15994 cover (F) 21/3/02 11:49 AM Page 2 Regus plc Annual Report & Accounts 2001 15994 Preview section (F) new 21/3/02 11:11 AM Page 1 CONTENTS Report and Accounts 2001 Contents Introduction Statement from the Chairman Products and initiatives Sales and marketing Operations Technology People Financial review Directors Directors’ report Corporate governance Remuneration report Auditors’ report Consolidated profit & loss account Balance sheets Consolidated cash flow statement Recognised gains & losses Accounting policies Notes to the financial statements Principal Group companies Shareholder information AGM notice Five-year summary Financial calendar 1 2 5 6 9 10 13 14 18 20 22 25 28 29 30 31 32 33 36 56 58 59 64 Inside back cover 15994 Preview section (F) new 21/3/02 11:11 AM Page 2 1 OVERVIEW Regus is the world’s leading provider of serviced office space. Its global network of business centres spans 50 countries and allows Regus customers to outsource completely, or in part, their workspace requirements. By December 2001, Regus operated some 92,232 workstations in 411 centres in some 200 cities worldwide. Cape Town 15994 Preview section (F) new 21/3/02 11:11 AM Page 3 2 MYVIEW Report and Accounts 2001 MYVIEW Statement from the Chairman 2001 was a challenging year for the global economy and for Regus. Faced with a rapid deterioration in global economic conditions, we undertook a fundamental reassessment of our business model. Focusing on pricing, occupancy and cost, we took swift, radical action to take some £60 million out of the company’s cost base – effectively halving our overheads. A new strategy of discounting prices for longer-term Revenue for the year was up 22% at £512.6 million. contracts was also introduced. We improved our customer Centre contribution before exceptional items decreased value proposition by introducing all inclusive business 22% to £77.8 million, with established centres continuing service packages and day pricing. to return a margin of 25%. Results We closed the year with a strong forward order book. Administrative expenses before exceptional items fell as Inquiry levels also stabilised as global companies continue a percentage of turnover to 18% (2000: 21%) and we to look to Regus for cost-effective, flexible, easy to use, recorded an operating loss before exceptional items of quality solutions for their office requirements. £19.0 million (2000: profit of £12.4 million). In November, we announced an exceptional one-time charge totalling £90.5 million. This related to the costs of a major restructuring of our business including a reduction in workstation capacity (11% of available total), of which 40% is in the US; various asset write-downs; and a rationalisation of the workforce. After exceptional items, the Group’s operating loss for the year was £109.5 million (2000: profit of £2.9 million). The Group’s EBITDA for the year was £45.1 million (2000: £53.0 million). 15994 Preview section (F) new 21/3/02 11:11 AM Page 4 3 Our people The future Tragedy struck Regus in September when we lost five team Despite continuing economic uncertainty, it is our belief that members in the terrorist attack on the World Trade Centre the Regus proposition remains a compelling one, even in in New York. Ninety of our clients also perished on the times of recession. The flexibility, cost-effectiveness, ease 93rd floor of the South Tower. of use, quality and global coverage provided by Regus offer I would like to pay personal tribute to Ingeborg Lariby, Rochelle Snell, Margaret Echtermann, Vanessa Langer and Tatiana Ryjova for their dedication and courage. The global economic downturn forced us to reduce our workforce by 24% during the year. On behalf of the directors and shareholders, I want to thank all Regus people for their hard work, commitment and adaptability during what has been a difficult period of readjustment and change. proven benefits to a wide variety of customers – from start- ups to SMEs and major corporates – looking for solutions, both long and short-term, to their property needs. In support of this, our new strategy of trading price against term has led to a significant lengthening in our average customer tenancy period. At the same time, a number of global customers have begun to use Regus structurally – preferring to outsource their property requirements across the board rather than investing in costly and inflexible conventional space. Overall, we ended the year lean and fit and ready for challenges ahead. We look forward to building on the many long-term relationships we have established with our customers and continuing our quest to offer them the very best solutions to their workspace requirements. View from Regus office in San Francisco George Gray 8 March 2002 15994 Preview section (F) new 21/3/02 11:11 AM Page 5 4 PREVIEW Report and Accounts 2001 PREVIEW During 2001, Regus recognised the challenges confronting the serviced office sector and took swift, radical action to meet them. As a result, the company was able to simplify and re-price its business offering, cut costs, re-engineer systems and ready itself for the economic conditions forecast for 2002. COST EFFECTIVE San Francisco 15994 Preview section (F) new 21/3/02 11:11 AM Page 6 5 Products and initiatives During 2001, we detected a global trend for organisations, ranging from start-ups through to multinationals, to switch to the structured outsourcing of their office accommodation requirements. This trend was mirrored in research from the Chartered Videoconferencing provides a stress-free and flexible Institute of Purchasing and Supply (CIPS) published in alternative to business travel. As the world’s leading association with Regus. The True Cost of the Flexible Office independent provider of videoconferencing services, revealed that over the past five years serviced offices in Regus saw an increase in demand for its services in the the UK had become even more cost-effective for longer aftermath of 11 September. periods, for larger numbers of people and over a wider geographic spread, compared with conventional More generally, the drive to reduce capital expenditure in lease arrangements. the second half led Regus to redouble its efforts in support of its franchising strategy (first announced in January 2001). Because customers are increasingly demanding the The signing of major deals with the HAK Group in the flexibility, cost-effectiveness, ease of use, quality and global Middle East and Business Spark in the UK towards the coverage provided by Regus, we introduced a number of end of the year opened a new chapter in the company’s initiatives during the year to help meet that demand: history. With a strong pipeline of potential franchisees, • all inclusive Business Service packages a significant proportion of its global network franchised. the expectation is that within five years Regus will have Joint ventures and management contracts are also expected to play a significant role going forward. • day and hourly pricing • a card-based Regus Global Membership Programme for Corporate Touchdown • a new Business Continuity product offering • a Global Meeting Room Directory and Agent Hotline • a global agreement with Genesys for state-of-the-art audio conferencing services CUSTOMERVIEW “Once we factored in fit-out costs to bring a building up to our required specification, we found that the cost of taking the same amount of fully serviced space at the Regus business centre at London’s Chiswick Park was not only comparable, but our start-up costs were greatly reduced.” Olivier Strilka, Managing Director, France Telecom R&D UK France Telecom R&D has taken 100 workstations in a five-year deal 15994 Preview section (F) new 21/3/02 11:11 AM Page 7 6 PREVIEW Report and Accounts 2001 Sales and marketing The Regus customer contact management system was remodelled during the year and has provided the company with the basis for a far-reaching review of its sales and marketing functions. The enhancement of systems and procedures is expected to continue into 2002. Regus reinforced its market leadership during the year. The Regus also continued to invest in its well-known company was the recipient of three top awards at The 2001 international brand through high-profile sponsorship UK Property Awards including the International Property activities. The 2001 Regus London Film Festival was the Achievement Award for Regus, the Property Personality of most successful festival ever – attracting a record number the Year Award and the Property Entrepreneur of the Year of attendees and staging a record number of international Award for Mark Dixon. film premieres. As a result, the Regus brand enjoyed extensive print and broadcast media exposure during In addition to its work with the Chartered Institute of the month of November. We expect to continue our Purchasing and Supply, Regus demonstrated further sponsorship of the Regus London Film Festival in 2002. “thought leadership” by commissioning research into the use of email communication and funded How Britain Works, The tragic events of 11 September led to the postponement a survey of HR professionals looking at the links between of the Ryder Cup. However, as an Official Partner to the staff recruitment and retention and work environment. Ryder Cup, Regus will be continuing its sponsorship of this top global sporting event when the 2001 event is re-staged in Birmingham, England, in September 2002. CUSTOMERVIEW “We were very pleased when we found that the network of Regus centres matched our space and flexibility requirements and that centres were located almost everywhere we wanted to go.” Damien Belgeonne, Group property manager, FLAG Telecom Flag Telecom has taken 86 workstations in a one-year deal 15994 Preview section (F) new 21/3/02 11:11 AM Page 8 7 GLOBAL Singapore 15994 Preview section (F) new 21/3/02 11:11 AM Page 9 8 PREVIEW Report and Accounts 2001 EASY TO USE New York 15994 Preview section (F) new 21/3/02 11:11 AM Page 10 9 Operations Regus now has more than 5,800 customers around the world and more than 54,000 people work at Regus centres around the world on a daily basis. During 2001, we added another 71 centres and our first Key customer wins during the year included Hutchison 3G, 16 franchised centres. We increased the number of Fujitsu Siemens, Centrica, Linklaters, France Telecom, countries in which we operate to 50 (2000: 48). We added Philip Morris, Royal Bank of Scotland, and Interbrew. 23,502 workstations and 775 franchised workstations, during this period. We also added 3,885 new workstations The corporate development team, which manages relations through the expansion of existing centres, bringing the with major property owners worldwide, shifted its focus. In year-end total to 92,232. the face of economic downturn, much work is being done The bulk of the growth was in the US, where we added outcome for Regus and property owners alike. A new 8,102 workstations, with the balance mainly in the major priority is the development of relations with agents on a towns and cities in which we already operated. We also retained basis. This approach is expected to yield long-term entered Canada and the United Arab Emirates for the benefits in terms of cost and efficiency of sale. to restructure commercial arrangements to ensure a win-win first time. There were a number of well-publicised announcements in an exceptional cost of £3.3 million. The closure of much during the year. These included the acquisition of of HQ’s continental European network in the late autumn Satellite/Skyport Conferences Centers in Holland and subsequently led to the transfer of customers to Regus in Belgium; and the acquisition of Stratis Business Centres Inc Austria, Spain and Germany. The abortive acquisition of HQ Global Workplaces resulted in the United States. CUSTOMERVIEW “The cost-effectiveness and flexibility of outsourced space at the Regus centre is the perfect solution for us. The availability of high quality serviced space on flexible terms means we can move in easily and we don’t incur any expensive start-up costs.” Ken King, Head of Facilities, Office of Fair Trading The OFT has taken 90 workstations in a nine-month deal 15994 Preview section (F) new 21/3/02 11:11 AM Page 11 10 PREVIEW Report and Accounts 2001 Technology Regus continued to invest heavily in IT, in particular in those projects that offer direct value to our customers. As a result, the Regus technology proposition now encompasses: tiered Internet access packages through RegusNet; an automatic on-line PC backup service; domain name registration and web-space services; managed email services; and on-site engineering support service for customers. 2002 will see the provision of PC’s on desks and other To achieve further cost savings for our customers, we re- hardware at highly competitive rates; an expanded suite of negotiated supplier contracts and maintenance agreements, software applications and services; the launch of Regus thereby enhancing our own buying power. We also reached Customer Business Portal offering on-line products and new “voice agreements” with telecoms providers that have services along with local/community information services; reduced call costs globally and reduced data bandwidth customer intranet/extranet and other hosting services; and costs in core Regus regions. customer disaster recovery services. We expect to see significant benefits for our business from Through technological innovation, we have also seen the pilot and subsequent roll-out of our new integrated improved automation and efficiency in the business itself. web-based inventory, reservation and billing system. Much This includes completion of the global roll-out of RegusNet work is also underway to reduce the administrative burden and the Regus Windows2000 platform; the continued roll- at centre-level and enable customer-facing staff to focus out of the Regus eBusiness application suite, together with even more fiercely on the provision of quality service. new management tools providing more timely and detailed monitoring and reporting of global occupancy, forward orders and revenues. All-in-all, the delivery of these benefits depends upon a scalable, resilient, reliable and properly supported infrastructure. To help achieve this, we announced a landmark agreement with top technology suppliers in December. This agreement allows Regus to cut IT costs by outsourcing the management of its global data centre, local and wide area networks, hardware infrastructure, operating systems, help desk and engineering support, business continuity and e-business applications. CUSTOMERVIEW “The key benefits we derive from the business centre concept in general, and Regus in particular, can be summed up in the word ‘flexibility’.” Patrick Van den Bogaert, Office Services Manager, DHL DHL has taken 237 workstations in a one-year deal 15994 Preview section (F) new 21/3/02 11:11 AM Page 12 11 FLEXIBLE Sydney 15994 Preview section (F) new 21/3/02 11:11 AM Page 13 12 PREVIEW Report and Accounts 2001 QUALITY Paris 15994 Preview section (F) new 21/3/02 11:11 AM Page 14 13 People We recognise that the success of the Regus business depends to a large extent on the calibre and motivation of the people we employ. We have promoted a dynamic, high-work ethic with a strong culture of delivering excellent service to customers. We regard all our employees as “team members”, In accordance with new European Union employment irrespective of their functional title or status. We keep them regulations on works councils, Regus convened its first informed of developments through a weekly email news Regus European Forum (REF) in December 2001. This sheet Regus News, through regular webcasts and an involved some 21 company representatives. In future, annual conference (which will be virtual for the first time in the REF is expected to convene every four months. 2002). It is a credit to them that team members have been enthusiastic in helping us increase productivity at every level At the end of 2001, we employed 2,466 people: 642 despite a company-wide salary freeze. in the UK and Ireland; 972 in the rest of Europe; 529 in the Americas; 235 in the rest of the world; and 88 at The Regus Open Learning Institute (ROLI), our company- Regus headquarters. wide web-based learning programme, has continued its success as a training tool. Since its launch, the content of the programme has expanded exponentially and ROLI now forms the keystone of our training and professional development activities. CUSTOMERVIEW “We found that Regus just does not have any competition at this level of service and quality.” Bernard Carey, London Liaison Office Director, BMW Group The BMW Group has taken 21 workstations in a five-month deal 15994 Preview section (F) new 21/3/02 11:11 AM Page 15 14 PREVIEW Report and Accounts 2001 Financial review Introduction Revenues The Group recorded an operating loss of £19.0 million (2000: £m 600 £12.4 million profit) before exceptional items on turnover of £512.6 million (2000: £421.1 million). After an exceptional charge of £90.5 million (2000: £9.5 million), the operating loss was £109.5 million (2000: £2.9 million profit). Overall, the year was characterised by a sharp economic downturn in the US in the first quarter, which subsequently deepened and spread 500 400 300 200 100 0 512.6 421.1 200.6 111.6 58.8 1997 1998 1999 2000 2001 to other markets during the second quarter. Rates of fill for EBITDA before exceptional items new centres slowed as demand for office space declined and £m 60.0 prices were impacted by competitive pressures. Regus responded to the challenging environment by changing its business model and restructuring its cost base. Restructuring Regus undertook a major restructuring in 2001; the total cost base was reduced by approximately £60 million (annualised) and the workforce was reduced by a quarter. The related restructuring charge of £80.0 million comprises of £37.4 million for onerous lease provisions, £5.4 million redundancy costs and £4.6 million write-down of capitalised IT costs, as well as £32.6 million from the write-down in the investment in own shares. 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 -40.0 53.0 45.1 -0.2 -5.8 -23.0 1997 1998 1999 2000 2001 15994 Preview section (F) new 21/3/02 11:11 AM Page 16 15 Results of Operations The following table sets forth the Group’s revenue, centre contribution (gross profit) before exceptional items and workstations (i.e. weighted average number of workstations) by geographic region. Year ended 31 December Revenue Contribution Workstations Revenue Contribution Workstations 2001 2000 213.6 151.9 113.7 33.4 512.6 59.4 24.9 (10.0) 3.5 77.8 (in £ millions, except workstations) 23,524 26,089 21,494 5,433 76,540 188.6 118.9 86.5 27.1 421.1 59.6 29.2 13.9 (2.4) 100.3 17,568 17,565 10,900 4,300 50,333 UK & Ireland Rest of Europe Americas Rest of World Total The following table sets forth the Group’s revenue, centre contribution (gross profit) before exceptional items and workstations by established vs. new centres. Year ended 31 December Established Centres New Centres Total Revenue 2001 2000 Revenue Contribution Workstations Revenue Contribution Workstations 410.8 101.8 512.6 103.1 (25.3) 77.8 (in £ millions, except workstations) 51,932 24,608 76,540 293.6 127.5 421.1 92.3 8.0 100.3 30,941 19,392 50,333 Revenue on a global basis increased 22% to £512.6 million REVPAW in new centres decreased from £6,575 in 2000 in 2001 from £421.1 million in 2000 with weighted average to £4,137 in 2001. Included in revenues in 2001 is £0.9 workstations increasing 52% to 76,540 in 2001 from million (2000:£nil) of franchise income, derived from royalties 50,333 in 2000. As a result, total revenue per available and franchise fees. workstation (REVPAW) decreased from £8,366 in 2000 to £6,697 in 2001. REVPOW (the total revenue per occupied workstation) fared better, with the reduction limited to 1% (falling from £11,230 in 2000 to £11,147 in 2001). Revenue from established centres increased 40% to £410.8 million in 2001 and weighted average workstations in established centres increased 68% to 51,932. Accordingly, REVPAW in established centres decreased from £9,489 in 2000 to £7,910 in 2001 principally due to lower rates arising from longer term contracts. Revenue from new centres decreased 20% to £101.8 million in 2001 and workstations in new centres increased 27% to 24,608. Average occupied workstations increased during 2001 ending the year up 23% to 45,986 (2000: 37,497). Centre Contribution (Gross Profit) before exceptional items Centre contribution on a global basis decreased 22% from £100.3 million in 2000 to £77.8 million in 2001. This decrease reflects the increasing trend towards longer term contracts with the average contract increasing from 6.5 months to 11.1 months during 2001. Centre contribution from established centres increased 12% to £103.1 million in 2001 primarily due to the 68% increase in workstations to 51,932. The centre contribution 15994 Preview section (F) new 21/3/02 11:11 AM Page 17 16 PREVIEW Report and Accounts 2001 Financial review continued No. 80000 70000 60000 50000 40000 30000 20000 10000 0 Available Workstations margin (centre contribution before exceptional items as a 24608 percentage of revenue) from established centres fell by 6% to 25% between 2001 and 2000. Centre contribution from new centres decreased to negative £25.3 million in 2001 19392 51932 from positive £8.0 million. 13005 30941 Administrative Expenses 4075 5082 1997 16772 7223 9070 Established New Total administrative expenses before exceptional items increased 5% to £91.3 million in 2001. As a percentage of 1998 1999 2000 2001 revenues, however, administrative expenses decreased REVPAW - established centres £ 10000 9489 7872 7990 7910 7340 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 from 21% in 2000 to 18% in 2001, reflecting increased efficiencies arising from Regus’ strategy of focusing on countries and markets where it had existing centres and the restructuring. Sales and marketing costs increased 11% to £48.2 million in 2001 (or 53% of total administrative expenses) from £43.5 million in 2000 (or 50% of total administrative expenses). Regional and central overheads decreased 1% to £43.1 million in 2001 (or 47% of total administrative expenses) from £43.3 million in 2000 (or 50% of total administrative expenses). 1997 1998 1999 2000 2001 Exceptional Item Contribution before exceptional items £m 110.0 103.1 92.3 As well as the restructuring costs detailed above, the £90.5 million exceptional item included the costs of the aborted merger with HQ (£3.3 million), the postponement of the 2001 Ryder Cup, for which Regus was a principle 90.0 70.0 50.0 30.0 10.0 -10.0 -30.0 -50.0 35 30 25 20 15 10 5 0 % of Revenues 41.7 sponsor, (£2.3 million) and the write-down of goodwill on 23.0 9.8 -1.3 -8.6 8.0 acquisitions (£4.9 million). Net Interest Payable -24.6 -25.3 Established Interest payable decreased substantially in 2001 compared to 1997 1998 1999 2000 2001 New Overheads 29.9 26.5 22.3 20.6 17.8 Sales and marketing General and administrative 1997 1998 1999 2000 2001 2000 primarily due to interest payable on Regus’ £100 million senior secured multi-currency secured loan facility which was repaid from the proceeds of the IPO in October 2000. Tax on Loss on Ordinary Activities Despite Regus’ overall loss making position in 2000 and 2001, Regus provided for tax liabilities in both periods, primarily because tax liabilities arose on profits arising in the UK, Ireland, and seven continental European countries. However, these taxable profits could not be offset by tax losses in all other countries where Regus operates. The 15994 Preview section (F) new 21/3/02 11:11 AM Page 18 17 majority of Regus’ operating companies have tax losses translation are recorded in reserves where they are available to carry forward against future profits. In some matched with the gains and losses on related borrowings, countries, there are time restrictions on the carry forward of foreign exchange contracts, currency swaps or currency such losses. The group expects to adopt FRS 19 (Deferred options, used to hedge the net assets of subsidiaries. tax) with effect from 1 January 2002. Group Treasury makes proposals to a Treasury Risk Cash flow Operating cash flow before exceptional items was Committee of the Board on a quarterly basis regarding the hedging policy for overseas assets and liabilities. £56.1 million in 2001 compared to £117.9 million in 2000. Currency transaction exposures Decreased trading levels resulted in net working capital Currency transaction exposure arises where sales and outflows of £2.7 million in the year. Capital expenditure in purchases are transacted by a business unit in a currency 2001 increased to £128.5 million of which £105.6 million other than its own, local, functional currency. The majority was funded from cash resources and the balance through of the Group’s businesses, however, sell to clients and pay finance leases. Convertible Bond Issue The Directors felt that the business would be additionally protected by the creation of a cash reserve and raised £40m on 28 December 2001 by way of a convertible bond suppliers in their local markets in their own functional currencies and as a result, have limited transaction exposure. Where this is not the case, it is our policy to cover material transactions as soon as they are committed and to use forward currency contracts to do so. issue. Funding and deposits The option to convert the bond lies with Regus (unless the share price rises above 86.32 pence) and the Directors will closely monitor the trading performance and projected cashflows in order to be able to make an early decision to convert the bond if conditions require. Treasury Management The Group’s treasury policy seeks to ensure that adequate financial resources are available for day-to-day operations The Group continues to manage substantial cash balances. Outstanding borrowings comprise office equipment financed through finance leases as well as specific loans from certain property owners advanced on commercial terms. Wherever possible, these borrowings are matched to the local currency of the borrower. Surplus funds are deposited in investment grade instruments that carry low credit risk and which are readily realisable. while managing its currency, interest rate and counter-party Counter-party risk credit risks. Group Treasury strategy and policy is developed The Group actively manages its relationships with a panel centrally, with subsidiary companies being required to operate of high-quality financial institutions. Cash assets, within a framework of controls approved by the Board. We do borrowings and other financial instruments are distributed not engage in speculative transactions. Our policy on each of according to predetermined limits approved by the Board the major areas of treasury activity is set out below. to control exposure to any particular institution. Currency translation Interest rate risk The results of the Group’s foreign subsidiaries are The Group’s policy is to borrow and invest funds using both translated into sterling at the average exchange rates for fixed and floating interest rates. The Group manages the period concerned. The balance sheets of foreign interest rate risk using forward rates or interest rate swaps subsidiaries are translated into sterling at the closing as appropriate to minimise the risk to the Group of adverse exchange rates. Any gains and losses resulting from the movements in interest rates. 15994 Preview section (F) new 21/3/02 11:11 AM Page 19 18 PREVIEW Report and Accounts 2001 Directors George Gray Mark Dixon Rudy Lobo Independent Non-Executive Chairman, Chief Executive, age 42 Executive Director and Company age 63 Secretary, age 45 Dr Gray was appointed as a Non- Founder of Regus. His vision of the Mr Lobo joined Regus nine years Executive Director of Regus in August future coupled with his entrepreneurial ago and was previously Group 1999. From 1987 until 1999, he was skill and drive have been responsible for Finance Director. He is responsible for Executive Chairman of Serco Group plc. the Group’s dynamic growth over the commercial issues, risk management He was appointed Chairman of Serco past ten years. He is recognised as a and legal services. Previously, Mr Lobo on completion of the management major contributor to the growth of the was the Group Company Secretary of buy out from RCA. He is also a Non- serviced office industry. He is a member Medicom International Ltd, a publisher Executive Director of Misys plc. He is of the nomination committee. of medical journals, and a Director of a member of the audit committee and remuneration committee and Chairman of the nomination committee. several of its subsidiaries. 15994 Preview section (F) new 21/3/02 11:11 AM Page 20 19 Stephen Stamp John Matthews Roger Orf Group Finance Director, age 40 Independent Non-Executive Director, Independent Non-Executive Director, age 57 age 49 Mr Stamp joined Regus in January 2000 Appointed in 1995. He is also Chairman Managing Director and founding from Shire Pharmaceuticals Group plc, of Crest Nicholson plc and a director partner of Pelham Partners, a property where he was Group Finance Director. of Nationwide Accident Repair Services investment and advisory company, since Prior to joining Shire in 1994, he was an plc, Rotork plc and SDL plc. 1995. Pelham Partners, working closely assistant director of corporate finance at A chartered accountant, he has held with Apollo Real Estate Advisors, has Lazard Brothers and before that spent senior executive positions in investment invested more than US$600 million of four years at KPMG London, qualifying banking and in industry. He is equity in 14 European countries. Prior as a chartered accountant in 1987. He Chairman of the audit committee and to 1995, Mr Orf was in charge of is also a non-executive director of Enact remuneration committee, and a member Goldman Sachs’ European real estate Pharma plc. of the nomination committee. department. He is a member of the Auditors KPMG Audit Plc 8 Salisbury Square London EC4Y 8BB Bankers NatWest Bank Plc 1 Princes Street London EC2R 8PB Legal advisers to the Company Financial advisers audit committee and the remuneration committee. Registered office and headquarters 3000 Hillswood Drive Chertsey Surrey KT16 0RS as to English law Slaughter and May 35 Basinghall Street London EC2V 5DB Legal advisers to the Company as to US law Davis Polk & Wardwell 99 Gresham Street London EC2V 7NG and stockbrokers Website Merrill Lynch International www.regus.com Registered number 3548821 Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Registrars Capita IRG Plc Bourne House 34 Beckenham Road Kent BR3 4TU 15994 financial section (F) new 21/3/02 11:18 AM Page 20 20 FINANCIAL REVIEW Report and Accounts 2001 REVIEW Directors’ report The directors present their report and the audited Employees financial statements of Regus plc for the year ended It is the Group’s policy to communicate with all employees 31 December 2001. Principal activities The Group is engaged in the provision of fully-serviced business centres. The Chairman’s statement, the review of and to encourage them to take a wider interest in the affairs of their employing company and the Group. This is done in a variety of ways, including electronic media, in-house journals, bulletins and briefing sessions. operations and the financial review on pages 2 to 17 The health and safety of employees is of paramount describe the principal activities of the Group during 2001. importance. Safety awareness is actively promoted in the Business review and future developments The loss on ordinary activities before taxation for the year ended 31 December 2001 was £110.1 million (2000: loss working environment and is reviewed from time to time, in the light of good practice and developing legislation, in all businesses worldwide. £3.9 million). An indication of future developments is given The Group is committed to the principle of equal in the Chairman’s statement. opportunity in employment, regardless of a person’s race, Dividends No dividend is proposed (2000: £nil). Directors and directors’ interests The directors who held office during the year were : M L J Dixon S A Stamp R J G Lobo J W Matthews R G Orf G G Gray R M Kuijpers (resigned 2 April 2001) Details of the directors’ interests and shareholdings are given in the Remuneration report on pages 25 to 27. In accordance with the Articles of Association, R G Orf and S A Stamp retire by rotation and, being eligible, offer themselves for re-election at the Annual General Meeting. creed, nationality, sex, age, marital status or disability. Employment policies are fair, equitable and consistent with the skills and abilities of the employees and the needs of the Group’s businesses. These policies ensure that everyone is accorded equal opportunity for recruitment, training and promotion. Where an employee becomes disabled while employed by a Group company, every effort is made to enable that person to continue in employment. The number of employees and their remuneration are set out in note 5 to the financial statements. Political and charitable donations The Group made no political contributions in either 2001 or 2000. There were no donations to UK charities in 2001 (2000: £18,190). 15994 financial section (F) new 21/3/02 11:18 AM Page 21 21 Payment of creditors Substantial shareholdings It is the policy of the Group to agree terms of payment for The Company has been notified of the following holders its business transactions with its suppliers. Payment is then of 3% or more of its issued share capital for the purposes made in accordance with these, subject to the terms and of Section 198 of the Companies Act 1985, as at conditions being met by the supplier. Trade creditor days of 8 March 2002: the Group for the year ended 31 December 2001 were 48 days (2000: 44 days). The Company does not follow any code or standard on payment practice. The Holding Company has no trade creditors. Statement of directors’ responsibilities Company law requires the directors to prepare financial statements for each financial period which give a true and Paramount Nominees Ltd1 HSBC Trustee Jersey Ltd2 Mourant and Co Trustees Ltd3 365,329,286 23,140,000 18,120,670 62.8% 3.99% 3.12% 1 The beneficiary is Maxon Investments BV. M L J Dixon owns 100% interest in Maxon (page 27). 2 The beneficiary of half of this holding is R J G Lobo (page 27). 3 These shares are held by Regus Employee Trust (note 22). fair view of the state of affairs and of the profit or loss of the Introduction of the Euro Company and Group for that period. In preparing these The effects on the business of the introduction of the Euro financial statements, the directors are required to: were not significant. All costs were expensed to the profit • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and loss account. Auditors Pursuant to Section 384 of the Companies Act 1985, a resolution for the re-appointment of KPMG Audit Plc as auditors of the Company and to authorise the directors to determine their remuneration is to be proposed at the forthcoming Annual General Meeting. • prepare the financial statements on the going concern By order of the Board basis unless it is inappropriate to presume that the 8 March 2002 Group will continue in business. R J G Lobo Company Secretary The directors are responsible for keeping proper accounting 3000 Hillswood Drive records which disclose with reasonable accuracy at any Chertsey time the financial position of the Company and of the Group and to enable them to ensure that the financial Surrey KT16 0RS United Kingdom statements comply with the Companies Act 1985. 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. 15994 financial section (F) new 21/3/02 11:18 AM Page 22 22 FINANCIAL REVIEW Report and Accounts 2001 Corporate governance The Board of Directors is committed to maintaining the Board committees highest standards of corporate governance in line with the Combined Code, appended to the Financial Services Authority Listing Rules, which sets out the Principles of Good Governance and the Code of Best Practice. A summary of the Company’s procedures for applying the principles and the extent to which the provisions of the Combined Code have been applied are set out below. Board composition The Board has a number of standing committees, which all have written terms of reference setting out their authority and duties: Audit committee – the members of this committee are Mr J W Matthews (Chairman), Dr G G Gray and Mr R G Orf (all independent non-executive directors). The audit committee meets as required, but not less than four times a year. Its responsibilities, in addition to those referred to under Internal Control, include a critical review of the annual The Board currently comprises three executive directors, and interim financial statements (including the Board’s and three independent non–executive directors, including statement on internal control in the annual report) prior to a non-executive chairman. The Chairman of the audit their submission to the Board for approval, when a report committee, currently Mr J W Matthews, has acted as senior from the committee is also given. The committee also independent director since 1995. Mr R Kuijpers, an reviews the scope and results of the internal and external independent non-executive director, was also a member of audit and its cost-effectiveness and the independence and the Board until 2 April 2001. During this period, he was also objectivity of the auditors. Although other directors, a member of the audit, nomination and remuneration including the Group Finance Director, attend audit committees. The Board schedules seven meetings each committee meetings, the committee can meet for private year, but arranges to meet at other times, as appropriate. discussions with the internal and external auditors. It has a formal schedule of matters specifically reserved for its decision and approval. The Board is supplied with appropriate and timely information to enable it to discharge its duties and requests additional information or variations to regular reporting as it requires. A procedure exists for directors to seek independent professional advice at the Company’s expense in the furtherance of their duties, if necessary. In addition, appropriate training is made available for all new directors to assist them in the discharge of their responsibilities. All directors have access Nomination committee – the members of this committee are Dr G G Gray (Chairman) and Mr J W Matthews (both independent non-executive directors), and Mr M L J Dixon. The committee meets as required but not less than once a year. Its responsibilities include reviewing the Board structure, size and composition, nominating candidates to the Board to fill Board vacancies when they arise and recommending executive directors who are retiring by rotation to be put forward for re-election. to the advice and services of the Company Secretary, who Remuneration committee – the members of this is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. While all directors are expected to bring an independent judgment to bear on strategy, performance, committee are Mr J W Matthews (Chairman), Dr G G Gray and Mr R G Orf (all independent non-executive directors). A statement setting out the role and responsibility of this committee and the Group’s remuneration policy is shown resources (including key appointments) and standards of on pages 25 to 26. conduct, the independent non-executive directors were selected and appointed for this purpose. All directors submit themselves for re-election at least every three years and directors appointed during the period are required to seek re-election at the next AGM. Going Concern After making appropriate enquiries, the directors have a reasonable expectation that the Group as a whole has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue The independent non-executive directors understand that to adopt the going concern basis in preparing the financial the executive directors will not automatically recommend statements. their re-election. 15994 financial section (F) new 21/3/02 11:18 AM Page 23 23 Internal control • Monthly reports on Group and regional performances are The Board acknowledges its overall responsibility for the provided to the Group executive. Quarterly summaries Group’s system of internal control and for reviewing the and forecasts are presented to the Board and discussed effectiveness of that system on a timely basis. The internal at Group Board meetings. Performance against both control processes have been designed to identify, evaluate budgets and objectives are reviewed with regional and manage the key risks that the Group encounters in management, as are forecasts and material sensitivities. pursuing its objectives. Internal control processes within The Board regularly receives reports from key executives Regus plc encompass all controls, including financial, and functional heads covering areas such as forecasts, operational and compliance controls and risk management. business development, strategic planning, legal and However, such a system is designed to manage rather than corporate matters. eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement. • There is a Group-wide policy governing appraisal and approval of investment expenditure and asset disposals. Post-investment reviews are undertaken. The main Board conducts regular reviews of the Group’s strategic direction. Country and regional strategic objectives, quarterly plans and performance targets for 2002 have been set by the executive directors and are regularly reviewed by the main Board in the context of the Group’s overall objectives. The control framework and key procedures which were in place throughout the year ended 31 December 2001 • Other key policies and control procedures (including finance, operations, and health and safety) having Group-wide application are available to all staff on web-based systems. The Group’s internal audit function reports to management on the Group’s worldwide operations. Its budget, programme of work and its findings, including any material control issues and resultant actions, are reviewed by the comprise the following: audit committee. • The executive directors (‘the Group executive’) normally meet monthly together with certain other senior executives to consider Group financial performance, business development and management issues. Directors of key operating companies meet regularly. • Major business risks and their financial implications are appraised by the responsible executives as part of the budget process and these are endorsed by regional management. Key risks are reported to the Group Board and the audit committee. The appropriateness of controls is considered by the executives, having regard to cost/ To underpin the effectiveness of controls, it is the Group’s policy to recruit and develop appropriately skilled management and staff of high calibre and integrity. High standards of business ethics and compliance with laws, regulations and internal policies are demanded from staff at all levels. The directors have conducted a review of the effectiveness of the Group’s system of internal controls. This review covered all controls, including financial, operational and compliance controls and risk management. The key mechanisms available to the Board in the conduct of its benefit, materiality and the likelihood of risks crystallising. review are: • Country and regional budgets, containing financial and operating targets, capital expenditure proposals and performance indicators, are reviewed by the Group executive and must support regional business strategies. • An ongoing process, through Board meetings, senior management meetings and divisional reviews as well as other management meetings, for the formal identification of the Company’s significant operational risks and mitigating control processes; 15994 financial section (F) new 21/3/02 11:18 AM Page 24 24 FINANCIAL REVIEW Report and Accounts 2001 Corporate governance continued • The Treasury Risk Committee comprising the Group Finance Director, Company Secretary, Tax Director and Group Treasurer, which meets to consider the specific risks associated with Treasury transactions, including the approval of all transactions in financial derivatives; • Since the third quarter of 2001 there has been an embedded system of reporting the effectiveness of key financial, operational and compliance controls. This is a comprehensive self-assessment system built up from centre-level using the Group’s intranet. Results and action plans are then reviewed by senior management and summarised for the main Board; • A multi-disciplinary Group Risk forum, chaired by the Company Secretary, reports to the Board on a quarterly basis. This forum considers all aspects of risk identification and management and its reports represent a key feature of the process by which the Board assesses the overall effectiveness of the Group’s system of internal control. Communications with shareholders The Company has a policy of maintaining an active dialogue with institutional shareholders through individual meetings with senior management. A regular programme of meetings with major institutional shareholders is planned in order to discuss matters affecting the Group. In addition presentations will be made four times a year after the announcement of results, the details of which, together with Group financial reports and announcements, will be accessible via the Group’s internet site. The Company corresponds regularly on a range of subjects with its individual shareholders who have an opportunity to question the Board, as well as the Chairman of the audit and remuneration committees, at the Annual General Meeting. Compliance statement The Company has complied with the provisions set out in section 1 of the Code of Best Practice prepared by the Committee on Corporate Governance and published in June 1998 (‘the Combined Code’) throughout the year ended 31 December 2001. 15994 financial section (F) new 21/3/02 11:18 AM Page 25 25 Remuneration report The remuneration committee Group and of individual directors over the previous The remuneration committee is chaired by Mr J W Matthews 12 months and the pay and employment conditions and its other current members are Dr G G Gray and Mr R G elsewhere in the Group. The committee also uses Orf. All members of this committee are independent non- information provided by external consultants relating to the executive directors. The Group Chief Executive and/or other rates of pay for similar positions in comparable companies. directors may be invited to attend some meetings of the Any increases in basic salary are effective from 1 January committee in an advisory capacity as the committee in each year. considers appropriate. The committee will consider all material elements of remuneration policy, remuneration and incentives of executive directors and senior management with reference to independent remuneration research and professional advice in accordance with the Combined Code on Corporate Governance, and will make recommendations to the Board of Directors on the framework for executive remuneration and its cost. The Board of Directors is then responsible for implementing the recommendations and agreeing the remuneration package of individual directors. Directors are not permitted, under Regus’ Articles of Association, to vote on their own terms and conditions of remuneration. The committee does not make recommendations on the remuneration of non-executive directors, which is a matter solely for the full Board. The members of the remuneration committee attend the Company’s Annual General Meeting and are available to answer shareholders’ questions about directors’ remuneration. Remuneration policy Remuneration policy centres on ensuring that remuneration packages are sufficiently competitive to attract, retain and motivate the right calibre of executive directors and senior management. Incentive payments are conditional upon The remuneration table included within this report also shows benefits received in 2001. The main benefits relate to the provision of company cars and the provision of private medical insurance for the director and his immediate family. During 2001, the following contractual emoluments were irrevocably waived by the directors: Director Mark Dixon Stephen Stamp Rudy Lobo George Gray John Matthews Amount Waived (£) 193,320 85,908 21,667 42,500 10,417 Annual performance bonus Under the annual bonus scheme, the executive directors are entitled to an annual bonus of up to 40% of their basic salary, which is payable provided the budget targets for the relevant financial year are exceeded. Long-term incentive plan Other than share options, the executive directors do not participate in any of the long-term incentive plans offered to senior management. demanding performance criteria so as to align incentive Share options awards paid to directors directly with the interest of shareholders. The remuneration committee uses the services of external consultants to help it agree appropriate packages reflecting the remuneration policy. The constituent parts of those packages are set out in the following paragraphs. Basic salary and benefits Salaries are reviewed annually and determined by the committee, taking into account the performance of the The Group believes that share ownership by employees, including the executive directors, strengthens the link between their personal interests and those of ordinary shareholders. Regus has established a number of employee share plans, including the Regus Global Share Plan and the Regus International Sharesave Plan. No additional option grants were made to any director during 2001. 15994 financial section (F) new 21/3/02 11:18 AM Page 26 26 FINANCIAL REVIEW Report and Accounts 2001 Remuneration report continued During 1999 the Group established the Regus Employee • Life assurance cover based on the level of contributions Trust. The Trust is a discretionary trust for the benefit of with the opportunity to purchase additional cover, subject employees, including executive directors. The Trust may to Inland Revenue limit of 5% of net relevant earnings; issue shares to the Group’s employees (including directors) • Pension to spouse payable on death. at the discretion of the Company. The Trust has purchased some of the shares in the Company which would be required if participants were entitled to exercise the maximum number of options outstanding under the share option plans. Pensions The executive directors participate in the Company’s Money Purchase (Personal Pension) Scheme. The Company matches employee contributions up to a maximum of 10% of basic salary. The main benefits to executive directors, who contribute a percentage of their gross salaries to the scheme, are: • A pension, based on the value of fund built up from personal contributions, at any age between 50 and the normal pension age of 65; • A tax-free cash sum, payable when taking the benefits; All executive directors are subject to the Inland Revenue cap on the amount of salary which may be treated as pensionable. Service contracts On 1 July 2000 Mr M L J Dixon, Mr R J G Lobo and Mr S A Stamp entered into full-time rolling service agreements with Regus Management Limited. These are terminable by either party giving not less than 12 months’ notice to the other party or automatically on the respective directors reaching the age of 65. Dr G G Gray, Mr J W Matthews and Mr R G Orf, as non-executive directors, have been appointed pursuant to letters of appointment dated 2 September 1999 (as amended by letters of amendment dated 30 November 1999 and 21 September 2000), 26 October 1999 and 29 August 2000 respectively. These appointments are for three years, terminable on three months’ notice by the Company or the directors. Directors’ remuneration table Salary/ fees £’000 206.7 99.5 143.3 – 37.5 6.3 14.6 5.0 512.9 Bonus £’000 Benefits £’000 – – – – – – – – 21.9 9.8 17.2 – – – – – 48.9 Total Total Pension scheme Pension scheme remuneration remuneration contributions contributions 2001 £’000 228.6 109.3 160.5 – 37.5 6.3 14.6 5.0 561.8 2000 £’000 448.0 225.3 223.8 4.8 34.5 25.0 25.0 1.7 988.1 2001 £’000 22.7 12.5 11.6 – – – – – 2000 £’000 28.0 10.5 9.6 – – – – – 46.8 48.1 Executive Mark Dixon Stephen Stamp Rudy Lobo Peter Jenkins Non-executive George Gray Robert Kuijpers* John Matthews Roger Orf * Former director 15994 financial section (F) new 21/3/02 11:18 AM Page 27 27 Directors’ shareholdings Mark Dixon1 Rudy Lobo Stephen Stamp George Gray (Chairman) John Matthews Roger Orf Ordinary shares Ordinary shares Beneficial holdings Beneficial holdings 31 December 2001 31 December 2000 364,329,286 355,329,286 38,462 384,615 38,462 359,724 300,000 38,462 384,615 38,462 10,385 8,583,844 1 Mr Dixon’s beneficial ownership of shares is calculated by attributing to him all shares owned by Maxon Investments BV, an entity in which Mr Dixon holds 100% of the share capital. Directors’ share options Option 31 December type 2000 A A B C A C 266,179 283,503 11,570,000 4,003 2,790,203 4,003 Rudy Lobo Stephen Stamp Granted during 2001 31 December Exercise Date from which 2001 price exercisable Expiry date – – – – – – 266,179 283,503 11,570,000 4,003 2,790,203 4,003 5.0p 145.5p 0.375p 242.0p 145.5p 242.0p 1/1/03 1/1/03 31/12/09 31/12/09 31/12/03 1/1/04 7/1/03 1/1/04 – 1/7/04 7/1/10 1/7/04 A Awarded under the Regus Team Member Share Plan for nil consideration. The Board of Directors has the discretion to waive some or all of the exercise price. The grant to Mr Stamp is subject to higher performance targets. B Awarded to Mr Lobo by Maxon pursuant to an agreement dated 17 September 1999 recording the terms of an agreement entered into on 11 November 1992 between Mr Lobo and Maxon, as amended on 30 June 2000. These shares are currently held by HSBC Trustees (Jersey) Limited and will not be capable of exercise before 31 December 2003 other than in defined circumstances (which include the discretion of Maxon). The shares subject to the option are transferable to Mr Lobo upon payment to Maxon of an exercise price of £45,000, which is equivalent to the market value of the relevant shares at the time the parties entered into the option arrangements. C Awarded under the Regus International Sharesave Plan, the maximum monthly contribution for which may not exceed the amount permitted by the Income and Corporation Taxes Act 1988. Summary particulars of the Group’s share option schemes None of the directors had a beneficial interest in any are given in note 22 on page 52. contract of significance in relation to the business of the Company or its subsidiaries at any time during the The market price of the shares at 31 December 2001 was 51.5p and the range during 2001 was 11.5p to 392p. financial year. 15994 financial section (F) new 21/3/02 11:18 AM Page 28 28 FINANCIAL REVIEW Report and Accounts 2001 Independent auditor’s report to the members of Regus plc We have audited the financial statements on pages Basis of audit opinion 29 to 57. Respective responsibilities of directors and auditors The directors are responsible for preparing the annual report. As described on page 21 this includes responsibility for preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the UK Listing We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. Authority and by our profession’s ethical guidance. We planned and performed our audit so as to obtain all the We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. require for our audit, or if information specified by law Opinion regarding directors’ remuneration and transactions with the In our opinion the financial statements give a true and fair Group is not disclosed. view of the state of affairs of the company and the Group as We review whether the statement on pages 22 to 24 reflects the company’s compliance with the seven provisions of the Combined Code specified for our review by the Financial Services Authority, and we report if it does at 31 December 2001 and of the loss of the Group for the year then ended, and have been properly prepared in accordance with the Companies Act 1985. not. We are not required to consider whether the Board’s KPMG Audit Plc statement on internal control covers all risks and controls, 8 March 2002 Chartered Accountants, Registered Auditor or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the information contained in the annual report, including the corporate governance statement, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. 15994 financial section (F) new 21/3/02 11:18 AM Page 29 29 Consolidated profit and loss account for the year ended 31 December 2001 Turnover (including share of joint ventures) Less: share of turnover of joint ventures Turnover Cost of sales (centre costs) before exceptional items Exceptional items Cost of sales (centre costs) after exceptional items Gross profit (centre contribution) Administration expenses before exceptional items Exceptional items Administration expenses after exceptional items Group operating (loss)/profit Share of operating loss in joint ventures Total operating (loss)/profit: Group and share of joint ventures Net interest payable and other similar charges Loss on ordinary activities before tax Tax on loss on ordinary activities Loss on ordinary activities after tax Equity minority interests Retained loss for the financial year Loss per ordinary share: Basic and diluted (p) Basic and diluted before exceptional items (p) All results arose from continuing operations. Note 1 1 3 1 3 1 6 2 7 19 8 31 Dec 2001 31 Dec 2000 £’000 524,622 (11,989) 512,633 (434,787) (37,955) (472,742) 39,891 (91,255) (52,591) (143,846) (103,955) (5,572) (109,527) (554) (110,081) (10,090) (120,171) 1,933 (118,238) (21.0) (5.2) £’000 429,200 (8,075) 421,125 (320,832) – (320,832) 100,293 (86,859) (9,501) (96,360) 3,933 (1,027) 2,906 (6,763) (3,857) (9,926) (13,783) 253 (13,530) Restated (2.7) (1.1) 15994 financial section (F) new 21/3/02 11:18 AM Page 30 30 FINANCIAL REVIEW Report and Accounts 2001 Balance sheets as at 31 December 2001 Fixed assets Intangible assets Tangible assets Investments Investments in subsidiaries Investment in own shares Other investments Interest in joint ventures: Share of gross assets Share of gross liabilities Total investments Current assets Stock Debtors: amounts falling due within one year Debtors: amounts falling due after more than one year Cash at bank and in hand Creditors: amounts falling due within one year Provisions for liabilities and charges due within one year Net current (liabilities)/assets Total assets less current liabilities Creditors: amounts falling due after more than one year Group Group Company Company 31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 Note £’000 £’000 £’000 £’000 9 10 11 11 11 11 12 12 13 16 14 4,307 – 242,299 193,453 – – – – – 3,805 33 15,656 (14,562) 1,094 4,932 251,538 – 47,021 – 13,601 (9,461) 4,140 51,161 244,614 5,631 5,631 – – – – – – – – – – 5,631 5,631 5,631 5,631 392 279 114,288 129,677 3,000 117,074 234,754 – 169,821 299,777 – 256 274,235 69,985 344,476 – 393 202,073 98,387 300,853 (344,392) (317,883) (52,933) (15,493) – (18,106) 226,508 (23,050) (794) – 291,543 297,174 – – – 285,360 290,991 – – 202,664 297,174 290,991 29,034 279,858 615 (224,482) (106,417) 88,445 203,090 347 (426) 29,106 279,765 8,948 (20,645) 297,174 – 29,034 279,858 5,531 (23,432) 290,991 – (19,953) (129,591) 121,947 (24,806) (8,349) 88,792 29,106 279,765 4,056 Provisions for liabilities and charges due after more than one year 16 Net assets Capital and reserves Called-up share capital Share premium account Other reserves Profit and loss account Equity shareholders’ funds Equity minority interests 17 18 19 19 The financial statements on pages 29 to 57 were approved by the Board of Directors on 8 March 2002 and were signed on its behalf by: 88,792 202,664 297,174 290,991 Mark Dixon Chief Executive Stephen Stamp Group Finance Director 15994 financial section (F) new 21/3/02 11:18 AM Page 31 31 Consolidated cash flow statement for the year ended 31 December 2001 31 Dec 2001 31 Dec 2000 Note £’000 £’000 Cash inflow from continuing operating activities Net cash inflow before exceptional items Outflow related to exceptional items Net cash inflow from continuing operating activities Returns on investments and servicing of finance 20(a) 20(a) Interest received Interest paid Interest paid on finance leases Taxation Tax paid Capital expenditure and financial investment Purchase of tangible fixed assets Sale of tangible fixed assets Purchase of own shares Purchase of investments Acquisitions and disposals Purchase of subsidiary undertakings Investment in joint ventures Cash outflow before management of liquid resources and financing Management of liquid resources Financing (Decrease)/increase in cash in the period 20(b) 20(b) 20(c)&(d) 56,140 (12,144) 43,996 3,906 (252) (3,351) 303 (6,275) (6,275) (105,633) 3,052 – (26) 117,899 – 117,899 3,851 (7,993) (2,861) (7,003) (2,224) (2,224) (88,078) 1,506 (42,500) – (102,607) (129,072) (5,712) (5,631) (11,343) (75,926) 45,643 22,714 (7,569) – (3,789) (3,789) (24,189) (78,712) 118,766 15,865 15994 financial section (F) new 21/3/02 11:18 AM Page 32 32 FINANCIAL REVIEW Report and Accounts 2001 Consolidated statement of total recognised gains and losses for the year ended 31 December 2001 Loss for the financial year Exchange differences Tax charge on exchange differences Total recognised gains and losses for the year 31 Dec 2001 31 Dec 2000 £’000 (118,238) 197 – (118,041) £’000 (13,530) 2,675 (872) (11,727) Reconciliation of movements in Group shareholders’ funds Loss for the financial year Net proceeds of ordinary shares issued Exchange differences Tax charge on exchange differences (Decrease)/increase in shareholders’ funds Shareholders’ funds/(deficit) at 1 January Shareholders’ funds at 31 December 31 Dec 2001 31 Dec 2000 £’000 (118,238) 3,396 197 – (114,645) 203,090 88,445 £’000 (13,530) 238,548 2,675 (872) 226,821 (23,731) 203,090 15994 financial section (F) new 21/3/02 11:18 AM Page 33 33 Accounting policies Description of business subsidiary undertakings are acquired or disposed of during Regus plc (the “Company”), formerly Regus Business the year, the consolidated profit and loss account includes Centres plc, and its consolidated subsidiaries (the “Group”) only the results for the part of the year during which they are engaged in the provision of fully serviced business are subsidiary undertakings. centres offering clients a mix of workstations, conference rooms and related support services. The Group operates an international network of business centres and is divided into four geographic regions, UK & Ireland, Rest of Europe, Americas and Rest of World. Maxon Investments BV (“Maxon”) is the ultimate parent company and M L J Dixon, the Chief Executive of the Company, has an effective controlling interest in the equity shares of the Company via Maxon. Basis of preparation The consolidated financial statements have been prepared in accordance with applicable accounting standards and in conformity with accounting principles generally accepted in the United Kingdom (“UK GAAP”), under the historical cost convention. These principles differ in certain significant Transactions in foreign currencies Assets and liabilities of foreign subsidiaries and related hedging instruments are translated into sterling at the closing exchange rate prevailing at the balance sheet date. Results of overseas undertakings are translated into sterling at the average rates of exchange for the relevant period. Differences arising from the re-translation of the results of overseas undertakings are dealt with through reserves. Transactions in foreign currency are recorded using the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange prevailing at the balance sheet date and the gains or losses on translation are included in the profit and loss account. respects from generally accepted accounting principles in Goodwill the United States (“US GAAP”). Application of US GAAP would have affected shareholders’ funds and results of operations at and for the years ended 31 December 2000 and 2001, to the extent summarised in note 28. The preparation of financial statements in conformity with UK GAAP and US GAAP requires management to make estimates and assumptions that reflect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances change, such that the Group’s results Goodwill arising on consolidation, representing the difference between the purchase price and the fair value of the net assets of the subsidiary undertaking at the date of acquisition, is capitalised as an intangible fixed asset and charged to the profit and loss account in equal annual instalments over its useful economic life. Joint ventures A joint venture is a company in which the Group has an investment for the longer term and shares control under a contractual arrangement. The appropriate share of results of joint ventures, as disclosed in their financial statements but after adjustment to conform with the Group’s accounting policies, is included in the consolidated profit may differ from the amounts reported and disclosed in the and loss account. financial statements. The following principal accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group’s financial statements. Basis of consolidation The consolidated financial statements include the accounts of the Company and all its subsidiary undertakings, which have all been prepared to 31 December 2001. Where Tangible fixed assets and depreciation Depreciation is provided on a straight line basis at rates calculated to write off the cost of fixed assets to their estimated residual value over their estimated useful lives at the following rates: 15994 financial section (F) new 21/3/02 11:18 AM Page 34 34 FINANCIAL REVIEW Report and Accounts 2001 Accounting policies continued Furniture - 5 years Leases Fixtures and fittings - shorter of the lease term, a) Finance leases the first break point of the Where the Group enters into a lease for furniture, fittings, building lease or 10 years equipment or cars which entails taking substantially all the Telephones and office equipment Computer hardware Computer software Cars - 5 years - 3 years - 2 years - 4 years Fixed asset investments Fixed asset investments are generally accounted for at cost less provision for impairment. risks and rewards of ownership of an asset, the lease is treated as a finance lease. This also includes occasions where the Group takes interest bearing extended credit from suppliers and certain loans from landlords. Under all such lease arrangements the asset is recorded in the balance sheet as a tangible asset and is depreciated over its estimated useful life in accordance with the policy described above. Future instalments under such leases, net of finance charges, are included in creditors. Stock Stock is stated at the lower of cost and net realisable value. Stock relates to items purchased for resale to customers and to items intended for distribution within the business Lease payments are apportioned between the finance element, which is charged to the profit and loss account on a sum of the digits basis or a post-tax actuarial basis, and the capital element, which reduces the outstanding such as office supplies and marketing materials. obligation for future instalments. Deferred taxation b) Building leases Provision under the liability method is made for deferred taxation at the current rate of corporation tax on all timing Building leases are all accounted for as operating leases because substantially all the risks and rewards of ownership differences, to the extent that they are expected to remain with the lessor. crystallise. Refurbishment The terms of most building leases require Regus to make good dilapidation or other damage occurring during the The rental on certain leases is wholly or partly conditional on the profitability of the centre and therefore the risk to the business, in terms of rent, is reduced. Once all outstanding rent has been paid, landlords receive a share of the profits rental period. Accruals for dilapidations are only made of the centre. when it is known that a dilapidation has occurred. However, due to the nature of the business, centres are maintained to a high standard. Turnover For leases which are wholly or partly conditional on the profitability of the centre, an estimate is made of the likely rent payable based on profitability in respect of the period up to the date of the first market rent review or first break Turnover represents the value of services provided to third point in the lease, whichever is sooner, and this is spread on parties in the year and is exclusive of VAT and similar taxes. a straight line basis over that period. Any subsequent Cost of sales Cost of sales consists of costs from the individual business centres, including property lease costs, employee costs and start-up costs. Pensions The Group operates defined contribution schemes. Contributions are charged to the profit and loss account on an accruals basis. changes in estimates are spread over the remaining period to the date of the first market rent review or first break point in the lease, whichever is sooner. Amounts payable in respect of profit shares are accrued once a sufficient net surplus has been made which would result in a profit share being paid. 15994 financial section (F) new 21/3/02 11:18 AM Page 35 35 Any incentives or rent free periods on conventional leases unrealised asset or liability is reflected in debtors or and the conventional element of leases which are partly creditors as appropriate. conventional and partly conditional on profitability, are spread on a straight line basis over the period to the date of the first market rent review or first break point in the lease, whichever is sooner, so that the amounts charged to the profit and loss account are the same each year over that period. Financial instruments The Group uses various derivative financial instruments to hedge its exposures to fluctuations in foreign exchange risks. These include forward currency contracts and currency options. The accounting method used for derivative financial instruments is determined by whether or not the instrument Premiums or discounts on derivative financial instruments that hedge an existing exposure are charged or credited to interest income or cost over the life of the instrument. The related asset or liability is classified as an accrual or prepayment. Derivative financial instruments that are not designated as hedges are marked to market using period end market rates and gains or losses are taken to the profit and loss account. Gains or losses arising on hedging instruments which are cancelled due to the termination of the underlying exposure are taken to administration expenses immediately. is designated as a hedge of an existing exposure and, if so Currency options by the accounting method used for the item being hedged. The Group considers its derivative financial instruments to be hedges when certain criteria are met. Forward currency contracts The Group’s criteria to qualify for hedge accounting are: Under hedge accounting for currency options, the Group defers the instruments impact on profit until it fully recognises the underlying hedged item in the profit and loss account. Option costs are charged to the interest cost over the life of the option contract. The related asset is classified • The instrument must be related to a foreign currency as prepayments. asset or liability; At maturity, any realised gain on the option is recognised in the profit and loss account in administration expenses. • It must involve the same currency as the hedged item; • It must reduce the risk of foreign currency exchange movements on the Group’s operations. The Group has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instruments. The Group does not enter into financial instruments for trading or speculative purposes. Forward currency contracts are marked to market at the period end, with the resulting exchange gains or losses taken to administration expenses in the profit and loss account, except where the hedged item’s exchange difference is reflected in reserves (such as quasi equity loans). In this situation the gain or loss is taken to reserves. The gains or losses on the forward contracts are recognised when the gains or losses on the underlying hedged transactions are recognised. The net resulting 15994 financial section (F) new 21/3/02 11:18 AM Page 36 36 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 1 Segmental reporting The following tables set out the Group’s segmental analysis by geographic region and by established and new centres. Established centres are those that have been open for a period of at least 18 months as at the end of the relevant period and new centres are those that have been open for less than 18 months as at the end of the relevant period. The numbers reported include exceptional costs. Turnover Turnover 31 Dec 2001 31 Dec 2000 £’000 £’000 215,188 151,879 124,096 33,459 524,622 512,633 11,989 410,804 101,829 512,633 188,862 118,933 94,296 27,109 429,200 421,125 8,075 293,555 127,570 421,125 Gross profit/(loss) (centre contribution) 31 Dec 2001 £’000 Gross profit/(loss) (centre contribution) 31 Dec 2000 £’000 56,916 9,132 (28,752) 2,595 39,891 90,859 (50,968) 39,891 59,619 29,214 13,850 (2,390) 100,293 92,329 7,964 100,293 Operating profit/(loss) Operating profit/(loss) Net assets/ (liabilities) As at Net assets/ (liabilities) As at 31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 £000 £’000 £’000 £’000 32,413 (7,712) (58,289) (1,221) (74,718) (109,527) (103,955) (5,572) 33,720 1,133 (16,262) (11,789) (3,896) 2,906 3,933 (1,027) 46,932 (39,183) (65,110) (29,596) 175,749 88,792 87,698 1,094 20,852 (31,622) (1,924) (29,474) 244,832 202,664 198,524 4,140 Geographic analysis UK and Ireland Rest of Europe Americas Rest of World Total Group Total joint ventures Established centres New centres Total Geographic analysis United Kingdom and Ireland Rest of Europe Americas Rest of World Other* Total Group Total joint ventures * includes non-regional exceptional costs. Exceptional charges to the profit and loss account for 2001 by region were: United Kingdom and Ireland £1.1 million (2000: £3.0 million); Rest of Europe £13.7 million (2000: £2.7 million); Americas £28.0 million (2000: £1.6 million); Rest of World £0.9 million (2000: £0.2 million); and, Other £46.8 million (2000: £2.0 million). There is no difference between segmental information on an origin basis and on a destination basis. The directors are of the opinion that the whole of the turnover is derived from the same class of business. 15994 financial section (F) new 21/3/02 11:18 AM Page 37 37 2 Loss on ordinary activities before tax Loss before tax is stated after charging: Depreciation of tangible fixed assets: – owned assets – assets under finance leases (Profit)/loss on sale of fixed assets Provision for impairment of fixed assets (note 3) Goodwill amortisation Operating leases: – property – equipment Audit fees: – company – group Non audit fees paid to KPMG: – UK companies – Group – exceptional (note 3) Other exceptional items (note 3) 31 Dec 2001 31 Dec 2000 £’000 £’000 47,827 16,060 (32) 12,166 196 191,842 9,426 5 782 153 397 1,100 77,280 27,671 12,875 1,520 _ – 136,969 6,033 5 546 204 496 – 9,501 Non-exceptional non audit fees in 2001 are primarily in respect of tax compliance services. In 2000, in addition to the fees above, audit fees of £240,000 and non audit fees of £786,000 paid to KPMG were offset against the share premium account. 3 Exceptional item Included in the results for the year to 31 December 2001 were exceptional pre-tax charges totalling £90.5 million as follows: Restructuring and redundancy costs (£5.4 million) As part of an aggressive attack on its cost base, the Group has reviewed staffing levels across all regions and all functions. Headcount was reduced by 800, representing approximately 24% of the total workforce. £0.5 million of this charge has been included in cost of sales. Reduction in workstation capacity (£37.4 million) The Group reviewed the prospects for each of its centres in light of current market conditions. Regus decided to reduce capacity by 9,700 workstations, representing 11% of the network. The exceptional charge includes consequential costs associated with onerous leases and asset impairments and has been included in cost of sales. Write-down related to ESOP (£32.6 million) As mentioned in the second quarter results, the directors have determined that, in the circumstances, the carrying value of the investment in own shares should be written down to 21p a share, the market value on 30 September 2001. This is counterbalanced by a writeback for the reduced cost of granting reward options of £8.8 million. Write-down of software development assets (£4.6 million) The directors reviewed the estimated useful life of external development costs and determined that it would be prudent, in the circumstances, to write off the remainder of these costs. Fees in respect of aborted merger with HQ Global Workplaces (£3.3 million) This exceptional charge had been made in the Group’s second quarter results. It includes £1.1 million paid to KPMG in request of due diligence and transaction advice. Write-down of acquisition goodwill (£4.9 million) The directors have determined that there has been an impairment to the value of goodwill arising from acquisitions and, accordingly, it is prudent that the goodwill be written down. Non-recoverable Ryder Cup expenditure (£2.3 million) On the basis that the Group is unlikely to benefit from the expenditure, the directors consider it appropriate to recognise the unrecoverable expenditure as an exceptional charge. Prior year exceptional items The exceptional pre-tax charge of £9.5 million in 2000 relates to costs associated with the write down of the Reward share options exercise price from £1.455 to £0.05. The impact of exceptional items on the tax charge is given in note 8. 15994 financial section (F) new 21/3/02 11:18 AM Page 38 38 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 4 Profit and loss account of holding company Of the loss attributable to shareholders, a profit of £2,881,000 (December 2000: loss of £11,922,000) is dealt with in the accounts of Regus plc. As permitted by Section 230 of the Companies Act 1985, the Company has not presented its own profit and loss account. 5 Employees and directors Staff costs Wages and salaries Social security costs Pension costs 31 Dec 2001 31 Dec 2000 £’000 £’000 71,672 11,127 360 83,159 61,648 7,851 260 69,759 The Group contributes to the personal pension schemes of a small number of employees. The amount which is included within creditors is £18,000 (2000: £44,000). Average number of people (including executive directors) employed Centre staff Sales staff Finance staff Other staff Directors Aggregate emoluments Company pension payments to money purchase scheme Highest-paid director Aggregate emoluments Company pension payments to money purchase scheme 31 Dec 2001 31 Dec 2000 Number Number 1,923 363 170 200 2,656 1,525 284 135 157 2,101 31 Dec 2001 31 Dec 2000 £’000 £’000 562 47 229 23 988 48 448 28 Retirement benefits are accruing to three directors under a money purchase scheme. In 2000, two directors received share options under the long term incentive scheme. More detailed information on directors emoluments is provided in the report of the Remuneration Committee. 15994 financial section (F) new 21/3/02 11:18 AM Page 39 39 6 Net interest payable and other similar charges Interest payable on overdrafts and loans Interest payable on finance leases Interest income Share of joint venture net interest payable Net interest payable and other similar charges 7 Taxation United Kingdom Corporation tax at 30% (2000: 30%) Deferred tax Overseas Corporation taxes Over provision in respect of prior periods 31 Dec 2001 31 Dec 2000 £’000 842 3,339 4,181 (3,877) 250 554 £’000 7,749 2,867 10,616 (3,863) 10 6,763 31 Dec 2001 31 Dec 2000 £’000 5,588 62 5,650 4,440 – 4,440 10,090 £’000 4,402 794 5,196 4,752 (22) 4,730 9,926 Approximate gross tax losses to carry forward against certain future overseas corporation tax liabilities (UK: nil (2000: nil)) 126,561 76,910 No deferred tax has been provided on the unremitted accumulated reserves of the subsidiary undertakings as accumulated reserves of subsidiary undertakings are retained to finance their business. At 31 December 2001, the total unremitted accumulated reserves of the subsidiary undertakings were £6,168,000 (2000: £2,047,000). The tax losses above have the following expiration dates: 2001 2002 2003 2004 2005 2006 2007 2008 and later Available indefinitely As at As at 31 Dec 2001 31 Dec 2000 £’000 – 727 1,682 12,395 8,712 7,848 3,479 66,248 101,091 25,470 126,561 £’000 196 757 2,592 15,885 7,574 397 482 27,165 55,048 21,862 76,910 15994 financial section (F) new 21/3/02 11:18 AM Page 40 40 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 7 Taxation continued A reconciliation of the actual tax charge resulting from applying the UK statutory rate to the loss before tax is as follows: UK statutory rate applied to result for year Adjusted for: Permanent differences Difference in taxation rates Tax losses utilised Deferred tax asset not booked in respect of: Tax losses carried forward Start-up costs and other reserves Adjustment in respect of prior periods Other items Actual tax charge There was no tax charge arising from joint venture operations. 8 Loss per share 31 Dec 2001 31 Dec 2000 £’000 (33,024) 16,741 (9,375) (1,028) 20,467 16,309 – – 10,090 £’000 (1,157) 451 (1,721) (1,133) 6,907 6,717 (22) (116) 9,926 Loss per share has been calculated by dividing the retained loss for the financial year by the weighted average number of ordinary shares in issue excluding those held under the employee share trust. There were no adjustments to the retained loss for the year for the diluted earnings per share computations. The 2001 and 2000 diluted shares were not included in the computation of diluted earnings per share due to losses in 2001 and 2000, resulting in options being antidilutive. The 2000 diluted loss per share has been restated from that reported in the 2000 Annual Report because the number of diluted shares had been wrongly adjusted by 13,829,065 ordinary shares relating to share options. The following summarises the calculation of loss per share for the years ended 31 December 2001 and 2000: Loss for the year Add: exceptional items Less: tax on exceptional items Loss for the year before exceptional items Weighted average ordinary shares in issue – basic and diluted Loss per ordinary share Impact of exceptional items – basic and diluted – basic and diluted Loss per ordinary share before exceptional items – basic and diluted (£’000) (£’000) (£’000) (£’000) (‘000’s) (p) (p) (p) 31 Dec 2001 31 Dec 2000 (118,238) 90,546 (1,614) (29,306) 563,528 (21.0) (15.8) (5.2) Restated (13,530) 9,501 (1,508) (5,537) 497,889 (2.7) (1.6) (1.1) 15994 financial section (F) new 21/3/02 11:18 AM Page 41 41 9 Goodwill Cost At 1 January 2001 Additions Exchange differences At 31 December 2001 Amortisation At 1 January 2001 Charge for the period Provision for impairment At 31 December 2001 Net book value at 31 December 2001 Net book value at 31 December 2000 £’000 _ 9,496 (77) 9,419 – 196 4,916 5,112 4,307 – In April the Group acquired three subsidiaries for a total consideration of £9.1 million: Stratis Business Centres Inc in the US and Satellite and Skyport Business Centres in the Netherlands, consisting of £5.7 million cash and shares of £3.4 million. The net liabilities of the companies at the date of acquisition were £0.3 million resulting in goodwill on acquisition of £9.4 million. There were no material fair value adjustments. Subsequently the directors have determined that there has been an impairment to the value of goodwill arising from acquisitions to the value of £4.9 million and, accordingly, it is prudent that the goodwill be written down. The useful economic life of goodwill is 20 years. The post acquisition results have not been shown separately on the face of the profit and loss account as they are not material. 10 Tangible fixed assets – Group Cost At 1 January 2001 Exchange differences Additions Acquisitions Disposals At 31 December 2001 Aggregate depreciation At 1 January 2001 Exchange differences Charge for the period Provision for impairment Disposals At 31 December 2001 Net book value at 31 December 2001 Net book value at 31 December 2000 Furniture and fittings £’000 Computers Motor vehicles £’000 £’000 244,693 (2,328) 115,230 676 (3,844) 354,427 65,272 (997) 53,091 7,600 (980) 123,986 230,441 179,421 21,497 (183) 13,248 136 (2,272) 32,426 7,690 (89) 10,698 4,566 (2,188) 20,677 11,749 13,807 422 (2) 55 – (187) 288 197 – 98 – (116) 179 109 225 Total £’000 266,612 (2,513) 128,533 812 (6,303) 387,141 73,159 (1,086) 63,887 12,166 (3,284) 144,842 242,299 193,453 The net book value of tangible fixed assets includes an amount in respect of fixed assets held under finance leases as follows: Cost Depreciation Net book value Group Group 31 Dec 2001 31 Dec 2000 £’000 96,282 (43,169) 53,113 £’000 74,570 (28,078) 46,492 15994 financial section (F) new 21/3/02 11:18 AM Page 42 42 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 11 Investments At 1 January 2001 Exchange differences Additions Revaluation Provision for impairment Share of losses retained At 31 December 2001 Group Investment Group Interest in joint Group Other in own shares* ventures Investments £’000 47,021 – – (1,821) (41,395) – 3,805 £’000 4,134 154 2,631 – – (5,825) 1,094 £’000 6 – 27 – – – 33 Company Shares in Group undertakings £’000 5,631 – – – – – 5,631 Group Total £’000 51,161 154 2,658 (1,821) (41,395) (5,825) 4,932 * The nominal value of the Group’s investment in own shares is £0.9 million. Note 22 provides details of the investment in own shares. Details of investments in subsidiary companies are given on pages 56 to 57 of these accounts. 12 Debtors Amounts falling due within one year Trade debtors Amounts owed by participating interest Other debtors Prepayments and accrued income VAT recoverable Amounts falling due after one year Amounts owed by Group undertakings Amounts owed by participating interest Group Group Company Company 31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 £’000 £’000 £’000 £’000 45,103 4,136 30,144 23,804 11,101 114,288 – 3,000 3,000 60,990 1,862 29,940 26,364 10,521 129,677 – – – – – – 256 – 256 274,235 – 274,235 274,491 – – – 393 – 393 202,073 – 202,073 202,466 Total debtors 117,288 129,677 As at 31 December 2001 the provision for bad and doubtful debts was £2,858,000 (2000: £1,701,000). An allowance for bad and doubtful debts is recorded at the end of each period based upon the expected collectability of all trade receivables. An analysis of the bad and doubtful debt provision is as follows: Opening balance Additional charges to profit and loss account Provision utilisation Exchange difference Closing balance Group 31 Dec 2001 £’000 Group 31 Dec 2000 £’000 1,701 1,916 (724) (35) 2,858 1,047 842 (190) 2 1,701 15994 financial section (F) new 21/3/02 11:18 AM Page 43 43 13 Creditors – amounts falling due within one year Group Group Company Company 31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 Bank loans and overdrafts Non-convertible bond Other loans Obligations under finance leases Amounts owed to Group undertakings Trade creditors Customer deposits Other tax and social security Corporation tax Deferred income Deferred landlord contributions Rent accruals Other accruals Other creditors £’000 6,018 40,000 724 14,909 – 44,452 72,584 12,364 13,396 31,847 7,195 65,715 31,818 3,370 £’000 5,750 - 807 10,614 - 31,207 80,024 16,128 9,849 43,541 3,173 56,307 58,392 2,091 344,392 317,883 £’000 10,865 40,000 – – – – – – 301 – – – – 1,767 52,933 £’000 - - - - 8,851 - - - 301 - - - - 6,341 15,493 On 28 December 2001, the Company issued £40.0 million nominal of five per cent non-convertible bonds. On 14 February 2002, the bonds were exchanged for convertible debentures and warrants. The convertible debentures incur interest at five per cent and, at the Company’s option, are either repaid in ten equal monthly instalments from March 2002 to December 2002 or are converted into ordinary shares at 95 per cent of the average price during the following month. The convertible bonds may be converted at the holders option at a price of 86.32 pence per share.The warrant holders have the right to subscribe for up to five million ordinary shares at five pence per share. Any remaining unexercised warrants will lapse three years after issue. The fair value of the warrants, as at 31 December, was 49 pence per share. 14 Creditors – amounts falling due after more than one year Bank loans Other loans Obligations under finance leases Accruals and deferred income Other creditors Group Group 31 Dec 2001 31 Dec 2000 £’000 8 1,322 23,064 365 47 24,806 £’000 12 1,475 21,150 361 52 23,050 Certain bank loans are secured on the assets of the applicable subsidiaries and bear interest at local commercial rates. All other creditors are unsecured and non-interest bearing. As at 31 December 2001 the Group had no other available credit facilities (December 2000: £13,748,000). 15994 financial section (F) new 21/3/02 11:18 AM Page 44 44 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 15 Maturity of debt The maturity profile of the carrying amount of the Group’s financial liabilities as at 31 December was as follows: Within one year Between one and two years Between two and five years After five years or more Within one year Between one and two years Between two and five years After five years or more Non-convertible Bank loans bond & overdrafts Other loans Finance leases Total 31 Dec 2001 31 Dec 2001 31 Dec 2001 31 Dec 2001 31 Dec 2001 £’000 40,000 – – – £’000 6,018 4 4 – 40,000 6,026 £’000 724 260 716 346 2,046 Non-convertible Bank loans bond and overdrafts Other loans £’000 14,909 11,231 11,196 637 37,973 Finance leases £’000 61,651 11,495 11,916 983 86,045 Total 31 Dec 2000 31 Dec 2000 31 Dec 2000 31 Dec 2000 31 Dec 2000 £’000 – – – – – £’000 5,750 4 8 – 5,762 £’000 807 285 678 512 2,282 £’000 10,614 10,224 10,685 241 31,764 £’000 17,171 10,513 11,371 753 39,808 The following provides additional disclosure for bank loans and overdrafts and other loans: Within one year Between one and two years Between two and three years Between three and four years Between four and five years After five years or more Group Group Company Company 31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 £’000 46,742 264 221 383 116 346 £’000 6,557 289 249 238 199 512 £’000 50,865 – – – – – 48,072 8,044 50,865 £’000 – – – – – – – The following provides additional finance lease disclosure including the interest components of future minimum lease payments (Company: nil): Within one year Between one and two years Between two and three years Between three and four years Between four and five years After five years or more Total commitment Less amounts representing interest Present value of future minimum lease payments Within one year After one year Group Group 31 Dec 2001 31 Dec 2000 £’000 17,370 12,597 8,188 3,403 569 492 42,619 (4,646) 37,973 14,909 23,064 £’000 11,966 11,967 7,862 1,970 1,379 1,118 36,262 (4,498) 31,764 10,614 21,150 15994 financial section (F) new 21/3/02 11:18 AM Page 45 45 16 Provisions for liabilities and charges At 1 January 2001 Provided in year Exchange differences At 31 December 2001 Amounts falling due within one year Amounts falling due after one year There is no unprovided deferred tax liability (note 7). 17 Called up share capital Authorised 800,000,000 (2000: 800,000,000) Ordinary shares of 5p each Allotted, called up and fully paid 582,112,320 (2000: 580,676,185) Ordinary shares of 5p each Group Group Onerous Deferred tax Lease Obligations £’000 794 62 – 856 – 856 £’000 – 28,165 (719) 27,446 19,953 7,493 Group Total £’000 794 28,227 (719) 28,302 19,953 8,349 Group and Company Group and Company 31 Dec 2001 31 Dec 2000 £’000 £’000 40,000 40,000 29,106 29,106 40,000 40,000 29,034 29,034 In April 2001, 1,388,895 new ordinary shares of 5 pence each were issued for a total consideration of £3,486,750 in respect of the acquisition of Stratis Business Centers Inc. During 2001, 47,240 new ordinary shares of 5 pence each were issued in respect of exercised share options, see note 22. 18 Share premium account At 1 January 2001 Issue costs* At 31 December 2001 * Issue costs relate to additional costs associated with the Initial Public Offering in 2000. Group and Company (non distributable) £’000 279,858 (93) 279,765 15994 financial section (F) new 21/3/02 11:18 AM Page 46 46 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 19 Reserves At 1 January 2001 (Loss)/profit for the period Premium on shares issued for acquisitions Transfer to capital reserve Exchange differences At 31 December 2001 20 Cash flow statement Group Profit Group Other Company Company Other and loss (non distributable) Profit and loss (non distributable) £’000 (106,417) (118,238) – (34) 207 (224,482) £’000 615 – 3,417 34 (10) 4,056 £’000 (23,432) 2,881 – – (94) (20,645) £’000 5,531 – 3,417 – – 8,948 a) Reconciliation of operating profit to net cash inflow from operating activities Continuing operating activities Group operating (loss)/profit Depreciation charge Goodwill amortisation (Profit)/loss on disposal of fixed assets Impairment of goodwill Impairment of fixed assets Impairment of investment in own shares Increase in provisions (Increase) in stocks Decrease/(increase) in debtors (Decrease)/increase in creditors Net cash inflow from continuing operating activities Group Group 31 Dec 2001 31 Dec 2000 £’000 £’000 (103,955) 63,887 196 (32) 4,916 12,166 41,395 28,165 (109) 17,208 (19,841) 43,996 3,933 40,546 – 1,520 – – – – (33) (58,228) 130,161 117,899 The cash inflow for December 2001 includes a £12,144,000 outflow relating to the exceptional item charged during the year (note 3). b) Financing and management of liquid resources Management of liquid resources New cash deposits Repayment of cash deposits Financing New loans Repayment of loans Payment of principal under finance leases Issue of equity shares Issue costs Group Group 31 Dec 2001 31 Dec 2000 £’000 £’000 (50,981) 96,624 45,643 42,180 (4,566) (16,793) 1,985 (92) 22,714 (95,897) 17,185 (78,712) 13,945 (116,325) (14,702) 253,756 (17,908) 118,766 15994 financial section (F) new 21/3/02 11:18 AM Page 47 47 20 Cash flow statement continued c) Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in the period Cash (inflow)/outflow from change in borrowings and finance leases Cash (inflow)/outflow from change in liquid resources Change in net funds/borrowings resulting from cash flows Acquisitions Other non-cash items: New finance leases Translation difference Movement in net funds/borrowings in the year Net funds/(borrowings) at 1 January Net funds at 31 December d) Analysis of changes in net funds in the period 31 Dec 2001 31 Dec 2000 £’000 (7,569) (20,821) (45,643) (74,033) (783) (22,901) (1,267) (98,984) 130,013 31,029 £’000 15,865 117,082 78,712 211,659 – (23,574) 1,830 189,915 (59,902) 130,013 At 1 January Other At Non-cash Exchange 31 December 2001 Cash flow Acquisitions changes movements £’000 £’000 Cash at bank and in hand Overdrafts Debt due after 1 year Debt due within 1 year Finance leases due after 1 year Finance leases due within 1 year Liquid resources £’000 31,432 (1,203) 30,229 (1,487) (5,354) (21,150) (10,614) (38,605) 138,389 130,013 £’000 (5,983) (1,586) (7,569) 91 (37,705) 11,430 5,363 (20,821) (45,643) (74,033) – – – – (783) – – (783) – (783) – – – 36 (83) (13,235) (9,619) (22,901) – (22,901) (1,267) £’000 (1,202) 8 (1,194) 30 (36) (109) (39) (154) 81 2001 £’000 24,247 (2,781) 21,466 (1,330) (43,961) (23,064) (14,909) (83,264) 92,827 31,029 Liquid resources at 31 December 2001 include cash held on deposit of which £3.2 million (December 2000: £5.5 million) relates to collateral against bank loans and £28.4 million (December 2000: £35.4 million) relates to deposits which are held by banks as security for the issuance of bank guarantees to support lease commitments by Regus operating companies. These amounts are blocked and are not available for use by the business. There are arrangements in place where cash balances and deposits with banks in the UK and the Netherlands can be offset against overdrawn accounts in the same bank. Non-cash changes comprise new finance leases and reclassifications between categories. 15994 financial section (F) new 21/3/02 11:18 AM Page 48 48 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 21 Financial instruments Details of the role that financial instruments have had during the year in managing the risks that the Group faces are discussed in the financial review on page 17 of the financial statements. Short-term debtors and creditors and inter-company balances Short term debtors and creditors and Intercompany balances have been excluded from all the following disclosures other than the currency risk disclosure. Interest rate risk and currency profile of financial liabilities and assets The following table analyses the currency and interest rate composition of the Group’s financial liabilities and assets, comprising gross borrowings and deposits where applicable. 31 December 2001 Financial liabilities Euro Japanese Yen Sterling US Dollar Others Financial assets Australian Dollars Euro Japanese Yen Sterling US Dollar Others Of which: liquid resources gross borrowings cash At floating At fixed Non-interest rates £’000 (3,380) – – – (4,692) (8,072) 812 21,518 511 80,904 8,511 4,818 117,074 109,002 92,827 (8,072) 24,247 rates £’000 (5,552) (1,067) (42,926) (28,428) – (77,973) – – – – – – – (77,973) – (77,973) – 109,002 (77,973) bearing £’000 – – – – – – – – – – – – – – – – – – Total £’000 (8,932) (1,067) (42,926) (28,428) (4,692) (86,045) 812 21,518 511 80,904 8,511 4,818 117,074 31,029 92,827 (86,045) 24,247 31,029 Weighted Weighted average average period for fixed which rate interest rate % 7.7 6.6 5.5 8.8 11.0 – – – – – – is fixed Years 2.3 1.3 1.0 2.0 2.4 – – – – – – The sterling fixed rate liabilities include £40 million five per cent non-convertible bonds. Once the fair value of the warrants issued in February 2002 is considered in accordance with FRS4, the effective annual finance charge is 17 per cent. 15994 financial section (F) new 21/3/02 11:18 AM Page 49 49 21 Financial instruments continued 31 December 2000 Financial liabilities Euro Japanese Yen Sterling US Dollar Others Financial assets Australian Dollar Euro Japanese Yen Sterling US Dollar Others Of which: liquid resources gross borrowings cash At floating At fixed Non-interest rates £’000 (1,491) – (500) – (6,053) (8,044) 1,961 32,571 2,393 102,433 18,407 11,784 169,549 161,505 138,389 (8,044) 31,160 161,505 rates £’000 (3,037) (895) (6,078) (20,996) (758) (31,764) – – – – – – – (31,764) – (31,764) – (31,764) bearing £’000 – – – – – – – 39 2 95 94 42 272 272 – – 272 272 Total £’000 (4,528) (895) (6,578) (20,996) (6,811) (39,808) 1,961 32,610 2,395 102,528 18,501 11,826 169,821 130,013 138,389 (39,808) 31,432 130,013 Weighted average fixed interest rate % 8.0 6.8 9.8 8.9 11.3 – – – – – – Weighted average period for which rate is fixed Years 4.3 3.3 3.8 4.7 3.7 – – – – – – Maturity analysis of undrawn committed borrowing facilities The Group has the following undrawn committed borrowing facilities available at the 31 December in respect of which all conditions precedent had been met at that date: Expiring within: One year or less Between one and two years In more than two years 31 Dec 2001 31 Dec 2000 £’000 £’000 – – – – 3,589 – – 3,589 15994 financial section (F) new 21/3/02 11:18 AM Page 50 50 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 21 Financial instruments continued Currency exposure As explained in the Financial Review, to mitigate the effect of the currency exposures arising from its net investments overseas the Group borrows, where appropriate, in the local currencies arising from its net investments. Gains and losses arising on net investments overseas are recognised in the statement of total recognised gains and losses. The tables below show the extent to which Group companies have monetary assets and liabilities in currencies other than their local currency. Foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account of the Group companies and the Group. 31 December 2001 Functional currency of Group operation Euro Sterling US Dollar Others 31 December 2000 Functional currency of Group operation Euro Sterling US Dollar Others Euro £’000 – 817 (43) (4,123) (3,349) Euro £’000 – 2,550 12 27 2,589 Japanese Yen £’000 10,976 – – – 10,976 Japanese Yen £’000 – 104 – 5 109 Net foreign currency monetary assets/(liabilities) Sterling US Dollar Others £’000 (56) – – (137) (193) £’000 66,572 (3,349) – (7,712) 55,511 Net foreign currency monetary assets/(liabilities) Sterling £’000 27,390 – 899 54 28,343 US Dollar £’000 6,268 6,607 – 2,023 14,898 £’000 2,053 6,458 1,196 (1,245) 8,462 Others £’000 144 9,031 (110) 2,450 11,515 Total £’000 79,545 3,926 1,153 (13,217) 71,407 Total £’000 33,802 18,292 801 4,559 57,454 15994 financial section (F) new 21/3/02 11:18 AM Page 51 51 21 Financial instruments continued Fair value disclosures The following table provides a comparison by category of the carrying amounts and the fair value of the Group’s financial assets and liabilities at 31 December. Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing parties, other than a forced or liquidation sale, and excludes accrued interest. Set out below the table is a summary of the methods and assumptions used for each category of financial instrument. Primary financial instruments held or issued to finance the Group’s operations Short-term borrowings Long-term borrowings Short-term deposits Cash at bank and in hand Derivative financial instruments held to hedge the currency exposure on expected future results Forward foreign currency contracts Currency options Book value 31 Dec 2001 £’000 Fair value 31 Dec 2001 £’000 Book value Fair value 31 Dec 2000 31 Dec 2000 £’000 £’000 (61,651) (24,394) 92,827 24,247 (60,499) (17,712) 92,827 24,247 (17,171) (22,637) 138,389 31,432 (15,874) (16,837) 138,389 31,432 – – – – 1,510 – 1,510 45 Summary of methods and assumptions Forward foreign currency contracts and currency options Fair value is based on market price of comparable instruments at the balance sheet date. Short-term deposits and borrowings, accounts receivable and payable The fair value of short-term deposits, loans and overdrafts approximates to the carrying value because of the short maturity of these instruments. The fair value of finance leases has been calculated by discounting future cash flows at the Group’s weighted average cost of capital. Long-term borrowings The fair value of bank loans and other loans approximates to the carrying value because the majority are floating rate where payments are reset to market rates at intervals of less than one year. The fair value of finance leases has been calculated by discounting future cash flows at the Group’s weighted average cost of capital. Hedges There were no off-balance sheet (unrecognised) or on-balance sheet (deferred) gains or losses in respect of financial instruments used as hedges at the end of the year. 15994 financial section (F) new 21/3/02 11:18 AM Page 52 52 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 continued 22 Employee share ownership plan (“ESOP”) During 1999 the Group established the Regus Employee Trust. The Trustee is Mourant & Co Trustees Limited which is an independent professional trust company residing in Jersey. The Trust is a discretionary trust for the benefit of employees (including directors). The ESOP provides for the issue of options and the payment of bonuses to the Group’s employees (including directors) at the discretion of the Company. Regus plc is not deemed to be the sponsor of the ESOP for the purpose of UITF17. The Trustee is not entitled to receive dividends. At 31 December 2001 the Trust held 18,120,670 shares in Regus plc (note 11). The market value at 31 December 2001 was £9.3 million. Costs incurred by the Trust are expensed in the profit and loss account. At 31 December 2001, awards over a total of 34,907,406 (2000: 28,047,451) shares had been granted to employees. The awards have been issued in ten tranches and some of the awards had been granted subject to the performance of the Group (performance awards). Details of the awards are provided below: Award Type exercisable price £ awards Awards Lapses awards awards 31 December 2000 31 December 2001 Date Exercise Number of New Exercised Number of Performance awards 1 January 03 to 1 January 07 1 January 04 to 1 January 08 26 March 04 to 26 March 06 8 June 04 to 26 March 06 8 June 04 to 26 March 06 29 August 04 12 November 04 Non-performance awards 1 January 03 to 1 January 07 1 January 03 to 1 January 06 1 January 04 to 1 January 08 29 August 04 12 November 04 1.455 2.600 2.560 2.560 2.275 0.475 0.335 1.455 0.050 2.600 0.475 0.335 9,354,204 1,304,048 – _ (1,041,336) (333,014) – – – – – 1,942,441 (550,904) 351,388 (49,897) 84,876 – 200,000 (150,000) 195,000 – 7,309,132 3,610,596 2,443,518 – – – (1,392,329) (714,750) – – 851,250 (801,250) 3,235,000 (80,000) – – – – – – – – 8,312,868 971,034 1,391,537 301,491 84,876 50,000 195,000 5,916,803 – – – 1,728,768 50,000 3,155,000 (402,801) (47,240) 3,160,555 24,021,498 6,859,955 (5,516,281) (47,240) 25,317,932 In addition, at 31 December 2000, awards over 798,024 American Depositary Shares (December 2000: 120,000) had been granted to employees employed by the Group. The awards have been issued in five tranches and some of the awards had been granted subject to the performance of the Group (performance awards). Details of the awards are provided below: 31 December 2000 31 December 2001 Date Exercise Number of New Exercised Number of Award Type exercisable Performance awards 11 December 03 to 11 December 05 26 March 04 to 26 March 06 8 June 04 to 26 March 06 8 June 04 to 26 March 06 29 August 04 29 August 04 12 November 04 Non-performance awards price $ 25.000 18.188 18.188 16.200 3.290 3.290 2.300 awards Awards Lapses awards awards 120,000 – (120,000) – – – – – – 185,636 (50,895) 124,439 (24,760) 83,949 73,000 – – 70,000 (50,000) 141,000 (5,000) 120,000 678,024 (250,655) – – – – – – – – – 134,741 99,679 83,949 73,000 20,000 136,000 547,369 The Group also operates a SAYE share ownership plan however the number of shares involved is immaterial. 15994 financial section (F) new 21/3/02 11:18 AM Page 53 53 23 Capital commitments Contracts placed for future capital expenditure not provided in the financial statements 24 Operating lease commitments Group 31 Dec 2001 £’000 Group 31 Dec 2000 £’000 Company Company 31 Dec 31 Dec 2001 £’000 2000 £’000 5,246 17,432 – – At 31 December the Group had lease agreements in respect of properties, vehicles, plant and equipment, for which the payments extend over a number of years. Vehicles, plant Vehicles, plant Property and equipment Total Property and equipment Total 31 Dec 2001 31 Dec 2001 31 Dec 2001 31 Dec 2000 31 Dec 2000 31 Dec 2000 £’000 £’000 £’000 £’000 £’000 £’000 Annual commitments under non-cancellable operating leases expiring: Within one year Between one and five years After five years 4,285 54,452 157,112 215,849 1,311 4,012 182 5,505 5,596 58,464 157,294 221,260 2,601 78,830 59,829 141,260 1,903 7,527 31 4,504 86,357 59,860 9,461 150,721 Minimum future lease payments under non-cancellable operating leases: Amounts due within one year Amounts due between one and two years Amounts due between two and three years Amounts due between three and four years Amounts due between four and five years Amounts due after five years 31 Dec 2001 31 Dec 2000 Total £’000 221,354 217,154 202,742 189,295 171,033 748,401 1,749,979 Total £’000 150,721 149,732 143,571 114,692 88,320 245,420 892,456 15994 financial section (F) new 21/3/02 11:18 AM Page 54 54 FINANCIAL REVIEW Report and Accounts 2001 Notes to the financial statements for the year ended 31 December 2001 25 Contingent liabilities The Group has bank guarantees and letters of credit held with certain banks, totalling £28,358,000 (December 2000: £42,183,000). The Company also acts as a guarantor for certain obligations of other subsidiary entities. 26 Related party transactions During the year ended 31 December 2001 the Group received management fees of £4.2 million (2000: £3.0 million) from its joint venture entities as listed on pages 56 and 57. At 31 December 2001, £4.1 million (2000: £1.9 million) was due to the Group from the joint ventures. 27 Ultimate parent company and controlling party Maxon Investments BV, a company incorporated in The Netherlands is considered as the ultimate parent company. M L J Dixon is considered the ultimate controlling party by virtue of his effective controlling interest in the equity shares of the Company via Maxon Investments BV. 15994 financial section (F) new 21/3/02 11:18 AM Page 55 55 Notes to the financial statements for the year ended 31 December 2001 continued 28 Summary of differences between UK and US GAAP financial statements The Group’s consolidated financial statements are prepared in accordance with UK GAAP, which differs in certain respects from US GAAP. Effect of differences between UK and US GAAP The following is a summary of the material adjustments to net loss which would have been required if US GAAP had been applied instead of UK GAAP: Net loss reported in accordance with UK GAAP US GAAP adjustments: Franchise revenue recognition Compensation expense related to options granted by shareholder Compensation expense related to other variable plan options Provision for closure costs Deferred taxes Write down ESOP shares Net loss in conformity with US GAAP Weighted average shares outstanding (‘000) Loss per ordinary share before extraordinary items (p) Loss per ordinary share after extraordinary items (p) 31 Dec 2001 31 Dec 2000 £’000 (118,238) (682) – (6,809) 27,446 5,438 41,395 (51,450) 581,649 (8.8) (8.8) £’000 (13,530) – (6,836) 3,997 – (474) – (16,843) 502,773 (3.4) (3.4) The following is a summary of the material adjustments to shareholders’ funds which would have been required if US GAAP had been applied instead of UK GAAP: Shareholders’ funds recorded in accordance with UK GAAP US GAAP adjustments: Franchise revenue recognition Compensation expense related to other variable plan options1 Provision for closure costs Deferred taxes Employee share trust (investment in own shares) Shareholders’ funds in conformity with US GAAP 31 Dec 2001 31 Dec 2000 £’000 88,445 (682) 595 27,446 7,341 (3,805) 119,340 £’000 203,090 – 10,778 – 1,902 (47,021) 168,749 1 Shareholders’ funds were not affected by the differences between UK GAAP and US GAAP on these options as the difference resulted in recording an increase to expense and a corresponding increase to contributed capital, except for awards granted to employees where the company will pay a cash bonus for the difference between the fair value and the base price of the awards. 15994 financial section (F) new 21/3/02 11:18 AM Page 56 56 FINANCIAL REVIEW Report and Accounts 2001 Principal Group companies Name of Group entity Regus Business Centre SA Regus Centres Pty Ltd Regus Business Centre GmbH Regus Business Centre SA Skyport Brussels NV Regus Belgium NV Regus do Brasil Ltda Regus Business Centers Canada LP +++ Regus Business Centre Ltd Regus Business Centre Chile Ltda Regus Business Service Co Ltd Regus Business Services (Shanghai) Ltd Regus Colombia Ltda Regus Business Centre s.r.o Regus Copenhagen ApS Regus Business Centre (Egypt) Host Regus Ltd Park Business Centres Ltd +++ Regus Business Centre Trading Ltd + Regus Business Centres (UK) Ltd Regus City Ltd Regus Management Limited Regus (UK) Limited Regus Finland Oy Regus Paris SA Regus Roissy SA Regus Business Centre GmbH Regus Hellas SA Regus Business Centre Ltd Regus Central Europe Trading and Servicing Ltd Regus Kft Europa Business Centre Ltd Regus Ireland Ltd Regus Finance Regus Franchise International Limited Regus Business Centres Ltd Regus Business Centre Srl Regus Business Centres Italia SpA +++ Regus Japan KK Regus Korea Limited SIA Regus Business Centre Regus Luxembourg SA Regus Centres Sdn Bhd Country of % of equity incorporation and votes held Argentina Australia Austria Belgium Belgium Belgium Brazil Canada Canada Chile China China Colombia Czech Republic Denmark Egypt England England England England England England England Finland France France Germany Greece Hong Kong Hungary Hungary Ireland Ireland Ireland Ireland Israel Italy Italy Japan Korea Latvia Luxembourg Malaysia 100 100 100 100 100 100 100 60 100 100 95 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 65 100 100 100 100 100 15994 financial section (F) new 21/3/02 11:18 AM Page 57 57 Name of Group entity Regus Business Centre S.A.de C.V. Regus Services S.A. de C.V. Regus Maroc SARL Skyport Business Services BV Satellite Business Centre Schipol BV Skyport International BV Regus Amsterdam BV Regus Business Centre BV Regus International Holdings BV ++ Regus Business Centre Oslo AS Regus Business Centre (Panama) S.A. Regus Business Centre (Peru) S.A. Regus Centres Inc Regus Business Centre Sp zoo Regus Business Centre Ltda Regus Business Centre (Romania) S.R.L LLC Regus Business Centre Regus Centres Pte Ltd Regus Business Centre Bratislava s.r.o Regus Business Centre SA Business Centre Gothenburg AB Business Centre Stockholm AB Regus Business Centre (S) S.A. Regus Business Centre (Tanzania) Ltd Regus Centres (Thailand) Ltd Regus Tunisie SARL Regus Is Merkezi Isletmeciligi Ltd Sirketi Regus Business Centres (Ukraine) Regus Duke-Weeks Business Centers LLC +++ Stratis Business Centers Inc Regus Business Centre Corp Regus Crescent Business Centers LLC +++ Regus Equity Business Centers LLC +++ Regus Venezuela C.A. Regus Centre (Vietnam) Ltd Country of % of equity incorporation and votes held Mexico Mexico Morocco Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands Norway Panama Peru Philippines Poland Portugal Romania Russia Singapore Slovakia Spain Sweden Sweden Switzerland Tanzania Thailand Tunisia Turkey Ukraine USA USA USA USA USA Venezuela Vietnam 100 100 100 100 100 100 100 100 60 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 50 50 100 100 Investments in Group undertakings are held at cost all of which are included within the consolidated results. Shares listed above are held directly by Regus plc. where indicated by an asterisk. Other than Regus Business Centre BV, Regus Business Centres (Holdings) Ltd and Regus Finance which are investment holding companies, and Regus Management Limited, which is a management company employing head office staff, the principal activity of all other companies is the provision of fully serviced business centres. + Our Azerbaijan business operates as a branch of this company. ++ Our South African business operates as a branch of this company. +++ These are joint ventures. 15994 financial section (F) new 21/3/02 11:18 AM Page 58 58 FINANCIAL REVIEW Report and Accounts 2001 Shareholder information Annual General Meeting The Annual General Meeting will be held at Regus City Point, 1 Ropemaker Street, London EC2Y 9HT, at 10.00am on Friday 26 April 2002. The proxy card accompanies this report. Registrar Administrative enquiries about the holding of Regus shares should be directed in the first instance to the Registrar whose address is: Capita IRG Plc Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom Tel: +44 (0) 20 8639 2000 www.capita-irg.com American Depositary Receipts (ADRs) In the US, the Company’s ordinary shares are traded in the form of American Depositary Receipts, evidenced by ADRs, and are traded under the symbol “REGS” on NASDAQ. Each ADR represents five ordinary shares in Regus plc. Morgan Guaranty Trust Company of New York is the authorised Depositary Bank for the Regus ADR Programme. For enquiries on the ADR service please contact our representatives at: Morgan Guaranty Trust Company of New York PO Box 842006 Boston MA 02284-2006 USA Tel: +1 781 575 4328 Investor relations For investor enquiries, please contact: Stephen Jolly Group Communications Adviser Regus plc 3000 Hillswood Drive Chertsey KT16 0RS United Kingdom by telephone +44 (0) 1932 895 138 by fax +44 (0) 1932 895 262 by email stephen.jolly@regus.com Unsolicited mail The Company is obliged by law to make its share register available to other organisations who may then use it for a mailing list. If you wish to limit the receipt of unsolicited mail you may do so by writing to: The Mail Preference Service (MPS) Freepost 22 London W1E 7EZ United Kingdom Tel: +44 (0) 845 703 4599 MPS will then notify the organisations which support its service that you do not wish to receive unsolicited mail. Further information Information about Regus may be found on the Regus website at: www.regus.com, or telephone +44 (0) 845 303 3004 (international direct dial). Registered office Regus plc 3000 Hillswood Drive Chertsey Surrey KT16 0RS United Kingdom Registered number 3548821 Tel: +44 (0) 1932 895 000 Fax: +44 (0) 1932 895 001 15994 financial section (F) new 21/3/02 11:18 AM Page 59 59 AGM Notice Dear shareholder Notice of Annual General Meeting Annual General Meeting I am pleased to give you information about the Annual General Meeting, to be held at City Point, 1 Ropemaker Street, London EC2Y 9HT at 10.00am on Friday 26 April 2002. Action to be taken A form of proxy is enclosed for you to complete according to the instructions printed on it and to send to the Company’s registrar, Capita IRG Plc, PO Box 25, Notice is hereby given that the Annual General Meeting of Regus plc will be held at City Point, 1 Ropemaker Street, London EC2Y 9HT, on Friday 26 April at 10.00am to consider and, if thought fit, pass the following resolutions: Ordinary business 1 Report and accounts To receive the report of the directors and the financial statements for the year ended 31 December 2001 together with the report of the auditors. Beckenham, Kent BR3 4BR, to arrive no later than 10.00am 2 Re-election of directors on 24 April 2002. You will not be prevented from attending To re-elect each of Stephen Stamp and Roger Orf as and voting at the meeting, if you subsequently find that you directors of the Company. are able to do so. 3 Re-appointment of auditors Location of the meeting To re-appoint KPMG as auditors to the Company and The meeting is to be held at City Point in the Regus to authorise the directors to determine the auditors’ Conference Centre on the 9th floor. Further details are remuneration for the year. provided on page 63. Recommendation Special business To consider and, if thought fit, pass the following resolutions We, your directors, consider that all of the resolutions set of which Resolution 4 will be proposed as an ordinary out in the Notice of Annual General Meeting are in the best resolution and Resolutions 5 and 6 will be proposed as interests of shareholders and recommended that you vote in special resolutions: their favour, as we shall regarding our own shareholdings. Yours faithfully George Gray Chairman 4 Directors’ authority to allot ordinary shares That, in addition to the authorities and powers granted to the directors by the shareholders at the Extraordinary General Meeting held on 13 February 2002, the directors be and are hereby authorised, generally and unconditionally, for the purposes of Section 80 of the Companies Act 1985, to exercise all powers of the Company to allot relevant securities up to the aggregate nominal amount of £9,701,888.55, being the lesser of (i) the Company’s authorised but unissued share capital at the date of the resolution and (ii) the sum of (a) one-third of the Company’s issued ordinary share capital at the date of the resolution and (b) any amounts outstanding at the date of the resolution which have previously been approved by 15994 financial section (F) new 21/3/02 11:18 AM Page 60 60 FINANCIAL REVIEW Report and Accounts 2001 AGM Notice continued shareholders to satisfy the Company’s obligations to issue or legal or practical problems arising in any overseas shares. The Company may make any offer or agreement territory, the requirements of any regulatory body or stock prior to the expiry of this authority which would or might exchange or any other matter whatsoever; and require relevant securities to be allotted after such expiry and the directors may allot relevant securities after such expiry in accordance with this authority in pursuance of such offer or agreement. This authority shall expire immediately prior to the fifth anniversary of the passing of this resolution. Except for the powers and authorities granted to the directors by the shareholders at the Extraordinary General Meeting held on 13 February 2002, all unexercised authorities vested in the directors immediately prior to the general meeting at which this resolution is passed to allot relevant securities are hereby revoked. Expressions used in this resolution which are defined in the Companies Act 1985 shall have the same meaning as used herein. 5 Directors’ power to disapply pre-emption rights That if Resolution 4 is passed as an ordinary resolution, the directors be and are hereby empowered in accordance with section 95(1) of the Companies Act 1985 from time to time to allot equity securities pursuant to the general authority referred to in Resolution 4 to such persons and in such manner as the directors may think fit as if Section 89(1) of the Companies Act 1985 did not apply to any such allotment, provided that this power shall be limited to: (ii) the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities up to the aggregate nominal amount of £1,455,283.25 being 5% of the ordinary share capital in issue at 8 March 2002. This power shall enable the Company to make any offer or agreement before the expiry of such general authority which would or might require securities to be allotted after such expiry and the directors may allot equity securities after such expiry pursuant to any such offer or agreement. Expressions used in this resolution which are defined in the Companies Act 1985 shall have the same meanings as used herein. This authority shall expire immediately prior to the fifth anniversary of the passing of this resolution. This power is in addition to the authorities and powers granted to the directors by the shareholders at the Extraordinary General Meeting held on 13 February 2002. 6 Company’s authority to purchase ordinary shares That the Company be and is hereby unconditionally and generally authorised for the purpose of Section 166 of the Companies Act 1985 to make market purchases (as defined in Section 163 of that Act) of ordinary shares of the Company provided that: (i) the allotment of equity securities in connection with a rights issue, open offer or any other pre-emptive offer (i) the maximum number of shares which may be in favour of shareholders and in favour of holders of any purchased is 58,211,331; other class of equity security in accordance with the rights attached to such class where the equity securities respectively attributable to the interests of such persons (ii) the minimum price which may be paid is the nominal value of each share; on a fixed record date proportionate (as nearly as may be) (iii) the maximum price which may be paid for a share to the respective numbers of equity securities held by them is an amount equal to 105% of the average of the middle or are otherwise allotted in accordance with the rights market quotations of the Company’s ordinary shares as attaching to such equity securities subject to such derived from the Stock Exchange Daily Official List for the exclusions or other arrangements as the Board may deem five business days immediately preceding the day on which necessary or expedient to deal with fractional entitlements such share is contracted to be purchased; 15994 financial section (F) new 21/3/02 11:18 AM Page 61 61 (iv) this authority shall expire at the conclusion of the Annual Resolution 3 - Re appointment of auditors General Meeting of the Company held in 2003 (except in relation to the purchase of shares the contract for which was concluded before the expiry of such authority and which might be executed wholly or partly after such expiry) unless such authority is renewed prior to such time. The auditors of a company must be appointed at each general meeting at which accounts are presented. Resolution 3 proposes the re-appointment of the Company’s existing auditors KPMG for a further year. The resolution also gives authority to the directors to determine Registered Office: the auditors’ remuneration. 3000 Hillswood Drive, Chertsey , Surrey KT16 ORS By order of the Board R J G Lobo Company Secretary 8 March 2002 Resolution 4 - Directors’ authority to allot ordinary shares Under Section 80 of the Companies Act 1985, the directors require the authority of shareholders in general meeting to allot unissued shares of the Company and this resolution seeks to renew the authority last granted to the directors Any member entitled to attend and vote at the meeting is at the 2001 Annual General Meeting. Although this authority entitled to appoint a proxy to attend and vote instead of the is not due to expire until the fifth anniversary of the date member. A proxy need not be a member of the Company. of the passing of the resolution, the directors consider it Explanatory notes to the resolutions Resolution 1 - Report and accounts The directors are required to present to the Annual General Meeting, the directors’ and auditors’ reports and the accounts of the Company for the year ended 31 December 2001. Resolution 2 - Re-election of directors The Company’s Articles of Association require that at the Annual General Meeting one-third in number of the directors must retire by rotation (including those directors who have held office at the time of the preceding two Annual General Meetings and who did not retire at either of them). In accordance with the Articles of Association, Stephen Stamp and Roger Orf (being those longest in the office since their last appointment) shall retire. All the retiring directors offer themselves for re-election. Brief details of all the directors, including those seeking re-election at the meeting, are to be found in this Annual Report and Accounts. appropriate, and in line with current practice, to seek renewal of the authority on an annual basis. Accordingly, the directors seek the authority to allot, at their discretion, an amount of relevant securities up to the aggregate nominal amount of £9,701,888.55 being one-third of the issued ordinary share capital of the Company at the date of the resolution. The directors do not have any present intention of exercising this authority other than in respect of the Company’s share option schemes and if necessary to satisfy the consideration payable for businesses acquired or to be acquired. Other than as set out immediately below, this authority supersedes all previous authorities and the directors intend to seek its renewal at next year’s Annual General Meeting. At an Extraordinary General Meeting held on 13 February 2001, the Company was granted authority to allot an aggregate nominal amount of up to £2,910,566.50 pursuant to a convertible debentures instrument or a warrant instrument under Section 80 of the Companies Act and as if Section 89(1) of the Companies Act did not apply to any such allotment. This authority will remain in force for the periods specified in the relevant resolutions and will be cumulative with the authorities requested at this Annual General Meeting. 15994 financial section (F) new 21/3/02 11:18 AM Page 62 62 FINANCIAL REVIEW Report and Accounts 2001 AGM Notice continued Resolution 5 - Directors’ power to disapply Resolution 6 specifies the maximum number of shares pre-emption rights Under Section 95 of the Companies Act 1985, the directors require the authority of shareholders in general meeting to disapply section 89 of the Companies Act 1985 so that they can allot authorised but unissued shares in the Company for cash other than to existing holders of ordinary shares pro rata to their holdings or alternatively, should appropriate circumstances arise, allot shares in connection with a rights issue (subject to certain limited exclusions for which may be purchased (representing up to 10% of the Company’s ordinary share capital in issue as at 8 March 2002) and the minimum and maximum prices at which they may be bought. The authority given by Resolution 6 will last until the conclusion of next year’s Annual General Meeting (or, if earlier, 15 months from 26 April 2002 being the date of the passing of the present resolutions). The directors intend to seek renewal of this power at subsequent Annual General Meetings. arrangements). At the present time there is not intention to Information for shareholders and other participants exercise such authority. This section provides information for shareholders and other “participants” who have the rights in connection with The directors intend to seek renewal of the authority given by Resolution 5 at next year’s Annual General Meeting. In accordance with the guidelines issued by the investment committees of the Association of British Insurers and the National Association of Pension Funds, the Board confirms its intention that no more than 7.5% of the issued ordinary share capital of the Company will be allotted for cash on a non pre-emptive basis during any rolling three-year period. Resolution 6 - Authority to purchase own shares In certain circumstances, it may be advantageous for the Company to purchase its own ordinary shares and Resolution 6 seeks authority from the shareholders to make such purchases in the market. The directors consider it desirable for this general authority to be available to provided additional flexibility in the management of the Company’s capital resources. The directors have no specific intention of using such authority and would do so only when, in the light of market conditions prevailing at the time, they believe that the effect of such purchases is in the best interests of shareholders generally. Any shares purchased under this authority will be cancelled and the number of shares in issue will be reduced accordingly. this meeting. Shareholders Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the time by which a person must be entered on the register of members in order to have the right to attend or vote at the Annual General Meeting is 10.00am on Wednesday 24 April 2002. Entries in the register after that time will be disregarded in determining the rights of any person to attend or vote at the meeting. Such a shareholder is entitled to appoint a proxy or proxies to attend and, on a poll, to vote instead of him or her. A proxy need not be a shareholder of the Company. A prepaid proxy card is enclosed and, to be valid, it must be completed according to the instructions printed on it and sent to the Company’s registrar Capita IRG Plc, PO Box 25, Beckenham, Kent BR3 4BR, to arrive no later than 10.00am on Wednesday 24 April 2002. Shareholders who return completed proxy voting forms may still attend the meeting instead of their proxies and vote in person if they wish. In the event of a poll in which the shareholders votes in person, his/her proxy votes lodged with the Company will be excluded. 15994 financial section (F) new 21/3/02 11:18 AM Page 63 63 Regus plc Employee Trust Admission If you only hold shares through the Regus plc Employee You will be asked to register at the shareholder reception Trust, you cannot participate in the Annual General desk. If you have been appointed as a shareholder proxy, Meeting. Documents you should make this fact known to the shareholder reception desk. Copies of the following items will be available for inspection Security at the registered office of the Company during normal Shareholders are reminded that briefcases, cameras, laptop business hours on any weekday excluding Saturdays, computers, tape-recorders, etc. are not allowed in the Sundays and public holidays, from the date of this notice meeting room. We also ask that mobile phones be until the date of the meeting. They will also be available for switched off during the meeting. inspection at the place of the meeting for a period of at least 15 minutes before the meeting and until the About the meeting conclusion of the meeting: At the meeting you will be asked to vote on the resolutions which are set out in this Notice of Meeting. Explanatory • The register of members; notes are also provided. You may therefore find it helpful to • The register of directors’ shareholdings; • Directors’ service contracts; • Memorandum of Association; • The Company’s current Articles of Association. bring this document with you. However, you do not need to bring any other documents. During the meeting the Chairman will give shareholders the opportunity to ask questions. Smoking 9.00am Doors open to shareholder registration desk Smoking is not permitted in the building. The Annual General Meeting will be held on Friday 26 April at 10.00am. The venue is the Regus Conference Centre at City Point, 1 Ropemaker Street, London, EC2Y 9HT, and is on the 9th floor of the tower, accessible by lifts from the ground floor. and reception area 9.15am Auditorium opens 10.00am The Annual General Meeting begins Shareholders will be asked to vote on each of the resolutions set out in this Notice of Annual of Annual General Meeting. Shareholders will have an opportunity to ask questions at the meeting. Who may attend ? Only shareholders are entitled to attend the meeting. Non-shareholders will be admitted, as non-participating observers, at the discretion of the Company. 15994 financial section (F) new 21/3/02 11:18 AM Page 64 64 FINANCIAL REVIEW Report and Accounts 2001 Five-year summary Profit and loss data 31 Dec 1997 31 Dec 1998 31 Dec 1999 31 Dec 2000 31 Dec 2001 Turnover (including share of joint ventures) Less: share of turnover of joint ventures Turnover Cost of sales (centre costs) before exceptional items Exceptional items Cost of sales (centre costs) after exceptional items Gross profit (centre contribution) Administration expenses before exceptional items Exceptional items Administration expenses after exceptional items Group operating (loss)/profit Share of operating loss in joint ventures Total operating (loss)/profit: Group and share of joint ventures Net interest payable and other similar charges Loss on ordinary activities before tax Tax on loss on ordinary activities Loss on ordinary activities after tax Minority interests Retained loss for the financial period Loss per ordinary share: Basic and diluted (p) Weighted average number of shares £m 58.8 – 58.8 (50.3) – (50.3) 8.5 (13.1) – (13.1) (4.6) – (4.6) (1.8) (6.4) (0.5) (6.9) – (6.9) (1.7) £m 111.6 – 111.6 (97.2) – (97.2) 14.4 (29.6) – (29.6) (15.2) – (15.2) (2.0) (17.2) (0.8) (18.0) 0.1 (17.9) £m 200.6 – 200.6 (183.5) – (183.5) 17.1 (60.0) (5.1) (65.1) (48.0) (0.1) (48.1) (6.8) (54.9) (1.5) (56.4) – (56.4) £m 429.2 (8.1) 421.1 (320.8) – (320.8) 100.3 (86.9) (9.5) (96.4) 3.9 (1.0) 2.9 (6.8) (3.9) (9.9) (13.8) 0.3 (13.5) £m 524.6 (12.0) 512.6 (434.7) (38.0) (472.7) 39.9 (91.3) (52.5) (143.8) (103.9) (5.6) (109.5) (0.6) (110.1) (10.1) (120.2) 1.9 (118.3) (4.2) (12.0) (2.7) (21.0) outstanding (thousands) 400,000 427,729 469,486 497,889 563,528 Balance sheet data (at year end): Fixed assets and investments Cash Total assets Creditors: amount falling due within one year Creditors: amounts falling due after more than one year Equity minority interests Equity shareholders funds/(deficit) 24.0 14.8 53.0 (46.9) (22.8) (0.1) (16.6) 54.7 48.0 142.2 (99.3) (29.1) (0.2) 13.9 126.8 72.1 268.3 (189.9) (102.4) (0.2) (23.7) 244.6 169.8 544.4 (317.9) (23.8) (0.4) 203.1 251.5 117.1 486.3 (364.3) (33.2) 0.3 88.4 15994 financial section (F) new 21/3/02 11:18 AM Page 65 65 Financial calendar 2002 AGM Friday 26 April 2002 Announcements of quarterly results Quarter 1 Quarter 2 Quarter 3 Thursday 7 May 2002 Wednesday 7 August 2002 Wednesday 6 November 2002 15994 03/02 15994 cover (F) 21/3/02 11:49 AM Page 1 www.regus.com Regus plc 3000 Hillswood Drive, Chertsey, Surrey KT16 ORS, United Kingdom Registered number: 3548821