Places to work for
everyone, worldwide
Regus plc
Annual Report and Accounts 2017
Introduction
An unparalleled network of office, co-working and
meeting spaces for companies to use in every city in the world.
It’s an infrastructure to support every business opportunity.
Our network of workspaces enables businesses to
operate anywhere, without the need for set-up costs or
capital investment. It provides our customers with immediate
cost benefits and the opportunity to fully outsource their
office portfolio.
It’s a network designed to enhance productivity and
connect 2.5 million like-minded professionals: an instant global
community, and a place to belong.
What’s inside
Strategic report and governance
Financial statements
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Performance highlights
Who we are
Market review
Our customers
What we offer
Customer stories
Our business model
Strategic review
Our strategic objectives and KPIs
Our people
Financial review
Risk management and principal risks
Corporate responsibility
Directors’ statements
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Auditor’s report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of
changes in equity
Consolidated balance sheet
Consolidated statement of cash flows
Notes to the accounts
Parent company accounts
Five-year summary
Segmental analysis
Post-tax cash return on net investment
Glossary
Shareholder information
Please visit our website regus.com
Performance highlights
Improving revenue momentum into 2018, excellent overhead
performance and increased investment activity and network growth.
Key financial highlights
• Attractive post-tax cash returns. Return on pre-2013
investment of 21.8%(1)
• Net growth capital investment of £176.8m
• Group revenue of £2,341.7m, with revenue growth improving in
Q4 and since period end
• Overheads reduced 18%(2); down 240bp as a percentage
of revenue to 9.3%
• Operating profit of £177.2m
• Cash generation (before net growth capital expenditure, share
buybacks, and dividends) of £33.5m (7.0p per share)
• Strong financial position maintained with net debt of £296.6m
(0.8x net debt : EBITDA)
2017 Post-tax cash return on net investment
by year of opening (%)(1)
(14.0)
(8.7)
‘17
‘16
‘15
‘14
‘13
‘12
‘11
‘10
‘09
8.3
12.3
14.9
17.9
17.5
19.0
23.6
Cash flow before growth capital expenditure
and dividends (£m)
Key operational highlights
• Ongoing focus on disciplined investment, partnering and risk
management
• Benefitting from increased operational scale and efficiencies
• Further network expansion and improvement in network quality,
with 283 new locations (272 organic) and 4.7m sq. ft. added in
2017. Now in 3,094 locations worldwide (up 6% from December
2016), with 51.2m sq. ft. of space. Strong Q4 momentum with
119 new locations opened
• Successful roll out of our large co-working format, Spaces, with
56 new locations (taking the total to 78) and 13 new countries
added in 2017
• Current pipeline visibility on 2018 net growth capital expenditure
at the end of February 2018 of approximately £190m,
representing 230 locations and 5.5m sq. ft. of additional space
(c.11% growth in space)
£33.5m
‘17
‘16
‘15
‘14
‘13
‘12
33.5
115.4
112.4
283.2
215.7
175.6
Net growth capital expenditure (£m)
£176.8m
‘17
‘16
‘15
‘14
‘13
‘12
176.8
162.3
284.9
206.6
260.2
147.8
Number of locations
3,094
‘17
‘16
‘15
‘14
‘13
‘12
3,094
2,926
2,768
2,269
1,831
1,411
1. Turn to page 12 for details on how we calculate our post-tax cash return
on net investment
2. At constant currency
1
Who we are
An unrivalled
global network
We will continue to invest in our national
networks to attract and retain an ever-
greater share of the world’s workers and
businesses. Workspace needs are
changing for every sort of business, from
major corporates to small and mid-size
enterprises (SMEs), start-ups and
individual entrepreneurs. We have the
vision, the will and the growing global
infrastructure to cater for all of them.
Regus plc includes the following brands:
Spaces, No18, Open Office and Signature.
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R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Our place in a
growing market
members
locations
cities
countries
A global community of
More than
2.5 million
3,094
1,000
110
Over60%
of business people think that flexible
working improves productivity(1)
Over
71%
of occupiers believe that productive and
flexible workspaces are vital to delivering
corporate real estate objectives, up from
57% in 2016(2)
Over
50%
of business people expect the
demand for flexible working to
increase(1)
Up to
30%
of corporate real estate
portfolios could be flexible
workspace by 2030(3)
Over50%
of workers now report that they work
outside the main office 2.5 days a
week or more(1)
69%
of millennials will trade other
work package benefits for
better workspace(2)
1. Regus survey
2. The Flexible Revolution. Insights into European flexible office markets, CBRE 2017
3. JLL research
3
Market review
Growing the business to meet
accelerating demand
The way people work and businesses think
about workspace is being revolutionised.
The drivers discussed here – technology
and the desire of workers and businesses
to experience the benefits of flexible
working – are accelerating the demand for
change. And many indicators are pointing
in the same direction.
For example, the global market for flexible offices has been
growing annually by an average of 13%(1) over the past
decade. Nearly three-quarters (71%) of occupiers believe
that productive and flexible workspaces are vital to
delivering corporate real estate objectives (up from 57% in
2016(1)). And the co-working sector itself is projected to
tally a nearly 24% compound annual growth rate between
2016 and 2020(2). So it’s not surprising to see it estimated
that 30% of corporate real estate portfolios could be
flexible workspace by 2030(3).
In short, we’re close to the tipping point where flexible
working becomes the global norm. One day soon, flexible
working will be known simply as ‘working’.
The impact of IFRS 16:
driving workspace flexibility
When the much-heralded IFRS 16 – the new
international leases standard – comes into force on
1 January 2019, real estate leases, including office
spaces, will need to be accounted for on balance
sheets. Under exemptions, companies may opt to
move to shorter lease terms or outsource office
spaces to serviced providers instead, as these would
not need to be, in general, accounted
for on balance sheets, helping to reduce the
administrative burden.(9)
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R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Digitalisation and new
technologies are changing
how people work
Drivers:
• Communication, sharing apps and resources that enable remote
working are increasingly being used, from WeChat and WhatsApp
to emerging next-generation voice-over-internet-protocol
systems and advanced data-distribution and videoconferencing
technologies
• Use of voice-activated artificial intelligence solutions like Alexa and
Siri for simple tasks are already part of everyday life and new
automation technologies will replace a raft of human activities,
enabling people to focus on different, value-added activities
• Looking further ahead, the keyboard and touchscreen are
set to become redundant as new generations use speech
to communicate with their devices
What this means:
• Workers are increasingly mobile and can access their work from
anywhere
• 50% of occupiers see technology as a key success factor
for flexible working(1)
• Fast, reliable Wi-Fi/broadband and remote server access is more
important than ever – Information Age reports that interruptions
cost mid-sized business £6.6 million a year
How we are responding:
• We provide world-class IT infrastructure and connectivity at all
our centres
• Our 24/7 IT support and back-up ensures customers are always
connected across the world
• Our proprietary apps streamline booking and administration for
customers and enable our centre staff to provide a wide range
of services
• We are constantly innovating new services and solutions
1. The Flexible Revolution. Insights into European flexible office markets,
CBRE 2017
2. Forbes 2017 (quoting Emergent Research)
3. JLL research: Technology and real estate: the road to 2030
4. Regus ‘The Modern Way of Working’, October 2017
5. Regus Workplace Revolution Report, 2017
People want the
benefits of flexible
working
Businesses want the
financial and strategic
benefits of flexible
working
• Workers want a blended approach to work, with the geographic
and lifestyle benefits of choosing where and how to work
• They also want creative and productive environments, close to
• Businesses want access to great workspaces for their people
on-demand – without the hassle of managing the property
• They also want to avoid fixed leasing arrangements, liberating
home and other like-minded people
• Freelancing and ‘multiployment’ are increasingly realistic
and attractive options(4)
• 55% say remote working helps them be nearer clients and 56%
that it helps them concentrate(5)
• 66% think they can be more productive working remotely(6)
•
•
them to allow rapid expansion or contraction
It’s vital they can attract and retain the best talent from anywhere
in the world, and maximise their balance-sheet flexibility
Increasing numbers also want easy-to-implement workplace
recovery solutions
• Attractive office space is becoming a vital tool in the war for
• Businesses need a portfolio of workspace options that is both
talent(3)
• 69% of millennials will trade in other work package benefits for
better workspace(1)
• 43% of the US workforce works remotely to some degree(7)
• 72% of workers see flexible working as the top consideration when
choosing a job(8)
• The London Business School predicts that by 2020, 50% of all
workers will be working remotely for most of the time(8)
• To attract and retain the best talent worldwide, businesses must
provide efficient, well-equipped and inspiring workspaces and
communities around the globe
global and local, through which to provide a blend of options that
maximises business agility, employee satisfaction and cost
efficiency
• For many, remote and flexible working is moving from being a perk
to a much-needed business strategy
• HR departments now need to provide flexible workspace options
to attract and retain talent
• Companies will move to fewer core locations, surrounded
by national networks of flexible space(3)
• Providers must deliver a level of service that has previously only
been available to larger corporations(1)
• We have centres and drop-in spaces in more locations across the
• The facilities and support we offer bring professional, corporate
world than anyone else
• Our range of formats, wider than from any competitor, is designed
to inspire productivity, creativity and collaboration
• We encourage customers to communicate and integrate
as members of a global community of 2.5 million diverse, creative
and collaborative professionals
• We provide an unrivalled choice of inspiring workspaces,
communities and services in national and international networks
across the world
• We are constantly innovating and investing in the environments
and experiences we provide
standards to all players, from the largest to the smallest
• Our offer of multiple experiences, built on a leading IT and
operating platform, enables the best possible integration
with customer organisations and their people
• By 2025, flexible spaces will account for 30% of the total
real estate footprint of a large company(3)
6. Flexjobs.com, 2017 annual survey
7. Gallup’s State of the American Workforce, 2016
8. Entrepreneur.com, December 2015
9. Referenced from article by Melanie Wright in the Regus WorkUK magazine:
https://www.regus.co.uk/work-uk/ifrs-16-five-things-you-need-to-know-now/
5
Our customers
Responding to changing
customer needs
The first requirement for offering flexible workspace solutions is to be flexible in everything we do – in our
portfolio, our account management, our services and our ways of doing business. That’s how we can
meet the needs of customers everywhere, from large corporates to SMEs, start-ups and individuals.
Large corporates
SMEs
Big companies have multiple needs. Above all, they require
flexible space to help them attract and retain talent, be
agile and optimise their costs and logistics. Just as they
don’t want to get involved with property management, so
property companies don’t want to deal with multiple
different customers. That’s where we fit in.
Adding value
•
Improved financial performance through cost-savings,
reduced capital expenditure, better risk mitigation and lower
vacancy rates
• The heightened ability to free up capital for investment in
value-generating assets and initiatives
• Greater business agility, enabling them to scale up and
down in response to market changes
• Opportunities to outsource non-core functions so
they can concentrate on the value-adding elements
of their business
• The benefits of working with a large global network that
reflects their own scale
• Attracting and retaining the best talent, through providing
inspiring workspaces in places where people want to work or
with communities they want to work with
• Efficient key account management and the opportunity to
work with us collaboratively
• Rapid, effective and cost-efficient workplace
recovery solutions
Every company is different, in scale, culture and ambition
– we have the resources to meet every need, however
diverse, in over 3,000 locations and 1,000 cities across the
world.
Adding value
• The ability to operate from high-quality, prestigious sites
that align with their own growth ambitions
• The opportunity to take on locations cost-effectively to be
close to clients and accelerate speed to market
• A choice of workspace experiences to match their own
corporate image and aspirations
• Reliable and non-intrusive service and support, with
no requirement to employ non-core staff
• Access to the latest technology, with 24/7 technical
support and a business-class infrastructure
• The availability of meeting spaces, in the centres where they
are based, and convenient drop-in centres across the world
• Constant innovation and R&D from a committed, flexible
workspace provider
• Gaining access to key skills in talent hotspots around
the world
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Over
50%
of workers now report that
they work outside the main
office 2.5 days a week or more(1)
Start-ups
Individuals
Every business was a start-up once. We have the
property portfolio and infrastructure to take a business
from concept to multinational. Indeed, some of the
start-ups we have worked with are now among the
biggest companies in the world. We look forward to
helping emerging generations of entrepreneurs hit the
same growth curve.
Adding value
• Cost-effective, fully equipped spaces that help them
punch above their weight for heightened credibility
among clients, prospects and employees
• Flexible leases, with minimal lead times and no set-up
costs
• Reliable service support that frees entrepreneurs to
concentrate on getting their venture off the ground
• A clear and compelling upgrade path that can cater for
their needs at every stage of development
• Access to virtual office services that give them the
freedom to work wherever they need to
• The opportunity to work in inspiring spaces which align
an appealing vibe with a corporate standard of quality
and service
• The chance to brainstorm with and learn from more
established businesses
We never forget that individuals are businesses too,
needing inspiring environments and collaborative
communities, the latest technology and reliable
support.
Adding value
• The powerful networking opportunity that comes from
working within a community of like-minded professionals
• The chance to work in an affordable and professional
environment with none of the productivity drawbacks of
working from home or a local café
• Gaining access to resources and expertise that would not
be possible when working on their own
• The availability of service support that enables them to
focus on value-generating activities
• Company throughout the day to prevent the loneliness
and frustration that lone workers can sometimes
experience
• Access to the latest technologies to differentiate them
from their competitors
• The ability to use meeting spaces and drop-in centres
around the world
1. Regus survey
7
What we offer
Greater productivity with
complete solutions
Constant innovation, expansion and improvement underpin our commitment
to helping businesses of all sizes to become more productive, competitive and
successful. Our complete solutions comprise the following key elements.
Workspaces
Communities
Being part of our global network gives individuals and
businesses access to an enormously powerful and varied
community of more than 2.5 million professionals across
the world. This is more than just a place to belong – it’s the
chance to promote themselves and their businesses to
one another, delivering shared opportunities for growth
that simply do not exist elsewhere.
Networking and knowledge-sharing
We are determined to differentiate ourselves by helping our
customers in every way we can. This is why we run regular
networking and knowledge-sharing meetings for them to
share ideas, answer questions, compare notes and innovate
together. It doesn’t stop there – it’s a way of further enhancing
employee morale too, giving them access to an energising
environment where they can enrich their work-life experience.
Inspiration and creativity
When like-minded, creative people get together, sparks can
fly. Our communities are more than just somewhere to work
– they’re loaded with energy and enthusiasm, providing a
direct boost to collaboration, original thinking and shaping
the future.
Right across the world, businesses of all sizes from major
corporates to start-ups and one-person operations are
finding that the traditional approach to buying or renting
workspace is outdated, inefficient and unproductive.
Regus is at the forefront of revolutionary change, enabling
businesses everywhere to pay only for the space they
need, scaling up or down at will and boosting productivity
in their choice of stimulating work environment.
Fully managed offices
With no set-up costs or capital investment, customers get
rapid access to all the customised space, infrastructure and
support they need, all under flexible terms. Our locations
enable businesses of every size to turn up and get working.
Co-working
Individuals and companies can work in a shared office
environment in our locations across the world, always with the
choice of fully allocated or hot desks. Our approach to
co-working delivers customers all the benefits of a full-time
office but allows them to pay only for the number of desks
they use. Members also get the collaborative benefits of
working in a network environment, either with different people
from their own company or inspiring new friends from
other industries.
Meeting spaces
Almost always, the quality of a meeting depends on the quality
of its environment. Our meeting spaces are airy and bright,
fully equipped and up-to-the-minute, designed to promote
creative thought and accurate decision-making.
And, of course, we have spaces across the world, in key
locations including airports, railway stations, public buildings
and even service stations. So a quality meeting space, with
technical and catering support, is never far away.
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R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
69%
of millennials will trade other
work package benefits for
better workspace(1)
Services
Easy access
With 24/7 customer service and a dedicated account
manager supporting every contract, our customers can
focus on what really matters to their business. All office
amenities, from business-class internet, technical
support and reception to cleaning and kitchen services,
are set up and ready to use. So every customer has the
choice of outsourcing the entire office support
portfolio.
Virtual office services
Customers do not even need to use our space to receive
the benefits of working with us. Our global address and mail
handling service, available through any of our 3,000
locations worldwide, provides them with the instant
credibility and prestige that they are looking for. And it is
easy for them to expand the service, with a cost-effective
upgrade to our 24/7 telephone-answering service and
access to our global network of drop-in business lounges. A
further upgrade additionally allows five days’ use of a private
office each month.
24/7 workspace recovery
Following a catastrophic event, our customers can keep
their businesses going with back-up office space – no
matter where they are based. And because our recovery
spaces in more than 1,000 cities across the world are in fully
operational office buildings, customers can be sure of
receiving all the support they need to get their businesses
up and running again in the shortest possible time.
Businesses of all sizes across the world value the flexibility
and peace of mind they gain from our workplace
recovery services.
Mobile and digital self-service solutions
Everything about our network is designed to help our
customers control their costs, improve productivity
and make their lives easier. At the heart of this approach are
our apps, streamlining and simplifying every contact –
helping them to find and book space, manage their account,
register requests and make observations, and engage with
our communities. In addition, our commitment to providing
a world-class digital infrastructure underpins our
customers’ ability to work exactly as they want across the
world, using our 60 million Wi-Fi hotspots and thousands
of business lounges to be as productive as they
possibly can be.
Easy options for every customer
• On-demand – pay-per-use in over 1,000 cities worldwide
• Subscription – membership of our worldwide network,
including prepaid usage
• Semi or fully outsourced – operating partially
or entirely from our locations
• With a simple contract and reporting, a dedicated
account manager and 24/7 customer service
• All available immediately wherever required via
our mobile apps
1. The Flexible Revolution, Insights into European flexible office markets,
CBRE 2017
9
Customer stories
Delivering the
customer experience
Meet some of our customers who are creating a way of working that’s poised to become the norm.
I have been recommending Regus to
our corporates and business partners
who are looking for all-inclusive services
in a ready made office with international
standards.
PAWANA SURESTHA, ETIHAD AIRWAYS
NEPAL
The Regus network accommodates
our rapid and ongoing growth. Using
workspace as a ‘service’ lets us use
space efficiently – as we grow, our
workspace can grow. It also allows us to
cater to ‘spikes’ in the way we use space
as we don’t have to hold space and its
associated costs permanently.
HAMISH MILES, SERVICENOW
NEW ZEALAND
The Regus Chongqing centre team
manage our office greatly, listening to
our needs, providing us with professional
daily office support and strengthening our
confidence for continued cooperation in
the future.
TINA LIU, GSK
CHINA
Regus’ flexible solutions and innovative
workspaces have helped us expand and
change our operations in Sri Lanka. They
have addressed our business needs and
exceeded our expectations at every turn.
From the excellent facilities to the brilliant
people around us, Regus has been the
perfect choice for us and we have never
looked back.
SANTOSH KUMAR, MASTERCARD
SRI LANKA
1 0
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
ENGIE needed to accommodate its
future digital team with flexible offices in
the heart of the Paris digital district, the
location being strategic and decisive to
attract and retain talent joining ENGIE.
Digitalisation is one of ENGIE’s strategic
priorities, and flexible offices were
chosen in a test-and-learn approach,
with the probable future growth of this
new structure in mind. In addition to
providing offices at the desired location
and in a very short timeframe, Regus has
completely designed their spaces in a
collaborative spirit, focusing on our needs
and requirements. Delighted by this first
experience, we signed for an extension a
few months later which has led to further
projects with Regus, such as hosting
ENGIE teams outside Paris, in five cities,
leveraging Regus’ national network.
GILLES ALLARD, ENGIE
FRANCE
I was impressed by the service
I received from Regus. The staff are
excellent and friendly!
CHIE HASHIMOTO, JAPAN INTERNATIONAL
COOPERATION CENTER
NEPAL
Thank you all for the strong support, we
very much appreciate every effort taken
by the Regus team.
JOANNE CHEUNG, GSK
CHINA
We have used Regus for many years, in
various locations. In November this year
we moved from Koebogen into a new
location in Düsseldorf. The centre is well
located in the heart of the city with a
lot of amenities in walking distance and
the centre team is extremely nice and
they always have a smile on their faces.
Everyone is friendly and helpful, and we
get everything we require on time. The
atmosphere in the centre itself is positive
and pleasing.
ANDREA DURAZZO, BROWZ
GERMANY
We use Regus to have maximum flexibility
in regards to space and service. We very
much value this situation. The extensive
Regus office network also helps our
international business activities regarding
client meetings, interviews etc. All offices
are in prime locations and very well
equipped. A very professional business
set up that includes all relevant services
needed. We are very happy with the
service level and flexibility.
ALEXANDER SCHWEIZER, NIGEL WRIGHT GROUP
GERMANY
1 1
Our business model
How we
create value
During 2017, our ability to deliver positive returns despite challenges in certain markets once again proved
that our business model remains fit for purpose. This was additionally substantiated by the rigorous
planning, stress-testing and review that we carried out during the year.
Our business
Customers
Returns
Our unrivalled position in the global flexible
workspace sector positions us at the
forefront of one of the world’s most exciting
and fast-growing industries. We continued to
strengthen our unrivalled position through
investment in markets around the world
during the year, extending our lead over
alternative workspace providers, and
positioning ourselves to grasp new
opportunities as flexible working goes
mainstream.
Our business comprises five vital
interconnected elements:
• Our people: talented and experienced
professionals who drive the success of
our business
• Our companies: segmenting the market
for maximised uptake and returns
• Our networks: national and international,
empowering businesses and individuals to
work productively, anywhere in the world
• Our formats: versatile, inspiring and
practical, driving productivity for every type
of customer
• Our platform: connecting the property
industry with every industry in this new
world of work, by providing a world-class
and easy-to-use infrastructure with
simple points of access and a great user
experience
We underpin these with disciplines
including:
• Rigorous planning and business review
processes
• Constant investment in innovation and
growth markets
• Disciplined performance and risk-
management procedures
Businesses of every type, from freelance
workers to multinational corporations,
choose Regus for many reasons including:
• Our unique and growing geographical reach,
placing them wherever they need to be to
execute their strategies
• Our experience of working with customers
in all types of industry
• Our ability to engage strategically with
customer organisations of all sizes
• Our global portfolio of modern workspaces –
designed to inspire every business from lone
worker to multinational corporation –
collaborative communities and 24/7 service
infrastructure
They stay with us because we give them an
excellent service at competitive rates and a
product that flexes to meet their changing
requirements:
• Corporates and multinationals: Flexible
space that meets their talent, agility and
cost-management needs, all managed via a
highly efficient single point of contact
• SMEs: Cost-effective, business-class
property solutions in over 3,000 locations
and 1,000 cities that place them near their
customers and prospects
• Start-ups: An efficient and effective
upgrade route, from initial venture to
established player (and even world
leadership)
• Individuals: Inspiring spaces, collaborative
communities, the latest technology and
24/7 support
The value we create
We take away many of the facilities
management, real estate and capital
expenditure headaches that have affected
organisations in the past, replacing them
with flexibility, agility and the ability to focus
on business essentials.
Our approach to investment continues to
ensure that we deliver strong post-tax cash
returns. This enables us to generate
shareholder value over the long term,
delivering returns that exceed our cost of
capital. We do this at a local level across our
global network, constantly seeking to
improve our returns on every location. We
align this with a continual focus on driving
down overheads as a percentage of revenue
– two disciplines that work in parallel to
maintain our strong returns.
How we calculate our returns
Our returns are based on the post-tax
return divided by our net capital
investments in network growth.
Our post-tax cash return equals:
• EBITDA less amortisation of partner
contribution, less tax based on EBIT,
less capital expenditure
on maintenance
Our net growth capital
investment equals:
• Growth capital less partner
contributions
2017 post-tax cash return on net
investment by year of opening (%)
(14.0)
(8.7)
‘17
‘16
‘15
‘14
‘13
‘12
‘11
‘10
‘09
8.3
12.3
14.9
17.9
17.5
19.0
23.6
Turn to pages 82 and 83 to see how our calculation of
post-tax cash return on net investment reconciles to
our audited statutory accounts.
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Cash
Investment in growth
We are highly disciplined in our use of cash,
underpinning and justifying any investment
decision with rigorous risk-analysis
processes. Every potential investment is
evaluated by our internal Investment
Committee and has to meet our stringent
financial criteria before being approved.
Our ability to convert profit into cash is a
particularly attractive feature of the Regus
business model. This is because we have
the opportunity to reinvest the cash flows
generated from our locations directly into
attractive locations to further develop
our network.
Cash flow before growth capital
expenditure, share repurchases
and dividends (£m)
£33.5m
One day soon, flexible working will simply be
known as working. It is on the verge
of becoming the norm for businesses
everywhere, as the advantages of
flexible and remote working become
increasingly recognised.
We are therefore investing in our formats
and national networks to meet customer
demand, with a focus on growth markets
across the world. We are increasingly aiming
to link these networks to create a global
infrastructure that enables business
integration on a truly global scale.
Working in partnership with landlords is an
important factor within this growth strategy,
which has the added benefit of significantly
reducing the need to invest our own capital.
All potential investment is rigorously
evaluated and has to meet our stringent
financial hurdles before being approved.
The agility of our business model allows our
growth plans to be adjusted to reflect
changing market conditions, which is an
important aspect of our ability to manage
risk through the economic cycle. We can
either rapidly capitalise on a favourable
investment environment or restrict growth
when necessary.
‘17
‘16
‘15
‘14
‘13
‘12
33.5
Net growth capital expenditure
283.2
215.7
175.6
£176.8m
115.4
112.4
1 3
Strategic review
The revolution
advances
Our industry is becoming more mainstream because major
global trends are driving long-term demand. Digitalisation
is changing how people work, people are increasingly
wanting the personal lifestyle and productivity benefits,
and businesses want to capture the strategic and financial
advantages. The impact of these trends is significant. We are
fast approaching the moment when “flexible working” will
simply be known as “working”.
MARK DIXON
2017 was an important year for the flexible
workspace industry. We have witnessed
increased interest in the industry especially
from large corporates, the media and other
stakeholders. People and companies are
increasingly talking about flexible workspace.
According to a 2017 survey from CBRE, one
of many such reports to come out last year,
71% of occupiers believe that productive
and flexible workspaces are vital to delivering
corporate real estate objectives. Critically,
this figure is up from 57% just 12 months
earlier. And, in the same survey, 84% of
respondents see the disruption resulting
from the flexible workspace revolution as a
permanent feature of the corporate
real estate landscape.
Why is this? Our industry is becoming more
mainstream because major global trends are
driving long-term demand. Digitalisation is
changing how people work, people are
increasingly wanting the personal lifestyle
and productivity benefits, and businesses
want to capture the strategic and financial
advantages. The impact of these trends is
significant. We are fast approaching the
moment when “flexible working” will simply
be known as “working”.
Building the foundations
for success
What have we done to address this
opportunity? We achieved many milestones
during 2017, laying the groundwork for
2018 to be a significant year in terms of
growth and opportunity.
This is not to say that 2017 was a year
dedicated exclusively to future
development. Not only did we help some 2.5
million people across the world work more
productively, achieving a significant number
of major corporate account wins along the
way, we also added significant scale to
our business.
For example, we opened 22.5% more new
centres across the world than we did in
2016. We opened 283 locations, including 56
Spaces locations, and added c. 4.7m sq. ft. of
workspace worldwide, taking our global total
to 3,094 locations and c. 51.2m sq. ft. of
workspace in over 110 countries. Most of
these new openings were organic and over
half of these were delivered through
partnering deals, that are variable in nature,
with property owners and investors in the
global real estate industry. We remain very
encouraged by the increased traction with
partnering deals which represent attractive
opportunities both to grow the network and
deliver more capital efficient growth.
We also continued our programme of
upgrading or replacing our older locations,
to ensure the high quality of our offering.
Growing the platform
Our 2017 focus was not all about opening
new centres. We also added new brands to
our expanding portfolio (such as No. 18),
providing greater choice and making it easier
than ever to use the Regus platform to
access the flexible workspace market.
We strengthened our industry-leading and
highly scalable digital platform to give
customers an even better experience and
access to higher levels of service. We
continued to train and develop our people
across over 110 countries, simultaneously
providing our customer-facing employees
with the 24/7 global support they need to
drive customer retention by focusing
exclusively on meeting customer needs.
And we continued to focus successfully on
cost management, leveraging economies of
scale ever more efficiently to further build on
our advantage of having the lowest-cost
operating model in the industry. This in turn
has enabled us to continue investing in
quality, service, technology and choice that
customers are looking for.
A year of strategic importance
So, in our view, 2017 was a successful year
from a strategic perspective, that has
reinforced our platform for growth and
strengthened our ability to seize the
opportunities presented by our industry and
our position within it.
It was not without its challenges though. In
October, a temporary confluence of events
affecting certain national markets caused us
to lower our profit outlook for the year.
Specifically, the anticipated revenue
improvement in the third quarter was weaker
than expected and resulted in a pause in the
recovery of our Mature business. In the UK,
our London business was particularly slow.
There were also a number of natural
1 4
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
disasters affecting certain national markets
in the third quarter. However, we were
pleased to see our Mature business return
to growth in the fourth quarter, with
sustained improvements throughout the
period, which confirmed our view that the
recovery in the growth rate was largely a
timing issue and that the underlying market
growth drivers remain strong.
Investing to strengthen our business
through growing our national networks,
enhancing our development capabilities and
increasing the dedicated resources focused
on corporate account development
inevitably led to investment in additional
overhead costs and more initial losses from
new centres. Strategically, these are the
right actions to take advantage of the
market growth opportunities and we have
won further new corporate account
contracts as a result. In the short term,
however, they impacted Group profitability.
Our operational and financial strength and
scale also enable us to act as a consolidating
force across the industry, identifying, buying
and strengthening brands and companies.
So, as we move ahead in 2018, we are in a
very strong competitive position, with
improving revenue momentum and a larger
pipeline of opportunities ahead of us.
Strong returns generation
We remain focused on the returns we deliver
from the investments we make. 2017 has
been another year in which we have
delivered strong post-tax cash returns on
net investment that are well above the
Group’s cost of capital. The post-tax cash
return on net growth investment from
locations opened on or before 31 December
2012 was 21.8% (2016: 23.8%). If we roll the
estate forward one year to all those
locations opened on or before 31 December
2013, the post-tax cash return is 20.2%
(2016: 21.6%). The post-tax cash return for
the overall business is 12.3% (2016: 13.8%).
Our post-tax returns are calculated after
deducting net maintenance capital
expenditure. In 2017, as expected, we
invested more in net maintenance capital
expenditure to take the opportunity to
refresh some of our existing locations.
Overall, a continuing strong performance.
Group revenue increased 1.4% at constant
currency to £2,341.7m, an increase of 4.8%
at actual rates. This performance reflects
the previously reported softness
experienced during the third quarter.
Encouragingly, our revenue performance
improved in the fourth quarter. These Group
numbers reflect the impact of closures.
A better indication of the ongoing business,
therefore, is provided by the performance of
our open centres (excluding closed centres).
On this basis, Group revenue increased 3.7%,
at constant currency, to £2,311.8m (2016:
£2,154.8m), again with revenue growth
accelerating in the fourth quarter. This
acceleration in revenue growth was driven by
all regions except for the UK, where revenue
stabilised sequentially during the quarter.
Mature revenue declined by 1.2% during the
year at constant currency, with a return to
growth in the fourth quarter and sustained
improvement throughout the period
primarily driven by improvements in the
Americas and Asia Pacific
We maintained our strong focus on
managing overhead costs whilst investing in
areas to support future growth of the
business. During 2017 we achieved a further
18% absolute reduction in overheads at
constant currency. This reduced overheads
as a percentage of revenue by an additional
2.4 percentage points to 9.3%. This helped
to mitigate the impact of the third quarter
performance and the Group to deliver an
operating profit of £177.2m.
We accelerated our growth programme in
2017, reflecting the attractive opportunities
to grow our business. We invested £176.8m
in net growth capital expenditure during
2017 (2016: £162.3m).
Long term, the Group’s strategy remains
to pursue a predominantly capital-light
approach to network growth.
There remain significant attractive
opportunities to deploy capital and we
finished 2017 strongly with 119 additions
in the fourth quarter and continue to
invest to build upon this momentum in
2018 accordingly.
With the significant investment in growth
the Group has made over recent years,
our depreciation charge has increased
accordingly. The result is a broadly
unchanged EBITDA performance.
Group net debt increased from an
opening position of £151.3m to £296.6m
at 31 December 2017, in line with our
expectations. This represents a net debt :
EBITDA leverage ratio of 0.8x and reflects
the continuation of our prudent approach
to the Group’s capital structure.
Group income statement
£m
Revenue
2017
2016
2,341.7
2,233.4
Gross profit (centre contribution)
395.4
448.8
Overheads
Operating profit(1)
Profit before tax
Taxation
Profit after tax
EBITDA
1. Including joint ventures
(217.4)
(260.4)
177.2
167.2
(35.6)
131.6
388.6
187.6
176.1
(34.9)
141.2
382.1
% Change
actual currency
% Change
constant currency
4.8%
(12)%
(17)%
(6)%
(5)%
(7)%
2%
1.4%
(15)%
(18)%
(9)%
(2)%
The Group generated a gross profit of £395.4m (2016: £448.8m), down 15% at constant
currency. This reflects, in broadly equal measure, a lower Mature business gross profit and
the combined impact of higher initial losses from new locations opened and a negative
year-on-year impact from closures.
Gross margin
2014 Aggregation
New 15
New 16
Pre-17
New 17(2)
Closures
Group
Revenue
£m
2017
1,857.6
307.1
106.5
2,271.2
40.6
29.9
2,341.7
2016
1,847.3
270.7
36.8
2,154.8
–
78.6
2,233.4
Gross margin %
2017
21.5%
11.8%
(11.8)%
18.7%
(65.0)%
(6.0)%
16.9%
2. New 17 also includes any costs incurred in 2017 for centres which will open in 2018
2016
24.1%
2.7%
(53.8)%
20.1%
–
19.8%
20.1%
1 5
Strategic review continued
Performance by region
On a regional basis, mature(1) revenue and contribution can be analysed as follows:
£m
Americas
EMEA
Asia Pacific
UK
Other
Total
Revenue
Contribution
Mature gross margin (%)
2017
926.4
486.1
351.1
398.2
2.9
2,164.7
2016
897.4
461.8
342.1
409.9
6.8
2,118.0
2017
177.6
105.6
74.3
79.2
(0.2)
436.5
2016
173.8
106.6
69.9
95.9
6.8
453.0
2017
19.2%
21.7%
21.2%
19.9%
2016
19.4%
23.1%
20.4%
23.4%
20.2%
21.4%
1. Centres open on or before 31 December 2015
Americas
Revenue from open centres increased 3.8%
at constant currency to £978.1m. Total
revenue (including closed centres) in the
Americas increased 2.9% at constant
currency to £984.8m (up 6.7% at actual
rates). Although mature revenue in the
region declined 0.5% at constant currency
to £926.4m (up 3.2% at actual rates), we
experienced a sequential improvement
during the year. This resulted in a strong
finish to the year with 3.0% growth at
constant currency in the fourth quarter.
Average mature occupancy for the region
was 75.8% (2016: 75.5%). The gross profit
margin remained solid at 19.2%.
We continued to see an improving
performance in the US, our largest region in
the Americas, generating £819.6m of total
revenue. After an improved second half and
strong fourth quarter, we ended with a small
positive constant currency revenue growth
rate for our Mature business in 2017. After a
slow start to the year, our Canadian business
produced a good performance with
momentum building from March onwards
and finishing the year strongly, with c. 9%
year-on-year constant currency mature
revenue growth in Q4. Although we saw
good performance from some of the smaller
countries in Latin America, like Puerto Rico,
this was offset by weak conditions in the
larger markets, such as Mexico and Brazil.
We added 65 new locations during the year,
taking the total to 1,265 at 31 December
2017. The focus of growth continued to be
the US with the opening of 36 new locations,
which increased the total to 1,007. Over a
third of the total openings were in Latin
America, with the majority in Brazil following
a portfolio deal with a large property owner.
We also opened in Trinidad and Tobago
through a partnering agreement.
EMEA
EMEA continued to make progress during
2017, with a range of performances in
individual markets. Revenue from all open
centres increased 7.7% at constant
currency to £535.4m. Total revenue
increased 6.7% at constant currency to
£540.5m (up 13.4% at actual rates). Mature
revenue in the region declined 1.0% at
constant currency to £486.1m (up 5.3% at
actual rates) for the year but moved
modestly into growth in Q4. The gross
margin reduced from 23.1% to 21.7% which
is a robust performance given the mature
revenue decline. Mature occupancy
increased from 75.9% to 77.3%.
EMEA added the largest number of new
locations of any region with 136 new
locations opened. At 31 December 2017 we
had 909 locations across EMEA. We also
added Iceland, Azerbaijan and Gibraltar to
our global presence.
In such a diverse region, individual country
performances varied but, in the main,
continental Europe, with the exception of
France and Switzerland, has been good.
There were very good performances from
the Netherlands, Germany, Italy, Spain,
Ireland and Israel. More challenging were
markets like Russia and parts of the Middle
East and Africa. Many countries in the region,
however, delivered a stronger second half
performance, which is encouraging.
Asia Pacific
Revenue from all the open centres increased
5.1% at constant currency to £379.3m.
Total revenue in the region increased 2.2%
at constant currency to £383.2m (up 5.5% at
actual rates). In the Mature business,
revenue performance was stronger in the
second half of the year. Although mature
revenue declined by a modest 0.6% at
constant currency for the year as a whole
(up 2.6% at actual rates), we saw signs of
positive improvement in the fourth quarter.
1 6
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Mature occupancy increased from 71.8% to
73.0% and the gross margin improved from
20.4% to 21.2%. It was also pleasing to see
the build-up of momentum in the Mature
business across several countries, including
Japan and Australia. Both ended the year
strongly. Some markets, however, like India
and China, performed below our expectations.
We added 57 new centres into Asia Pacific,
taking the total as at 31 December 2017 to
638 centres. The focus of this growth was in
Japan, India, China, Australia and, in the
fourth quarter, New Zealand where,
including an acquisition, we more than
doubled our network to 16 locations. During
2017 we added Kazakhstan to our network.
UK
Revenue from all the open centres
decreased 1.0% to £415.2m. Total revenue
(including closed centres) declined 7.1% to
£429.4m. Revenue from the Mature
business in the UK declined 2.9% to
£398.2m after a weak third quarter.
There were two contrasting performances
from our business in London and that of the
rest of the UK, as previously reported.
Revenue outside London increased and saw
sequential quarterly year-on-year
improvement. Mature revenue in London
declined significantly and was particularly
weak throughout the second half. Even
within the London market there were varied
performances, with softer demand
experienced in the City. Although enquiry
levels remained weak compared to the rest
of the UK, there was a distinct improvement
in average deal size in the fourth quarter.
The absence of larger deals in London had
been a particular issue, especially in the
third quarter.
With the decline in mature revenue,
especially in a high value market like London,
on a relatively fixed cost base in the near
term, the mature gross margin declined
from 23.4% to 19.9%. Mature occupancy
reduced from 75.6% to 72.1%.
We added 25 new locations in the UK, with a
focus on the regions outside London. We
now have 282 locations in the UK at 31
December 2017.
Partnering with property
companies
A glance at the figures shows why so
many real estate companies are keen
to partner with Regus. Recent research
from CBRE shows that:
• 71% of occupiers believe having
flexible workspace is vital to delivering
their corporate real estate objectives
• Up to 30% of corporate real estate
portfolios could be flexible
workspaces by 2030
• 84% of survey respondents believe
that the move towards flexible
workspace is a permanent trend
• The compound annual growth rate of
flexible workspace is expected to be
24% between 2016 and 2020.
Not only are we the world leader in
providing businesses of all sizes with
flexible workspace, we also offer real
estate partners a uniquely powerful
route into this growth via an operating
platform that creates new channels into
every market, sector and industry. More
than that, we have the expertise, the
platform and the infrastructure to
manage their customer relationships
for them in a highly efficient way.
Outlook
2017 was an important year for the flexible
workspace industry globally and we remain
confident that Regus will continue to drive,
and benefit from, the accelerating customer
demand and growth of flexible working. With
the competitive advantage from our
operational scale, global network and quality
of service and technology, we are optimally
positioned to benefit from these long-term
structural growth drivers.
Our Group strategy remains unchanged. We
will continue to invest in our network so we
can deliver future earnings growth and
increasing shareholder returns. We will
continue to focus on partnerships to drive
capital efficiency and to grow and interlink
our multi-brand national networks to enable
more deals with larger corporates. Alongside
investing for growth, we will focus on
delivering attractive returns on the
investments we have made in recent years
and monetising our leading network. A
relentless focus on execution and disciplined
approach to risk management will be key to
delivering this.
While 2017 was not without its challenges,
the improved revenue performance in Q4 on
the back of a strong uplift in sales activity
provides a strong platform for growth in
2018. Sales activity trends remain good and
we anticipate improved revenue growth
during the year.
We look forward to the future with great
confidence.
MARK DIXON
27 April 2018
1 7
Our strategic objectives and key performance indicators
A clear and simple
strategy
We aim to deliver strong and sustainable returns to our investors through providing customers of all
types across the world with convenient, inspiring and innovative work environments that suit the full
range of workspace and service needs.
Strategic objectives and approach
1
Delivering attractive,
sustainable returns
2 Cash generation
before growth
We aim to deliver long-term revenue growth, driven by expanding
our networks in growth markets, developing incremental revenue
streams, and reducing risk and controlling costs across our existing
network. This once again drove strong returns on investment during
2017, well ahead of the Group’s cost of capital.
The ability to convert profit into cash remains an attractive feature of
our business model, allowing us to use the cash flows delivered by
our operations to support the ongoing development of our business.
Key performance indicators
2017 post-tax cash
return on net
investment by year
of opening (%)
12.3%
Total estate
Cash flow per share
before net growth
capex, dividends and
share buybacks
7.0p
Overall 2017 return on net
investment made up to 31
December 2012 of 21.8 %
(14.0)
(8.7)
‘17
‘16
‘15
‘14
‘13
‘12
‘11
‘10
‘09
8.3
12.3
14.9
17.9
17.5
19.0
23.6
During 2017, we generated 7.0p of cash
flow per share before growth capex,
dividends and share buybacks
‘17
‘16
‘15
‘14
‘13
‘12
7.0
12.2
11.8
30.5
23.1
18.6
Future ambitions and risks – for more information on risks see pages 27-33
Delivering profitable growth and strong sustainable returns is central
to creating future shareholder value. We are committed to achieving
this by optimising revenue development and controlling costs
throughout our global network of locations.
With our network growth delivering revenue growth over the long
term and our strong focus on operational efficiency and cost control,
our business model is well positioned to convert profit into cash.
1 8
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Strategic objectives and approach
Key performance indicators
Future ambitions and risks – for more information on risks see pages 27-33
Controlling costs
3
4
Developing
national networks
We achieve cost control through operational excellence as well as
the significant economies of scale and operational leverage that
network growth brings.
We made further progress in this area during 2017, in both
percentage of revenue and absolute terms. The impact of our
efforts during 2016 to improve efficiency continued to flow through
the business, complemented in 2017 by our focus on controlling
costs by directing our investments into the right areas.
We are continuing to grow our networks in those markets with the
greatest growth potential and where demand is strongest.
By expanding our network, investing in services and continuously
improving the quality of our infrastructure and centres, we are
continuing to increase our addressable audience and tying in our
existing customers.
We continue to be mindful of growing only in locations where the
potential investment opportunity meets our stringent returns
criteria. We are also focused on capital-light ways of expanding the
network, including partnering with property owners for optimal
risk management.
Total overheads as
a % of revenue
Overheads as a % of revenue
reduced 240bp
9.3%
Network location growth
283 new locations added,
opening in 62 new towns and
cities, at a net growth capital
investment of £176.8m.
3,094
locations
‘17
‘16
‘15
‘14
‘13
‘12
9.3
11.7
14.7
16.7
18.5
18.5
‘17
‘16
‘15
‘14
‘13
‘12
3,094
2,926
2,768
2,269
1,831
1,411
We will continue to control overheads to deliver further economies
of scale. This will be balanced by continuing investments in the
business to develop the network in growth markets, and to improve
the performance of our operating platform, processes and people.
We will continue to add scale, convenience and quality to our
network, in a carefully controlled and risk-managed programme of
investments that ensures every new location has the potential to
deliver against our stringent returns criteria.
1 9
Our people
Equipping our people to help
customers worldwide
Our talent strategy – to have great people helping our customers succeed in our growing workspace
network – is utterly pivotal to our growth and future success. During 2017 and into 2018, talent therefore
remains a critical strategic objective, placing recruitment, development, diversity and succession planning
at the centre of our long-term planning for growth.
Our reward strategy
The unrelenting battle for the best talent
means we go to great lengths to ensure that
our overall compensation structure is
competitive. We also seek to tie-in our
high-potential people, from graduate recruit
to Executive Committee member,
with attractive incentives.
Over
220
of our top executives attended
the annual Global Leadership
Conference
In order to deliver global, flexible and diverse
workspaces to our customers we must
attract and retain the very best people who
are passionate about being front and centre
of the workspace revolution.
That is why we are committed to making
sure every new team member is trained
comprehensively in every country.
In addition, we ensure that all team members
who engage with customers are trained to
take on more responsibility throughout their
Regus career as they step up the career
ladder. This means Regus can plan for
succession and growth proactively and fairly,
offering opportunities equally to every
member of the Regus family.
Learning and development
During 2017, we continued to strengthen
our leadership team across the world,
empowering our country leaders to fulfil
their brief of growing the network, delivering
unparalleled service levels and developing an
outstanding pipeline of new talent.
Moving ahead, we know our leaders will need
to fast-track their skills, experience and
market knowledge as they drive the business
to new levels, with multiple companies,
cutting-edge technology and strategic
partnerships.
During the year, we therefore invested in our
new learning and communication platform,
which will support induction programmes
and team-member development across the
world.
We provide all new team members with a
focused new-starter training programme,
supported by a peer-level coach. On
completion, each starter takes an online
exam before finally being accredited by their
line manager and coach to start their Regus
career. In this way, we ensure that only the
best people are looking after our customers.
Development, training and communication
are the main themes of our annual Global
Leadership Conference, attended by over
220 of our top executives. The scale of this
investment demonstrates the value to us of
having a globally aligned leadership team,
focused on enabling all our people to be as
good as they can be.
Our dynamic succession plan
We believe that offering our talent
international opportunities makes a valuable
contribution to success planning. During
2017, employees from Mexico and South
Africa took up new roles in our Barcelona
shared services centre. Country managers
were also on the move, including relocations
from Singapore to the UK and from Turkey
to California.
Succession planning also extends beyond
the boundaries of the business. We use our
internal Executive Recruitment Team to
bring in 80% of our top talent, enabling us to
track promising individuals and hire quickly
and cost-effectively when needed.
Our emphasis on diversity
Having a diverse workforce is key to
achieving our goals. There is a 50:50 gender
split at senior management level. In addition
to this, we have a high percentage of
females working in-country (a figure which
has increased by 25% since 2016) and we
also aim to hire local nationals into country
leadership roles, giving us a truly multi-
cultural team.
This extends to Board level as well, and our
gender, cultural and ethnic diversity was
highly apparent at our Global Leadership
Conference in January 2018. This is a great
source of pride and value for Regus.
2 0
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Approximately
160,000
e-learning and video training
modules completed in
2017 globally.
I’ve been given great
opportunities to
succeed in different
markets across the
world. I’ve worked with
customers in three
different countries
and three different
languages – and each
time, the product and
service we offer has
been phenomenal.
We’re very lucky to
work for such a great
company, a market
leader and trendsetter
across the world. It
makes me proud to
come to work every
day.
Our people are at the
core of our culture,
which is absolutely
the key to our
success. We focus on
providing an engaging
and productive
environment, where
our people want to
come to work every
day. In short, ‘Take care
of your people and
they’ll feel passionate
about taking care of
your customers’.
To achieve our goal for
growth in the region
– taking our Latin
American network
from 150 to more than
double that over the
next three to five years
– I’m building a team of
talented professionals
with a wealth of skills
and experience. This
means we can offer
flexible workspace to
every customer on the
continent.
LISA AKEROYD,
REGIONAL MANAGING DIRECTOR, UK
WILLIE MARTIN,
NETWORK DEVELOPMENT DIRECTOR,
LATIN AMERICA
PEDRO ALVES VIANA,
COACHING AREA MANAGER,
AUSTRALIA
2 1
Financial review
Strong returns performance
underscores the fundamental strength
of our business model and strategy
We remain focused on delivering strong returns on investment
and this has been achieved again during 2017. We reaccelerated
the growth of our national networks and did so in an increasingly
capital efficient manner. Our cost leadership has been further
enhanced. We reduced overheads as a percentage of revenue
to 9.3%.
DOMINIK DE DANIEL
Return on investment
Our strategy is focused on generating good
returns from our investments. For the 12
months ended 31 December 2017, the
Group delivered a strong post-tax cash
return on net growth investment of 21.8% in
respect of locations opened on or before 31
December 2012 (23.8% on the same estate
for the 12 months ended 31 December
2016). Moving the aggregated estate
forward and incorporating the centres
opened during 2013, the Group delivered a
post-tax cash return on net growth
investment of 20.2% in respect of all
locations opened on or before 31 December
2013 (the equivalent return for the 12
months ended 31 December 2016 on the
same estate was 21.6%).
This strong performance, well ahead of our
cost of capital, reflects the underlying level
of profitability of the Group from the
continued focus on efficiency and
productivity, and the economies of scale on
overheads that we enjoy as the Group
continues to grow.
The chart on the next page shows the
status of our centre openings by year of
opening as they continue to progress
towards full maturity.
Developing the network
We reaccelerated the growth of our network
and this remains a strategic priority.
Increasing the depth and breadth of our
geographic scope, and addressing different
styles of working and price points, is a major
differentiator for Regus and provides a
competitive advantage as well as building
further resilience into the business. We
continued to maintain a sharp focus on our
investment decision-making during 2017,
reflecting its critical importance to
maintaining strong future returns.
During 2017, we invested £176.8m of net
growth capital expenditure. This
investment included expenditure on
locations opened before 2017 and to be
opened in 2018 of £30.4m.
We opened 283 new locations during 2017.
These locations added approximately 4.7m
sq. ft., taking the Group’s total space globally
to 51.2m sq. ft. as at 31 December 2017.
Another important focus area was the
roll-out of our Spaces format. During 2017
we accelerated our roll-out of the Spaces
format with the addition of 56 locations,
which represented approximately 66% of
the net growth capital expenditure and 40%
of the space added. Most of the Group’s new
additions in 2017 were organic openings and
over half of these were delivered through
partnering deals.
2 2
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
We finished 2017 strongly, with 119
additions in the fourth quarter. This
momentum has continued and we have a
good pipeline of new openings already for
2018. At the end of February 2018, we had
visibility on 2018 net growth capital
expenditure of approximately £190m,
representing approximately 230 locations
and 5.5m sq. ft. of additional space – c.11%
of our current space and a greater amount
of space than added in 2017. We have a
strong pipeline of locations within our
Spaces co-working format. These Spaces
locations represent approximately 41% of
the total locations, over 60% of the added
space and over 70% net growth capital
expenditure for the current 2018 pipeline.
Our Mature business showed
positive 0.5% revenue growth in
Q4 2017, at constant currency,
with the growth rate accelerating
throughout the quarter, which
provides a good starting point
for 2018.
Operational developments
Constantly striving to improve our
business and the future potential returns is
an ongoing process. We have added new
brands and formats to our portfolio to
enhance our ability to match customer
demand. The unrivalled scale of our business
provides us with the platform to automate
more processes and unlock the opportunity
from allowing our employees to have
greater focus on customer service. We
believe this will generate many positives for
our business, including further improved
cost efficiency.
To unlock the growing opportunity with
corporate accounts we have focused more
investment in this area. This investment
included the bolstering of our corporate
accounts team to establish a team of
specialists in strategic marketing and selling
to large corporations. We believe this is an
important investment for the future of the
business and we are already seeing the cost
benefit with new contract wins and a healthy
pipeline of future opportunities. We are also
investing in our development capabilities to
establish a strong pipeline of growth in
future years.
Post-tax cash return(1) on net investment by year
group – 12 months to 31 December (%)
Revenue
Reported Group revenue increased 1.4% at
constant currency to £2,341.7m (2016:
£2,233.4m), an increase of 4.8% at actual
rates. We experienced a revenue
acceleration throughout 2017, at constant
currency. Notably, Group revenue growth, at
constant currency, accelerated from the
third quarter to the fourth quarter. This
revenue growth acceleration was driven by
all regions, except the UK, where revenue
stabilised sequentially through the quarter.
Revenue growth from all open centres was
stronger and delivered a 3.7% increase for
the year, all at constant currency. These
improvements reflect the strong uplift in
sales activity since October 2017.
Our Mature business showed positive
revenue growth in Q4 2017, at constant
currency, with the growth rate accelerating
throughout the quarter, which provides a
good starting point for 2018. For the year,
mature revenue at constant currency (from
the 2,581 like-for-like locations added on or
before 31 December 2015) declined 1.2% to
£2,164.7m (up 2.2% at actual rates),
compared to a 2.0% decline at constant
currency for the six months to 30 June 2017
and a 1.8% decline for the third quarter. This
was primarily driven by improvements in the
Americas and Asia Pacific and, to a lesser
extent, EMEA. Mature occupancy remained
solid at 74.9% (2016: 74.8%), with the
decline in occupancy in the UK offset by
improvements in the other regions.
The continuation of these sales activity
trends reinforces our view that mature
revenue can improve in 2018. Additionally,
we expect mature revenue to benefit from
the maturation of the 2016-year Group
location openings (230 locations), which
were incorporated into the Mature business
on 1 January 2018.
.
2
5
2
.
6
3
2
.
2
1
3
.
0
9
1
.
5
1
5 2
7
1
.
.
9
7
1
.
7
6
1
.
9
4
1
.
0
4
1
.
3
2
1
.
2
0
1
‘10
‘11
‘12
‘13
‘14
‘09
and
earlier
2017
2016
3
8
.
‘15
)
5
2
(
.
‘16
)
7
8
(
.
.
)
7
5
1
(
‘17
.
)
0
4
1
(
1. These returns are based on the post-tax cash return divided by the net growth capital investment. The
post-tax return is calculated as the EBITDA achieved, less the amortisation of any partner capital contribution,
less tax based on the EBIT and after deducting maintenance capital expenditure. Net growth capital
expenditure is the growth capital after any partner contributions. We believe this provides an appropriate and
conservative measure of cash return
2 3
Financial review continued
Financial performance
Group income statement
£m
Revenue
Gross profit (centre contribution)
Overheads
Joint ventures
Operating profit
Net finance costs
Profit before tax
Taxation
Effective tax rate
Profit after tax
Basic EPS (p)
Depreciation & amortisation
EBITDA
Gross margin
£m
Revenue
Cost of sales
Gross profit (centre contribution)
Gross margin
£m
Revenue
Cost of sales
Gross profit (centre contribution)
Gross margin
% Change
(actual currency)
4.8%
(12)%
(17)%
% Change
(constant currency)
1.4%
(15)%
(18)%
2017
2,341.7
395.4
(217.4)
(0.8)
177.2
(10.0)
167.2
(35.6)
21.3%
131.6
27.7
211.4
388.6
2016
2,233.4
448.8
(260.4)
(0.8)
187.6
(11.5)
176.1
(34.9)
19.8%
141.2
15.2
194.5
382.1
(6)%
(5)%
(7)%
82%
2%
(9)%
(2)%
Total 2017
2,341.7
(1,946.3)
395.4
16.9%
Total 2016
2,233.4
(1,784.6)
448.8
20.1%
Mature centres
2,164.7
(1,728.2)
436.5
20.2%
Mature centres
2,118.0
(1,665.0)
453.0
21.4%
New centres
147.1
(186.4)
(39.3)
(26.7)%
New centres
36.8
(56.6)
(19.8)
(53.8)%
Closed centres
29.9
(31.7)
(1.8)
(6.0)%
Closed centres
78.6
(63.0)
15.6
19.8%
2017 was another very strong
year of progress against our
strategic goal of controlling costs.
For the second consecutive year,
overhead costs have reduced in
absolute terms.
Gross profit
Group gross profit was £395.4m (2016:
£448.8m), a 15% decline at constant
currency (down 12% at actual rates). This
reduction reflects the lower gross profit
from the Mature business of £16.5m, a
higher level of initial losses from the new
centre additions of £19.5m and an adverse
variance of £17.4m on the closed locations.
Reflecting the lower mature gross
profitability for the year, the mature gross
margin declined 1.2 percentage points to
20.2% (2016: 21.4%). This was a solid
performance considering the 1.2% constant
currency decline in mature revenue.
Very strong overhead efficiency
2017 was another very strong year of
progress against our strategic goal of
controlling costs. For the second
consecutive year, overhead costs have
reduced in absolute terms. As previously
reported, this reflects a full-year benefit of
the reductions achieved during 2016 and no
repetition of the costs incurred and
expensed last year to deliver the new field
structure. We have continued to add to
these efficiency gains by further
centralisation of more activities, globally and
regionally, into dedicated service centres to
unlock more benefit from our scale and
provide better services to our customers. All
this achieved whilst investing to deliver our
growth strategy and corporate account
development.
The absolute level of investment in
overheads reduced 18% in constant
currency terms to £217.4m (2016: £260.4m)
(down 17% at actual rates). Overhead
efficiency improved by 2.4 percentage
points from 11.7% as a percentage of
revenue to 9.3%.
We continue to maintain a strong focus on
overhead discipline and anticipate further
scale benefits to be reflected in overheads
as a percentage of revenue reducing further
over time, notwithstanding the anticipated
investment in growth.
2 4
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Cash generated before the net
investment in growth capital
expenditure, dividends and share
repurchases was £33.5m (2016:
£283.2m).
We have experienced increased traction
on our strategic priority of targeting less
capital-intensive growth.
Group net debt increased from £151.3m at
31 December 2016 to £296.6m at 31
December 2017. This represents a Group
net debt : EBITDA leverage ratio of 0.8 times.
Whilst our approach to our borrowing
continues to be prudent, we continue to
recognise the long-term benefit of also
operating with an efficient balance sheet.
We continue to have adequate headroom
through our £550.0m Revolving Credit
Facility to execute our strategy. We
improved the debt maturity profile of this
facility during the first half of 2017 by
extending it to 2022 (previously 2021).
There is a further option to extend until
2023. The facility is predominantly
denominated in sterling but can be drawn
in several major currencies.
Operating profit
The absolute reduction in overheads in
2017 has helped to mitigate some of the
drop through of the reduction in gross profit.
Group operating profit decreased 9% at
constant currency to £177.2m (2016:
£187.6m) (down 6% at actual rates).
Consequently, the Group operating
margin decreased from 8.4% in 2016
to 7.6% in 2017.
Net finance costs
The Group’s net finance costs decreased
to £10.0m (2016: £11.5m).
Tax
The effective tax rate for the year was 21.3%
(2016: 19.8%). The increase in effective
tax rate is primarily due to decreased
recognition of deferred tax assets in the US.
Our expectation is that the effective tax rate
will continue to be around 20%.
Earnings per share
Group earnings per share for 2017 increased
to 27.7p (2016: 15.2p). This 82% increase
primarily reflects the lower level of
profitability offset by the reduction in the
number of shares in issue.
The weighted average number of shares
for the year was 474,525,592 (2016:
929,860,354). The weighted average
number of shares for diluted earnings per
share was 474,525,592 (2016: 929,860,354).
As at 31 December 2017 the total number
of shares in issue was 3,000,000 after the
completion of a capital reduction during
the year.
Cash flow and funding
Cash generation continues to be a highly
attractive feature of our business model.
Although reported operating profit declined,
as noted above, Group EBITDA remained
broadly similar to the level reported in 2016.
Cash generated before the net investment
in growth capital expenditure, dividends and
share repurchases was £33.5m (2016:
£283.2m). Our performance in 2016
benefited from some specific non-recurring
projects to unlock approximately £50m
of additional working capital.
2 5
Financial review continued
Cash flow
The table below reflects the Group’s cash flow:
£m
Group EBITDA
Working capital
Less: growth-related partner contributions
Maintenance capital expenditure
Taxation
Finance costs
Other items
Cash flow before growth capital expenditure, share repurchases and dividends
Gross growth capital expenditure
Less: growth-related partner contributions
Net growth capital expenditure(1)
Total net cash flow from operations
Dividend
Corporate financing activities
Opening net debt
Exchange movement
Closing net debt
2017
388.6
(152.3)
(80.6)
(95.6)
(22.4)
(8.1)
3.9
33.5
(257.4)
80.6
(176.8)
(143.3)
-
(9.3)
(151.3)
7.3
(296.6)
2016
382.1
98.9
(66.1)
(86.7)
(31.5)
(16.1)
2.6
283.2
(228.4)
66.1
(162.3)
120.9
(43.3)
(35.7)
(190.6)
(2.6)
(151.3)
1. Net growth capital expenditure of £176.8m relates to the cash outflow in 2017. Accordingly, it includes capital expenditure related to locations opened before 2017 and
to be opened in 2018 of £30.4m. The remaining investment relates to the 283 locations added in 2017. The total net investment in the 2017 additions amounts to
£173.1m so far
At 31 December
Annual average
2017
1.35
1.13
152
2016
1.24
1.17
145
%
9%
(3)%
5%
2017
1.30
1.14
145
2016
1.35
1.22
147
%
(4)%
(7)%
(1)%
Related parties
There have been no changes to the type of
related party transactions entered into by
the Group that had a material effect on the
financial statements for the period ended 31
December 2017. Details of related party
transactions that have taken place in the
period can be found in note 30 to the 2017
Annual Report and Accounts.
Subsequent events
There have been no significant subsequent
events that require adjustment or disclosure
in this Annual Report and Accounts.
Dividends
There were no Dividends paid during the
year (2016: £43.3m). The directors do not
propose to declare a final dividend (2016:
£nil) for 2017.
DOMINIK DE DANIEL
27 April 2018
Foreign exchange rates
Per £ sterling
US dollar
Euro
Japanese yen
Foreign exchange
The Group’s results are exposed to
translation risk from the movement in
currencies. During 2017 key individual
currency exchange rates have moved, as
shown in the table above. Overall, the
favourable impact of the movement in
exchange rates increased reported revenue,
gross profit and operating profit by £77.1m,
£12.3m and £6.4m respectively.
Risk management
The principal risks and uncertainties
affecting the Group remain broadly
unchanged. A detailed assessment of the
principal risks and uncertainties which could
impact the Group’s long-term performance
and the risk management structure in place
to identify, manage and mitigate such risks
can be found on pages 27 to 33 of the
Annual Report and Accounts.
2 6
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Risk management and principal risks
Risk management remains at
the core of what we do
Identification, mitigation and management
of risks are central to our strategy and our
enterprise-wide risk management process
allows us to understand the nature, scope
and potential impact of our key business and
strategic risks so we are able to manage
these effectively.
Regus’ business could be affected by various
risks, leading to failure to achieve strategic
targets for growth or loss of financial
standing, cash flow, earnings, return on
investment and reputation. Not all these
risks are wholly within the Group’s control
and it may be affected by risks which are not
yet manifested or reasonably foreseeable.
Effective risk management is critical to
achieving our strategic objectives and
protecting our personnel, assets and our
reputation. Regus therefore has a
comprehensive approach to risk
management.
A critical part of the risk management
process is to assess the impact and
likelihood of risks occurring so that
appropriate mitigation plans can be
developed and implemented.
Effective risk management requires
awareness and engagement at all levels of
our organisation. It is for this reason that risk
management is incorporated into the
day-to-day management of our business, as
well as being reflected in the Group’s core
processes and controls. The Board oversees
the risk management strategy and the
effectiveness of the Group’s internal control
framework. Risk management is at the heart
of everything we do, particularly as we look
to grow across multiple markets around the
world. For this reason, we conduct risk
assessments throughout the year as part of
our business review process and all
investment decisions. These activities
include:
• Monthly business reviews of all countries
•
and Group functions;
Individual reviews of every new location
investment and all acquisitions;
• Annual planning process for all markets
and Group functions;
• Review of the status of our principal risks
in each Audit Committee meeting; and
• Annual review of all risks in our risk
register.
For all known risks facing the business,
Regus attempts to minimise the likelihood
and mitigate the impact. According to the
nature of the risk, Regus may elect to take
or tolerate risk, treat risk with controls and
mitigating actions, transfer risk to third
parties, or terminate risk by ceasing
particular activities or operations. Regus
has zero tolerance of financial and ethics
non-compliance and ensures that Health,
Safety, Environmental & Security risks are
managed to levels that are as low as
reasonably practicable.
Whilst overall responsibility for the risk
management process rests with the Board
of IWG plc, it has delegated responsibility for
assurance to the Audit Committee of IWG
plc. Executive management is responsible
for designing, implementing and maintaining
the necessary systems of internal control.
A list of key risks is prepared and the Board
collectively assesses the severity of each
risk, the likelihood of it occurring and the
strength of the controls in place. This
approach allows the effect of any mitigating
procedures to be reflected in the final
assessment. It also recognises that risk
cannot be totally eliminated at an acceptable
cost and that there are some risks which,
with its experience and after due
consideration, the Board will choose
to accept.
Board
Defines Regus’ risk appetite
and tolerance
Monitors risk identification
and assessment
Assesses overall effectiveness
of risk management
Audit Committee
Reviews effectiveness
of internal controls
Monitors progress against internal and
external audit recommendations
Approves the annual internal
and external audit plans
Senior leadership team
Accountable for the design and
implementation of risk management
processes and controls
Accountable for the regular review and
appraisal of key risks
Contributes to the identification and
assessment of key risks
General management
Responsible for compliance and ensuring that staff are adequately trained
Business assurance function
• Assists management and the Board
in conducting risk studies
• Advises and guides on policies and internal
control framework
• Reviews risk profiles
• Tests compliance with internal controls
2 7
Risk management and principal risks continued
Principal risks
Risk
Strategic
Lease obligations
The single greatest financial risk to
Regus is represented by the
financial commitments deriving
from the portfolio of leases held
across the Group.
Whilst Regus has demonstrated
consistently that it has a
fundamentally profitable business
model which works in all
geographies, the profitability of
centres is affected by movements
in market rents, which, in turn,
impact the price at which Regus can
sell to its customers.
The fact that the outstanding lease
terms with our landlords are, on
average, significantly longer than
the outstanding terms on our
contracts with our customers
creates a potential mismatch if
rentals fall significantly, which can
impact profitability and cash flows.
Economic downturn
An economic downturn could
adversely affect the Group’s
operating revenue, thereby
reducing operating profit
performance or, in an extreme
scenario, resulting in operating
losses.
Mitigation
Changes since 2016
This risk is mitigated in a number of ways:
1 96% of our leases are ‘flexible’, meaning that
they are either terminable at our option
within six months and / or located in or
assignable to a standalone legal entity, which
is not fully cross-guaranteed. In this way,
individual centres are sustained by their own
profitability and cash flow. During the most
recent downturn in selected markets we
were able to negotiate revised terms with
our partners to reflect downward
movements in market rates to help
recovery.
2 Over 40% of the leases we entered into
during 2017 were variable in nature, which
means that payments to landlords vary with
the performance of the relevant centre. In
this way the ‘risk’ to profitability and cash
flow of that centre from fluctuations in
market rates is softened by the consequent
adjustment to rental costs.
3 The sheer number of leases and geographic
diversity of our business reduces the overall
risk to our business as the phasing of the
business cycle and the performance of the
commercial property market often varies
from country to country and region to
region.
4 Each year a significant number of leases in
our portfolio reach a natural break point.
The Group has taken a number of actions to
mitigate this risk:
1 More than 40% of the leases added during
2017 were performance-related to a greater
or lesser extent and our rental payments, if
any, vary with the performance of the
centre.
2 Lease contracts include break clauses when
leases can be terminated at our behest. The
Group also looks to stagger leases in
locations where we have multiple centres so
that we can manage our overall inventory in
those locations.
3 We review our customer base to assess
exposure to a particular customer or
industry group.
4 The increasing geographic spread of the
Group’s network increases the depth and
breadth of our business and provides better
protection from an economic downturn in a
single market or region.
During 2017, the number of ‘flexible’ leases as a
percentage of the total increased to 96% from 95%
on an enlarged estate.
At the end of 2017, we were operating 3,094
locations in 1,051 towns and cities across over 110
countries.
Status – Same
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns; Controlling costs
During 2017 the number of ‘flexible’ leases as a
percentage of the total increased to 96%.
We also increased the scale of our network by 6%
and added 62 new towns and cities.
Our monthly business performance reviews provide
early warning of any impact on our business
performance and allow management to react with
speed. More generally, investment in our
management team has also led to improved, more
responsive decision-making at a country and area
level.
Status – Same
Rating – Medium
Strategic Objective – Delivering attractive,
sustainable returns; Controlling costs
2 8
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Risk
Strategic
Mitigation
Changes since 2016
Emerging trends and disruptive technology
New formats and technological
developments are driving demand
for flexible working. Failure to
recognise these could mean Regus’
product offering is sub-optimal.
Regus continually invests in innovation to
develop new products and services to increase
its competitive advantage, protect current
revenue and unlock potential new sources of
revenue.
Increased competition
Increased competition in the
serviced office industry and an
inability to maintain sustainable
competitive advantage may result
in loss of market share.
While physical barriers to entry into the flexible
workspace market at a local level are low, the
barriers to establishing a national or
international network are much higher hence
making it difficult for any competitor to
challenge our market position and commercial
success.
Regus also offers a diverse product range under
its different brands to cater to multiple
customer segments which allows us to capture
and maintain market share across the flexible
workspace market.
We continuously review our portfolio to ensure
that our products and services are aligned to
customer expectations and requirements and
there are currently active investment
programmes being implemented across our
estate.
Exposure to UK political developments
Exposure to UK political
developments including Brexit.
The Group is continually monitoring political
developments in the UK to identify and assess
the medium to long-term implications of Brexit
and the impact that it may have on our business.
The Group has had a prudent approach to
growing its presence in the UK market.
In 2017 Regus continued to invest in research and
development – both to unlock efficiencies as well as
improving the overall proposition to customers. The
customer self-service applications for mobile and
web platform have been launched for Spaces and
enhanced to incorporate many more self-service
and customer control capabilities. We have
developed app-based digital interaction channels
for our broker community which are in pilot and are
developing similar applications for our suppliers. We
continue to adopt a “Digital Business Centre
Strategy” and are implementing Internet of Things
(IoT) to provide our customers with more
convenience, comfort and personalisation – and
improve productivity.
Status – Increased
Rating – Medium
Strategic Objective – Delivering attractive,
sustainable returns
We increased the scale of our network by 6% and
added 62 new towns and cities.
We accelerated the roll-out of our Spaces co-
working format with the opening of 56 new locations
and the development of a strong pipeline for 2018.
Status – Increased
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns
Dependency on the UK market has been reduced by
growth being focused outside the UK.
Fewer than 9% of the new locations added during
2017 were in the UK and the majority were in
locations outside London.
During 2017 the opportunity was taken to
consolidate some locations in the UK. In addition,
several locations were removed from our network
following the cessation of a management
agreement, the impact of which was negligible on
future financial performance. Overall our network in
the UK reduced from 330 to 282 locations.
Based on the current position over 40% of our leases
with landlords in the UK are variable in nature.
Status – Increased
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns; Developing national networks
2 9
Risk management and principal risks continued
Principal risks
Risk
Strategic
Business planning and forecasting
Business plans, forecasts and
review processes should provide
timely and reliable information for
short, mid and long-term
opportunities and any risks to
performance so that these can be
addressed on a proactive basis.
Financial
Funding
The Group relies on external
funding to support a net debt
position of £296.6m at the end of
2017. The loss of these facilities
would cause a liquidity issue for the
Group.
Exchange rates
The principal exposures of the
Group are to the US dollar and the
euro, with approximately 37% of the
Group’s revenue being attributable
to the US dollar and 19% to the
euro.
Any depreciation or appreciation of
sterling would have an adverse or
beneficial impact to the Group’s
reported financial performance and
position respectively. The Group
does not generally hedge the
translation exchange risk of its
business results. Rather, it assumes
that shareholders will take whatever
steps they deem necessary based
on their varied appetites for
exchange risk and differing base
currency investment positions.
Mitigation
Changes since 2016
Regus maintains a three-year business plan
which is updated and reviewed on an annual
basis. We also use a 12-month rolling forecast
which is reviewed every month based on actual
performance.
The forecasting process has been reviewed and
tracking performance against specific budgets and
targets in place was further enhanced.
Status – Same
Rating – Medium
Strategic Objective – Delivering attractive,
sustainable returns; Controlling costs; Cash
generation before growth
The Group constantly monitors its cash flow
and financial headroom development and
maintains a 12-month rolling forecast and a
three-year strategic outlook. The Group also
monitors the relevant financial ratios against
the covenants in its facilities to ensure the risk
of breach is being managed.
The Group also stresses these forecasts with
downside scenario planning to assess risk and
determine potential action plans.
The Board intends to maintain a prudent
approach to the Group’s capital structure.
Part of the annual planning process is a debt
strategy and action plan to ensure that the
Group will have sufficient funding in place to
achieve its strategic objectives.
The Group also constantly reviews and
manages the maturity profile of its external
funding.
Given that transactions generally take
place in the functional currency of Group
companies, the Group’s exposure to
transactional foreign exchange risk
is limited.
Where possible, the Group attempts to create
natural hedges against currency exposures
through matching income and expenses, and
assets and liabilities, in the same currency.
The Group, where deemed appropriate, uses
currency swaps to maintain the currency profile
of its external debt.
We improved the debt maturity profile of our key
Revolving Credit Facility in 2017 by extending it to
2022 (previously 2021). There is a further option to
extend until 2023. After taking into account usage of
the £550.0m facility for cash drawings and bank
guarantees, we had £131.8m of available and
undrawn committed facility as at 31 December 2017.
Regus had a net debt : EBITDA ratio at 31 December
2017 of 0.8 times. There is significant headroom on
the covenant ratios.
Status – Same
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns; Cash generation before growth
Overall in 2017 the movement in exchange rates
increased reported revenue, gross profit and
operating profit by £77.1m, £12.3m and £6.4m
respectively.
Status – Same
Rating – Medium
Strategic Objective – Delivering attractive,
sustainable returns; Controlling costs
3 0
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Risk
Financial
Interest rates
Operating in a net debt position, an
increase in interest rates would
increase finance costs.
Operational
Cyber security
The trend towards an integrated
digital economy and use of external
cloud services combined with the
rise in malicious attacks and
increasing consequential costs
warrants particular attention to
cyber security risks.
Mitigation
Changes since 2016
The Group constantly monitors its interest rate
exposure as part of its monthly treasury review.
As part of the Group’s balance sheet
management it utilises interest rate swaps.
At the end of 2017 the level of interest rate
protection was 26% of the Group’s debt being fixed
until 2019. The long-term strategy of the Group to
operate in an asset-light business model is
unchanged.
Status – Same
Rating – Medium
Strategic Objective – Controlling costs
This risk is mitigated as follows:
1 The Group maintains an active information
security programme under the direction of
the Group CIO with oversight by the Board.
2 We continually monitor our security using
internal resources and external specialists to
identify any vulnerabilities.
3 The Group ensures compliance with all
major legislation and directives.
4 The Group maintains a mandatory training
programme to promote staff awareness of
information security and compliance best
practice.
5 Data, systems and access permissions are
strictly segregated to reduce exposure to
risk.
6 The Corporate Communications team is
constantly engaged to provide support for
any internal and customer facing incidents.
The Group has implemented a number of steps such
as Multi Factor Authentication and security
awareness campaigns to ensure that the business is
risk aware and our systems are adequately protected
against any external attacks.
An ongoing penetration testing programme is in
place performed by external security specialists. This
allows us to identify and fix any vulnerabilities to
emerging cyber threats on a proactive basis.
Regus has cyber insurance policies in place which
provide immediate response services in the event of
a breach.
Status – Increased
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns; Controlling costs
Business continuity
The Group’s systems and
applications are housed in data
centres. Should the data centres be
impacted as a result of
circumstances outside the Group’s
control there could be an adverse
impact on the Group’s operations
and therefore its financial results.
Regus manages this risk through:
1 Business continuity plans.
2 A detailed service agreement with our
external data centre provider which
incorporates appropriate back-up
procedures and controls.
3 Ensuring appropriate business interruption
insurance is in place.
4 Transitioning infrastructure to cloud-based
and SaaS servers.
We undertake regular testing of business continuity
procedures to ensure that they are adequate and
appropriate.
We have introduced redundant connectivity of
independently routed circuits for our main sales call
centres.
Status – Same
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns; Controlling costs
3 1
Mitigation
Changes since 2016
Risk management and principal risks continued
Principal risks
Risk
Operational
Ethics and compliance
Ethical misconduct by our
employees or non-compliance with
regulation either inadvertently,
knowingly or negligently could lead
to financial loss/penalties,
reputational damage, loss of
business and impact on staff
morale.
Data protection and privacy
Regus is required to comply with all
applicable legislation of the
jurisdictions in which it operates
including the new EU General Data
Protection Regulation (GDPR)
which comes into force on 25 May
2018. Non-compliance and
breaches could result in significant
financial penalties, various sanctions
and reputational damage.
Growth
Regus manages this risk through:
1 Visible ethical leadership.
2 A robust governance framework including a
detailed code of conduct plus policies on
gifts and hospitality and bribery and
corruption that are in place and rolled out to
all employees as mandatory training.
3 Centralised procurement contracts with
suppliers for key services and products.
4 Standardised processes to manage and
monitor spend including controls over
supplier on-boarding and payments
approval.
5 Regular reviews to monitor effectiveness of
6
7
controls.
Independent and confidential ethics hotline
available to employees, contractors and
third parties.
Independent investigation of fraud incidents
and allegations of misconduct with
Board-level oversight.
Regus operates a detailed privacy policy that
covers all aspects of data privacy including and
not limited to personal data, demographic
information, financial data, cookies and other
digital markers, marketing communication etc.
Ensuring demand is there to support our growth
Regus has undertaken significant
growth to develop local and national
networks. Adding capacity carries
the risk of creating overcapacity.
Failure to fill new centres would
create a negative impact on the
Group’s profitability and cash
generation.
Regus mitigates this risk as follows:
1 Each investment or acquisition proposal is
reviewed and approved by the Investment
Committee.
2 A robust business planning and forecasting
process is in place to provide timely and
reliable information to address short and
mid-term opportunities and risks to
performance
3 The monthly business review process
monitors new centre development against
the investment case to ensure that the
anticipated returns are being generated.
4 As part of the annual planning process, a
growth plan is agreed for each country which
clearly sets out the annual growth
objectives.
3 2
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
A robust supplier selection and evaluation process
implemented with a view to enhance controls to
address the risk of fraud.
Status – Same
Rating – Medium
Strategic Objective – Controlling costs
A detailed GDPR review has been performed to
assess areas for improvement and action plans are
currently being implemented to ensure full
compliance with the requirements of GDPR.
Status – Same
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns
On aggregate, our new centres continue to perform
in line with management expectations and are
delivering attractive returns.
Status – Same
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns.
Risk
Mitigation
Changes since 2016
Human resources
Ability to recruit at the right level
Our ability to increase our
management capacity and
capabilities through the hiring
of experienced professionals
not only supports our ability to
execute our growth strategy,
but also enables us to improve
succession planning throughout the
Group.
Training and employee engagement
As a service-based business the
strength and capabilities of our
increasingly geographically diverse
team are critical to achieving our
strategic objectives.
Mitigating actions include:
1 Succession planning discussions are an
integral part of our business planning and
review process.
2 Part of the annual planning process is the
Human Resources Plan, and performance
against this plan is reviewed through the
year.
3 Our global performance management
system and annual staff survey allow us to
keep close to our employees and maintain a
two-way dialogue throughout the year.
4 Regular external and internal evaluation of
the performance of the Board.
One of the key items in the Human Resources
Plan is the Global Induction & Training Plan,
which sets out the key objectives for the
forthcoming year. Performance against these
objectives is reviewed through the year.
Our employee survey also provides insight into
employee issues, which is then used to improve
the Plan.
Our capability to hire the best talent continued to
increase in 2017. A full talent plan is in place with key
hires planned to provide complete succession
planning and top talent bandwidth.
Our diversity continues to flourish with our workforce
split fairly evenly male/female.
Status – Same
Rating – Medium
Strategic Objective – Delivering attractive,
sustainable returns; Developing national networks
We trained all our employees, many through
the Regus Online Learning Academy, including
employees from new centre acquisitions and
new talent to Regus.
In 2017 employees undertook approximately
160,000 individual training modules. Experienced
managers coach new peer level colleagues to give
them the best start in the Group.
A new platform was rolled out for training,
communication and performance management
to continually drive focus in these areas across the
business.
Status – Same
Rating – High
Strategic Objective – Delivering attractive,
sustainable returns; Developing national networks
3 3
Corporate responsibility
Supporting
our communities
With our continued growth, we aim to further strengthen the communities in which we operate and bring
a positive impact to all our locations. We strive to provide responsible employment and investment to
communities around the world, while at the same time being respectful of and caring towards the
environment. As we continue to grow, those around us will grow too.
Community development
As a business working in over 3,000 locations
in more than 110 countries, it is our
responsibility to ensure that we can have a
positive impact on the communities in which
our team members, customers, suppliers
and other stakeholders live and work. For
many, we are a local business – through our
presence, we generate wealth for each
community by employing local talent and
drawing on local supply chain networks.
By their very nature, many of our products
are inherently sustainable and attract new
organisations to the area. These
organisations help to improve the business
environment by bringing further investment
and local opportunities. The success of our
Company is dependent on the success of
each local community – we can only be
successful if those around us are too.
Environmental impact
Sustainability remains at the core of our
business strategy and we recognise the
importance of continually improving our
environmental performance and managing it
effectively. We do this by ensuring that any
carbon emissions and other negative
environmental impacts for which we are
responsible are reduced as much as
possible.
Due to our expanding business and
increasing number of global locations, we
strive to help our clients and customers
reduce their own environmental impacts by
being more locally accessible, efficient and
flexible. Any initiatives we implement to
reduce our environmental impact very often
directly benefit our clients and customers
too.
Where possible, we enhance our facilities
with the latest energy-saving technologies
such as LED light fittings, more efficient
Building Management Systems and comfort
cooling systems. Our Green Committee
regularly meets to discuss ways of
implementing and communicating improved
energy and environmental efficiency
throughout our organisation.
Average 2017 Carbon Disclosure Project Scores
Total average
Global 500 average
Sector average
Industry average
Regus plc
C
C
C
C
B
It is great to work for a company
that believes in reducing its
carbon footprint. Both the
actions that are taken by
the Company itself and the
guidance that is given to
customers and team members
ensure we all contribute to this
meaningful goal.
REGUS EMPLOYEE
We continue to demonstrate good
environmental stewardship by measuring
and reporting our impact on climate change.
In our Carbon Disclosure Project
submissions for 2017 we were once again
awarded a strong 'B' rating. In comparison,
our industry and sector average, and that of
the Global 500, is 'C'.
A further example of our strategies to
reduce energy and carbon is our full
compliance with the UK Carbon Reduction
Commitment (CRC) Energy Efficiency
Scheme. Since the scheme's launch in 2010,
we have managed to reduce the amount of
carbon our centres produce by an average
of circa 30%.
This amounts to CRC savings in excess of
£350,000 and 22,500 CO2e (carbon dioxide
equivalent) tonnes. We are reviewing ways
to continue this success after the legislation
concludes in 2019.
In 2015, the Energy Saving Opportunity
Scheme legislation identified many
energy-saving opportunities. We continue
to review and implement these on a
centre-by-centre basis. These initiatives are
helping us achieve further year-on-year
reductions in energy consumption and are
keeping us on track with our 2020 carbon-
reduction target of 50%. We are currently
preparing for compliance with Phase 2 and
are determined to add to the success we are
already experiencing.
3 4
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Generating value
from waste
Our colleagues in Brazil continued their
effective recycling programme
by working together with customers to
collect and segregate toner cartridges,
cardboard, paper and other office
waste. All items were given to a local
orphanage, which donates the recycled
material in exchange for a reduced
monthly utilities bill.
On the other side of the world, our
colleagues in Denmark repurposed 400
pieces of old unwanted furniture and
electronic appliances. These were
donated to a mix of charities and social
causes. Examples include organisations
that are bringing technology to schools
for orphans and equipping co-working
spaces for start-ups with a focus on
environmental issues.
Charitable investment
As we grew during 2017, we helped
charitable organisations within our
communities grow too. As a company, we
provided direct donations and concessions
on working space to many local
organisations. Throughout the year, we also
encouraged our colleagues to make use of
our facilities to support their charitable
initiatives.
Our colleagues enthusiastically collected gift
in-kind materials, such as clothing, food and
educational items. They also held innovative
fundraising appeals and donated their skills
and time to organisations in need. Their
charitable activities took many forms, from
in-centre initiatives such as charitable
networking events, collection campaigns
and awareness-raising activities, to off-site
activities including sponsored fun runs and
volunteering at soup kitchens, orphanages
and care homes.
All activities were eagerly supported by our
colleagues, customers, suppliers and
members of the wider community.
Through our colleagues' dedication and hard
work, we supported 252 charities through
260 projects in 46 countries, raising
£302,066 in total. Further detail as to
year-on-year progress is provided in the
table below:
Countries with community
engagement activity
Projects
Charities supported
Donations made
2013
2014
2015
2016
2017
20
54
78
38
132
100
43
219
195
44
244
239
46
260
252
£80,500
£155,329
£209,905
£237,479
£302,066
Charitable activities
Examples follow of the many charitable activities our people carried out in 2017.
Helping communities
overcome disasters
The devastation wrought by Hurricanes
Harvey, Irma and Maria in Texas, Florida,
the South-East US and the Caribbean had
left many businesses struggling to
operate. Regus actively engaged through
our Hurricane Relief Programme in helping
the business communities in affected
areas, as well as all workers displaced by
the storms.
The programme welcomed all businesses
and employees that had been affected. Our
centres offered a safe space to work from
and vital connectivity. All business lounges
were free to use, and business professionals
could drop in, plug in and get a coffee while
getting back online.
To provide further support, our colleagues
in North America donated their personal
holiday entitlement to raise over $65,000
to help those impacted by the hurricanes.
In addition, they enthusiastically collected
in-kind donations of food and clothing,
and volunteered at soup kitchens and in
clean-up activities. Altogether, they made
a very significant difference to people in
their local communities.
As a result of Hurricane Harvey
my office had been extensively
flooded and wasn’t operational.
I urgently needed a place to
work from and was very grateful
to Regus for opening its doors
to me. You were an excellent,
thoughtful and caring host!
REGUS CUSTOMER
3 5
Corporate responsibility continued
Donating minutes
of kindness
Every year, South Africans celebrate
Mandela Day by dedicating '67 minutes
of kindness' to good causes. In 2017,
our Cape Town team and customers
supported Bright Star – a safe house for
children. They collected blankets, toys,
educational materials and food, and
delivered it in person to the children at
the home.
Empowering the leaders of tomorrow
We proudly sponsored the Young Journalists Academy Summer School – a unique
programme aimed at inspiring and training the newsmakers of tomorrow. The week-
long programme provided under-privileged 16 – 23-year-old students with the
opportunity to meet and work with well-known journalists, enabling them to gain
experience and build connections to help them in the future.
To see the smiles of
gratitude on those children’s
faces was priceless!
And it only took 67 minutes
to make a difference in the
life of an innocent child.
REGUS CUSTOMER
The Young Journalists Academy Summer School provides an
unmissable opportunity for anyone who wants to be a journalist,
but doesn’t have any way in. The Summer School has been
invaluable – it is an experience you learn from and never forget.
YOUNG JOURNALIST, ACADEMY SUMMER SCHOOL STUDENT
3 6
R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Running for change
For the fourth consecutive year our colleagues in India, together with their customers,
families and friends, continued their valuable support for the Make-A-Wish Foundation
India by taking part in the Standard Chartered Mumbai Marathon. Throughout the
four-year partnership, their support has helped grant the wishes of over 200 children.
It was wonderful to take part in
both the run and the gift-giving
event. Thank you for giving
us this opportunity each year
to make a difference in these
children’s lives.
REGUS CUSTOMER
Raising awareness
To raise awareness of breast cancer,
our colleagues in Malaysia held a 'Think
Pink' event – wearing pink and giving out
pink ribbons and chocolates to team
members and clients.
Similar events were held in other
countries across the globe, with many
innovative fundraising initiatives being
delivered to provide much-needed
support for local organisations.
What a wonderful opportunity we all had to touch the lives of those in our community –
encouraging those who may still be in the fight as well as celebrating another year for those
who remain cancer-free survivors!
REGUS CUSTOMER
3 7
Directors’ statements
Under applicable law and regulations, the
Directors are responsible for preparing a
Strategic Review and Financial Review that
comply with the applicable law and those
regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s websites.
Legislation in the UK and Jersey governing the
preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
Statutory statement as to disclosure
to auditor
The Directors who held office at the date of
approval of these Directors’ statements
confirm that:
• so far as they are each aware, there is no
relevant audit information of which the
Group’s auditor is unaware; and
• each Director has taken all the steps that he
ought to have taken as a Director in order to
make himself aware of any relevant audit
information and to establish that the
Group’s auditor is aware of that information.
These financial statements have been
approved by the Directors of the Company.
The Directors confirm that the financial
statements have been prepared in accordance
with applicable law and regulations.
Statement of responsibility
We confirm that to the best of our knowledge:
• the financial statements prepared in
accordance with the applicable set of
accounting standards, give a true and
fair view of the assets, liabilities, financial
position and profit or loss of the Group;
• the Directors’ Report, including content
contained by reference, includes a fair review
of the development and performance of the
business and the position of the Group
taken as a whole, together with a description
of the principal risks and uncertainties that
they face; and
• the Annual Report and financial statements,
taken as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders to
assess the Group’s position and
performance, business model and strategy.
By order of the Board
TIM REGAN
DIRECTOR
27 April 2018
Statement of Directors’
responsibilities in respect of the
Annual Report and financial
statements
The Directors are responsible for preparing
the Annual Report and the Group financial
statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare
the Group financial statements for each
financial year. Under that law, they are required
to prepare the Group financial statements in
accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by
the EU and applicable law.
Under company law, the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and its profit
or loss for the period. In preparing each of the
Group financial statements, the Directors are
required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and estimates that are
reasonable and prudent;
• state whether they have been prepared in
accordance with IFRSs as adopted by
the EU; and
• prepare the financial statements on the
going concern basis unless it is inappropriate
to presume that the Group and the parent
company will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
transactions and which disclose with
reasonable accuracy at any time the financial
position of the Group and to enable them to
ensure that its financial statements comply
with the Companies (Jersey) Law 1991 and
Article 4 of the IAS Regulation. They have
general responsibility for taking such steps as
are reasonably open to them to safeguard the
assets of the Group and to prevent and detect
fraud and other irregularities.
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
3 8
3 8 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 6
Financial statements
Auditor’s report
To the Board of Directors of Regus Plc
26, Boulevard Royal
L-2449 Luxembourg
Report of the reviseur d’entreprises agree
Report on the consolidated financial statements
Opinion
We have audited the consolidated financial statements of Regus plc S.A.
and its subsidiaries (the “Group”), which comprise the consolidated
statement of financial position as at 31 December 2017, and the
consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash
flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements give
a true and fair view of the consolidated financial position of the Group as
at 31 December 2017, and of its consolidated financial performance and
its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union.
Basis for opinion
We conducted our audit in accordance with the Law of 23 July 2016 on
the audit profession (“Law of 23 July 2016”) and with International
Standards on Auditing (“ISAs”) as adopted for Luxembourg by the
“Commission de Surveillance du Secteur Financier” (“CSSF”). Our
responsibilities under the Law of 23 July 2016 and ISAs are further
described in the « Responsibilities of “Réviseur d’Entreprises agréé” for
the audit of the consolidated financial statements » section of our report.
We are also independent of the Group in accordance with the
International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (“IESBA Code”) as adopted for Luxembourg
by the CSSF together with the ethical requirements that are relevant to
our audit of the consolidated financial statements, and have fulfilled our
other ethical responsibilities under those ethical requirements. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Other information
The Board of Directors is responsible for the other information. The
other information comprises the information stated in the consolidated
annual report including the consolidated management report but does
not include the consolidated financial statements and our report of
“Réviseur d’Entreprises agréé” thereon.
Our opinion on the consolidated financial statements does not cover the
other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of
this other information we are required to report this fact. We have
nothing to report in this regard.
Responsibilities of the Board of Directors and those
charged with governance for the consolidated financial
statements
The Board of Directors is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRSs as adopted by the European Union, and for such internal
control as the Board of Directors determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of
Directors is responsible for assessing the Group’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Board of Directors either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Responsibilities of the Réviseur d’Entreprises agréé for
the audit of the consolidated financial statements
The objectives of our audit are to obtain reasonable assurance about
whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue a
report of “Réviseur d’Entreprises agréé” that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with the Law of 23 July 2016 and
with ISAs as adopted for Luxembourg by the CSSF will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with the Law of 23 July 2016 and with
ISAs as adopted for Luxembourg by the CSSF, we exercise professional
judgement and maintain professional skepticism throughout the audit.
We also:
• Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Board of Directors.
3 8 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
3 9
Financial statements
Auditor’s report continued
To the Board of Directors of Regus Plc
26, Boulevard Royal
L-2449 Luxembourg
• Conclude on the appropriateness of Board of Directors’ use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our report of “Réviseur
d’Entreprises agréé” to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our report of “Réviseur d’Entreprises
agréé”. However, future events or conditions may cause the Group to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial
information of the entities and business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
KPMG LUXEMBOURG, SOCIÉTÉ COOPERATIVE
Cabinet de révision agréé
Stephen Nye
Luxembourg
27 April 2018
4 0
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
3 9
Financial statements
Consolidated income statement
Continuing operations
Revenue
Cost of sales
Gross profit (centre contribution)
Selling, general and administration expenses
Share of loss of equity-accounted investees, net of tax
Operating profit
Finance expense
Finance income
Net finance expense
Profit before tax for the year
Income tax expense
Profit after tax for the year
Earnings per ordinary share (EPS):
Basic (p)
Diluted (p)
Notes
3
Year ended
31 Dec 2017
£m
Year ended
31 Dec 2016
£m
2,341.7
(1,946.3)
2,233.4
(1,784.6)
395.4
(217.4)
(0.8)
177.2
(14.1)
4.1
(10.0)
167.2
(35.6)
131.6
448.8
(260.4)
(0.8)
187.6
(11.6)
0.1
(11.5)
176.1
(34.9)
141.2
27.7
27.7
15.2
15.2
21
5
8
8
9
10
10
4 0 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 1
Financial statements
Consolidated statement of
comprehensive income
Profit for the year
Other comprehensive income that is or may be reclassified to profit or loss in
subsequent periods:
Cash flow hedges – reclassified through the income statement, net of income tax
Cash flow hedges – effective portion of changes in fair value
Foreign currency translation differences for foreign operations
Items that are or may be reclassified to profit or loss in subsequent periods
Other comprehensive income that will never be reclassified to profit or loss in
subsequent periods:
Re-measurement of defined benefit liability, net of income tax
Items that will never be reclassified to profit or loss in subsequent periods
Other comprehensive (loss)/income for the period, net of income tax
Total comprehensive income for the year
Notes
Year ended
31 Dec 2017
£m
Year ended
31 Dec 2016
£m
131.6
141.2
–
0.5
(34.4)
(33.9)
(0.7)
(0.7)
2.1
(0.3)
90.2
92.0
–
–
(34.6)
92.0
97.0
233.2
25
4 2
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 1
Financial statements
Consolidated statement of changes in equity
Balance at 1 January 2016
Total comprehensive income for the year:
Profit for the year
Other comprehensive income:
Cash flow hedges – reclassified through the income
statement
Cash flow hedges – effective portion of changes in fair value
Foreign currency translation differences for foreign
operations
Other comprehensive income, net of tax
Total comprehensive income for the year
Share-based payments
Ordinary dividend paid (note 11)
Purchase of shares (note 22)
Proceeds from exercise of share awards (note 22)
Cancellation of treasury shares (note 22)
Transfer of share-based awards liabilities
Balance at 31 December 2016
Total comprehensive income for the year:
Profit for the year
Other comprehensive income:
Remeasurement of the defined benefit liability, net
of tax (note 25)
Cash flow hedges – effective portion of changes in
fair value
Foreign currency translation differences for foreign
operations
Other comprehensive (loss)/income, net of tax
Total comprehensive income for the year
Share-based payments
Reduction of share capital (note 22)
Ordinary dividend paid (note 11)
Purchase of shares (note 22)
Proceeds from exercise of share awards (note 22)
Balance at 31 December 2017
Issued share
capital
£m
Treasury
shares
£m
Foreign
currency
translation
reserve
£m
Hedging
reserve
£m
Other
reserves
£m
Retained
earnings
£m
9.5
(42.9)
7.4
(2.1)
25.8
586.0
Total
equity
£m
583.7
–
–
–
–
–
–
–
–
–
–
(0.3)
–
9.2
–
–
–
–
–
–
–
(9.2)
–
–
–
–
–
–
–
–
–
–
–
–
(31.1)
8.3
65.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90.2
90.2
90.2
–
–
–
–
–
–
–
2.1
(0.3)
–
1.8
1.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
97.6
(0.3)
25.8
–
–
–
(34.4)
(34.4)
(34.4)
–
–
–
–
–
–
–
0.5
–
0.5
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
141.2
141.2
–
–
–
–
141.2
2.4
(43.3)
(1.3)
(4.6)
(65.4)
(8.2)
606.8
2.1
(0.3)
90.2
92.0
233.2
2.4
(43.3)
(32.4)
3.7
–
(8.2)
739.1
131.6
131.6
(0.7)
(0.7)
–
–
(0.7)
130.9
–
–
–
–
–
0.5
(34.4)
(34.6)
97.0
–
(9.2)
–
–
–
63.2
0.2
25.8
737.7
826.9
Other reserves include £10.5m for the restatement of the assets and liabilities of the UK associate from historic to fair value at the time of the acquisition of the outstanding 58%
interest on 19 April 2006, £37.9m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5m relating to merger reserves and £0.1m to the redemption of
preference shares partly offset by £29.2m arising from the Scheme of Arrangement undertaken in 2003.
4 2 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 3
Financial statements
Consolidated balance sheet
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Non-current derivative financial asset
Other long-term receivables
Investments in joint ventures
Total non-current assets
Current assets
Trade and other receivables
Corporation tax receivable
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables (incl. customer deposits)
Deferred income
Corporation tax payable
Bank and other loans
Provisions
Total current liabilities
Non-current liabilities
Other long-term payables
Non-current derivative financial liabilities
Bank and other loans
Deferred tax liability
Provisions
Provision for deficit in joint ventures
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Total equity
Issued share capital
Treasury shares
Foreign currency translation reserve
Hedging reserve
Other reserves
Retained earnings
Total equity
Total equity and liabilities
Approved by the Directors on 27 April 2018
TIM REGAN
DIRECTOR
As at
31 Dec 2017
£m
As at
31 Dec 2016
£m
Notes
12
13
14
9
24
15
21
16
9
23
17
9
19
20
18
24
19
9
20
21
25
22
22
664.4
44.5
685.3
52.8
1,270.9
1,194.4
22.8
0.2
287.9
12.4
29.3
–
86.3
13.6
2,303.1
2,061.7
572.8
27.6
54.8
655.2
2,958.3
903.9
285.3
21.6
8.5
4.5
516.8
34.8
50.1
601.7
2,663.4
872.2
276.4
17.7
7.8
6.0
1,223.8
1,180.1
553.2
–
342.9
1.3
4.9
3.8
1.5
540.3
0.3
193.6
2.4
3.4
3.4
0.8
907.6
2,131.4
744.2
1,924.3
–
–
63.2
0.2
25.8
737.7
826.9
9.2
–
97.6
(0.3)
25.8
606.8
739.1
2,958.3
2,663.4
4 4
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 3
Financial statements
Consolidated statement of cash flows
Operating activities
Profit before tax for the year
Adjustments for:
Net finance expense
Share of loss of equity-accounted investees, net of tax
Depreciation charge
Loss on disposal of property, plant and equipment
Loss on disposal of assets held for sale
Impairment of intangible assets
Impairment of property, plant and equipment
Amortisation of intangible assets
Amortisation of acquired lease fair value adjustments
Decrease in provisions
Share-based payments
Other non-cash movements
Operating cash flows before movements in working capital
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Interest paid
Tax paid
Net cash inflow from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of subsidiary undertakings (net of cash acquired)
Purchase of intangible assets
Purchase of joint ventures
Dividends received from joint ventures
Proceeds on sale of property, plant and equipment
Proceeds on the sale of assets held for sale
Interest received
Net cash outflow from investing activities
Financing activities
Net proceeds from issue of loans
Repayment of loans
Settlement of financial derivatives
Reduction of share capital
Purchase of shares
Proceeds from exercise of share awards
Payment of ordinary dividend
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
4 4 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Year ended
31 Dec 2017
£m
Year ended
31 Dec 2016
£m
Notes
167.2
176.1
8
21
5, 14
5
6
5, 13
5, 14
5, 13
5
20
14
26
13
21
21
6
8
22
22
11
23
10.0
0.8
200.8
4.3
–
1.6
0.1
10.6
(3.6)
–
–
0.4
392.2
(285.3)
133.0
239.9
(12.2)
(22.4)
205.3
(344.9)
(4.5)
(3.6)
(0.3)
–
0.5
–
4.1
11.5
0.8
181.8
1.0
2.2
–
–
12.7
(3.1)
(3.2)
2.4
(3.4)
378.8
78.6
20.3
477.7
(16.2)
(31.5)
430.0
(313.8)
(8.9)
(5.5)
(1.3)
0.9
16.1
3.3
0.1
(348.7)
(309.1)
651.6
(498.7)
–
(9.2)
–
–
–
143.7
0.3
50.1
4.4
54.8
599.8
(670.0)
(7.0)
–
(32.4)
3.7
(43.3)
(149.2)
(28.3)
63.9
14.5
50.1
4 5
Financial statements
Notes to the accounts
1. Authorisation of financial statements
The Group and Company financial statements for the year ended 31 December 2017 were authorised for issue by the Directors on 27 April 2018 and
the balance sheets were signed on the Directors’ behalf by Tim Regan. Regus plc is a company incorporated in Jersey and registered and domiciled in
Luxembourg. The ultimate parent company of the Group is IWG plc, a company incorporated in Jersey and registered and domiciled in Switzerland.
Regus plc owns a network of business centres which are utilised by a variety of business customers. Information on the Group’s structure is provided
in note 31, and information on other related party relationships of the Group is provided in note 30.
The Group financial statements have been prepared and approved by the Directors in accordance with Companies (Jersey) Law 1991 and
International Financial Reporting Standards as adopted by the European Union (‘Adopted IFRSs’). The Company prepares its parent company annual
accounts in accordance with Luxembourg GAAP; extracts from these are presented on page 77.
2. Accounting policies
Basis of preparation
The Group financial statements consolidate those of Regus plc and its subsidiaries (together referred to as the ‘Group’) and equity account the
Group’s interest in joint ventures. The extract from the parent company annual accounts presents information about the Company as a separate
entity and not about its Group.
The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements. Amendments to
adopted IFRSs issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee
(IFRIC) with an effective date from 1 January 2017 did not have a material effect on the Group financial statements, unless otherwise indicated.
The following standards, interpretations and amendments to standards were adopted by the Group for periods commencing on or after
1 January 2017:
IAS 7
IAS 12
Various
Disclosure Initiative – Amendments to IAS 7
Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12
Annual Improvements (2012 – 2014 Cycle)
Judgements made by the Directors in the application of these accounting policies that have significant effect on the consolidated financial
statements and estimates with a significant risk of material adjustment in the next year are discussed in note 32.
The consolidated financial statements are prepared on a historical cost basis, with the exception of certain financial assets and liabilities that are
measured at fair value as described in note 24.
The Directors, having made appropriate enquiries, have a reasonable expectation that the Group and the Company have adequate resources to
continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the
consolidated financial statements on pages 41 to 76.
In adopting the going concern basis for preparing the consolidated financial statements, the Directors have considered the further information
included in the business activities commentary as set out on pages 14 to 17 as well as the Group’s principal risks and uncertainties as set out on pages
27 to 33.
Further details on the going concern basis of preparation can be found in note 24 to the notes to the consolidated financial statements.
These Group consolidated financial statements are presented in pounds sterling (£), which is Regus plc’s functional currency, and all values are in
million pounds, rounded to one decimal place, except where indicated otherwise.
The attributable results of those companies acquired or disposed of during the year are included for the periods of ownership.
Joint ventures are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the
arrangement, rather than rights to its assets and obligations for its liabilities. The consolidated financial statements include the Group’s share of the
total recognised gains and losses of joint ventures on an equity accounted basis, from the date that joint control commences until the date that joint
control ceases or the joint venture qualifies as a disposal group, at which point the investment is carried at the lower of fair value less costs to sell and
carrying value. When the Group’s share of losses exceeds its interest in a joint venture, the Group’s carrying amount is reduced to £nil and recognition
of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of a
joint venture.
4 6
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 5
Financial statements
Notes to the accounts continued
2. Accounting policies (continued)
On 19 December 2016, under a Scheme of Arrangement between Regus plc, and its shareholders, under Article 125 of the Companies (Jersey) Law
1991, and as sanctioned by The Royal Court of Jersey, all the issued shares in Regus plc were cancelled and an equivalent number of new shares in
Regus plc were issued to IWG plc in consideration for the allotment to shareholders of one ordinary share in IWG plc for each ordinary share in Regus
plc that they held on the record date 18 December 2016. As a result, the shareholders of Regus plc became the shareholders of IWG plc, with IWG plc
becoming the ultimate parent company of Regus plc.
IFRSs not yet effective
The following new or amended standards and interpretations that are mandatory for 2018 annual periods (and future years) will be applicable to the
Company:
IFRS 9
IFRS 15
IFRS 16
Financial Instruments
Revenue from Contracts with Customers
Leases
1 January 2018
1 January 2018
1 January 2019
There are no other IFRS standards or interpretations that are not yet effective that would be expected to have a material impact on the Group.
The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
The impact of these new or amended standards and interpretations has been considered as follows:
Estimated impact of the adoption of IFRS 9
The Group is required to adopt IFRS 9 Financial Instruments from 1 January 2018. The Group has assessed the estimated impact that initial
application of IFRS 9 will have on the consolidated financial statements.
IFRS 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy and
sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
Classification – financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed
and their cash flow characteristics. It contains three principal classification categories for financial assets: measured at amortised costs, fair value
through other comprehensive income (OCI) and fair value through the profit or loss. The standard eliminates the existing IAS 39 categories of held to
maturity, loans and receivables and available-for-sale.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the
hybrid financial instrument as a whole is assessed for classification.
Based on its assessment, the Group concludes that the new classification requirements will not have a material impact on any of its accounting
balances. Furthermore, at 31 December 2017, the Group did not have any balances classified as available-for-sale. Consequently, there are no
adjustments to be recognised in either the income statement or other comprehensive income.
Classification – financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, under IAS 39 all fair value changes of
liabilities designated as at fair value through the profit or loss are recognised in profit or loss, whereas under IFRS 9 these fair value changes are
generally presented as follows:
• The amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in other comprehensive income; and
• The remaining amount of change in the fair value is presented in profit or loss.
The Group has not designated any financial liabilities at fair value through the profit or loss and it has no current intention to do so. The Group’s
assessment did not indicate any change in the classification of financial liabilities at 1 January 2018. Consequently, there are no adjustments to be
recognised in either the income statement or other comprehensive income.
Impairment – financial assets
IFRS 9 requires the Group to record expected credit losses on all of its trade receivables, either on a 12-month or lifetime basis. The Group will apply
the simplified approach and record lifetime expected losses on all trade receivables. The Group has determined that due to the nature of its
receivables, taking into account the customer deposits obtained, the impact of applying IFRS 9 will not significantly impact the provision for bad debts.
4 6 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 7
Financial statements
Notes to the accounts continued
2. Accounting policies (continued)
Hedge accounting
IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group’s risk management objectives and strategy and
to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. IFRS 9 also introduces new requirements on rebalancing
hedge relationships and prohibiting voluntary discontinuation of hedge accounting. Under the new model, it is possible that more risk management
strategies, particularly those involving hedging a risk component (other than foreign currency risk) of non-financial items, will be likely to qualify for
hedge accounting.
The Group is exposed to foreign currency exchange rate movements. The majority of day-to-day transactions of overseas subsidiaries are carried
out in local currency and the underlying foreign exchange exposure is small. Transactional exposures do arise in some countries where it is local
market practice for a proportion of the payables or receivables to be in other than the functional currency of the affiliate. Intercompany charging,
funding and cash management activity may also lead to foreign exchange exposures. It is the policy of the Group to seek to minimise such
transactional exposures through careful management of non-local currency assets and liabilities, thereby minimising the potential volatility in the
income statement. Net investments in Regus affiliates with a functional currency other than sterling are of a long-term nature and the Group does
not normally hedge such foreign currency translation exposures.
From time to time the Group uses short-term derivative financial instruments to manage its transactional foreign exchange exposures where these
exposures cannot be eliminated through balancing the underlying risks. The Group designates these derivatives as fair value hedges.
The Group determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify
for hedge accounting under IFRS 9. The Group has chosen not to retrospectively apply IFRS 9 on transition. As IFRS 9 does not change the
general principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 9 will not impact the Group’s
financial statements.
Estimated impact of the adoption of IFRS 15
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue
recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.
The Group is involved in the provision of flexible workspace, as well as performing related services. Revenue from the provision of these services to
customers is measured at the fair value of consideration received or receivable (excluding sales taxes). Where rent-free periods are granted to
customers, rental income is spread on a straight-line basis over the length of the customer contract. The services performed are based on the list
price at which the Group provides the contracted services.
Based on the Group’s assessment, the fair values of the services performed under IAS 18 are consistent with IFRS 15. Therefore, the Group does not
expect the application of IFRS 15 to result in any differences in the timing of the performance and the recognition of the revenue, for these services.
IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement Contains a Lease, SIC-15
Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or
before the date of initial application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to
use the underlying asset and lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term
leases and leases of low-value items. Lessor accounting remains similar to the current standard (i.e. lessors continue to classify leases as finance or
operating leases).
The Group has completed an initial assessment of the potential impact on its consolidated financial statements but has not yet completed its
detailed assessment. The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend on future
economic conditions, including the Group’s borrowing rate at 1 January 2019, the composition of the Group’s lease portfolio at that date, the Group’s
assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical measures and
recognition exemptions.
The most significant impact identified is the right-of-use asset and related lease liability the Group will recognise for its leases in respect of its global
network, which will be further dependant on the transition method adopted.
In addition, the nature of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a
depreciation charge for right-of-use assets and an interest expense on the lease liabilities.
The Group does not expect the adoption of IFRS 16 to impact its ability to comply with the covenant requirements on its revolving credit facility
described in note 24.
4 8
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 7
Financial statements
Notes to the accounts continued
2. Accounting policies (continued)
Basis of consolidation
Subsidiaries are entities controlled by the Group. Control exists when the Group controls an entity when it is exposed to, or has the rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control commences. The results are consolidated until the date
control ceases or the subsidiary qualifies as a disposal group, at which point the assets and liabilities are carried at the lower of fair value less costs to
sell and carrying value.
Impairment of non-financial assets
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount was estimated at
30 September 2017. At each reporting date, the Group reviews the carrying amount of these assets to determine whether there is an indicator of
impairment. If any indicator is identified then the assets’ recoverable amount is re-evaluated.
The carrying amounts of the Group’s other non-financial assets (other than deferred tax assets) are reviewed at the reporting date to determine
whether there is an indicator of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or
groups of assets. The Group has identified individual business centres as the CGU.
We evaluate the potential impairment of property, plant and equipment at the centre (CGU) level where there are indicators of impairment.
Centres (CGUs) are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at
which it can be assessed.
Individual fittings and equipment in our centres or elsewhere in the business that become obsolete or are damaged are assessed and impaired
where appropriate.
Calculation of recoverable amount
The recoverable amount of relevant assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is
determined for the cash-generating unit to which the asset belongs.
Goodwill
All business combinations are accounted for using the purchase method. Goodwill is initially measured at fair value, being the excess of the aggregate
of the fair value of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net
identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred,
the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used
to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired
over the aggregate consideration transferred, then the gain is recognised in profit or loss.
Positive goodwill is stated at cost less any provision for impairment in value. An impairment test is carried out annually and, in addition, whenever
indicators exist that the carrying amount may not be recoverable.
Intangible assets
Intangible assets acquired separately from the business are capitalised at cost. Intangible assets acquired as part of an acquisition of a business are
capitalised separately from goodwill if their fair value can be identified and measured reliably on initial recognition.
Intangible assets are amortised on a straight-line basis over the estimated useful life of the assets as follows:
Brand – Regus brand
Brand – Other acquired brands
Computer software
Customer lists
Management agreements
Indefinite life
20 years
Up to 5 years
2 years
Minimum duration of the contract
Amortisation of intangible assets is expensed through administration expenses in the income statement.
4 8 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 9
Financial statements
Notes to the accounts continued
2. Accounting policies (continued)
Acquisitions of non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is
recognised as a result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a
proportionate amount of the net assets of the subsidiary.
Assets held for sale
Assets held for sale are measured at the lower of the carrying value of the identified asset and its fair value less cost to sell.
Leases
Plant and equipment leases for which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases.
All other leases, including all of the Group’s property leases, are categorised as operating leases.
Operating leases
Minimum lease payments under operating leases are recognised in the income statement on a straight-line basis over the lease term. Lease
incentives, including partner contributions and rent-free periods, are included in the calculation of minimum lease payments. The commencement of
the lease term is the date from which the Group is entitled to use the leased asset. The lease term is the non-cancellable period of the lease, together
with any further periods for which the Group has the option to continue to lease the asset and when at the inception of the lease it is reasonably
certain that the Group will exercise that option.
Contingent rentals include rent increases based on future inflation indices or non-guaranteed rental payments based on centre turnover or
profitability and are excluded from the calculation of minimum lease payments. Contingent rentals are recognised in the income statement as they
are incurred.
Onerous lease provisions are an estimate of the net amounts payable under the terms of the lease to the first break point, at the Group’s option,
discounted at an appropriate pre-tax rate that reflects the time value of money and the risks specific to the liability.
Partner contributions
Partner contributions are contributions from our business partners (property owners and landlords) towards the initial costs of opening a business
centre, including the fit-out of the property and the losses that we incur early in the centre life. The partner contribution is treated as a lease incentive
and is amortised over the period of the lease.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-
line basis over the estimated useful life of the assets as follows:
Buildings
Leasehold improvements
Furniture
Office equipment and telephones
Computer hardware
50 years
10 years
10 years
5 years
3 – 5 years
Revenue
Revenue from the provision of services to customers is measured at the fair value of consideration received or receivable (excluding sales taxes).
Where rent-free periods are granted to customers, rental income is spread on a straight-line basis over the length of the customer contract.
• Workstations
Workstation revenue is recognised when the provision of the service is rendered. Amounts invoiced in advance are accounted for as deferred
income and recognised as revenue upon provision of the service.
• Customer service income
Service income (including the rental of meeting rooms) is recognised as services are rendered. In circumstances where Regus acts as an agent for
the sale and purchase of goods to customers, only the commission fee earned is recognised as revenue.
• Management and franchise fees
Fees received for the provision of initial and subsequent services are recognised as revenue as the services are rendered. Fees charged for the use
of continuing rights granted by the agreement, or for other services provided during the period of the agreement, are recognised as revenue as the
services are provided or the rights used.
• Membership card income
Revenue from the sale of membership cards is deferred and recognised over the period that the benefits of the membership card are expected to
be provided.
These categories represent all material sources of revenue earned from the provision of global workplace solutions.
5 0
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
4 9
Financial statements
Notes to the accounts continued
2. Accounting policies (continued)
Employee benefits
The majority of the Group’s pension plans are of the defined contribution type. For these plans the Group’s contribution and other paid and unpaid
benefits earned by the employees are charged to the income statement as incurred.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.
Re-measurements, comprising actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets,
excluding net interest, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other
comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Service costs are recognised in profit or loss, and include current and past service costs as well as gains and losses on curtailments.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the
net defined benefit obligation under ‘cost of sales’ and ‘selling, general and administration expenses’ in the consolidated income statement: service
costs comprising current service costs; past service costs; and gains and losses on curtailments and non-routine settlements.
Settlements of defined benefit schemes are recognised in the period in which the settlement occurs.
Share-based payments
The share awards programme entitles certain employees and Directors to acquire shares of the ultimate parent company; these awards are granted
by the ultimate parent and are equity settled.
The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant
date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is
measured using the Black-Scholes valuation model or the Monte Carlo method, taking into account the terms and conditions upon which the options
were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest in respect of non-market
conditions except where forfeiture is due to the expiry of the option.
Share awards are granted by the Company to certain employees and are equity settled. The fair value of the amount payable to the employee is
recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at grant date and spread over the period during
which the employees become unconditionally entitled to payment. The fair value of the share awards is measured based on the Monte Carlo
valuation model, taking into account the terms and conditions upon which the instruments were granted. The amount recognised as an expense is
adjusted to reflect the actual number of awards that vest in respect of non-market conditions.
Taxation
Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition
of assets and liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments
in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the
reporting date.
A deferred tax asset is recognised for all unused tax losses only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Restructuring provisions are made for direct expenditures of a business reorganisation where the plans are sufficiently detailed and well advanced and
where the appropriate communication to those affected has been undertaken at the reporting date.
Provision is made for onerous contracts to the extent that the unavoidable costs of meeting the obligations under a contract exceed the economic
benefits expected to be delivered, discounted using an appropriate weighted average cost of capital.
5 0 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 1
Financial statements
Notes to the accounts continued
2. Accounting policies (continued)
Equity
Equity instruments issued by the Group are recorded at the value of proceeds received, net of direct issue costs.
When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax
effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share
reserve. When treasury shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the resulting
surplus or deficit on the transaction is presented within retained earnings.
Net finance expenses
Interest charges and income are accounted for in the income statement on an accruals basis. Financing transaction costs that relate to financial
liabilities are charged to interest expense using the effective interest rate method and are recognised within the carrying value of the related financial
liability on the balance sheet. Fees paid for the arrangement of credit facilities are recognised as a prepayment and recognised through the finance
expense over the term of the facility.
Where assets or liabilities on the Group balance sheet are carried at net present value, the increase in the amount due to unwinding the discount is
recognised as a finance expense or finance income as appropriate.
Costs arising on bank guarantees and letters of credit and foreign exchange gains or losses are included in other finance costs (note 8).
Interest bearing borrowings and other financial liabilities
Financial liabilities, including interest bearing borrowings, are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, financial liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the income
statement over the period of the borrowings using the effective interest rate method.
The Group derecognises financial liabilities when the Group’s obligations are discharged, cancelled or expired.
Financial liabilities are classified as financial liabilities at fair value through profit or loss where the liability is either held for trading or is designated as held
at fair value through profit or loss on initial recognition. Financial liabilities at fair value through profit or loss are stated at fair value with any resultant
gain or loss recognised in the income statement.
Financial assets
Financial assets are classified either at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets or loans and
receivables. The classification depends on the nature and purpose of the financial assets and is determined on initial recognition.
Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income, are
recognised in profit or loss.
Held-to-maturity financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,
they are measured at amortised cost using the effective interest rate method.
Available-for-sale financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,
they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are
recognised in OCI and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is
reclassified to profit or loss.
Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.
Loans and receivables are measured at amortised cost using the effective interest rate method, less any impairment. Interest income is recognised
by applying the effective interest rate, except for short-term receivables when recognition would be immaterial.
Customer deposits
Deposits received from customers against non-performance of the contract are held on the balance sheet as a current liability until they are returned
to the customer at the end of their relationship with the Group.
Foreign currency transactions and foreign operations
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the closing rate of exchange at the balance sheet date and the gains or losses on translation
are taken to the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction. The results and cash flows of foreign operations are translated using the average
rate for the period. Assets and liabilities, including goodwill and fair value adjustments, of foreign operations are translated using the closing rate, with
all exchange differences arising on consolidation being recognised in other comprehensive income, and presented in the foreign currency translation
reserve in equity. Exchange differences are released to the income statement on disposal.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and are subject to an insignificant risk of changes in value.
5 2
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 1
Financial statements
Notes to the accounts continued
2. Accounting policies (continued)
Derivative financial instruments
The Group’s policy on the use of derivative financial instruments can be found in note 24. Derivative financial instruments are measured initially at fair
value and changes in the fair value are recognised through profit or loss unless the derivative financial instrument has been designated as a cash flow
hedge whereby the effective portion of changes in the fair value are deferred in equity.
Foreign currency translation rates
US dollar
Euro
Japanese yen
At 31 December
Annual average
2017
1.35
1.13
152
2016
1.24
1.17
145
2017
1.30
1.14
145
2016
1.35
1.22
147
3. Segmental analysis – statutory basis
An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses. An
operating segment’s results are reviewed regularly by the chief operating decision maker (the Board of Directors of the Group) to make decisions
about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
The business is run on a worldwide basis but managed through four principal geographical segments (the Group’s operating segments): Americas;
EMEA (Europe, Middle East and Africa); Asia Pacific; and the United Kingdom. These geographical segments exclude the Group’s non-trading, holding
and corporate management companies. The results of business centres in each of these regions form the basis for reporting geographical results to
the chief operating decision maker. All reportable segments are involved in the provision of global workplace solutions.
The Group’s reportable segments operate in different markets and are managed separately because of the different economic characteristics
that exist in each of those markets. Each reportable segment has its own discrete senior management team responsible for the performance of
the segment.
The accounting policies of the operating segments are the same as those described in the Annual Report and Accounts for the Group
for the year ended 31 December 2016.
Revenue from external customers
Gross profit (centre contribution)
Share of loss of equity-accounted
investees
Operating profit
Finance expense
Finance income
Profit before tax for the year
Americas
EMEA
Asia Pacific
United Kingdom
Other
Total
2017
£m
984.8
153.2
2016
£m
2017
£m
2016
£m
2017
£m
2016
£m
2017
£m
2016
£m
923.0
540.5
476.8
383.2
363.2
429.4
462.1
161.0
97.1
101.6
65.9
67.5
77.4
110.4
2017
£m
3.8
1.8
2016
£m
2017
£m
2016
£m
8.3 2,341.7
8.3
395.4
2,233.4
448.8
–
–
96.5
102.0
(0.8)
47.7
(0.7)
49.3
–
–
–
(0.1)
–
–
(0.8)
34.6
33.6
55.7
84.5
(57.3)
(81.8)
177.2
(14.1)
4.1
(0.8)
187.6
(11.6)
0.1
167.2
176.1
Depreciation and amortisation
112.2
101.9
32.8
28.6
29.4
26.3
28.7
29.3
8.3
8.4
211.4
194.5
Assets
Liabilities
1,213.2 1,179.1
(852.1)
(861.5)
573.5
481.5
378.1
378.9
520.2
496.8
273.3
(386.0)
(323.5)
(244.1)
(251.9)
(256.3)
(279.8)
(383.5)
127.1 2,958.3
(217.0)
(2,131.4)
2,663.4
(1,924.3)
Net assets/(liabilities)
351.7
327.0
187.5
158.0
134.0
127.0
263.9
217.0
(110.2)
(89.9)
826.9
739.1
Non-current asset additions(1)
148.6
163.4
83.4
47.6
36.3
38.5
64.6
37.9
15.6
31.9
348.5
319.3
1. Excluding deferred taxation
Operating profit in the “Other” category is generated from services related to the provision of workspace solutions, including fees from franchise
agreements, offset by corporate overheads.
5 2 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 3
Financial statements
Notes to the accounts continued
4. Segmental analysis – entity-wide disclosures
The Group’s primary activity and only business segment is the provision of global workplace solutions, therefore all revenue is attributed to a single
group of similar products and services. It is not meaningful to separate this group into further categories of products. Revenue is recognised where
the service is provided.
The Group has a diversified customer base and no single customer contributes a material percentage of the Group’s revenue.
The Group’s revenue from external customers and non-current assets analysed by foreign country is as follows:
£m
Country of tax domicile – Luxembourg
United States of America
United Kingdom
All other countries
1. Excluding deferred tax assets
5. Operating profit
Operating profit has been arrived at after charging/(crediting):
Revenue
Depreciation on property, plant and equipment
Amortisation of intangibles
Amortisation of partner contributions
Property rents payable in respect of operating leases:
Property
Contingent rents paid
Equipment rents payable in respect of operating leases
Staff costs
Facility and other property costs
Provision for bad debts
Loss on disposal of property, plant and equipment
Loss on disposal of assets held for sale
Impairment of intangible assets
Impairment of property, plant and equipment
Amortisation of acquired lease fair value adjustments
Other costs
Share of loss of equity-accounted investees, net of tax
Operating profit
Fees payable to the Group’s auditor and its associates for the audit of the Group accounts
Fees payable to the Group’s auditor and its associates for other services:
The audit of the Company’s subsidiaries pursuant to legislation
Other services pursuant to legislation:
Tax services
Other services
5 4
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
2017
2016
External
revenue
Non-current
assets(1)
External
revenue
Non-current
assets(1)
7.4
819.6
429.4
1,085.3
2,341.7
2.7
878.5
384.5
1,014.6
2,280.3
6.7
766.6
462.1
998.0
2.7
930.0
347.1
752.6
2,233.4
2,032.4
Notes
2017
£m
2016
£m
2,341.7
2,233.4
14
13
7
24
14
6
13
14
200.8
10.6
(60.6)
1,002.7
966.3
36.4
3.0
327.6
347.5
16.2
4.3
–
1.6
0.1
(3.6)
313.5
178.0
(0.8)
177.2
2017
£m
0.9
1.7
–
0.1
181.8
12.7
(50.2)
909.2
872.5
36.7
3.4
335.6
319.0
10.3
1.0
2.2
–
–
(3.1)
323.1
188.4
(0.8)
187.6
2016
£m
0.9
1.4
–
0.4
5 3
Financial statements
Notes to the accounts continued
6. Disposal of assets held for sale
The following major classes of assets and liabilities were disposed of in 2016 as part of the assets held for sale:
Assets
Goodwill (note 12)
Property, plant and equipment
Trade and other receivables
Assets held for sale
Liabilities
Trade and other payables
Liabilities held for sale
Net assets held for sale
Disposal related costs
Proceeds on disposal
Loss on disposal
There were no disposals of assets held for sale in the current year.
7. Staff costs
The aggregate payroll costs were as follows:
Wages and salaries
Social security
Pension costs
Share-based payments
The average number of persons employed by the Group (including Executive Directors), analysed by category and
geography, was as follows:
Centre staff
Sales and marketing staff
Finance staff
Other staff
Americas
EMEA
Asia Pacific
United Kingdom
Corporate functions
5 4 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
2016
£m
4.5
1.4
0.5
6.4
(0.9)
(0.9)
5.5
–
3.3
(2.2)
2016
£m
282.2
45.6
5.4
2.4
335.6
2017
£m
276.7
45.7
5.2
–
327.6
2017
Average
full time
equivalents
2016
Average
full time
equivalents
6,746
6,551
497
739
762
425
768
864
8,744
8,608
2,860
2,161
1,641
804
1,278
8,744
2,802
2,044
1,746
907
1,109
8,608
5 5
Financial statements
Notes to the accounts continued
8. Net finance expense
Interest payable and similar charges on bank loans and corporate borrowings
Total interest expense
Other finance costs (including foreign exchange)
Unwinding of discount rates
Total finance expense
Total interest income
Total finance income
Net finance expense
9. Taxation
(a) Analysis of charge in the year
Current taxation
Corporate income tax
Previously unrecognised tax losses and other differences
(Under)/over provision in respect of prior years
Total current taxation
Deferred taxation
Origination and reversal of temporary differences
Previously unrecognised tax losses and other differences
(Under)/over provision in respect of prior years
Total deferred taxation
Tax charge on profit
(b) Reconciliation of taxation charge
Profit before tax
Tax on profit at 27.08% (2016: 29.22%)
Tax effects of:
Expenses not deductible for tax purposes
Items not chargeable for tax purposes
Recognition of previously unrecognised deferred tax assets
Movements in temporary differences in the year not recognised in deferred tax
Adjustment to tax charge in respect of previous years
Differences in tax rates on overseas earnings
2017
£m
(7.5)
(7.5)
(5.7)
(0.9)
2016
£m
(7.4)
(7.4)
(3.3)
(0.9)
(14.1)
(11.6)
4.1
4.1
0.1
0.1
(10.0)
(11.5)
2017
£m
(26.8)
1.3
(5.2)
(30.7)
(5.4)
1.0
(0.5)
(4.9)
(35.6)
2016
£m
176.1
(51.5)
(30.3)
67.6
2.9
(85.2)
4.8
56.8
(34.9)
2016
£m
(30.4)
1.5
4.4
(24.5)
(12.2)
1.4
0.4
(10.4)
(34.9)
%
(29.2)
(17.2)
38.4
1.6
(48.4)
2.7
32.3
(19.8)
2017
£m
167.2
(45.3)
13.3
7.7
2.3
(87.9)
(5.7)
80.0
(35.6)
%
(27.1)
8.0
4.6
1.4
(52.5)
(3.4)
47.8
(21.2)
The applicable tax rate is determined based on the tax rate in Luxembourg which was the statutory tax rate applicable in the country of domicile of the
parent company of the Group for the financial year.
5 6
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 5
Financial statements
Notes to the accounts continued
9. Taxation (continued)
(c) Factors that may affect the future tax charge
Unrecognised tax losses to carry forward against certain future overseas corporation tax liabilities have the following expiration dates:
2017
2018
2019
2020
2021
2022
2023
2024
2025 and later
Available indefinitely
Tax losses available to carry forward
Amount of tax losses recognised in deferred tax assets
Total tax losses available to carry forward
The following deferred tax assets have not been recognised due to uncertainties over recoverability:
Intangibles
Accelerated capital allowances
Tax losses
Rent
Short-term temporary differences
2017
£m
–
4.9
8.1
54.7
37.4
43.4
20.1
21.1
227.4
417.1
642.4
1,059.5
116.0
1,175.5
2017
£m
16.9
32.1
267.7
8.7
5.5
330.9
2016
£m
7.3
8.2
15.6
57.2
37.8
18.8
19.0
13.3
79.1
256.3
454.2
710.5
131.2
841.7
2016
£m
22.0
24.5
187.4
11.3
8.2
253.4
Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each
reporting period.
(d) Corporation tax
Corporation tax payable
Corporation tax receivable
2017
£m
(21.6)
27.6
2016
£m
(17.7)
34.8
5 6 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 7
Financial statements
Notes to the accounts continued
9. Taxation (continued)
(e) Deferred taxation
The movement in deferred tax is analysed below:
Deferred tax asset
At 1 January 2016
Current year movement
Prior year movement
Transfers
Exchange rate movements
At 1 January 2017
Current year movement
Prior year movement
Transfers
Exchange rate movements
At 31 December 2017
Deferred tax liability
At 1 January 2016
Current year movement
Prior year movement
Transfers
Exchange rate movements
At 1 January 2017
Current year movement
Prior year movement
Transfers
Exchange rate movements
At 31 December 2017
Property,
plant and
equipment
£m
Intangibles
£m
Tax losses
£m
(39.6)
(4.0)
–
0.3
(11.5)
(54.8)
19.9
–
–
5.5
(29.4)
–
(0.1)
–
(0.3)
–
(0.4)
(0.1)
–
–
–
(0.5)
(4.4)
(14.0)
(1.3)
(0.1)
(0.7)
(20.5)
1.3
(1.6)
2.2
1.1
(17.5)
(1.5)
(1.9)
0.1
0.2
(0.1)
(3.2)
0.3
–
(2.2)
–
(5.1)
32.0
(3.2)
3.9
(0.3)
1.9
34.3
(5.7)
0.3
(1.3)
(0.9)
26.7
0.7
1.3
(0.1)
0.2
0.3
2.4
(0.2)
(0.3)
1.3
–
3.2
Short-term
temporary
differences
£m
(2.1)
1.7
(2.2)
0.5
2.6
0.5
(3.1)
–
(0.6)
(0.9)
(4.1)
(0.8)
0.2
–
(0.5)
0.1
(1.0)
(0.2)
0.7
0.6
0.1
0.2
Rent
£m
50.5
9.6
–
(0.2)
9.9
69.8
(17.2)
0.4
(0.5)
(5.4)
47.1
–
(0.4)
–
0.2
–
(0.2)
0.6
–
0.5
–
0.9
Total
£m
36.4
(9.9)
0.4
0.2
2.2
29.3
(4.8)
(0.9)
(0.2)
(0.6)
22.8
(1.6)
(0.9)
–
(0.2)
0.3
(2.4)
0.4
0.4
0.2
0.1
(1.3)
The movements in deferred taxes included above are after the offset of deferred tax assets and deferred tax liabilities where there is a legally
enforceable right to set off and they relate to income taxes levied by the same taxation authority.
Deferred tax assets recognised on short-term temporary differences consist predominantly of provisions deductible when paid. Deferred tax assets
have been recognised in excess of deferred tax liabilities on the basis that there are forecast taxable profits in the entities concerned.
At the balance sheet date, the temporary difference arising from unremitted earnings of overseas subsidiaries was £19.8m (2016: £94.1m). The only
tax that would arise on these reserves would be non-recoverable withholding tax.
5 8
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 7
Financial statements
Notes to the accounts continued
10. Earnings per ordinary share (basic and diluted)
Basic and diluted profit for the year attributable to shareholders (£m)
Basic earnings per share (p)
Diluted earnings per share (p)
Weighted average number of shares for basic EPS
Weighted average number of shares under option
Weighted average number of shares that would have been issued at average market price
Weighted average number of share awards under the CIP and LTIP
Weighted average number of shares for diluted EPS
2017
131.6
27.7
27.7
2016
141.2
15.2
15.2
474,525,592 929,860,354
–
–
–
–
–
–
474,525,592 929,860,354
Options are considered dilutive when they would result in the issue of ordinary shares for less than the market price of ordinary shares in the period.
The amount of the dilution is taken to be the average market price of shares during the period minus the exercise price. There were no material
awards considered anti-dilutive at the reporting date.
Following the Scheme of Arrangement undertaken on 19 December 2016 all options held in the Company were transferred out of the Company. As a
result there were no outstanding share options held at 31 December 2016 and at 31 December 2017.
11. Dividends
Dividends per ordinary share proposed
Interim dividends per ordinary share declared and paid during the year
2017
–
–
2016
–
1.55p
There were no dividends declared or paid during the year (2016: £43.3m). The Directors do not propose to declare a final dividend (2016: £nil) for
2017.
12. Goodwill
Cost
At 1 January 2016
Recognised on acquisition of subsidiaries
Disposals
Transferred to assets held for sale
Exchange rate movements
At 31 December 2016
Recognised on acquisition of subsidiaries (1)
Exchange rate movements
At 31 December 2017
Net book value
At 31 December 2016
At 31 December 2017
£m
612.2
6.8
(1.3)
(4.5)
72.1
685.3
1.0
(21.9)
664.4
685.3
664.4
1. Net of £0.2m derecognised on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis
Cash-generating units (CGUs), defined as individual business centres, are grouped by country of operation for the purposes of carrying out
impairment reviews of goodwill as this is the lowest level at which it can be assessed. Goodwill acquired through business combinations is held at a
country level and is subject to impairment reviews based on the cash flows of the CGUs within that country.
5 8 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 9
Financial statements
Notes to the accounts continued
12. Goodwill (continued)
The goodwill attributable to the reportable business segments is as follows:
Carrying amount of goodwill included within:
Americas
EMEA
Asia
United Kingdom
2017
£m
285.8
125.1
34.7
218.8
664.4
2016
£m
311.1
119.4
35.4
219.4
685.3
The carrying value of goodwill and indefinite life intangibles allocated to two countries, the USA and the UK, is material relative to the total carrying
value, comprising 73% of the total. The remaining 27% of the carrying value is allocated to a further 41 countries. The goodwill and indefinite life
intangibles allocated to the USA and the UK are set out below:
USA
United Kingdom
Other countries
Goodwill
£m
262.4
218.8
183.2
664.4
Intangible
assets
£m
–
11.2
–
11.2
2017
£m
262.4
230.0
183.2
675.6
2016
£m
286.3
230.6
179.6
696.5
The indefinite life intangible asset relates to the brand value arising from the acquisition of the remaining 58% of the UK business in the year ended
31 December 2006 (see note 13).
The value in use for each country has been determined using a model which derives the individual value in use for each country from the value in use
of the Group as a whole. Although the model includes budgets and forecasts prepared by management it also reflects external factors, such as
capital market risk pricing as reflected in the market capitalisation of the Group and prevailing tax rates, which have been used to determine the risk
adjusted discount rate for the Group. Management believes that the projected cash flows are a reasonable reflection of the likely outcomes over the
medium to long term. In the event that trading conditions deteriorate beyond the assumptions used in the projected cash flows, it is also possible that
impairment charges could arise in future periods.
The following key assumptions have been used in calculating the value in use for each country:
• Future cash flows are based on forecasts prepared by management. The model excludes cost savings and restructurings that are anticipated but
had not been committed to at the date of the determination of the value in use. Thereafter, forecasts have been prepared by management for a
further four years from 2018 that reflect an average annual growth rate of 3% (2017: 3%);
• These forecasts exclude the impact of acquisitive growth expected to take place in future periods;
• Management considers these projections to be a reasonable projection of margins expected at the mid-cycle position. Cash flows beyond 2021
have been extrapolated using a 2% growth rate which management believes is a reasonable long-term growth rate for any of the markets in which
the relevant countries operate. A terminal value is included in the assessment, reflecting the Group’s expectation that it will continue to operate in
these markets and the long-term nature of the businesses; and
• The Group applies a country specific pre-tax discount rate to the pre-tax cash flows for each country. The country specific discount rate is based
on the underlying weighted average cost of capital (WACC) for the Group. The Group WACC is then adjusted for each country to reflect the
assessed market risk specific to that country. The Group pre-tax WACC decreased from 11.3% in 2016 to 9.9% in 2017 (post-tax WACC:
7.9%). The country specific pre-tax WACC reflecting the respective market risk adjustment has been set between 9.3% and 12.8% (2016: 10.7%
to 14.2%).
The amounts by which the values in use exceed the carrying amounts of goodwill are sufficiently large to enable the Directors to conclude that a
reasonably possible change in the key assumptions would not result in an impairment charge in any of the countries. Foreseeable events are unlikely
to result in a change in the projections of such a significant nature as to result in the goodwill carrying amount exceeding their recoverable amount.
The forecast models used in assessing the impairment of goodwill are based on the related business centre structure at the end of the year.
The US model assumes an average centre contribution of 17% over the next five years. Revenue and costs grow at 3% per annum from 2018.
A terminal value centre gross margin of 17% is adopted from 2021, with a 2% long-term growth rate assumed on revenue and costs into perpetuity.
The cash flows have been discounted using a pre-tax discount rate of 10% (2016: 14%).
The UK model assumes an average centre contribution of 16% over the next five years. Revenue and costs grow at 3% per annum from 2018.
A terminal value centre gross margin of 16% is adopted from 2021, with a 2% long-term growth rate assumed on revenue and costs into perpetuity.
The cash flows have been discounted using a pre-tax discount rate of 10% (2016: 11%).
6 0
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
5 9
Financial statements
Notes to the accounts continued
12. Goodwill (continued)
Management has considered the following sensitivities:
Market growth and WIPOW – Management has considered the impact of a variance in market growth and WIPOW. The value in use calculation shows
that if the long-term growth rate was reduced to nil, the recoverable amount of the US and UK would still be greater than their carrying value.
Discount rate – Management has considered the impact of an increase in the discount rate applied to the calculation. The value in use calculation
shows that for the recoverable amount to be less than its carrying value, the pre-tax discount rate would have to be increased to 12% (2016: 24%) for
the US and 15% (2016: 38%) for the UK.
13. Other intangible assets
Cost
At 1 January 2016
Additions at cost
Acquisition of subsidiaries
Disposals
Exchange rate movements
At 31 December 2016
Additions at cost
Acquisition of subsidiaries (1)
Impairment
Exchange rate movements
At 31 December 2017
Amortisation
At 1 January 2016
Charge for year
Disposals
Exchange rate movements
At 31 December 2016
Charge for year
Impairment
Exchange rate movements
At 31 December 2017
Net book value
At 1 January 2016
At 31 December 2016
At 31 December 2017
Brand
£m
Customer
lists
£m
Software
£m
56.3
0.2
–
–
8.8
65.3
–
–
–
(4.4)
60.9
25.6
2.5
–
5.2
33.3
2.6
–
(2.9)
33.0
30.7
32.0
27.9
28.8
–
1.1
(0.1)
2.8
32.6
–
0.3
–
(1.9)
31.0
26.5
2.4
(0.1)
2.6
31.4
1.1
–
(1.9)
30.6
2.3
1.2
0.4
58.7
5.3
–
(0.3)
2.9
66.6
3.6
–
(6.6)
(3.1)
60.5
37.9
7.8
–
1.3
47.0
6.9
(5.0)
(4.6)
44.3
20.8
19.6
16.2
Total
£m
143.8
5.5
1.1
(0.4)
14.5
164.5
3.6
0.3
(6.6)
(9.4)
152.4
90.0
12.7
(0.1)
9.1
111.7
10.6
(5.0)
(9.4)
107.9
53.8
52.8
44.5
1. Includes £0.1m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis
Included within the brand value is £11.2m relating to the acquisition of the remaining 58% of the UK business in the year ended 31 December 2006.
The Regus brand acquired in this transaction is assumed to have an indefinite useful life due to the fact that the value of the brand is intrinsically linked
to the continuing operation of the Group.
As a result of the Regus brand acquired with the UK business having an indefinite useful life no amortisation is charged but the carrying value is
assessed for impairment on an annual basis. The brand was tested at the balance sheet date against the recoverable amount of the UK business
segment at the same time as the goodwill arising on the acquisition of the UK business (see note 12).
The remaining amortisation life for definite life brands is seven years.
6 0 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
6 1
Financial statements
Notes to the accounts continued
14. Property, plant and equipment
Land and
buildings
£m
Leasehold
improvements
£m
Furniture and
equipment
£m
Computer
hardware
£m
Cost
At 1 January 2016
Additions
Acquisition of subsidiaries
Disposals
Exchange rate movements
At 1 January 2017
Additions
Acquisition of subsidiaries (1)
Disposals
Exchange rate movements
At 31 December 2017
Accumulated depreciation
At 1 January 2016
Charge for the year
Disposals
Exchange rate movements
At 1 January 2017
Charge for the year
Disposals
Impairment
Exchange rate movements
At 31 December 2017
Net book value
At 1 January 2016
At 31 December 2016
At 31 December 2017
11.4
26.3
–
(11.4)
–
26.3
9.5
0.1
–
0.1
1,136.0
215.7
2.6
(20.0)
198.9
1,533.2
253.0
1.3
(16.5)
(82.9)
36.0
1,688.1
–
0.4
–
–
0.4
0.8
–
–
–
1.2
11.4
25.9
34.8
469.9
116.4
(14.9)
81.0
652.4
132.6
(12.8)
0.1
(32.7)
739.6
666.1
880.8
948.5
497.1
57.9
0.6
(10.7)
83.3
628.2
71.2
–
(8.5)
(32.4)
658.5
290.6
49.4
(8.9)
47.8
378.9
51.0
(7.5)
–
(19.8)
402.6
206.5
249.3
255.9
1. Includes £0.2m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis
Additions include £nil in respect of assets acquired under finance leases (2016: £nil).
15. Other long-term receivables
Deposits held by landlords against rent obligations
Acquired lease fair value asset
Other
6 2
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Total
£m
1,739.4
313.8
3.9
(45.0)
298.3
94.9
13.9
0.7
(2.9)
16.1
122.7
2,310.4
11.2
0.2
(1.4)
(4.7)
344.9
1.6
(26.4)
(119.9)
128.0
2,510.6
61.9
15.6
(3.0)
9.8
84.3
16.4
(1.3)
–
(3.1)
96.3
33.0
38.4
31.7
2017
£m
76.3
4.4
207.2
287.9
822.4
181.8
(26.8)
138.6
1,116.0
200.8
(21.6)
0.1
(55.6)
1,239.7
917.0
1,194.4
1,270.9
2016
£m
78.2
5.3
2.8
86.3
6 1
Financial statements
Notes to the accounts continued
16. Trade and other receivables
Trade receivables, net
Prepayments and accrued income
Other receivables
VAT recoverable
Deposits held by landlords against rent obligations
Acquired lease fair value asset
17. Trade and other payables (including customer deposits)
Customer deposits
Deferred rents
Other accruals
Deferred partner contributions
Trade payables
VAT payable
Other payables
Other tax and social security
Acquired lease fair value liability
Total current
18. Other long-term payables
Deferred partner contributions
Deferred rents
Acquired lease fair value liability
Other payables
Total non-current
19. Borrowings
The Group’s total loan and borrowing position at 31 December 2017 and at 31 December 2016 had the following maturity profiles:
Bank and other loans
Repayments falling due as follows:
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Total non-current
Total current
Total bank and other loans
2017
£m
8.9
329.2
4.8
342.9
8.5
351.4
6 2 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
2017
£m
197.9
165.3
103.1
98.1
7.2
1.2
2016
£m
202.6
171.8
83.6
49.5
7.6
1.7
572.8
516.8
2017
£m
429.8
121.3
103.0
59.2
74.4
90.2
17.9
5.1
3.0
2016
£m
421.0
113.2
131.4
68.5
60.3
53.1
12.5
9.0
3.2
903.9
872.2
2017
£m
293.8
244.6
3.7
11.1
553.2
2016
£m
265.4
250.9
8.3
15.7
540.3
2016
£m
6.9
186.7
–
193.6
7.8
201.4
6 3
Financial statements
Notes to the accounts continued
20. Provisions
At 1 January
Provided in the period
Utilised in the period
Provisions released
Exchange rate movements
At 31 December
Analysed between:
Current
Non-current
At 31 December
2017
2016
Onerous
leases and
closures
£m
3.5
3.2
(0.3)
(2.8)
–
3.6
0.4
3.2
3.6
Other
£m
5.9
2.1
(1.0)
(1.2)
–
5.8
4.1
1.7
5.8
Onerous
leases and
closures
£m
7.7
2.3
(1.4)
(5.1)
–
3.5
0.3
3.2
3.5
Total
£m
9.4
5.3
(1.3)
(4.0)
–
9.4
4.5
4.9
9.4
Other
£m
5.2
3.0
(1.6)
(0.4)
(0.3)
5.9
5.7
0.2
5.9
Total
£m
12.9
5.3
(3.0)
(5.5)
(0.3)
9.4
6.0
3.4
9.4
Onerous leases and closures
Provisions for onerous leases and closure costs relate to the estimated future costs of centre closures and onerous property leases. The maximum
period over which the provisions are expected to be utilised expires by 31 December 2025.
Other
Other provisions include the estimated costs of claims against the Group outstanding at the year end, of which, due to their nature, the maximum
period over which they are expected to be utilised is uncertain.
21. Investments in joint ventures
At 1 January 2016
Additions
Dividends received
Share of loss
Disposal of investment
Exchange rate movements
At 31 December 2016
Additions
Share of loss
Exchange rate movements
At 31 December 2017
6 4
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Investments in
joint ventures
£m
Provision for
deficit in
joint ventures
£m
5.6
6.8
(0.9)
(1.5)
3.0
0.6
13.6
0.3
(0.4)
(1.1)
12.4
(4.1)
–
–
0.7
–
–
(3.4)
–
(0.4)
–
(3.8)
Total
£m
1.5
6.8
(0.9)
(0.8)
3.0
0.6
10.2
0.3
(0.8)
(1.1)
8.6
6 3
Financial statements
Notes to the accounts continued
21. Investments in joint ventures (continued)
The Group has 49 joint ventures (2016: 41) at the reporting date, all of which are individually immaterial. The Group has a legal obligation in respect of
its share of any deficits recognised by these operations.
The results of the joint ventures below are the full results of the joint ventures and do not represent the effective share:
Income statement
Revenue
Expenses
(Loss)/profit before tax for the year
Tax charge
(Loss)/profit after tax for the year
Net assets/(liabilities)
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
22. Share capital
Ordinary equity share capital
2017
£m
29.9
(31.5)
(1.6)
(0.3)
(1.9)
15.0
35.7
(46.6)
(1.5)
2.6
2016
£m
23.5
(22.5)
1.0
(0.7)
0.3
12.2
28.0
(30.3)
(2.1)
7.8
Authorised
Ordinary 1p shares in Regus plc at 1 January and 31 December
Issued and fully paid up
Ordinary 1p shares in Regus plc at 1 January
Cancellation of 1p shares in Regus plc held in treasury (1)
Reduction of share capital
Ordinary 1p shares in Regus plc at 31 December
1. As part of the Scheme of Arrangement completed on 19 December 2016
2017
2016
Number
Nominal value
£m
Number
Nominal value
£m
8,000,000,000
80.0
8,000,000,000
80.0
923,357,438
–
(920,357,438)
3,000,000
9.2
–
(9.2)
–
950,969,822
(27,612,384)
–
923,357,438
9.5
(0.3)
–
9.2
On 19 December 2016 under a Scheme of Arrangement between Regus plc, and its shareholders, under Article 125 of the Companies (Jersey) Law
1991, and as sanctioned by The Royal Court of Jersey, all the issued shares in Regus plc were cancelled and an equivalent number of new shares in
Regus plc were issued to IWG plc in consideration for the allotment to shareholders of one ordinary share in IWG plc for each ordinary share in Regus
plc that they held on the record date, 18 December 2016. As a result, the shareholders of Regus plc became the shareholders of IWG plc, with IWG plc
becoming the ultimate parent company of Regus plc.
Treasury share transactions involving Regus plc shares between 1 January 2016 and 19 December 2016
In the period ending 19 December 2016, 11,834,627 shares were purchased in the open market by Regus plc and 4,712,856 treasury shares held
by Regus plc were utilised to satisfy the exercise of share awards by employees. At 19 December 2016, 27,612,384 shares were held as treasury
shares. Subsequent to the Scheme of Arrangement, all treasury shares held by the Group have been cancelled. There are no treasury shares as at
31 December 2017 and 31 December 2016.
1 January
Purchase of treasury shares in Regus plc
Treasury shares in Regus plc utilised
Cancellation of treasury shares in Regus plc
31 December
2017
2016
Number of shares
£m Number of shares
–
–
–
–
–
–
–
–
–
–
20,490,613
11,834,627
(4,712,856)
(27,612,384)
–
£m
42.9
31.1
(8.3)
(65.7)
–
In addition to the treasury share transactions, the Group purchased nil (2016: 467,291) shares on the open market at a cost of £nil (2016: £1.3 m) to
directly settle the exercise of share awards by employees.
6 4 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
6 5
Financial statements
Notes to the accounts continued
23. Analysis of financial assets/(liabilities)
Cash and cash equivalents
Gross cash
Debt due within one year
Debt due after one year
Net financial assets/(liabilities)
At
1 Jan 2017
£m
Cash flow
£m
Exchange rate
movements
£m
At
31 Dec 2017
£m
50.1
50.1
(7.8)
(193.6)
(201.4)
(151.3)
0.3
0.3
(1.4)
(151.5)
(152.9)
(152.6)
4.4
4.4
0.7
2.2
2.9
7.3
54.8
54.8
(8.5)
(342.9)
(351.4)
(296.6)
Cash and cash equivalent balances held by the Group that are not available for use amounted to £9.3m at 31 December 2017 (2016: £11.3m). Of this
balance, £7.1m (2016: £9.6m) is pledged as security against outstanding bank guarantees and a further £2.2m (2016: £1.7m) is pledged against
various other commitments of the Group.
24. Financial instruments and financial risk management
The objectives, policies and strategies applied by the Group with respect to financial instruments and the management of capital are determined at
the ultimate Group level. The ultimate Group’s Board maintains responsibility for the risk management strategy of the Group and the Chief Financial
Officer is responsible for policy on a day-to-day basis. The Chief Financial Officer and Group Treasurer review the Group’s risk management strategy
and policies on an ongoing basis. The Board has delegated to the Group Audit Committee the responsibility for applying an effective system of
internal control and compliance with the Group’s risk management policies.
Exposure to credit, interest rate and currency risks arise in the normal course of business.
Going concern
The Strategic review on pages 14 to 17 of the Annual Report and Accounts sets out the Group’s strategy and the factors that are likely to affect the
future performance and position of the business. The Financial review on pages 22 to 26 within the Strategic Report reviews the trading performance,
financial position and cash flows of the Group. During the year ended 31 December 2017, the Group made a significant investment in growth and the
Group’s net debt position increased by £145.3m to a net debt position of £296.6m as at 31 December 2017. The investment in growth is funded by a
combination of cash flow generated from the Group’s mature business centres and debt. The Group has a £550.0m revolving credit facility provided
by a group of relationship banks with a final maturity in 2022, with a further option to extend to 2023. As at 31 December 2017, £131.8m was available
and undrawn.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for
the foreseeable future and, accordingly, continue to adopt the going concern basis in preparing the Annual Report and Accounts.
6 6
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
6 5
Financial statements
Notes to the accounts continued
24. Financial instruments and financial risk management (continued)
Credit risk
Credit risk could occur where a customer or counterparty defaults under the contractual terms of a financial instrument and arises principally in
relation to customer contracts and the Group’s cash deposits.
A diversified customer base, requirement for customer deposits, and payments in advance on workstation contracts minimise the Group’s exposure
to customer credit risk. No single customer contributes a material percentage of the Group’s revenue. The Group’s policy is to provide against trade
receivables when specific debts are judged to be irrecoverable or where formal recovery procedures have commenced. A provision taking into
account the customer deposit held is created where debts are more than three months overdue, which reflects the Group’s historical experience of
the likelihood of recoverability of these trade receivables. These provisions are reviewed on an ongoing basis to assess changes in the likelihood of
recoverability.
The maximum exposure to credit risk for trade receivables at the reporting date, not taking into account customer deposits held, analysed by
geographic region, is summarised below.
Americas
EMEA
Asia Pacific
United Kingdom
2017
£m
27.8
75.0
41.6
53.5
2016
£m
37.8
71.1
41.8
51.9
197.9
202.6
All of the Group’s trade receivables relate to customers purchasing workplace solutions and associated services and no individual customer has a
material balance owing as a trade receivable.
The ageing of trade receivables at 31 December was:
Not overdue
Past due 0 – 30 days
Past due 31 – 60 days
More than 60 days
Gross
2017
£m
131.1
43.2
13.8
31.6
219.7
Provision
2017
£m
–
–
–
(21.8)
(21.8)
Gross
2016
£m
130.2
43.9
12.0
35.6
221.7
Provision
2016
£m
–
(0.1)
–
(19.0)
(19.1)
At 31 December 2017, the Group maintained a provision of £21.8m against potential bad debts (2016: £19.1m) arising from trade receivables. The
Group had provided £16.2m (2016: £10.3m) in the year and utilised £13.5m (2016: £4.5m). Customer deposits of £429.8m (2016: £421.0m) are held
by the Group, mitigating the risk of default.
The Group believes no provision is generally required for trade receivables that are not overdue as the Group collects the majority of its revenue in
advance of the provision of office services and requires deposits from its customers.
Cash investments and derivative financial instruments are only transacted with counterparties of sound credit ratings, and management does not
expect any of these counterparties to fail to meet their obligations.
Liquidity risk
The Group manages liquidity risk by closely monitoring the global cash position, the available and undrawn credit facilities, and forecast capital
expenditure and expects to have sufficient liquidity to meet its financial obligations as they fall due. The Group has free cash and liquid investments
(excluding blocked cash) of £45.5m (2016: £38.8m). In addition to cash and liquid investments, the Group had £131.8m available and undrawn under
its committed borrowings. The Directors consider the Group has adequate liquidity to meet day-to-day requirements.
The Group maintains a revolving credit facility provided by a group of international banks. During the year, the maturity was extended until 2022, with a
further option to extend to 2023.
The debt provided under the bank facility is floating rate, however, as part of the Group’s balance sheet management and to protect against a future
increase in interest rates, £70.0m and $30.0m were swapped into a fixed rate liability for a three-year period with an average fixed rate of respectively
0.7% and 1.8% (excluding funding margin).
6 6 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
6 7
Financial statements
Notes to the accounts continued
24. Financial instruments and financial risk management (continued)
Although the Group has net current liabilities of £568.6m (2016: £578.4m), the Group does not consider that this gives rise to a liquidity risk. A large
proportion of the net current liabilities comprise non-cash liabilities such as deferred income which will be recognised in future periods through the
income statement. The Group holds customer deposits of £429.8m (2016: £421.0m) which are spread across a large number of customers and no
deposit held for an individual customer is material. Therefore, the Group does not believe the balance represents a liquidity risk. The net current
liabilities, excluding deferred income, were £283.3m at 31 December 2017 (2016: £302.0m).
Market risk
The Group is exposed to market risk primarily related to foreign currency exchange rates, interest rates and the market value of our investments in
financial assets. These exposures are actively managed by the Group treasury department in accordance with a written policy approved by the Board
of Directors. The Group does not use financial derivatives for trading or speculative reasons.
Interest rate risk
The Group manages its exposure to interest rate risk through the relative proportions of fixed rate debt and floating rate debt. Any surplus cash
balances are invested short term, and at the end of 2017 no cash was invested for a period exceeding three months.
Foreign currency risk
The Group is exposed to foreign currency exchange rate movements. The majority of day-to-day transactions of overseas subsidiaries are carried
out in local currency and the underlying foreign exchange exposure is small. Transactional exposures do arise in some countries where it is local
market practice for a proportion of the payables or receivables to be in other than the functional currency of the affiliate. Intercompany charging,
funding and cash management activity may also lead to foreign exchange exposures. It is the policy of the Group to seek to minimise such
transactional exposures through careful management of non-local currency assets and liabilities, thereby minimising the potential volatility in the
income statement. Net investments in Regus affiliates with a functional currency other than sterling are of a long-term nature and the Group does
not normally hedge such foreign currency translation exposures.
From time to time the Group uses short-term derivative financial instruments to manage its transactional foreign exchange exposures where these
exposures cannot be eliminated through balancing the underlying risks. No transactions of a speculative nature are undertaken.
The foreign currency exposure arising from open third party transactions held in a currency other than the functional currency of the related entity is
summarised as follows:
£m
Trade and other receivables
Trade and other payables
Net statement of financial position exposure
£m
Trade and other receivables
Trade and other payables
Net statement of financial position exposure
GBP
0.1
(6.7)
(6.6)
GBP
–
(0.5)
(0.5)
2017
JPY
–
–
–
2016
JPY
–
(0.1)
(0.1)
EUR
0.6
(8.7)
(8.1)
EUR
15.1
(26.5)
(11.4)
USD
16.7
(10.4)
6.3
USD
19.1
(18.7)
0.4
Other market risks
The Group does not hold any available-for-sale equity securities and is therefore not subject to risks of changes in equity prices in the income
statement.
Sensitivity analysis
For the year ended 31 December 2017, it is estimated that a general increase of one percentage point in interest rates would have decreased the
Group’s profit before tax by approximately £2.5m (2016: decrease of £1.9m) with a corresponding decrease in total equity.
It is estimated that a five percentage point weakening in the value of the US dollar against sterling would have decreased the Group’s profit before tax
by approximately £8.6m for the year ended 31 December 2017 (2016: decrease of £8.8m). It is estimated that a five percentage point weakening in
the value of the euro against sterling would have decreased the Group’s profit before tax by approximately £1.7m for the year ended 31 December
2017 (2016: decrease of £2.7m).
It is estimated that a five percentage point weakening in the value of the US dollar against sterling would have decreased the Group’s total equity by
approximately £11.1m for the year ended 31 December 2017 (2016: £11.3m). It is estimated that a five percentage point weakening in the value of
the euro against sterling would have decreased the Group’s total equity by approximately £1.1m for the year ended 31 December 2017 (2016:
decrease of £0.4m).
6 8
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
6 7
Financial statements
Notes to the accounts continued
24. Financial instruments and financial risk management (continued)
The Company did not declare an interim dividend (2016: 1.55p) during the year ended 31 December 2017. The Directors do not propose to declare a
final dividend for 2017 (2016: £nil).
The Group’s objective when managing capital (equity and borrowings) is to safeguard the Group’s ability to continue as a going concern and to
maintain an optimal capital structure to reduce the cost of capital. The Group has a net debt position of £296.6m at the end of 2017 (2016: £151.3m)
and £131.8m (2016: £299.4m) of committed undrawn borrowings.
Effective interest rates
In respect of financial assets and financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods
in which they mature. Interest payments are excluded from the table.
The undiscounted cash flow and fair values of these instruments is not materially different from the carrying value.
As at 31 December 2017
Cash and cash equivalents
Trade and other receivables(1)
Other long-term receivables(2)
Derivative financial assets:
Interest rate swaps
• Outflow
• Inflow
Financial assets(3)
Non-derivative financial liabilities(4):
Bank loans and corporate borrowings
Other loans
Trade and other payables(5)
Other long-term payables(5)
Financial liabilities
As at 31 December 2016
Cash and cash equivalents
Trade and other receivables(1)
Other long-term receivables(2)
Financial assets(3)
Non-derivative financial liabilities(4):
Bank loans and corporate borrowings
Other loans
Trade and other payables(5)
Other long-term payables(5)
Derivative financial liabilities:
Interest rate swaps
• Outflow
• Inflow
Financial liabilities
Effective
interest rate
%
0.1%
–
–
–
–
Carrying
value
£m
Contractual
cash flow
£m
Less than
1 year
£m
54.8
406.3
283.5
–
0.2
54.8
428.1
283.5
–
0.2
54.8
428.1
–
–
0.2
1-2 years
£m
2-5 years
£m
–
–
–
–
141.6
141.6
–
–
–
–
744.8
766.6
483.1
141.6
141.6
2.5%
1.9%
–
–
(330.5)
(20.9)
(720.4)
(11.1)
(330.5)
(20.9)
(720.4)
(11.1)
–
(8.5)
(720.4)
–
(1,082.9)
(1,082.9)
(728.9)
(6.2)
(2.7)
–
(11.1)
(20.0)
(324.3)
(4.9)
–
–
(329.2)
(4.8)
Effective
interest rate
%
Carrying
value
£m
Contractual
cash flow
£m
Less than
1 year
£m
1-2 years
£m
2-5 years
£m
More than
5 years
£m
0.0%
–
–
2.9%
4.6%
–
–
–
–
50.1
343.3
81.0
474.4
(193.6)
(7.8)
(687.3)
(22.5)
50.1
362.3
81.0
493.4
(193.6)
(7.8)
(687.3)
(22.5)
50.1
362.3
–
412.4
–
(7.8)
(687.3)
–
–
40.5
40.5
–
–
40.5
40.5
(6.9)
(186.7)
–
–
–
(22.5)
–
–
–
(0.3)
–
(0.3)
–
–
–
–
–
(0.3)
–
(911.5)
(911.5)
(695.1)
(29.4)
(187.0)
More than
5 years
£m
–
–
–
–
–
–
–
(4.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
6 9
1. Excluding prepayments and accrued income and acquired lease fair value asset
2. Excluding acquired lease fair value asset
3. Financial assets are all held at amortised cost
4. All financial instruments are classified as variable rate instruments
5. Excluding deferred rents, deferred partner contributions and acquired lease fair value liability
6 8 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Financial statements
Notes to the accounts continued
24. Financial instruments and financial risk management (continued)
Fair value disclosures
The fair values together with the carrying amounts shown in the balance sheet are as follows:
31 December 2017
Carrying amount
Fair value
£m
Cash and cash equivalents
Trade and other receivables
Other long-term receivables
Derivative financial asset
Bank loans and corporate borrowings
Other loans
Trade and other payables
Other long-term payables
Unrecognised gain
Cash, loans
and
receivables
Other
financial
liabilities
Cash flow –
hedging
instruments
54.8
406.3
283.5
–
–
–
–
–
–
–
–
–
(330.5)
(20.9)
(720.4)
(11.1)
–
–
–
0.2
–
–
–
–
744.6
(1,082.9)
0.2
Total
Level 1
Level 2
Level 3
Total
54.8
406.3
283.5
0.2
(330.5)
(20.9)
(720.4)
(11.1)
(338.1)
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
0.2
–
31 December 2016
Carrying amount
Fair value
£m
Cash and cash equivalents
Trade and other receivables
Other long-term receivables
Bank loans and corporate borrowings
Other loans
Trade and other payables
Other long-term payables
Derivative financial liabilities
Unrecognised gain
Cash, loans
and
receivables
Other
financial
liabilities
Cash flow –
hedging
instruments
50.1
343.3
81.0
–
–
–
–
–
–
–
–
(193.6)
(7.8)
(687.3)
(22.5)
–
474.4
(911.2)
–
–
–
–
–
–
–
(0.3)
(0.3)
Total
50.1
343.3
81.0
(193.6)
(7.8)
(687.3)
(22.5)
(0.3)
(437.1)
Level 1
Level 2
Level 3
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
(0.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
(0.3)
–
During the years ended 31 December 2016 and 31 December 2017, there were no transfers between levels for fair value measured instruments, and
no financial instruments requiring level 3 fair value measurements were held.
7 0
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
6 9
Financial statements
Notes to the accounts continued
24. Financial instruments and financial risk management (continued)
Valuation techniques
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into
different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
• Level 1: quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly; and
• Level 3: inputs for the asset or liability that are not based on observable market data.
The following tables show the valuation techniques used in measuring level 2 fair values and methods used for financial assets and liabilities not
measured at fair value:
Type
Valuation technique
Cash and cash equivalents, trade and other receivables/payables
and customer deposits
Loans and overdrafts
Foreign exchange contracts and interest rate swaps
For cash and cash equivalents, receivables/payables with a remaining life of less than one
year and customer deposits, the book value approximates the fair value because of their
short-term nature.
The fair value of bank loans, overdrafts and other loans approximates the carrying value
because interest rates are at floating rates where payments are reset to market rates at
intervals of less than one year.
The fair values are based on a combination of broker quotes, forward pricing and swap
models.
There was no significant unobservable input used in our valuation techniques.
Derivative financial instruments
The following table summarises the notional amount of the open contracts as at the reporting date:
Derivatives used for cash flow hedging
Derivatives used for cash flow hedging
Committed borrowings
Revolving credit facility
2017
GBP m
70.0
2017
USD m
30.0
2016
Facility
£m
550.0
2016
GBP m
70.0
2016
USD m
30.0
2016
Available
£m
299.4
2017
Facility
£m
550.0
2017
Available
£m
131.8
The Group maintains a revolving credit facility provided by a group of international banks. During the year, the maturity was extended until 2022, with a
further option to extend to 2023. As at 31 December, £131.8m was available and undrawn under this facility.
The debt provided under the credit facility is floating rate, however, as part of the Group’s balance sheet management and to protect against a future
increase in interest rates, £70.0m and $30.0m were swapped into a fixed rate liability for a three-year period with an average fixed rate of respectively
0.7% and 1.8% (excluding funding margin).
The £550.0m revolving credit facility is subject to financial covenants relating to net debt to EBITDA, and EBITDA plus rent to interest plus rent.
The Group is in compliance with all covenant requirements.
7 0 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 1
Financial statements
Notes to the accounts continued
25. Retirement benefit obligations
The Group accounts for the Swiss and Philippines pension plans as defined benefit plans under IAS 19 (2011) – Employee Benefits.
The reconciliation of the net defined benefit liability and its components are as follows:
Fair value of plan assets
Present value of obligations
Net funded obligations
2017
£m
8.5
(10.0)
(1.5)
2016
£m
5.8
(6.6)
(0.8)
26. Acquisitions
Current period acquisitions
During the year ended 31 December 2017 the Group made various individually immaterial acquisitions for a total consideration of £2.8m.
£m
Net assets acquired
Intangible assets
Property, plant and equipment
Cash
Other current and non-current assets
Current liabilities
Non-current liabilities
Goodwill arising on acquisition(1)
Total consideration
Less: Fair value adjustment of historical investment in acquired joint venture
Less: Contingent consideration
Cash flow on acquisition
Cash paid
Net cash outflow
Provisional
fair value
adjustments
Provisional
fair value
Book value
–
0.8
0.4
–
(0.6)
(0.2)
0.4
0.2
0.6
–
0.4
–
–
1.2
0.2
1.4
0.4
0.4
(0.6)
(0.2)
1.6
1.2
2.8
–
–
2.8
2.8
2.8
1. The goodwill arising on acquisition includes negative goodwill of £0.4m. The negative goodwill has been recognised as part of the selling, general and administration expenses line
item in the consolidated income statement
The goodwill arising on the above acquisitions reflects the anticipated future benefits the Group can obtain from operating the businesses more
efficiently, primarily through increasing occupancy and the addition of value-adding products and services. £0.4m of the above goodwill is expected to
be deductible for tax purposes.
If the above acquisitions had occurred on 1 January 2017, the revenue and net retained loss arising from these acquisitions would have been £1.3m
and £0.1m respectively. In the year, the equity acquisitions contributed revenue of £1.1m and net retained loss of £0.1m.
There was £nil contingent consideration arising on the 2017 acquisitions. Contingent consideration of £2.1m (2016: £2.7m) was also paid during
the current year with respect to milestones achieved on prior year acquisitions.
The acquisition costs associated with these transactions were £0.3m, recorded within administration expenses within the consolidated
income statement.
For a number of the acquisitions in 2017, the fair value of assets acquired has only been provisionally assessed at the reporting date. The main
changes in the provisional fair values expected are for the fair value of the leases (asset or liability), customer relationships and property, plant and
equipment. The final assessment of the fair value of these assets will be made within 12 months of the acquisition date and any adjustments reported
in future reports.
The Group continued to complete acquisition transactions subsequent to 31 December 2017, which will be accounted for in accordance with IFRS 3.
Due to the timing of these transactions, it is not practical to disclose the information associated with the initial accounting for these acquisitions.
7 2
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 1
Financial statements
Notes to the accounts continued
26. Acquisitions (continued)
Prior period acquisitions
During the year ended 31 December 2016 the Group made various individually immaterial acquisitions for a total consideration of £10.8m.
£m
Net assets acquired
Intangible assets
Property, plant and equipment
Cash
Other current and non-current assets
Current liabilities
Non-current liabilities
Goodwill arising on acquisition
Total consideration
Less: Fair value adjustment of historical investment in acquired joint venture
Less: Contingent consideration
Cash flow on acquisition
Cash paid
Net cash outflow
Provisional
fair value
adjustments
Provisional
fair value
Final
fair value
adjustments
Final
fair value
Book value
–
2.4
1.2
2.6
(5.4)
(0.1)
0.7
0.1
–
–
–
–
–
0.1
0.1
2.4
1.2
2.6
(5.4)
(0.1)
0.8
10.0
10.8
(2.5)
(0.9)
7.4
7.4
7.4
0.1
0.2
–
0.3
(0.4)
–
0.2
(0.2)
–
0.2
2.6
1.2
2.9
(5.8)
(0.1)
1.0
9.8
10.8
(2.5)
(0.9)
7.4
7.4
7.4
The goodwill arising on the above acquisitions reflects the anticipated future benefits the Group can obtain from operating the businesses more
efficiently, primarily through increasing occupancy and the addition of value-adding products and services. £0.1m of the above goodwill is expected to
be deductible for tax purposes.
If the above acquisitions had occurred on 1 January 2016, the revenue and net retained profit arising from these acquisitions would have been
£10.1m and £0.2m respectively. In the year, the equity acquisitions contributed revenue of £3.7m and net retained loss of £0.5m.
There was £0.9m contingent consideration arising on the above acquisitions.
The acquisition costs associated with these transactions were £0.5m, recorded within administration expenses within the consolidated
income statement.
The prior year comparative information has not been restated due to the immaterial nature of the final fair value adjustments recognised in 2017.
27. Capital commitments
Contracts placed for future capital expenditure not provided for in the financial statements
2017
£m
60.9
2016
£m
42.6
These commitments are principally in respect of fit-out obligations on new centres opening in 2018. In addition, our share of the capital
commitments of joint ventures amounted to £nil at 31 December 2017 (2016: £nil).
7 2 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 3
Financial statements
Notes to the accounts continued
28. Non-cancellable operating lease commitments
As at the reporting date the Group was committed to making the following payments in respect of operating leases:
Lease obligations falling due:
Within one year
Between one and five years
After five years
2017
2016
Property
£m
Other
£m
Total
£m
Property
£m
Other
£m
Total
£m
914.3
2,628.7
1,494.5
5,037.5
0.5
0.4
–
0.9
914.8
2,629.1
1,494.5
5,038.4
882.4
2,386.9
1,170.4
4,439.7
1.3
1.0
–
2.3
883.7
2,387.9
1,170.4
4,442.0
Non-cancellable operating lease commitments exclude future contingent rental amounts such as the variable amounts payable under performance-
based leases, where the rents vary in line with a centre’s performance.
The Group’s non-cancellable operating lease commitments do not generally include purchase options nor do they impose restrictions on the Group
regarding dividends, debt or further leasing.
29. Contingent assets and liabilities
The Group has bank guarantees and letters of credit held with certain banks, substantially in support of leasehold contracts with a variety of landlords,
amounting to £142.7m (2016: £151.7m). There are no material lawsuits pending against the Group.
30. Related parties
Parent and subsidiary entities
The consolidated financial statements include the results of the Group and its subsidiaries listed in note 31.
Affiliated entities
The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year:
£m
2017
Affiliated entities
2016
Affiliated entities
Management
fees received
from related
parties
Amounts
owed by
related party
Amounts
owed to
related party
3.0
2.9
9.0
8.6
2.2
8.0
As at 31 December 2017, £nil of the amounts due to the Group have been provided for (2016: £nil). All outstanding balances with these related parties
are priced on an arm’s length basis. None of the balances are secured.
Key management personnel
No loans or credit transactions were outstanding with Directors or officers of the Company at the end of the year or arose during the year that are
required to be disclosed.
Compensation of key management personnel (including Directors)
Key management personnel includes those personnel (including Directors) that have responsibility and authority for planning, directing and
controlling the activities of the Group:
Short-term employee benefits
Retirement benefit obligations
Share-based payments
2017
£m
7.2
0.5
–
7.7
2016
£m
9.8
0.5
0.5
10.8
Share-based payments included in the table above reflect the accounting charge in the year. The full fair value of awards granted in the year was £nil
(2016: £2.9m). These awards are subject to performance conditions and vest over three, four and five years from the award date.
7 4
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 3
Financial statements
Notes to the accounts continued
30. Related parties (continued)
Transactions with related parties
During the year ended 31 December 2017 the Group acquired goods and services from a company indirectly controlled by a Director of IWG plc, the
ultimate parent company of Regus plc, amounting to £91,120 (2016: £30,228). There was a £9,506 balance outstanding at the year-end (2016:
£27,720).
All transactions with these related parties are priced on an arm’s length basis and are to be settled in cash. None of the balances are secured.
31. Principal Group companies
The Group’s principal subsidiary undertakings at 31 December 2017, their principal activities and countries of incorporation are set out below:
Name of undertaking
Trading companies
Regus Australia Management Pty
Regus Belgium SA
Regus do Brasil Ltda
HQ Do Brazil Administracao de bens e
servicos Ltda
Regus GmbH & Co. KG
Regus HK Management Ltd
Regus CME Ireland Limited
Regus Business Centres Limited
Regus Business Centres Italia Srl
Open Office K.K.
Regus Management de Mexico,SA de CV
Regus Amsterdam BV
Regus Management Singapore Pte Ltd
Regus Management Group (Pty) Ltd
Regus Management (Sweden) AB
Regus Business Centers AG
KBC Holdings Limited
Avanta Managed Offices Ltd
Stonemartin Corporate Centre Limited
HQ Global Workplaces LLC
RGN-BSuites Holdings, LLC
RGN National Business Centre LLC
Office Suites Plus Properties LLC
Regus Business Centres LLC
% of
ordinary
shares
and votes
held
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Country of
incorporation
Australia
Belgium
Brazil
Brazil
Germany
Hong Kong
Ireland
Israel
Italy
Japan
Mexico
Netherlands
Singapore
South Africa
Sweden
Switzerland
United Kingdom
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
Name of undertaking
Management companies
RGN Management Limited Partnership
Regus Paris SAS
Franchise International Sarl
RBW Global Sarl
Regus Service Centre Philippines BV
Regus Global Management Centre SA
Regus Business Services Limited
Regus Group Services Ltd
Regus Management (UK) Ltd
Regus Management Group LLC
Holding and finance companies
Umbrella Group
Umbrella Global Holdings
Umbrella Holdings Sarl
Umbrella International Holdings AG
Pathway Finance Sarl
Pathway Finance EUR 2 Sarl
Pathway Finance USD 2 Sarl
Regus Group Limited
Regus Corporation LLC
% of
ordinary
shares
and votes
held
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Country of
incorporation
Canada
France
Luxembourg
Luxembourg
Philippines
Switzerland
United Kingdom
United Kingdom
United Kingdom
United States
Luxembourg
Luxembourg
Luxembourg
Switzerland
Switzerland
Switzerland
Switzerland
United Kingdom
United States
7 4 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 5
Financial statements
Notes to the accounts continued
32. Key judgemental areas adopted in preparing these accounts
The preparation of consolidated financial statements in accordance with IFRS requires management to make certain judgements and assumptions
that affect reported amounts and related disclosures.
Fair value accounting for business combinations
For each business combination, we assess the fair values of assets and liabilities acquired. Where there is not an active market in the category of the
non-current assets typically acquired with a business centre or where the books and records of the acquired company do not provide sufficient
information to derive an accurate valuation, management calculates an estimated fair value based on available information and experience.
The main categories of acquired non-current assets where management’s judgement has an impact on the amounts recorded include tangible fixed
assets, customer list intangibles and the fair market value of leasehold assets and liabilities. For significant business combinations management also
obtains third-party valuations to provide additional guidance as to the appropriate valuation to be included in the financial statements.
Valuation of intangibles and goodwill
We evaluate the fair value of goodwill and other indefinite life intangible assets to assess potential impairments on an annual basis, or during the year
if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. We evaluate the carrying value of
goodwill based on our CGUs aggregated at a country level and make that determination based upon future cash flow projections which assume
certain growth projections which may or may not occur. We record an impairment loss for goodwill when the carrying value of the asset is less than
its estimated recoverable amount. Further details of the methodology and assumptions applied to the impairment review in the year ended
31 December 2017, including the sensitivity to changes in those assumptions, can be found in note 12.
Impairment of property, plant and equipment
We evaluate the potential impairment of property, plant and equipment at a centre (CGU) level where there are indicators of impairment at the
balance sheet date. In the assessment of value-in-use, key judgemental areas in determining future cash flow projections include: an assessment of
the location of the centre; the local economic situation; competition; local environmental factors; the management of the centre; and future changes
in occupancy, revenue and costs of the centre.
Tax assets and liabilities
We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations
about future outcomes. Changes in existing laws and rates, and their related interpretations, and future business results may affect the amount of
deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents management’s
best estimate of future events that can be appropriately reflected in the accounting estimates. It is current Group policy to recognise a deferred tax
asset when it is probable that future taxable profits will be available against which the assets can be used. The Group considers it probable if the entity
has made a taxable profit in the previous year and is forecast to continue to make a profit in the foreseeable future. Where appropriate, the Group
assesses the potential risk of future tax liabilities arising from the operation of its business in multiple tax jurisdictions and includes provisions within tax
liabilities for those risks that can be estimated reliably. Changes in existing tax laws can affect large international groups such as Regus and could result
in significant additional tax liabilities over and above those already provided for.
Onerous lease provisions
We evaluate the performance of centres to determine whether any leases are considered onerous, i.e. the Group does not expect to recover the
unavoidable lease costs up to the first break point at the Group’s option. A provision for our estimate of the net amounts payable under the terms of
the lease to the first break point, discounted at an appropriate discount rate, is recognised where appropriate.
Dilapidations
Certain of our leases with landlords include a clause obliging the Group to hand the property back in the condition as at the date of signing the lease.
The costs to bring the property back to that condition are not known until the Group exits the property so the Group estimates the costs at each
balance sheet date. However, given that landlords often regard the nature of changes made to properties as improvements, the Group estimates
that it is unlikely that any material dilapidation payments will be necessary. A provision is recognised for those potential dilapidation payments when it
is probable that an outflow will occur and can be reliably estimated.
7 6
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 5
Financial statements
Parent company accounts
Summarised extract of Company balance sheet
(Prepared under Luxembourg GAAP)
Assets
C. Fixed assets
III. Financial assets
1. Shares in affiliated undertakings
D. Current assets
II. Debtors
2. Amount owed by affiliated undertakings
a) becoming due and payable within one year
3. Other receivables
b) becoming due and payable within one year
E. Prepayments
Total assets
Capital, reserves and liabilites
A. Capital and reserves
I. Subscribed capital
II. Share premium and similar premiums
IV. Reserves
1. Legal reserve
4. Other reserves
V. Results brought forward
VI. Results for the financial year
VII. Interim dividends
Capital and reserves
D. Non-subordinated debts
6. Trade creditors
a) becoming due and payable within one year
7. Amounts owed to affiliated undertakings
a) becoming due and payable within one year
b) becoming due and payable after more than one year
Liabilities
Total capital, reserves and liabilities
Approved by the Directors on 27 April 2018
TIM REGAN
DIRECTOR
7 6 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
As at
31 Dec 2017
£m
As at
31 Dec 2016
£m
644.6
644.6
0.3
–
–
0.1
–
1.3
644.9
646.0
–
–
–
574.6
(103.8)
161.6
–
632.4
0.2
9.2
3.1
12.5
644.9
9.2
53.7
0.9
520.0
(66.6)
(22.8)
(14.4)
480.0
0.8
9.6
155.6
166.0
646.0
7 7
Financial statements
Parent company accounts continued
Accounting policies
Basis of preparation
The annual accounts have been prepared in accordance with Luxembourg legal and regulatory requirements under the historical cost convention
which differs in material respects from IFRS in both measurement and presentation of certain transactions.
The Company is included in the consolidated financial statements of Regus plc.
The balance sheet has been extracted from the non-statutory accounts of Regus plc for the year ended 31 December 2017, which are available from
the Company’s registered office, 26 Boulevard Royal, Luxembourg and which will be filed with both the Luxembourg Register of Commerce and the
Jersey Register of Companies.
Financial assets
Shares in affiliated undertakings are valued at purchase price including acquisition costs. Where any permanent diminution in value is identified, value
adjustments are recorded in the profit and loss account. These value adjustments are not continued if the reasons which cause their initial recording
cease to apply.
7 8
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 7
Financial statements
Five-year summary
Income statement (full year ended)
Revenue
Cost of sales
Gross profit (centre contribution)
Administration expenses
Share of post-tax (loss)/profit of joint ventures
Operating profit
Finance expense
Finance income
Profit before tax for the year
Income tax expense
Profit after tax for the year
Earnings per ordinary share (EPS):
Basic (p)
Diluted (p)
31 Dec 2017
£m
31 Dec 2016
£m
31 Dec 2015
£m
31 Dec 2014
£m
31 Dec 2013
£m
2,341.7
(1,946.3)
2,233.4
(1,784.6)
395.4
(217.4)
(0.8)
177.2
(14.1)
4.1
167.2
(35.6)
131.6
448.8
(260.4)
(0.8)
187.6
(11.6)
0.1
176.1
(34.9)
141.2
1,927.0
(1,498.6)
428.4
(268.6)
0.3
160.1
(15.0)
0.6
145.7
(25.8)
119.9
1,676.1
(1,293.0)
383.1
(279.6)
0.8
104.3
(17.3)
0.1
87.1
(17.2)
69.9
27.7p
27.7p
15.2p
15.2p
12.8p
12.6p
7.4p
7.2p
1,533.5
(1,159.7)
373.8
(283.1)
0.1
90.8
(10.5)
1.2
81.5
(14.6)
66.9
7.1p
7.0p
Weighted average number of shares outstanding (‘000s)
474,526
929,860
933,458
944,082
943,775
Balance sheet data (as at)
Intangible assets
Property, plant and equipment
Deferred tax assets
Other assets
Cash and cash equivalents
Total assets
Current liabilities
Non-current liabilities
Equity
Total equity and liabilities
708.9
1,270.9
22.8
900.9
54.8
2,958.3
1,223.8
907.6
826.9
738.1
1,194.4
29.3
651.5
50.1
2,663.4
1,180.1
744.2
739.1
666.0
917.0
36.4
644.3
63.9
2,327.6
1,085.7
658.2
583.7
549.9
718.8
40.0
565.2
72.8
491.7
608.7
33.4
423.8
84.7
1,946.7
1,642.3
891.9
517.4
537.4
758.8
369.3
514.2
2,958.3
2,663.4
2,327.6
1,946.7
1,642.3
7 8 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
7 9
Financial statements
Segmental analysis
Segmental analysis – management basis (unaudited)
Mature(1)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
REVPOW (£)
2016 Expansions(2)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
2017 Expansions(2)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)(5)
Closures
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Total
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
REVPAW (£)
Period end workstations(6)
Mature
2016 Expansions
2017 Expansions
Total
Americas
2017
EMEA
2017
Asia Pacific
2017
165,329
75.8%
926.4
177.6
7,392
14,593
55.8%
40.8
(9.6)
7,306
27.0%
10.9
(14.3)
1,450
66.8%
6.7
(0.5)
188,678
72.3%
984.8
153.2
5,219
166,755
14,328
12,948
87,102
77.3%
486.1
105.6
7,220
9,870
64.6%
29.1
(1.4)
7,380
39.0%
20.2
(5.5)
1,552
51.7%
5.1
(1.6)
87,414
73.0%
351.1
74.3
5,504
8,850
52.9%
23.0
(1.4)
3,694
25.2%
5.2
(5.1)
1,032
64.9%
3.9
(1.9)
105,904
73.1%
540.5
97.1
5,104
100,990
69.4%
383.2
65.9
3,794
89,656
9,684
16,162
87,987
9,043
7,497
194,031
115,502
104,527
United
Kingdom
2017
69,233
72.1%
398.2
79.2
7,977
3,929
62.9%
13.2
(0.4)
2,140
32.0%
3.8
(3.6)
1,716
63.1%
14.2
2.2
77,018
70.3%
429.4
77.4
5,575
70,254
4,019
4,947
79,220
8 0
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
Other
2017
Total
2017
–
–
2.9
(0.2)
–
–
–
0.4
0.2
–
–
0.5
1.8
–
–
–
–
–
–
3.8
1.8
–
–
–
–
–
409,078
74.9%
2,164.7
436.5
7,065
37,242
58.2%
106.5
(12.6)
20,520
31.5%
40.6
(26.7)
5,750
61.3%
29.9
(1.8)
472,590
71.5%
2,341.7
395.4
4,955
414,652
37,074
41,554
493,280
7 9
Financial statements
Segmental analysis continued
Segmental analysis – management basis (unaudited)
Mature(1)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
REVPOW (£)
2016 Expansions(2)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Closures(3)
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
Total
Workstations(4)
Occupancy (%)
Revenue (£m)
Contribution (£m)
REVPAW (£)
Notes:
Americas
2016
EMEA
2016
Asia Pacific
2016
162,875
75.5 %
897.4
173.8
7,298
7,723
30.4%
12.1
(12.8)
3,330
70.8%
13.5
–
173,928
73.4%
923.0
161.0
5,307
85,793
75.9%
461.8
106.6
7,092
3,903
35.0%
6.2
(5.1)
2,290
62.5%
8.8
0.1
91,986
73.8%
476.8
101.6
5,183
87,569
71.8%
342.1
69.9
5,441
4,325
31.0%
7.6
(3.3)
3,236
75.8%
13.5
0.9
95,130
70.1%
363.2
67.5
3,818
United
Kingdom
2016
64,137
75.6%
409.9
95.9
8,454
3,080
57.2%
9.4
(0.1)
5,279
77.4%
42.8
14.6
72,496
75.0%
462.1
110.4
6,374
Other
2016
Total
2016
–
–
6.8
6.8
–
–
–
1.5
1.5
–
–
–
–
–
–
8.3
8.3
–
400,374
74.8%
2,118.0
453.0
7,072
19,031
35.8%
36.8
(19.8)
14,135
73.0%
78.6
15.6
433,540
73.0%
2,233.4
448.8
5,152
1. The Mature business comprises centres not opened in the current or previous financial year
2. Expansions include new centres opened and acquired businesses
3. A closure for the 2016 comparative data is defined as a centre closed during the period from 1 January 2016 to 31 December 2017
4. Workstation numbers are calculated as the weighted average for the year
5. 2017 expansions include any costs incurred in 2017 for centres which will open in 2018
6. Workstations available at period end
8 0 R E G U S P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
8 1
Financial statements
Post-tax cash return on net investment
The purpose of this unaudited page is to reconcile some of the key numbers used in the returns calculation back to the Group’s audited statutory
accounts, and thereby, give the reader greater insight into the returns calculation drivers. The methodology and rationale for the calculation are
discussed in the financial review on page 22 of these accounts.
Description
Reference
2014
Aggregation
2015
Expansions
2016
Expansions
2017
Expansions
2018
Expansions Closures
Total
Post-tax cash return on net investment
19.2%
8.3%
(8.7%)
(14.0%)
Income statement, p41
Income statement, p41
1,857.6
400.2
307.1
36.3
106.5
(12.6)
40.6
(26.4)
–
–
–
12.3%
29.9
2,341.7
(0.3)
(1.8)
395.4
Revenue
Centre contribution
Loss on disposal of assets
Impairment of assets
EBIT reconciliation
(analysed below)
EBIT reconciliation
(analysed below)
Underlying centre contribution
Selling, general and administration expenses(1)
Income statement, p41
EBIT
Depreciation and amortisation
Amortisation of partner contributions
Amortisation of acquired lease fair value
adjustments
Non-cash items
Taxation(2)
Adjusted net cash profit
Maintenance capital expenditure
Partner contributions
Net maintenance capital expenditure
Post-tax cash return
Growth capital expenditure
Partner contributions
Net investment
EBIT reconciliation
(analysed below)
Note 5, p54
Note 5, p54
Note 5, p54
Capital expenditure
(analysed below)
Partner contributions
(analysed below)
Capital expenditure
(analysed below)
Partner contributions
(analysed below)
1. Including research and development expenses
2. Based on EBIT at the Group’s long-term effective tax rate of 20%
0.5
–
400.7
(147.6)
253.1
142.0
(42.0)
(4.3)
95.7
(50.6)
298.2
–
–
36.3
(36.6)
(0.3)
36.6
(8.6)
0.7
28.7
0.1
28.5
87.0
8.6
(20.2)
66.8
231.4
(1.9)
6.7
21.8
–
–
–
–
(12.6)
(18.9)
(26.4)
(12.1)
–
–
(0.3)
(0.1)
(31.5)
(38.5)
(0.4)
19.4
(6.4)
0.1
13.1
6.3
10.0
(3.4)
–
6.6
7.7
(12.1)
(24.2)
–
–
–
–
–
–
–
–
–
–
0.1
(0.3)
–
–
–
3.8
1.7
3.7
4.3
1.7
401.4
(2.1)
(217.4)
1.6
3.4
184.0
211.4
(0.2)
(60.6)
(0.1)
3.1
(0.3)
4.4
–
–
–
(3.6)
147.2
(36.7)
294.5
95.6
(22.1)
73.5
(12.1)
(24.2)
(0.3)
4.4
221.0
1,425.9
328.6
197.9
248.0
14.0
(219.9)
1,206.0
(65.9)
262.7
(58.2)
139.7
(74.9)
173.1
(0.6)
13.4
–
–
–
2,214.4
(419.5)
1,794.9
8 2
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
8 1
Financial statements
Post-tax cash return on net investment
continued
2017
Movement in capital expenditure
December 2016
2017 Capital expenditure(3)
Properties acquired
Centre closures(4)
December 2017
2014
Aggregation
2015
Expansions
2016
Expansions
2017
Expansions
2018
Expansions Closures
Total
1,454.4
325.0
3.7
–
(32.2)
6.7
–
(3.1)
183.7
15.0
–
(0.8)
30.0
208.5
9.5
–
–
14.0
–
–
1,425.9
328.6
197.9
248.0
14.0
–
–
–
–
–
1,993.1
247.9
9.5
(36.1)
2,214.4
3. 2018 expansions relate to costs and investments incurred in 2017 for centres which will open in 2018
4. The growth capital expenditure for an estate is reduced by the investment in centres closed during the year, but only where that investment has been fully recovered
2017
Movement in partner contributions
December 2016
2017 Partner contributions
Centre closures(5)
December 2017
5. The partner contributions for an estate are reduced by the partner contributions for centres closed during the year
Partner contributions
Reference
£m
Capital expenditure
Reference
£m
2014
Aggregation
2015
Expansions
2016
Expansions
2017
Expansions
2018
Expansions Closures
221.9
2.4
(4.4)
219.9
66.0
0.5
(0.6)
65.9
3.3
71.6
–
74.9
–
0.6
–
0.6
–
–
–
–
52.9
5.5
(0.2)
58.2
2017
Note 17, p63
Note 18, p63
333.9
68.5
265.4
–
Maintenance capital
expenditure
Financial review,
p22
Growth capital
expenditure
• 2017 Capital
expenditure
Financial review,
p22
102.7
• Properties acquired
22.1
80.6
(60.6)
(23.0)
Total capital
expenditure
Analysed as
• Purchase of
subsidiary
undertakings
Cash flow, p45
Total
344.1
80.6
(5.2)
419.5
95.6
257.4
247.9
9.5
353.0
4.5
2017
EBIT reconciliation
Reference
EBIT
Loss on disposal of
assets
Note 5, p54
Impairment of assets
Note 5, p54
Share of profit in joint
ventures
Operating profit
Income
statement,
p41
Income
statement,
p41
£m
184.0
(4.3)
(1.7)
(0.8)
177.2
2017
Opening partner
contributions
• Current
• Non-current
Acquired in the period
Received in the period
• Maintenance partner
contributions
• Growth partner
contributions
Utilised in the period
Note 5, p54
Exchange differences
Closing partner
contributions
• Current
• Non-current
• Purchase of property,
plant and equipment
• Purchase of
intangible assets
Cash flow, p45
Note 14, p62
344.9
Cash flow, p45
Note 13, p61
3.6
353.0
59.2
293.8
Note 17, p63
Note 18, p63
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Financial statements
Glossary
Available workstations
The total number of workstations in the Group (also termed Inventory).
During the year, this is expressed as a weighted
average. At period ends the absolute number is used
Centre contribution
Gross profit comprising centre revenue less direct operating expenses
but before administrative expenses
EBIT
Earnings before interest and tax
EBITDA
Earnings before interest, tax, depreciation and amortisation
EPS
Earnings per share
Expansions
A general term which includes new business centres established
by Regus and acquired centres in the year
Like-for-like
The financial performance from centres owned and operated for
a full 12-month period prior to the start of the financial year, which
therefore have a full-year comparative
Mature business
Operations owned for a full 12-month period prior to the start of
the financial year and operated throughout the current financial year,
which therefore have a full-year comparative
Occupancy
Occupied workstations divided by available workstations expressed as a
percentage
Occupied workstations
Workstations which are in use by clients. This is expressed
as a weighted average for the year
Post-tax cash return
EBITDA achieved, less the amortisation of any partner capital
contribution, less tax based on the EBIT and after deducting
maintenance capital expenditure
REVPAW
Total revenue per available workstation (revenue/available workstations)
REVPOW
Total revenue per occupied workstation
ROI
Return on investment
TSR
Total shareholder return
WIPOW
Workstation income per occupied workstation
Shareholder information
Corporate directory
Registered Office
Regus plc
Registered Office:
22 Grenville Street
St Helier
Jersey JE4 8PX
Registered Head Office:
26 Boulevard Royal
L-2449 Luxembourg
Tim Regan
Christoffel Mul
Ian Hallett
Directors
The Directors shown below held office during the whole period from
1 January 2017 to 27 April 2018:
Registered Number
Jersey
101523
Luxembourg
R.C.S.B 141 159
Auditor
KPMG Luxembourg, Société cooperative
39, Avenue John F. Kennedy
L-1855 Luxembourg
8 4
R E G U S P LC A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 7
8 3
Regus plc S.A.
26 Boulevard Royal
L-2449 Luxembourg
www.regus.com