our colleagues also have a partnership with iiGual, an organisation
specialising in equality, inclusion and diversity in the workforce.
“For iiGual, the partnership with Regus represents an important
step towards building a diverse and inclusive job market with equal
opportunities for all. With its flexible, shared offices, Regus is a
hub where people of all backgrounds come together to work. By
promoting diversity and inclusion in the job market, it becomes
an important player in influencing companies and professionals
in favour of this inclusive movement.”
Jaques Haber, Co-founder, iiGual.
Entrepreneurship
Helping at-risk women put poverty behind them
Since 2015, IWG in Canada has partnered with the
Up With Women charity, helping recently homeless and
at-risk women to exit poverty via coaching and support.
Through their private sector partnerships, including the
IWG community partnership, more than $5m in services
has been invested in the community.
As part of the partnership, IWG provides the space
required to run programme sessions. IWG has supported
more than 400 recently homeless and at-risk women
across Canada, providing meeting rooms at no charge
for group learning and support sessions, and access to day
offices for private sessions between coaches and clients.
The results of the programme have been inspiring, with
clients typically tripling their income within 12 months,
a third completely terminating their social assistance and
90% reporting increased confidence and direction in
their lives.
One success story is that of Kim Niles, who came to
Canada with her baby daughter to escape violence.
Despite a successful prior career, she could not find
work in her new country, and they ended up living in
a homeless shelter. But within a few months of joining
Up With Women, she secured a part-time job. As her
confidence grew, so did her prospects. She started work
as a Regus Community Associate, and the cosmetic
products she makes as a side business are on the shelves
on beauty supply stores across Toronto.
As Kim says, “The Regus space made me feel like I
mattered, and that allowed me to open myself up again
to new possibilities. Now that I work in a Regus Centre,
I feel I can give that gift back every day.”
“Up With Women is an ideal community partner
because our values and missions align. At IWG, our
goal is to help our members to conduct the best work
of their lives through the power of flexible working and
immersive communities. Up With Women helps survivors
of violence and deep poverty to rebuild their careers and
launch businesses through the delivery of high-quality,
flexible, in-depth and customised professional coaching.”
Wayne Berger, CEO, IWG Canada and Latin America.
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IWG plc Annual Report and Accounts 2019
Communities
Throughout this section of
this report, you will find
examples of our pro bono
and charitable work to help
people who live and work
in the communities around
our centres.
There are four key areas of focus for this
work: providing humanitarian support
following a disaster; helping with education
and skills development, for disadvantaged
people as well as school-age children;
supporting entrepreneurship; and helping
with health in the community.
Right across the world, this work sees our
own colleagues, clients, suppliers and other
stakeholders work with amazing energy and
enthusiasm to address issues within local
communities. In 2019, this collectively
raised £412,420 through 354 projects,
supporting 283 charities, in 50 countries.
Please see the community investment table
for further information.
Our role in the communities where our
centres are based transcends this sort of
work alone, however. At IWG, we see
bringing high-quality workspaces to towns
and villages away from major urban centres
as a vital element of our ambitious future
expansion plans. A trend towards ‘outer-
city’ locations is already strongly underway,
driven by forces including the growth of
small businesses outside cities, the need for
businesses to create dynamic and flexible
workforce teams to address specific tasks,
enterprises looking to save real estate costs,
and employees wishing to work closer
to home.
This trend is enabling us to draw on
local supply-chain networks, building
relationships with local businesses and
connecting them with our clients. This in
itself generates wealth for local communities,
attracting new people and organisations and
growing local economies.
Our centres deliver direct social, economic
and environmental benefits in many ways
for the communities where they are based.
For example, our research shows that a
flexible workspace serving a community can
save locally based employees a total of 7,416
hours each year by reducing commuting
times, directly contributing to happier
workers and families.1
On the economic front, each centre can
create 218 new jobs, of which 121 would be
based in the local community. A centre can
also generate US$16.47m each year, of
which US$9.62m would be retained by the
local economy.(1)
Environmentally, the reduced commuting
that is enabled by an outer-city centre can
save 118 metric tonnes of CO₂ per centre
each year. Given our expansion plans fuelled
by our franchising model, these positive
impacts will continue to multiply over the
next 10 years.
This approach will lead to more self-
supportive towns and villages, generating
enhanced value while retaining their key
talent and driving down pollution for a more
sustainable future.
1. 2019 Regus Suburban Economic Survey.
Community Investment
2019
2018
2017
£412,420
50 countries
354 projects
£317,891
47 countries
335 projects
£302,066
46 countries
260 projects
2016
£237,479
44 countries
244 projects
2015
2014
£209,905
43 countries
219 projects
£155,329
38 countries
132 projects
283 charities
274 charities
252 charities
239 charities
195 charities
100 charities
2013
£80,500
20 countries
54 projects
78 charities
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ENVIRONMENT, PEOPLE, COMMUNITIES continued
Health
Donating blood for
vulnerable children
All IWG centres in Vietnam,
together with our clients, have
partnered with the National
Institute of Haematology and
Blood Transfusion to take part
in a blood donation drive and
support 30 children under 12
years old. Each child was also
presented with a gift bag to help
brighten their day.
Health
Making wishes come true
For the sixth successive year, the IWG team in India has taken
part in the Mumbai Marathon – one of the top 10 marathons in
the world and India’s largest philanthropic sporting event –
to raise money for the Make-A-Wish Foundation India.
This non-profit organisation makes life-changing wishes for
critically ill children come true.
During the life of this outstanding partnership, our people have
raised over £17,700 to grant the wishes of more than 300 children.
“Bringing a smile to the face of a terminally ill child is our small
way of giving back to the community we live in. As a team at IWG,
we feel grateful we can bring a little joy into the lives of these little
ones by participating in the Tata Mumbai marathon and with the
Make-a-Wish Foundation. Every little bit counts and seeing the
smiles on the faces of the children and their parents brings us
together as a team and a community.”
Harsh Lambah, Country Manager India,
Vice President Sales South Asia
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IWG plc Annual Report and Accounts 2019
Education and skills development
Transforming slums through
volunteering
The TECHO foundation brings together
volunteers and families living in poverty to
transform slums into thriving communities
across Latin America. This is done by providing
housing, community projects and education.
IWG Panama partnered with TECHO and
provided them with the necessary space to
conduct their volunteer training programmes.
“For us, it is really exciting to support a
non-profit organisation such as TECHO, whose
main objective is to build homes for people who
live in rural areas. By providing training space
for these volunteers, we are doing our bit to
contribute to this outstanding cause.”
José Dutari, IWG plc
Community Manager Team Leader,
Panama City
Education and skills development
Bringing digital skills to disadvantaged people
In the UK, IWG has forged a partnership with SocialBox to help
homeless people get back on their feet. As part of this initiative, the
team has worked with clients to collect unwanted but functional
laptops, mobile phones and IT equipment, with the aim of donating
1,000 laptops by the end of 2020. More than 600 laptops have been
donated to date.
“As a workspace provider driven by tech, we know how integral
digital skills are to the way that people live and work.”
Richard Morris, CEO, IWG UK.
ESG reporting
from 2020
IWG’s current CSR
discussions primarily
focus on community and
charitable investment,
catering to audiences such
as employees, communities
and NGOs. In 2019, we
have started identifying
key ESG issues to meet the
information needs of
investors and other
stakeholders, with a view
to start transitioning to a
more strategic and
meaningful materiality-led
disclosure for future years.
We have considered a
range of ESG reporting
frameworks, and have
selected the Global
Reporting Initiative’s
(GRI) standards to guide
IWG’s ESG reporting
from 2020.
Our approach to
governance
At IWG, we believe good
governance is a means
of ensuring that all the
decisions we make are
based on the right
considerations: right
for our people and
our shareholders, the
communities where we
work, our customers and
their employees, our
partners and society
at large.
You can see a complete
description of our
governance structures
and how we allocate
responsibilities on pages
66 – 72 of this report.
Here you will see our
report on the major
initiatives and actions
taken this year that have
helped us to evolve our
approach to governance.
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63
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS BOARD OF DIRECTORS
Board of Directors
DOUGLAS
SUTHERLAND
Non-Executive
Chairman
MARK DIXON
Chief Executive
Officer
Appointment*
27 August 2008
Experience
Douglas was Chief Financial Officer of Skype during its acquisition
by eBay. Prior to this, Douglas was an Arthur Andersen Partner
with international management responsibilities. He has served as a
director of companies in multiple jurisdictions and was the founding
Chairman of the American Chamber of Commerce in Luxembourg.
External appointments
Douglas is currently also the Chairman of Socrates Health Solutions
Inc. and a Director of AI Monet Parento S.àr.l.
*
Independent on Appointment.
Appointment
14 October 2016
Experience
Chief Executive Officer and founder, Mark is one of Europe’s best
known entrepreneurs. Since founding the Regus Group in Brussels,
Belgium in 1989, he has achieved a formidable reputation for
leadership and innovation. Prior to Regus and IWG he established
businesses in the retail and wholesale food industries. A recipient
of several awards for enterprise, Mark has revolutionised the way
business approaches its property needs with his vision of the future
of work.
FLORENCE PIERRE
Independent
Non-Executive
Director
LAURIE HARRIS
Independent
Non-Executive
Director
Appointment
21 May 2013
Experience
Florence has over 30 years of international corporate finance
practice, holding senior positions at BNP, Financière Rothschild,
Degroof Corporate Finance, 3i Infrastructure plc and her own
M&A advisory boutique. Florence has an international perspective,
having worked in Chicago, New York, Paris and Brussels. She has
also taught economics and finance, published a number of books
and articles on valuation, and has been a member of several French
entrepreneurship and innovation committees.
External appointments
Florence also shares her time between directorships, private equity
investments in hi-growth companies providing innovative
and digital-based services, managing her art collection and
mountain trekking.
Appointment
14 May 2019
Experience
Laurie was a global engagement audit partner with
PricewaterhouseCoopers LLP, where she advised large public
companies, including Fortune 100 financial services companies,
in the United States and internationally over her 38-year career.
Laurie is the chair of the Audit Committee as the Board considers
her to have recent and relevant financial experience.
External appointments
Laurie currently serves as an Independent Director and Audit
Committee Chair of QBE North America, an integrated specialist
insurer which is part of QBE (ASX:QBE); Synchronoss
Technologies, Inc. (NASAQ:SNCR), a global leader and innovator
in cloud, messaging, digital and IoT platforms and products; and
Hagerty, an automotive lifestyle company and world’s largest
provider of specialty insurance for enthusiast vehicles.
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IWG plc Annual Report and Accounts 2019
ERIC HAGEMAN
Chief Financial
Officer
FRANÇOIS PAULY
Senior Independent
Non-Executive
Director
Appointment
1 January 2019
Experience
Eric has almost 25 years’ experience in international, financial,
operational and general management roles. Eric previously served
as Chief Financial Officer at a number of leading listed companies
including TeleCity Group plc in the UK and Royal KPN NV, the
leading communications group in the Netherlands. Eric began his
career in the banking sector, working at ABN Amro and Deutsche
Bank. He holds a Master’s degree in Business Economics from
Maastricht University in the Netherlands and an MBA from
London Business School.
NINA HENDERSON
Independent
Non-Executive
Director
Appointment
20 May 2014
Experience
During her 30-year career with Bestfoods and its predecessor
company CPC International, Nina held a number of international
and North American general management and executive marketing
positions, including Corporate Vice President of Bestfoods and
President of Bestfoods Grocery. She has also served as a director of
numerous companies including AXA Financial Inc., Royal Dutch
Shell plc, Del Monte Food Company and Pactiv Corporation.
External appointments
Nina is a Non-Executive Director of Hikma Pharmaceuticals plc,
Director of CNO Financial Inc. (Bankers Life, Washington, National
and Colonial Penn insurance companies) and Commissioner of the
Smithsonian National Portrait Gallery. Nina is Vice Chairman of
Drexel University’s Board of Trustees. She is a Director of the
Foreign Policy Association and the Visiting Nurse Service of New
York. Nina holds a Bachelor of Science with honours from Drexel
University and received the AJ Drexel Distinguished Alumni Award.
Appointment
19 May 2015
Experience
François has over 30 years of management experience in the
banking sector. Until April 2016 François served as Chief Executive
and Chairman of the Management Board of Banque Internationale
à Luxembourg. Previous management experience includes executive
appointments at BIP Investment Partners S.A., Dexia Group and at
Sal. Oppenheim jr. & Cie. S.C.A.
External appointments
François serves as the Senior Advisory Partner at Castik
Capital Partners, Non-Executive Chairman of the Saint Paul
Group and Non-Executive Chairman of Compagnie Financière
La Luxembourgeoise SA. He also serves as Non-Executive Director
of Cobepa SA, the Luxaviation Group and for several companies of
the Edmond de Rothschild Group. François also serves on the board
of several charitable organisations.
Committee membership key
Audit Committee
Remuneration Committee
Nomination Committee
Chairman
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65
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT CORPORATE GOVERNANCE
Introduction to Corporate Governance
We are committed to acting ethically in all
our activities, from how we treat our customers,
partners, employees, communities and
shareholders to how we work to lessen
our environmental impact.”
Douglas Sutherland
Chairman
Dear shareholder,
On behalf of the Board I am pleased to
introduce the Corporate Governance
report for 2019.
This report explains our approach to
corporate governance and details the
governance structure implemented by
your Board to facilitate entrepreneurial
management whilst ensuring the long-term
sustainable success of the Company for the
benefit of our stakeholders.
UK Corporate Governance Code
The UK Corporate Governance Code
published by the Financial Reporting
Council in July 2018 (the “Code”), which
is available on www.frc.org.uk, became
effective for IWG plc from 1 January 2019.
As a Board we have spent time reviewing
both the Code and the supporting Guidance
on Board Effectiveness and where necessary
we have updated our reporting to demonstrate
our compliance, for example we have
included details of the key activities of the
Board during the year and a framework
to explain our division of responsibilities.
We have also included additional information
on our role in determining and monitoring
strategy and how we take into account the
views of our stakeholders.
During 2019 we have complied with the
Code with the exception of my time as
Chairman exceeding nine years from the
date of my first appointment to the Board.
This has been discussed with several large
shareholders and is regularly reviewed by the
Nomination Committee which, as further
explained on page 74 has concluded that
due to the significant transformations IWG is
undergoing, it is in the best interests of the
Group that I currently continue in the
Chairman role until the annual general
meeting in May 2021.
Board appointments
During 2019 we welcomed two new Board
members: Eric Hageman was appointed
to our Board as Chief Financial Officer
on 1 January and Laurie Harris joined the
Board as Non-Executive Director and
Chair of the Audit Committee on 14 May.
We welcome the professional expertise,
backgrounds and personal experience they
each bring to the Boardroom which ensures
that our decision-making continues to benefit
from having a diverse Board and remains
lively and robust.
Stakeholders
We are proud of our track record in
delivering value to customers, partners,
employees, communities and shareholders.
During 2019 we oversaw the introduction
of our global master franchise programme
which is creating investment opportunities
for our partners and allows capital-light
expansion, strengthening our ability to
reward our shareholders.
In 2019 we have focused on improving
our engagement with employees and
ensuring our employees have a great day
at work. Nina Henderson, our Non-
Executive Director with responsibility
for employee engagement, has spent time
meeting with employees and ensuring that
their views are better represented in our
Boardroom discussions.
Culture
Your Board has a vital role to play in shaping
and embedding a healthy corporate culture,
and this continued to be a focus in 2019.
Our strategy is focused on addressing
climate change and we have put ESG
(Environmental, Social and Governance)
reporting on our Board agenda. We are
committed to acting ethically in all our
activities, from how we treat our customers,
partners, employees, communities and
shareholders to how we work to lessen our
environmental impact.
Annual Report
Your Board and the Audit Committee have
reviewed this Annual Report and consider
that it provides the information necessary
for you to assess the Company’s position and
performance, business model and strategy.
We consider the Annual Report, taken as a
whole, to be fair, balanced and understandable
and seek your approval of the Annual Report
at the Company’s annual general meeting
which will be held in Zug, Switzerland on
12 May 2020.
DOUGLAS SUTHERLAND
Chairman
In this section
66 Corporate governance
73 Nomination Committee report
75 Audit Committee report
79 Directors’ Remuneration report
93 Directors’ report
95 Directors’ statements
66
66
IWG plc Annual Report and Accounts 2019
IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
Balance of Non-Executive
and Executive Directors
EXECUTIVE
NON-EXECUTIVE
29%
71%
Length of tenure of
Non-Executive Directors
0-3 YEARS
3-5 YEARS
6+ YEARS
20%
40%
40%
AN EFFECTIVE BOARD
Board composition
Your Board has been selected to ensure
that we benefit from the skills and knowledge
of individuals from different genders,
nationalities and backgrounds with diverse
executive responsibilities and personal
experiences. Individual biographies can
be found on pages 64 and 65.
The make-up of your Board is reflective
of the stakeholders it serves and ensures
robust discussion in the Boardroom, with
different views being offered. We firmly
believe this diversity creates a better
decision-making process.
Board meetings
The Chairman and the Company Secretary
plan an annual schedule of matters to
be considered by the Board, ensuring
all key issues are covered and that topics
are covered at appropriate times. Seven
meetings were scheduled for 2019 including
a two-day strategy meeting and a series of
presentations from members of the Senior
Leadership Team as well as internal and
external specialists.
Meetings were structured to ensure time
for in-depth discussions on key issues and
to allow time for the Chairman to meet
with Non-Executive Directors without the
Executive Directors present.
Board meeting attendance
Members
Douglas Sutherland,
Chairman
Mark Dixon
Eric Hageman
Laurie Harris(1)
Elmar Heggen(2)
Nina Henderson
François Pauly
Florence Pierre
Attendance
(out of possible
maximum
number of
meetings):
8/8
8/8
8/8
4/4
2/4
8/8
7/8
7/8
1. Laurie Harris joined the Board on 14 May 2019
2. Elmar Heggen stepped down from the Board on
14 May 2019
The Board met seven times in 2019 as
scheduled and one additional Board meeting
was convened in April to deal with the
Japanese strategic partnership transaction.
Wherever possible, when time-sensitive
approvals are anticipated between scheduled
meetings the Board delegates its authority to
a committee to be convened as appropriate.
The Chairman and the Company Secretary
ensure that the Board receives clear, concise
and timely information on all relevant matters
so that discussions are well-informed. Board
papers are made available in advance of
meetings on a secure board portal. This portal
is also used to distribute relevant reference
material and a monthly Board report.
Minutes are taken of all Board discussions
and decisions.
In the event that a Director has a concern
about the running of the Company or a
proposed action, such concerns are recorded
in the Board minutes or can be recorded
by Non-Executive Directors who are
resigning, in a written statement which will
be circulated to the Board. No such concerns
were raised in 2019.
Matters reserved for the Board
Matters that are considered sufficiently
material that they can only be made by
the Board as a whole and cannot be
delegated include:
• approval of long-term objectives and
commercial strategy;
• approval of the annual budget;
• approval of regulatory announcements
including the interim and annual
financial statements;
• approval of terms of reference and
membership of the Board and
its Committees;
• appointment and removal of the
Company Secretary;
• approval of risk management strategy;
• changes to the Group’s capital structure;
• changes to the Group’s management and
control structure;
• capital expenditure in excess of £5m; and
• material contracts (with an annual value
in excess of £5m).
Full details of the matters reserved for the
Board are available on www.iwgplc.com.
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67
67
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT CORPORATE GOVERNANCE continued
BKEY ACTIVITIES OF THE BOARD FOR 2019
BStrategy and financing
• Reviewed strategy and objectives at a two-day strategy meeting
• Approved strategic partnership transactions in Japan, Taiwan
and Switzerland
• Received regular updates on the progress of strategic projects
• Approved the three-year plan
• Regular review of the Group’s financial structure
• Approved a £100m share buyback programme
• Reviewed and approved the annual viability statement (page 51)
BPrudent and effective controls
• Review of the Group’s key risks and mitigating actions
• Received updates from the Audit Committee Chair on
key areas discussed
BStakeholder engagement
• IWG Global Workplace Survey
• Received Policy Statements provided by significant shareholders
• Board members were available to meet shareholders at the 2019
annual general meeting
• Received reports from the Chairman on feedback from
shareholder meetings and correspondence
• Investor presentations and meetings
• Reviewed monthly updates on investor relations
• Reviewed updates on our global franchise partners
• Reviewed updates on employee engagement initiatives
• Reviewed updates on ESG reporting and community initiatives
BGovernance
• Renewal of the Group’s insurance programme
BCorporate reporting and performance monitoring
• Reviewed and approved the Notice of annual general meeting
• Received updates from the Nomination Committee Chairman
• Received regular performance updates at scheduled meetings
and through monthly Board reports
• Approved the annual budget
• Assessed the Company’s viability over a three-year period having
consideration to the risks and scenarios that could affect the
Group (page 55)
• Received updates from the Remuneration Committee Chair
on key areas discussed
• Approved the Company’s year-end and interim results
• Approved the Q1 and Q3 trading statements
• Approved the interim dividend and recommended a final
dividend for the financial year ended 31 December 2019
• Reviewed the Group’s talent
on succession planning
• Reviewed the new requirements arising from the 2018 UK
Corporate Governance Code
• Accepted the Nomination Committee’s recommended
appointment of Laurie Harris as Non-Executive Director and
Audit Committee Chair
• Reviewed report from Nina Henderson as Non-Executive
Director with Oversight of Employee Engagement and CSR
• Updated the Remuneration Committee terms of reference
• Reviewed the performance of the Board, its Committees and
all Directors
• Reviewed and approved statements on anti-slavery and human
trafficking, and anti-bribery and corruption
• Reviewed and approved an update to the Company’s manual for
compliance with disclosure obligations under the Listing Rules
and the Market Abuse Regulation
Induction
The Chairman, supported by the Company Secretary, is responsible for preparing and co-ordinating a customised and comprehensive induction
programme for each newly appointed Director, ensuring they can contribute effectively to discussion and decision-making. Details of the induction
programme developed for Laurie Harris are below.
Laurie Harris – induction programme
Laurie was appointed as Non-Executive Director and Chair of the Audit Committee on 14 May 2019. To enable her to fulfil her role the
following activities were included in her induction programme:
Activity
Summary
Documentation
Face-to-face meetings
Audit Committee
Site visits
68
68
Relevant documents were made available including recent Board and Committee minutes, meeting papers and Board
reports, recent Board reviews, policies and procedures, the Company’s articles of association, Directors’ duties, matters
reserved for the Board, Committee terms of reference, Annual Report and Accounts, investor presentations, and broker
and analyst reports.
Meetings were held with the Chairman, Chief Executive Officer, Chief Financial Officer, all Non-Executive Directors,
the Company Secretary and certain members of the Senior Leadership Team. Care was taken to address a broad range
of relevant topics including: strategy; performance monitoring; culture; stakeholder engagement; remuneration; talent;
succession planning; governance and legal.
Laurie spoke with the outgoing Chair and members of the Audit Committee in order to understand the Audit
Committee’s remit and obtain an overview of key issues, policies and developments. She also met with the Chief
Financial Officer and members of the finance team, the Business Assurance Director and KPMG, the external auditors.
Laurie visited IWG workspaces in the US, UK and Europe to gain an understanding of different IWG brand formats
and operations.
IWG plc Annual Report and Accounts 2019
IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
0
B
0
9
B
9
1
0
B
1
0
1
1
B
1
1
1
2
B
1
2
1
3
B
1
3
Development and support
To ensure continuing development and
provide appropriate support all Directors have:
• the opportunity to meet with
major shareholders;
• access to the Company’s operations
and employees;
• access to training which is provided and
reviewed on an ongoing basis to meet
particular needs;
• access to the advice and services of the
Company Secretary; and
• access to independent professional advice
at the Company’s expense.
Conflicts of interest
Directors are required to notify the Company
as soon as they become aware of a conflict of
interest or a potential conflict of interest. At
the start of each Board meeting the Chairman
requires each Director to confirm that they do
not have a conflict of interest with any of the
matters to be discussed; if a conflict does arise
the Director is excluded from discussions.
Time commitment
Directors are required to have sufficient time
to meet their Board responsibilities; this is
considered when making new appointments.
Following their appointment Directors are
required to seek Board approval before
taking on additional external appointments.
Insurance
Appropriate insurance cover is obtained to
protect the Directors in the event of a claim
being brought against them.
PURPOSE AND STRATEGY
The Board is responsible for approving the
Group’s three-year plan and commercial
strategy and holds an annual two-day
strategy meeting at which a deep-dive
assessment of the business is undertaken.
Presentations are made from key areas of the
business and external advisors and the two-
day session also includes a review of the
Group’s mission, values and talent ensuring
that the culture of the Group is aligned with
its purpose and strategy.
The Board is also responsible for approving
the Group’s operating model and annual
budget, ensuring that the right structure, talent
and resources are available to implement its
strategy and long-term objectives.
Full details of our approved strategy can be
found in our Strategic report on pages 1 to 63.
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iwgplc.com
CULTURE AND VALUES
Your Board is committed to instilling a
culture of doing what’s right, ensuring that
we do what is right for the environment and
for our people and ensuring that our people
act ethically in all our business activities.
To support our culture and values we
provide training to all employees on our code
of conduct. Employees are encouraged to
speak out without fear of repercussions and
we provide a confidential whistleblowing
channel where concerns can be raised
anonymously. During 2019 we received
54 reports through our whistleblowing
channel, 15 of which were considered
significant; 11 of the significant reports
have been resolved to date.
We also maintain a zero-tolerance policy to
both bribery and corruption and to slavery
and human trafficking; our statements on
these are reviewed annually and are available
on www.iwgplc.com. All our employees
receive training on our anti-bribery and
corruption policy.
PERFORMANCE MONITORING
The Board monitors performance through
a monthly report covering profitability and
cash flow, country performance, growth,
treasury and investor relations.
Trading updates and updates on strategic
projects are provided at all scheduled Board
meetings, allowing the Board to monitor and
measure performance and to make decisions
on matters reserved to the Board in order to
support the delivery of this strategy.
The Board is responsible for approving
results, dividends and announcements,
including the going concern basis for
preparing these accounts as detailed on
page 106 and reviewing the stress testing
and analysis which underpins the viability
statement as detailed on page 55.
The Board also reviews the Group’s ESG
reporting, receiving regular updates on:
• the Group’s carbon footprint;
• the diversity of our workforce;
• the culture of the Group and the wellbeing
of employees;
• the Group’s talent; and
• the initiatives we support in the local
communities in which we operate.
Further information on our people and ESG
reporting can be found on pages 56 to 63.
PRUDENT AND EFFECTIVE
CONTROLS
The Board is responsible for assessing the
nature and extent of the principal risks it
is willing to take to achieve its strategy and
long-term objectives, and also those risks
and emerging risks that threaten its business
model, future performance, solvency or
liquidity. The key risks to the Group and
the steps taken to manage and mitigate them
which were reviewed and approved by the
Board are detailed on pages 48 to 55.
The Board has delegated authority for
overseeing and reviewing its system of
internal controls and risk management
to the Audit Committee, which reports
regularly to the Board. Details of the
system and the Committee’s review of its
effectiveness are reported on pages 75 to 78.
The Board’s strategic role:
global master franchise
programme
The Board has been integral to
the evaluation and development of
the Group’s global master franchise
programme which it believes will allow
the business to expand without the
Company having to incur significant
capital expenditure. The Board has
been kept informed of progress of the
franchise programme, receiving regular
updates in Board reports and at Board
meetings and the Board considered
and approved the terms of the strategic
partnership transactions entered into
in Japan, Taiwan and Switzerland.
Further details of the Group’s master
franchise programme can be found
on pages 26 to 27.
69
69
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT CORPORATE GOVERNANCE continued
BSTAKEHOLDER ENGAGEMENT
Your Board seeks to take the views of its key stakeholders: our
shareholders, customers, partners, employees and communities into
account in its discussions and decision-making, receiving regular
updates from the Chief Executive Officer on the views of key
stakeholders on the Group’s strategic agenda as well as receiving
insights from other members of the Board and the Company’s
stakeholder engagement initiatives.
Key stakeholder engagement initiatives undertaken by the Company
include the annual customer workspace survey, the employee
engagement programme, that has been led by Nina Henderson, and
initiatives to engage with the Group’s new strategic franchise partners,
many of whom attended the Company’s annual leadership meeting.
This provided an invaluable forum for the Company and our franchisees
to discuss and promote best practice within our franchise network.
The Board also seeks to align our strategy to the needs of our primary
stakeholders. By way of example, in seeking to meet our customers’
growing desire to effectively manage their use of workspace while
improving the quality of life of their employees through the promotion
of more local places to work, we are taking flexible working to the
communities in which people live. This will have a positive impact on
working lifestyles, the local economy and the environment.
Further information on how we have placed our stakeholders at the
centre of our strategy can be found throughout our strategic report
and details on how we create value for our primary stakeholders can
be found on pages 24 and 25.
Your Board is proud of the work undertaken by our employees
throughout the world to engage with our communities and reduce
our environmental impact; further details of this work can be found
in our Environment, People, Communities report on pages 56 to 63.
BThe annual IWG Global Workspace Survey
In 2019 we produced our 11th annual Global Workspace Survey
reaching out to more than 15,000 customers and potential
customers across over 80 countries. The survey sought to obtain
our customers’ views on the key drivers for our business, on
attitudes towards flexible working and how it is being used by
international businesses and on how the business may evolve in
the future. This is an invaluable tool for your Board in setting
our strategy. The survey is available on www.iwgplc.com.
BShareholder engagement
BInvestor meetings
The Board is kept informed of investor views through the
distribution of analyst and broker briefings and monthly investor
relations updates. In 2019 investor relations held over 150 meetings
with investors and analysts.
The Chairman, Chief Executive Officer and Chief Financial
Officer maintain a close dialogue with institutional investors on
the Company’s performance, governance, plans and objectives.
They regularly participate in investor meetings and make
themselves available for questions, in person, at the time of major
announcements and on request. The Chairman regularly updates
the Board on the results of these meetings and the opinions of
investors. All Directors have a standing invitation to participate in
investor meetings.
Committee Chairmen engage with shareholders when there are
significant changes within their areas of responsibility.
BAnnual general meeting
The annual general meeting each year is held in May in Switzerland
and is attended, other than in exceptional circumstances, by all
members of the Board. In addition to the formal business of the
meeting, there is normally a trading update and shareholders have
the opportunity to ask questions and to meet the Directors afterwards.
At the 2019 annual general meeting all resolutions were passed
with at least 98% of votes in favour apart from the approval of
the Remuneration Policy (88.83%) and the Annual Report on
Remuneration (93.69%). All resolutions were voted on separately
by means of a poll and the final results were published after
the meeting.
The 2020 annual general meeting will be held on Tuesday 12 May.
Notice of the meeting can be found in a separate document
which will be sent out at least 20 working days before the meeting.
Shareholders who are unable to attend the meeting are encouraged
to submit a form of proxy.
BCompany Website
Our website www.iwgplc.com has a dedicated Investor section
which includes our Annual Reports, results presentations and our
financial calendar.
BSenior Independent Director
Our Senior Independent Director, François Pauly, is available to
address any shareholder concerns that cannot be resolved through
normal channels of communication.
BEmployee engagement
On behalf of the Board Nina Henderson is responsible for
employee engagement. During the year Nina undertook a number
of initiatives to seek the views of employees on a range of topics
such as the Group’s culture, values, strategy, recognition, training,
community engagement, work-life balance and reward. Examples
of the work undertaken by Nina include:
• tours and meetings with both business centre employees and
corporate office employees in the US and UK;
• review of the annual staff survey detailed on page 58 with the
entire Board; and
• attendance at the annual leadership conference where she
held roundtable discussions with leaders from across the
global workforce.
During 2020, Nina will continue her programme of meeting with
our global workforce.
We are extremely proud of our diverse global workforce and further
information on our people can be found on pages 58 to 60.
70
70
IWG plc Annual Report and Accounts 2019
IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
DIVISION OF RESPONSIBILITIES
There is a clear separation of responsibilities between the running of the Board and the executive responsibility for running the business.
BBOARD
BNon-Executive Chairman
BDOUGLAS SUTHERLAND
See responsibilities on page 72
BExecutive Directors
BNon-Executive Directors
MARK DIXON
Chief Executive
ERIC HAGEMAN
Chief Financial
Officer
FRANÇOIS PAULY
Senior Independent
Director
LAURIE HARRIS,
NINA HENDERSON,
FLORENCE PIERRE
Non-Executive
Directors
See Executive responsibilities on page 72
See Non-Executive responsibilities on page 72
BAudit
Committee
BRemuneration
Committee
BNomination
Committee
Oversight of
employee
engagement and CSR
LAURIE HARRIS
NINA HENDERSON
FRANÇOIS PAULY
NINA HENDERSON
Chair
Terms of reference
page 75
Chair
Terms of reference
page 79
Chairman
Terms of reference
page 73
Responsibilities
page 72
SENIOR LEADERSHIP TEAM
Accountable for delivery against the
Group’s strategic and operating objectives
Certain matters are reserved for the Board; these are detailed on page 67.
4
B
4
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1
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2
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1
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DIVISION OF RESPONSIBILITIES
There is a clear separation of responsibilities between the running of the Board and the executive responsibility for running the business.
BBOARD
BNon-Executive Chairman
BDOUGLAS SUTHERLAND
See responsibilities on page 72
BExecutive Directors
BNon-Executive Directors
MARK DIXON
Chief Executive
ERIC HAGEMAN
Chief Financial
Officer
FRANÇOIS PAULY
Senior Independent
Director
LAURIE HARRIS,
NINA HENDERSON,
FLORENCE PIERRE
Non-Executive
Directors
See Executive responsibilities on page 72
See Non-Executive responsibilities on page 72
y
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BAudit
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BRemuneration
Committee
BNomination
Committee
LAURIE HARRIS
Chair
NINA HENDERSON
Chair
FRANÇOIS PAULY
Chairman
Oversight of
employee
engagement and CSR
NINA HENDERSON
Terms of reference
page 75
Terms of reference
page 79
Terms of reference
page 73
Responsibilities
page 72
SENIOR LEADERSHIP TEAM
Accountable for delivery against the
Group’s strategic and operating objectives
Certain matters are reserved for the Board; these are detailed on page 67.
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iwgplc.com
71
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT
2
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Role of Committees
The Board is supported by a number of
Committees to which it has delegated certain
powers. The role of these Committees is
summarised below.
Audit Committee
Responsible for oversight of financial
reporting, audit, internal control and
risk management.
Nomination Committee
Responsible for Board composition,
appointment of Directors and senior
management and succession planning.
Remuneration Committee
Determines the remuneration of Executive
Directors, the Chairman and senior
management and oversees remuneration
policy for all employees.
CORPORATE GOVERNANCE continued
Role of Board members
There is a clear division of responsibilities
at the head of the Company between the
running of the Board and the running of
the Company’s business. No one individual
Director has unfettered powers of decision
making and all Directors are required to act
in the best interests of the Company.
The responsibilities of the Chairman, the
Chief Executive Officer and the Senior
Independent Director are available on
www.iwgplc.com.
DOUGLAS SUTHERLAND
Non-Executive Chairman
The Chairman is responsible for the
leadership of the Board, setting its agenda
and monitoring its effectiveness. He ensures
that adequate time is available for discussion
of all agenda items, in particular strategic
issues. Additionally, he ensures effective
communication with shareholders and that
the Board is aware of the views of major
shareholders and stakeholders. He facilitates
both the contribution of the Non-Executive
Directors and constructive relations between
the Executive Directors and Non-Executive
Directors, and regularly meets with the Non-
Executive Directors without the Executive
Directors being present.
MARK DIXON
Chief Executive Officer
The Chief Executive Officer is responsible
for formulating strategy and for its delivery
through the Senior Leadership Team
once agreed by the Board. He creates a
framework of strategy, values and objectives
to ensure the successful delivery of key
targets and allocates decision-making
and responsibilities accordingly.
ERIC HAGEMAN
Chief Financial Officer
The Chief Financial Officer is responsible for
leading the finance and accounting functions
of the Group. He is also responsible for
business ethics, good governance, assisting
with strategy and compliance.
FRANÇOIS PAULY
Senior Independent Director
The Senior Independent Director acts as
a sounding board and confidant for the
Chairman, as an intermediary for other
Directors as required, and leads the appraisal
of the Chairman’s performance. He is
also available to shareholders if they have
concerns that cannot be resolved through
normal channels.
NINA HENDERSON
Non-Executive Director with
Oversight of Employee Engagement
and CSR
Nina is responsible for overseeing and
keeping the Board informed on engagement
with the workforce and the corporate
responsibility activities of the Group,
including community and environmental
projects.
Non-Executive Directors
The independent counsel, character and
judgement of the Non-Executive Directors
enhance the development of strategy and
the overall decision-making of the Board.
The Non-Executive Directors scrutinise the
performance of management and monitor
the reporting of performance, satisfying
themselves on the integrity of financial
information and that financial controls
and systems of risk management are robust
and defensible. They are also responsible
for determining appropriate levels of
executive remuneration.
TIMOTHY REGAN
Company Secretary
The Company Secretary is responsible for
advising the Board, through the Chairman,
on all governance matters and ensuring
that the Board has the policies, processes,
information, time and resources it needs
to function efficiently and effectively.
72
72
IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
IWG plc Annual Report and Accounts 2019
NOMINATION COMMITTEE REPORT
Nomination Committee report
The make-up of your Board is reflective of the
stakeholders it serves and ensures robust discussion
in the Boardroom. We firmly believe this diversity
creates a better decision-making process.”
François Pauly
Chairman, Nomination Committee
Attendance of members of the
committee (out of possible
maximum number of meetings):
4/4
François Pauly
3/3
Laurie Harris(1)
1/1
Elmar Heggen(2)
4/4
Nina Henderson
4/4
Florence Pierre
4/4
Douglas Sutherland
All members of the Committee are independent.
1. Laurie Harris joined the Committee on 14 May 2019
2. Elmar Heggen stepped down from the
Committee on 14 May 2019
Length of tenure of Non-Executive
Directors within the Committee
0-3 YEARS
3-5 YEARS
6+ YEARS
iwgplc.com
iwgplc.com
20%
40%
40%
Dear shareholder,
I am pleased to present to you my report
on the work of the Nomination Committee
(the “Committee”) during 2019.
2019 was an important year for us and key
activities included:
• leading the process which identified Laurie
Harris as our new Non-Executive Director
and Audit Committee Chair. Laurie was
appointed on 14 May 2019. The process
followed in respect of her appointment was
reported on in the Annual Report for the
financial year ended 31 December 2018;
• the 2019 Board review;
• reviewing our succession plans for the
Board and senior leadership roles; and
• approval of our Board Diversity Policy
and objectives.
Board composition
As at the date of this report, your Board
comprised seven members, being: the Non-
Executive Chairman (independent at the time
of appointment); two Executive Directors; and
four independent Non-Executive Directors.
IWG maintains a Board whose breadth
and scope in terms of expertise, gender and
nationality reflect the size and geographical
reach of the business. We believe the Board
is the right size to meet the requirements of
the business and any changes to the Board’s
composition and to its Committees can be
managed without undue disruption.
Board review
An internal review of the performance of the
Board, its Committees, the Chairman and
individual Directors was conducted for 2019.
Performance was evaluated through the use
of prompting questions and a series of
meetings and informal discussions. The
process was led by the Chairman of the
Board except for his own review which was
led by me as Senior Independent Director.
The results of the review were discussed
by the Board and the Committee and
suggestions are being incorporated into our
ongoing efforts to continuously improve the
processes and effectiveness of the Board.
There were no reportable matters identified
and we continue to have full confidence in
the Board’s members and processes.
We intend to have an externally facilitated
review every three years, the last being in 2018.
Re-election of the Board
All Directors (unless they are retiring) submit
themselves for re-election by shareholders
annually. Directors appointed during the
period since the last annual general meeting
are required to seek election at the next annual
general meeting under the Company’s articles
of association. Reasons why the contribution of
Directors offering themselves for re-election or
election continues to be important to the long-
term success of the Company are described in
the Notice of annual general meeting.
Board appointments
The Committee leads the process for the
appointment of all new Directors and, in
identifying and recommending candidates
to the Board, the Committee considers
candidates on merit against objective criteria
and with due regard to the benefits of diversity.
Nominations are based on the existing balance
of skills, knowledge and experience on the
Board, on the merits and capabilities of the
nominee and on the time they are able to give
to the role in order to promote the success of
the Company.
73
73
GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT NOMINATION COMMITTEE REPORT continued
Our regular internal Board review process
monitors effectiveness, performance, balance,
diversity, independence, leadership and
succession planning, enabling us to identify
the capabilities and roles required for a
particular Board appointment.
In view of the future development of the
Group and our objective to continue to
place strong emphasis on the diversity of
the Board, the Committee maintains an
ongoing programme of engagement with
highly qualified, Non-Executive Director
and potential Chairman candidates of
varied education, backgrounds and
business experience.
Succession planning
We ensure that succession plans are in place
for the orderly succession for appointments to
the Board and senior positions, so that there
is an appropriate balance of skills, experience
and diversity. Succession planning discussions
continue to be an integral priority of the
Group’s business planning and review
process, as is the continued development of
both management capacity and capabilities
within the business.
As previously advised Douglas Sutherland,
our current Chairman, has been on the Board
for more than nine years. He was appointed
as Chairman on 10 May 2010 having been a
Non-Executive of the Group since 28 August
2008. As previously reported, after reviewing
the Chairman’s performance and input from
the 2018 independent Board review and more
recently from the 2019 internal Board review
and in consideration of the Group’s current
challenges and opportunities, including
our new global master franchise programme,
the Committee considers that it is in the best
interest of the Group for the Chairman to
continue in that role until the annual general
meeting in May 2021.
Diversity
We recognise that diversity in the Boardroom
and within senior leadership leads to better
decision-making. We continue to make
appointments on merit but always with a view
to the benefits of diversity and we recognise that
diversity includes all aspects that make people
unique including social economic background,
age, race, religion, physical ability, ethnicity,
sexual orientation and political beliefs.
We recognise that we have more to do, but we
are already pleased to report that our Board is
43% female, made up of members from five
74
74
nationalities and five countries of residence
with varied personal backgrounds. Along
with their international operational experience
our Board members bring in-depth working
knowledge of multiple industries, business and
organisational models, corporate cultures,
functional areas and business issues.
We are proud of our workforce diversity
at IWG. We are an equal opportunities
employer and are proactively looking to
identify, develop and promote key talent
from within our organisation which will in
turn improve our diversity at senior levels.
Further information on our work to support
diversity can be found on pages 58 to 60.
We have approved a Board Diversity Policy.
This includes the following objectives, which
we will report on next year:
• Maintain a level of at least 30% female
Directors on the IWG plc Board over the
short to medium term (currently 43%);
• Assist the development of a pipeline of
high-calibre candidates by encouraging a
broad range of senior individuals within
the business to take on additional roles to
gain valuable board experience;
• Consider candidates for appointment as
Non-Executive Directors from a wider
pool including those with little or no
previous FTSE board experience;
• Ensure Non-Executive Directors’ ‘long
lists’ have at least 50% of candidates
reflecting diversity including women and
candidates with different ethnical
backgrounds; and
• Engage executive search firms who have
signed up to the voluntary Code of Conduct
on gender diversity and best practice.
Terms of reference
Below is a summary of the terms of reference
of the Committee:
• Board appointment and composition –
to regularly review the structure, size
and composition of the Board and
make recommendations on the role and
nomination of Directors for appointment
and reappointment to the Board.
• Board Committees – to make
recommendations to the Board in
relation to the suitability of candidates
for membership of the Audit and
Remuneration Committees.
• Board effectiveness – to review annually
and make appropriate recommendations.
• Board performance – to assist the Chairman
with the annual performance review to assess
the performance and effectiveness of the
overall Board and individual Directors.
• Leadership – to remain fully informed
about strategic issues and commercial
matters affecting the Company and to
keep under review the leadership needs
of the organisation to enable it to
compete effectively.
Complete details of the above are available
on the Company’s website www.iwgplc.com.
FRANÇOIS PAULY
Chairman, Nomination Committee
Gender split of the Board
MALE
FEMALE
57%
43%
Gender split of all employees
MALE
FEMALE
30%
70%
Gender split of senior leadership
Chart TBC
MALE
FEMALE
67%
33%
IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
IWG plc Annual Report and Accounts 2019
AUDIT COMMITTEE REPORT
Audit Committee report
Throughout the year the Committee has provided
challenge and advice to management, ensuring the
integrity of our financial reporting.”
Laurie Harris
Chair, Audit Committee
Attendance of members of the
committee (out of possible
maximum number of meetings):
4/4
Laurie Harris(1)
1/1
Elmar Heggen(2)
5/5
Nina Henderson
5/5
François Pauly
5/5
Florence Pierre
All members of the Committee are independent.
1. Laurie Harris was appointed Chair of the
Audit Committee on 14 May 2019
2. Elmar Heggen stepped down as Chairman
of the Audit Committee on 14 May 2019
Length of tenure of Non-Executive
Directors within the Committee
0-3 YEARS
3-5 YEARS
6+ YEARS
iwgplc.com
iwgplc.com
25%
50%
25%
Dear shareholder,
As Chair of the Audit Committee (the
“Committee”), I am pleased to present
to you this year’s Committee report which
shows how the Committee applied the
principles of the UK Corporate Governance
Code during 2019. This is my first report as
Committee Chair following the departure of
Elmar Heggen on 14 May 2019.
Key objective
Acting on behalf of the Board, the
Committee’s key objective is to provide
effective governance over the Company’s
financial reporting; this is achieved by
monitoring, reviewing and making
recommendations to the Board in respect of:
• the integrity of the Company’s external
financial reporting;
• the Company’s system of internal control
and compliance; and
• the Company’s external auditors.
Membership and meetings
The Committee consists entirely of
independent Non-Executive Directors.
Five Committee meetings were held during
2019. At the request of the Committee
Chairman, the external auditors, the
Executive Directors, the Company Secretary
(acting as secretary to the Committee) and
the Business Assurance Director may attend
each meeting. The Committee also, when
required, and at least annually, meets
independently, without the presence of
management, with the Company’s external
auditors and with the Business Assurance
Director to discuss matters of interest.
Responsibilities
Below is a summary of the terms of reference
of the Committee (the full text of which is
available on the Company’s website
www.iwgplc.com):
• Financial reporting – to provide support
to the Board by monitoring the integrity
of financial reporting and ensuring that
the published financial statements of the
Group and any formal announcements
comply fully with the relevant statutes
and accounting standards.
• Internal control and risk systems – to review
the effectiveness of the Group’s internal
controls and risk management systems.
• Internal audit – to monitor and review
the annual internal audit programme
ensuring that the internal audit function
is adequately resourced and free from
management restrictions, and to review
and monitor responses to the findings and
recommendations of the internal auditor.
• External audit – to advise the Board on the
appointment, reappointment, remuneration
and removal of the external auditor.
• Employee concerns – to review the
Company’s arrangements under which
employees may in confidence raise any
concerns regarding possible wrongdoing
in financial reporting or other matters.
The Chair of the Committee routinely
reports to the Board on how the Committee
has discharged its responsibilities, as well as
highlighting any concerns that have been
raised as and when they arise.
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GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT AUDIT COMMITTEE REPORT continued
Activities of the Audit
Committee during the year
The following sections summarise the main
areas of focus of the Committee and the
results of the work undertaken in 2019.
Financial reporting
The main focus of the Committee was
the review of the half-year results and this
Annual Report together with the formal
announcements relating thereto. Before
recommending these to the Board we ensure
that the actions and judgements made by
management are appropriate. Particular
focus is given to:
• critical accounting policies and practices
and changes thereto;
• changes in the control environment;
• control observations identified by
the auditor;
• decisions delegated to and requiring
judgements by management;
• adjustments resulting from the audit;
• clarity of the disclosures made;
• compliance with accounting standards
and relevant financial and governance
reporting requirements; and
• the process surrounding compilation of
the Annual Report and Accounts to ensure
they are fair, balanced and reasonable.
The Committee formally considers and
minutes its consideration of the key audit
matters before recommending the financial
statements to the Board.
The Committee discussed and reviewed the
following significant issues with KPMG and
management in relation to the financial
statements for 2019:
• Taxation: The Committee has reviewed
the basis on which management have
recognised and valued deferred tax assets,
with particular focus on the recoverability
of deferred tax assets recognised in
Switzerland following the transfer of
the Group’s intellectual property and also
the adoption of IFRS 16. The Committee
is satisfied that management’s judgements
on the generation of future taxable profits
in the foreseeable future is aligned with the
Group’s other business forecasting
processes. The Committee has considered
the presentation and disclosure (in
accordance with IAS 1 and IAS 12) in
respect of taxation-related balances and is
satisfied that the Group’s disclosures
reflects the risks inherent in accounting for
the deferred taxation balances. See note 8.
• Valuation of intangibles and
goodwill: The Committee has considered
the impairment testing undertaken and
disclosures made in relation to the value
of the Company’s goodwill and intangibles
and has challenged the key assumptions
made by management in their valuation
methodology. The Committee considers
that an appropriately cautious approach
has been used by management and is
satisfied that no additional impairment of
intangibles and goodwill is required. See
notes 12 and 13 for further information.
• IFRS 16 Leases: The Committee has
had robust discussions during the year
on all aspects of the Group’s IFRS 16
implementation project and has regularly
challenged the key assumptions and
judgements made by management.
The Committee has carefully monitored
work undertaken by management to
ensure the completeness and accuracy of
the Group’s lease database including the
implementation of new processes and
controls and particular consideration
has been given to the discount rate
methodology used by management and
other areas of judgement such as the
expected duration of a lease. The
Committee is satisfied that management
have made appropriate assumptions and
judgements in relation to IFRS 16 and
that appropriate disclosures have been
made in the 2019 financial statements.
See note 2.
Following its in-depth review of this Annual
Report, the Committee has advised the
Board that it considers the Annual Report,
taken as a whole, to be fair, balanced and
understandable, providing the information
necessary for shareholders to assess the
Company’s position and performance,
business model and strategy. As such, the
Committee recommended the Annual
Report to the Board.
Risk management
On behalf of the Board, the Committee
oversees and reviews an ongoing process
for identifying, evaluating and managing the
risks faced by the Group. Major business risks
and their financial implications are appraised
by the responsible executives as a part of
the planning process and are endorsed by
regional management. Key risks are reported
to the Committee, which in turn ensures
that the Board is made aware of them. The
appropriateness of controls is considered
by the executives, having regard to cost,
benefit, materiality and the likelihood of
risks crystallising. Key risks and actions to
mitigate those risks were considered by both
the Committee and the Board in the year
under review, and were formally reviewed
and approved by the Board. The Company
has a system in place to enable compliance
with the requirements of the EU Market
Abuse Regulation.
Emerging and principal risks
There are a number of existing and emerging
risks and uncertainties which could have
an impact on the Group’s long-term
performance. The Group has a risk
management structure in place designed to
identify, manage and mitigate such business
risks. Risk assessment and evaluation are an
integral part of the annual planning process,
as well as the Group’s monthly review cycle.
The Group’s principal risks, together with an
explanation of how the Group manages these
risks, are presented on pages 48 to 55 of this
Annual Report.
Economic downturn caused by COVID-19
has been identified as an emerging risk for
2020 and further information on how we
will mitigate this can be found on page 49.
Internal control
The Committee has a delegated
responsibility from the Board for the
Company’s system of internal control
and risk management and for reviewing the
effectiveness of this system. Such a system is
designed to identify, evaluate and control the
significant risks associated with the Group’s
achievement of its business objectives
with a view to safeguarding shareholders’
investments and the Group’s assets. Due
to the limitations that are inherent in any
system of internal control, this system is
designed to meet the Company’s particular
needs and the risks to which it is exposed and
is designed to manage rather than eliminate
risk. Accordingly, such a system can provide
reasonable, but not absolute, assurance
against material misstatement or loss.
In accordance with the Financial Reporting
Council’s Guidance on Risk Management
(the “FRC Guidance”), the Committee
confirms there is an ongoing process for
identifying, evaluating and managing
significant risks faced by the Group.
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IWG plc Annual Report and Accounts 2019
to confirm their adherence to Group
policies and procedures; and
• a Group-wide policy to recruit and
develop appropriately skilled employees
of high calibre and integrity and with
appropriate disciplines.
The Committee and the Board regard
responsible corporate behaviour as an
integral part of the overall governance
framework and believe that it should be fully
integrated into management structures and
systems. Therefore, the risk management
policies, procedures and monitoring
methods described above apply equally to
the identification, evaluation and control
of the Company’s safety, ethical and
environmental risks and opportunities.
This approach ensures that the Company
has the necessary and adequate
information to identify and assess risks
and opportunities affecting the Company’s
long-term value arising from its handling
of corporate responsibility and corporate
governance matters.
The Committee has completed its annual
review of the effectiveness of the system of
internal control for the year to 31 December
2019 and is satisfied that it is in accordance
with the FRC Guidance and the Code. The
assessment included consideration of the
effectiveness of the Board’s ongoing process
for identifying, evaluating and managing the
risks facing the Group.
During the year under review, the
Committee continued to revisit its risk
identification and assessment processes,
inviting Board members and senior
management to convene and discuss the
Group’s key risks and mitigating controls.
A risk-based approach has been adopted in
establishing the Group’s system of internal
control and in reviewing its effectiveness.
To identify and manage key risks:
• a number of Group-wide procedures, policies
and standards have been established;
• a framework for reporting and escalating
matters of significance has been maintained;
• reviews of the effectiveness of management
actions in addressing key Group risks
identified by the Board have been
undertaken; and
• a system of regular reports from
management setting out key performance
and risk indicators has been developed.
The above process is designed to provide
assurance by way of cumulative assessment
and is embedded in operational management
and governance processes.
Key elements of the Group’s system of
internal control which have operated
throughout the year under review are
as follows:
• the risk assessments of all significant
business decisions at the individual
transaction level, and as part of the annual
business planning process. A Group-wide
risk register is maintained and updated
at least annually whereby all Company-
inherent risks are identified and assessed,
and appropriate action plans developed
to manage the risk per the Company’s risk
appetite. The Board reviews the Group’s
principal risks register at least annually and
management periodically reports on the
progress against agreed actions to keep a
close watch on how key risks are managed;
• the annual strategic planning process,
which is designed to ensure consistency
with the Company’s strategic objectives.
The final budget is reviewed and approved
by the Board. Performance is reviewed
against objectives at each Board meeting;
• comprehensive monthly business
review processes under which business
performance is reviewed at business centre,
area, country, regional and functional
levels. Actual results are reviewed against
targets, explanations are received for all
material movements, and recovery plans
are agreed where appropriate;
• the documentation of key policies and
control procedures (including finance,
operations, and health and safety) having
Group-wide application. These are
available to all staff via the Group’s
intranet system;
• formal procedures for the review and
approval of all investment and acquisition
projects. The Group Investment
Committee reviews and approves all
investments. Additionally, the form and
content of routine investment proposals
are standardised to facilitate the
review process;
• the delegation of authority limits with
regard to the approval of transactions;
• the generation of targeted, action-oriented
reports from the Group’s sales and
operating systems on a daily, weekly and
monthly basis, which provide management
at all levels with performance data for their
area of responsibility, and which help them
to focus on key issues and manage them
more effectively;
• the delivery of a centrally co-ordinated
assurance programme by the business
assurance department that includes key
business risk areas. The findings and
recommendations of each review are
reported to both management and the
Committee; and
• the maintenance of high standards of
behaviour which are demanded from staff
at all levels in the Group. The following
procedures are in place to support this:
• a clearly defined organisation structure
with established responsibilities;
• an induction process to educate
new team members on the standards
required from them in their role,
including business ethics and
compliance, regulation and
internal policies;
• the availability of Group and country
specific policies, via the Group’s
intranet, including the Company’s Code
of Business Conduct, detailed guidance
on employee policies and the standards
of behaviour required of staff;
• policies, procedure manuals and
guidelines are readily accessible through
the Group’s intranet site and its learning
and development systems;
• operational audit and self-certification
tools which require individual managers
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DIRECTORS’ REMUNERATION REPORT
Directors’ Remuneration report
The breakdown of the fees paid to the
external auditor during the year to
31 December 2019 can be found in
note 5 of the notes to the financial
statements on page 116.
In assessing the effectiveness of the external
audit process for 2019 the Committee
has considered:
• the audit process as a whole and its
suitability for the challenges facing
the Group;
• the strength and independence of the
external audit team;
• the audit team’s understanding of the
control environment;
• the culture of the external auditor in
seeking continuous improvement and
increased quality;
• the quality and timeliness of
communications and reports received; and
• the quality of interaction with management.
Following the Committee’s assessment
of the effectiveness of the external
audit process for 2019 and of KPMG’s
continuing independence, the Committee
has recommended to the Board that a
resolution to reappoint KPMG as the
Company’s auditor in respect of the financial
year ending 31 December 2020 be proposed
at the annual general meeting.
LAURIE HARRIS
Chair, Audit Committee
Whistleblowing policy
The Company has an externally hosted
whistleblowing channel, EthicsPoint, which
is available to all employees via email or on
the Company’s intranet and may be used
anonymously. The aim of the policy is
to encourage all employees, regardless of
seniority, to bring matters that cause them
concern to the attention of the Committee.
Employees can monitor the progress of the
reports they have made.
The Business Assurance Director, in
consultation with the senior leadership team,
decides on the appropriate method and level
of investigation. The Committee is notified
of all material discourses made and receives
reports on the results of investigations
and actions taken on a regular basis. The
Committee has the power to request further
information, conduct its own inquiries or
order additional action as it sees fit.
External audit
KPMG Ireland (“KPMG”) were appointed
in 2016 as the auditors of IWG plc. Whilst
IWG plc is a Jersey company, after consultation
with KPMG, the Committee determined that
appointing a Jersey registered KPMG Ireland
audit partner would best serve the needs of
the Group. The Committee is responsible
for oversight of the external auditor,
including an annual assessment of their
independence and objectivity and the
measures in place to safeguard this.
During the year, KPMG audited the
consolidated financial statements of the
Group for the year ended 31 December 2018
and completed a review of the half-year results
of the Group for the period to 30 June 2019.
The value of non-audit services provided
by KPMG in 2019 amounted to £59,000
(2018: £39,000). Non-audit services related
to assurance services in relation to reports
provided to landlords in the UK, tax services
in relation to statutory tax certifications in
South Africa and other assurance services in
Luxembourg and the Philippines. During the
year there were no circumstances where
KPMG were engaged to provide services
which might have led to a conflict of interest.
During the year the Committee adopted a
new policy on non-audit related services; this
ensures the following measures are in place to
safeguard KPMG’s independence:
• the external auditor is used for non-
audit-related services only where the
use of the external auditor will deliver a
demonstrable benefit to the Company as
compared with the use of other potential
providers of the services and where it
will not impair their independence
or objectivity;
• all proposals for permitted defined non-
audit services to use the external auditor
must be submitted to, and authorised by,
the Chief Financial Officer and/or
Committee Chair before any work
is performed;
• permitted non-audit services are reviewed
annually by the Committee and currently
include: consultation on financial
accounting and regulatory reporting
matters; reviews of internal accounting
and risk management controls; reviews of
compliance with policies and procedures;
non-statutory audits (e.g. regarding
acquisitions and disposal of assets and
interests in companies); assurance
and advice on finance-related projects;
attestation reports; due diligence; and tax
services (only where the services will have
no direct effect or will have an immaterial
effect on the audited financial statements
of the Group);
• prohibited non-audit services include:
tax compliance and advisory services;
legal services; book-keeping and other
accounting services; design, provision and
implementation of information technology
services; internal audit services; valuation
services; payroll services; recruitment
services in relation to key management
positions; HR services relating to the
organisation structure and cost control;
and transaction (acquisitions, mergers and
dispositions) work that includes investment
banking services, preparation of forecasts
or investment proposals and deal execution
services; and
• KPMG are required to confirm at every
Committee meeting that, since the
previous meeting, there has been no
significant issue affecting their objectivity
and independence arising from their
provision of non-audit services.
KPMG are required to adhere to a rotation
policy requiring rotation of the lead audit
partner at least every five years. The current
lead audit partner has been responsible since
the audit of the 2016 financial statements.
We seek to set a policy that enables us to motivate
our people, to reward performance and to recruit
the calibre of talent that will lead the Company
in sustaining its record of profitable growth.”
Nina Henderson
Chair, Remuneration Committee
The 2019 strong operating performance
enabled strategic progress which has
delivered and will continue to support
Company growth. A robust growth platform
has been built throughout the Group.
Additional value has also been realised
from changes to the operating model across
certain markets.
Management continues to focus on delivering
profitable growth and long-term value to
shareholders. While the Company achieved
a Group operating profit of £287.9m, the
Group continues to use IAS 17 results for its
primary management reporting including
performance target setting and measuring
achievements against those targets. Therefore
the figures in this Remuneration report are
also presented on an IAS 17 basis. The
Group results for 2019 reflect the significant
progress made on the new strategic focus
on franchising which has impacted current
operating results and led to the record profit
before tax of £489.5m (IAS 17) which
includes the profit after tax from the signing
of master franchise agreements (reported as
discontinued operations) during the year.
Our strong performance and significant
change in operating model strategy have
been received positively by the market.
Dear shareholder,
2019
I am pleased to present this Directors’
Remuneration report for 2019.
The Remuneration Committee (the
“Committee”) is focused on ensuring that
remuneration is designed to drive our
strategic priorities, support our Company
culture and promote the long-term
sustainable success of the Company. A key
driver of the Company’s growth has been
and will continue to be its people and their
talents. We seek to set a policy that enables
us to motivate our people, to reward
performance and to recruit the calibre
of talent that will lead the Company in
sustaining its record of profitable growth.
The Company’s human resource continues
to evolve, simultaneously adding new, whilst
retaining existing, capabilities and skills.
Our Directors’ Remuneration Policy (the
“Policy”), approved on 14 May 2019, is
subject to renewal at our 2020 annual general
meeting. The Committee’s view is that the
existing Policy has served the Company well
and the fundamental design continues to
provide a strong basis for linking the Group’s
strategy and performance to Executive
remuneration. Given developments in good
corporate governance, there were some areas
identified where updates could be made to
reflect best practice and improve the Policy.
The primary policy change is the introduction
of a post-cessation shareholding requirement.
No other significant changes to the Policy are
proposed and the maximum policy incentive
opportunity remains unchanged.
A majority of members of the Committee are
independent.
1. Laurie Harris joined the Committee on
14 May 2019
2. Elmar Heggen stepped down from the
Committee on 14 May 2019
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DIRECTORS’ REMUNERATION REPORT
Directors’ Remuneration report
We seek to set a policy that enables us to motivate
our people, to reward performance and to recruit
the calibre of talent that will lead the Company
in sustaining its record of profitable growth.”
Nina Henderson
Chair, Remuneration Committee
Committee membership during
the year and attendance at the
meetings are set out below.
4/4
Nina Henderson (Chairman)
3/3
Laurie Harris(1)
1/1
Elmar Heggen(2)
4/4
François Pauly
4/4
Florence Pierre
A majority of members of the Committee are
independent.
1. Laurie Harris joined the Committee on
14 May 2019
2. Elmar Heggen stepped down from the
Committee on 14 May 2019
Length of tenure of Non-Executive
Directors within the Committee
25%
50%
25%
0-3 YEARS
3-5 YEARS
6+ YEARS
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2019
The 2019 strong operating performance
enabled strategic progress which has
delivered and will continue to support
Company growth. A robust growth platform
has been built throughout the Group.
Additional value has also been realised
from changes to the operating model across
certain markets.
Management continues to focus on delivering
profitable growth and long-term value to
shareholders. While the Company achieved
a Group operating profit of £287.9m, the
Group continues to use IAS 17 results for its
primary management reporting including
performance target setting and measuring
achievements against those targets. Therefore
the figures in this Remuneration report are
also presented on an IAS 17 basis. The
Group results for 2019 reflect the significant
progress made on the new strategic focus
on franchising which has impacted current
operating results and led to the record profit
before tax of £489.5m (IAS 17) which
includes the profit after tax from the signing
of master franchise agreements (reported as
discontinued operations) during the year.
Our strong performance and significant
change in operating model strategy have
been received positively by the market.
Dear shareholder,
I am pleased to present this Directors’
Remuneration report for 2019.
The Remuneration Committee (the
“Committee”) is focused on ensuring that
remuneration is designed to drive our
strategic priorities, support our Company
culture and promote the long-term
sustainable success of the Company. A key
driver of the Company’s growth has been
and will continue to be its people and their
talents. We seek to set a policy that enables
us to motivate our people, to reward
performance and to recruit the calibre
of talent that will lead the Company in
sustaining its record of profitable growth.
The Company’s human resource continues
to evolve, simultaneously adding new, whilst
retaining existing, capabilities and skills.
Our Directors’ Remuneration Policy (the
“Policy”), approved on 14 May 2019, is
subject to renewal at our 2020 annual general
meeting. The Committee’s view is that the
existing Policy has served the Company well
and the fundamental design continues to
provide a strong basis for linking the Group’s
strategy and performance to Executive
remuneration. Given developments in good
corporate governance, there were some areas
identified where updates could be made to
reflect best practice and improve the Policy.
The primary policy change is the introduction
of a post-cessation shareholding requirement.
No other significant changes to the Policy are
proposed and the maximum policy incentive
opportunity remains unchanged.
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GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT continued
Annual bonus
When setting the 2019 annual bonus plan
targets it was not possible to fully consider the
potential impact from the pivot to
franchising. In evaluating performance
against the 2019 annual bonus targets, the
Committee took into account, among other
things, the impact on current operations from
increased activities in support of the
franchising strategy and also noted the
significant accomplishments against that
strategy which included the profit after tax
of £368.2m from the signing of master
franchise agreements (reported as
discontinued operations). After consideration
of these factors, the Committee determined
that it would be appropriate to award the
maximum bonus, equivalent to 150% of the
respective base salary. Half of the bonus will
be deferred in shares for three years, with
vesting subject to continued employment.
Performance Share Plan (“PSP”)
The award made under the PSP in 2017
will vest at 100%, the Committee having
determined that the EPS growth
performance metric, the ROI performance
metric and the TSR performance metric had
all achieved the maximum vesting of 100%.
All metrics had a 33.33% weighting and
were measured over a three-year period to
31 December 2019. Stretching EPS and ROI
targets set previously were exceeded whilst
key strategic changes and a strong
performance ensured that the TSR target
was also achieved in full. Further details are
provided on page 89.
Consideration of outcomes for 2019
The Committee believes the above outcomes
demonstrate strong pay for performance
alignment.
The year ahead
The Committee has made the following
decisions for 2020:
• Mark Dixon will receive a 6.1% salary
increase, after three successive years with
no increase and in recognition of the
strong performance. In light of his recent
appointment, Eric Hageman will receive
no salary increase in 2020.
• the maximum annual bonus will remain
unchanged at 150% of base salary for
Executive Directors with half of any bonus
paid deferred in shares which vest after
three years. Performance will continue to
be measured against stretching operating
profit targets; and
• awards of 250% of base salary will be
granted under the PSP in line with the
approved Policy. The Committee believes
it is appropriate to move to the maximum
award possible under the policy to reflect
the long-term value being unlocked for
shareholders through the ongoing delivery
of our franchising strategy. The awards
will vest subject to only a relative TSR
target measured over three financial years,
2020-2022. Any award that vests
will be subject to an additional two-year
holding period.
The Committee considers the remuneration
earned by the Executive Directors is a fair
reflection of Company performance and the
return delivered to shareholders. The
Committee is satisfied that our variable pay
model ensures alignment between pay and
performance through robust target setting.
This year variable pay has rewarded
exceptional levels of profit for 2019 through
the 150% bonus pay-out and the creation of
long-term shareholder value through the
100% vesting of the 2017 PSP award. Such
effective alignment ensures that our
Remuneration Policy supports the future
success of the Company.
Workforce engagement
Through my role as Non-Executive Director
with oversight of employee engagement I
have interacted with employees across the
Group. I have attended the Company’s
global conference and interfaced with 250
managers. I have also met with smaller
groups of employees through visits to IWG
sites. Employees have provided me with their
reactions to strategic endeavours, reward
plans and resources available to them to
deliver job performance. I have provided
feedback to the Board and the Committee
on employee perspectives in the course
of deliberations.
Annual general meeting
You will be asked to approve two
remuneration-related resolutions at our
annual general meeting. First the renewal
of our Directors’ Remuneration Policy and
second the Annual Report on Remuneration,
which will be subject to an advisory vote.
On behalf of the Committee, I commend
this report to you and look forward to your
support for the resolutions at the annual
general meeting.
NINA HENDERSON
Chairman, Remuneration Committee
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Directors’ Remuneration Policy
This report sets out the Group’s Policy on remuneration for Executive and Non-Executive Directors, to be proposed to shareholders at the
annual general meeting on 12 May 2020, from which date the Policy will apply if approved.
Overview of Directors’ Remuneration Policy
The revised Policy, which was developed as part of a remuneration review carried out during 2019, considers principles of clarity, simplicity, risk,
predictability, proportionality and alignment to culture and has the following objectives:
• to provide a balanced package between fixed and variable pay, and long and short-term elements, to align with the Company’s strategic goals
and time horizons whilst encouraging prudent risk management;
• to incorporate incentives that are aligned with and support the Group’s business strategy and align executives to the creation
of long-term shareholder value, within a framework that is sufficiently flexible to adapt as our strategy evolves;
• to align the interests of the Executive Directors, senior executives and employees with the long-term interests of shareholders and strategic
objectives of the Company;
• to ensure ongoing alignment with the changes to the UK Corporate Governance Code of 2018;
• to align management and shareholder interests through building material share ownership over time;
• to reflect the remuneration received by the wider employees through considering proportionality;
• to ensure that our remuneration structures are transparent and easily understood;
• to ensure that remuneration practices are consistent with and encourage the principles of equality, diversity and inclusion; and
• to reflect the global operating model of the Group whilst taking account of governance best practice.
Maximum
Performance framework
There is no prescribed maximum
salary. Salary increases will
normally be in line with increases
awarded to other employees in
the business, although the
Committee retains discretion to
award larger increases if it
considers it appropriate (e.g. to
reflect a change in role,
development and performance in
role, or to align to market data).
While there are no
performance targets
attached to the
payment of salary,
performance is a factor
considered in the
annual salary review
process.
N/A
Benefit provision is set at an
appropriate competitive market
rate for the nature and location
of the role. There is no
prescribed maximum as some
costs may change in accordance
with market conditions.
Policy table for Executive Directors
Purpose/link to strategy
Component
Operation
Base salary
To provide a
competitive
component of
fixed remuneration
to attract and
retain people of the
highest calibre and
experience needed
to shape and execute
the Company’s
strategy.
Benefits
To provide a
competitive
benefits package.
Salaries are set by the Committee. The
Committee reviews all relevant factors such
as: the scope and responsibilities of the role,
the skills, experience and circumstances of
the individual, sustained performance in
role, the level of increase for other roles
within the business, and appropriate market
data. Salaries are normally reviewed
annually, and any changes normally made
effective from 1 January.
The base salaries effective 1 January 2020
are set out on page 87 of the Remuneration
report.
Incorporates various cash and non-cash
benefits which may include: a company
car (or allowance) and fuel allowance,
private health insurance, life assurance,
and, where necessary, other benefits to
reflect specific individual circumstances,
such as housing or relocation allowances,
representation allowances, reimbursement
of school fees, travel allowances, or other
expatriate benefits. Any reasonable
business-related expenses (including tax
thereon) can be reimbursed if determined
to be a taxable benefit.
Executive Directors are eligible for other
benefits which are introduced for the wider
workforce on broadly similar terms.
Executive Directors will be eligible to
participate in any all-employee share plan
operated by the Company, on the same
terms as other eligible employees. The
maximum level of participation is subject
to limits imposed by relevant legislation
from time to time (or a lower cap set by
the Company).
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GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT continued
Component
Purpose/link to strategy
Operation
Maximum
Performance framework
Pension
To provide
retirement benefits
in line with the
overall Group
Policy.
Annual bonus To incentivise and
reward annual
performance and
create further
alignment with
shareholders via
the delivery and
retention of
deferred equity.
Performance
Share Plan
(“PSP”)
Motivates and
rewards the creation
of long-term
shareholder value.
Aligns executives’
interests with those
of the shareholders.
7% of base salary for
existing Directors which is
consistent with provisions
provided to the wider
workforce. The Committee
may set a higher level for
new executives to reflect
those of the workforce in
their location (up to a
maximum of 15% of
base salary).
150% of base salary
per annum.
The normal plan limit is
250% of base salary.
Provided through participation in the
Company’s money purchase (personal
pension) scheme, under which the
Company matches individual
contributions up to a maximum
of base salary.
The Company may amend the form
of an Executive Director’s pension
arrangements in response to changes
in legislation or similar developments.
Provides an opportunity for additional
reward (up to a maximum specified as a
% of salary) based on annual performance
against targets set and assessed by
the Committee.
Half of any annual bonus paid will be
deferred in shares which will vest after
three years, subject to continued
employment but no further performance
targets. The other half is paid in cash
following the relevant year end.
A dividend equivalent provision allows
the Committee to pay dividends, at the
Committee’s discretion, on vested shares
at the time of vesting and may assume
the reinvestment of dividends on a
cumulative basis.
Recovery and withholding provisions
apply to bonus awards (see note 1 below).
Awards will normally be made annually
under the PSP and will take the form of
either nil-cost options or conditional share
awards. Participation and individual
award levels will be determined at the
discretion of the Committee within
the Policy.
Awards vest five years following grant,
subject to performance against pre-
determined targets (measured after three
years) which are set and communicated
at the time of grant.
Recovery and withholding provisions
apply to PSP awards (see note 1 below).
A dividend equivalent provision allows
the Committee to pay dividends, at the
Committee’s discretion, on vested shares
at the time of vesting and may assume
the reinvestment of dividends on a
cumulative basis.
N/A
Performance metrics are
selected annually based on the
current business objectives. The
majority of the bonus will be
linked to key financial metrics,
of which there will typically be
a significant profit based
element (see note 3 below).
Performance below threshold
results in zero payment.
Payments rise from 0% to
100% of the maximum
opportunity levels for
performance between the
threshold and maximum
targets.
Awards have a performance
period of three financial years
starting at the beginning of the
financial year in which the
award is made. Performance
conditions will measure the
long-term success of the
Company (see note 4 below).
The Committee may
introduce or reweight
performance measures so that
they are directly aligned with
the Company’s strategic
objectives for each
performance period.
In respect of each performance
measure, performance below
the threshold target results in
zero vesting. The starting point
for vesting of each performance
element will be no higher than
25% and rises on a straight-line
basis to 100% for attainment of
levels of performance between
the threshold and maximum
targets. There is no opportunity
to re-test.
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Component
Purpose/link to strategy
Operation
Shareholding
guidelines
To align Executive
Directors’ interests
with those of our long-
term shareholders and
other stakeholders.
Post-cessation
shareholding
requirement
To align Executive
Directors’ interests
with those of our long-
term shareholders and
other stakeholders
Notes to the policy table:
Executive Directors are expected to build
a holding in the Company’s shares to a
minimum value of two times their base
salary within five years. This may be built
via the retention of the net-of-tax shares
vesting under the Company’s equity-based
share plans. Deferred shares and shares
subject to a holding period (net-of-tax) can
be counted towards the total.
Executive Directors are expected to hold,
for up to two years post-cessation, the
existing shareholding requirement or the
actual shareholding at cessation, if lower.
Maximum
N/A
Performance framework
N/A
N/A
N/A
1. Recovery and withholding provisions may be applied in circumstances which include misconduct or material error by a participant, material misstatement in the Company’s
audited accounts or a material downturn in the performance of the Company, or error in the assessment of performance and in other circumstances in which the Committee
thinks the operation of the process is appropriate, including a failure in risk management or material reputational damage. Awards subsequent to the grant, but before the
expiry of the holding period, may be reduced or an Executive Director may be required to repay an award at any time within three years of the date on which the award
vests. All annual cash and share bonuses alongside long-term incentives are subject to a malus and clawback policy.
2. For the avoidance of doubt, by approval of the Policy, authority has been given to the Company to honour any commitments entered into with current or former Directors
(such as the payment of a pension or the unwinding of legacy share schemes) that have been disclosed to shareholders in previous Directors’ Remuneration reports. Details of
any payments to former Directors will be set out in the Annual Report on Remuneration as they arise. The previous Remuneration Policy included the CIP which has been
replaced by the new PSP. Under the CIP, Executive Directors could defer a proportion of their bonus into shares and receive a performance based matching award for each
deferred share. The final CIP awards were made in March 2015. Subject to satisfaction of the relevant performance targets, the final CIP awards will be fully vested and
exercisable from 4 March 2020 until 4 March 2025.
3. Annual bonus performance measures are determined at the start of each year, based on the key business priorities for the year. The majority (at least 70%) will be based on
clear financial targets, including a significant weighting on profit, as this is the primary indicator of our sustainable growth.
4. PSP performance metrics are determined at the time of grant. Performance measures may include a measure of profitability (such as EPS), capital return (such as ROI) and
other measures of long-term success in generating shareholder value (such as relative TSR). These measures align with our long-term goal of value creation for shareholders
through underlying financial growth and above-market returns.
5. As IWG operates in a number of geographies, employee remuneration practices vary across the Group to reflect local market practice. However, employee Remuneration
Policies are based on the same broad principles. Our primary objective in awarding variable pay is to drive achievement of results, according to role, and to recognise and
reward excellent performance. Accordingly, to account for variances in responsibilities, influence and seniority, incentive schemes are not uniform in approach. Performance
targets are set annually taking into account a number of internal and external reference points including: the level of performance that is achievable over a sustained period of
time; historic performance and internal forecasts of future performance; market expectations, and any guidance provided to the market.
6. In order to ensure that the Remuneration Policy achieves its intended aims, the Remuneration Committee retains discretion over the operation of certain elements of the
variable pay policy. This includes the discretion to adjust the annual bonus and PSP outcome if it is not considered to be reflective of the wider performance of IWG and to
ensure that it can, in appropriate circumstances, override formulaic outcomes. In addition, the Committee may adjust elements of the plans including but not limited to:
• participation;
•
• determining the extent of payment or vesting of an award based on the assessment of any performance condition, including discretion as to the basis on which performance is to be
in exceptional circumstances determining that any share-based award (or any dividend equivalent) will be settled (in full or in part) in cash;
measured if an award vests in advance of normal timetable (on cessation of employment as a good leaver or on the occurrence of a corporate event) and whether (and to what extent)
pro-ration will apply in such circumstances;
the timing of the grant of award and/or payment;
the size of an award (up to plan limits) and/or payment within the limits set out in the policy table above;
• whether (and to what extent) recovery and/or withholding will apply to any award;
• ability to adjust the number of shares under the DSBP, PSP or other share-based award to take into account a variation in the share capital;
•
•
• discretion relating to the measurement of performance within the limits set out in the policy table above in the event of a change of control;
• determination of a good leaver (in addition to any specified categories) for incentive plan purposes;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends); and
•
the ability to adjust existing performance conditions for exceptional events at any point before vesting so that they can still fulfil their original purpose. Should any such discretions be
exercised, an explanation would be provided in the following Annual Report on Remuneration and may be subject to shareholder consultation as appropriate.
7. For the avoidance of doubt, in approving this Remuneration Policy, authority is given to the Company to make payments and honour any prior commitments entered into
with current or former Directors (such as the payment of pension or the unwinding of legacy share schemes prior to the approval of the current Remuneration Policy). Details
of any payments will be set out in the Annual Report on Remuneration as they arise. The Committee reserves the right to make any remuneration payments and payments
for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above
where the terms of the payment were agreed (i) before the Policy came into effect or (ii) at a time when the relevant individual was not a Director of the Company and, in the
opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company. For these purposes “payments” include the
Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted.
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Operation
Maximum
There is no prescribed
maximum although fees and
fee increases will be considered
in line with the increases of
the wider workforce and
market rates.
Neither the Chairman
nor the Non-Executive
Directors are eligible for
any performance related
remuneration.
There is no prescribed
maximum although fees and
fee increases will be considered
in line with the increases of
the wider workforce and
market rates.
Neither the Chairman
nor the Non-Executive
Directors are eligible for
any performance related
remuneration.
Policy table for the Chairman and Non-Executive Directors
Component
Purpose / link to strategy
Chairman fees
Non-Executive
Director fees
Normally reviewed, but not necessarily increased, annually and as
determined by the Remuneration Committee. The Committee will
consider, where appropriate, pay data at companies of a similar
scale and relevant multi-country operating model.
A single fee which reflects all Board and Committee duties.
Set at a level sufficient to attract and retain individuals with the
required skills, experience and knowledge to allow the Board to
effectively carry out its duties.
Normally reviewed, but not necessarily increased, annually and
as determined by the Chairman and the Executive Directors.
The Committee will consider, where appropriate, pay data at
companies of a similar scale and relevant multi-country
operating model.
A base fee is payable with additional fees for chairing key Board
Committees and for being the Senior Independent Director.
Set at a level sufficient to attract and retain individuals with the
required skills, experience and knowledge to allow the Board to
effectively carry out its duties. Any reasonable business-related
expenses (including tax thereon) can be reimbursed if determined
to be a taxable benefit. Additional fees may be payable in relation
to extra responsibilities undertaken such as chairing a Board
Committee or other similar duties or being a member of a
committee. If there is a temporary yet material increase in the time
commitments for Non-Executive Directors, the Board may pay
extra fees on a pro-rata basis to recognise the additional workload.
Fees are paid entirely in cash.
Consideration of conditions elsewhere in the Group
The Committee has regard to the pay and employment conditions of employees within the Group when it sets the Remuneration Policy for the
remuneration of Executive Directors, the first layer of management below the Board, the Company Secretary and the Chairman of the Board.
The Committee does not consult directly with employees when formulating the Remuneration Policy but has established a conduit for consulting
with employees and representing their feedback at Board level and if this feedback were to include matters of remuneration, this would be taken
into consideration by the Committee.
The general principles of the Group’s Remuneration Policy are broadly applied throughout the Group and are designed to support recruitment,
motivation and retention as well as to reward high performance in a framework of approved risk management, and to promote the long-term
sustainable success of the Company.
The structure of total remuneration packages for those within the Committee’s remit and for the broader employee population is similar,
comprising salary, pension and benefits and eligibility for a discretionary annual bonus. The level of bonus opportunity is determined by role
and responsibility. Executive Directors, the first layer of management below the Board and other selected senior executives participate in the
Company’s share schemes to aid retention and motivate the delivery of long-term growth in shareholder value and to align their interests with
those of shareholders. Annual base pay increases for the Executive Directors and the first layer of management below the Board are normally
limited to the average base pay increase for the wider employee population unless there are exceptional circumstances such as a change in role
or salary progression for a newly appointed Director.
Consideration of shareholder views
The Committee is dedicated to ensuring that shareholders understand and support our remuneration structures. Accordingly, where changes are
being made to the Remuneration Policy, or in the event of a significant exercise of discretion, we will consult with shareholders, as appropriate, to
explain our approach and rationale fully. Additionally, the Committee considers shareholder feedback received in relation to each annual general
meeting alongside any views expressed during the year. We actively engage with our largest shareholders and consider the range of views
expressed. Except in exceptional circumstances, the members of the Committee, including the Committee Chairman, attend the Company’s
annual general meeting and are available to listen to views and to answer shareholders’ questions about Directors’ remuneration.
The Committee also reviews the executive remuneration framework in the context of published shareholder guidelines.
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Approach to recruitment remuneration
When determining the remuneration package for a newly appointed Executive Director, the Committee would seek to apply the following principles:
• The package must be sufficiently competitive to facilitate the recruitment of individuals of the highest calibre and experience needed to shape
and execute the Company’s strategy. At the same time, the Committee would seek to pay no more than necessary.
• The remuneration package for a new Executive Director would be set in accordance with the terms of the Policy in force at the time of the
appointment. Salaries would reflect the skills and experience of the individual, and may (but not necessarily) be set at a level to allow future
salary progression to reflect performance in the role. Where salaries are set below market, multi-year staged increases may be awarded to
achieve the desired market positioning over time. Where necessary these increases may be above those of the wider workforce but will be
subject to continued development in the role.
• Benefits will be limited to those outlined in the Policy, with relocation assistance provided where appropriate. Where provided, relocation
assistance will normally be for a capped amount and/or limited time. Pension provisions will be set in line with the Policy.
• The Committee may offer additional cash and/or share-based payments in the year of appointment when it considers these to be in the best
interests of the Company and, therefore, shareholders. Per the Policy, the maximum level of variable remuneration which may be awarded is
400% of salary (of which 250% is permitted under the PSP under the exceptional circumstances limit and 150% under the annual bonus plan).
Performance conditions for variable pay in the year of appointment may be different to those applying to other Directors, which would be
subject to stretching performance conditions.
• Depending on the timing of the appointment, the Committee may deem it appropriate to set different performance conditions to the current
Executive Directors for the first performance year of appointment. A long-term incentive award can be made shortly following an appointment
(assuming the Company is not in a close period).
• Where an individual forfeits remuneration at a previous employer as a result of appointment to the Company, the Committee may offer
compensatory payments or awards to facilitate recruitment. Such payments or awards could include cash as well as performance and non-
performance-related share awards and would be in such form as the Committee considers appropriate taking into account all relevant factors
such as the form, expected value, anticipated vesting and timing of the forfeited remuneration. The aim of any such award would be to ensure
that, so far as possible, the expected value and structure of the award will be no more generous than the amount forfeited.
• Any share-based awards referred to in this section will be granted as far as possible under the Company’s existing share plans. If necessary,
awards may be granted outside of these plans as permitted under the Listing Rules, and in line with the approach and the limits set out above.
• In the case of an internal appointment, variable pay awarded in respect of the incumbent’s prior role may pay out according to its terms of
grant. In addition, any other ongoing remuneration obligations prior to their appointment may continue, provided that they are put to
shareholders for approval at the first annual general meeting following their appointment.
• For an overseas appointment, the Committee will have discretion to offer cost-effective benefits, including expatriate benefits, and pension
provisions which reflect market practice and relevant legislation.
The remuneration package for a newly appointed Non-Executive Director would normally be in line with the structure set out in the Policy table
for Non-Executive Directors on page 84.
Service contracts
Executive Directors have service contracts with the Group which can be terminated by the Company or the Director by giving 12 months’
notice. The service contract policy for new appointments will be on similar terms as existing Executive Directors, with the facility to include a
notice period of no more than 12 months. The Company may terminate employment of the Executive Directors by making a payment in lieu
of notice which would not exceed 12 months’ salary.
Under the current service agreements, Mark Dixon’s contract provides that, on a change of control, he may terminate the contract by giving one
month’s notice and will, in addition to contractual payments for the one-month notice period, receive a payment equal to 12 months’ salary, and
remain eligible for a discretionary bonus.
The Chairman and Non-Executive Directors are appointed for a three-year term, which is renewable, with six months’ notice on either side,
no contractual termination payments being due and subject to retirement pursuant to the articles of association at the annual general meeting.
The Directors’ service contracts are available for inspection at the Company’s registered office within normal business hours.
Policy on payment for loss of office
Where an Executive Director leaves employment, the Committee’s approach to determining any payment for loss of office will normally be based
on the following principles:
• The Committee’s objective is to find an outcome which is in the best interests of the Company and its shareholders, taking into account
the specific circumstances, contractual obligations and seeking to pay no more than is warranted. Payments in lieu of notice will not exceed
12 months’ salary and benefits.
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Policy on payment for loss of office (continued)
• Treatment of annual bonus:
There is no contractual right to receive an annual bonus in the year of termination. However, the Committee has discretion for certain leavers to
make a payment under the annual bonus entirely in cash. This will reflect the period of service during the year and performance (measured at the
same time as performance for other plan participants, if feasible). Should the Committee make a payment in these circumstances, the rationale
would be set out in the following Annual Report on Remuneration.
• Treatment of share plans:
If an Executive Director leaves employment with the Company, unvested PSP and deferred bonus shares will lapse unless the Committee in its
absolute discretion determines otherwise (good leaver) for reasons including, amongst others, injury, disability, retirement, redundancy and
death or in any other circumstances at the discretion of the Committee. In such circumstances an Executive Director’s award will vest at the
normal vesting date, may be pro-rated, and will be subject to achievement of performance criteria. Any post-vesting or post-cessation holding
requirements, as defined in the Policy, will also normally apply.
Should the Committee adjust the time pro-rating, then this would be explained in the following Annual Report on Remuneration. If the
Executive Director ceases to be an employee for any reason other than those specified above then the award shall lapse immediately on
such cessation.
Awards will vest on the normal vesting date unless the Committee determines, in its discretion, that awards will vest at the date of cessation.
The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing
legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection
with the termination of a Director’s office or employment. The Committee may also pay reasonable outplacement and legal fees where
considered appropriate.
Policy in respect of external Board appointments for Executive Directors
It is recognised that external non-executive directorships may be beneficial for both the Company and Executive Directors. At the discretion of
the Board, Executive Directors are permitted to retain fees received in respect of any such non-executive directorship.
Illustration of Remuneration Policy
The charts below illustrate the application of the Remuneration Policy set out in the Policy table for Executive Directors. This assumes the level
of fixed remuneration (salary, benefits and pension) as at 1 January 2020 and the following in respect of each scenario:
• “Fixed” represents fixed remuneration only (i.e. current salary, benefits and pension).
• “Target” represents fixed remuneration plus an annual at target bonus of 90% of salary and 50% of salary (20% of maximum) vesting of the
maximum PSP award. Note, target levels of award are for illustrative purposes only.
• “Maximum” represents the maximum annual bonus of 150% of salary and full vesting of the PSP grant of 250% of base salary.
• “Maximum + 50% share price growth” represents maximum levels of award plus the impact of 50% share price growth on the PSP award.
Remuneration Policy – Chief Executive Officer
Remuneration Policy – Chief Financial Officer
Minimum
100%
£944
Target
44%
36%
£2,169
20%
Minimum
100%
£515
Target
46%
35%
£1,131
19%
Maximum
21%
30%
49%
£4,444
Maximum
23%
29%
48%
£2,275
Maximum
+50% share
price growth
17%
24%
59%
£5,538
Maximum
+50% share
price growth
18%
23%
59%
£2,825
Fixed pay
Annual Bonus
Long-term incentives
Fixed pay
Annual Bonus
Long-term incentives
All figures in £’000s and rounded to the nearest thousand.
The benefits value is based on the value of benefits received in relation to 2019.
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IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
IWG plc Annual Report and Accounts 2019
Annual Report on Remuneration
Members of the Committee
All members of the Committee are independent. Committee membership during the year and attendance at the meetings is set out on page 79.
Terms of reference
The Committee’s terms of reference are available on the Company’s website: www.iwgplc.com.
Implementation of the Remuneration Policy for 2020
The Annual Report on Remuneration set out below (and the Chairman’s annual statement) will be put to a single advisory shareholder vote at
the 2020 annual general meeting. The information below includes how we intend to operate our Policy in 2020 and the pay outcomes in respect
of the 2019 financial year.
Base salaries for the Executive Directors
The Executive Directors’ salaries were reviewed. After three years with no increase, Mark Dixon’s salary has been increased by 6.1% (this
number is comparable to that received by the rest of the workforce). Given Eric Hageman’s recent appointment, no salary increase has been
awarded. The current salaries as at 1 January 2020 (and compared to 2019) are as follows:
Mark Dixon
Eric Hageman
2020
2019
£875,000
£440,000
£825,000
£440,000
Percentage
change
6.1%
–
For context, the average base salary increase received by Group support employees was 6% in 2019 and the accumulated average increase over
the same three-year period was 14%.
Benefits and pension
Benefits and pension provisions will operate in line with the approved Policy.
Annual bonus
For 2020, the maximum bonus potential for both Executive Directors is 150% of salary. The on-target bonus is 90% of salary. Half of any bonus
paid will normally be deferred into shares under the DSBP, which will vest after three years subject to continued employment.
The 2020 annual bonus will include a measurement against operating profit ranging from threshold to stretch. The target is not being disclosed
prospectively as it is commercially sensitive; however, a description of the performance against targets set will be included in next year’s
Annual Report.
Performance Share Plan (PSP)
Recognising the substantial increase in opportunity for long-term value to be created for our shareholders through our franchising strategy, PSP
awards will be made at 250% of salary (up to the Policy maximum) to Executive Directors with performance measured over a three-year period
ending 31 December 2022. The awards will be subject to a TSR performance metric as summarised below. The Committee will continue to
review the suitability of the TSR metric and may revert back to a balanced set of metrics on the PSP in the future.
Performance conditions
Threshold
vesting
Threshold performance
Relative TSR versus FTSE 350 excluding
investment trusts (100% weighting)
25%
Median
Maximum
vesting
100%
Maximum performance
10% compound annual growth
above median
Awards will be subject to a post-vesting holding period of two years. This requires the Executive Directors to hold on to the net of tax number
of vested shares for a period of two years following vesting.
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GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT continued
Chairman and Non-Executive fees
Fees have been reviewed and increased for 2020 to bring them in line with the market and reflect additional time requirements from Board
members including matters related to the franchising strategy. Fees were last reviewed and increased in 2017. The current fees as at 1 January
2020 (and compared to 2019) are as follows:
Non-Executive Chairman
Basic fee for Non-Executive Director
Additional fees:
Chair of Audit Committee
Chair of Remuneration Committee
Senior Independent Director combined with Chair of Nomination Committee
Oversight of Employee Engagement and CSR(1)
Variable dislocation allowance for non-Swiss Directors(2)
1. Remuneration for this role was agreed to commence from 1 January 2020.
2. The level of dislocation allowance for non-Swiss Directors is determined according to their country of residence.
Remuneration outcomes for 2019
Single total figure of remuneration table (audited)
2020
(£’000)
300
62
15
15
15
15
5 to 10
2019
(£’000)
Percentage
change
250
57
12
12
12
–
2.5 to 7.5
20%
8%
25%
25%
25%
–
33%
The following table shows the total remuneration in respect of the year ending 31 December 2019, together with the prior year comparative.
Salary / Fees
Benefits
Pension
Annual bonus
Long Term
Incentive Awards
Total
£’000
Mark Dixon
Eric Hageman
Dominik de Daniel
Non-Executive Directors
Douglas Sutherland
Laurie Harris
Elmar Heggen
Nina Henderson
Florence Pierre
François Pauly
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
825.0
440.0
–
825.0
–
506.5
8.1
44.2
–
7.8
–
–
57.8
41.5
–
57.8 1,237.5
660.0
–
–
35.5
535.4 2,353.1
–
–
–
–
24.8 4,481.5
– 1,185.7
–
–
1,450.8
–
542.0
250.0
48.7
26.6
76.5
59.5
71.5
250.0
–
71.5
76.5
59.5
71.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250.0
48.7
26.6
76.5
59.5
71.5
250.0
–
71.5
76.5
59.5
71.5
Benefits – Include private health insurance, life insurance, representation allowance and commuter costs.
Pension – Includes pension contributions of 7% of salary into defined contribution arrangements (or cash equivalent) plus any contributions in
accordance with standard local practice or employment regulations.
Annual bonus – The bonus shown is the full award in respect of the relevant financial year. Half of the bonus awarded is normally deferred into
shares for three years.
Long Term Incentive Awards – Includes:
(1) The value of Matching Share awards made to Mark Dixon under the Co-Investment Plan (“CIP”) in previous years which vested in respect
of a performance period ending in the relevant financial year. The third tranche of the 2014 award (10,687 shares out of a maximum of
137,401) vested in March 2019 based on performance until 31 December 2018; the value of this is shown in 2018 and the figure reflects the
actual share price on the date of vesting of 231.6p.
(2) The value of awards made to Mark Dixon under the Performance Share Plan (“PSP”) in previous years which vested in respect of a
performance period ending in the relevant financial year. The 2017 PSP award (583,039 shares (the maximum)) shall vest in March 2020
based on performance until 31 December 2019; the value of this is shown in 2019 and reflects a three-month average share price ending
31 December 2019 of 403.6p.
Eric Hageman was appointed as Chief Financial Officer on 1 January 2019. Remuneration detailed above reflects time served.
Dominik de Daniel stepped down as Executive Director on 12 September 2018. Remuneration detailed above reflects time served.
Laurie Harris was appointed as Non-Executive Director and Chairman of the Audit Committee on 14 May 2019. Remuneration detailed above
reflects time served.
Elmar Heggen stepped down as Non-Executive Director and Chairman of the Audit Committee on 14 May 2019. Remuneration detailed above
reflects time served.
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IWG plc Annual Report and Accounts 2019
Determination of 2019 annual bonus (audited)
The 2019 annual bonus plan was measured on performance against the following targets:
Measure
Operating profit pre-growth
Profit on master franchise agreements
Basis
IAS 17
IAS 17
Threshold
(50% of salary)
Target
(90% of salary)
Maximum
(150% of salary)
Achieved
£190.3m
£211.4m
£229.9m
–
–
–
£183.7m(1)
£347.4m
1. Consistent with prior year calculations, the achieved IAS 17 operating profit adjusted for actual growth costs of £23.8m was £161.5m. After further adjustments for the
impact of franchising on operating results (including the loss of operating results for the entire year from countries signed under master franchise agreements during 2019
pursuant to discontinued operations accounting rules), and the impact from accounting changes in estimates as described in note 5 (page 116), the adjusted operating profit
for 2019 on a consistent basis for comparison to the operating profit targets above is £183.7m.
When setting the operating profit performance targets for 2019, the Committee were cognisant of the fact that reported performance (under
IAS 17) against such targets would not fully capture the potentially significant additional value that could be derived from the implementation of the franchising
strategy and that progress against the franchising strategy should therefore also be taken into account when determining annual bonus outcomes for 2019. With
the accelerated pivot towards the franchising strategy during the year, significant management focus and resources were dedicated to signing significant master
franchise agreements, converting the related operations to franchise operations, and preparing Group functions to support master franchise relationships. Thus
the profit after tax of £347.4m (IAS 17) realised from the signing of master franchise agreements in 2019 (reported within discontinued operations) was also
considered when evaluating management performance as evidence of substantial success in implementing the franchising strategy and the Committee deemed
that a full bonus pay-out was warranted. A bonus equivalent to 150% of the respective salary (the policy maximum) has therefore been awarded as follows:
Director
Mark Dixon
Eric Hageman
Bonus maximum
(% of base salary)
Operating profit
achievement
(% of award)
Bonus awarded
(£’000)
Cash bonus
(1)
(£’000)5
Deferred shares
(1)
(£’000)P
150%
150%
100%
100%
£1,237.5
£660.0
£618.8
£330.0
£618.8
£330.0
1. Half of any bonus awarded is normally paid in cash with half deferred in shares which vest after three years.
PSP awards granted in 2017 and vesting in 2019 (audited)
The table below summarises the performance conditions and the actual performance against the award made under the PSP in 2017. This award
was subject to performance conditions measured over the three financial years ending 31 December 2019.
Relative TSR versus FTSE 350
(excluding investment trusts) (33.3% weighting)
EPS
(33.3% weighting)
Return on investment
(33.3% weighting)
% of each
element vesting
Target
% of each
element vesting
Target
% of each
element vesting
Target
Below threshold
Threshold
Maximum
0%
25%
Below median
Median
100% 10% compound annual
growth above median
0%
0%
100%
Compound annual
growth of less than 5%
Compound annual
growth of 5%
Compound annual
growth of 25%
Performance achieved
Actual % vesting
74.3%
100%
47.9%
100%
0%
0%
Return below 2016
performance
Return to be equal to
2016 performance
100% Return to be 300 basis
points above 2016
performance
24.9%
100%
Director
Mark Dixon
2017 award
number of shares
Total vesting
(% of maximum)
No. of shares
to vest
Award value
(1)
(£’000)P
583,039
100%
583,039
2,353.1
1. The value of awards reflects a three-month average share price ending 31 December 2019 of 403.6p.
The Committee believes the above outcome is representative of Company performance. Earnings per share and return on investment includes
the after tax profit from the signing of master franchise agreements (reported as discontinued operations) but excludes the tax credit reported
for 2019 (IAS 17).
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T
P
5
1
T
P
5
1
T
P
5
1
T
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DIRECTORS’ REMUNERATION REPORT continued
PSP awards granted in 2019 and vesting in 2021 (audited)
PSP awards granted to Executive Directors on 7 March 2019 which vest subject to a three-year performance period ending 31 December 2021
were as follows:
Executive
Mark Dixon
Eric Hageman
Number of shares
% of base salary
Value of award
(1)
(£’000)5
% of maximum
amount receivable
for threshold vesting
690,377
368,201
200%
200%
£1,650.0
£880.0
8.3%
8.3%
1. Based on a face value grant of 200% of salary and using a share price of 239p.
The awards are subject to three independently operated performance metrics:
Metric
EPS
(33.3% weighting)
Relative TSR versus FTSE 350
(excluding investment trusts) (33.3% weighting)
Return on investment
(33.3% weighting)
Threshold vesting
Threshold
Maximum vesting
Maximum
0%
25%
0%
Compound annual
growth of 5%
Median
Return equal to
2018 performance
100%
100%
100%
Compound annual
growth of 25%
10% compound growth
above median
Return to be 300 basis points
above 2018 performance
Awards will be subject to a post-vesting holding period of two years. This requires the Executive Directors to hold on to the net of tax number of
vested shares for a period of two years following vesting.
DSBP awards granted in the year
DSBP awards granted to Executive Directors on 7 March 2019 as a deferred bonus in respect of the financial year ended 31 December 2018 and
which become exercisable on the third anniversary after the date of grant, subject to continuous employment, were as follows:
Executive
Mark Dixon
Eric Hageman
1. Based on a face value grant using a share price of 239p.
Number of shares
% of 2018 bonus
112,014
–
50%
–
Value of award(1)
(£’000)
£267.7
–
The awards were made as a deferral of the 2018 bonus and are not subject to any additional performance metrics.
Total pension benefits
During the year under review, the Executive Directors received pension contributions of 7% of salary into defined contribution arrangements
(or cash equivalent) plus any contributions in accordance with standard local practice or employment regulations. Details of the value of pension
contributions received in the year under review are set out in the Pension column of the single figure of remuneration table.
Statement of share scheme interests and shareholdings (audited)
Executive Directors are expected to build a holding in the Company’s shares to a minimum value of two times their base salary within five years
of their appointment. This must be built via the retention of the net-of-tax shares vesting under the Company’s equity-based share plans. The
following table sets out, for Directors who served during the year, the total number of shares held (including the interests of connected persons) as
at 31 December 2019 alongside the interests in share schemes for the Executive Directors.
Shares held
required Guideline met?
% of salary
% of salary
(1)
attained5
Deferred Share
(2)
Bonus Plan5
Performance
(3)
Share Plan5
CIP Matching
(4)
Shares5
Share Option
(5)
Plan5
Shareholding guidelines
Executive Directors
Mark Dixon
Eric Hageman
Non-Executive Directors
Douglas Sutherland
Laurie Harris
Nina Henderson
François Pauly
Florence Pierre
244,353,671
–
200%
200%
Yes
No
1289.9%
316,222
1,953,828
48,506
–
–
–
368,201
–
300,000
400,000
4,500
30,800
100,000
–
90
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IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
IWG plc Annual Report and Accounts 2019
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1. Based on a share price of 435.5p and base salary as at 31 December 2019.
2. Half of any bonus awarded is deferred in shares which vest after three years, subject to continued employment but no further performance targets.
3. The Performance Share Plan is in the form of unvested conditional shares awarded in 2017, 2018 and 2019 which will become exercisable on the fifth anniversary of the date
of grant and remain exercisable until the day before the tenth anniversary of the date of grant. The Committee has determined that performance conditions for the 2017
award were met in full and that 100% of the award will vest.
4. The CIP Matching Shares includes 37,819 vested shares granted to Mark Dixon on 4 March 2015 which are subject to a holding period ending in March 2020 and 10,687
vested shares granted to Mark Dixon on 5 March 2014 which became exercisable in March 2019.
5. In December 2018 Eric Hageman was granted unvested conditional options under the Company’s Share Option Plan at an exercise price of 203.1p per share.
With the exception of the Directors’ interests disclosed in the table above, no Director had any additional interest in the share capital of the Company during the year. No other
Director has any additional interests in the share capital of the Company since year end to the date of this report.
Supporting disclosures and additional context
Percentage change in remuneration of the Chief Executive Officer
The table below shows the percentage change in remuneration of the Chief Executive Officer and Group support employees (on a like-for-like
basis) between the year ending 31 December 2018 and the year ending 31 December 2019. Given the significant scale and diversity of the overall
global employee population, the Committee considers the Group support employees a more relevant comparison.
Salary
Benefits
Annual bonus
Relative importance of spend on pay
Chief Executive
Officer
Group support
employees
0%
4%
131%
6%
10%
63%
The table below shows total employee remuneration and distributions to shareholders in respect of the years ending 31 December 2019 and 2018
and the percentage changes between years:
Total employee remuneration
Distributions to shareholders via dividends and share buybacks
Chief Executive Officer’s Pay Ratio
2019
2018
Change
2018 to 2019
£373.2m
£107.7m
£365.9m
£93.9m
2%
15%
We are including a voluntary disclosure of our Chief Executive Officer’s pay ratio at the 25th, 50th and 75th percentiles of pay of our UK
employees, as shown in the table below. The ratios have been calculated based on the single total figure of remuneration for Mark Dixon and the
total pay of our employees under calculation methodology A of the regulations.
The median ratio is consistent with IWG’s pay, reward and progression policies for all employees which relate pay levels to performance and
market benchmarks. The majority of our employees participate in bonus and long-term incentives to align performance with shareholders.
Financial year
2019
Total pay
Base salary
P25 (Lower
quartile)
P50 (Median)
P75 (Upper
quartile)
231:1
148:1
102:1
Mark Dixon
(£’000)
4,481.5
825.0
P25
(£’000)
19.4
19.0
P50
(£’000)
30.3
27.0
P75
(£’000)
44.1
39.1
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GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT continued
Performance graph and table
The graph below shows the TSR of IWG in the ten-year period to 31 December 2019 against the TSR of the FTSE 350 (excluding investment
trusts). TSR reflects share price growth and assumes dividends are reinvested over the relevant period. The Committee considers the FTSE 350
(excluding investment trusts) relevant since it is an index of companies of similar size to IWG.
Total shareholder return
Value (£) (rebased)
700
600
500
400
300
200
100
0
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
IWG plc
FTSE 350 Index (excl. investment trusts)
Source: FactSet
This graph shows the value, by 31 December 2019, of £100 invested in IWG plc on 31 December 2009, compared with the value of £100 invested in the FTSE 350
(excl. investment trusts) Index on the same date.
The other points plotted are the values at intervening financial year ends.
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Single total figure of remuneration
Bonus (% of maximum)
Long-term incentive vesting (% of maximum)
£628k £759k £1,130k £1,773k £1,854k £2,770k £1,968k £3,034.5k £1,132.4k £1,450.8k £4,481.5k
100%
(2)
100%P
79% 100% 100%
50% 100%
43.3%
19%
93%
0%
0%
90.5%
11.0%
1.5%(1)
11%
86%
97%
35%
0%
0%
0%
1. Based on 7.8% of tranche three of the 2014 Matching Shares vesting, and 0% of the 2016 PSP award vesting. The single total figure of remuneration has been restated to
reflect that the share price for the CIP on the date of vesting is now known.
2. Based on 100% of the 2017 PSP award vesting.
Advisors to the Remuneration Committee
Details of the composition of the Remuneration Committee and attendance at Committee meetings are set out on page 79. The Committee’s
terms of reference are freely available on the Company’s website: www.iwgplc.com.
In addition to the designated members of the Remuneration Committee, the Chairman, Chief Executive Officer and Company Secretary also
attended Committee meetings during the year although none were present during discussions concerning their own remuneration.
TThe Executive Compensation team within Aon provided independent advice to the Committee during the year. No other services were provided
by Aon during the year. Aon was appointed by the Committee during 2016 following a competitive selection process undertaken by the Committee.
The fees charged by Aon for the provision of independent advice to the Committee during 2019 were £78,500 (exclusive of VAT) (2018: £63,010).
With regard to remuneration advice, the Committee is comfortable that Aon’s engagement partner and team are objective and independent.
Statement of voting at general meeting
The Committee is directly accountable to shareholders and, in this context, is committed to an open and transparent dialogue with shareholders
on the issue of executive remuneration. The members of the Committee attend the Company’s annual general meeting and are available to
answer shareholders’ questions about Directors’ remuneration. Votes cast by proxy and at the annual general meeting held on 14 May 2019 in
respect of remuneration related resolutions are shown in the table below:
Resolution
#
%
#
% Total votes cast Votes withheld
Approval of Directors’ Remuneration Policy
654,615,315
88.83% 82,328,348
11.17% 736,943,663
Approval of Annual Remuneration Report for year ending 31 December 2018 690,558,804
93.69% 46,499,764
6.31% 737,058,568
234,370
119,465
Votes for
Votes against
For and on behalf of the Board
NINA HENDERSON
Chairman of the Remuneration Committee
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IWG PLC ANNUAL REPORT AND ACCOUNTS 2019
IWG plc Annual Report and Accounts 2019
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DIRECTORS’ REPORT
Directors’ report
The Directors of the Company present their
Annual Report and the audited financial
statements of the Company and its
subsidiaries (together the “Group”) for the
year ended 31 December 2019.
Directors
The Directors of the Company who held
office during the financial year under
review were:
Executive Directors
Mark Dixon
Eric Hageman
Non-Executive Directors
Douglas Sutherland
François Pauly
Laurie Harris (appointed 14 May 2019)
Elmar Heggen (resigned 14 May 2019)
Florence Pierre
Nina Henderson
Biographical details for the Directors are
shown on pages 64 and 65.
Details of the Directors’ interests and
shareholdings are given in the Remuneration
report on page 79.
The Corporate Governance report,
Nomination Committee report, Audit
Committee report, Remuneration report and
Directors’ Statements on pages 66 to 92 and
95 all form part of this report.
Principal activity
The Company works with franchise partners,
landlords and property owners to provide the
world’s largest network of flexible workspace.
Business review
The Directors have presented a Strategic
report on pages 1 to 63 as follows:
The Chief Executive Officer’s review and
Chief Financial Officer’s review on pages 32
to 37 and 40 to 47 respectively address:
• review of the Company’s business (pages
33 to 37);
• an indication of the likely future
developments in the business (page 37);
• development and performance during the
financial year (pages 41 to 47); and
• position of the business at the end of the
year (pages 46 to 47).
The Risk Management and Principal Risks
report, on pages 48 to 55, includes a
description of the principal risks facing the
Company, including financial risks, and
the steps taken and policies implemented
to mitigate those risks.
The Company’s activities in research and
development are detailed in the Risk
Management and Principal Risks report
on pages 48 to 55.
The Environment, People, Communities
report, on pages 56 to 63, includes the
sections in respect of:
• environmental matters; and
• social and community issues
• employee development and performance.
The Nomination Committee report on pages
73 and 74 covers our approach to diversity.
The Directors’ statements on page 95
include the statutory statement in respect
of disclosure to the auditor.
The Directors do not consider any
contractual or other relationships with
external parties to be essential to the business
of the Group.
Anti-bribery and anti-corruption
The Company is committed to carrying
out business in an honest and ethical manner
and has a zero tolerance of bribery and
corruption. All employees receive training
on our bribery and corruption policy. The
Company’s statement of commitment can
be found on the Company’s website:
www.iwgplc.com.
Respect for human rights
The Company has zero tolerance to slavery
and human trafficking and our statement
made in accordance with the Modern
Slavery Act 2015, which is reviewed by
the Board annually, can be found on the
Company’s website: www.iwgplc.com.
Results and dividends
Profit before taxation for the year was
£55.9m (2018: £138.7m on a pre-IFRS
16 basis).
The Directors are pleased to recommend a
final dividend of £42.3m (2018: paid
£38.9m), being 4.80p per share (2018: 4.35p
per share). The total dividend for the year
will therefore be 6.95p per share, made up of
the interim dividend of 2.15p per share paid
in October 2019 (2018: 1.95p per share) and,
assuming the final dividend is approved
by shareholders at the forthcoming annual
general meeting, an additional 4.80p per
share (2018: 4.35p per share) which is
expected to be paid on 22 May 2020 to
shareholders on the register at the close of
business on 24 April 2020.
Policy and practice on
payment of creditors
The Group does not follow a universal
code dealing specifically with payments
to suppliers but, where appropriate, our
practice is to:
• agree the terms of payment upfront with
the supplier;
• ensure that suppliers are made aware of
these terms of payment; and
• pay in accordance with contractual and
other legal obligations.
Employees
The Group treats applicants for employment
with disabilities with full and fair consideration
according to their skills and capabilities.
Should an employee become disabled during
their employment, efforts are made to retain
them in their current employment or to
explore opportunities for their retraining or
redeployment elsewhere within the Group.
All employees are encouraged to become
involved in the Company’s performance.
Employee surveys are routinely fielded
to gather information on the Company,
employee contribution to performance
and other issues.
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GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT
DIRECTORS’ REPORT continued
Political and charitable
donations
It is the Group’s policy not to make political
donations either in the UK or overseas.
The Group made charitable donations of
£412,420 during the year (2018: £317,891).
Capital structure
The Company’s share capital (including
treasury shares) comprises 923,357,438
issued and fully paid up ordinary shares
of 1p nominal value in IWG plc (2018:
923,357,438). All ordinary shares (excluding
treasury shares) have the same rights to vote
at general meetings of the Company and
to participate in distributions. There are no
securities in issue that carry special rights in
relation to the control of the Company. The
Company’s shares are traded on the London
Stock Exchange.
Details of the role of the Board can be
found on page 72 and the process for the
appointment of Directors can be found
on pages 73 and 74.
At the Company’s annual general meeting
held on 14 May 2019 the shareholders of
the Company approved a resolution giving
authority for the Company to purchase in
the market up to 89,506,349 ordinary shares
representing approximately 10% of the issued
share capital (excluding treasury shares) as
at 9 April 2019. 12,379,535 shares were
repurchased during 2019, the purpose of
which was to satisfy share option obligations
and as part of a share buyback programme
supporting the Board’s prudent approach
to managing its capital structure.
Details of the Company’s employee share
schemes can be found on pages 134 to 144.
The outstanding awards and options do not
carry any rights in relation to the control of
the Company.
Branches
The Company is incorporated in Jersey with
a head office branch in Switzerland.
Substantial interests
At 28 February 2020, the Company has been notified of the following substantial interests held
in the issued share capital of the Company.
Number of
voting rights
244,353,671
170,282,135
53,064,754
% of issued share
capital (excluding
treasury shares)
27.73%
19.02%
5.96%
Auditors
In accordance with Jersey law, a resolution
for the reappointment of KPMG Ireland as
auditors of the Company is to be proposed
at the forthcoming annual general meeting.
Approval
This report was approved by the Board
on 25 February 2020.
On behalf of the Board
TIMOTHY REGAN
Company Secretary
3 March 2020
Estorn Limited(1)
Toscafund Asset Management LLP
M&G Plc
1. Mark Dixon owns 100% of Estorn Limited.
Going concern
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 a period of at least 12 months from the
date of approval of the financial statements.
For this reason, they continue to adopt the
going concern basis in preparing the accounts
on pages 101 to 149.
In adopting the going concern basis for
preparing the financial statements, the
Directors have considered the further
information included in the business activities
commentary as set out on pages 32 to 39,
as well as the Group’s principal risks and
uncertainties as set out on pages 49 to 55.
Further details on the going concern basis of
preparation can be found in note 24 of the
notes to the accounts on page 129.
Post balance sheet events
There have been no significant subsequent
events that require adjustments or disclosure
in this Annual Report.
94
IWG plc Annual Report and Accounts 2019
DIRECTORS’ STATEMENTS
Directors’ statements
Statement of responsibility
We confirm that to the best of our knowledge:
• the financial statements prepared in
accordance with the applicable set of
accounting standards, give a true and
fair view of the assets, liabilities, financial
position and profit or loss of the Group;
• the Directors’ report, including content
contained by reference, includes a
fair review of the development and
performance of the business and the
position of the Group taken as a whole,
together with a description of the principal
risks and uncertainties that they face; and
• the Annual Report and financial
statements, taken as a whole, is fair,
balanced and understandable and provides
the information necessary for shareholders
to assess the Group’s position and
performance, business model and strategy.
By order of the Board
MARK DIXON
Chief Executive Officer
ERIC HAGEMAN
Chief Financial Officer
3 March 2020
Under applicable law and regulations, the
Directors are also responsible for preparing
a Directors’ report, a Strategic report,
a Remuneration report and a Corporate
Governance Statement that comply with
that law and those regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s websites.
Legislation in the UK and Jersey governing
the preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Statutory statement as
to disclosure to auditor
The Directors who held office at the date
of approval of these Directors’ statements
confirm that:
• so far as they are each aware, there is no
relevant audit information of which the
Group’s auditor is unaware; and
• each Director has taken all the steps that
he ought to have taken as a Director
in order to make himself aware of any
relevant audit information and to establish
that the Group’s auditor is aware of
that information.
These financial statements have been
approved by the Directors of the Company.
The Directors confirm that the financial
statements have been prepared in accordance
with applicable law and regulations.
Statement of Directors’
responsibilities in respect
of the Annual Report
and financial statements
The Directors are responsible for preparing
the Annual Report and the Group financial
statements in accordance with applicable law
and regulations.
Company law requires the Directors to
prepare the Group financial statements for
each financial year. Under that law, they
are required to prepare the Group financial
statements in accordance with International
Financial Reporting Standards (“IFRSs”) as
adopted by the EU and applicable law.
Under company law, the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair
view of the state of affairs of the Group and
its profit or loss for the period. In preparing
each of the Group financial statements, the
Directors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and estimates that are
reasonable and prudent;
• for the Group financial statements, state
whether they have been prepared in
accordance with IFRSs as adopted by
the EU; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Group
and the parent company will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Group’s transactions
and which disclose with reasonable accuracy
at any time the financial position of the
Group and to enable them to ensure that
its financial statements comply with the
Companies (Jersey) Law 1991 and Article 4
of the IAS Regulation. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the Group and to prevent and detect
fraud and other irregularities.
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GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IWG PLC
Our opinion is unmodified
We have audited the Group financial
statements of IWG plc for the year ended
31 December 2019 which comprise the
Group income statement, the Group
statement of comprehensive income, the
Group balance sheet, the Group statement
of changes in equity, the Group cash flow
statement and the related accounting policies
and notes. The financial reporting framework
that has been applied in their preparation
is Jersey Law and International Financial
Reporting Standards (IFRS) as adopted
by the European Union.
In our opinion:
• the financial statements give a true
and fair view of the assets, liabilities and
financial position of the Group as at
31 December 2019 and of its profit for
the year then ended;
• the financial statements have been
properly prepared in accordance with
International Financial Reporting
Standards (IFRS) as adopted by
the European Union; and
• the financial statements have been
properly prepared in accordance with the
requirements of the Companies (Jersey)
Law 1991.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(“ISAs”). Our responsibilities under those
standards are further described in the
Auditor’s Responsibilities section of our
report. We are independent of the Group
in accordance with the ethical requirements
that are relevant to our audit of the financial
statements in Jersey, together with the
International Ethics Standards Board for
Accountants’ Code of Ethics for Professional
Accountants (“IESBA Code”) and we have
fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Key audit matters: our
assessment of risks of
material misstatement
Key audit matters are those matters that,
in our professional judgement, were of most
significance in the audit of the financial
statements and include the most significant
assessed risks of material misstatement
(whether or not due to fraud) identified by us,
including those which had the greatest effect
on: the overall audit strategy; the allocation
of resources in the audit; and directing the
efforts of the engagement team.
These matters were addressed, and our
results are based on procedures undertaken,
in the context of, and solely for the purpose
of, our audit of the financial statements as a
whole, and in forming our opinion thereon,
and consequently are incidental to that
opinion, and we do not provide a separate
opinion on these matters.
In arriving at our audit opinion above, the
key audit matters, in decreasing order of
significance, were the adoption of IFRS 16 –
Leases, the valuation of goodwill intangible
assets and the recognition of deferred tax
assets. We continue to perform procedures
over current taxation which we identified as a
key audit matter in the previous year.
However, following the resolution of
challenges by tax authorities in a number of
jurisdictions, the resultant reduced
complexity and subjectivity involved in the
calculation of current tax and provisions for
uncertain tax positions, we have not assessed
this as one of the most significant risks in our
current year audit and, therefore, it is not
separately identified in our report this year.
Further detail on the key audit matters
identified and how the matters were
addressed in our audit is outlined below as
follows:
Adoption of IFRS 16 Leases
£5,643.4 million
Refer to page 75 (Report of the
Audit Committee), page 107
(accounting policy) and note 23 to
the Group Financial Statements.
The key audit matter
The Group transitioned to IFRS 16 on
1 January 2019 and has applied the modified
retrospective approach. There is significant
judgement and complexity involved in
determining the key assumptions in the
calculation of the right-of-use assets and lease
liabilities recognised by the Group on
transition.
The calculation of the impact of IFRS 16
is sensitive to changes in a number of
key assumptions, including the Group’s
incremental borrowing rates (IBRs) and
assumptions relating to lease terms and
exercising break clauses. The adjustments
arising from applying IFRS 16 are material
to the Group and are a key focus area in
our audit.
How the matter was addressed
in our audit
Our audit procedures included but were not
limited to audit procedures over the
significant assumptions made by the Group
that underpin the IFRS 16 calculations
at transition. We evaluated the
appropriateness of key assumptions and
consideration of the transition model selected
by the Group, the practical expedients
applied and the transition adjustments.
In assessing the key assumptions, the audit
team have challenged management’s key
judgements and estimates relating to lease
term and renewals, exercise of break clauses,
incremental borrowing rates, the practical
expedients applied, and the treatment of
variable leases and lease incentives. We used
KPMG valuation specialists to help assess the
key assumptions and judgements, specifically
relating to the incremental borrowing rates
applied. We performed sensitivity analysis
over these key assumptions and the audit
team evaluated the impact of any reasonable
change to these key assumptions.
We gained an understanding of the lease
transition process and have tested the design
and implementation of controls related to the
determination of the key assumptions.
We found the Group’s recognition of
right-of-use assets and lease liabilities at
1 January 2019 to be appropriate and the
disclosures in the financial statements provide
an adequate description of the assumptions
and estimates made by the Group.
Goodwill and intangible
assets £719.6 million
(2018: £721.7 million)
Refer to page 75 (Report of the Audit
Committee), page 110 (accounting policy)
and notes 12 and 13 to the Group
Financial Statements.
The key audit matter
There is a risk that the carrying amounts of
the Group’s goodwill and intangible assets
will be more than the estimated recoverable
amount, if future cash flows are not sufficient
to recover the Group’s investment. This
could occur if forecasted cash flows decline
in certain markets or where revenue and
costs are subject to significant fluctuations.
Key assumptions include revenue growth,
occupancy rates, discount rates and terminal
values. The recoverability of goodwill is
spread across multiple geographies and
economies as highlighted in note 12, and is
dependent on individual businesses acquired
achieving or sustaining sufficient profitability
in the future. Two of the Group’s CGUs
individually account for 73% of the
total carrying amount.
We focus on this area due to the inherent
uncertainty involved in forecasting and
discounting future cash flows, particularly
in projected revenue growth, which forms
the basis of the assessment of recoverability.
9 6
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I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
IWG plc Annual Report and Accounts 2019
We considered the historical accuracy of
forecasts of future taxable profits made by
management by comparing the actual
taxable profits for the current year with
management’s estimates in the forecasts
made in the previous year and assessing
whether there were any indicators of
management bias in the selection of
key assumptions.
We considered the impact of the ongoing
changes in the Group’s strategy which places
greater focus on external franchising and the
impact of this on management’s assessment
of the recoverability of the assets recognised.
We challenged management’s assumptions in
relation to the recoverability of the deferred
tax assets recognised in Switzerland, arising
on the transfer of the Group’s intellectual
property by involving our taxation specialists
to evaluate the recoverability of the deferred
tax asset in relation to the deductible
temporary differences available. We
evaluated whether management’s judgements
on the generation of future taxable profits in
the foreseeable future were aligned with the
Group’s other business forecasting processes.
We assessed the presentation and disclosure
(in accordance with IAS 1 and IAS 12) in
respect of taxation related balances and
considered whether the Group’s disclosures
reflected the risks inherent in the accounting
for the taxation balances.
We found the Group’s recognition
of deferred tax assets to be appropriate
and that the disclosure provides an adequate
description of the assumptions and estimates
made by the Group and the sensitivity to
changes thereon.
How the matter was addressed
in our audit
Our audit procedures in this area included,
among others, assessing the Group’s
impairment model for each group of CGUs
and challenging the key assumptions used by
the Group in the model. We considered the
historical accuracy of the Group’s forecasts
and challenged management’s profitability
forecasts. We obtained and documented our
understanding of the impairment testing
process and the design and implementation
of the relevant controls therein. We assessed
the recoverability of goodwill across a sample
of countries and placed particular focus on
the UK impairment model due to the limited
headroom in the CGU in the past and
given its significance to the Group’s
goodwill balance.
We used valuation specialists to assist us in
evaluating the judgements and methodologies
used by the Group, in particular those
relating to the discount rates and terminal
growth calculations used to determine the
present value of the cash flow projections.
We compared the Group’s assumptions,
where possible, to externally derived data
and performed our own assessment in
relation to key impairment model inputs.
We checked the mathematical accuracy of
the model. We examined the sensitivity
analysis performed by Group management
and performed our own sensitivity analysis
in relation to the key assumptions. We also
compared the sum of projected discounted
cash flows to the market capitalisation of the
Group to assess whether the projected cash
flows appear reasonable. We also assessed
whether the disclosures as set out in note 12
were appropriate and in compliance
with IAS 36.
The Group’s impairment model identified
impairments of goodwill amounting to
£0.8 million during the year ended
31 December 2019. As a result of our work,
we found that the judgements applied by
management in arriving at this conclusion
were supported by reasonable assumptions.
We found the disclosures to be adequate.
Recognition of deferred tax
assets of £195.0 million
(2018: £30.6 million)
Refer to page 75 (Report of the
Audit Committee), page 111
(accounting policy) and note 8 to
the Group Financial Statements.
The key audit matter
The Group has significant deferred tax assets
in respect of the future benefit of deductible
temporary differences and accumulated tax
losses where it is considered probable that
they would be utilised or recovered in the
foreseeable future through the generation of
future taxable profits by the relevant group
entities or by set-off against deferred tax
liabilities. In addition, a significant amount of
deferred tax assets were not recognised at the
reporting date due to the uncertainty of the
relevant group entities being able to generate
future taxable profits against which the tax
losses may be utilised before they expire.
We identified the recognition of deferred
tax assets as a key audit matter because of
its significance to the financial statements
and because there is inherent uncertainty
involved in forecasting future taxable profits,
which determines the extent to which
deferred tax assets are or are not recognised.
This uncertainty has increased in 2019 due
to the ongoing strategic developments in
the business, the transfer of the Group’s
intellectual property from Luxembourg
to Switzerland and also the adoption
of IFRS 16.
How the matter was addressed
in our audit
In this area our audit procedures included
using our work on the Group’s forecasts
described in the goodwill key audit matter
above. We then used our own tax specialists
to assist us in evaluating and challenging the
key assumptions and methodologies used by
the Group and its taxation advisors in
calculating the deferred tax assets including
assessing the recoverability of the tax losses
against the forecast future taxable profits,
taking into account the Group’s tax position,
the timing of forecast taxable profits, and our
knowledge and experience of the application
of relevant tax legislation. These specialists
evaluated and challenged the key
assumptions and methodologies used by the
Group and its taxation advisors in calculating
the deferred tax assets.
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97
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IWG PLC continued
Our application of materiality
and an overview of the scope of
our audit
The materiality for the consolidated financial
statements as a whole was set at £10 million
(2018: £10 million) which is 0.38% (2018:
0.42%) of total revenue and 8% (2018: 7.2%)
of adjusted profit before tax from continuing
operations. In 2018 we used revenue (0.42%)
and profit before tax from continuing
operations (7.2%) as the benchmarks for
materiality. We have determined that
adjusting profit before tax from continuing
operations to remove the impact of the
adoption of IFRS 16 is appropriate in 2019,
given the significant impact of IFRS 16 on
the Group’s reported profits, with no
corresponding impact on the continuing
operations of the Group.
We have determined, in our professional
judgement, that revenue and the adjusted
profit before tax from continuing operations
are two of the principal benchmarks within
the financial statements relevant to members
of the Company in assessing financial
performance. We also note that our
materiality equates to 8.7% of the average
profit before tax from continuing operations
of the Group for the past three years.
For certain account balances including
goodwill, intangible assets, bank loans, share-
based payments, related party transactions
and taxation, we applied materiality of
£7.5 million, or 6% (2018: 5.4%) of adjusted
pre-tax profit, as we believe a misstatement of
amounts less than materiality for the financial
statements as a whole could be reasonably
expected to influence a member’s assessment
of the financial performance of the Group.
We agreed with the Audit Committee
to report corrected and uncorrected
misstatements we identified through our
audit with a value in excess of £0.5 million
(2018: £0.5 million). We also agreed to
report other audit misstatements below that
threshold that we believe warranted reporting
on qualitative grounds. The structure of the
Group’s finance function is such that certain
transactions and balances are accounted for
by central Group finance teams, with the
remainder accounted for in the operating
units. We performed comprehensive audit
procedures, including those in relation to the
significant risks above, on those transactions
and balances accounted for at Group and
operating unit level. In determining those
components in the Group to which we
perform audit procedures, we considered
the relevant size and risk profile of
the components.
In relation to the Group’s operating
units, audits for Group reporting purposes
were performed at identified key reporting
components, augmented by risk focused audit
procedures which were performed for certain
other components. These audits covered
81% (2018: 80%) of total Group revenue
and 93% (2018: 82%) of total Group assets.
The Group audit team instructed component
auditors as to the significant areas to be
covered, including the relevant risks detailed
above and the information to be reported
back. Planning meetings were held with
component auditors in order to assess the
key audit risks, audit strategy and work to be
undertaken. The Group audit team approved
the materiality of each of the components,
which ranged from £3m to £8m, having
regard to the mix of size and risk profile
of the Group across the components.
Detailed audit instructions were sent to the
auditors in all of these identified locations.
These instructions covered the significant
audit areas to be covered by these audits
(which included the relevant risks of material
misstatement detailed above) and set out the
information required to be reported to the
Group audit team. Senior members of
the Group audit team, including the
lead engagement partner, attended each
component audit closing meeting via
telephone conferencing facilities, at which the
results of component audits were discussed
with divisional and Group management.
At these meetings, the findings reported to
the Group audit team were discussed in more
detail, and any further work required by the
Group audit team was then performed by the
component auditor. The Group audit team
interacted with the component teams where
appropriate during various stages of the
audit, reviewed key working papers and
were responsible for the scope and direction
of the audit process. This, together with the
additional procedures performed at Group
level, gave us appropriate evidence for our
opinion on the Group financial statements.
We have nothing to report
on going concern
We are required to report to you if:
• we have anything material to add or draw
attention to in relation to the Directors’
statement in note 2 to the financial
statements on the use of the going concern
basis of accounting with no material
uncertainties that may cast significant
doubt over the Group use of that basis
for a period of at least 12 months from
the date of approval of the financial
statements ; or
• if the related statement under the Listing
Rules set out on page 55 is materially
inconsistent with our audit knowledge.
We have nothing to report in these respects.
Other information
The Directors are responsible for the other
information presented in the Annual Report
together with the financial statements. The
other information comprises the information
included in the Directors’ report, and the
information included in the strategic report
and governance sections of the Annual
Report. The financial statements and our
auditor’s report thereon do not comprise part
of the other information. Our opinion on the
financial statements does not cover the other
information and, accordingly, we do not
express an audit opinion or any form of
assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether, based on our financial statements
audit work, the information therein is
materially misstated or inconsistent with
the financial statements or our audit
knowledge. Based solely on that work we
have not identified material misstatements
in the other information.
Disclosures of principal risks
and longer-term viability
Based on the knowledge we acquired
during our financial statements audit, we
have nothing material to add or draw
attention to in relation to:
• the principal risks disclosures describing
these risks and explaining how they are
being managed and mitigated;
• the Directors’ confirmation within the
viability statement that they have carried
out a robust assessment of the principal
risks facing the Group, including those that
would threaten its business model, future
performance, solvency and liquidity; and
• the Directors’ explanation in the viability
statement of how they have assessed
the prospects of the Group, over what
period they have done so and why they
considered that period to be appropriate,
and their statement as to whether they
have a reasonable expectation that the
Group will be able to continue in
operation and meet its liabilities as they
fall due over the period of their assessment,
including any related disclosures drawing
attention to any necessary qualifications
or assumptions.
9 8
98
I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
IWG plc Annual Report and Accounts 2019
The purpose of our audit and to whom
we owe our responsibilities
Our report is made solely to the Company’s
members, as a body, in accordance with
Article 113A of the Companies (Jersey) Law
1991. Our audit work has been undertaken
so that we might state to the Company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the Group and the Group’s members as a
body, for our audit work, for this report, or
for the opinions we have formed.
CLIONA MULLEN,
for and on behalf of
KPMG
Chartered Accountants,
Statutory Audit Firm
1 Stokes Place,
St Stephen’s Green,
Dublin 2, Ireland
3 March 2020
Corporate governance
disclosures
We are required to report to you if:
• we have identified material inconsistencies
between the knowledge we acquired
during our financial statements audit
and the Directors’ statement that they
consider that the Annual Report and
financial statements taken as a whole is
fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Group’s position
and performance, business model and
strategy; or
• the section of the Annual Report
describing the work of the Audit
Committee does not appropriately
address matters communicated by
us to the Audit Committee; and
• We are required to report to you if the
Corporate Governance Statement does
not properly disclose a departure from the
UK Corporate Governance Code specified
by the Listing Rules for our review.
We have nothing to report in these respects.
We have nothing to report on
the other matters on which
we are required to report
by exception
Under the Companies (Jersey) Law 1991,
we are required to report to you if, in
our opinion:
• Adequate accounting records have not
been kept by the parent company;
• Returns adequate for our audit have not
been received from branches not visited
by us;
• The financial statements are not in
agreement with the accounting records; or
• We have not received all the information
and explanations we require for our audit.
We have nothing to report in respect of the
above responsibilities.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set
out on page 95, the Directors are responsible
for: the preparation of the financial
statements including being satisfied that
they give a true and fair view; such internal
control as they determine is necessary to
enable the preparation of financial statements
that are free from material misstatement,
whether due to fraud or error; assessing
the Group’s ability to continue as a going
concern, disclosing, as applicable, matters
related to going concern; and using the
going concern basis of accounting unless they
either intend to liquidate the Group or to
cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud, other
irregularities, or error, and to issue our
opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but
does not guarantee that an audit conducted
in accordance with ISAs will always detect
a material misstatement when it exists.
Misstatements can arise from fraud, other
irregularities or error and are considered
material if, individually or in aggregate, they
could reasonably be expected to influence
the economic decisions of users taken on
the basis of the financial statements.
Further details relating to our work as auditor
is set out in the Scope of Responsibilities
Statement contained in the appendix to this
report, which is to be read as an integral part
of our report.
iwgplc.com
9 9
99
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IWG PLC continued
Appendix to the Independent
Auditor’s Report
Further information regarding the
scope of our responsibilities as auditor
As part of an audit in accordance with ISAs,
we exercise professional judgement and
maintain professional scepticism throughout
the audit. We also:
• Identify and assess the risks of material
misstatement of the financial statements,
whether due to fraud or error, design and
perform audit procedures responsive to
those risks, and obtain audit evidence that
is sufficient and appropriate to provide
a basis for our opinion. The risk of
not detecting a material misstatement
resulting from fraud is higher than for
one resulting from error, as fraud may
involve collusion, forgery, intentional
omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal
control relevant to the audit in order
to design audit procedures that are
appropriate in the circumstances, but
not for the purpose of expressing an
opinion on the effectiveness of the
Group’s internal control.
We communicate with those charged with
governance regarding, among other matters,
the planned scope and timing of the audit
and significant audit findings, including any
significant deficiencies in internal control
that we identify during our audit.
We also provide those charged with
governance with a statement that we have
complied with relevant ethical requirements
regarding independence, and communicate
with them all relationships and other matters
that may reasonably be thought to bear on
our independence, and where applicable,
related safeguards.
From the matters communicated with those
charged with governance, we determine
those matters that were of most significance
in the audit of the consolidated financial
statements of the current period and are
therefore the key audit matters. We describe
these matters in our auditor’s report unless
law or regulation precludes public disclosure
about the matter or when, in extremely rare
circumstances, we determine that a matter
should not be communicated in our report
because the adverse consequences of doing so
would reasonably be expected to outweigh
the public interest benefits
of such communication.
• Evaluate the appropriateness of accounting
policies used and the reasonableness
of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of
management’s use of the going concern
basis of accounting and, based on the audit
evidence obtained, whether a material
uncertainty exists related to events or
conditions that may cast significant doubt
on the Group’s ability to continue as a
going concern. If we conclude that a
material uncertainty exists, we are required
to draw attention in our auditor’s report
to the related disclosures in the financial
statements or, if such disclosures are
inadequate, to modify our opinion.
Our conclusions are based on the audit
evidence obtained up to the date of our
auditor’s report. However, future events
or conditions may cause the Group to
cease to continue as a going concern.
• Evaluate the overall presentation, structure
and content of the financial statements,
including the disclosures, and whether
the financial statements represent the
underlying transactions and events in a
manner that achieves fair presentation.
• Obtain sufficient appropriate audit
evidence regarding the financial
information of the entities or business
activities within the Group to express an
opinion on the consolidated financial
statements. We are responsible for the
direction, supervision and performance
of the Group audit. We remain solely
responsible for our audit opinion.
1 0 0 I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
100
IWG plc Annual Report and Accounts 2019
CONSOLIDATED INCOME STATEMENT
Revenue
Cost of sales
Gross profit (centre contribution)
Selling, general and administration expenses
Share of profit/(loss) of equity-accounted investees, net of tax
Operating profit
Finance expense
Finance income
Net finance expense
Profit before tax for the year from continuing operations
Income tax credit/(expense)
Profit after tax for the year from continuing operations
Profit after tax for the year from discontinued operations
Profit after tax for the year attributable to equity shareholders of the Group
Earnings per ordinary share (EPS):
Attributable to ordinary shareholders
Basic (p)
Diluted (p)
From continuing operations
Basic (p)
Diluted (p)
1. The comparative information has been restated to reflect the impact of discontinued operations.
Notes
3
Year ended
31 Dec 2019
£m
2,653.0
(2,086.6)
Year ended
31 Dec 2018
Restated
£m(1)
2,402.1
(2,027.6)
566.4
(281.2)
2.7
287.9
(232.5)
0.5
(232.0)
55.9
22.3
78.2
372.4
450.6
50.5
49.6
8.8
8.6
21
5
7
7
8
9
10
10
10
10
374.5
(248.2)
(1.4)
124.9
(15.8)
0.5
(15.3)
109.6
(29.7)
79.9
25.8
105.7
11.7
11.6
8.8
8.7
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101
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Profit for the year
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
Foreign exchange reclassified to profit or loss from discontinued operations
Foreign currency translation differences for foreign operations
Items that are or may be reclassified to profit or loss in subsequent periods
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
Items that will never be reclassified to profit or loss in subsequent periods
Other comprehensive income for the period, net of income tax
Year ended
31 Dec 2019
£m
Year ended
31 Dec 2018
£m
Notes
450.6
105.7
9
26
(0.5)
(8.8)
(24.5)
(33.8)
–
–
(33.8)
0.1
–
9.2
9.3
–
–
9.3
Total comprehensive income for the year
416.8
115.0
1 0 2 I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
102
IWG plc Annual Report and Accounts 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Balance at 1 January 2018
9.2
(39.6)
63.2
0.2
25.8
668.9
727.7
Issued share
capital
£m
Treasury
shares
£m
Notes
Foreign
currency
translation
reserve
£m
Hedging
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
Total comprehensive income for the year:
Profit for the year
Other comprehensive income:
Cash flow hedges – effective portion of changes in
fair value
Foreign currency translation differences for
foreign operations
Other comprehensive income, net of tax
Total comprehensive income for the year
Transactions with owners of the Company
Share-based payments
Ordinary dividend paid
Purchase of shares
Proceeds from exercise of share awards
Balance at 31 December 2018
Change in accounting policy
Restated balance at 1 January 2019
Total comprehensive income for the year:
Profit for the year
Other comprehensive income:
Cash flow hedges – effective portion of changes in
fair value
Foreign exchange recycled to profit or loss from
discontinued operations
Foreign currency translation differences for
foreign operations
Other comprehensive income, net of tax
Total comprehensive income for the year
Transactions with owners of the Company
Share-based payments
Ordinary dividend paid
Purchase of shares
Proceeds from exercise of share awards
Balance at 31 December 2019
11
22
22
2
9
11
22
22
–
–
–
–
–
–
–
–
–
9.2
–
9.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(40.2)
5.7
(74.1)
–
(74.1)
–
–
–
–
–
–
–
–
(49.5)
6.7
–
–
9.2
9.2
9.2
–
–
–
–
72.4
(4.2)
68.2
–
–
(8.8)
(24.5)
(33.3)
(33.3)
–
–
–
–
–
0.1
–
0.1
0.1
–
–
–
–
0.3
–
0.3
–
(0.5)
–
–
(0.5)
(0.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
105.7
105.7
–
–
–
0.1
9.2
9.3
105.7
115.0
0.5
(53.7)
–
(3.8)
0.5
(53.7)
(40.2)
1.9
25.8
717.6
751.2
–
(179.2)
(183.4)
25.8
538.4
567.8
–
–
–
–
–
–
–
–
–
–
450.6
450.6
–
–
–
–
450.6
0.7
(58.2)
–
(3.8)
927.7
(0.5)
(8.8)
(24.5)
(33.8)
416.8
0.7
(58.2)
(49.5)
2.9
880.5
9.2
(116.9)
34.9
(0.2)
25.8
Other reserves include £10.5m 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, £37.9m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5m relating to merger reserves and £0.1m to the redemption
of preference shares partly offset by £29.2m arising from the Scheme of Arrangement undertaken in 2003.
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103
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use asset
Other property, plant and equipment
Deferred tax assets
Non-current derivative financial assets
Other long-term receivables
Investments in joint ventures
Total non-current assets
Current assets
Inventory
Trade and other receivables
Corporation tax receivable
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables (including customer deposits)
Deferred income
Corporation tax payable
Bank and other loans
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Other long-term payables
Bank and other loans
Lease liabilities
Non-current derivative financial liabilities
Provisions
Provision for deficit in joint ventures
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Total equity
Issued share capital
Treasury shares
Foreign currency translation reserve
Hedging reserve
Other reserves
Retained earnings
Total equity
Total equity and liabilities
As at
31 Dec 2019
£m
As at
31 Dec 2018
£m (1)
Notes
12
13
14
14
14
8
24
15
21
16
8
23
17
8
19
23
20
18
19
23
24
20
21
26
22
22
674.6
45.0
7,190.7
5,917.4
1,273.3
195.0
–
61.0
13.8
679.2
42.5
1,751.2
–
1,751.2
30.6
0.3
86.0
12.2
8,180.1
2,602.0
1.3
681.3
24.0
66.6
773.2
8,953.3
788.8
322.6
32.3
9.7
977.4
8.9
–
717.5
32.7
69.0
819.2
3,421.2
1,058.9
320.0
31.0
9.9
–
9.7
2,139.7
1,429.5
2.0
351.0
5,568.6
0.2
6.9
2.9
1.5
704.2
519.9
–
–
9.4
5.5
1.5
5,933.1
8,072.8
1,240.5
2,670.0
9.2
(116.9)
34.9
(0.2)
25.8
927.7
880.5
8,953.3
9.2
(74.1)
72.4
0.3
25.8
717.6
751.2
3,421.2
1. Based on the audited financial statements for the year ended 31 December 2018. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective
approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date
of initial application.
Approved by the Board on 3 March 2020
MARK DIXON
Chief Executive Officer
ERIC HAGEMAN
Chief Financial Officer
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CONSOLIDATED STATEMENT OF CASH FLOWS
Operating activities
Profit before tax for the year from continuing operations
Adjustments for:
Profit before tax from discontinued operations
Net finance expense
Share of (profit)/loss of equity-accounted investees, net of tax
Depreciation charge
Right-of-use asset
Other property, plant and equipment
Loss on impairment of goodwill
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Reversal of impairment of property, plant and equipment
Amortisation of intangible assets
Gain on disposal of other investments
Amortisation of acquired lease fair value adjustments
Negative goodwill arising on an acquisition
(Decrease)/increase in provisions
Share-based payments
Other non-cash movements
Operating cash flows before movements in working capital
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Interest paid
Tax paid
Net cash inflow from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of subsidiary undertakings, net of cash acquired
Disposal of other investments
Purchase of intangible assets
Purchase of joint ventures
Proceeds on sale of discontinued operations, net of cash disposed of
Proceeds on sale of property, plant and equipment
Interest received
Net cash inflow/(outflow) from investing activities
Financing activities
Proceeds from issue of loans
Repayment of loans
Payment of lease liability
Purchase of treasury shares
Proceeds from exercise of share awards
Payment of ordinary dividend
Net cash (outflow)/ inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
Year ended
31 Dec 2019
£m
Year ended
31 Dec 2018
Restated
£m (1)(2)
55.9
109.6
22.8
232.0
(2.7)
1,153.1
1,010.0
143.1
0.8
32.7
0.3
(2.1)
9.7
–
–
–
(1.3)
0.7
(2.2)
1,499.7
(108.7)
0.7
1,391.7
(21.2)
(48.8)
1,321.7
(356.4)
(24.2)
–
(12.8)
(1.8)
424.6
0.6
0.5
30.5
850.5
(1,013.0)
(1,091.5)
(49.5)
2.9
(58.2)
(1,358.8)
(6.6)
69.0
4.2
66.6
29.1
15.3
1.4
225.4
–
225.4
1.0
13.6
0.1
(0.1)
10.4
(4.3)
(2.0)
(6.2)
9.7
0.5
(5.9)
397.6
(133.4)
299.8
564.0
(16.2)
(37.1)
510.7
(579.6)
(2.3)
4.4
(6.9)
–
–
0.4
0.5
(583.5)
644.3
(467.4)
–
(40.2)
1.9
(53.7)
84.9
12.1
55.0
1.9
69.0
Notes
9
7
21
5, 14
5, 14
5, 14
12
5
5
5, 14
5, 13
5
12, 27
20
14
27
13
21
9
7
23
22
11
23
1. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application.
2. The comparative information has been restated to reflect the impact of discontinued operations.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS
1. Authorisation of financial statements
The Group and Company financial statements for the year ended 31 December 2019 were authorised for issue by the Board of Directors
on 3 March 2020 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, and is a franchise operator of, 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 150.
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 2019 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 2019:
IFRS 16
IFRIC 23
Leases
Uncertainty over Income Tax Treatments
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
Plan Amendments, Curtailment or Settlement (Amendments to IAS 19)
Annual Improvements to IFRSs 2015 – 2017 Cycle
Prepayment features with Negative Compensation (Amendments to IFRS 9)
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 or amortised cost.
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 101 to 149.
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 32 to 37 as well as the Group’s principal risks and uncertainties as set out on
pages 48 to 55.
Further details on the going concern basis of preparation can be found in note 24 to the notes to the consolidated financial statements.
These Group consolidated financial statements are presented in pounds sterling (£), which is IWG plc’s functional currency, and all values are
in million pounds, rounded to one decimal place, except where indicated otherwise.
The attributable results of those companies acquired or disposed of during the year are included for the periods of ownership.
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Impact of the adoption of IFRS 16
IFRS 16 replaced 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 was effective for annual reporting periods beginning on or after 1 January 2019.
IFRS 16 introduced 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.
The impact of applying IFRS 16 on the financial statements in the period of initial application depended on a variety of factors, 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 adopted the modified retrospective 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 Group elected to use the transition practical expedient to not reassess whether a
contract is, or contains, a lease at 1 January 2019. Instead, the Group applied the standard only to contracts that were previously identified as
leases applying IAS 17 and IFRIC 4 at the date of initial application.
• The difference between the right-of use asset and the related lease liability is recognised directly in retained earnings after tax.
• In determining the right-of-use asset and lease liability to be recognised, the Group adopted incremental borrowing rates for its leases as at
1 January 2019. These rates were determined by taking currency-specific interest rates based on five-year external market rates (where
available, which reflect the average centre lease duration) on transition and then considering adjustments to reflect subsidiary/country-specific
credit ratings and adjustments to reflect the level of collateral. The incremental borrowing rates will be updated annually and applied to leases
commencing in the subsequent year.
• The right-of-use asset recognised is being depreciated over the life of the lease. The life of the lease reflects the contracted lease term and any
renewal periods that the Group is reasonably certain to extend.
The most significant impact identified is the right-of-use asset and related lease liability the Group recognised for its leases in respect of its global
network, which were recognised based on the modified retrospective approach. The Group recorded a right-of-use asset of £5,132.4m and a
related lease liability of £5,643.4m at 1 January 2019.
The standard has no impact on the actual cash flows or cash generation per share of the Group. However, as the standard requires the
capitalisation and subsequent depreciation of costs that were previously expensed, the disclosures of cash flows within the cash flow statement are
impacted. The amounts previously disclosed as operating cash outflows are instead capitalised and presented as financing cash outflows whilst the
interest and depreciation expenses are presented in operating cash flows.
When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental
borrowing rates at 1 January 2019. The weighted-average rate applied was 3.7%.
The following tables summarise the opening balance impact, on transition to IFRS 16:
£m
Balance reported at 1 January 2019
Right-of-use asset & related lease liability(1)
Other adjustments(2)
Taxation
Restated balance at 1 January 2019
£m
Balance reported at 1 January 2019
Right-of-use asset & related lease liability(1)
Other adjustments(2)
Taxation
Property, plant &
equipment
Deferred tax
asset
Trade & other
receivables
Corporation tax
receivable
1,751.2
5,132.4
(586.4)
–
6,297.2
30.6
–
–
86.7
117.3
717.5
–
(98.3)
–
619.2
Lease liabilities
– Short term
Lease liabilities
– Long term
Trade & other
payables
Foreign currency
translation
reserve
–
900.0
–
–
4,743.4
–
–
–
1,058.9
–
(925.6)
–
133.3
72.4
(4.2)
–
–
68.2
32.7
–
–
–
32.7
Retained
earnings
717.6
(506.8)
240.9
86.7
538.4
Restated balance at 1 January 2019
900.0
4,743.4
1. During 2019, the Group continued to assess the valuation methodology implemented on the adoption of IFRS 16. On finalisation of this assessment, the Group revised its
opening balances based on refinements to the overall methodology. Balances in the table are therefore adjusted, with the opening right-of-use assets increasing from £5.0bn
to £5.1bn and the related lease liabilities increasing from £5.5bn to £5.6bn. While these changes are not considered material, the Group has elected to make this adjustment
given the significant nature of its lease portfolio.
2. On transition, the remaining net book value of costs previously capitalised, such as costs directly incurred in preparing the business centre for trading (i.e. as part of property,
plant and equipment), are derecognised and eliminated directly against retained earnings. Partner contributions are accounted for in property, plant and equipment on
transition.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS continued
2. Accounting policies (continued)
The following table reconciles the operating lease commitment at 31 December 2018 to the lease liability recognised at 1 January 2019:
Operating lease commitment at 31 December 2018 as disclosed in the Group’s Annual Report and Accounts
Discounted using the incremental borrowing rates at 1 January 2019 (1)
Lease liabilities recognised at 1 January 2019
Recognition exemption for leases of low-value assets
Recognition exemption for leases with less than 12 months of lease term at transition (2)
Extension options reasonably certain to be exercised
Lease liabilities recognised at 1 January 2019
£m
6,641.5
(997.2)
5,644.3
(0.4)
(0.5)
–
5,643.4
1. The incremental borrowing rates consider the relevant market interest rates, based on the weighted average of the timing of the lease payments under the lease obligation. In
addition, a spread over the market rate is applied based on the cost of funds to the Group, plus a spread that represents the risk differential of the lessee entity compared to
the Group funding cost. The weighted-average rate applied was 3.7%.
2. The Group applied the practical expedient to classify leases for which the lease term ends within 12 months of the date of initial application of IFRS 16 as a short-term lease.
The Group also applied the recognition exemption for short-term leases.
Impact for the period
The Group has recognised depreciation and inherent costs instead of the operating lease expense. During the year ended 31 December 2019, the
Group recognised £983.4m of depreciation charges, as highlighted in note 5, and £213.2m of interest costs, as highlighted in note 7. Further
detail is summarised in the pro forma statements at the end of this Annual Report.
The Group also considered the impact of lessor accounting, which is not considered to be material.
The Group adopted the exemptions permitted in respect of short-term and low-value leases, which are not material due to the relatively low
number of these types of 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 24.
Summary of new accounting policies
The new accounting policies of the Group upon adoption of IFRS 16 are as follows:
1. Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognised and initial direct costs incurred. The recognised right-of-use assets are depreciated on a
straight-line basis over the shorter of its estimated useful life and the lease term.
Right-of-use assets are subject to impairment review on an annual basis. The Group also tested its right-of-use assets for impairment on the
date of transition and has recognised an impairment of £3.2m associated with the right-of-use asset.
2. Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over
the lease term. The lease payments include fixed payments and variable lease payments that depend on an index or a rate. The variable lease
payments that do not depend on an index or a rate are recognised as a rent expense in the period in which they are incurred.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the
interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is
a modification, a change in the lease term or a change in the in-substance fixed lease payments.
3. Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to short-term leases (i.e. those leases that have a lease term of 12 months or
less from commencement). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease
payments on short-term leases and leases of low-value assets are recognised as a rent expense on a straight-line basis over the lease term.
Significant judgement in determining the lease term of contracts with renewal options and the incremental borrowing rate
IFRS 16 defines the lease term as the non-cancellable period of a lease together with the options to extend or terminate a lease, if the lessee
were reasonably certain to exercise that option. Where a lease includes the option for the Group to extend the lease term, the Group makes a
judgement as to whether it is reasonably certain that the option will be taken. This will take into account the length of time remaining before the
option is exercisable, macro-economic environment, socio-political environment and other lease-specific factors. The determination of applicable
incremental borrowing rates at the commencement of lease contracts also requires judgement.
Impact on key estimates and judgements
There is significant judgement in determining the lease term of contracts with renewal options and the applicable incremental borrowing rates at
the commencement of lease contracts. For further detail see note 32.
The accounting polices relating to leases which applied for the comparative period are outlined on page 94 of the 2018 Annual Report and Accounts.
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IWG plc Annual Report and Accounts 2019
Impact of the adoption of IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12
Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest
and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
• How an entity considers changes in facts and circumstances
An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax
treatments. The approach that better predicts the resolution of the uncertainty needs to be followed.
The Group applies judgement in identifying uncertainties over income tax treatments. Since the Group operates in a complex multinational
environment, it assessed whether the Interpretation had an impact on its consolidated financial statements.
Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions, particularly those relating to transfer
pricing. The Company’s and the subsidiaries’ tax filings in different jurisdictions include deductions related to transfer pricing and the taxation
authorities may challenge those tax treatments. The Group determined, based on its tax compliance and transfer pricing studies, that in most
jurisdictions it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Group
has, where considered appropriate, provided for the potential impact of uncertain tax positions where the likelihood of tax authority adjustment
is considered to be more likely than not. The adoption of the interpretation did not have an impact on the consolidated financial statements
of the Group.
IFRSs not yet effective
The following new or amended standards and interpretations that are mandatory for 2020 annual periods (and future years) are not expected to
have a material impact on the Group financial statements, unless otherwise stated.
Amendments to References to Conceptual Framework in IFRS Standards
Definition of a Business (Amendments to IFRS 3)
Definition of Material (Amendments to IAS 1 and IAS 8)
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
IFRS 17 Insurance Contracts
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current Non-Current
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2021
1 January 2022
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.
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.
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.
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 2019. 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 assets’ recoverable amount are 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.
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NOTES TO THE ACCOUNTS continued
2. Accounting policies (continued)
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 reassesses 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 reassessment still results in an excess of the
fair value of net assets acquired over the aggregate consideration transferred (negative goodwill), 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
Brand – Other acquired brands
Computer software
Customer lists
Management agreements
Indefinite life
20 years
Up to 5 years
2 years
Minimum duration of the contract
Amortisation of intangible assets is expensed through administration expenses in the income statement.
Acquisitions of non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is
recognised as a result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a
proportionate amount of the net assets of the subsidiary.
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.
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:
Right-of-use assets
Buildings
Leasehold improvements
Furniture
Office equipment and telephones
Computer hardware
Over the lease term
50 years
10 years
10 years
5 – 10 years
3 – 5 years
The useful life of certain office equipment and telephones was revised in 2019, from 5 years to 10 years (note 14).
Revenue
The Group’s primary activity and only business segment is the provision of global workspace solutions.
The Group recognises revenue when it transfers control over service to a customer. It is measured based on the consideration specified in a
contract with a customer. Control transfers to the customer equally over the contract period based on the time elapsed. Where discounted periods
are granted to customers, service income is spread on a straight-line basis over the duration of the customer contract.
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IWG plc Annual Report and Accounts 2019
1. Workstations
Workstation revenue is recognised over time as the services are provided. Amounts invoiced in advance are accounted for as deferred income
(contract liability) and recognised as revenue upon provision of the service.
2. Customer service income
Service income (including the provision of meeting rooms) is recognised over time as the services are delivered or at a point in time depending
on contractual obligations. 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.
3. Management and franchise fees
Fees received for the provision of initial and subsequent services are recognised over time 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.
4. Membership card income
Revenue from the sale of membership cards is deferred and recognised over time within the period that the benefits of the membership card
are expected to be provided. Deferred revenue is included in contract liabilities.
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 Directors and employees 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 25 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. Deferred tax assets and liabilities are not subject to discounting. 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 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.
The carrying amount of a deferred tax asset or liability may change for reasons other than a change in the temporary difference itself. Such
changes might arise as a result of a change in tax rates or laws, a reassessment of the recoverability of a deferred tax asset or a change in the
expected manner of recovery of an asset or the expected manner of a settlement of a liability. The impact of these changes is recognised in
the income statement or in other comprehensive income depending on where the original deferred tax balance was recognised.
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.
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NOTES TO THE ACCOUNTS continued
2. Accounting policies (continued)
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 closure costs to the extent that the unavoidable costs of meeting the obligations exceed the economic benefits expected to
be delivered.
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.
Inventory
Inventories relate to consumable items which are measured at the lower of cost or net realisable value. The cost of inventories is based on the
first-in, first-out principle.
Net finance expense
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.
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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.
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
applies the simplified approach to trade receivables and recognises expected credit losses based on the lifetime expected losses. Provisions for
receivables are established based on both expected credit losses and information available that the Group will not be able to collect all amounts
due according to the original terms of the receivables.
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 either
returned to the customer at the end of their relationship with the Group, or released to the income statement.
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 reclassified 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.
Discontinued operations
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the
rest of the Group and which:
• represents a separate major line of business or geographic area of operations;
• is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or
• is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.
When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the
operation had been discontinued from the start of the comparative year.
Derivative financial instruments
The Group’s policy on the use of derivative financial instruments can be found in note 24. 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
US dollar
Euro
At 31 December
Annual average
2019
1.32
1.18
2018
1.28
1.12
2019
1.28
1.14
2018
1.33
1.13
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NOTES TO THE ACCOUNTS continued
3. Segmental analysis
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.
Americas
EMEA
Asia Pacific
United Kingdom
Other
Total
Continuing operations
£m
£m
£m
2019
2018
2019
2018
Restated
£m
2019
£m
2018
Restated
£m
Revenue from external customers(1) 1,188.5 1,048.5
Mature business(2)
978.4
1,079.6
2018 Expansions(2)
2019 Expansions(2)
Closures(2)
67.5
22.6
18.8
19.8
–
50.3
685.1
533.9
89.8
37.5
23.9
598.8
538.9
20.6
–
39.3
Gross profit (centre contribution)(3)
303.5
173.8
150.3
111.8
343.9
275.2
310.9
267.6
40.5
10.8
17.4
61.1
8.9
–
34.4
33.3
£m
£m
426.5
353.7
38.4
11.3
23.1
38.6
439.0
355.7
13.3
–
70.0
55.3
£m
9.0
9.0
–
–
–
2018
Restated
£m
£m
£m
4.9 2,653.0 2,402.1
4.9 2,251.4 2,145.5
62.6
236.2
–
–
–
82.2
83.2
–
194.0
374.5
2019
2018
2019
2018
2019
12.9
0.3
566.4
Share of profit/(loss) of equity-
accounted investees
Operating profit/(loss)(3)
Finance expense(3)
Finance income
Profit before tax for the year(3)
–
–
237.7
122.6
2.6
86.7
(1.3)
51.0
(0.1)
34.3
(0.1)
3.9
0.2
9.8
–
–
–
2.7
(1.4)
36.1
(80.6)
(88.7)
287.9
124.9
(232.5)
(15.8)
0.5
55.9
0.5
109.6
Depreciation and amortisation(3)
509.8
118.3
282.1
37.0
158.2
25.9
184.2
35.0
1.9
10.0 1,136.2
226.2
Assets
Liabilities
3,828.0 1,417.4 2,325.8
(3,473.8) (1,042.5) (2,091.3)
751.7
824.6
(502.9)
(733.6)
Net assets/(liabilities)(3)
354.2
374.9
234.5
248.8
91.0
472.5 1,699.6
(316.4) (1,426.5)
156.1
273.1
672.0
275.3
(310.7)
(347.6)
361.3
(72.3)
107.6 8,953.3 3,421.2
(497.5) (8,072.8) (2,670.0)
751.2
(389.9)
880.5
Non-current asset additions(4)
1,013.2
228.7
865.5
141.5
220.6
84.1
404.0
112.8
23.6
19.4 2,526.9
586.5
1. Excludes revenue from discontinued operations (note 9).
2. 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 154 and 155.
3. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application.
4. 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.
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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:
£m
Country of tax domicile – Switzerland(1)
United States of America
United Kingdom
All other countries
1. Revenue of £39.1m (2018: £32.1m) is included in discontinued operations.
2. Excluding deferred tax assets.
5. Operating profit – continuing operations
Operating profit has been arrived at after charging/(crediting):
Revenue
Depreciation on property, plant and equipment(2)
Right-of-use assets
Other property, plant and equipment
Amortisation of intangibles assets
Amortisation of partner contributions
Property rents payable in respect of leases
Property
Variable rents paid
Lease expense on low-value assets
Lease expense on short-term leases
Staff costs
Facility and other property costs
Expected credit losses of trade receivables
Loss on disposal of property, plant and equipment
Profit on disposal of right-of-use assets and related lease liabilities
Impairment of goodwill
Loss on disposal of intangible assets
Reversal of impairment of property, plant and equipment
Amortisation of acquired lease fair value adjustments
Negative goodwill arising on acquisition
Other costs
Share of profit/(loss) of equity-accounted investees, net of tax
Operating profit
2019
2018
External
revenue
Non-current
assets(2)
External
revenue
Non-current
assets(2)
–
999.4
426.5
1,227.1
2,653.0
–
3,102.2
1,570.6
3,312.3
7,985.1
–
883.7
439.0
1,079.4
2,402.1
27.0
1,022.1
508.8
1,013.5
2,571.4
Notes
14
14
14
13
6
24
12
13
14
12
21
2019
£m
2,653.0
1,126.5
983.4
143.1
9.7
–
43.7
–
43.7
0.9
2.3
373.2
419.4
2.0
32.7
0.9
0.8
0.3
(2.1)
–
–
357.5
285.2
2.7
287.9
2018 (1)
Restated
£m
2,402.1
215.8
–
215.8
10.4
(66.4)
1,017.6
987.5
30.1
3.1
0.3
365.9
371.5
17.5
13.6
–
1.0
0.1
(0.1)
(2.0)
(6.2)
333.7
126.3
(1.4)
124.9
1. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. The comparative information has been restated to reflect the
impact of discontinued operations.
2. Excludes depreciation expenses related to discontinued operations for right-of-use assets of £26.6m (2018: £nil) and other property, plant and equipment of £6.6m
(2018: £9.6m).
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115
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NOTES TO THE ACCOUNTS continued
5. Operating profit – continuing operations (continued)
Fees payable to the Group’s auditor and its associates for the audit of the Group accounts
Fees payable to the Group’s auditor and its associates for other services:
The audit of the Company’s subsidiaries pursuant to legislation
Other services pursuant to legislation:
Tax services
Other services
Change in estimate
2019
£m
1.2
2.3
–
0.1
2018
£m
1.0
2.2
–
–
During 2019 the Group conducted a review of the estimated useful life for property, plant and equipment. On 1 January 2019, the expected
useful life for certain office equipment and telephones was revised, from 5 years to 10 years (note 14) to more accurately reflect the period over
which the assets are expected to be available for use by the Group. Based on this review, the Group adjusted depreciation by £14.5m. This
resulted in an increase in operating profit.
During 2019 the Group conducted a review of the expected credit risk associated with accounts receivable balances. This review was performed
in response to changing commercial circumstances, with the Group recognising a reduction in the provision for doubtful debts of £8.2m.
6. Staff costs
The aggregate payroll costs were as follows:
Wages and salaries
Social security
Pension costs
Share-based payments
1. Excludes staff costs related to discontinued operations of £10.6m (2018: £15.0m).
The average number of persons employed by the Group (including Executive Directors),
analysed by category and geography, was as follows:
Centre staff
Sales and marketing staff
Finance staff
Other staff
Americas
EMEA
Asia Pacific
United Kingdom
Corporate functions
2019(1)
£m
2018(1)
£m
315.0
51.8
5.7
0.7
373.2
311.5
49.4
4.5
0.5
365.9
2019
Average
full time
equivalents (2)
2018
Average
full time
equivalents (2)
7,599
462
749
904
9,714
3,195
2,744
1,268
913
1,594
9,714
7,096
484
784
898
9,262
3,001
2,356
1,386
926
1,593
9,262
2. The average full-time equivalents excludes employees for countries sold during 2019 of 221 (2018: 353).
Details of Directors’ emoluments and interests are given on pages 79 to 92 in the Directors’ Remuneration Report, with audited schedules
identified where relevant.
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IWG plc Annual Report and Accounts 2019
7. Net finance expense
Interest payable and similar charges on bank loans and corporate borrowings(1)
Interest payable on finance lease liabilities(2)(3)
Total interest expense
Other finance costs (including foreign exchange)
Unwinding of discount rates
Total finance expense
Total interest income
Total finance income
Net finance expense
2019
£m
(13.7)
(213.2)
(226.9)
(5.4)
(0.2)
(232.5)
0.5
0.5
2018
£m
(12.3)
–
(12.3)
(3.3)
(0.2)
(15.8)
0.5
0.5
(232.0)
(15.3)
1. Excludes interest payables related to discontinued operations of £nil (2018: £0.1m).
2. Excludes lease liability finance expense related to discontinued operations of £2.8m (2018: £nil)
3. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application.
8. Taxation
(a) Analysis of charge in the year
Current taxation
Corporate income tax
Previously unrecognised tax losses and other differences
Under provision in respect of prior years
Total current taxation
Deferred taxation
Origination and reversal of temporary differences
Previously unrecognised tax losses and other differences
Under provision in respect of prior years
Total deferred taxation
Tax credit/ (charge) on continuing operations
(b) Reconciliation of taxation charge
Profit before tax from continuing operations
Tax on profit at 14.6% (2018: 14.6%)
Tax effects of:
Expenses not deductible for tax purposes
Items not chargeable for tax purposes
Recognition of previously unrecognised deferred tax assets
Movements in temporary differences in the year not recognised in deferred tax
Adjustment to tax charge in respect of previous years
Differences in tax rates on overseas earnings
2019
£m
55.9
(8.2)
(38.5)
31.9
5.0
(48.8)
(0.9)
81.8
22.3
%
(14.6)
(68.9)
57.1
8.9
(87.3)
(1.6)
146.3
39.9
2019
£m
(60.9)
4.2
(0.6)
(57.3)
79.0
0.9
(0.3)
79.6
22.3
2018
£m
109.6
(16.0)
(26.7)
24.9
13.7
(104.1)
(4.8)
83.3
(29.7)
2018
£m
(37.7)
4.0
(4.4)
(38.1)
(0.9)
9.7
(0.4)
8.4
(29.7)
%
(14.6)
(24.4)
22.7
12.5
(95.0)
(4.4)
76.0
(27.1)
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.
For amounts recognised directly in equity which relate to the change in accounting policy for IFRS 16 – see note 2.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS continued
8. Taxation (continued)
(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.
2019
2020
2021
2022
2023
2024
2025
2026
2027 and later
Available indefinitely
Tax losses available to carry forward
Amount of tax losses recognised in deferred tax assets
Total tax losses available to carry forward
The following deferred tax assets have not been recognised due to uncertainties over recoverability.
Intangibles
Accelerated capital allowances
Tax losses
Rent
Leases
Short-term temporary differences
2019
£m
–
13.9
31.7
37.7
50.2
64.0
44.9
47.1
490.2
779.7
640.9
1,420.6
488.5
1,909.1
2019
£m
410.8
17.7
347.3
11.2
23.1
5.6
815.7
2018
£m
5.6
20.5
31.7
40.5
54.2
31.5
37.6
17.8
414.2
653.6
671.8
1,325.4
207.8
1,533.2
2018
£m
17.0
39.3
336.8
7.9
–
9.8
410.8
Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each
reporting period.
(d) Corporation tax
Corporation tax payable
Corporation tax receivable
2019
£m
(32.3)
24.0
2018
£m
(31.0)
32.7
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IWG plc Annual Report and Accounts 2019
(e) Deferred taxation
The movement in deferred tax is analysed below:
Deferred tax asset
At 1 January 2018
Current year movement
Prior year movement
Transfers
Exchange rate movements
At 31 December 2018
Adjustments on adoption of IFRS 16
At 1 January 2019
Current year movement
Prior year movement
Disposals
Transfers
Exchange rate movements
At 31 December 2019
Deferred tax liability
At 1 January 2018
Current year movement
Prior year movement
Transfers
Exchange rate movements
At 31 December 2018
Adjustments on adoption of IFRS 16
At 1 January 2019
Current year movement
Prior year movement
Disposals
Transfers
Exchange rate movements
At 31 December 2019
Intangibles
£m
Property,
plant and
equipment
£m
Tax losses
£m
Rent
£m
Leases
£m
Short-term
temporary
differences
£m
(29.4)
(1.6)
0.1
(0.1)
(2.5)
(33.5)
–
(33.5)
71.5
–
–
–
1.4
39.4
(0.5)
(0.1)
0.3
0.1
–
(0.2)
–
(0.2)
–
–
–
–
–
(0.2)
(17.5)
(6.2)
–
–
(1.1)
(24.8)
–
(24.8)
(5.9)
(2.0)
0.6
0.1
0.5
(31.5)
(5.1)
0.4
–
–
–
(4.7)
–
(4.7)
–
–
–
(0.1)
0.2
(4.6)
26.9
19.2
(0.3)
–
–
45.8
–
45.8
71.2
1.1
(1.3)
–
(1.3)
115.5
3.2
1.8
(0.4)
–
–
4.6
–
4.6
(0.2)
–
–
–
(0.2)
4.2
47.1
2.7
–
0.1
2.5
52.4
–
52.4
3.3
0.2
(0.1)
(0.1)
(1.6)
54.1
0.9
(0.4)
0.1
(0.1)
–
0.5
–
0.5
–
–
–
0.1
–
0.6
–
–
–
–
–
–
86.7
86.7
6.9
–
–
–
–
(4.1)
(6.5)
(0.2)
0.1
1.4
(9.3)
–
(9.3)
(66.1)
0.4
(1.4)
–
0.3
93.6
(76.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
(0.3)
–
(0.1)
–
(0.2)
–
(0.2)
0.2
–
–
–
–
–
Total
£m
23.0
7.6
(0.4)
0.1
0.3
30.6
86.7
117.3
80.9
(0.3)
(2.2)
–
(0.7)
195.0
(1.3)
1.4
–
(0.1)
–
–
–
–
–
–
–
–
–
–
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 £12.1m (2018: £23.2m).
The only tax that would arise on these reserves would be non-recoverable withholding tax. The adoption of IFRS 16 has resulted in the
recognition of a deferred tax asset of £86.7m at transition.
As part of the Group’s pivot towards franchising, the Group recognised a deferred tax asset of £89.8m in 2019, and a corresponding deferred
tax credit in the Income Statement. This arises in connection with a restructure during the year involving the intra-group move of the Group’s
intellectual property (IP) and franchising arrangements from Luxembourg to Switzerland. The deferred tax asset recognised is based on the
expected future value of annual amortisation on the fair market value of the IP at the date of the restructuring, which is deductible for Swiss
Corporate income tax purposes. The utilisation of the amortisation deduction is dependent on the future taxable profits of the Group.
The Directors have exercised judgement in determining the appropriate timescale over which it is more likely than not that the Group will earn
sufficient future taxable profits to utilise the available amortisation deductions.
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NOTES TO THE ACCOUNTS continued
9. Discontinued operations
During 2019, the Group completed the sale of various country operations through the signing of master franchise agreements. The positive
financial impact of these transactions is treated as discontinued operations in accordance with IFRS 5, however these operations under franchise
will continue to be an important strategic component of the overall Group network. These transactions form part of the larger change in strategy
of the Group towards adopting a franchising model. Fees from franchising activities subsequent to sale are reflected as franchise revenues in
continuing operations.
Disposal of the Japanese operations
On 31 May 2019, the Group completed the sale of its Japanese operations to TKP Corporation for a consideration of £320.3m, with final
adjustments recognised during the second half of 2019.
Revenue
Expenses
Profit before tax for the year
Income tax expense
Profit after tax for the year
Gain on the sale of discontinued operations
Profit for the year, net of tax
The assets and liabilities of the Japanese operations as at 31 May 2019 were as follows:
Total assets
Total liabilities
Net assets
Costs directly associated with the disposal
Foreign exchange recycled to profit and loss
Consideration on disposal (net of cash and debt)
Gain on sale of discontinued operations
The net cash flows incurred by the Japanese operations are as follows:
Operating
Investing
Financing
Net cash inflow
Disposal of the other operations
During 2019, the Group completed the sale of other individually immaterial operations for a consideration of £104.3m.
Revenue
Expenses
Profit before tax for the year
Income tax credit/(expense)
Profit after tax for the year
Gain on the sale of discontinued operations
Profit for the year, net of tax
2019
£m
46.9
(31.9)
15.0
(2.8)
12.2
266.9
279.1
2019
£m
6.6
(5.2)
–
1.4
2019
£m
46.2
(38.4)
7.8
1.0
8.8
84.5
93.3
2018
£m
94.4
(72.7)
21.7
(2.3)
19.4
–
19.4
2019
£m
281.4
(245.5)
35.9
24.1
(6.6)
53.4
320.3
266.9
2018
£m
18.0
(6.3)
–
11.7
2018
£m
38.9
(31.5)
7.4
(1.0)
6.4
–
6.4
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The assets and liabilities of these operations at their respective dates of disposal were as follows:
Total assets
Total liabilities
Net assets
Costs directly associated with the disposal
Foreign exchange recycled to profit and loss
Consideration on disposal (net of cash and debt)
Gain on sale of discontinued operations
The net cash flows incurred by these operations are as follows:
Operating
Investing
Financing
Net cash (outflow)/inflow
10. Earnings per ordinary share (basic and diluted)
Basic and diluted profit for the year attributable to shareholders (£m)
Basic earnings per share (p)
Diluted earnings per share (p)
Basic and diluted profit for the year from continuing operations (£m)
Basic earnings per share (p)
Diluted earnings per share (p)
Basic and diluted profit for the year from discontinued operations (£m)
Basic earnings per share (p)
Diluted earnings per share (p)
Weighted average number of shares for basic EPS
Weighted average number of shares under option
Weighted average number of shares that would have been issued at average market price
Weighted average number of share awards under the CIP, PSP, DSBP and One-off Award
Weighted average number of shares for diluted EPS
2019
£m
141.2
(124.2)
17.0
5.0
(2.2)
19.8
104.3
84.5
2018
£m
14.6
(12.2)
(0.3)
2.1
2018
105.7
11.7
11.6
79.9
8.8
8.7
25.8
2.9
2.9
2019
£m
13.2
(17.8)
(0.3)
(4.9)
2019
450.6
50.5
49.6
78.2
8.8
8.6
372.4
41.7
41.0
892,737,688
907,077,048
34,671,862
13,715,757
(19,932,772)
(8,736,525)
1,463,133
2,150,099
908,939,911
914,206,379
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 338.28p (2018: 253.22p).
11. Dividends
Dividends per ordinary share proposed
Interim dividends per ordinary share declared and paid during the year
2019
4.80p
2.15p
2018
4.35p
1.95p
Dividends of £58.2m were paid during the year (2018: £53.7m). The Company has proposed to shareholders that a final dividend of 4.80p per
share will be paid (2018: 4.35p), equating to £42.4m. Subject to shareholder approval at the AGM on 12 May 2020, it is expected that the
dividend will be paid on 22 May 2020.
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NOTES TO THE ACCOUNTS continued
12. Goodwill
Cost
At 1 January 2018
Recognised on acquisition of subsidiaries(1)
Negative goodwill
Goodwill impairment
Exchange rate movements
At 31 December 2018
Recognised on acquisition of subsidiaries
Disposal of goodwill
Goodwill impairment
Exchange rate movements
At 31 December 2019
Net book value
At 31 December 2018
At 31 December 2019
£m
666.7
(7.5)
6.2
(1.0)
14.8
679.2
22.6
(10.9)
(0.8)
(15.5)
674.6
679.2
674.6
1. Net of £8.5m 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:
Carrying amount of goodwill included within:
Americas
EMEA
Asia
United Kingdom
2019
£m
290.9
138.6
26.2
218.9
674.6
2018
£m
299.7
125.4
35.2
218.9
679.2
The carrying value of goodwill and indefinite life intangibles allocated to two countries, the USA and the UK, is material relative to the total
carrying value, comprising 73% of the total. The remaining 27% of the carrying value is allocated to a further 39 countries. The goodwill and
indefinite life intangibles allocated to the USA and the UK are set out below:
USA
United Kingdom
Other countries
Goodwill
£m
268.7
218.9
187.0
674.6
Intangible
assets
£m
–
11.2
–
11.2
2019
£m
268.7
230.1
187.0
685.8
2018
£m
277.1
230.1
183.2
690.4
The indefinite life intangible asset relates to the Regus brand.
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.
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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 2020 that follow a budgeting process (2018: average annual growth rate of the three-year average inflation rate of the
country);
• 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 10.4% in 2018 to 12.4% in 2019 (post-tax
WACC: 9.9%). The country-specific pre-tax WACC reflecting the respective market risk adjustment has been set between 9.9% and 15.7%
(2018: 9.7% to 14.1%).
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 24% over the next five years. Revenue and costs grow at 1.9% per annum from 2022.
A terminal value centre gross margin of 23% is adopted from 2024, with a 1.9% 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% (2018: 14%).
The UK model assumes an average centre contribution of 12% over the next five years. Revenue and costs grow at 2% per annum from 2022.
A terminal value centre gross margin of 13% is adopted from 2024, with a 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 12% (2018: 10%).
Management has considered the following sensitivities:
• Market growth and WIPOS – Management has considered the impact of a variance in market growth and WIPOS. 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
59% (2018: 20%) for the US and 15% (2018: 12%) 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 17% (2018: 4%) for the US and 2% (2018: 2%) for the UK.
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NOTES TO THE ACCOUNTS continued
13. Other intangible assets
Cost
At 1 January 2018
Additions at cost
Acquisition of subsidiaries(1)
Disposals
Exchange rate movements
At 31 December 2018
Additions at cost
Acquisition of subsidiaries
Disposals (including discontinued operations)
Exchange rate movements
At 31 December 2019
Amortisation
At 1 January 2018
Charge for year
Disposals
Exchange rate movements
At 31 December 2018
Charge for year
Disposals (including discontinued operations)
Exchange rate movements
At 31 December 2019
Net book value
At 1 January 2018
At 31 December 2018
At 31 December 2019
Brand
£m
60.9
–
–
–
2.7
63.6
0.2
–
–
(1.6)
62.2
33.0
2.5
–
1.9
37.4
2.6
–
(1.2)
38.8
27.9
26.2
23.4
Customer
lists
£m
Software
£m
Total
£m
32.2
–
0.1
–
0.2
32.5
–
–
–
(0.7)
31.8
30.9
0.8
–
0.6
32.3
0.3
(0.3)
(0.7)
31.6
1.3
0.2
0.2
60.5
6.9
–
(1.8)
0.5
66.1
12.6
–
(0.5)
(0.9)
77.3
44.3
7.1
(1.7)
0.3
50.0
6.8
(0.5)
(0.4)
55.9
16.2
16.1
21.4
153.6
6.9
0.1
(1.8)
3.4
162.2
12.8
–
(0.5)
(3.2)
171.3
108.2
10.4
(1.7)
2.8
119.7
9.7
(0.8)
(2.3)
126.3
45.4
42.5
45.0
1. Includes £0.1m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis.
Included within the brand value is £11.2m relating to the acquisition of the remaining 58% of the UK business in the year ended 31 December
2006. The Regus brand acquired in this transaction is assumed to have an indefinite useful life due to the fact that the value of the brand is
intrinsically linked to the continuing operation of the Group.
As a result of the Regus brand acquired with the UK business having an indefinite useful life no amortisation is charged but the carrying value is
assessed for impairment on an annual basis. The brand was tested at the balance sheet date against the recoverable amount of the UK business
segment at the same time as the goodwill arising on the acquisition of the UK business (see note 12).
The remaining amortisation life for definite life brands is five years.
1 2 4 I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
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14. Property, plant and equipment
Right-of-use
assets
£m
Land and
buildings
£m
Leasehold
improvements
£m
Furniture and
equipment
£m
Computer
hardware
£m
Total
£m
Cost
At 1 January 2018
Additions
Acquisition of subsidiaries
Disposals
Exchange rate movements
At 31 December 2018
Recognition of right-of-use asset(2)
Adjusted balance at 1 January 2019
Additions
Acquisition of subsidiaries
Disposals
Exchange rate movements
At 31 December 2019
Accumulated depreciation
At 1 January 2018
Charge for the year(1)
Disposals
Reversal of impairment
Exchange rate movements
At 31 December 2018
Recognition of right-of-use asset(2)
Adjusted balance at 1 January 2019
Charge for the year(1)
Disposals
Reversal of impairment
Exchange rate movements
At 31 December 2019
Net book value
At 1 January 2018
At 31 December 2018
At 31 December 2019
–
–
–
–
–
–
8,304.9
8,304.9
2,157.7
63.0
(1,046.2)
(40.0)
9,439.4
–
–
–
–
–
–
3,172.5
3,172.5
1,010.0
(706.9)
–
46.4
3,522.0
–
–
5,917.4
131.4
1,688.3
6.4
8.6
–
(0.1)
146.3
–
146.3
10.6
–
(0.5)
–
474.1
0.2
(125.8)
49.0
2,085.8
(630.8)
1,455.0
230.6
1.1
(174.7)
(42.5)
156.4
1,469.5
2.4
2.8
–
–
0.1
5.3
–
5.3
1.7
(0.1)
–
(0.1)
6.8
739.6
155.6
(114.4)
(0.1)
22.2
802.9
(44.4)
758.5
89.6
(115.0)
(2.1)
(27.3)
703.7
129.0
141.0
149.6
948.7
1,282.9
765.8
660.5
84.6
0.3
(56.2)
19.9
709.1
–
709.1
101.8
0.5
(36.9)
(24.8)
749.7
402.7
52.3
(53.6)
–
11.8
413.2
–
413.2
48.8
(26.4)
–
(13.2)
422.4
257.8
295.9
327.3
128.0
14.5
–
(7.0)
1.4
136.9
–
136.9
13.4
–
(13.4)
(4.4)
132.5
96.3
14.7
(7.0)
–
1.5
105.5
–
105.5
9.6
(10.1)
–
(3.1)
101.9
2,608.2
579.6
9.1
(189.0)
70.2
3,078.1
7,674.1
10,752.2
2,514.1
64.6
(1,271.7)
(111.7)
11,947.5
1,241.0
225.4
(175.0)
(0.1)
35.6
1,326.9
3,128.1
4,455.0
1,159.7
(858.5)
(2.1)
2.7
4,756.8
31.7
31.4
30.6
1,367.2
1,751.2
7,190.7
1. Includes depreciation expenses related to discontinued operations for right-of-use assets of £26.6m (2018: £nil) and other property, plant and equipment of £6.6m
(2018: £9.6m).
2. Right-of-use assets have been recognised on adoption of the IFRS 16 Leases. Refer to note 2 for further details of the opening balance sheet considerations and related
accounting policies.
Change in estimate
The Group conducted a review of the estimated useful life for property, plant and equipment. On 1 January 2019, the expected useful life for
certain asset categories were adjusted to more accurately reflect the period over which the assets are expected to be available for use by the
Group. The positive effect of these changes on the depreciation expense, recognised in costs of sales, in the current period and expected in future
years is as follows:
£m
Impact on the income statement
2019
14.5
2020
8.9
2021
4.3
2023
0.3
2024
(3.7)
After
(24.3)
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NOTES TO THE ACCOUNTS continued
15. Other long-term receivables
Deposits held by landlords against rent obligations
Other receivables
Amounts owed by joint ventures
Acquired lease fair value asset
Total non-current
16. Trade and other receivables
Trade receivables, net
Prepayments and accrued income(1)
Other receivables
VAT recoverable
Deposits held by landlords against rent obligations
Acquired lease fair value asset
Total current
2019
£m
59.3
1.3
0.4
–
61.0
2019
£m
242.1
134.3
226.8
73.0
5.1
–
681.3
2018
£m
82.4
–
–
3.6
86.0
2018
£m
229.8
213.3
164.3
103.1
6.0
1.0
717.5
1. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application.
Change in estimate
The Group conducted a review of the expected credit risk associated with accounts receivable balances during 2019. This review was performed
in response to changing commercial circumstances, with the Group recognising a reduction in the provision for doubtful debts of £8.2m.
17. Trade and other payables (including customer deposits)
Customer deposits
Deferred rents(1)
Other accruals(1)
Trade payables
VAT payable
Deferred partner contributions
Other payables
Other tax and social security
Acquired lease fair value liability
Total current
2019
£m
476.8
–
96.8
116.4
46.2
–
47.0
5.6
–
2018
£m
483.2
147.6
132.3
110.0
79.2
78.7
21.4
4.8
1.7
788.8
1,058.9
1. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application.
18. Other long-term payables
Deferred partner contributions
Deferred rents(1)
Other payables
Acquired lease fair value liability
Total non-current
2019
£m
–
–
2.0
–
2.0
2018
£m
389.6
305.9
6.4
2.3
704.2
1. The Group initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the
cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application.
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19. Borrowings
The Group’s total loan and borrowing position at 31 December 2019 and at 31 December 2018 had the following maturity profiles:
Bank and other loans
Repayments falling due as follows:
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Total non-current
Total current
Total bank and other loans
20. Provisions
At 1 January
Change in accounting policy(1)
Restated balance at 1 January
Provided in the period
Utilised in the period
Provisions released
Exchange rate movements
At 31 December
Analysed between:
Current
Non-current
At 31 December
2019
£m
2018
£m
8.1
341.3
1.6
351.0
9.7
360.7
2019
2018
Onerous
leases and
closures
£m
16.1
(2.0)
14.1
20.4
(7.3)
(13.6)
(0.6)
13.0
6.9
6.1
13.0
Other
£m
3.0
–
3.0
2.6
(1.8)
(1.1)
0.1
2.8
2.0
0.8
2.8
Onerous
leases and
closures
£m
3.6
–
3.6
16.0
(1.6)
(1.9)
–
16.1
8.3
7.8
16.1
Total
£m
19.1
(2.0)
17.1
23.0
(9.1)
(14.7)
(0.5)
15.8
8.9
6.9
15.8
Other
£m
5.8
–
5.8
1.3
(3.8)
(0.3)
–
3.0
1.4
1.6
3.0
8.7
506.3
4.9
519.9
9.9
529.8
Total
£m
9.4
–
9.4
17.3
(5.4)
(2.2)
–
19.1
9.7
9.4
19.1
1. The change in accounting policy is disclosed in note 2 under the impact of the adoption of IFRS 16 paragraphs.
Onerous leases and closures
Provisions for onerous leases and closure costs relate to the estimated future costs of centre closures and onerous property leases. With the
adoption of IFRS 16 by the Group, from 1 January 2019, onerous lease provisions previously recognised as at 31 December 2018 were reversed,
with the related right-of-use asset assessed for impairment. The current year provision relates to closure costs only.
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.
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NOTES TO THE ACCOUNTS continued
21. Investments in joint ventures
At 1 January 2018
Share of profit/(loss)
Exchange rate movements
At 31 December 2018
Additions
Share of profit
Exchange rate movements
Investments in
joint ventures
£m
Provision for
deficit in
joint ventures
£m
12.4
0.3
(0.5)
12.2
1.8
0.1
(0.3)
(3.8)
(1.7)
–
(5.5)
–
2.6
–
Total
£m
8.6
(1.4)
(0.5)
6.7
1.8
2.7
(0.3)
At 31 December 2019
The Group has 59 joint ventures (2018: 52) 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.
(2.9)
13.8
10.9
The results of the joint ventures below are the full-year results of the joint ventures and do not represent the effective share:
Income statement
Revenue
Expenses
Loss before tax for the year
Tax charge
Loss after tax for the year
Balance sheet
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net liabilities
22. Share capital
Ordinary equity share capital
Authorised
Ordinary 1p shares in IWG plc at 1 January
Ordinary 1p shares in IWG plc at 31 December
Issued and fully paid up
Ordinary 1p shares in IWG plc at 1 January
Ordinary 1p shares in IWG plc at 31 December
2019
£m
30.2
(34.3)
(4.1)
(0.7)
(4.8)
67.0
52.0
(74.3)
(52.8)
(8.1)
2018
£m
27.6
(31.1)
(3.5)
(0.3)
(3.8)
15.7
43.5
(57.0)
(2.7)
(0.5)
2019
2018
Number
Nominal value
£m
Number
Nominal value
£m
8,000,000,000
8,000,000,000
923,357,438
923,357,438
80.0
80.0
9.2
9.2
8,000,000,000
8,000,000,000
923,357,438
923,357,438
80.0
80.0
9.2
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.
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IWG plc Annual Report and Accounts 2019
Treasury share transactions involving IWG plc shares between 1 January 2019 and 31 December 2019
During the year, 12,379,535 shares were purchased in the open market and 2,061,120 treasury shares held by the Group were utilised to satisfy
the exercise of share awards by employees. As at 3 March 2020, 42,814,824 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.
1 January
Purchase of treasury shares in IWG plc
Treasury shares in IWG plc utilised
31 December
23. Analysis of financial assets/(liabilities)
2019
Number
of shares
28,736,954
12,379,535
(2,061,120)
39,055,369
2018
Number
of shares
12,986,745
17,489,685
(1,739,476)
28,736,954
£m
74.1
49.5
(6.7)
116.9
£m
39.6
40.2
(5.7)
74.1
At 1 January 2018
Cash flow
Non cash movements
Exchange rate movements
At 31 December 2018
Recognition of lease liability(1)
At 1 Jan 2019
Cash flow
Non cash movements
Exchange rate movements
At 31 December 2019
Cash and cash
equivalents
£m
55.0
12.1
–
1.9
69.0
–
69.0
(6.6)
–
4.2
66.6
Gross
cash
£m
55.0
12.1
–
1.9
69.0
–
69.0
(6.6)
–
4.2
66.6
Debt due
within one
year
£m
Debt due
after one year
£m
Lease due
within one
year (2)
£m
Lease due
after one year
(2)
£m
Gross
debt
£m
Net financial
assets/
(liabilities)
£m
(8.5)
(1.4)
–
–
(9.9)
–
(9.9)
–
–
0.2
(9.7)
(342.9)
(175.5)
–
(1.5)
(519.9)
–
–
–
–
–
–
–
–
–
–
(351.4)
(176.9)
–
(1.5)
(296.4)
(164.8)
–
0.4
(529.8)
(460.8)
–
(900.0)
(4,743.4)
(5,643.4)
(5,643.4)
(519.9)
162.5
2.0
4.4
(900.0)
(4,743.4)
(6,173.2)
(6,104.2)
171.7
919.8
1,254.0
1,247.4
(262.5)
(1,825.4)
(2,085.9)
(2,085.9)
13.4
80.4
98.4
102.6
(351.0)
(977.4)
(5,568.6)
(6,906.7)
(6,840.1)
1. Finance lease liabilities have been recognised on adoption of IFRS 16 Leases. Refer to note 2 for further details of the opening balance sheet considerations and related
accounting policies.
2. There are no significant lease commitments for leases not commenced at 31 December 2019.
Cash and cash equivalent balances held by the Group that are not available for use amounted to £8.3m at 31 December 2019 (2018: £4.2m).
Of this balance, £2.9m (2018: £1.9m) is pledged as security against outstanding bank guarantees and a further £5.4m (2018: £2.3m) is pledged
against various other commitments of the Group.
24. 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.
Exposures to credit, interest rate and currency risks arise in the normal course of business.
Going concern
The Strategic Report on pages 1 to 63 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 40 to 47 within the Strategic Report reviews the trading
performance, financial position and cash flows of the Group. During the year ended 31 December 2019, the Group made a significant investment
in growth and was impacted by the adoption of IFRS 16. The Group’s net debt position increased, based on the new leasing standard IFRS 16,
by £6,379.3m to a net debt position of £6,840.1m as at 31 December 2019. Excluding the IFRS 16 impact, the net debt position decreased
to £294.1m. The investment in growth is funded by a combination of cash flow generated from the Group’s mature business centres, cash
consideration received in franchising the business and debt. The Group has a £950.0m revolving credit facility (RCF) provided by a group of
relationship banks with a final maturity in 2024 with an option to extend until 2026. As at 31 December 2019, £485.9m of the RCF was
available and undrawn.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence
for the foreseeable future and, accordingly, continue to adopt the going concern basis in preparing the Annual Report and Accounts.
Credit risk
Credit risk could occur where a customer or counterparty defaults under the contractual terms of a financial instrument and arises principally
in relation to customer contracts and the Group’s cash deposits.
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NOTES TO THE ACCOUNTS continued
24. Financial instruments and financial risk management (continued)
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.
Americas
EMEA
Asia Pacific
United Kingdom
2019
£m
40.2
98.3
39.9
63.7
2018
£m
33.3
94.8
51.7
50.0
229.8
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.
242.1
The ageing of trade receivables at 31 December was:
Not overdue
Past due 0 – 30 days
Past due 31 – 60 days
More than 60 days
Gross
2019
£m
178.2
32.1
13.1
26.4
249.8
Provision
2019
£m
–
–
–
(7.7)
(7.7)
Gross
2018
£m
175.6
38.2
11.6
26.6
252.0
Provision
2018
£m
–
–
–
(22.2)
(22.2)
At 31 December 2019, the Group maintained a provision of £7.7m for expected credit losses (2018: £22.2m) arising from trade receivables. The
Group had provided £2.0m (2018: £17.7m) in the year, utilised £8.3m (2018: £17.3m) and released £8.2m (2018: £nil). Customer deposits of
£476.8m (2018: £483.2m) 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 £476.8m (2018: £483.2m)
held at the end of the year.
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.
Change in estimate
The Group conducted a review of the expected credit risk associated with accounts receivable balances during 2019. This review was performed
in response to changing commercial circumstances, with the Group recognising a reduction in the provision for doubtful debts of £8.2m.
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 £58.3m (2018: £64.8m). In addition to cash and liquid investments, the Group had £485.9m 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 January 2019, the amount of the facility was
increased from £750.0m to £950.0m and the final maturity extended to January 2024 with an option to extend until 2026. As at 31 December,
£485.9m was available and undrawn under this facility.
The debt provided under the credit facility is floating rate, however, as part of the Group’s balance sheet management and to protect against a
future increase in interest rates, £30.0m was swapped into a fixed rate liability of 1.2%, maturing in February 2021.
Although the Group has net current liabilities of £1,366.5m (2018: £610.3m), increasing on the adoption of IFRS 16, 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 £476.8m (2018: £483.2m)
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 short-term lease liabilities and deferred income, was £66.5m
at 31 December 2019 (2018: £290.3m).
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IWG plc Annual Report and Accounts 2019
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 Treasurer and Chief Financial Officer 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 2019 no cash was invested for a period exceeding three months (2018: £nil).
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:
£m
Trade and other receivables
Trade and other payables
Net statement of financial position exposure
£m
Trade and other receivables
Trade and other payables
Net statement of financial position exposure
Other market risks
2019
2018
EUR
1.3
(1.4)
(0.1)
EUR
20.8
(3.9)
16.9
GBP
–
(0.2)
(0.2)
GBP
1.1
(0.8)
0.3
USD
0.5
(2.4)
(1.9)
USD
2.3
(8.6)
(6.3)
The Group does not hold any equity securities for fair value measurement under IFRS 9 and is therefore not subject to risks of changes in equity
prices in the income statement.
Sensitivity analysis
For the year ended 31 December 2019, 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 £3.8m (2018: decrease of £4.0m) 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 £12.9m for the year ended 31 December 2019 (2018: decrease of £13.4m). 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 £5.9m for the year
ended 31 December 2019 (2018: decrease of £0.8m).
It is estimated that a five-percentage point weakening in the value of the US dollar against sterling would have decreased the Group’s total equity
by approximately £11.1m for the year ended 31 December 2019 (2018: £11.6m). 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 £6.1m for the year ended 31 December 2019
(2018: decrease of £3.0m).
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 70. 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 79 to 92. In addition, the Group operates various share option plans for key
management and other senior employees.
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NOTES TO THE ACCOUNTS continued
24. Financial instruments and financial risk management (continued)
Treasury share transactions involving IWG plc shares between 1 January 2019 and 31 December 2019
During the year, 12,379,535 shares were purchased in the open market and 2,061,120 treasury shares held by the Group were utilised to satisfy
the exercise of share awards by employees. As at 31 December 2019, 39,055,369 treasury shares were held.
The Company declared and paid an interim dividend of 2.15p per share (2018: 1.95p) during the year ended 31 December 2019 and proposed
a final dividend of 4.80p per share (2018: 4.35p per share), a 10% increase on the 2018 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.
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 2019
Cash and cash equivalents
Trade and other receivables(1)
Other long-term receivables(2)
Financial assets(3)
Non-derivative financial liabilities(4):
Bank loans and corporate borrowings
Lease liabilities
Other loans
Trade and other payables(5)
Other long-term payables(5)
Derivative financial liabilities:
Interest rate swaps
• Outflow
• Inflow
Financial liabilities
As at 31 December 2018
Cash and cash equivalents
Trade and other receivables(1)
Other long-term receivables(2)
Derivative financial assets:
Interest rate swaps
• Outflow
• Inflow
Financial assets(3)
Non-derivative financial liabilities(4):
Bank loans and corporate borrowings
Other loans
Trade and other payables(5)
Other long-term payables(5)
Financial liabilities
Effective
interest rate
%
0.1%
–
–
3.2%
3.5%
0.8%
–
–
–
–
Effective
interest rate
%
–
–
–
–
–
2.9%
1.4%
–
–
Carrying
value
£m
Contractual
cash flow
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
66.6
547.0
59.7
673.3
66.6
554.8
59.7
681.1
66.6
554.8
–
621.4
–
–
30.0
30.0
–
–
29.7
29.7
(340.2)
(340.2)
(0.1)
(2.0)
(338.1)
–
–
–
–
–
(6,546.0)
(8,965.4)
(1,168.6)
(1,164.7)
(2,942.2)
(3,689.9)
(20.5)
(788.8)
(2.0)
(20.5)
(788.8)
(2.0)
(9.6)
(788.8)
–
(0.2)
–
(0.2)
–
(0.2)
–
(6.1)
–
(2.0)
–
–
(3.2)
(1.6)
–
–
–
–
–
–
–
–
(7,697.7)
(10,117.1)
(1,967.3)
(1,174.8)
(3,283.5)
(3,691.5)
Carrying
value
£m
69.0
503.2
82.4
–
0.3
654.9
(505.4)
(24.4)
(830.9)
(6.4)
Contractual
cash flow
£m
69.0
525.4
82.4
–
0.3
677.1
(505.4)
(24.4)
(830.9)
(6.4)
(1,367.1)
(1,367.1)
Less than
1 year
£m
69.0
525.4
–
–
0.3
594.7
(0.1)
(9.8)
(830.9)
–
(840.8)
1-2 years
£m
2-5 years
£m
More than
5 years
£m
–
–
41.2
–
–
41.2
(2.0)
(6.7)
–
(6.4)
(15.1)
–
–
41.2
–
–
41.2
(503.3)
(3.0)
–
–
(506.3)
–
–
–
–
–
–
–
(4.9)
–
–
(4.9)
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.
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IWG plc Annual Report and Accounts 2019
Fair value disclosures
The fair values together with the carrying amounts shown in the balance sheet are as follows:
31 December 2019
Carrying amount
Fair value
£m
Cash and cash equivalents
Trade and other receivables
Other long-term receivables
Derivative financial liabilities
Bank loans and corporate borrowings
Other loans
Trade and other payables
Other long-term payables
Unrecognised gain
31 December 2018
£m
Cash and cash equivalents
Trade and other receivables
Other long-term receivables
Derivative financial asset
Bank loans and corporate borrowings
Other loans
Trade and other payables
Other long-term payables
Cash,
loans and
receivables
Other financial
liabilities
Cash flow –
hedging
instruments
66.6
547.0
59.7
–
–
–
–
–
–
–
–
–
(340.2)
(20.5)
(788.8)
(2.0)
–
–
–
(0.2)
–
–
–
–
673.3
(1,151.5)
(0.2)
Total
Level 1
Level 2
Level 3
Total
66.6
547.0
59.7
(0.2)
(340.2)
(20.5)
(788.8)
(2.0)
(478.4)
–
–
–
–
–
–
–
–
–
–
–
(0.2)
–
–
–
–
(0.2)
–
–
–
–
–
–
–
–
–
–
–
(0.2)
–
–
–
–
(0.2)
–
Carrying amount
Fair value
Cash,
loans and
receivables
Other
financial
liabilities
Cash flow –
hedging
instruments
69.0
503.2
82.4
–
–
–
–
–
–
–
–
–
(505.4)
(24.4)
(830.9)
(6.4)
654.6
(1,367.1)
–
–
–
0.3
–
–
–
–
0.3
Total
69.0
503.2
82.4
0.3
(505.4)
(24.4)
(830.9)
(6.4)
(712.2)
Level 1
Level 2
Level 3
Total
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
–
0.3
–
Unrecognised gain
During the years ended 31 December 2019 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 and other
receivables/payables and customer deposits
Loans and overdrafts
For cash and cash equivalents, receivables/payables with a remaining life of less than one year
and customer deposits, the book value approximates the fair value because of their short-term
nature.
The fair value of bank loans, overdrafts and other loans approximates the carrying value
because interest rates are at floating rates where payments are reset to market rates at intervals
of less than one year.
Foreign exchange contracts and interest rate swaps
The fair values are based on a combination of broker quotes, forward pricing and swap models.
There was no significant unobservable input used in our valuation techniques.
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NOTES TO THE ACCOUNTS continued
24. Financial instruments and financial risk management (continued)
Derivative financial instruments
The following table summarises the notional amount of the open contracts as at the reporting date:
Derivatives used for cash flow hedging
Derivatives used for cash flow hedging
Committed borrowings
Revolving credit facility
2019
GBP m
30.0
2019
USD m
–
2018
Facility
£m
750.0
2018
GBP m
100.0
2018
USD m
30.0
2018
Available
£m
125.4
2019
Facility
£m
950.0
2019
Available
£m
485.9
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 £750.0 million to £950.0 million and the final maturity extended to January 2024 with an option to extend until 2026. As at
31 December, £485.9m was available and undrawn under this facility.
The debt provided under the credit facility is floating rate, however, as part of the Group’s balance sheet management and to protect against
a future increase in interest rates, £30.0m was swapped into a fixed rate liability of 1.2%, maturing in February 2021.
The £950.0m revolving credit facility is subject to financial covenants relating to net debt to EBITDA, and EBITDA plus rent to interest plus
rent on a pre-IFRS 16 basis. The Group is in compliance with all covenant requirements.
25. Share-based payments
There are three share-based payment plans, details of which are outlined below:
Plan 1: IWG Group Share Option Plan
During 2004 the Group established the IWG Group Share Option Plan that entitles Executive Directors and certain employees to purchase
shares in IWG plc. 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
At 1 January
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2019
2018
Number of
share options
36,441,222
918,829
(2,787,736)
(2,061,120)
32,511,195
4,807,175
Weighted average
exercise price per
share
191.87
362.69
205.68
143.37
200.34
142,44
Number of
share options
18,259,790
21,885,127
(2,159,407)
(1,544,288)
36,441,222
5,999,946
Weighted average
exercise price per
share
179.79
200.95
182.91
129.27
191.87
136.24
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IWG plc Annual Report and Accounts 2019
Numbers
granted
Weighted average
exercise price per
share
Lapsed
Exercised
At 31 Dec 2019
Exercisable from
Expiry date
3,986,000
100.50
(3,473,779)
(478,602)
Date of grant
23/03/2010
28/06/2010
01/09/2010
01/04/2011
30/06/2011
13/06/2012
12/06/2013
18/11/2013
18/12/2013
20/05/2014
05/11/2014
19/05/2015
22/12/2015
29/06/2016
28/09/2016
01/03/2017
14/12/2017
10/10/2018
21/12/2018 (Grant 1)
617,961
160,646
2,400,000
9,867,539
11,189,000
7,741,000
600,000
1,000,000
1,845,500
12,875,796
1,906,565
1,154,646
444,196
249,589
1,200,000
1,000,507
685,127
300,000
28/12/2018 (Grant 2)
20,900,000
15/05/2019
13/09/2019
19/12/2019
Total
613,872
196,608
108,349
81,042,901
1. All options have vested as of 31 December 2019.
Performance conditions for share options
75.00
69.10
114.90
109.50
84.95
155.60
191.90
195.00
187.20
186.00
250.80
322.20
272.50
258.00
283.70
197.00
223.20
203.10
199.80
341.90
402.30
408.60
(541,798)
(146,728)
(954,402)
(70,726)
(13,918)
(481,866)
(4,905,047)
(4,593,296)
33,619 (1)
5,437 (1)
23/03/2013
23/03/2020
28/06/2013
28/06/2020
– (1)
01/09/2013
01/09/2020
963,732 (1)
369,196 (1)
01/04/2014
01/04/2021
30/06/2014
30/06/2021
(3,805,914)
(6,332,726)
1,050,360 (1)
13/06/2015
13/06/2022
(4,306,000)
(2,614,546)
(575,000)
(833,333)
(1,658,500)
(7,447,050)
(1,829,565)
(350,186)
(367,735)
(214,313)
–
(315,228)
(150,000)
–
(1,000,000)
(61,421)
–
–
–
(166,667)
(160,300)
(649,996)
–
(15,000)
(11,009)
(7,055)
–
–
–
–
–
–
–
–
820,454 (1)
25,000 (1)
12/06/2016
12/06/2023
18/11/2016
17/11/2023
– (1)
18/12/2016
17/12/2023
26,700 (1)
20/05/2017
19/05/2024
4,778,750
05/11/2017
04/11/2024
77,000
789,460
65,452
28,221
19/05/2018
18/05/2025
22/12/2018
22/12/2025
29/06/2019
29/06/2026
28/09/2019
28/09/2026
1,200,000
01/03/2020
01/03/2027
685,279
535,127
300,000
14/12/2020
14/12/2027
10/10/2021
10/10/2028
21/12/2021
21/12/2028
19,900,000
28/12/2021
28/12/2028
552,451
196,608
108,349
15/05/2022
15/05/2029
13/09/2022
13/09/2029
19/12/2022
19/12/2029
(32,935,999)
(15,595,707)
32,511,195
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:
November 2017
November 2018
November 2019
November 2020
November 2021
Proportion
to vest
1/5
1/5
1/5
1/5
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:
May 2018
May 2019
May 2020
May 2021
May 2022
Proportion
to vest
1/5
1/5
1/5
1/5
1/5
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NOTES TO THE ACCOUNTS continued
25. Share-based payments (continued)
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:
December 2018
December 2019
December 2020
December 2021
December 2022
Proportion
to vest
1/5
1/5
1/5
1/5
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:
June 2019
June 2020
June 2021
June 2022
June 2023
Proportion
to vest
1/5
1/5
1/5
1/5
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:
September 2019
September 2020
September 2021
September 2022
Proportion
to vest
1/5
1/5
1/5
1/5
September 2023
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.
1/5
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:
Vesting scale
25%
Between 5% and 25%
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
5%
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:
0%
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
0%
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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:
Vesting scale
Exceeds 2016 ROI plus 300 basis points
Exceeds 2016 ROI by less than 300 basis points
Equal to or less than the 2016 ROI
Once this condition is satisfied, those options that are eligible to vest will vest as follows:
September 2020
September 2021
September 2022
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
0%
Proportion
to vest
1/3
1/3
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:
December 2020
December 2021
December 2022
Proportion
to vest
1/3
1/3
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:
October 2021
October 2022
Proportion
to vest
1/3
1/3
October 2023
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.
1/3
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:
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
Once performance conditions are satisfied those options that are eligible to vest will vest as follows:
December 2021
December 2022
December 2023
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
0%
Proportion
to vest
1/3
1/3
1/3
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NOTES TO THE ACCOUNTS continued
25. Share-based payments (continued)
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:
December 2021
December 2022
December 2023
Proportion
to vest
1/3
1/3
1/3
May 2019 share option plan
The options awarded in May 2019 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 and various non-market performance targets. Once performance
conditions are satisfied those options that are eligible to vest will vest as follows:
May 2022
May 2023
May 2024
Proportion
to vest
1/3
1/3
1/3
September 2019 share option plan
The options awarded in September 2019 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 relative total shareholder return (TSR).
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:
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
Once performance conditions are satisfied those options that are eligible to vest will vest as follows:
September 2022
September 2023
September 2024
September 2025
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
0%
Proportion
to vest
1/5
1/5
1/5
1/5
September 2026
December 2019 share option plan
The options awarded in December 2019 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 relative total shareholder return (TSR).
1/5
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:
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
0%
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Once performance conditions are satisfied those options that are eligible to vest will vest as follows:
December 2022
December 2023
December 2024
December 2025
December 2026
Proportion
to vest
1/5
1/5
1/5
1/5
1/5
Measurement of fair values
The fair value of the rights granted through the employee share purchase plan was measured based on the Monte Carlo simulation or the Black-
Scholes formula. The expected volatility is based on the historic volatility adjusted for any abnormal movement in share prices.
The inputs to the model are as follows:
Share price on grant date
Exercise price
Expected volatility
Option life
Expected dividend
Fair value of option at time of grant
Risk-free interest rate
Share price on grant date
Exercise price
Expected volatility
Option life
Expected dividend
Fair value of option at time of grant
Risk-free interest rate
December
2019
September
2019
May
2019
408.60p
408.60p
36.24% –
44.72%
402.30p
402.30p
341.90p
341.90p
36.33% –
44.83%
38.84% –
45.75%
3-7 years
3-7 years
3-5 years
1.59%
1.62%
1.85%
141.77p –
172.84p
137.79p –
169.19p
120.77p –
141.08p
0.57% –
0.65%
0.48% –
0.50%
0.52% –
0.60%
March
2017
September
2016
283.70p
283.70p
27.42% –
29.87%
3-5 years
1.80%
44.51p –
76.88p
0.23% –
0.56%
258.00p
258.00p
27.45% –
32.35%
3-7 years
1.80%
40.96p –
67.89p
0.09% –
0.38%
June
2016
272.50p
272.50p
27.71% –
34.81%
3-7 years
1.71%
44.28p –
78.68p
0.14% –
0.39%
December
2018
(Grant 2)
199.80p
199.80p
37.66% –
44.35%
3-5 years
2.95%
58.77p –
69.33p
0.87% –
1.01%
December
2015
322.20p
322.20p
24.80% –
37.08%
3-7 years
1.40%
29.76p –
90.61p
0.14% –
0.21%
December
2018
(Grant 1)
203.10p
203.10p
37.63% –
44.25%
3-5 years
2.90%
39.36p –
46.42p
0.73% –
0.88%
May
2015
250.80p
250.80p
27.23% –
30.12%
3-7 years
1.59%
42.35p –
69.12p
0.81% –
1.53%
October
2018
223.20p
223.20p
37.15% –
43.32%
3-5 years
2.64%
67.69p –
78.56p
0.70% –
0.91%
November
2014
188.40p
186.00p
24.67% –
33.53%
3-7 years
2.02%
27.24p –
54.58p
0.90% –
1.81%
December
2017
197.00p
197.00p
33.31% –
35.93%
3-5 years
2.69%
40.06p –
44.20p
0.54% –
0.75%
May
2014
191.00p
187.20p
27.30% –
41.91%
3-5 years
2.00%
30.80p –
59.63p
0.99% –
1.47%
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 standalone awards, based on normal plan limits, up to a maximum of 250% of base
salary.
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NOTES TO THE ACCOUNTS continued
25. Share-based payments (continued)
Reconciliation of outstanding share awards
At 1 January
PSP awards granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2019
2018
Number of
awards
Number of
awards
1,991,250
1,058,578
3,321,464
1,278,350
(679,293)
(2,413,376)
–
(195,188)
2,370,535
1,991,250
10,687
–
There were no shares which were exercised during the year end 31 December 2019. The weighted average share price at the date of exercise
for share awards exercised during the year ended 31 December 2019 was 0.00p (2018: 234.00p).
Plan
PSP
PSP
PSP
PSP
Plan
CIP: Matching shares
CIP: Matching shares
1. Based on the outstanding shares as at 31 December 2019.
Measurement of fair values
Date of grant
Numbers
granted
Lapsed
Exercised
03/03/2016
1,038,179
(1,038,179)
01/03/2017
07/03/2018
07/03/2019
1,095,406
1,278,350
1,058,578
(512,367)
(597,938)
–
4,470,513
(2,148,484)
–
–
–
–
–
At 31 Dec
2019
Release date
– 03/03/2021
583,039 01/03/2022
680,412 07/03/2023
1,058,578 07/03/2024
2,322,029
Date of grant
05/03/2014
04/03/2015
Numbers
granted
647,688
831,808
Lapsed
Exercised
At 31 Dec
2019
Release date(1)
(536,698)
(793,989)
(100,303)
10,687
05/03/2019
–
37,819
04/03/2020
1,479,496
(1,330,687)
(100,303)
48,506
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:
07/03/2019
07/03/2018
01/03/2017
03/03/2016
04/03/2015
05/03/2014
PSP
PSP
PSP
PSP
CIP
CIP
Share price on grant date
Exercise price
Number of simulations
Number of companies
Award life
Expected dividend
244.90p
Nil
250,000
32
5 years
2.57%
240.90p
283.70p
300.00p
225.00p
253.30p
Nil
Nil
Nil
Nil
Nil
250,000
250,000
250,000
250,000
250,000
32
5 years
2.37%
32
5 years
1.80%
32
5 years
1.50%
Fair value of award at time of grant
Risk-free interest rate
124.38p –
188.43p
0.79%
124.92p –
189.26p
155.83p –
236.08p
183.08p –
277.36p
1.21%
0.56%
0.86%
32
3 years
1.78%
75.67p –
114.6p
1.01%
32
3 years
1.66%
83.11p –
214.33p
0.99% –
1.47%
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.
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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:
% of awards eligible for vesting
25%
50%
75%
100%
No shares will vest in each respective year unless the minimum adjusted EPS target for that year is achieved.
% of awards eligible for vesting
Below index
Median
Upper quartile or above
1. Over the three-, four- or five-year performance period.
Adjusted EPS targets for
the financial years ending
2016
14.3p
15.2p
16.1p
17.0p
2017
16.1p
17.4p
18.8p
20.2p
2018
17.1p
18.9p
20.7p
22.5p
IWG TSR % achieved relative to
FTSE All Share Total Return index(1)
0%
25%
100%
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:
% of awards eligible for vesting
25%
100%
The target is based on compound annual growth from an equivalent “base year” EPS figure for 2014 of 7.4p.
% of awards eligible for vesting
Below index
Median
Compound annual growth in adjusted
EPS over the performance period
24%
32%
IWG TSR % achieved relative to
FTSE 350 Index (excluding financial
services and mining companies)
0%
25%
Upper quartile or above
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.
100%
The EPS condition is based on the compound annual growth in EPS over the performance period measured from EPS in the financial year
ending 31 December 2015 as follows:
Vesting scale
25%
Between 5% and 25%
5%
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
0%
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS continued
25. Share-based payments (continued)
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:
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
0%
The ROI condition is based on the ROI improvement over the performance period relative to ROI for the financial year ending
31 December 2015 as follows:
Vesting scale
Exceeds 2015 ROI plus 300 basis points
Exceeds 2015 ROI by less than 300 basis points
Equal to or less than the 2015 ROI
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
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:
Vesting scale
25%
Between 5% and 25%
5%
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
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:
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
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:
Vesting scale
Exceeds 2016 ROI plus 300 basis points
Exceeds 2016 ROI by less than 300 basis points
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
Equal to or less than the 2016 ROI
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.
0%
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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:
Vesting scale
25%
Between 5% and 25%
5%
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
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:
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
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:
Vesting scale
Exceeds 2017 ROI plus 300 basis points
Exceeds 2017 ROI by less than 300 basis points
Equal to or less than the 2017 ROI
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
0%
2019 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 2019. Thus, conditional on meeting these performance targets, these shares will vest in March 2024. 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 2018 as follows:
Vesting scale
25%
Between 5% and 25%
5%
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
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:
Vesting scale
Exceeds the median by 10% or more
Exceeds the median by less than 10%
Ranked at median
Ranked below the median
% of one third of the award that vest
100%
On a straight-line basis between 25% and 100%
25%
0%
The ROI condition is based on the ROI improvement over the performance period relative to ROI for the financial year ending 31 December
2018 as follows:
Vesting scale
Exceeds 2018 ROI plus 300 basis points
Exceeds 2018 ROI by less than 300 basis points
Equal to or less than the 2018 ROI
% of one third of the award that vest
100%
On a straight-line basis between 0% and 100%
0%
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NOTES TO THE ACCOUNTS continued
25. Share-based payments (continued)
Plan 3: Deferred Share Bonus Plan
The Deferred Share Bonus Plan, established in 2016, enables the Board to award options to selected employees on a discretionary basis. 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 three years after the date of grant.
In March 2019, an award of 112,014 ordinary shares of 1p each in the Company was granted to the Chief Executive Officer, Mark Dixon. The
award is conditional on continuous employment and awards that are eligible will vest in March 2020.
Reconciliation of outstanding share options
At 1 January
DSBP awards granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2019
2018
Number of
awards
383,664
112,014
–
–
Number of
awards
383,664
–
–
–
495,678
383,664
–
–
There were no shares which were exercisable during the year ended 31 December 2019 (2018: nil).
Plan
DSBP
DSBP
Measurement of fair values
Date of grant
01/03/2017
07/03/2019
Numbers
granted
383,664
112,014
495,678
Lapsed
Exercised
–
–
–
–
–
–
At 31 Dec
2019
Release date
383,664 01/03/2020
112,014 07/03/2022
495,678
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:
Share price on grant date
Exercise price
Number of simulations
Number of companies
Award life
Expected dividend
Fair value of award at time of grant
Risk-free interest rate
March 2019
March 2017
244.90p
283.70p
Nil
–
–
3 years
2.57%
188.42p
0.68%
Nil
–
–
3 years
1.80%
236.04p
0.23%
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26. 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:
Fair value of plan assets
Present value of obligations
Net funded obligations
27. Acquisitions
Current period acquisitions
During the year ended 31 December 2019 the Group made an acquisition for a total consideration of £24.4m.
2019
£m
11.0
(12.5)
(1.5)
2018
£m
9.9
(11.4)
(1.5)
£m
Net assets acquired
Right-of-use asset
Other property, plant and equipment
Cash
Other current and non-current assets
Lease liabilities
Current liabilities
Non-current liabilities
Goodwill arising on acquisition
Total consideration
Cash flow on acquisition
Cash paid
Net cash outflow
Book value
Provisional
fair value
adjustments
Provisional
fair value
63.0
1.6
5.5
6.8
(63.0)
(7.6)
(4.5)
1.8
–
–
–
–
–
–
–
–
63.0
1.6
5.5
6.8
(63.0)
(7.6)
(4.5)
1.8
22.6
24.4
24.4
24.4
The goodwill arising on the 2019 acquisition 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. Of the above goodwill,
£22.6m is expected to be deductible for tax purposes.
If the above acquisition had occurred on 1 January 2019, the revenue and net retained profit arising from this acquisition would have been
£28.3m and £4.4m respectively. In the year, the equity acquisition contributed revenue of £4.7m and net retained profit of £1.2m.
There was £nil contingent consideration arising on the 2019 acquisition. Contingent consideration of £5.3m was also paid during the current
year with respect to milestones achieved on previous acquisitions.
The acquisition costs associated with this transaction were £0.3m, recorded within administration expenses in the consolidated income statement.
For 2019’s acquisition, 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 primarily for 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.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS continued
27. Acquisitions (continued)
Prior period acquisitions
During the year ended 31 December 2018 the Group made individually immaterial acquisitions for a total consideration of £1.5m.
£m
Net assets acquired
Property, plant and equipment
Cash
Other current and non-current assets
Current liabilities
Non-current liabilities
Goodwill arising on acquisition
Total consideration
Less: Contingent consideration
Cash flow on acquisition
Cash paid
Net cash outflow
Book value
Provisional
fair value
adjustments
Provisional
fair value
Final
fair value
adjustments
Final
fair value
0.6
0.7
1.0
(1.7)
(0.1)
0.5
–
–
–
–
–
–
0.6
0.7
1.0
(1.7)
(0.1)
0.5
1.0
1.5
0.3
1.2
1.2
1.2
–
–
–
–
–
–
–
–
–
–
–
–
0.6
0.7
1.0
(1.7)
(0.1)
0.5
1.0
1.5
0.3
1.2
1.2
1.2
The goodwill arising on the 2018 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. Of the above goodwill, £0.3m 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
£4.6m and £0.1m respectively. In the year, the equity acquisitions contributed revenue of £1.7m and net retained profit of £0.6m.
There was £0.3m contingent consideration arising on the above acquisitions. Contingent consideration of £1.8m was also paid during the prior
year with respect to milestones achieved on previous acquisitions.
The acquisition costs associated with these transactions were £0.2m, 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.
28. Capital commitments
Contracts placed for future capital expenditure not provided for in the financial statements
2019
£m
196.4
2018
£m
79.9
These commitments are principally in respect of fit-out obligations. There are no capital commitments in respect of joint ventures at
31 December 2019 (2018: nil).
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29. Contingent assets and liabilities
The Group has bank guarantees and letters of credit held with certain banks, predominantly in support of leasehold contracts with a variety of
landlords, amounting to £144.5m (2018: £152.7m). 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.
£m
2019
Joint ventures
2018
Joint ventures
Management
fees received
from related
parties
Amounts
owed by
related party
Amounts
owed to
related party
3.6
2.8
15.5
12.8
4.9
3.4
As at 31 December 2019, none of the amounts due to the Group have been provided for as the expected credit losses arising on the balances are
considered immaterial (2018: £nil). All outstanding balances with these related parties are priced on an arm’s length basis. None of the balances
are secured.
Key management personnel
No loans or credit transactions were outstanding with Directors or Officers of the Company at the end of the year or arose during the year that
are required to be disclosed.
Compensation of key management personnel (including Directors)
Key management personnel include those personnel (including Directors) that have responsibility and authority for planning, directing and
controlling the activities of the Group:
Short-term employee benefits
Retirement benefit obligations
Share-based payments
2019
£m
8.2
0.4
1.4
10.0
2018
£m
7.9
0.4
1.0
9.3
Share-based payments included in the table above reflect the accounting charge in the year. The full fair value of awards granted in the year was
£2.0m (2018: £2.1m). These awards are subject to performance conditions and vest over three, four and five years from the award date (refer to
note 25 for further details).
Transactions with related parties
During the year ended 31 December 2019 the Group acquired goods and services from a company indirectly controlled by a Director
of the Company amounting to £18,764 (2018: £43,288). There was a £18,764 balance outstanding at the year end (2018: £53,630).
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.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE ACCOUNTS continued
31. Principal Group companies
The Group’s principal subsidiary undertakings at 31 December 2019, their principal activities and countries of incorporation are set out below:
% of
ordinary
shares and
votes held
Name of undertaking
Management companies
Country of
incorporation
% of
ordinary
shares and
votes held
RGN Management Limited Partnership
Canada
Pathway IP II Sarl
Franchise International Sarl
Switzerland
Switzerland
Regus Service Centre Philippines B.V.
Philippines
Regus Global Management Centre SA
Switzerland
100
100
100
100
100
Regus Group Services Ltd
IW Group Services (UK) Ltd
Regus Management Group LLC
United Kingdom 100
United Kingdom 100
United States
100
Holding and finance companies
IWG Global Investments Sarl
IWG Group Holdings Sarl
Pathway Finance Sarl
Pathway Finance EUR 2 Sarl
Pathway Finance USD 2 Sarl
Regus Group Limited
Regus Corporation
Luxembourg
Luxembourg
Switzerland
Switzerland
Switzerland
100
100
100
100
100
United Kingdom 100
United States
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Name of undertaking
Trading companies
Regus Australia Management Pty Ltd
Regus Belgium SA
Regus do Brasil Ltda
Regus Business Service (Shenzen) Ltd
Regus Management ApS
Regus Management (Finland) Oy
RBC Deutschland GmbH
Regus HK Management Ltd
Regus CME Ireland Limited
Regus Business Centres Limited
Regus Business Centres Italia Srl
Country of
incorporation
Australia
Belgium
Brazil
China
Denmark
Finland
Germany
Hong Kong
Ireland
Israel
Italy
Regus Management Malaysia Sdn Bhd
Malaysia
Regus Management de Mexico, SA de CV Mexico
Regus New Zealand Management Ltd
New Zealand
Regus Business Centre Norge AS
IWG Management Sp z.o.o.
Norway
Poland
Regus Management Singapore Pte Ltd
Singapore
Regus Management Espana SL
IWG Management (Sweden) AB
Avanta Managed Offices Ltd
Basepoint Centres Limited
HQ Global Workplaces LLC
RGN National Business Centre LLC
Regus Business Centres LLC
Spain
Sweden
United Kingdom 100
United Kingdom 100
United States
United States
United States
100
100
100
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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.
Key judgements
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 2019, including the sensitivity to changes in those assumptions, can be found in note 12.
Tax assets and liabilities
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for
income taxes. 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 additional tax liabilities over and above those already provided for.
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 to the extent that it is probable that future taxable profits will be available against which the assets can be used.
Given the significant level of corporate developments in the Group, the determination of the period of time representing foreseeable future
requires judgement to be exercised, using the Group’s business forecasting processes.
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.
Determining the lease term of contracts with renewal and termination options
IFRS 16 defines the lease term as the non-cancellable period of a lease together with the options to extend or terminate a lease, if the lessee were
reasonably certain to exercise that option. Where a lease includes the option for the Group to extend the lease term, the Group makes a
judgement as to whether it is reasonably certain that the option will be taken. This will take into account the length of time remaining before the
option is exercisable, macro-economic environment, socio-political environment and other lease specific factors.
Key estimates
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.
Estimating the incremental borrowing rates
The determination of applicable incremental borrowing rates at the commencement of lease contracts also requires judgement. The Group
determines its incremental borrowing rates by obtaining interest rates from various external financing sources and makes certain adjustments to
reflect the terms of the lease. The Group considers the relevant market interest rate, based on the weighted average of the timing of the lease
payments under the lease obligation. In addition, a spread over the market rate is applied based on the cost of funds to the Group, plus a spread
that represents the risk differential of the lessee entity compared to the Group funding cost.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
PARENT COMPANY ACCOUNTS
Summarised extract of Company balance sheet
(Accounting policies are based on the Swiss Code of Obligations)
Trade and other receivables
Prepayments
Total current assets
Investments
Total non-current assets
Total assets
Trade and other payables
Accrued expenses
Total short-term liabilities
Long-term interest-bearing liabilities
Total long-term liabilities
Total liabilities
Issued share capital
Legal capital reserves
Reserves from capital contributions
Retained earnings
Loss for the year
Treasury shares
Total shareholders’ equity
Total liabilities and shareholders’ equity
Approved by the Board on 3 March 2020
MARK DIXON
Chief Executive Officer
ERIC HAGEMAN
Chief Financial Officer
As at
31 Dec 2019
£m
As at
31 Dec 2018
£m
14.4
0.1
14.5
644.6
644.6
9.4
0.2
9.6
2,295.4
2,295.4
659.1
2,305.0
6.3
2.7
9.0
332.3
332.3
4.3
2.3
6.6
207.7
207.7
341.3
214.3
9.2
–
2,126.8
(32.4)
(1,668.9)
(116.9)
317.8
9.2
–
2,185.0
(15.1)
(14.3)
(74.1)
2,090.7
659.1
2,305.0
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 2019, which are available
from the Company’s registered office, Dammstrasse 19, CH-6300, Zug, Switzerland.
Investments
The value of the investment held in IWG Group investment is measured at acquisition cost.
During 2019, the Company acquired the direct investment in IWG Global Investments Sarl (formerly Umbrella Global Holdings Sarl), as part of
an internal restructuring. At the same time, the Company disposed of its investment in Regus plc to IWG Group Holdings Sarl. The investment
was recorded at £2,295.4m in the Company audited Financial Statements as at 31 December 2018. This transaction resulted in the Company
recognising a dividend in specie of £644.6m and a corresponding impairment in its investment of Regus plc of £2,292.1m.
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IFRS 16 PRO FORMA STATEMENTS
Consolidated income statement (unaudited)
The purpose of these unaudited pages is to provide a reconciliation from the 2019 financial results to the pro forma statements in accordance
with the previous IAS 17 policies adopted by the Group, and thereby give the reader greater insight into the impact of IFRS 16 on the results of
the Group. The pro forma statements also adjust for the impact of closed centres.
Revenue
Cost of sales
Gross profit (centre contribution)
Selling, general and administration expenses
Share of profit of equity-accounted investees,
net of tax
Operating profit
Finance expense
Finance income
Net finance expense
Profit before tax for the year from
continuing operations
Income tax credit/(expense)
Profit after tax for the year from
continuing operations
Profit after tax for the year from discontinued
operations
Profit after tax for the year
Aggregated profit before tax
Earnings per ordinary share (EPS):
Attributable to ordinary shareholders
Basic (p)
Diluted (p)
From continuing operations
Basic (p)
Diluted (p)
21
5
7
7
8
9
10
10
10
10
Year ended
31 Dec 2019
As reported
£m
Rent &
finance
costs
£m
Notes
Depreciation
£m
Other
adjustments
£m
Taxation
£m
3
2,653.0
–
(2,086.6)
(1,011.6)
566.4
(1,011.6)
(281.2)
(0.1)
2.7
–
287.9
(1,011.7)
(232.5)
213.5
0.5
–
(232.0)
213.5
–
874.4
874.4
1.1
–
875.5
–
–
–
55.9
22.3
(798.2)
875.5
–
–
Year ended
31 Dec 2019
per IAS 17
£m
Year ended
31 Dec 2019
per IAS 17(1)
£m
Closures
£m
2,653.0
(83.2)
2,569.8
(2,237.9)
114.0
(2,123.9)
415.1
(280.1)
2.7
137.7
(18.7)
0.5
(18.2)
119.5
15.4
30.8
7.7
–
38.5
–
–
–
38.5
1.3
445.9
(272.4)
2.7
176.2
(18.7)
0.5
(18.2)
158.0
16.7
–
(14.1)
(14.1)
0.1
–
(14.0)
0.3
–
0.3
(13.7)
–
–
–
–
–
–
–
–
–
–
–
(6.9)
78.2
(798.2)
875.5
(13.7)
(6.9)
134.9
39.8
174.7
372.4
450.6
430.1
(25.4)
(823.6)
(823.6)
26.0
901.5
901.5
(4.8)
(18.5)
(18.5)
–
(6.9)
–
368.2
503.1
489.5
–
39.8
38.5
368.2
542.9
528.0
50.5
49.6
8.8
8.6
56.4
55.4
15.1
14.8
60.8
59.8
19.6
19.2
1. Reflects open centre performance after excluding the impact of closures.
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 and 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.
2. Rent and finance costs
Since the adoption of IFRS 16 conventional rent charges are no longer recognised in the profit or loss. 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 and 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 costs previously capitalised, such as costs directly incurred in preparing the business centre for
trading (i.e. as part of property, plant and equipment), are derecognised and eliminated directly against retained earnings. Leasehold
improvements are also reported net of partner contributions.
5. Taxation
The underlying tax charge is impacted by the change in the profit before tax and deferred tax assets recognised.
6. Closures
Adjusting for the impact of closed centres.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
IFRS 16 PRO FORMA STATEMENTS continued
Consolidated balance sheet (unaudited)
As at
31 Dec 2019
£m
Notes
Right-of-use
asset &
related lease
liability
£m
Rent &
finance
costs
£m
Depreciation
& lease
payments
£m
Other
adjustments
£m
Year ended
31 Dec 2019
per IAS 17
£m
Taxation
£m
(6,929.3)
1,101.9
901.5
3.2
(93.6)
3,937.0
12
13
14
14
14
8
24
15
21
16
8
23
17
8
19
23
20
18
19
23
24
20
21
26
22
22
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use asset
Other property, plant and equipment
Deferred tax assets
Non-current derivative financial assets
Other long-term receivables
Investments in joint ventures
Total non-current assets
Current assets
Inventory
Trade and other receivables
Corporation tax receivable
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables (incl. customer deposits)
Deferred income
Corporation tax payable
Bank and other loans
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Other long-term payables
Bank and other loans
Lease liabilities
Non-current derivative financial liabilities
Provisions
Provision for deficit in joint ventures
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Total equity
Issued share capital
Treasury shares
Foreign currency translation reserve
Hedging reserve
Other reserves
Retained earnings
Reported balance / profit for the year
Directly in reserves – on adoption of IFRS 16
Total equity
Total equity and liabilities
1.3
681.3
24.0
66.6
773.2
8,953.3
788.8
322.6
32.3
9.7
977.4
8.9
674.6
45.0
7,190.7
5,917.4
1,273.3
195.0
–
61.0
13.8
–
–
(6,929.3)
(6,929.3)
–
–
–
–
–
–
–
–
–
940.4
901.5
–
1,010.0
940.4
(108.5)
–
–
–
–
–
–
–
–
8,180.1
(6,929.3)
940.4
901.5
–
–
–
–
–
–
161.5
–
–
161.5
–
–
–
–
–
–
–
–
–
372.4
–
–
–
–
–
–
–
(932.9)
(216.2)
171.7
–
–
2,139.7
(932.9)
156.2
2.0
351.0
–
–
5,568.6
(6,477.9)
0.2
6.9
2.9
1.5
–
–
–
–
922.9
–
–
–
–
–
–
–
171.7
–
–
909.3
–
–
–
–
5,933.1
8,072.8
(6,477.9)
(7,410.8)
922.9
1,079.1
909.3
1,081.0
9.2
(116.9)
34.9
(0.2)
25.8
927.7
1,106.9
(179.2)
880.5
–
–
(8.7)
–
–
490.2
(20.0)
510.2
481.5
–
–
–
–
–
22.8
262.9
(240.1)
22.8
8,953.3
(6,929.3)
1,101.9
–
–
–
–
–
(179.5)
(179.5)
–
(179.5)
901.5
–
–
1.9
1.9
–
–
–
1.3
–
3.2
–
–
–
–
–
–
–
–
–
–
(93.6)
–
–
–
674.6
45.0
2,105.2
–
2,105.2
101.4
–
62.3
13.8
(93.6)
3,002.3
–
–
–
–
–
1.3
842.8
24.0
66.6
934.7
–
–
–
–
–
–
–
1.3
–
–
–
1.9
–
–
3.2
3.2
–
–
8.2
–
–
(8.2)
(4.0)
(4.2)
–
3.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(93.6)
(6.9)
(86.7)
(93.6)
(93.6)
1,161.2
322.6
32.3
9.7
–
8.9
1,534.7
926.2
351.0
–
0.2
8.8
2.9
1.5
1,290.6
2,825.3
9.2
(116.9)
34.4
(0.2)
25.8
1,159.4
1,159.4
–
1,111.7
3,937.0
1 5 2 I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
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IWG plc Annual Report and Accounts 2019
Consolidated statement of cash flows (unaudited)
Operating activities
Profit before tax for the year from continuing operations
Adjustments for:
Profit before tax from discontinued operations
Net finance expense
Share of profit of equity-accounted investees, net of tax
Depreciation charge
Right-of-use asset
Other property, plant and equipment
Loss on impairment of goodwill
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Reversal of impairment of property, plant and equipment
Amortisation of intangible assets
Decrease in provisions
Share-based payments
Other non-cash movements
Operating cash flows before movements in working capital
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
Interest paid
Tax paid
Net cash inflow/(outflow) from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of subsidiary undertakings, net of cash acquired
Purchase of intangible assets
Purchase of joint ventures
Proceeds on sale of discontinued operations, net of cash disposed of
Proceeds on sale of property, plant and equipment
Interest received
Net cash inflow/(outflow) from investing activities
Financing activities
Proceeds from issue of loans
Repayment of loans
Payment of lease liability
Purchase of treasury shares
Proceeds from exercise of share awards
Payment of ordinary dividend
Net cash (outflow)/inflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
Year ended
31 Dec 2019
£m
Rent &
finance costs
£m
Notes
Depreciation
& lease
payments
£m
Other
adjustments
£m
Year ended
31 Dec 2019
per IAS 17
£m
55.9
(798.2)
875.5
(13.7)
119.5
9
7
21
14
14
14
12
5
5
5, 14
5, 13
20
22.8
232.0
(2.7)
1,153.1
1,010.0
143.1
0.8
32.7
0.3
(2.1)
9.7
(1.3)
0.7
(2.2)
(25.4)
(213.5)
–
–
–
–
–
–
–
–
–
–
–
–
1,499.7
(1,037.1)
(108.7)
(73.7)
26.0
–
–
(901.5)
(1,010.0)
108.5
–
–
–
–
–
–
–
–
–
–
0.7
1,506.7
(1,081.0)
1,391.7
395.9
(1,081.0)
(21.2)
(48.8)
–
–
–
–
1,321.7
395.9
(1,081.0)
14
27
13
21
9
7
23
22
11
23
–
–
–
–
–
–
–
–
–
–
(356.4)
(406.4)
–
–
–
–
–
–
(406.4)
–
–
(24.2)
(12.8)
(1.8)
424.6
0.6
0.5
30.5
850.5
(1,013.0)
(1,091.5)
(49.5)
2.9
(58.2)
10.5
1,081.0
–
–
–
–
–
–
(1,358.8)
10.5
1,081.0
(6.6)
69.0
4.2
66.6
–
–
–
–
–
–
–
–
(0.6)
(0.3)
–
–
–
–
–
(8.1)
–
–
–
–
–
(0.5)
(23.2)
13.8
9.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22.8
18.2
(2.7)
251.6
–
251.6
0.8
24.6
0.3
(2.1)
9.7
(1.3)
0.7
(2.7)
439.4
(168.6)
435.8
706.6
(21.2)
(48.8)
636.6
(762.8)
(24.2)
(12.8)
(1.8)
424.6
0.6
0.5
(375.9)
850.5
(1,013.0)
–
(49.5)
2.9
(58.2)
(267.3)
(6.6)
69.0
4.2
66.6
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
SEGMENTAL ANALYSIS
Segmental analysis – based on estimates (unaudited)
Mature(1)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Impact of IFRS 16
Contribution (£m) – IFRS 16
REVPOW (£)
2018 Expansions(2)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Impact of IFRS 16
Contribution (£m) – IFRS 16
2019 Expansions(2)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)(5)
Impact of IFRS 16
Contribution (£m) – IFRS 16
Closures(6)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Impact of IFRS 16
Contribution (£m) – IFRS 16
Total
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Impact of IFRS 16
Contribution (£m) – IFRS 16
REVPAW (£)
Period end workstations(7)
Mature
2018 Expansions
2019 Expansions
Total
Americas
2019
(IAS 17 Basis)
EMEA
2019
(IAS 17 Basis)
Asia Pacific
2019
(IAS 17 Basis)
United
Kingdom
2019
(IAS 17 Basis)
Other
2019
(IAS 17 Basis)
Total
2019
(IAS 17 Basis)
183,211
78.1%
1,079.6
252.3
76.3
328.6
108,421
76.9%
533.9
125.7
25.2
150.9
76,263
74.1%
275.2
50.4
24.4
74.8
82,216
73.8%
353.7
53.8
10.4
64.2
7,544.0
6,407.0
4,868.0
5,830.0
–
–
9.0
12.9
–
12.9
–
450,111
76.3%
2,251.4
495.1
136.3
631.4
6,551.0
19,103
64.7%
67.5
(11.0)
6.4
(4.6)
10,190
39.3%
22.6
(13.5)
(0.8)
(14.3)
4,077
60.4%
18.8
(6.9)
0.6
(6.3)
35,247
58.1%
14,971
54.7%
13,886
56.4%
89.8
(1.3)
4.9
3.6
17,261
40.3%
37.5
(1.7)
(6.7)
(8.4)
4,539
66.6%
23.9
1.1
3.1
4.2
40.5
(4.3)
3.9
(0.4)
6,369
36.9%
10.8
(3.3)
(1.4)
(4.7)
4,421
58.3%
17.4
(14.1)
5.5
(8.6)
38.4
(8.2)
3.9
(4.3)
7,629
32.5%
11.3
(5.9)
(2.1)
(8.0)
5,915
49.0%
23.1
(10.9)
(2.4)
(13.3)
216,581
74.8%
1,188.5
220.9
82.6
303.5
5,488
165,468
68.8%
685.1
123.8
26.5
150.3
4,140
183,980
110,151
19,936
26,131
35,352
35,695
102,024
109,646
68.3%
343.9
28.7
32.4
61.1
3,371
77,974
15,176
11,732
67.4%
426.5
28.8
9.8
38.6
3,890
85,917
14,474
11,752
230,047
181,198
104,882
112,143
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.0
12.9
–
12.9
–
–
–
–
–
83,207
58.7%
236.2
(24.8)
19.1
(5.7)
41,449
38.1%
82.2
(24.4)
(11.0)
(35.4)
18,952
57.8%
83.2
(30.8)
6.8
(24.0)
593,719
70.6%
2,653.0
415.1
151.3
566.4
4,469
458,022
84,938
85,310
628,270
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154
IWG plc Annual Report and Accounts 2019
Segmental analysis – based on estimates (unaudited)
Mature(1)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
REVPOW (£)
2018 Expansions(2)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Closures(3)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Total
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
REVPAW (£)
Notes:
Americas
2018
(IAS 17 Basis)
EMEA
2018
(IAS 17 Basis)
Asia Pacific
2018
(IAS 17 Basis)
United
Kingdom
2018
(IAS 17 Basis)
Other
2018
(IAS 17 Basis)
Total
2018
(IAS 17 Basis)
183,714
74.2%
978.4
190.9
7,176
9,395
37.5%
19.8
(12.3)
10,215
64.7%
50.3
(4.8)
203,324
72.0%
1,048.5
173.8
5,157
105,904
75.1%
538.9
122.0
6,778
14,827
32.4%
20.6
(7.9)
8,715
65.6%
39.3
(2.3)
129,446
69.5%
598.8
111.8
4,625
76,294
70.4%
267.6
45.8
4,979
6,630
26.8%
8.9
(5.7)
10,270
60.5%
34.4
(6.8)
93,194
66.2%
310.9
33.3
3,337
78,068
70.9%
355.7
61.1
6,429
5,933
30.5%
13.3
(4.9)
13,335
62.9%
70.0
(0.9)
97,336
67.3%
439.0
55.3
4,510
–
–
4.9
0.3
–
–
–
–
–
–
–
–
–
–
–
4.9
0.3
–
443,980
73.2%
2,145.5
420.1
6,603
36,785
32.4%
62.6
(30.8)
42,535
63.3%
194.0
(14.8)
523,300
69.5%
2,402.1
374.5
4,590
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 2018 comparative data is defined as a centre closed during the period from 1 January 2018 to 31 December 2019.
4. Workstation numbers are calculated as the weighted average for the year.
5. 2019 expansions includes any costs incurred in 2019 for centres which will open in 2020.
6. A closure for the 2019 date is defined as a centre closed during the period from 1 January 2019 to 31 December 2019.
7. Workstations available at period end.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
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, on a pre-IFRS 16 basis, back to the
Group’s IFRS 16 pro forma statements, and thereby, give the reader greater insight into the returns calculation drivers.
2019
Description
Post-tax cash return on net investment
(unaudited)
Revenue
Centre contribution
Loss on disposal of assets
Underlying centre contribution
Selling, general and administration expenses(1)
EBIT
Depreciation and amortisation
Amortisation of partner contributions
Amortisation of acquired lease fair value
adjustments
Non-cash items
Taxation(2)
Adjusted net cash profit
Maintenance capital expenditure
Partner contributions
Net maintenance capital expenditure
Post-tax cash return
Pro forma income
statement, p151
Pro forma income
statement, p151
EBIT reconciliation
(analysed below)
Pro forma income
statement, p151
EBIT reconciliation
(analysed below)
Capital expenditure
(analysed below)
Partner contributions
(analysed below)
Reference
2017
Aggregation
2018
Expansions
2019
Expansions
2020
Expansions
15.6%
–
–
2,251.4
236.2
82.2
–
–
Closures
–
Total
8.4%
83.2
2,653.0
495.1
(24.8)
(23.7)
(0.7)
(30.8)
415.1
0.6
–
–
–
16.9
17.5
495.7
(214.9)
(24.8)
(36.6)
(23.7)
(20.8)
(0.7)
(0.1)
(13.9)
(7.7)
432.6
(280.1)
280.8
(61.4)
(44.5)
(0.8)
(21.6)
152.5
189.3
(63.6)
(0.9)
124.8
(56.2)
349.4
147.8
(39.1)
108.7
240.7
42.6
(14.8)
–
27.8
12.3
(21.3)
–
–
–
15.7
(6.8)
–
8.9
8.9
(26.7)
–
–
–
–
–
–
–
0.2
(0.6)
–
–
–
13.2
(2.4)
(0.1)
10.7
4.3
(6.6)
–
–
–
(21.3)
(26.7)
(0.6)
(6.6)
260.8
(87.6)
(1.0)
172.2
(30.5)
294.2
147.8
(39.1)
108.7
185.5
Growth capital expenditure
Partner contributions
Capital expenditure
(analysed below)
Partner contributions
(analysed below)
1,927.1
416.4
528.8
93.7
(388.0)
(143.7)
(194.3)
(39.4)
Net investment (unaudited)
1,539.1
272.7
334.5
54.3
–
–
–
2,966.0
(765.4)
2,200.6
2019
EBITDA reconciliation
Centre contribution
Selling, general and administration expenses(1)
Depreciation and amortisation
Share of profit in joint ventures
EBITDA on continuing operations
1. Including research and development expenses.
2. Based on EBIT at the Group’s long-term effective tax rate of 20%.
2017
Aggregation
2018
Expansions
2019
Expansions
2020
Expansions
Closed
Total
495.1
(214.9)
189.3
469.5
2.7
472.2
(24.8)
(36.6)
42.6
(18.8)
–
(23.7)
(20.8)
15.7
(28.8)
–
(0.7)
(0.1)
–
(0.8)
–
(30.8)
(7.7)
13.2
(25.3)
–
(18.8)
(28.8)
(0.8)
(25.3)
415.1
(280.1)
260.8
395.8
2.7
398.5
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IWG plc Annual Report and Accounts 2019
2019
Movement in capital expenditure (unaudited)
December 2018
2019 Capital expenditure(3)
Properties acquired
Centre closures(4)
December 2019
2017
Aggregation
2018
Expansions
2019
Expansions
2020
Expansions
Closures
Total
2,280.4
–
–
(353.3)
1,927.1
381.1
83.8
–
(48.5)
416.4
57.8
467.6
6.9
(3.5)
528.8
–
86.8
6.9
–
93.7
–
–
–
–
–
2,719.3
638.2
13.8
(405.3)
2,966.0
3. 2020 expansions relate to costs and investments incurred in 2019 for centres which will open in 2020.
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.
2019
Movement in partner contributions (unaudited)
2017
Aggregation
2018
Expansions
2019
Expansions
2020
Expansions
Closures
Total
December 2018
2019 Partner contributions
Centre closures(5)
December 2019
421.4
–
(33.4)
388.0
128.2
31.8
(16.3)
143.7
4.6
191.8
(2.1)
194.3
–
39.4
–
39.4
–
–
–
–
5. The partner contributions for an estate are reduced by the partner contributions for centres closed during the year.
2019
EBIT reconciliation (unaudited)
EBIT
Loss on disposal of assets
Share of profit in joint ventures
Centre contribution – Closed
Selling, general and administration expenses – Closed
Operating profit
2019
Partner contributions (unaudited)
Opening partner contributions
• Current
• Non-current
Acquired in the period
Received in the period
• Maintenance partner contributions
• Growth partner contributions
Utilised in the period
Business disposal
Exchange differences
Closing partner contributions
• Current
• Non-current
2019
Capital expenditure (unaudited)
Maintenance capital expenditure
Growth capital expenditure
• 2019 Capital expenditure
• Properties acquired
Total capital expenditure
Analysed as
• Purchase of subsidiary undertakings
• Purchase of property, plant and equipment
• Purchase of intangible assets
iwgplc.com
Reference
Pro forma statement of cash flows, p153
Pro forma income statement, p151
Pro forma income statement, p151
Reference
Note 17, p126
Note 18, p126
Reference
CFO review, p46
CFO review, p46
Pro forma statement of cash flows, p153
Pro forma statement of cash flows, p153
Pro forma statement of cash flows, p153
554.2
263.0
(51.8)
765.4
£m
152.5
(17.5)
2.7
30.8
7.7
176.2
£m
468.3
78.7
389.6
–
302.1
39.1
263.0
(87.6)
(26.0)
(16.8)
640.0
105.5
534.5
£m
147.8
652.0
638.2
13.8
799.8
24.2
762.8
12.8
1 5 7
157
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
FIVE-YEAR SUMMARY
Income statement (full year ended)
Revenue
Cost of sales
Gross profit (centre contribution)
Administration expenses
Share of profit/(loss) of equity-accounted investees, net of tax
Operating profit
Finance expense
Finance income
Profit before tax for the year from continuing operations
Income tax credit/(expense)
Profit for the year from continuing operations
Profit after tax for the year from discontinued operations
Profit after tax for the year
Earnings per ordinary share (EPS):
Attributable to ordinary shareholders
Basic (p)
Diluted (p)
31 Dec 2019
£m
31 Dec 2018
Restated
£m
31 Dec 2017
Restated
£m
31 Dec 2016
Restated
£m
31 Dec 2015
Restated
£m
2,653.0
(2,086.6)
2,402.1
(2,027.6)
2,240.0
(1,863.7)
2,129.6
(1,706.4)
566.4
(281.2)
2.7
287.9
(232.5)
0.5
55.9
22.3
78.2
372.4
450.6
374.5
(248.2)
(1.4)
124.9
(15.8)
0.5
109.6
(29.7)
79.9
25.8
105.7
376.3
(231.9)
(0.8)
143.6
(14.0)
0.3
129.9
(32.9)
97.0
17.0
114.0
423.2
(255.1)
(0.8)
167.3
(11.6)
0.1
155.8
(35.0)
120.8
18.0
138.8
1,850.3
(1,440.1)
410.2
(260.3)
0.3
150.2
(15.0)
0.6
135.8
(25.0)
110.8
9.1
119.9
50.5
49.6
11.7
11.6
12.4
12.3
14.9
14.7
12.8
12.6
Weighted average number of shares outstanding (‘000s)
892,738
907,077
915,676
929,830
933,458
From continuing operations
Basic (p)
Diluted (p)
8.8
8.6
8.8
8.7
10.6
10.5
13.0
12.8
11.9
11.6
Weighted average number of shares outstanding (‘000s)
892,738
907,077
915,676
929,830
933,458
Balance sheet data (as at)
Intangible assets
Right-of-use asset
Property, plant and equipment
Deferred tax assets
Other assets
Cash and cash equivalents
Total assets
Current liabilities
Non-current liabilities
Equity
Total equity and liabilities
719.6
5,917.4
1,273.3
195.0
781.4
66.6
8,953.3
2,139.7
5,933.1
880.5
8,953.3
721.7
–
712.1
–
738.1
–
1,751.2
1,367.2
1,194.4
30.6
848.7
69.0
3,421.2
1,429.5
1,240.5
751.2
3,421.2
23.0
702.7
55.0
2,860.0
1,224.7
907.6
727.7
29.3
649.2
50.1
2,661.1
1,183.1
736.0
742.0
666.0
–
917.0
36.4
644.3
63.9
2,327.6
1,085.7
658.2
583.7
2,860.0
2,661.1
2,327.6
1 5 8 I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
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IWG plc Annual Report and Accounts 2019
GLOSSARY
The Group reports certain alternative performance measures
(‘APMs’) that are not required under International Financial
Reporting Standards (‘IFRS’) which represent the generally accepted
accounting principles (‘GAAP’) under which the Group reports. The
Group believes that the presentation of these APMs provides useful
supplemental information which, when viewed in conjunction with our
IFRS financial information, provides investors with a more meaningful
understanding of the underlying financial and operating performance
of the Group and its divisions.
These APMs are primarily used for the following purposes:
• to evaluate the historical and planned underlying results of our
operations;
• to set Director and management remuneration; and
• to discuss and explain the Group’s performance with the investment
analyst community.
None of the APMs should be considered as an alternative to financial
measures derived in accordance with GAAP. The APMs can have
limitations as analytical tools and should not be considered in isolation
or as a substitute for an analysis of our results as reported under
GAAP. These performance measures may not be calculated uniformly
by all companies and therefore may not be directly comparable with
similarly titled measures and disclosures of other companies.
Aggregated profit before tax
IAS 17 basis
IFRS accounting standards effective as at 31 December 2018
(i.e. before the effective date of IFRS 16).
Like-for-like
The financial performance from centres owned and operated for
a full 12-month period prior to the start of the financial year, which
therefore have a full-year comparative.
Mature business
Operations owned for a full 12-month period prior to the start of
the financial year and operated throughout the current financial year,
which therefore have a full-year comparative.
Net debt
Operations cash and cash equivalents, adjusted for both short and
long-term borrowings and lease liabilities.
Occupancy
Occupied workstations divided by available workstations expressed as
a percentage.
Occupied workstations
Workstations which are in use by clients. This is expressed as a
weighted average for the year.
Includes continuing operations, discontinued operations and profits
from master franchise transactions in Japan, Taiwan and Switzerland.
Open centres
All centres excluding closures.
Available workstations
Operating profit before growth
The total number of workstations in the Group (also termed
Inventory). During the year, this is expressed as a weighted average.
At period ends the absolute number is used.
Reported operating profit adjusted for the gross profit impact arising
from centres opening in the current year and centres to be opened in
the subsequent year.
Centre contribution
Pre-2018 business
Gross profit comprising centre revenue less direct operating expenses
but before administrative expenses.
Closures
Operations owned for a full 12-month period prior to the start of the
financial year and operated throughout the current financial year,
which therefore have a full-year comparative.
A closure for the current year is defined as a centre closed during the
period from 1 January to 31 December of the current year.
Pre-2018 gross margin
Gross margin attributable to the Pre-2018 business.
A closure for the prior year comparative is defined as a centre closed
from 1 January of the prior year to 31 December of the current year.
EBIT
Pre-IFRS 16
IFRS accounting standards effective as at 31 December 2018
(i.e. before the effective date of IFRS 16).
Earnings before interest and tax.
Revenue development
EBITDA
Revenue development, on a continuing basis, for the last four years.
Earnings before interest, tax, depreciation and amortisation.
REVPAW
EBITDA (pre-2018)
Earnings before interest, tax, depreciation and amortisation adjusted
for the financial impact of the growth estate.
EPS
Earnings per share.
Expansions
A general term which includes new business centres established
by IWG and acquired centres in the year.
Growth estate
Comprises centres which opened during the current or prior
financial year.
Total revenue per available workstation (revenue/available
workstations).
REVPOW
Total revenue per occupied workstation.
ROI
Return on investment.
TSR
Total shareholder return.
WIPOS
Workstation income per square metre.
WIPOW
Workstation income per occupied workstation.
iwgplc.com
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159
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Corporate directory
Secretary and Registered Office
Tim Regan, Company Secretary
IWG plc
Registered Office:
22 Grenville Street
St Helier
Jersey JE4 8PX
Registered Head Office:
Dammstrasse 19
CH-6300
Zug
Switzerland
Registered Number
Jersey
122154
Registrars
Link Market Services (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Auditor
KPMG
1 Stokes Place
St. Stephen’s Green
Dublin 2
DO2 DE03
Ireland
Legal advisors to the Company as to English law
Slaughter and May
One Bunhill Row
London EC1Y 8YY
Legal advisors to the Company as to Jersey law
Mourant Ozannes
22 Grenville Street
St Helier
Jersey JE4 8PX
Legal advisors to the Company as to Swiss law
Bär & Karrer Ltd
Brandschenkestrasse 90
CH-8027
Zurich
Switzerland
Corporate stockbrokers
Investec Bank plc
2 Gresham Street
London EC2V 7QP
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Financial PR advisors
Brunswick Group LLP
16 Lincoln’s Inn Fields
London WC2A 3ED
1 6 0 I W G P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 9
160
IWG plc Annual Report and Accounts 2019
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