Regus Group Plc Annual Report 2002

Plain-text annual report

Regus plc Annual Report & Accounts 2002 1 Contents Statement from the Chairman Financial review Directors Directors’ report Corporate governance Directors’ 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 2 4 9 10 12 15 20 22 23 24 25 26 32 52 54 55 60 2 Report and Accounts 2002 Chairman’s Statement 2002 was perhaps the most challenging year in the history of the company. The economic slowdown that began in the United States in the ﬁrst half of 2001 deepened during 2002 and was exacerbated by growing geopolitical uncertainty. It became clear early in 2002 that Regus had over expanded in some markets, most notably in the US and in particular on the West Coast of the US. Fuelled by the technology boom in the late 1990s, the West Coast economy became overheated and when the boom came to an end in early 2001, it was the West Coast that suffered most. Regus has around one third of its US centres on the West Coast. In 2001, we had already cut costs by over £50 million a year but with overall revenues continuing to fall in 2002, we set about attacking the ﬁxed cost base. In a number of our key markets we sought – with some success – to re- negotiate and re-structure our lease portfolio. Notwithstanding this, we continued to consume cash month-on-month. 3 Accordingly, the Board took two decisive steps around the stabilised. Global occupancy rose throughout the year and, turn of the year: • In December, we sold a 58% majority interest in our successful UK business to Alchemy Partners, bringing £25.6 million into the Group immediately and at the same time, putting an additional £16.3 million of capital into the including the UK, almost 60,000 customers across 51 countries now use Regus on a daily basis. This represents an increase of 11% compared with the same period in 2001. We continue to see high levels of customer satisfaction and it is clear that businesses, large and small, appreciate the signiﬁcant beneﬁts of outsourcing their UK business. Further contingent consideration payments property requirements. are expected from Alchemy in 2003 and 2004, dependent on the EBITDA of the UK business. • In January, we decided to seek creditor protection for our US business in order to allow our American subsidiary time to reorganise its business and return it to proﬁtability. Although Chapter 11 allows lessees to terminate leases in Looking ahead, we believe we are taking the necessary steps to secure a successful future for Regus. This includes accounting for a number of exceptional items in 2002. As the world’s largest provider of serviced ofﬁces, we have efﬁcient systems in place and our people remain committed to delivering the very best in service to our customers a cost effective way, our intention is to agree space around the globe. and/or rent reductions with as many landlords as possible. This is important if we are to protect the integrity of our network. Chapter 11 has no impact on the The transition has been a tough one and we thank our staff, shareholders, landlords, suppliers and customers for day-to-day running of our centres in the US and we plan their patience and support. to exit Chapter 11 sometime later in the year. We continue to look for ways to address our few remaining cash negative businesses. The largest of these, Germany, is currently being re-structured. Our determined drive to attract and retain customers has resulted in increased occupancy and prices in general have John Matthews Chairman 4 Report and Accounts 2002 Financial review Introduction Restructuring The Group recorded an operating loss before exceptional In 2001, the cost base was reduced by over £50 million items of £44.3 million (2001: £19.0 million) on Group with particular emphasis on variable costs. turnover of £435.6 million (2001: £512.6 million). After an In line with continued deterioration in the wider economy exceptional charge of £92.1 million (2001: £90.5 million) during 2002, the Group sought ways of further plus a net proﬁt on business disposals of £22.7 million the reducing the cost base, in particular ﬁxed costs by loss before interest and taxation was £113.7 million re-negotiating and re-structuring the Group’s lease (2001: £109.5 million). portfolio. Although these bi-lateral negotiations yielded some success, the net improvement in cashﬂow proved insufﬁcient and, accordingly, the Board decided: • In December 2002, to sell a 58% majority interest in the UK business to Alchemy Partners, bringing £25.6 million into the Group immediately and at the same time putting an additional £16.3 million of capital into the UK business. Further contingent consideration payments are expected from Alchemy in 2003 and 2004, dependent on the EBITDA of the UK business. The transaction closed on 30 December 2002. The Group consolidated the results of the UK business for 2002 and accounted for the UK business as an associate at 31 December 2002. The Group recorded a proﬁt on the sale of the UK business of £23.0 million which excludes any deferred Group turnover £m 600 512.6 421.1 435.6 200.6 111.6 1998 1999 2000 2001 2002 EBITDA before exceptional items 53.0 45.1 500 400 300 200 100 0 £m 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 -40.0 -5.8 -23.0 consideration. 12.1 • In January 2003, to seek creditor protection for the US business in order to allow the US subsidiary time to reorganise its business and return to proﬁtability. Although the ﬁling took place after the year end, the Group has determined that it would be prudent to make impairment 1998 1999 2000 2001 2002 provisions in respect of certain assets and to provide for the cost of exiting from certain onerous leases. The Group has also taken steps to address its other remaining cash negative businesses, in particular Germany, and similar provisions have been made in respect of those businesses. The total provisions for onerous leases and related closure costs and impairment of tangible assets were £54.3 million and £36.8 million respectively. 5 Convertible Bond Issue The £40m Convertible Bond issue was repaid in full during 2002 and no charges are outstanding with respect to this issue. Results of Operations The following table sets forth the Group’s revenue, centre contribution before exceptional cost of sales of £57.0 million (2001: £38.0 million) and workstations (i.e. weighted average number of workstations) by geographic region. Year ended 31 December Revenue Contribution Workstations Revenue Contribution Workstations 2002 2001 173.3 140.1 91.7 30.5 435.6 30.5 8.9 (19.7) 2.6 22.3 (in £ millions, except workstations) 26,912 30,807 23,898 5,877 87,494 213.6 151.9 113.7 33.4 512.6 59.4 24.9 (10.0) 3.5 77.8 25,471 26,262 21,285 5,473 78,491 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 Revenue Contribution Workstations Revenue Contribution Workstations 2002 2001 Established Centres New Centres Total 408.1 27.5 435.6 29.9 (7.6) 22.3 (in £ millions, except workstations) 80,469 7,025 87,494 410.8 101.8 512.6 103.1 (25.3) 77.8 53,693 24,798 78,491 Revenue Revenue on a global basis decreased 15% to £435.6 million Accordingly, REVPAW in established centres decreased in 2002 from £512.6 million in 2001 with weighted average from £7,650 in 2001 to £5,072 in 2002. workstations increasing 11% to 87,494 in 2002 from 78,491 in 2001. As a result, total revenue per available workstation (REVPAW) decreased from £6,531 in 2001 to £4,979 in 2002. REVPOW (the total revenue per occupied workstation) also fell by 26% during these very difﬁcult trading conditions (falling from £11,147 in 2001 to £8,272 in 2002). Revenue from established centres decreased slightly to £408.1 million in 2002 and weighted average workstations in established centres increased 50% to 80,469. Revenue from new centres decreased 73% to £27.5 million in 2002 and workstations in new centres decreased 72% to 7,025. REVPAW in new centres decreased 5% to £3,914 in 2002 from £4,105 in 2001. Average occupied workstations increased during 2002 ending the year up 15% to 52,659 (2001: 45,986). 6 Report and Accounts 2002 Financial review continued Available Workstations No. 90000 24,798 7,025 80,469 Centre Contribution (Gross Proﬁt) Centre contribution before exceptional items on a global basis decreased 71% from £77.8 million in 2001 to £22.3 million in 2002. 19,392 53,693 Centre contribution before exceptional cost of sales from established centres decreased 71% to £29.9 million in 13,005 30,941 2002. The centre contribution margin (centre contribution 16,772 7,223 9,070 1998 1999 2000 2001 2002 Established New as a percentage of revenue) from established centres fell from 25% to 7% between 2002 and 2001. Centre contribution from new centres increased to negative £7.6 million in 2002 from negative £25.3 million. Occupied Workstations 52,659 45,986 37,497 19,386 11,065 1998 1999 2000 2001 2002 REVPAW - established centres £ 10000 9,489 Administrative Expenses Administrative expenses before exceptional items decreased 33% to £61.1 million in 2002. Administrative expenses also fell as a percentage of revenue decreasing from 18% in 2001 to 14% in 2002. Sales and marketing costs decreased 30% to £33.8 million in 2002 (or 55% of administrative expenses) from £48.2 million in 2001 (or 53% of administrative expenses). Regional and central overheads decreased 37% to £27.3 million in 2002 (or 45% of administrative expenses) from £43.0 million in 2001 (or 47% of administrative expenses). Exceptional Items £92.1 million exceptional items include costs relating to onerous leases (£54.3 million), impairment of tangible assets (£36.9 million), impairment of goodwill (£4.0 million) and costs related to aborted business disposals (£0.7 million), offset by a business interruption insurance receipt 7,872 7,990 7,650 (£3.8 million). Proﬁt/(loss) on Sale of Group Undertakings 5,072 In the year, two Group undertakings were sold which generated a £22.7 million net proﬁt. The most signiﬁcant transaction was the sale of a 58% interest in the UK business to Alchemy Partners, which contributed £23.0 million. In addition, the Romanian business was sold to a 1998 1999 2000 2001 2002 franchisee at a small loss of £0.3 million. 80000 70000 60000 50000 40000 30000 20000 10000 0 No. 60000 50000 40000 30000 20000 10000 0 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 7 Contribution before exceptional items adjustment was made to the balance sheet as at that date. 103.1 92.3 The impact on the tax charge for 2002 was just £0.1 million. £m 110.0 90.0 70.0 50.0 30.0 23.0 41.7 8.0 29.9 -7.6 Established New -8.6 -24.6 -25.3 1998 1999 2000 2001 2002 Overheads 29.9 26.5 20.6 17.8 % of Revenues 10.0 -10.0 -30.0 -50.0 35 30 25 20 15 10 5 0 Liquidity and Capital Resources Cash at bank and in hand at 31 December 2002 was £58.6 million (2001: £117.1 million) of which £29.9 million was free cash, including the net cash impact of £15.6 million received so far, from the sale of 58% of the UK business. Total indebtedness at 31 December 2002 was £11.0 million (2001: £48.1 million), including a £5.0 million loan from Regus UK. The Group also had outstanding ﬁnance lease obligations at 31 December 2002 of £25.2 million (2001: £38.0 million), of which £11.8 million is due within one year. 14.1 Operating cash inﬂow before exceptional items was £5.8 Sales and marketing General and administrative million in 2002 compared with £56.1 million in 2001. Decreased trading levels resulted in net working capital outﬂows of £9.5 million in the year. 1998 1999 2000 2001 2002 Net Interest Payable The increase in interest payable was due primarily to the £3.5 million interest paid on Regus’ £40 million convertible bond, which was fully repaid during 2002. Net cash outﬂow before management of liquid resources and ﬁnancing for the year was £16.9 million after paying tax of £4.1 million, interest (net) of £2.8 million, net capital expenditure of £14.7 million and investments in joint ventures of £0.7 million, offset by a net cash beneﬁt of There was also a reduced level of interest received as cash £16.2 million from the sale of a share of the UK business balances fell steadily over the year. and other acquisitions and disposals. Tax on loss on ordinary activities Despite Regus’ overall loss making position in 2001 and 2002, Regus provided for tax liabilities in both periods primarily because tax liabilities arose on proﬁts arising in the UK & Ireland and several countries within continental Europe. By the end of December, the Group had repaid all of the 5 percent unsecured, senior convertible debentures issued in December 2001. No further charge will be incurred in relation to this ﬁnancing. These taxable proﬁts could not be offset by the tax losses Net cash (cash at bank less total indebtedness and ﬁnance arising in other countries where Regus operates. The majority leases) decreased from £31.0 million at 31 December 2001 of Regus’ operating companies have tax losses available to to £22.4 million at 31 December 2002. carry forward against future proﬁts. In some countries, there are time restrictions on the carry forward of such losses. The Group adopted FRS 19 Deferred tax during the year. The impact of FRS 19 on the ﬁnancial position of the Group at 31 December 2001 was deemed not material and so no Maintaining adequate liquidity in the Regus Group continues to be the Board’s highest priority. The sale of a majority stake in the UK business and the ﬁling under Chapter 11 in the US are evidence of this. Based upon the 8 Report and Accounts 2002 Financial review continued assumptions set out under Accounting Policies – Going Funding and deposits Concern on page 26, the directors have prepared the Outstanding borrowings comprise ofﬁce equipment accounts on a going concern basis. In particular, the ﬁnanced through ﬁnance leases as well as speciﬁc loans directors recognise that the outcome of Chapter 11 from certain property owners advanced on commercial proceedings is unpredictable and the Group is reliant upon terms. Wherever possible, these borrowings are matched the timely receipt of substantially all of the ﬁrst tranche of 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. Counter-party risk The Group actively manages its relationships with a panel of high-quality ﬁnancial institutions. Cash assets, borrowings and other ﬁnancial instruments are distributed according to predetermined limits approved by the Board to control exposure to any particular institution. Interest rate risk The Group’s policy is to borrow and invest funds using both ﬁxed and ﬂoating interest rates. The Group manages interest rate risk using forward rates or interest rate swaps as appropriate to minimise the risk to the Group of adverse movements in interest rates. the deferred consideration from Alchemy. Treasury Management The Group’s treasury policy seeks to ensure that adequate ﬁnancial resources are available for day-to-day operations while managing its currency, interest rate and counter-party credit risks. Group Treasury strategy and policy is developed centrally, with subsidiary companies being required to operate within a framework of controls approved by the Board. Our policy on each of the major areas of treasury activity is set out below. Currency translation The results of the Group’s foreign subsidiaries are translated into Sterling at the average exchange rates for the period concerned. The balance sheets of foreign subsidiaries are translated into Sterling at the closing exchange rates. Any gains and losses resulting from the translation are recorded in reserves where they are matched with the gains and losses on related borrowings, foreign exchange contracts, currency swaps or currency options, used to hedge the net assets of subsidiaries. Group Treasury makes proposals to a Treasury Risk Committee of the Board on a quarterly basis regarding the hedging policy for overseas assets and liabilities. Currency transaction exposures Currency transaction exposure arises where sales and purchases are transacted by a business unit in a currency other than its own, local, functional currency. The majority of the Group’s businesses, however, sell to clients and pay suppliers in their local markets in their own functional currencies and as a result, have limited transaction exposure. 9 Directors John Matthews Stephen Stamp Non-executive Chairman, age 58 Group Finance Director, age 41 Appointed in 1995. He is also a director of Crest Nicholson plc Mr Stamp joined Regus in January 2000 from Shire (Chairman), SDL plc, Rotork plc and several private companies. Pharmaceuticals Group plc, where he was Group Finance A chartered accountant, he has held senior executive positions Director. Prior to joining Shire in 1994, he was an assistant in investment banking and in industry. He is Chairman of the director of corporate ﬁnance at Lazard Brothers and before that nomination committee and a member of the audit and spent four years at KPMG London, qualifying as a chartered remuneration committees. accountant in 1987. Mark Dixon Chief Executive, age 43 Martin Robinson Independent non-executive Director, age 40 Founder of Regus. His entrepreneurial skill and drive have Mr Robinson was appointed as a non-executive director in August made him a major contributor to the growth of the serviced 2002. He is currently the Chairman of Center Parcs UK and CEO of office industry. He is a member of the nomination committee. Center Parcs Europe, before which he was commercial director of Rudy Lobo Executive Director, age 47 S&N retail. He is Chairman of the remuneration committee and a member of the audit and nomination committees. Mr Lobo joined Regus eleven years ago and was previously Group Finance Director. He is responsible for commercial Roger Orf Senior independent non-executive Director, age 50 operations and has responsibility for directing Regus’ IT and Head of European Operations for Lone Star, a property e-business strategy. Previously, Mr Lobo was the Group investment company. Previously, Mr Orf made investments for Company Secretary of Medicom International Ltd, a publisher his own account and managed investments on behalf of Apollo of medical journals, and a director of several of its subsidiaries. Real Estate Advisors. Prior to 1995, Mr Orf was in charge of Goldman Sachs’ European real estate department. He is Chairman of the audit committee and a member of the remuneration and nomination committees. Auditors KPMG Audit Plc 8 Salisbury Square London EC4Y 8BB Legal advisers to the Financial advisers Company as to US law NM Rothschild & Sons Davis Polk & Wardwell New Court 99 Gresham Street London EC2V 7NG St Swithin’s Lane London EC4P 4DU Registered ofﬁce and headquarters 3000 Hillswood Drive Chertsey Surrey KT16 0RS Website www.regus.com Registrars Capita IRG Plc Bourne House 34 Beckenham Road Registered number Kent BR3 4TU 3548821 Legal advisers to the Company as to English law Bankers Slaughter and May 1 Bunhill Row London EC1Y 8YY NatWest Bank Plc 1 Princes Street London EC2R 8PB Stockbrokers Merrill Lynch International 2 King Edward Street London EC1A 1HQ 10 Report and Accounts 2002 Director’s report The directors present their report and the audited a variety of ways, including electronic media, in-house financial statements of Regus plc for the year ended 31 journals, bulletins and brieﬁng sessions. December 2002. Principal activities The Group is committed to the principle of equal opportunity in employment, regardless of a person’s race, The Group is engaged in the provision of fully-serviced creed, nationality, sex, age, marital status or disability. business centres. The Chairman’s Statement and the Employment policies are fair, equitable and consistent with Financial Review on pages 2 to 8 describe the principal the skills and abilities of the employees and the needs of activities of the Group during 2002. Business review and future developments The loss on ordinary activities before taxation for the year ended 31 December 2002 was £119.1 million (2001: loss £110.1 million). An indication of future developments is given in the Chairman’s statement. Dividends No dividend is proposed (2001: £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 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. Regus held its second European Works Council (EWC) meeting in June 2002, including all internally elected councillors from the member states, and chaired by Mr R J G Lobo. The agenda covered Regus’ global strategy and key goals for 2002, Health and Safety updates, IT news, corporate communications and HR issues such as salaries, security and training and development. Agreed actions and minutes were documented and circulated. A further meeting of the EWC is planned for mid 2003. The number of employees and their remuneration are set out in note 5 to the ﬁnancial statements. G G Gray (resigned 30 June 2002) A M Robinson (appointed 7 August 2002) Political and charitable donations Details of the directors’ interests and shareholdings are given in the Directors’ Remuneration report on pages 15 to 19. In accordance with the Articles of Association, Martin Robinson, Mark Dixon and John Matthews retire by rotation and, being eligible, offer themselves for re-election at the Annual General Meeting. Employees The Group made no political contributions and no donations to UK charities in either 2002 or 2001. Payment of creditors It is the policy of the Group to agree terms of payment for its business transactions with its suppliers. Payment is then made in accordance with these, subject to the terms and conditions being met by the supplier. Trade creditor days of the Group for the year ended 31 December 2002 were 56 It is the Group’s policy to communicate with all employees days (2001: 48 days). The Company does not follow any and to encourage them to take a wider interest in the affairs code or standard on payment practice. The Company has of their employing company and the Group. This is done in no trade creditors. 11 Statement of directors’ responsibilities 1 The beneﬁciary is Maxon Investments BV. M L J Dixon owns 100% Company law requires the directors to prepare ﬁnancial interest in Maxon (page 18). 2 The beneﬁciary of half of this holding is R J G Lobo (page 18). 3. Part of these shares are subject to a contract for difference with Indigo Capital, LLC. 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 is to be proposed at the forthcoming Annual General Meeting. By order of the Board 4 June 2003 T S J Regan Company Secretary 3000 Hillswood Drive Chertsey Surrey KT16 0RS United Kingdom statements for each ﬁnancial year which give a true and fair view of the state of affairs of the Company and Group and of the proﬁt or loss for that period. In preparing these ﬁnancial statements, the directors are required to: • 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 • prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the ﬁnancial position of the Company and to enable them to ensure that the ﬁnancial 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 Company and of the Group and to prevent and detect fraud and other irregularities. Substantial shareholdings The Company has been notiﬁed of the following holders of 3% or more of its issued share capital for the purposes of Section 198 of the Companies Act 1985, as at 30 May 2003: Paramount Nominees Ltd1 365,329,286 62.46% HSBC Trustee (Jersey) Ltd2 23,140,000 3.96% Cantor Fitzgerald Europe3 92,256,000 15.77% GNI Limited 29,365,000 5.02% 12 Report and Accounts 2002 Corporate Governance The Board of Directors intends to maintain standards of Board procedures are followed and that applicable rules corporate governance in line with the Combined Code, and regulations are complied with. All directors submit issued by the London Stock Exchange in 1998, which sets themselves for re-election at least every three years and out the Principles of Good Governance and the Code of directors appointed during the period are required to seek Best Practice. A summary of the Company’s procedures for re-election at the next AGM. applying the principles and the extent to which the provisions of the Combined Code have been applied are set out below. 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 The independent non-executive directors understand that the Board will not automatically recommend their re-election. Board committees The Board has a number of standing committees, which all have written terms of reference setting out their authority 31 December 2002, with the exception of provision and duties: D2 – Internal Control. The circumstances which caused this situation and the necessary focus on other priorities in the second half of 2002 in particular are described below. Board composition Audit committee – the members of this committee are Mr J W Matthews, Mr R G Orf (Chairman) and Mr A M Robinson (all independent non-executive directors). Prior to 1 May 2003, it was chaired by Mr J W Matthews. The Board currently comprises three executive directors, and The audit committee meets as required, but not less than three independent non–executive directors, including a non- four times a year. Its responsibilities, in addition to those executive chairman. Dr. G G Gray resigned as independent referred to under Internal Control, include a critical review of non-executive Chairman on 30 June 2002 and was the annual and interim ﬁnancial statements (including the succeeded as Chairman by Mr J W Matthews. Mr R G Orf Board’s statement on internal control in the annual report) succeeded Mr J W Matthews as senior independent prior to their submission to the Board for approval, when a non-executive director. Mr A M Robinson joined the Board report from the committee is also given. The committee on 7 August 2003 as an independent non-executive director. also reviews the scope and results of the external audit and The Board schedules six meetings each year, but arranges to its cost effectiveness and the independence and objectivity meet at other times, as appropriate. It has a formal schedule of the auditors. Although other directors, including the of matters speciﬁcally reserved for its decision and approval. Group Finance Director, attend audit committee meetings, The Board is supplied with appropriate and timely information the committee can meet for private discussions with the to enable it to discharge its duties and requests additional information or variations to regular reporting as it requires. A internal and external auditors. procedure exists for directors to seek independent Nomination committee – the members of this committee professional advice at the Company’s expense in the are Mr J W Matthews (Chairman), Mr R G Orf and Mr A furtherance of their duties, if necessary. In addition, M Robinson (all independent non-executive directors), appropriate training is made available for all new directors to and Mr M L J Dixon. The committee meets as required. assist them in the discharge of their responsibilities. All Its responsibilities include reviewing the Board structure, directors have access to the advice and services of the size and composition, nominating candidates to the Company Secretary, who is responsible for ensuring that Board to fill Board vacancies when they arise and 13 recommending directors who are retiring by rotation to be The control framework and key procedures in place put forward for re-election. throughout the year ended 31 December 2002 comprise Remuneration committee – the members of this committee the following: are Mr J W Matthews, Mr R G Orf and Mr A M Robinson • The executive directors (‘the Group executive’) normally (Chairman) (all independent non-executive directors) and meet monthly together with certain other senior Mr M L J Dixon. A statement setting out the role and executives to consider Group ﬁnancial performance, responsibility of this committee and the Group’s business development and Group management issues. remuneration policy is shown on page 15. Directors of key operating companies meet regularly to Going Concern manage their respective businesses. The directors continue to adopt the going concern basis in • Major business risks and their ﬁnancial implications are preparing the ﬁnancial statements. In determining that a appraised by the responsible executives as a part of the going concern basis is appropriate, the Directors have made budget process and these are endorsed by regional four key assumptions which are set out in the accounting management. Key risks are reported to the Board and the policies on pages 26 to 28. audit committee. The appropriateness of controls is Internal control The Board acknowledges its overall responsibility for the considered by the executives, having regard to cost/beneﬁt, materiality and the likelihood of risks crystallising. Group’s system of internal control and for reviewing the • Country and regional budgets, containing ﬁnancial and effectiveness of that system on a timely basis. The internal operating targets, capital expenditure proposals and control processes have been designed to identify, evaluate performance indicators, are reviewed by the Group and manage the key risks that the Group encounters in executive and must support regional business strategies. pursuing its objectives. Internal control processes within the Regus Group encompass all controls, including ﬁnancial, operational and compliance controls and risk management. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement. • Monthly reports on Group and regional performances are provided to the Group executive. Quarterly summaries and forecasts are presented to the Board and discussed at Board meetings. Performance against both budgets and objectives are reviewed with regional management, as are forecasts and material sensitivities. The Board regularly receives reports from key executives and functional heads The Board conducts regular reviews of the Group’s covering areas such as forecasts, business development, strategic direction. Country and regional strategic strategic planning, legal and corporate matters. objectives, quarterly plans and performance targets for 2003 have been set by the executive directors and are regularly reviewed by the main Board in the context of the Group’s overall objectives. • There is a Group-wide policy governing appraisal and approval of investment expenditure and asset disposals. Post investment reviews are undertaken. • 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. 14 Report and Accounts 2002 Corporate Governance continued The Group’s internal audit remit is to report to management • From the third quarter of 2001 through mid 2002 there on the Group’s worldwide operations. Its budget, was an embedded system of reporting the effectiveness programme of work and its ﬁndings, including any material of key ﬁnancial, operational and compliance controls. control issues and resultant actions, are reviewed by the This is a comprehensive self-assessment system built up audit committee. However most of the available resource from centre-level using the Group’s intranet. Results and within the internal audit department in the second half of action plans are then reviewed by senior management the year was deployed in helping with the relocation of the and summarised for the Board; UK accounting function in mid year. • A multi-disciplinary Group Risk forum, chaired by the To underpin the effectiveness of controls, it is the Group’s Company Secretary, generally reports to the Board on a policy to recruit and develop appropriately skilled management quarterly basis. Although this lapsed in the second and staff of high calibre and integrity. High standards of quarter of 2002, the forum’s mandate is to consider all business ethics and compliance with laws, regulations and aspects of risk identiﬁcation and management and its internal policies are demanded from staff at all levels. reports represent a key feature of the process by which As noted in the Chairman’s Statement on pages 2 and 3, 2002 was a difﬁcult year for the Group. Adverse trading the Board assesses the overall effectiveness of the Group’s system of internal control. conditions required the Group to undertake extensive cost- Communications with shareholders cutting measures. This inevitably had an impact on the The Company has a policy of maintaining an active dialogue integrity of the system of internal control. Nevertheless the with shareholders. Group ﬁnancial reports and following key mechanisms were available to the Board at announcements are accessible via the Group’s internet site. various times during the year in the conduct of its review of Insofar as securities laws and other applicable requirements internal controls: allow, the Company corresponds on a range of subjects with its individual shareholders who also have an opportunity to question the Board, as well as the chairman of the audit and remuneration committees, at the Annual General Meeting. • An ongoing process, through Board meetings, senior management meetings and divisional reviews as well as other management meetings, for the formal identiﬁcation of signiﬁcant operational risks and mitigating control processes; • The Treasury Risk Committee comprising the Group Finance Director, Company Secretary and Group Treasurer, which meets to consider the speciﬁc risks associated with treasury transactions, including the approval of all transactions in ﬁnancial derivatives; 15 Directors’ Remuneration Report Introduction There was no change in any of the employment terms of This remuneration report sets out the company’s policy on any of the executive directors during 2002 or subsequently the remuneration of executive and non-executive directors (until 4 June 2003). As regards the fees of the independent together with details of directors’ remuneration packages non-executive directors, Mr J W Matthews’ fee was and service contracts. This report will be put to a vote of increased from £25,000 to £90,000 per annum from 1 July the Company’s shareholders at the Annual General Meeting 2002, on his appointment as Chairman. In addition, it was on 9 July 2003. The following information is not subject to audit: The remuneration committee agreed by the Board that, on his appointment, Mr A M Robinson receive a fee of £25,000 per annum. The committee has used no external consultant or expert in its deliberations. The remuneration committee is chaired by Mr A M Remuneration policy Robinson, its other members are Mr M L J Dixon, Mr R G Orf and Mr J W Matthews. Prior to 1 May 2003, it was chaired by Mr J W Matthews. All members of this Remuneration policy for executive directors centres on ensuring that remuneration packages are sufﬁciently competitive to attract, retain and motivate the right calibre committee are independent non-executive directors, other of executive directors. Incentive payments are conditional than the Group Chief Executive. Other directors may be upon demanding performance criteria so as to align invited to attend some meetings of the committee in an incentive awards paid to directors directly with the interest advisory capacity as the committee considers appropriate. of shareholders. If appropriate the remuneration committee The committee will consider all material elements of would use the services of external consultants to help it remuneration policy, remuneration and incentives of agree packages reﬂecting the remuneration policy. The executive directors and senior management, with reference constituent parts of those packages are set out in the to independent remuneration research and professional following paragraphs. 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. Non-executive directors are remunerated with fees, set at a level which will attract individuals with necessary experience and ability. The remuneration committee does not believe that it is appropriate to reward independent non-executive directors with options or other share-based incentives. Directors are not permitted, under Regus’ Articles of Basic salary and beneﬁts Association, to vote on their own terms and conditions of Salaries are reviewed annually and determined by the remuneration. The committee does not make committee, taking into account the performance of the recommendations on the remuneration of non-executive individual directors over the previous 12 months and the directors, which is a matter solely for the full Board. The pay and employment conditions elsewhere in the Group. members of the remuneration committee attend the Any increases in basic salary are effective from 1 January in Company’s Annual General Meeting and are available to each year. For 2003, the remuneration committee has answer shareholders’ questions about directors’ remuneration. recommended that salary levels of each of the executive directors remain at the amounts agreed with each in 2000. 16 Report and Accounts 2002 Directors’ Remuneration Report continued The remuneration table included within this report also The main beneﬁts to executive directors, who contribute a shows beneﬁts received. The main beneﬁts relate to the percentage of their gross salaries to the scheme, are: provision of company cars and/or fuel for private cars and the provision of private medical insurance for the director and their immediate family. 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 achieved. No bonuses are payable for 2002. 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. Share options 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 2002. During 1999, the Group established the Regus Employee Trust. The Trust is a discretionary trust for the beneﬁt of employees, including executive directors. The Trust may • 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; • Life assurance cover based on the level of contributions with the opportunity to purchase additional cover, subject to Inland Revenue limit of 5% of net relevant earnings; and • Pension to spouse payable on death. All executive directors are subject to the Inland Revenue cap on the amount of salary which may be treated as pensionable. Total shareholder return performance The following graph illustrates the Company’s total shareholder return since ﬂotation in 2000 relative to the FTSE 250 Index, in accordance with paragraph 4 of the Director’s Remuneration Report Regulations 2002. The Company was a member of the FTSE 250 Index at the time of ﬂotation and the performance awards under the share option schemes are linked to that index. Accordingly this is considered to be the most appropriate broad equity market index for the purpose of measuring the Company’s relative performance. issue shares to the Group’s employees (including directors) at Value (£) 120 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 options 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. 100 80 60 40 20 0 31 December 2000 31 December 2001 31 December 2002 FTSE250 Regus Plc This graph looks at the value, by the end of 2002, of £100 invested in Regus on 31 December 2000 compared with that of £100 invested in the FTSE 250 Index. 120 100 80 60 40 20 0 17 Service contracts Mr J W Matthews, Mr R G Orf and Mr A M Robinson, as The Company has adopted the following policy on directors’ non-executive directors, have entered into letters of service contracts: appointment dated 26 October 1999 (replaced by a letter (i) executive directors and the Company are each required to give 12 months’ notice of termination (there being no ﬁxed term); (ii) non-executive directors enter into 3 year appointment letters, which may be terminated by the director or the Company on 6 months’ notice. The Company’s policy is that payments on termination of appointment as Non-Executive Chairman dated 1 July 2002), 29 August 2000 (as amended by a letter of amendment dated 28 November 2002) and 7 August 2002 (as amended by a letter of amendment dated 28 November 2002) respectively. These arrangements are for three years, terminable on six months’ notice (three months’ in the case of Mr R G Orf) by the Company or the directors. There are no provisions for compensation for loss of ofﬁce other than should be restricted to the value of remuneration for the payment of any outstanding fees. notice period. On 1 July 2000 Mr M L J Dixon, Mr R J G Lobo and Mr S A Remuneration Report is subject to audit: The following information within the Directors’ 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. There are no provisions for compensation for loss of ofﬁce other than payment of any outstanding salary. Directors’ remuneration table Salary/ fees £’000 125.0 150.0 145.0 – – 28.1 9.1 7.5 464.7 Bonus £’000 Beneﬁts £’000 – – – – – – – – 27.7 9.8 11.6 – – – – – 49.1 Total Total Pension scheme Pension scheme remuneration remuneration contributions contributions 2002 £’000 152.7 159.8 156.6 – – 28.1 9.1 7.5 513.8 2001 £’000 228.6 109.3 160.5 37.5 6.3 14.6 5.0 – 561.8 2002 £’000 27.6 13.0 11.6 – – – – – 2001 £’000 22.7 12.5 11.6 – – – – – 52.2 46.8 Executive Mark Dixon Stephen Stamp Rudy Lobo Non-executive George Gray* Robert Kuijpers* John Matthews Roger Orf Martin Robinson * Former director 18 Report and Accounts 2002 Directors’ Remuneration Report continued During 2002, the following contractual emoluments were irrevocably waived by the directors: Director Mark Dixon Stephen Stamp Rudy Lobo John Matthews Roger Orf Martin Robinson George Gray* * Former Director Directors’ shareholdings Mark Dixon** Rudy Lobo Stephen Stamp John Matthews Martin Robinson Roger Orf Amount Waived (£) 270,000 35,000 20,000 29,375 5,937 2,490 40,000 Ordinary shares Ordinary shares Beneﬁcial holdings Beneﬁcial holdings 31 December 2002 31 December 2001 365,329,286 364,329,286 38,462 384,615 359,724 – 300,000 38,462 384,615 359,724 – 300,000 ** 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 during during 31 December Exercise Granted Lapsed Date from which type 2001 2002 2002 2002 price exercisable Rudy Lobo Stephen Stamp A B C D E B C E 266,179 94,501 189,002 11,570,000 4,003 128,866 2,661,337 4,003 – – – – – – – – – – – – 4,003 – – – 266,179 94,501 189,002 11,570,000 – 128,866 2,661,337 4,003 5.0p 145.5p 145.5p 0.375p 242.0p 145.5p 145.5p 242.0p 1/1/03 7/1/03 7/1/03 31/12/03 1/1/04 7/1/03 7/1/03 1/1/04 Expiry date 31/12/09 31/12/09 31/12/09 – 1/7/04 7/1/10 7/1/10 1/7/04 A Awarded under the Regus Team Member Share Plan for nil consideration. B Awarded under the Regus Team Member Share Plan for nil consideration. C Awarded under the Regus Team Member Share Plan for nil consideration. D 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. E 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. 19 Summary particulars of the Group’s share option schemes The performance target was missed entirely on 1 January are given in note 22 to the Financial Statements. 2003 and therefore that part of Mr S A Stamp’s options All options were granted at the then prevailing market price, save for the grant of 11,570,000 options to Mr Lobo, since lapsed (42,995 shares). exercisable on the ﬁrst vesting date (7 January 2003) have referred to in note D above. C The performance target requires the share price of the The market price of the shares at 31 December 2002 was 10.25p and the range during 2002 was 3.25p to 57.75p. None of the directors had a beneﬁcial interest in any contract of signiﬁcance in relation to the business of the Company or its subsidiaries at any time during the ﬁnancial year. Performance conditions The above table shows the share options and interests under long-term incentive schemes held by directors of the Company. The exercise of these options and the vesting of these interests are both subject to the achievement of performance conditions as follows: Option type A No performance targets are applicable to this grant. It was designed to reward long service within the Group in the period up to ﬂotation in October 2000. B No performance targets are applicable to Mr R J G Lobo’s grant. The grant was made to him at the same time and using the same formula as all other employees of the Group. No performance targets were applied to this Group-wide grant. Mr S A Stamp’s grant is subject to a performance target linked to the market capitalisation of the Company on the Company to outperform the FTSE-250 by 30%, 40% or 50%, depending on the date of exercise. In addition, Mr S A Stamp has additional performance targets linked to the market capitalisation of the Company on the relevant vesting date. Unless the market capitalisation of the company exceeds £1,000 million, none of these options will be exercisable; for all of them to be exercisable, the market capitalisation of the Company would have to exceed £6,000 million, on each of 1 January 2003, 2004 and 2005, being the respective performance measurement dates of the options. The performance target was missed entirely on 1 January 2003 and therefore that part of Mr S A Stamp’s options exercisable on the ﬁrst vesting date (7 January 2003) have since lapsed (887,112 shares). D No performance targets are applicable to this grant which was made pursuant to an agreement made in 1992. It was not appropriate to include performance targets, given the size of the Group at that time. E This is an Inland-Revenue approved SAYE scheme to which no performance targets apply. Approved by the board of directors on 4 June 2003 and relevant vesting date. Unless the market capitalisation of signed on its behalf by: the company exceeds £1,000 million, none of these options will be exercisable; for all of them to be exercisable, the market capitalisation of the Company would have to exceed £6,000 million, on each of 1 January 2003, 2004 and 2005, being the respective performance measurement dates of the options. Mark Dixon Chief Executive Stephen Stamp Group Finance Director 20 Report and Accounts 2002 Independent Auditors’ report to the members of Regus Plc We have audited the ﬁnancial statements on pages 22 to 51. Services Authority, and we report if it does not. We are We have also audited the information in the directors’ not required to consider whether the Board’s remuneration report that is described as having been audited. statement on internal control cover all risks and controls, This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. state to the company’s members those matters we are We read the information contained in the annual report, required to state to them in an auditor’s report and for no including the corporate governance statement and the other purpose. To the fullest extent permitted by law, we do audited part of the directors’ remuneration report, and not accept or assume responsibility to anyone other than the consider whether it is consistent with the audited ﬁnancial company and the company’s members as a body, for our statements. We consider the implications for our report if audit work, for this report, or for the opinions we have formed. we become aware of any apparent misstatements or Respective responsibilities of directors and auditors The directors are responsible for preparing the annual report Basis of audit opinion material inconsistencies with the ﬁnancial statements. and the directors’ remuneration report. As described on We conducted our audit in accordance with Auditing page 11 this includes responsibility for preparing the ﬁnancial Standards issued by the Auditing Practices Board. An audit statements in accordance with applicable United Kingdom includes examination, on a test basis, of evidence relevant law and accounting standards. Our responsibilities, as to the amounts and disclosures in the ﬁnancial statements independent auditors, are established in the United Kingdom and the part of the directors’ remuneration report to be by statute, the Auditing Practices Board, the Listing audited. It also includes an assessment of the signiﬁcant Rules of the UK Listing Authority and by our profession’s estimates and judgements made by the directors in the ethical guidance. preparation of the ﬁnancial statements, and of whether the We report to you our opinion as to whether the ﬁnancial accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately statements give a true and fair view and whether the ﬁnancial statements and the part of the directors’ remuneration report disclosed. to be audited have been properly prepared in accordance We planned and performed our audit so as to obtain all the with the Companies Act 1985. We also report to you if, in our information and explanations which we considered opinion, the directors’ report is not consistent with the necessary in order to provide us with sufﬁcient evidence to ﬁnancial statements, if the Company has not kept proper give reasonable assurance that the ﬁnancial statements are accounting records, if we have not received all the information free from material misstatement, whether caused by fraud, and explanations we require for our audit, or if information other irregularity or error. In forming our opinion we also speciﬁed by law regarding directors’ remuneration and evaluated the overall adequacy of the presentation of transactions with the Group is not disclosed. information in the ﬁnancial statements and the part of the We review whether the statement on page 12 reﬂects the directors’ remuneration report to be audited. company’s compliance with the seven provisions of the In forming our opinion, we have considered the adequacy of Combined Code speciﬁed for our review by the Financial the disclosure in the Accounting Policies Note on pages 26 21 to 28 concerning the uncertainties over the future funding of the Group which is dependent upon : • A Plan of Reorganisation acceptable to Regus being approved by US creditors and the US courts. A Plan of Reorganisation acceptable to Regus is one which will enable Regus US to achieve net cash generation within a reasonably short timeframe and will result in a payment proﬁle of claims which can be met out of future cashﬂows of the Group; • Regus’ German business also being successfully restructured so as to achieve cash break-even within a reasonably short timeframe; • Regus receiving all or substantially all of the ﬁrst tranche of the deferred consideration receivable from Alchemy in respect of the sale of a majority stake in the UK business on a timely basis; and • There being no signiﬁcant deterioration in current trading. In view of the signiﬁcance of these uncertainties, we consider that the basis of preparation note within the Accounting Policies Note on pages 26 to 28 should be brought to your attention but our opinion is not qualiﬁed in this respect. Opinion In our opinion: • the ﬁnancial statements give a true and fair view of the state of affairs of the company and the Group as at 31 December 2002 and of the loss of the Group for the year then ended, and; • the ﬁnancial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. KPMG Audit Plc 4 June 2003 Chartered Accountants, Registered Auditor 22 Report and Accounts 2002 Consolidated proﬁt and loss account for the year ended 31 December 2002 Turnover (including share of joint ventures) Less: share of turnover of joint ventures Group Turnover Cost of sales (centre costs) before exceptional items Exceptional cost of sales Cost of sales (centre costs) after exceptional items Gross (loss)/proﬁt (centre contribution) Administration expenses before exceptional items Exceptional administration expenses Administration expenses after exceptional items Group operating loss Share of operating loss in joint ventures Total operating loss: Group and share of joint ventures Proﬁt on sale of group undertakings Loss on ordinary activities before interest 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 & business disposals (p) All results arose from continuing operations. Note 1 1 3(a) 1 3(a) 1 1 1 3(b) 6 2 7 19 8 31 Dec 2002 31 Dec 2001 £’000 445,407 (9,803) 435,604 (413,339) (56,972) (470,311) (34,707) (61,076) (35,096) (96,172) (130,879) (5,497) (136,376) 22,716 (113,660) (5,404) (119,064) (5,480) (124,544) 1,145 (123,399) (21.9) (9.6) £’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) – (109,527) (554) (110,081) (10,090) (120,171) 1,933 (118,238) (21.0) (5.2) 23 Balance sheets as at 31 December 2002 Fixed assets Intangible assets Tangible assets Investments Investments in subsidiaries Investment in own shares Investment in associates Other investments Interest in joint ventures: Share of gross assets Share of gross liabilities Current assets Stock Debtors: amounts falling due after more than one year Debtors: amounts falling due within one year Cash at bank and in hand Group Group Company Company 31 Dec 2002 31 Dec 2001 31 Dec 2002 31 Dec 2001 Note £’000 £’000 £’000 £’000 9 10 11 11 11 11 11 12 12 – 4,307 93,772 242,299 – 3,805 12,458 29 – – – – 3,805 – 33 15,656 (14,562) 1,094 110,064 251,538 293 – 59,025 58,610 117,928 392 3,000 114,288 117,074 234,754 – – 1 – – – – – – 1 – – – 5,631 – – – – – – 5,631 – 62,598 274,235 734 13,794 77,126 256 69,985 344,476 Creditors: amounts falling due within one year 13 (177,963) (344,392) (11,842) (52,933) Net current (liabilities)/assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for deﬁcit on joint ventures Share of gross assets Share of gross liabilities Provisions for liabilities and charges Net (liabilities)/assets Capital and reserves Called-up share capital Share premium account Other reserves Proﬁt and loss account Equity shareholders’ (deﬁcit)/ funds Equity minority interests 14 11 16 17 18 19 19 (60,035) (109,638) 50,029 (19,796) 141,900 (24,806) 65,284 65,285 291,543 297,174 – – – – – – – (28,302) 88,792 (10,057) 55,228 29,106 279,765 4,056 29,110 279,765 55,767 8,630 (10,253) (1,623) (57,242) (28,632) 29,110 279,765 6,508 (343,775) (224,482) (309,414) (28,392) (240) (28,632) 88,445 347 88,792 55,228 – 55,228 297,174 – – – – – 297,174 29,106 279,765 8,948 (20,645) 297,174 – The ﬁnancial statements on pages 22 to 51 were approved by the Board of Directors on 4 June 2003 and were signed on its behalf by: Mark Dixon Chief Executive Stephen Stamp Group Finance Director 24 Report and Accounts 2002 Consolidated cash ﬂow statement for the year ended 31 December 2002 31 Dec 2002 31 Dec 2001 Note £’000 £’000 Cash (outﬂow)/inﬂow from continuing operating activities Net cash inﬂow before exceptional items Outﬂow related to exceptional items Net cash (outﬂow)/inﬂow from continuing operating activities 20(a) Returns on investments and servicing of ﬁnance 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 investments Acquisitions and disposals Sale/(purchase) of subsidiary undertakings Investment in joint ventures Cash outﬂow before management of liquid resources and ﬁnancing Management of liquid resources Financing Increase/(decrease) in cash in the year 20(b) 20(b) 20(c)&(d) 5,820 (16,603) (10,783) 1,901 (2,051) (2,637) (2,787) (4,077) (4,077) 56,140 (12,144) 43,996 3,906 (252) (3,351) 303 (6,275) (6,275) (15,274) (105,633) 557 – 3,052 (26) (14,717) (102,607) 16,236 (743) 15,493 (16,871) 55,426 (32,276) 6,279 (5,712) (5,631) (11,343) (75,926) 45,643 22,714 (7,569) 25 Consolidated statement of total recognised gains and losses for the year ended 31 December 2002 Loss for the ﬁnancial year Exchange differences Total recognised gains and losses for the year 31 Dec 2002 31 Dec 2001 £’000 (123,399) 4,108 (119,291) £’000 (118,238) 197 (118,041) Reconciliation of movements in shareholders’ (deﬁcit)/funds Loss for the ﬁnancial year Net proceeds of ordinary shares issued Exchange differences Reclassiﬁcation of fair value of warrants to non distributable reserves Decrease in shareholders’ funds Shareholders’ funds at 1 January Shareholders’ (deﬁcit)/funds at 31 December 31 Dec 2002 31 Dec 2001 £’000 (123,399) 4 4,108 2,450 (116,837) 88,445 (28,392) £’000 (118,238) 3,396 197 – (114,645) 203,090 88,445 26 Report and Accounts 2002 Accounting policies Description of business million. In 2002, Regus UK was the largest cash generative Regus plc (the “Company”) and its consolidated subsidiaries business although, following its sale in December 2002, the (the “Group”) are engaged in the provision of fully serviced Group no longer has access to these cash ﬂows. The business centres offering clients a mix of workstations, remainder of the Regus Group, comprises a mixture of conference rooms and related support services. The Group cash positive and cash negative businesses, the most cash operates an international network of business centres and is negative of which are the US and German businesses. 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 Mr 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 United States of America In the year ended 31 December 2002, Regus’ US business recorded an operating loss before exceptional items of £35.5 million. Regus had invested signiﬁcantly in new centres on the West Coast of the US in response to demand from technology companies in particular. As the general economic downturn took effect, which was felt The consolidated ﬁnancial statements have been prepared most acutely in the technology sector, losses in Regus’ US in accordance with applicable accounting standards and in business widened as demand for serviced ofﬁces fell. conformity with accounting principles generally accepted in Throughout most of 2002, Regus sought to restructure the the United Kingdom (“UK GAAP”), under the historical cost terms of its leases and related guarantees through bilateral convention. negotiation with US landlords with the objective of bringing The preparation of the ﬁnancial statements in conformity Regus US to cash break-even or better. with UK GAAP requires management to make estimates Despite substantial progress towards a negotiated and assumptions that reﬂect the reported amounts of settlement, Regus was unable to reach a satisfactory assets and liabilities, plus disclosure of contingent liabilities settlement with US landlords within the necessary at the date of the ﬁnancial statements and the reported timeframe and therefore on 14 January 2003 Regus’ US amounts of revenues and expenses for an accounting subsidiaries, Regus Business Centre Corp (“Regus US”) period. Such estimates and assumptions could change in and Stratis Business Centers Inc (”Stratis”) each ﬁled a the future as more information becomes known or voluntary petition for relief under Chapter 11 of the US circumstances change, such that the Group’s results may Bankruptcy Code in the Court of the Southern District of differ from the amounts reported and disclosed in the New York. Regus plc and Regus Business Centre BV, ﬁnancial statements. The following principal accounting which are holding companies for the Regus Group and policies have been applied consistently with items that are have both given guarantees in relation to certain leasehold considered material in relation to the Group’s ﬁnancial liabilities of the US business, also ﬁled for relief under statements. Going Concern Excluding the cash impact from the sale of the UK Chapter 11. Regus plc and Regus Business Centre BV are not engaged in any form of administrative proceedings or other arrangement with creditors outside the US. business, the Group recorded a cash outﬂow in 2002 of Chapter 11 gives each Regus company which has ﬁled for £9.3 million. At 31 December 2002, the Group has net Chapter 11 legal protection from its US creditors by current liabilities of £60.0 million and net liabilities of £28.6 immediately freezing all pre-existing ﬁnancial claims of those 27 creditors both in US and non-US Courts. Thus, although conﬁrmed by the US Court, payment of settlements to US US landlords may have claims pursuant to guarantees creditors can begin and each Regus Chapter 11 Company given by either Regus plc or Regus Business Centre BV, can emerge from Chapter 11 protection. The process of notwithstanding that neither Regus entity is US domiciled, preparing, agreeing, ﬁling and approving a Plan of Re- any such claims against those entities fall within the organisation is likely to take a number of months. jurisdiction of the US Courts and beneﬁt from the protections afforded by Chapter 11. The Group is conducting its Chapter 11 proceedings in the belief that they will be concluded successfully, that the Under Chapter 11, Regus US is able to elect whether it group will achieve its projected cash ﬂows and thereby be wishes to afﬁrm or reject leases on a case-by-case basis. able to meet the Court-approved plan of re-organisation. To the extent that a lease is rejected, the statutory maximum claim, in respect of future rent that the landlord would have against each of the relevant lessee companies and the relevant guarantor will be limited to the higher of (i) one year’s rent or (ii) 15% of the remaining lease term, not to exceed three years, in each case under the relevant lease. In the absence of Chapter 11, the termination of a lease would require the lessee (or the guarantor) to pay all the rent due on the balance of lease, subject to any mitigation by the landlord. Regus US is party to 74 real property leases and a further 8 equipment leases in the US and, through a joint venture company, is party to a further 12 real property leases. Most real property leases have 8-10 years unexpired term. Regus US expects to use the provisions of Chapter 11 to reject some property leases. In respect of the remaining US property leases, including leases held by joint venture companies, negotiations with US landlords are at an advanced stage. These negotiations anticipate modiﬁcations to existing leases including reductions in space and/or rent in return for a compensation payment by Regus. Germany In the year ended 31 December 2002, Regus’ German business recorded an operating loss before exceptional items of £3.0 million. The German business has also been re-organised with a view to bringing the German business to cash break-even or better on a run rate basis. This reorganisation has involved re-negotiation of certain leases and may ultimately result in the closure of one cash- negative German subsidiary. Other factors On 30 December 2002, Regus sold a 58% interest in its UK business to Alchemy Partners (“Alchemy”). Alchemy subscribed £16.3 million for new shares and paid Regus £25.6 million for existing shares in the UK business. At the same time, Regus repaid a £10.5 million loan from the UK business, leaving the Regus Group with net cash from the transaction of £15.1 million. In addition, deferred consideration is receivable by Regus in two tranches: the ﬁrst tranche of up to £10 million is dependent upon the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) for the year ended 31 December 2002 and Once negotiations with US landlords and other US net current liabilities and net cash at 31 December 2002 of creditors are concluded, Regus will prepare a Plan of Re- the UK business meeting certain parameters; and a second organisation which will include proposals for the payment of tranche equivalent to 70% of the amount by which EBITDA claims and compensation payments. These payments are for the year ended 31 December 2003 exceeds £29 million. likely to be paid over an extended period of time out of the Regus is also entitled to receive 42% of any dividends projected cash ﬂows of the Regus Group. Once the Plan of declared by the UK business. Re-organisation has been agreed by US creditors and 28 Report and Accounts 2002 Accounting policies continued At 31 December 2002, the Group had available free cash accounting has been adopted. Under this method, the results balances of £29.9m, but no other undrawn bank facilities. of subsidiary undertakings acquired or disposed of in the year Accordingly, the Group is reliant upon existing cash resources are included in the consolidated proﬁt and loss account from and operating cash ﬂows to fund its ongoing activities. the date of acquisition or up to the date of disposal. The ﬁnancial statements have been prepared on the going An associate is an undertaking in which the Group has a concern basis, which assumes that: long-term interest, usually from 20% to 50% of the equity • A Plan of Re-organisation, acceptable to Regus, will be approved by US creditors and the US courts. A Plan of Re-organisation acceptable to Regus is one which will enable Regus US to achieve cash break-even within a reasonably short timeframe and will result in a payment proﬁle of claims which can be met out of future cash ﬂows of the Group; • Regus’ German business will also be successfully restructured so as to achieve cash break-even within a reasonably short timeframe; voting rights, and over which it exercises signiﬁcant inﬂuence. The Group's share of the proﬁts less losses of associates is included in the consolidated proﬁt and loss account and its interest in their net assets, other than goodwill, is included in investments in the consolidated balance sheet. A joint venture is an undertaking in which the group has a long-term interest and over which it exercises joint control. The Group's share of the proﬁts less losses of joint ventures is included in the consolidated proﬁt and loss account and its interest in their net assets, other than • Regus receives all or substantially all of the ﬁrst tranche goodwill, is included in investments in the consolidated of the deferred consideration receivable from Alchemy in balance sheet. respect of the sale of a majority stake in the UK business on a timely basis; and • No signiﬁcant deterioration in current trading. Nevertheless, the outcome of the Chapter 11 proceedings is unpredictable and so there is uncertainty over the Group’s ability to continue as a going concern in its present form. The Directors recognise that there is a risk that this will not be possible. If the going concern basis were to be an inappropriate basis of preparation, it would be necessary to provide for the expenses of realising the group assets, reducing their values to realisable amounts in these circumstances and provide for unsettled claims to the Under section 230(4) of the Companies Act 1985, the company is exempt from the requirement to present its own proﬁt and loss account. 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. extent that these are not covered by existing provisions for Transactions in foreign currency are recorded using the rate asset impairments and onerous lease obligations. of exchange at the date of the transaction. Monetary assets Basis of consolidation The Group accounts include the accounts of the company and its subsidiary undertakings made up to 31 December 2002. Unless otherwise stated, the acquisition method of 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. 29 Goodwill Taxation Purchased goodwill (representing the excess of the fair value of The charge for taxation is based on the loss for the year the consideration given and associated costs over the fair value and takes into account taxation deferred because of timing of the separable net assets acquired) arising on consolidation is differences between the treatment of certain items for capitalised and amortised to nil by equal annual instalments taxation and accounting purposes. Deferred tax is over its estimated useful life, normally 20 years. recognised, without discounting, in respect of all timing On the subsequent disposal or termination of a business, the proﬁt or loss on disposal or termination is calculated after charging the unamortised amount of any related goodwill (negative goodwill). 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: Furniture - 5 years Fixtures and ﬁttings - shorter of the lease term, the ﬁrst break point of the building lease or 10 years Telephones and ofﬁce equipment - 5 years Computer hardware Computer software Cars - 3 years - 2 years - 4 years differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19. Refurbishment The terms of most building leases require Regus to make good dilapidation or other damage occurring during the rental period. Accruals for dilapidations are only made when it is known that a dilapidation has occurred. Turnover Turnover represents the value of services provided to third parties in the year and is exclusive of VAT and similar taxes. 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 Fixed asset investments The Group operates deﬁned contribution schemes. Fixed asset investments are generally accounted for at cost Contributions are charged to the proﬁt and loss account on less provision for impairment. Sale of Group Undertakings Consideration for the sale of Group subsidiaries is not recognised until the exact amount has been agreed. an accruals basis. Leases a) Finance leases Stock Where the Group enters into a lease for furniture, ﬁttings, equipment or cars which entails taking substantially all the Stock is stated at the lower of cost and net realisable value. risks and rewards of ownership of an asset, the lease is Stock relates to items purchased for resale to customers treated as a ﬁnance lease. This also includes occasions and to items intended for distribution within the business where the Group takes interest bearing extended credit such as ofﬁce supplies and marketing materials. from suppliers and certain loans from landlords. 30 Report and Accounts 2002 Accounting policies continued Under all such lease arrangements the asset is recorded in of the ﬁrst market rent review or ﬁrst break point in the the balance sheet as a tangible asset and is depreciated lease, whichever is sooner, so that the amounts charged to over its estimated useful life in accordance with the policy the proﬁt and loss account are the same each year over described above. Future instalments under such leases, net that period. of ﬁnance charges, are included in creditors. Financial instruments Lease payments are apportioned between the ﬁnance The Group uses various derivative ﬁnancial instruments to element, which is charged to the proﬁt and loss account on hedge its exposures to ﬂuctuations in foreign exchange a sum of the digits basis or a post-tax actuarial basis, and risks. These include forward currency contracts and the capital element, which reduces the outstanding currency options. obligation for future instalments. b) Building leases Building leases are all accounted for as operating leases because substantially all the risks and rewards of The accounting method used for derivative ﬁnancial instruments is determined by whether or not the instrument is designated as a hedge of an existing exposure and, if so by the accounting method used for the item being hedged. ownership remain with the lessor. The Group considers its derivative ﬁnancial instruments to The rental on certain leases is wholly or partly conditional on the proﬁtability of the centre and therefore the risk to the Forward currency contracts be hedges when certain criteria are met. business, in terms of rent, is reduced. Once all outstanding The Group’s criteria to qualify for hedge accounting are: rent has been paid, landlords receive a share of the proﬁts of the centre. 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 point in the lease, whichever is sooner, and this is spread on a straight line basis over that period. Any subsequent 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. Any incentives or rent free periods on conventional leases and the conventional element of leases which are partly conventional and partly conditional on proﬁtability, are spread on a straight line basis over the period to the date • The instrument must be related to a foreign currency asset or liability • 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 31 recognised when the gains or losses on the underlying hedged transactions are recognised. The net resulting unrealised asset or liability is reﬂected in debtors or creditors as appropriate. 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. Currency options 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 as prepayments. At maturity, any realised gain on the option is recognised in the proﬁt and loss account in administration expenses. Cash & liquid resources Cash for the purpose of the cash ﬂow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), government securities and investments in money market managed funds. 32 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 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 2002 31 Dec 2001 £’000 £’000 Gross proﬁt/(loss) (centre contribution) 31 Dec 2002 £’000 Gross proﬁt/(loss) (centre contribution) 31 Dec 2001 £’000 31,370 (20,633) (45,490) 46 (34,707) (27,077) (7,630) (34,707) 56,916 9,132 (28,752 ) 2,595 39,891 90,859 (50,968) 39,891 215,188 151,879 124,096 33,459 524,622 512,633 11,989 410,804 101,829 512,633 Re-stated Operating proﬁt/(loss) Net assets/ (liabilities) As at Net assets/ (liabilities) As at 31 Dec 2001 31 Dec 2002 31 Dec 2001 £’000 £’000 £’000 44,267 (8,341) (67,937) (2,729) (74,787) (109,527) (103,955) (5,572) 6,227 (76,478) (137,421) (31,716) 210,756 (28,632) (27,009) (1,623) 46,932 (39,183) (65,110) (29,596) 175,749 88,792 87,698 1,094 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 176,680 140,116 98,109 30,502 445,407 435,604 9,803 408,121 27,483 435,604 Operating proﬁt/(loss) 31 Dec 2002 £000 18,031 (39,514) (86,179) (3,274) (25,440) (136,376) (130,879) (5,497) Figures for 2001 have been re-stated to exclude internal management fees * includes non-regional exceptional costs. Exceptional charges to the proﬁt and loss account for 2002 by region were: United Kingdom and Ireland credit £0.8 million (2001: £1.1 million); Rest of Europe £31.8 million (2001: £13.7 million); Americas £47.9 million (2001: £28.0 million); Rest of World £2.5 million (2001: £0.9 million); and, Other £10.7 million (2001: £46.8 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. 33 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 Goodwill amortisation Loss/(proﬁt) on sale of ﬁxed assets Operating leases: – property – equipment Audit fees: – company – group Non audit fees paid to the auditors and their associates: – UK companies – Group – Business disposal reporting Exceptional items (note 3a) Non-audit fees are primarily in respect of tax compliance services. 3(a) Exceptional items 31 Dec 2002 31 Dec 2001 £’000 £’000 40,283 16,113 238 894 137,990 7,198 4 611 – 250 130 92,068 47,827 16,060 196 (32) 191,842 9,426 5 782 153 397 1,100 90,546 Included in the results for the year to 31 December 2002 were pre-tax exceptional charges totalling £92.1 million (2001: £90.5 million) as follows: Cost of sales: Onerous leases, related closure & restructuring costs Write-down of tangible assets Administration expenses: Onerous leases, related closure & restructuring costs Write-down of software assets Impairment of acquisition goodwill Impairment of investment in own shares Aborted business sales and mergers Non-recoverable Ryder Cup expenditure Business interruption insurance receipt 31 Dec 2002 31 Dec 2001 £’000 20,130 36,842 34,145 – 4,002 – 722 – (3,773) 92,068 £’000 37,955 – 4,955 4,566 4,916 32,621 3,283 2,250 – 90,546 The impact of exceptional items on the tax charge is given in note 8. 3(b) Proﬁt on the sale of group undertakings In the year two group undertakings were sold which generated a £22.7 million proﬁt. The most signiﬁcant transaction was the sale of a 58% interest in the UK business to Alchemy Partners, which contributed £23.0 million. In addition the Romanian business was sold to a franchisee at a small loss of £0.3 million. 4 Proﬁt and loss account of holding company The loss for the ﬁnancial year 2002 dealt with in the ﬁnancial statements of the parent company, Regus plc, was £288,043,000 (December 2001: proﬁt of £2,881,000). 34 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 5 Employees and directors Staff costs Wages and salaries Social security costs Pension costs 31 Dec 2002 31 Dec 2001 £’000 £’000 58,318 7,958 504 66,780 71,672 11,127 360 83,159 The Group contributes to the personal pension schemes of a small number of employees. The amount which is included within creditors is £16,300 (2001: £18,000). 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 2002 31 Dec 2001 Number Number 1,742 269 151 124 2,286 1,923 363 170 200 2,656 31 Dec 2002 31 Dec 2001 £’000 £’000 514 48 160 13 562 47 229 23 Retirement beneﬁts are accruing to three directors under a money purchase scheme. More detailed information on directors emoluments is provided in the report of the Remuneration Committee. 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 31 Dec 2002 31 Dec 2001 £’000 4,482 2,700 7,182 (1,917) 139 5,404 £’000 842 3,339 4,181 (3,877) 250 554 35 7 Taxation Current tax United Kingdom tax - Corporation tax - Under provision in respect of prior years Foreign tax - Corporation taxes - Under provision in respect of prior years Total current tax Deferred tax Origination and reversal of timing differences Total deferred tax Total tax on loss on ordinary activities 31 Dec 2002 31 Dec 2001 £’000 £’000 5,776 212 852 188 7,028 (1,548) (1,548) 5,480 5,588 – 4,440 – 10,028 62 62 10,090 Factors affecting the tax charge for the year The differences between the total current tax shown above and the amount calculated by applying the standard rate of UK corporation tax to the loss before tax is as follows: Loss on ordinary activities before tax Tax on loss on ordinary activities at 30% (2001: 30%) Effects of: Expenses not deductable for tax purposes Proﬁt on disposal of interests in group companies Depreciation in excess of capital allowances Utilisation of tax losses Losses carried forward to future periods Differences in tax rates on overseas earnings Adjustment to tax charge in respect of previous periods Total current tax 31 Dec 2002 £ '000 (119,064) 31 Dec 2001 £ '000 (110,081) (35,719) (33,024) 17,987 (6,086) 10,771 (1,084) 20,684 75 400 7,028 26,128 – 6,541 (953) 17,938 (6,602) – 10,028 Factors that may affect future tax charge 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 2002, the total unremitted accumulated reserves of the sub- sidiary undertakings were £15,525,000 (2001: £6,168,000). The tax losses to carry forward against certain future overseas corporation tax liabilities have the following expiration dates: 2002 2003 2004 2005 2006 2007 2008 2009 and later Available indeﬁnitely As at 31 Dec 2002 £ '000 – 1,850 11,504 8,536 6,487 9,321 95 120,156 157,949 41,587 199,536 As at 31 Dec 2001 £ '000 727 1,682 12,395 8,712 7,848 3,479 3,350 62,898 101,091 25,470 126,561 36 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 8 Loss per share 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 loss per share computations. The 2002 and 2001 diluted shares were not included in the computation of diluted loss per share due to losses in 2002 and 2001, resulting in options being antidilutive. The following summarises the calculation of loss per share for the years ended 31 December 2002 and 2001: 31 Dec 2002 31 Dec 2001 Loss for the year Add: exceptional items & proﬁt on business disposal Less: tax on exceptional items Loss for the year before exceptional items & proﬁt on business disposal 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 & proﬁt on business disposal – basic and diluted (£’000) (£’000) (£’000) (£’000) (‘000’s) (p) (p) (p) (123,399) 69,352 – (54,047) 564,052 (21.9) (12.3) (9.6) 9 Goodwill Cost At 1 January 2002 Additions Exchange differences At 31 December 2002 Amortisation At 1 January 2002 Charge for the period Provision for impairment Exchange differences At 31 December 2002 Net book value at 31 December 2002 Net book value at 31 December 2001 (118,238) 90,546 (1,614) (29,306) 563,528 (21.0) (15.8) (5.2) £’000 9,419 12 (84) 9,347 5,112 238 4,002 (5) 9,347 – 4,307 In April 2001 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 a full impairment to the value of goodwill arising from these three acquisitions and, accordingly, it is prudent that the goodwill be written down. 37 10 Tangible ﬁxed assets – Group Cost At 1 January 2002 Exchange differences Additions Business disposals Other disposals At 31 December 2002 Aggregate depreciation At 1 January 2002 Exchange differences Charge for the period Business disposals Provision for impairment Other disposals At 31 December 2002 Net book value at 31 December 2002 Net book value at 31 December 2001 The impairment provision has been calculated as follows: Furniture and ﬁttings £’000 Computers Motor vehicles £’000 £’000 354,427 (10,221) 18,202 (136,873) (3,680) 221,855 123,986 (3,294) 49,069 (70,840) 36,842 (2,275) 133,488 88,367 230,441 32,426 (686) 2,063 (6,963) (4,881) 21,959 20,677 (448) 7,290 (6,066) – (4,862) 16,591 5,368 11,749 288 – – – (160) 128 179 1 37 – – (126) 91 37 109 Total £’000 387,141 (10,907) 20,265 (143,836) (8,721) 243,942 144,842 (3,741) 56,396 (76,906) 36,842 (7,263) 150,170 93,772 242,299 - where a centre has been identiﬁed for closure or partial closure the ﬁxed assets concerned have been fully written down. - for other centres with a negative EBITDA in 2002 and an anticipated negative EBITDA for 2003 the total ﬁxed assets have been written down to the value of the expected cash ﬂows for the ﬁve year period 2003 to 2007, discounted at a rate of 7%. The net book value of tangible ﬁxed assets includes amounts in respect of ﬁxed assets held under ﬁnance leases as follows: Cost Depreciation Net book value Group Group 31 Dec 2002 31 Dec 2001 £’000 58,217 (28,114) 30,103 £’000 96,282 (43,169) 53,113 38 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 11 Investments At 1 January 2002 Exchange differences Additions Disposal Provision for impairment Share of retained losses At 31 December 2002 Group Investment Group Interest Group Interest in joint Group Other in own shares* in associates ventures Investments £’000 3,805 – – – – – £’000 – – 12,458 – – – 3,805 12,458 £’000 1,094 (6) 746 2,181 – (5,638) (1,623) £’000 33 (4) – – – – 29 Company Shares in Group undertakings £’000 5,631 – 6,205 (5,631) (6,204) – 1 Group Total £’000 4,932 (10) 13,204 2,181 – (5,638) 14,669 * 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 52 to 53 of these accounts. Results of Regus UK Turnover Proﬁt before tax Taxation Proﬁt after tax Fixed Assets Current Assets Liabilities due within one year Liabilities due after one year Net assets Group 31 Dec 2002 £’000 Group 31 Dec 2001 £’000 – – – – 27,090 24,296 (38,520) (408) 12,458 – – – – – – – – – Regus UK became an associate on 31 December 2002 and hence, there are no material proﬁt and loss items. 39 Group Group Company Company 31 Dec 2002 31 Dec 2001 31 Dec 2002 31 Dec 2001 £’000 £’000 £’000 £’000 21,622 – 1,966 20,449 10,331 4,657 59,025 – – – 45,103 – 4,136 30,144 23,804 11,101 114,288 – 3,000 3,000 – 528 – – 206 – 734 62,598 – 62,598 63,332 – – – – 256 – 256 274,235 – 274,235 274,491 12 Debtors Amounts falling due within one year Trade debtors Amounts owed by Group undertakings 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 Total debtors 59,025 117,288 As at 31 December 2002 the provision for bad and doubtful debts was £2,442,000 after releasing £3,576,000 in respect of the UK disposal (2001: £2,858,000). 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 Provision released on sale of business Exchange difference Closing balance Group 31 Dec 2002 £’000 Group 31 Dec 2001 £’000 2,858 3,243 (107) (3,576) 24 2,442 1,701 1,916 (724) – (35) 2,858 40 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 13 Creditors – amounts falling due within one year Group Group Company Company 31 Dec 2002 31 Dec 2001 31 Dec 2002 31 Dec 2001 Bank loans and overdrafts Non-convertible bond Loan from associate 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 4,079 – 699 11,788 – 29,188 36,430 4,439 10,529 20,351 1,241 37,424 18,150 3,645 £’000 6,018 40,000 724 14,909 - 44,452 72,584 12,364 13,396 31,847 7,195 65,715 31,818 3,370 177,963 344,392 £’000 – – – – 10,027 – – – 1,162 – – – – 653 11,842 £’000 10,865 40,000 – – – – – – 301 – – – – 1,767 52,933 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. 14 Creditors – amounts falling due after more than one year Bank loans Loan from associate Other loans Obligations under ﬁnance leases Accruals and deferred income Other creditors Group Group 31 Dec 2002 31 Dec 2001 £’000 5 5,000 1,262 13,393 98 38 19,796 £’000 8 – 1,322 23,064 365 47 24,806 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 2002 the Group had no other available credit facilities (2001: nil). 41 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 Within one year Between one and two years Between two and ﬁve years After ﬁve years Non-convertible Bank loans bond & overdrafts Other loans Finance leases Total 31 Dec 2002 31 Dec 2002 31 Dec 2002 31 Dec 2002 31 Dec 2002 £’000 – – – – – £’000 4,079 4 1 – 4,084 £’000 699 225 658 5,379 6,961 Non-convertible Bank loans bond and overdrafts Other loans £’000 11,788 7,654 5,375 364 25,181 Finance leases £’000 16,566 7,883 6,034 5,743 36,226 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 £’000 14,909 11,231 11,196 637 37,973 £’000 61,651 11,495 11,916 983 86,045 The following provides additional disclosure for bank loans, 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 Group Group Company Company 31 Dec 2002 31 Dec 2001 31 Dec 2002 31 Dec 2001 £’000 4,778 229 203 146 310 5,379 11,045 £’000 46,742 264 221 383 116 346 48,072 £’000 – – – – – – – £’000 50,865 – – – – – 50,865 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 Total commitment Less amounts representing interest Present value of future minimum lease payments Within one year After one year Group Group 31 Dec 2002 31 Dec 2001 £’000 13,440 8,656 3,762 1,050 491 650 28,049 (2,868) 25,181 11,788 13,393 £’000 17,370 12,597 8,188 3,403 569 492 42,619 (4,646) 37,973 14,909 23,064 42 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 16 Provisions for liabilities and charges At 1 January 2002 Provided in year Utilised in year Provisions released on sale of business Exchange differences At 31 December 2002 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 (2001: 800,000,000) Ordinary shares of 5p each Allotted, called up and fully paid 582,193,517 (2001: 582,112,320) Ordinary shares of 5p each Group Group Onerous Deferred tax lease obligations £’000 856 – (1,506) – 1 (649) – (649) £’000 27,446 50,785 (19,250) (563) (527) 57,891 17,214 40,677 Group Total £’000 28,302 50,785 (20,756) (563) (526) 57,242 17,214 40,028 Group and Company Group and Company 31 Dec 2002 31 Dec 2001 £’000 £’000 40,000 40,000 29,110 29,110 40,000 40,000 29,106 29,106 During 2002, 81,197 new ordinary shares of 5 pence each were issued in respect of exercised share options, see note 22. As at 31 December 2002 warrants for 5,000,000 shares with an exercise price of 5p per share were held by the convertible debenture holders who took up the company's £40 million convertible bond offer in December 2001. These are exercisable at any time between 14 February 2003 and 14 February 2005. Warrants for 2,500,000 shares have been exercised so far in 2003. 18 Share premium account At 1 January and 31 December 2002 Group and Company (non distributable) £’000 279,765 43 19 Reserves At 1 January 2002 Loss for the year Reclassify fair value of warrant interest to non-distributable reserves Transfer to/from capital reserve Revaluation reserve on formation of new group investment company Exchange differences At 31 December 2002 20 Cash ﬂow statement Group Proﬁt Group Other Company Company Other and loss (non distributable) Proﬁt and loss (non distributable) £’000 (224,482) (123,399) – 19 4,087 (343,775) £’000 4,056 – 2,450 (19) 21 6,508 £’000 (20,645) (288,043) – – – (726) (309,414) £’000 8,948 – 2,450 – 44,369 – 55,767 (a) Reconciliation of operating proﬁt to net cash (outﬂow)/inﬂow from operating activities Continuing operating activities Group operating loss Depreciation charge Goodwill amortisation Loss/(proﬁt) on disposal of ﬁxed assets Impairment of goodwill Impairment of ﬁxed assets Impairment of investment in own shares Increase in provisions Decrease/(increase) in stocks Decrease in debtors Decrease in creditors Group Group 31 Dec 2002 31 Dec 2001 £’000 £’000 (130,879) 56,074 238 894 4,002 36,842 – 31,548 104 25,114 (34,720) (103,955) 63,887 196 (32) 4,916 12,166 41,395 28,165 (109) 17,208 (19,841) Net cash (outﬂow)/inﬂow from continuing operating activities The cash outﬂow includes a £16,603,000 outﬂow (2001: outﬂow £12,144,000) relating to the exceptional items charged during the year (see note 3(a)). (10,783) 43,996 (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 2002 31 Dec 2001 £’000 £’000 (18,603) 74,029 55,426 5,850 (41,063) (13,979) 16,916 – (32,276) (50,981) 96,624 45,643 42,180 (4,566) (16,793) 1,985 (92) 22,714 44 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 20 Cash ﬂow statement continued (c) Reconciliation of net cash ﬂow to movement in net funds Increase/(decrease) in cash in the year Cash outﬂow/(inﬂow) from change in borrowings and ﬁnance leases Cash inﬂow from change in liquid resources Change in net funds/borrowings resulting from cash ﬂows Business acquisitions and disposals Other non-cash items: New ﬁnance leases Translation difference Movement in net funds/borrowings in the year Net funds at 1 January Net funds at 31 December (d) Analysis of changes in net funds in the period 31 Dec 2002 31 Dec 2001 £’000 6,279 49,192 (55,426) 45 (6,651) (4,446) 2,407 (8,645) 31,029 22,384 £’000 (7,569) (20,821) (45,643) (74,033) (783) (22,901) (1,267) (98,984) 130,013 31,029 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 At 1 January Other At Non-cash Exchange 31 December 2002 Cash ﬂow Acquisitions changes movements £’000 24,247 (2,781) 21,466 (1,330) (43,961) (23,064) (14,909) (83,264) 92,827 31,029 £’000 4,833 1,446 6,279 (5,671) 40,883 11,103 2,877 49,192 (55,426) 45 £’000 £’000 £’000 – – – – – 408 941 1,349 (8,000) (6,651) (2) – (2) 744 (745) (2,898) (1,547) (4,446) 2 (4,446) (13) 82 69 (9) 297 1,058 850 2,196 142 2,407 2002 £’000 29,065 (1,253) 27,812 (6,266) (3,526) (13,393) (11,788) (34,973) 29,545 22,384 Liquid resources at 31 December 2002 include cash held on deposit of which £2.6 million (2001: £3.2 million) relates to collateral against bank loans and £26.1 million (2001: £28.4 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. 45 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 8. 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 2002 Financial liabilities Euro Japanese Yen Sterling US Dollar Others Financial assets Chinese Rmb Euro Japanese Yen Sterling US Dollar Others Of which: Liquid resources Gross borrowings Cash At ﬂoating At ﬁxed Non-interest rates £’000 (1,533) – (5,000) (745) (3,767) (11,045) 731 15,978 372 30,046 5,578 5,905 58,610 47,565 29,545 (11,045) 29,065 47,565 rates £’000 (5,036) (547) – (18,645) (953) (25,181) – – – – – – – (25,181) – (25,181) – (25,181) bearing £’000 – – – – – – – – – – – – – – – – – – Total £’000 (6,569) (547) (5,000) (19,390) (4,720) (36,226) 731 15,978 372 30,046 5,578 5,905 58,610 22,384 29,545 (36,226) 29,065 22,384 Weighted Weighted average average period for ﬁxed which rate interest rate % 7.7 6.6 – 8.8 11.0 – – – – – – is ﬁxed Years 1.9 0.6 – 1.2 2.3 – – – – – – 46 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 21 Financial instruments continued 31 December 2001 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 (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 average ﬁxed interest rate % 7.7 6.6 5.5 8.8 11.0 – – – – – – Weighted average period for which rate is ﬁxed Years 2.3 1.3 1.0 2.0 2.4 – – – – – – 47 21 Financial instruments continued Maturity analysis of undrawn committed borrowing facilities The Group had no undrawn committed borrowing facilities available at 31 December 2002. 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 2002 Functional currency of Group operation Euro Sterling US Dollar Others 31 December 2001 Functional currency of Group operation Euro Sterling US Dollar Others Euro £’000 – (8,742) (3) (4,538) (13,283) Euro £’000 – 817 (43) (4,123) (3,349) Japanese Yen £’000 – – – – – Japanese Yen £’000 10,976 – – – 10,976 Net foreign currency monetary assets/(liabilities) Sterling US Dollar Others £’000 (82) – – 1 (81) £’000 135 (1,586) – (3,217) (4,668) Net foreign currency monetary assets/(liabilities) Sterling £’000 (56) – – (137) (193) US Dollar £’000 66,572 (3,349) – (7,712) 55,511 £’000 (176) 2,225 242 (692) 1,599 Others £’000 2,053 6,458 1,196 (1,245) 8,462 Total £’000 (123) (8,103) 239 (8,446) (16,433) Total £’000 79,545 3,926 1,153 (13,217) 71,407 48 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 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. Book value 31 Dec 2002 £’000 Fair value 31 Dec 2002 £’000 Book value Fair value 31 Dec 2001 31 Dec 2001 £’000 £’000 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 (16,567) (19,659) 29,545 29,065 (15,504) (15,899) 29,545 29,065 (61,651) (24,394) 92,827 24,247 (60,499) (17,712) 92,827 24,247 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 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. 49 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 purposes of UITF 17. The Trustee is not entitled to receive dividends. At 31 December 2002 the trust held 18,120,670 shares in Regus plc (note 11). The market value at 31 December 2002 was £1.9 million. Costs incurred by the trust are expensed in the proﬁt and loss account. The trust has subsequently sold 12 millions shares. At 31 December 2002 awards over a total of 23,809,949 (December 2001: 25,317,932) shares, net of lapses, had been granted to employees. The awards have been issued in fourteen 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 Date exercisable Exercise price £ 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 31 December 05 to 28 August 12 Non-performance 1 January 03 to 1 January 07 awards 1 January 03 to 1 January 06 1 January 04 to 1 January 08 29 August 04 12 November 04 28 February 05 to 27 February 12 28 March 05 to 27 March 12 30 May 05 to 29 May 12 1.455 2.600 2.560 2.560 2.275 0.475 0.335 0.068 1.455 0.050 2.600 0.475 0.335 0.248 0.440 0.385 31 December 2001 Number of awards 8,312,868 971,034 1,391,537 301,491 84,876 50,000 195,000 New Awards – _ _ _ _ _ _ – 500,000 5,916,803 3,160,555 1,728,768 50,000 3,155,000 – – – – – – – – 155,000 55,512 81,086 Lapses (325,430) (12,506) (470,418) (42,967) – – – – (700,689) Exercised awards – – – – – – – – – 31 December 2002 Number of awards 7,987,438 958,528 921,119 258,524 84,876 50,000 195,000 500,000 5,216,114 (245,812) (81,197) 2,833,546 (290,562) – (130,000) – – – – – – – – – 1,438,206 50,000 3,025,000 155,000 55,512 81,086 25,317,932 791,598 (2,218,384) (81,197) 23,809,949 In addition at 31 December 2002, awards over 623,215 American Depository Shares (December 2001: 547,369), net of lapses, had been granted to employees. The awards have been issued in six 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 2001 31 December 2002 Date Exercise Number of New Exercised Number of Award Type exercisable Performance awards 26 March 04 to 26 March 06 Non-performance awards 8 June 04 to 26 March 06 8 June 04 to 26 March 06 29 August 04 31 December 05 to 29 May 09 29 August 04 12 November 04 29 February 05 to 27 February 12 price $ 18.188 18.188 16.200 3.290 2.810 3.290 2.300 2.000 awards Awards Lapses awards awards 134,741 99,679 83,949 73,000 – – – – – 200,000 (63,096) (42,058) – – – 20,000 136,000 – – (10,000) (10,000) – 1,000 – 547,369 201,000 (125,154) – – – – – – – – – 71,645 57,621 83,949 73,000 200,000 10,000 126,000 1,000 623,215 The Group also operates a SAYE share ownership plan however the number of shares involved is immaterial. 50 Report and Accounts 2002 Notes to the ﬁnancial statements for the year ended 31 December 2002 continued 23 Capital commitments Contracts placed for future capital expenditure not provided in the ﬁnancial statements 24 Operating lease commitments Group 31 Dec 2002 £’000 Group 31 Dec 2001 £’000 Company Company 31 Dec 31 Dec 2002 £’000 2001 £’000 925 5,246 – – At 31 December 2002 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 2002 31 Dec 2002 31 Dec 2002 31 Dec 2001 31 Dec 2001 31 Dec 2001 £’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 2,282 64,970 79,777 147,029 946 4,525 205 5,676 3,228 69,495 79,982 152,705 4,285 54,452 157,112 215,849 1,311 4,012 182 5,505 5,596 58,464 157,294 221,354 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 2002 31 Dec 2001 Total £’000 152,705 146,038 138,232 117,317 98,014 243,823 896,129 Total £’000 221,354 217,154 202,742 189,295 171,033 748,401 1,749,979 51 25 Contingent liabilities The Group has bank guarantees and letters of credit held with certain banks totalling £26,134,000 (2001: £28,358,000). The Company also acts as a guarantor for certain obligations of other subsidiary entities. At 31 December 2002 the Group had received a number of claims, principally from landlords relating to the terms of building leases. Where appropriate the Directors have made provisions. 26 Related party transactions During the year ended 31 December 2002 the Group received management fees of £1.3 million (2001: £4.2 million) from its joint venture entities as listed on pages 52 and 53. At 31 December 2002, £2.0 million (2001: £4.1 million) was due to the Group from the joint ventures. 27 Post balance sheet events On 14 January 2003 Regus' US subsidiaries, Regus Business Centre Corp ("Regus US") and Stratis Business Centers Inc ("Stratis"), each ﬁled a voluntary petition for relief under Chapter 11 of the US Bankruptcy Code in the Court of the Southern District of New York. Regus plc and Regus Business Centre BV, which are holding companies for the Regus Group and have both given guarantees in relation to certain leasehold liabilities of the US business, also ﬁled for relief under Chapter 11. Regus plc and Regus Business Centres BV are not engaged in any form of administrative proceedings or other arrangement with creditors outside the US. Similarly, on 22 April 2003, one of the Group's German subsidiaries was placed in voluntary administration which subsequently may become an insolvent liquidation. 28 Ultimate parent company and controlling party Maxon Investments BV, a company incorporated in the Netherlands, is considered as the ultimate parent company. Mr 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. 52 Report and Accounts 2002 Principal Group companies Name of Group entity Regus Business Centre SA Regus Centres Pty Ltd Regus Asia Paciﬁc Pty Ltd Regus Business Centre GmbH Regus Belgium NV Skyport International BV Regus Do Brasil Ltda Regus Business Centre Ltd Regus Business Centre Chile Ltda Regus Business Service Co Ltd Regus Business Services (Shanghai) Ltd Regus Copenhagen ApS Regus Business Centre (Egypt) Regus Business Centres (Holdings) Ltd Regus Business Centre Trading Ltd + Regus Management Ltd Regus Holdings (UK) Ltd Regus Finland Oy Regus Roissy SA Regus Business Centre GmbH Regus GmbH & Co KG RBC Deutschland GmbH Regus Verwaltungs 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 Ltd Regus Business Centres Ltd Regus Business Centre Srl Regus Milano Centrale Business Centre S.p.A +++ Regus Japan KK SIA Regus Business Centre Regus Luxembourg SA Regus Centres Sdn Bhd Regus Business Centre SA de CV Regus Services SA de CV Regus Maroc SARL Regus Amsterdam BV Regus Business Centre BV Country of % of equity incorporation and votes held Argentina Australia Australia Austria Belgium Belgium Brazil Canada Chile China China Denmark Egypt England England England England Finland France Germany Germany Germany Germany Greece Hong Kong Hungary Hungary Ireland Ireland Ireland Ireland Israel Italy Italy Japan Latvia Luxembourg Malaysia Mexico Mexico Morocco Netherlands Netherlands 100 100 100 100 100 100 100 100 100 95 100 100 100 100 100 100 42 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 65 100 100 100 100 100 100 100 100 100 53 Name of Group entity Regus International Holdings BV ++ Satellite Business Centre Schiphol BV Skyport Business Services BV Regus Business Centre Oslo AS Regus Business Centre (Panama) SA Regus Business Centre (Peru) SA Regus Centres Inc Regus Business Centre SP zoo Regus Business Centre Lda LLC Regus Business Centre Regus Centres Pte Ltd Regus Business Services Marina Pte Ltd Regus Singapore Business Centre Pte Ltd Regus Business Centre Bratislava sro Regus Business Centre SA Business Centre Gothenburg AB Business Centre Stockholm AB Business Centre Sweden AB Regus Business Centre (S) SA Regus Business Centre (Tanzania) Ltd Regus Centres (Thailand) Ltd Regus Tunisie SARL Regus Is Merkezi Isletmeciligi Ltd Sirketi Regus Business Centres (Ukraine) Regus International Services SAFI Regus Business Centre Corp Regus Crescent Business Centres LLC +++ Regus Equity Business Centres LLC +++ Regus Business Centre Latin LLC Stratis Business Centres Inc Regus Centre (Vietnam) Ltd Country of % of equity incorporation and votes held Netherlands Netherlands Netherlands Norway Panama Peru Philippines Poland Portugal Russia Singapore Singapore Singapore Slovakia Spain Sweden Sweden Sweden Switzerland Tanzania Thailand Tunisia Turkey Ukraine Uruguay USA USA USA USA USA Vietnam 60 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 50 100 100 100 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, Regus Finance, Regus Investments Ltd, Regus Asia Paciﬁc Ltd, Regus Holdings UK Ltd and Regus International Services SAFI which are investment holding companies and Regus Management Ltd which is a management company employing head ofﬁce staff, the principal activity of all other companies is the provision of fully services 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. 54 Report and Accounts 2002 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 Wednesday 9 July 2003. 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 Investor relations For investor enquiries, please contact: Stephen Jolly Group Communications Director Regus plc 3000 Hillswood Drive Chertsey KT16 0RS United Kingdom by telephone +44 (0) 1932 895 135 by fax +44 (0) 1932 895 262 by email stephen.jolly@regus.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. 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 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 55 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 Wednesday 9 July 2003. 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 Wednesday 9 July 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 2002 together with the report of the auditors. Beckenham, Kent BR3 4BR, to arrive no later than 2 Re-election of directors 10.00am on 7 July 2003. You will not be prevented from To re-elect each of Martin Robinson, John Matthews and attending and voting at the meeting, if you subsequently Mark Dixon as directors of the Company. ﬁnd that you 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 59. Recommendation 4 Remuneration report To approve the directors’ remuneration report for the year We, your directors, consider that all of the resolutions set ended 31 December 2002. out in the Notice of Annual General Meeting are in the best interests of shareholders and recommended that you vote in their favour, as we shall regarding our own shareholdings. Yours faithfully John Matthews Chairman Special business To consider and, if thought ﬁt, pass the following resolutions of which Resolution 5 will be proposed as an ordinary resolution and Resolutions 6 and 7 will be proposed as special resolutions: 5 Directors’ authority to allot ordinary shares That 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 £9,748,776, 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 56 Report and Accounts 2002 AGM Notice continued resolution and (b) any amounts outstanding at the date of territory, the requirements of any regulatory body or stock the resolution which have previously been approved by exchange or any other matter whatsoever; and shareholders to satisfy the Company’s obligations to issue shares. The Company may make any offer or agreement prior to the expiry of this authority which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities after such (ii) the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities up to the aggregate nominal amount of £2,924,633 being 10% of the ordinary share capital in issue at 30 May 2003. expiry in accordance with this authority in pursuance This power shall enable the Company to make any offer of such offer or agreement. This authority shall expire or agreement before the expiry of such general authority immediately prior to the ﬁfth anniversary of the passing which would or might require securities to be allotted after of this resolution. All unexercised authorities vested in the such expiry and the directors may allot equity securities directors immediately prior to the general meeting at which after such expiry pursuant to any such offer or agreement. this resolution is passed to allot relevant securities are Expressions used in this resolution which are deﬁned in the hereby revoked. Expressions used in this resolution which Companies Act 1985 shall have the same meanings as are deﬁned in the Companies Act 1985 shall have the same used herein. This authority shall expire immediately prior meaning as used herein. to the ﬁfth anniversary of the passing of this resolution. 6 Directors’ power to disapply pre-emption rights 7 Company’s authority to purchase ordinary shares That if Resolution 5 is passed as an ordinary resolution, the That the Company be and is hereby unconditionally and directors be and are hereby empowered in accordance with generally authorised for the purpose of Section 166 of section 95(1) of the Companies Act 1985 from time to time the Companies Act 1985 to make market purchases to allot equity securities pursuant to the general authority (as deﬁned in Section 163 of that Act) of ordinary shares referred to in Resolution 4 to such persons and in such of the Company provided that: 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: (i) the maximum number of shares which may be purchased is 58,492,660; (ii) the minimum price which may be paid is the nominal (i) the allotment of equity securities in connection with a rights issue, open offer or any other pre-emptive offer value of each share; in favour of shareholders and in favour of holders of any (iii) the maximum price which may be paid for a share other class of equity security in accordance with the rights is an amount equal to 105% of the average of the middle attached to such class where the equity securities market quotations of the Company’s ordinary shares as respectively attributable to the interests of such persons derived from the Stock Exchange Daily Ofﬁcial List for the on a ﬁxed record date proportionate (as nearly as may be) ﬁve business days immediately preceding the day on which to the respective numbers of equity securities held by them such share is contracted to be purchased; or are otherwise allotted in accordance with the rights attaching to such equity securities subject to such exclusions or other arrangements as the Board may deem necessary or expedient to deal with fractional entitlements or legal or practical problems arising in any overseas (iv) this authority shall expire at the conclusion of the Annual General Meeting of the Company held in 2004 (except in relation to the purchase of shares the contract for which was concluded before the expiry of such authority and 57 which might be executed wholly or partly after such expiry) Resolution 3 proposes the re-appointment of the unless such authority is renewed prior to such time. Company’s existing auditors KPMG for a further year. The Registered Ofﬁce: 3000 Hillswood Drive, Chertsey, Surrey KT16 ORS By order of the Board T S J Regan Company Secretary 4 June 2003 Any member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of the member. A proxy need not be a member of the Company. 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 2002. Resolution 2 - Re-election of directors resolution also gives authority to the directors to determine the auditors’ remuneration. Resolution 4 - Remuneration report New legislation which came into effect in August 2002 requires all listed companies with ﬁnancial years ending on or after 31 December 2002 to put their directors’ remuneration report to a vote by shareholders. Accordingly, a resolution is proposed to approve the remuneration report set out on pages 15 to 19 of the Report and Accounts. Resolution 5 - 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 at the 2002 Annual General Meeting. Although this authority is not due to expire until the ﬁfth anniversary of the date of the passing of the resolution, the directors consider it appropriate, and in line with current practice, to seek renewal The Company’s Articles of Association require that any of the authority on an annual basis. Accordingly, the directors director appointed since the last Annual General Meeting seek the authority to allot, at their discretion, an amount of and, additionally, one-third in number of the directors must relevant securities up to the aggregate nominal amount of retire by rotation (including those directors who have held £9,748,776 being one-third of the issued ordinary share 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, Martin Robinson, John Matthews and Mark Dixon shall retire. 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. All the retiring directors offer themselves for re-election. This authority supersedes all previous authorities and the Brief details of all the directors, including those seeking directors intend to seek its renewal at next year’s Annual re-election at the meeting, are to be found in this Annual General Meeting. Report and Accounts. Resolution 3 - Re-appointment of auditors The auditors of a company must be appointed at each general meeting at which accounts are presented. 58 Report and Accounts 2002 AGM Notice continued Resolution 6 - Directors’ power to disapply Information for shareholders and other participants pre-emption rights This section provides information for shareholders and other “participants” who have the rights in connection Under Section 95 of the Companies Act 1985, the directors require the authority of shareholders in general meeting to with this meeting. disapply section 89 of the Companies Act 1985 so that Shareholders they can allot authorised but unissued shares in the Pursuant to Regulation 41 of the Uncertiﬁcated Securities Company for cash other than to existing holders of ordinary Regulations 2001, the time by which a person must be shares pro rata to their holdings or alternatively, should entered on the register of members in order to have the appropriate circumstances arise, allot shares in connection right to attend or vote at the Annual General Meeting is with a rights issue (subject to certain limited exclusions for 10.00am on Monday 7 July 2003. Entries in the register arrangements). At the present time there is no intention to after that time will be disregarded in determining the rights exercise such authority. The directors intend to seek renewal of the authority given by Resolution 6 at next year’s Annual General Meeting. Resolution 7 - Authority to purchase own shares In certain circumstances, it may be advantageous for the Company to purchase its own ordinary shares and Resolution 7 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 provide 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. Resolution 6 speciﬁes the maximum number of shares 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 7 will last until the conclusion of next year’s Annual General Meeting (or, if earlier, 15 months from 9 July 2003 being the date of the passing of the present resolutions). The directors intend to seek renewal of this power at subsequent Annual General Meetings. 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 Monday 7 July 2003. 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. Regus plc Employee Trust If you only hold shares through the Regus plc Employee Trust, you cannot participate in the Annual General Meeting. Documents Copies of the following items will be available for inspection at the registered ofﬁce of the Company during normal business hours on any weekday excluding Saturdays, Sundays and public holidays, from the date of this notice until the date of the meeting. They will also be available for inspection at the place of the meeting for a period of at least 15 minutes before the meeting and until the conclusion of the meeting: 59 • The register of members; About the meeting • The register of directors’ shareholdings; • Directors’ service contracts; • Memorandum of Association; • The Company’s current Articles of Association. 9.00 am Doors open to shareholder registration desk At the meeting you will be asked to vote on the resolutions which are set out in this Notice of Meeting. Explanatory notes are also provided. You may therefore ﬁnd it helpful to 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. and reception area Smoking 9.15 am Auditorium opens Smoking is not permitted in the building. The Annual General Meeting will be held on Wednesday 9 July 2003 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. 10.00 am The Annual General Meeting begins Shareholders will be asked to vote on each of the resolutions set out in this Notice of Annual General Meeting. Shareholders will have an opportunity to ask questions at the meeting. Who may attend ? Only shareholders and their proxies are entitled to attend the meeting. Non-shareholders will be admitted, as non-participating observers, at the discretion of the Company. Admission You will be asked to register at the shareholder reception desk. If you have been appointed as a shareholder proxy, you should make this fact known to the shareholder reception desk. Security Shareholders are reminded that briefcases, cameras, laptop computers, tape-recorders, etc. are not allowed in the meeting room. We also ask that mobile phones be switched off during the meeting. 60 Report and Accounts 2002 Five-year summary Proﬁt and loss data 31 Dec 1998 31 Dec 1999 31 Dec 2000 31 Dec 2001 31 Dec 2002 Turnover (including share of joint ventures) Less: share of turnover of joint ventures Turnover Cost of sales (centre costs) before exceptional items Exceptional cost of sales Cost of sales (centre costs) after exceptional items Gross (loss)/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 Proﬁt on sale of group undertakings (Loss)/proﬁt on ordinary activities before interest Net interest payable and 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 111.6 – 111.6 (97.2) – (97.2) 14.4 (29.6) – (29.6) (15.2) – (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) – (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 – 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) – (109.5) (0.6) (110.1) (10.1) (120.2) 1.9 (118.3) £m 445.4 (9.8) 435.6 (413.3) (57.0) (470.3) (34.7) (61.1) (35.1) (96.2) (130.9) (5.5) (136.4) 22.7 (113.7) (5.4) (119.1) (5.5) (124.6) 1.2 (123.4) (4.2) (12.0) (2.7) (21.0) (21.9) outstanding (thousands) 427,729 469,486 497,889 563,528 564.052 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’ (deﬁcit)/funds 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 (344.4) (53.1) 0.4 88.4 110.1 58.6 228.0 (178.0) (78.7) (0.2) (28.4) THE “SAFE HARBOUR” STATEMENT UNDER THE US PRIVATE SECURITIES REFORM ACT OF 1995 This Annual Report contains statements concerning the Group’s business, ﬁnancial condition, results of operations and certain of the Group’s plans, objectives, assumptions, projections, expectations or beliefs with respect to these items. These statements are intended as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, those concerning: the Group’s future cash ﬂow position, the Group’s cost reduction programme, expectations regarding sales, trading proﬁt and growth, the Group’s possible or assumed future results of operations and/or those of the Group’s associates and joint ventures, capital expenditure, adequacy of capital and liquidity, ﬁnancing plans, and those preceded by, followed by, or that included the words “believe”, “expect”, “intend”, “plan”, “anticipate” or similar expressions. The Company cautions that any forward-looking statements in this Annual Report may and often do vary from actual results and the differences between these statements and actual results can be material. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only at their respective dates. The Company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reﬂect events or circumstances after the date of this press release, including, without limitation, changes in the Company’s business or acquisition strategy or planned capital expenditures, or to reﬂect the occurrence of unanticipated events. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward looking statements. These factors include, among other things, the impact of the Company’s bankruptcy proceedings in the United States, the nature of the serviced ofﬁce market, the long-term nature of the Company’s lease commitments, its ﬁnancing requirements, foreign exchange, risks of litigation, and other risks and uncertainties described in the Company’s ﬁlings with the Securities and Exchange Commission. www.regus.com Regus plc 3000 Hillswood Drive Chertsey Surrey KT16 0RS United Kingdom Registered number: 3548821

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