TIDMIWG TIDMTTM
RNS Number : 5619R
IWG PLC
09 March 2021
9 March 2021
IWG plc - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEARED 31
DECEMBER 2020
IWG plc, the global operator of leading workspace brands, today
announces its annual results for the year ended 31 December
2020
Whilst 2020 was a challenging year, our decisive action has
reset the Group to take advantage of accelerating demand for hybrid
working
Key Highlights(1)
COVID-19 created the most challenging year in our history but
provides our greatest opportunity in 31-years
- Open centre revenue up 0.5%(2) to GBP2,393.4m, up 10.2% in H1
and down 8.8% in H2
- Pre-2019(3) revenue down 7.4%(2) to GBP2,129.8m, up 0.2% in H1
and down 15.8% in H2
- Pre-2019(3) occupancy at 72.9% (2019: 73.9%), occupancy
reduction moderating over the year
- Strong demand for products supporting hybrid working: Virtual
Office and VO customer services revenue growth 6.4%
- Adjusted operating loss from continuing operations of
GBP173.8m (2019: profit of GBP136.8m), in line with management
expectations
Swift, comprehensive actions taken to reduce costs
- Specific COVID-19 related adjusting items of GBP379.5m
- Annualised cost savings anticipated to be in the range GBP325m
to GBP375m; estimated cumulative benefit of c. GBP2.4bn
- Cash flow before net growth capex, investments, share
repurchase, dividends & adjusting items of GBP140.7m (2019:
GBP224.6m)
Maintained strong financial position
- Strengthened financial position following GBP320m equity
placing and GBP350m convertible bond offering
- Net debt at 31 December 2020 of GBP351.1m; net debt reduced in
Q1 2021 with return of GBP283.7m of investment
- GBP802.3m of available liquidity as at 31 December 2020
Strategic transformation to capital light model continues
apace
- Franchising remains a key focus area for growth
- Added 15 new franchise partners and an additional 67 committed
locations in 2020
- Signed first franchise in the US since year-end in Metro
Detroit
- Strong growth in management agreements and other partnering
deals; Master franchise discussions ongoing
Well positioned to capture increased opportunities post COVID-19
recovery
- 2020: a year of unprecedented challenge, likely to persist
well into 2021
- Stronger H2 2021 financial performance underpinned by cost
savings and expected improved revenue growth
- Existing positive trends accelerated by the pandemic:
increased demand for hybrid working solutions and suburban
locations
- Uniquely positioned to help enterprises adapt to the new world
of hybrid working; many new deals signed
- Strong pipeline of compelling M&A opportunities but we
maintain a prudent approach
Hybrid working driving surge in membership deals
- Unprecedented demand for enterprise membership agreements
- More than 1m future members in the pipeline
- Significant new enterprise membership clients include NTT,
Standard Chartered, Cisco, Salesforce, Talentsoft, Nestle and
Staples
Annual results
% change % change
constant actual
2020 2020 2019 2019 currency currency
(Pre-IFRS (Pre-IFRS (Pre-IFRS (Pre-IFRS
GBPm (As reported) 16) 16) (As reported) 16) 16)
---------------------------------- --------------- ----------- ----------- --------------- ---------- ----------
Revenue 2,480.2 2,480.2 2,648.9 2,648.9 (5.3)% (6.4)%
Open centre revenue 2,393.4 2,393.4 2,408.1 2,408.1 0.5% (0.6)%
Pre-2019 revenue 2,129.8 2,129.8 2,328.7 2,328.7 (7.4)% (8.5)%
Operating profit/(loss) -
continuing
operations (352.0) (553.3) 136.8 286.8
Adjusted operating profit/(loss)
- continuing operations 37.8 (173.8) 136.8 286.8
Profit/(loss) before tax -
continuing
operations (620.1) (564.2) 118.5 55.0
Adjusted profit/(loss) before
tax - continuing operations (230.3) (184.7) 118.5 55.0
Profit/(loss) after tax -
continuing
operations (650.2) (607.5) 134.0 77.3
Earnings per share - attributable
to ordinary shareholders (p) (67.9) (63.5) 56.4 50.5
Adjusted EBITDA 1,233.9 133.8 428.3 1,482.8
Adjusted cash flow before net
growth capex, investments,
repurchases,
dividends & adjusting items 74.4 140.7 224.6 (876.2)
Net debt 6,909.6(4) 351.1 294.1 6,840.1
Net debt: EBITDA (x) 2.7 0.7
---------------------------------- --------------- ----------- ----------- --------------- ---------- ----------
1. Results presented in accordance with pre-IFRS 16 accounting
standards (as defined in Alternative performance measures
section)
2. At constant currency
3. Pre-2019 refers to the performance for all operations opened
on or before 31 December 2018 and which were open throughout the
period
4. Net debt in accordance with IFRS 16 includes lease
liabilities of GBP6,558.5m
5. The comparative information has been restated to reflect the
impact of discontinued operations
Mark Dixon, Chief Executive of IWG plc, said:
"This was a period of exceptional change for IWG, for our
employees, our clients and for the overall business environment
worldwide. Certainly, 2020 was very difficult, and I anticipate
these challenging market conditions to prevail for a few months to
come. Indeed, we made additional provisions for further network
rationalisation as the recovery from the pandemic continues to take
longer than we anticipated last summer. I believe this was a
prudent decision that emphasises our commitment to doing what needs
to be done for the greatest long-term benefit of the Group.
But 2020 was also a year when our market underwent a decade of
evolution in just 12 months. It was a year when companies across
the world discovered first-hand that their workforces could be
highly engaged and productive while utilising the hybrid way of
working: at home, in a local office, and occasionally at corporate
HQ. This trend is not new, but one that has been accelerated by the
emergence of the COVID-19 pandemic. Today, we anticipate a massive
surge in growth when we eventually emerge from the unprecedented
downturn that the COVID-19 pandemic has created. The sheer scale of
our global network positions us uniquely well to benefit from this
surging demand. At the same time, our franchising and management
agreement strategies are performing to plan as the spearhead of our
capital-light expansion strategy. In summary, we are progressing
well on our plans to strengthen our position as the leading service
provider to the global flexible workspace industry and I firmly
believe that the years ahead will be tremendously exciting for our
business."
Details of results presentation
Mark Dixon, Chief Executive Officer, and Eric Hageman, Chief
Financial Officer, are hosting a webcast today for analysts and
investors at 9.00am GMT. Those wishing to watch the webcast will
need to register in advance by clicking on the following link:
https://streams.merchantcantos.com/IWG2021
There will also be a replay facility available for 14 days after
the call:
Dial in number: +44 (0) 20 8196 1480
Access Pin: 2171389#
For further information, please contact:
IWG plc Tel: +41 (0) 41 723 2353
Mark Dixon, Chief Executive Officer
Eric Hageman, Chief Financial Officer
Wayne Gerry, Group Investor Relations Brunswick Tel: +44(0) 20 7404
Director 5959
For more information, please visit Nick Cosgrove
www.iwgplc.com Oliver Sherwood
Chairman's statement
A year of challenge,
action and opportunity
For everybody at IWG, our employees, clients, partners and other
stakeholders, 2020 will always be remembered as the year when the
way we all work changed rapidly and forever.
THE YEAR EVERYTHING CHANGED
The year began with enormous promise, as our business made its
strongest-ever start with every sign that 2020 would be a year of
significant achievements, especially as the shift towards the
hybrid flexible working model gradually continued to gain traction
among businesses everywhere. But then things changed, quickly and
dramatically, as awareness grew in markets across the world of the
very real challenges coming from a growing global pandemic and
associated national and regional lockdowns. The speed of change was
immense, as 2020 metamorphosed into the most challenging year in
memory, not only for IWG but also for most nations, businesses,
communities, families and individuals around the world.
FACING THE CHALLENGES
As the intimidating new challenges faced by our clients,
employees, franchise and landlord partners, and other stakeholders
became apparent, we quickly took comprehensive proportional actions
to help protect the future of our business. For our customers and
employees, we rapidly implemented new health and safety protocols
as well as provided financial support for customers. To preserve
cash, we focused on reducing costs across the organisation,
including renegotiating leases resulting in many more variable
lease terms and management agreements and, where necessary,
rationalisation of our network. We also withdrew our final dividend
to shareholders for 2019 and suspended our share repurchase scheme
and further dividends.
The Board is especially grateful for the personal contributions
made by our employees and Senior Leadership Team in meeting the
challenges, including swiftly implementing the new health and
safety measures to protect the work environments for our employees
and clients. I am personally very appreciative for the Board
engagement throughout the year via more frequent meetings and
increased activity between meetings to deal with pandemic related
matters. As the pandemic developed, our Executive and Non-Executive
Directors alike took a 50% reduction in their salaries or fees for
the remainder of the year and the Executive Directors will not
receive any bonuses for 2020, although they have worked harder than
ever before.
The impact of the pandemic and resulting actions taken had
personal and financial ramifications (as evidenced in our own 2020
results reported herein) on our clients, employees, franchise and
landlord partners, and investors. The Board offers its sincere
appreciation to everyone working constructively with us as we
navigate through the challenges created by the pandemic.
EMBRACING THE OPPORTUNITIES
As the year progressed it became increasingly clear that the
crisis was driving fundamental long-term changes for companies,
workers, communities and the environment. As more and more
organisations adopted the hybrid working model, the desire for many
diverse groups to achieve the sustained benefits from this way of
working became clear. Companies are able to reduce their operating
costs and mitigate financial risk. With the right support, there
are mental health and productivity benefits to employees from
working locally and commuting less. By helping millions of
individuals to work efficiently closer to where they live, we can
be a powerful catalyst for our customers to reduce their carbon
footprint. In addition, numerous communities can retain talent and
attract employment as never before.
As part of our ongoing efforts to continuously improve our
approach to environmental, social and governance matters, we have
the objective to become carbon neutral within five years. We will
also add a Black, Asian or Minority Ethnic Director to the Board by
May 2022. Reinforcing IWG's commitment to diversity, equity and
inclusion will help us retain and attract talented people who will
support our clients and our own enterprise vitality and growth
going forward.
PREPARING FOR RAPID GROWTH
Today IWG has by far the world's largest and most widely
distributed flexible workspace footprint, which allows us to enable
more people than anybody else to work from home, close to home and
at other convenient meeting places. The accelerated shift to hybrid
working habits is creating an opportunity for unprecedented growth.
We plan to rapidly expand our already extensive network by
continuing to pursue our capital-light model focusing on
franchising, management contracts and other forms of partnership.
During 2020 we raised equity capital and issued convertible bonds
collectively worth GBP670m. These funds and the measures previously
described will support IWG's future development as we broaden our
network and service offerings through organic growth and M&A
opportunities.
IWG is well positioned to meet the rapidly growing demands of
the hybrid working model as the world emerges from the economic and
social impacts of the pandemic. Our clients, new franchise and
landlord partners across the world are attracted by our brand
portfolio, advanced technical platform, global footprint and above
all the expertise and commitment of our people. We remain confident
in the long-term structural growth drivers of the global flexible
work market and our strategy to strengthen our leading position
within it while unlocking shareholder value.
douglas sutherland
Chairman
9 March 2021
Chief executive officer's review
Our most challenging
year demonstrates our
business resilience
2020 was simultaneously the toughest time in IWG's 31-year
history and the moment of our single greatest developmental leap.
It was when our market underwent a decade of evolution in just 12
months.
2020 was the most extraordinary year of my career. On the one
hand, it was extremely challenging, not only for our trading
performance but also for our customers, their employees, their
families and communities across the 120 countries where we have a
presence. The disruption caused by the COVID-19 pandemic to
people's businesses and lives is immense, outweighing the combined
impact of all the 50+ national, regional and global recessions I
have personally experienced over the last three decades. It will
clearly continue to have a major impact for some time to come.
On the other hand, this was also a year in which IWG's global
market took a massive leap forward as companies across the world
discovered first-hand that their workforces could be highly engaged
and productive while utilising the hybrid way of working: at home,
in a local office, and occasionally at corporate HQ.
As a result, at year end, the medium- to long-term future for
IWG and the industry we pioneered is looking more positive than
ever before.
A new way of working
It would be wrong to assume that the shift we have been
witnessing in how organisations work has been driven entirely by
the COVID-19 pandemic. This has merely accelerated a trend that's
been underway since the dawning of the digital era, which started
in the 1970s with the arrival of the first personal computers.
Some five decades on, the only 'analogue residue' still holding
companies back from going fully digital was the physical space they
worked in. Now, the pandemic has finally and permanently blown this
away - and IWG, as the global leader in flexible workspace, is at
the forefront of both driving and enabling the office to be
wherever workers have the digital tools and access to data they
need to do their jobs.
This begs a question: why should companies go to all the expense
of providing city centre-based office accommodation when recent
months have shown that people can be at least as effective, engaged
and productive elsewhere?
In 2020, IWG did more than anybody else to answer this question
once and for all. Quite simply, companies no longer need to do so.
They can and do use our digital business and communications tools
to support and engage their employees at home. They can use our
growing portfolio of suburban and rural centres across the world to
give people the chance to meet, brainstorm, innovate and create
close to home, without the need for a long, tedious, expensive and
environmentally damaging commute.
And, when required for the purposes of company identity and
cohesion, they can still bring people together to congregate at a
city-based corporate HQ, provided and managed by IWG or one of our
growing global network of franchise partners.
Group income statement
% Change % Change
IFRS IFRS (constant (actual
2020 16 2020 2019 16 2019 currency) currency)
(Pre-IFRS (Pre-IFRS (Pre-IFRS (Pre-IFRS
GBPm (As reported) Impact 16) 16) Impact (As reported) 16) 16)
------------------ -------------- ------- ---------- ---------- ------- -------------- ----------- -----------
Revenue 2,480.2 - 2,480.2 2,648.9 - 2,648.9 (5.3)% (6.4)%
Gross
profit/(loss)
(centre
contribution) 19.9 189.8 (169.9) 414.1 151.0 565.1 (143)% (141)%
Overheads (369.3) 11.5 (380.8) (280.0) (1.0) (281.0) 38% 36%
------------------ -------------- ------- ---------- ---------- ------- -------------- ----------- -----------
Operating
(loss)/profit(6) (352.0) 201.3 (553.3) 136.8 150.0 286.8 (524)% (504)%
------------------ -------------- ------- ---------- ---------- ------- -------------- ----------- -----------
Operating
profit/(loss)
before adjusting
items(6) 37.8 211.6 (173.8) 136.8 150.0 286.8 (235)% (227)%
------------------ -------------- ------- ---------- ---------- ------- -------------- ----------- -----------
(Loss)/profit
before tax
from continuing
operations (620.1) (55.9) (564.2) 118.5 (63.5) 55.0 (576)%
Taxation (30.1) 13.2 (43.3) 15.5 6.8 22.3
Effective tax rate (4.9)% (7.7)% (13.1)% (40.5)%
------------------ -------------- ------- ---------- ---------- ------- -------------- ----------- -----------
(Loss)/profit
after tax
from continuing
operations (650.2) (42.7) (607.5) 134.0 (56.7) 77.3 (553)%
Adjusted EBITDA 1,233.9 133.8 428.3 1,482.8 (69)% (69)%
------------------ -------------- ------- ---------- ---------- ------- -------------- ----------- -----------
6. Including joint ventures
Revenue and gross margin
Revenue Gross margin % (Pre-IFRS
GBPm 16)
------- ------- ---------- ---------------------------------------
% change
(constant
Continuing 2020 2019 currency) 2020 Reported 2020 Underlying 2019
-------------------- ------- ------- ---------- ------------- --------------- -------
2017 Aggregation 1,883.7 2,093.2 (8.9)% 12.2% 16.0% 22.7%
New 18 246.1 235.5 5.8% (25.0)% (11.7)% (9.3)%
-------------------- ------- ------- ---------- ------------- --------------- -------
Pre-2019 2,129.8 2,328.7 (7.4)% 7.9% 12.8% 19.5%
New 2019 215.4 79.4 171.5% (76.5)% (30.6)% (27.7)%
New 2020 48.2 - - - - -
-------------------- ------- ------- ---------- ------------- --------------- -------
Open centre revenue 2,393.4 2,408.1 0.5% (3.7)% 6.7% 17.9%
-------------------- ------- ------- ---------- ------------- --------------- -------
Closures 86.8 240.8 (63.5)% (103.4)% (12.6)% (7.5)%
-------------------- ------- ------- ---------- ------------- --------------- -------
Group 2,480.2 2,648.9 (5.3)% (7.2)% 6.1% 15.6%
-------------------- ------- ------- ---------- ------------- --------------- -------
We can see the effects on our business of this trend in action
by studying the location of the deals we completed during 2020.
While there was lower demand for city-centre properties, we saw a
very strong escalation of interest in suburban locations. For
example, while deals for locations in New York City fell by around
30% during the year, they rose by more than 40% in Southern
Connecticut and in many other primarily suburban and rural
locations. We also saw a significant rise in demand for small
offices, accommodating one or two people.
The sheer scale of our global network positions us uniquely well
to meet this surging demand. During the year, the appeal of
the hybrid model persuaded organisations of all sizes to become
IWG clients, from global giants like Standard Chartered, Nestle,
Cisco and Staples to many thousands of large and medium-sized
organisations right down to small, single-office and even freelance
businesses. In fact, we have just signed our biggest enterprise
deal in our 31-year history with NTT providing global access to our
centres to their 300,000 employees worldwide.
A rapid, decisive response
So 2020 has been both enormously difficult and hugely important
for IWG. Following a very encouraging beginning to the year, our
strongest ever in terms of financial performance, the situation
rapidly changed as the scale of the crisis facing our customers
across the world quickly became clear. We had to respond with speed
and determination, taking some difficult decisions to cut costs,
acting fast to help many clients overcome potentially existential
challenges and working hard to support our own team members through
this exceptionally testing time. For example, while the pandemic
caused us to rationalise some 6% of the network during the year, it
was our constant priority to work with landlords on creating
solutions that make centres impacted by COVID-19 sustainable for
both parties. We made good progress in this area during the year,
with many successful outcomes, but much work remains to be
done.
We've also innovated as never before, fast-tracking new products
and services to market, and refining and strengthening others. And
we've worked hard to ensure we have the capital at our disposal to
help us grasp the important opportunities for growth that are
certain to follow recovery.
Overall, our results for 2020 proved the resilience of our
unique business model. In any other year, these results might have
been cause for some concern. But given the challenges we faced and
overcame in 2020, I am extremely proud of them and of the global
team of amazing IWG people whose hard work, courage and passion
have made them possible.
This extends beyond our financial results alone, and I have been
delighted that IWG is a company that is committed to look after the
health and safety of its people and customers.
Clear, compelling advantages
The appeal of the hybrid working model was underlined by the
particularly strong sales activity we experienced during the second
half of the year, although given the exceptional circumstances this
was offset by increased customer churn. During the year, we also
supported customers with a range of measures worth approximately
GBP100m including payment deferrals.
Nonetheless, the fast-growing appeal and universal advantages of
the hybrid working model are clear and compelling. At their
simplest, they are:
- Companies gain better financial flexibility to invest in their
people and in growing the business instead of the buildings from
where they operate, reducing financial risk and generating
shareholder value. They also enable them to attract high-quality
employees with the offer of flexible working.
- Individual workers gain better mental health and reduced costs
through not having to commute many miles into city centres, gaining
more time with family and friends.
- Communities gain from the ability to provide more high-quality
employment opportunities, encouraging people to stay and spend
locally.
- The environment benefits from the long-term carbon-reduction
benefits of reduced commuting allied with more efficient modern and
upgraded workspaces with fewer damaging emissions.
Indeed, we are so confident in the environmental benefits of
hybrid working that we are now targeting carbon-neutral status as
an organisation within five years, brought about by a combination
of reduced commuting, improved building efficiency, better use of
resources such as water and energy, and increased recycling and
carbon-offsetting activities. We will provide regular updates as we
progress towards this target.
Partnering for capital-light expansion
These are not the only benefits of hybrid working. Its appeal
extends beyond potential customers and their employees to include a
range of business types that are keen to become involved in such a
fast-growing sector of the global real-estate industry.
Property companies, building owners and new investors are all
targeting it in significant numbers, and they recognise the value
of the scale, experience, visibility and skills we have to offer in
a partnership approach.
We also recognise that the wider opportunity is far too big for
IWG to realise on our own, and that we need, more than ever, to
work with franchise partners and property owners across the world
in the years ahead. We have always worked closely with building
owners, bringing them the brands, expertise and access to our
platform they need to maximise the value of their investments.
Since 2019 and throughout 2020, our emphasis has been on driving
growth through franchising, management agreements and other forms
of joint venture, as the key enablers of our capital-light growth
strategy. This enables us to open more centres, faster and with
less capital investment to meet the growing demand for hybrid
working opportunities.
Our globally recognised brands, industry-leading platform,
decades of experience and commitment to innovation make our offer
very attractive to potential franchise partners. This and the
growing interest in hybrid and remote working continue to drive
more opportunities with potential franchise partners. During the
year, we successfully completed 15 new franchise agreements in
regions including EMEA, Asia Pacific and the UK, which between them
included commitments to open 67 new centres. Since the year end, we
have signed our first franchise agreement with a US partner, to
develop seven centres over seven years in Metro Detroit. Several
other agreements are in the pipeline as I write.
We also continue to pursue management agreements, in which
building owners pay us a fee for creating and operating centres in
their properties. In the second half of the year we entered
numerous agreements of this type and have an attractive pipeline of
further opportunities which I believe will come to fruition in
2021.
Clearly, we continue to have centres of our own on our balance
sheet, which we bought in the past as part of our historical
development programme. We also continue from time to time to buy
assets, which ultimately could be used to create property funds.
Such properties are a means to an end for IWG, and our focus will
increasingly be on the capital-light route to expansion throughout
2021 and beyond.
Creating services for a global industry
For some years, our business has revolved less around the
provision of workspace and more about providing the platform, the
services and the support that people and businesses need to work
efficiently and cost-effectively.
During that time, more than anybody else, we have come to
understand the complete end-to-end requirements of organisations
everywhere, enabling us to focus our development efforts on
innovative, and often digital, new products and bespoke service
offerings. For example, in our 2019 Annual Report we covered the
launch of Rovva, our unique business support platform that puts in
one place everything businesses need, from practical advice on
finding a place to work, HR, funding and finance, to virtual office
plans, workspace membership and business services on a global
scale. On page 35 of our 2020 Annual Report, we describe our
breakthrough, end-to-end work with EY that shows how we can
innovate through partnerships to help some of the world's biggest
organisations meet their evolving needs.
And elsewhere in the 2020 Annual Report, we talk about the 2020
launch of HomeToWork, our new business that delivers everything
workers need to stay connected, productive and to enjoy working
from home.
These are both game-changing innovations that are facilitating
the shift to new ways of working for businesses of every type and
size. And they are only two of several other uniquely powerful new
solutions that we've either launched or are set to bring to market
in the near future.
Our prudent approach to M&A
We know that the period immediately ahead of us is packed with
opportunity for IWG, and we are determined to maximise the
potential that this limited time window presents. During 2020,
therefore, we raised significant quantities of capital to enable us
to grow inorganically through M&A activities in parallel with
our capital-light expansion strategy. At year end, we were in the
final stages of due diligence with a number of acquisitions, on
which we will report in due course. Post year end we have acquired
a majority investment in The Wing, the leading community and
co-working space company designed for women, paving the way for the
business to pursue substantial growth plans both in the US and
internationally.
Naturally, we continue to take a prudent approach to inorganic
growth and will only take action when we believe a deal is
overwhelmingly in the best interests of our shareholders and other
key stakeholders.
Outlook
This was a period of exceptional change for IWG, for our
employees, our clients and for the overall business environment
worldwide. While it was undeniably an extremely difficult time for
everybody and these conditions are likely to persist well into
2021, I am in no doubt that the uptake of new working practices it
has accelerated for so many organisations and enforced on others is
now here for good.
I am also in no doubt that these will ultimately be for the good
of everybody - businesses, individual workers and their families,
communities and the environment.
As for IWG, this fundamental shift in the way people work is
clearly an enormously positive step over the medium and longer
terms. Certainly, 2020 was very difficult, and I anticipate these
challenging market conditions to prevail for a few months to come.
Indeed, we have made additional provisions for further network
rationalisation as the recovery from the pandemic continues to take
longer than we anticipated last summer. I believe this was a
prudent decision that emphasises our commitment to doing what needs
to be done for the greatest long-term benefit of the Group.
Overall, I am very confident that the events of 2020 have done
far more than merely confirm the resilience of our organisation and
our business model. They have also delivered the changes in
attitudes and working practices that will set us up for sustained
success over the next 10 or 20 years and far beyond.
Today, we anticipate a massive surge in growth when we
eventually emerge from the unprecedented downturn that the COVID-19
pandemic has created. Our franchising and management agreement
strategies are performing to plan as the spearhead of our
capital-light expansion strategy. And we are progressing well on
our plans to strengthen our position as the leading service
provider to the global flexible workspace industry.
In short, in a single year we have made a developmental leap
equivalent to the progress we had anticipated for the next decade.
The year gone is one we will never forget - and the years ahead are
tremendously exciting.
Mark Dixon
Chief Executive Officer
9 March 2021
Chief financial officer's review
Despite COVID-19, cash performance has been resilient
Financial performance
The review below highlights the reported results in accordance
with IFRS. Under IFRS 16, while total lease related charges over
the life of a lease remain unchanged, the lease charges are
characterised as depreciation and financing expenses with higher
total expense in the early periods of a lease and lower total
expense in the later periods of the lease.
The Group also presents the results in accordance with pre-IFRS
16 accounting standards(1) as it provides useful information to key
stakeholders on how the Group is managed, operating performance
targets are measured, and reporting for bank covenants and certain
lease agreements are prepared.
COVID-19
The declaration by the World Health Organization of the COVID-19
pandemic and subsequent global government restrictions impacted the
Group's ability to operate at full capacity in 2020. The
continuation of COVID-19, including new and extended preventative
measures in most of the Group's markets, is expected to prolong the
impact on our business in 2021. Following early signs of recovery
during the fourth quarter of 2020, we expect our anticipated
recovery in 2021 to be delayed but aided by global vaccination
programmes.
As a result, in order to improve the transparency and usefulness
of the financial information presented and improve year-on-year
comparability, the Group has identified net charges of GBP389.8m
(pre-IFRS 16: GBP379.5m(1)) relating to directly attributable
expenses and gains resulting from COVID-19. These charges are
adjusting items as they meet the Group's definition applied in
previous years, being significant both in nature and value to the
results of the Group for the year ended 31 December 2020.
The adjusting items relate to several separately identifiable
items which involve accounting judgement and estimates as
follows:
- Network rationalisation
- Provision for expected credit losses
- Transaction costs on deferred franchising deals
- Goodwill impairment
- Other one-off items
Should the actual costs relating to the amounts provided prove
to be different to the costs incurred and provided for, the excess
or surplus will be disclosed in future years, as adjusting
items.
Network rationalisation
As previously announced, in direct response to the pandemic,
decisions were taken to accelerate the rationalisation of
underperforming centres to ensure we emerge a stronger business
post COVID-19. The estimated net impact of network rationalisation
is GBP322.3m (pre-IFRS 16: GBP312.0m(1)). This charge includes the
impairment of right of use and non-moveable assets and exit costs
incurred in the year, which are over and above the normal run rate
for the Group.
Group income statement
2020 2020 2019(5) 2019(5)
IFRS 16 (Pre-IFRS (Pre-IFRS IFRS 16
GBPm (As reported) impact 16) 16) impact (As reported)
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
Revenue 2,480.2 - 2,480.2 2,648.9 - 2,648.9
Gross profit/(loss)
(centre contribution) 19.9 189.8 (169.9) 414.1 151.0 565.1
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
Gross profit before
adjusting items(7) 353.3 200.1 153.2 414.1 151.0 565.1
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
Overheads(8) (369.3) 11.5 (380.8) (280.0) (1.0) (281.0)
Joint ventures (2.6) - (2.6) 2.7 - 2.7
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
Operating (loss)/profit (352.0) 201.3 (553.3) 136.8 150.0 286.8
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
Operating (loss)/profit
before adjusting items(7) 37.8 211.6 (173.8) 136.8 150.0 286.8
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
Net finance costs (268.1) (257.2) (10.9) (18.3) (213.5) (231.8)
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
(Loss)/profit before
tax from continuing
operations (620.1) (55.9) (564.2) 118.5 (63.5) 55.0
Taxation (30.1) 13.2 (43.3) 15.5 6.8 22.3
Effective tax rate (4.9)% (7.7)% (13.1)% (40.5)%
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
(Loss)/profit after
tax from continuing
operations (650.2) (42.7) (607.5) 134.0 (56.7) 77.3
Profit after tax from
discontinued operations 3.4 0.3 3.1 369.1 4.2 373.3
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
(Loss)/profit for
the period (646.8) (42.4) (604.4) 503.1 (52.5) 450.6
Basic EPS (p)
* From continuing operations before adjusting items(7) (26.9) (24.0) 15.0 8.7
* Attributable to shareholders (67.9) (63.5) 56.4 50.5
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
Depreciation & amortisation 1,195.0 307.3 267.8 1,169.2
Adjusted(7) EBITDA 1,233.9 133.8 428.3 1,482.8
----------------------------------------------------------- -------------- ------- ---------- ---------- ------- --------------
7. Adjusting items relate to income and costs arising
specifically from the impact of COVID-19.
8. Overheads for 2020 include COVID-19 and other non-recurring
items of GBP85.0m.
Goodwill impairment
Despite the continued uncertainty created by COVID-19, there are
no long-term indicators of impairment identified for the US and UK
and these businesses are expected to recover post COVID-19.
However, as previously reported with the interim results, the
COVID-19 crisis and linked restrictions have impacted our ability
to trade our way to sustainable profitable growth in certain
markets. As a result, the projected cash flows for the operations
in certain insignificant markets no longer supported the carrying
value of goodwill, and an impairment of GBP4.9m was taken as at 30
June 2020. No further impairment was taken in the second half.
Provision for expected credit losses
The COVID-19 pandemic unfortunately presents an unprecedented
crisis to many of our customers who may struggle to navigate
through these challenges without external support. We have
therefore endeavoured to provide support wherever possible to our
customers to sustain our long--term relationships.
Considering the disruption of centres globally, the Group
reviewed the recoverability of its debtor profile and recorded an
increase in the expected credit-loss provision of GBP17.5m for
2020. This increase reflects the greater likelihood of credit
default by the Group's debtors directly attributable to the impact
of COVID-19 and the likelihood of recoverability of such
outstanding balances payable to the Group.
The increase is relatively low compared to the overall debtor
profile as the Group has not historically incurred significant
credit losses and continues to maintain customer deposits as
additional security in the rare event of non-performance of
customer contracts.
Other one-off items including restructuring
During 2020, the Group incurred GBP8.2m of transaction costs in
respect of master franchise agreements that have not completed as
at 31 December 2020 because of COVID-19. The Group continues its
pivot towards a franchising model and discussions on master
franchise agreements have since resumed. Other net charges of
GBP36.9m were also incurred in relation to restructuring the Group
in respect of the COVID-19 crisis.
Estimated resulting cost benefit
The anticipated annualised cost benefit arising from these
actions taken to respond to COVID-19, if fully implemented,
is expected to be in the range of GBP325m to GBP375m. The
estimated cumulative benefit of these actions accruing to the Group
in future years will be significant and is estimated to be
approximately GBP2.4bn as previously announced.
Revenue
Total Group revenue(5) decreased from GBP2,648.9m to
GBP2,480.2m, a 5.3% decline when compared at constant currency.
This is a commendable outcome given the increasing quarterly
year-on-year weakness experienced from the second quarter onwards,
including double-digit revenue declines in the third and fourth
quarters. The improvement achieved in sales activity has been
offset by customer churn and the significant impact the pandemic
has had on service revenue. Only EMEA recorded annual revenue
growth, aided by the annualised benefit of acquisitions in late
2019, but even here revenue declined in the second half. Although
the year-on-year trends for the Group after the first quarter were
sequentially increasingly more negative, the absolute level of
monthly revenues stabilised in the second half and showed some
improvement in December.
As anticipated and previously highlighted, the performance of
the business outside of central business districts was more
resilient. The demand for more distributed working has increased
sales in many of the satellite towns and cities outside of major
cities, as more customers adopt hybrid working. The conditions
experienced in 2020 have made it our most challenging year ever
experienced. Despite seeing early signs of recovery during the
fourth quarter of 2020, the continuation of the pandemic, including
new or extended preventative measures in most of the Group's
markets, is likely to persist well into 2021 before we see the
environment improving.
Overall, open centre revenue(5) of GBP2,393.4m (2019:
GBP2,408.1m) was broadly stable for the year, a 0.5% increase when
compared at constant currency. Again, this performance is
reflective of conditions becoming more challenging as we moved
through the year. Open centre revenue in the first half increased
10.2% at constant currency, an outcome that was very much first
quarter driven. The second quarter reduced to a small positive
revenue increase and thereafter moved increasingly into negative
territory as the impact of the pandemic continued to be felt on the
business.
The continued maturation of the locations opened in 2018 and
2019 and the initial revenue contribution from the 2020 openings
combined to deliver the broadly flat revenue position for the year.
Regionally, as can be seen in the table below, the increase in
revenue from our second largest region, EMEA, was essentially
offset by the decline in our largest market, the Americas. Open
centre revenue is not impacted by the pro-active network
rationalisation programme.
Pre-2019 revenue(5) for the year declined 7.4% at constant
currency to GBP2,129.8m (2019: GBP2,328.7m), with all regions
experiencing year-on-year revenue declines. A similar pattern
emerged through the year. After a very strong first quarter,
weakness was experienced in the second quarter resulting in a
relatively flat first half performance with revenue up 0.2% at
constant currency. This weakness continued into the second half
with each quarter showing increasingly weaker year-on-year
performance. As a result, pre-2019 revenue declined 15.8% at
constant currency in the second half.
Overall, occupancy for the pre-2019 business decreased
marginally year-on-year to 72.9% (2019: 73.9%).
Open centre revenue performance by region
On a regional basis, open centre revenue(5) performance can be
analysed as follows:
% Change % Change
(constant (actual
GBPm 2020 2019 currency) currency)
------------- ------- ------- ---------- ----------
Americas 1,034.2 1,120.5 (5.9)% (7.7)%
EMEA 688.9 611.9 12.6% 12.6%
Asia Pacific 285.0 285.3 1.9% (0.1)%
UK 379.7 381.4 (0.4)% (0.4)%
Other 5.6 9.0 - -
Total 2,393.4 2,408.1 0.5% (0.6)%
------------- ------- ------- ---------- ----------
Americas
After a strong first quarter in 2020 our largest region, the
Americas, faced a very challenging environment as the pandemic
spread across the region.
% Change % Change
(constant (actual
GBPm 2020 2019 currency) currency)
----------------------- ------- ------- ---------- ----------
Total revenue(5) 1,066.5 1,187.9 (8.4)% (10.2)%
Open centre revenue(5) 1,034.2 1,120.5 (5.9)% (7.7)%
Pre-2019 revenue(5) 969.8 1,099.8 (10.1)% (11.8)%
Pre-2019 occupancy 74.1% 77.2% - (308) bps
Number of centres 1,271 1,298 - -
----------------------- ------- ------- ---------- ----------
Revenue from open centres(5) declined 5.9% at constant currency
to GBP1,034.2m as conditions increasingly deteriorated from the
second quarter onwards due to COVID-19. Total revenue(5) declined
8.4% at constant currency to GBP1,066.5m after a reduction of 1.1%
in the first half. Without the benefit of the maturation of the
centres opened in 2019 and 2020, pre-2019 revenue(5) for the region
decreased 10.1% at constant currency to GBP969.8m, with
double-digit declines in almost all the major countries in the
region. A notable exception among the top countries remained
Mexico, where a strong first half resulted in mid-single digit
growth for the year despite negative growth in the second half.
Average occupancy for the region in the pre-2019 business
decreased to 74.1% (2019: 77.2%).
During 2020, 32 new locations were opened in the region and 59
locations were rationalised. Following these actions there were
1,271 locations in total in the Americas at 31 December 2020.
EMEA
The stronger performance in EMEA relative to the other regions
reflects the previously reported strong start to 2020 in most of
the major countries in the region and the annualised benefit of
acquisitions completed in the second half of 2019. Otherwise the
performance through the year was similar to the other regions, with
much weaker performance in Q3 and Q4. Open centre revenue(5) has
increased 12.6% to GBP688.9m at constant currency. Open centre
revenue growth(5) was heavily weighted to the first half with
growth of 22.3% followed by a 3.8% increase in the second half.
Total revenue(5) increased 4.7%, at constant currency, to
GBP715.1m. Pre-2019 revenue declined 1.6% at constant currency to
GBP564.0m. The pre-2019 occupancy increased to 73.9% (2019:
72.5%).
% Change % Change
(constant (actual
GBPm 2020 2019 currency) currency)
----------------------- ----- ----- ---------- ----------
Total revenue(5) 715.1 683.0 4.7% 4.7%
Open centre revenue(5) 688.9 611.9 12.6% 12.6%
Pre-2019 revenue(5) 564.0 575.1 (1.6)% (1.9)%
Pre-2019 occupancy 73.9% 72.5% - 138 bps
Number of centres 1,093 1,096 - -
----------------------- ----- ----- ---------- ----------
A total of 72 new locations were added and 76 locations were
rationalised across this region during 2020. This net reduction of
three locations took the total in the region to 1,093 at 31
December 2020.
Asia Pacific
Our business in Asia Pacific endured a challenging second half
as the effect of the pandemic impacted revenue after delivering a
good performance in the first half. Revenue from all open
centres(5) increased 1.9% at constant currency to GBP285.0m. First
half growth of 16.2% was followed by a decrease of 11.0% in the
second half. Total revenue(5) from the region declined by 9.5% at
constant currency to GBP304.2m. Pre-2019 revenue was down 6.4% to
GBP252.2m (2019: GBP274.7m) and pre-2019 occupancy decreased to
70.4% (2019: 71.3%).
% Change % Change
(constant (actual
GBPm 2020 2019 currency) currency)
----------------------- ----- ----- ---------- ----------
Total revenue(5) 304.2 342.7 (9.5)% (11.2)%
Open centre revenue(5) 285.0 285.3 1.9% (0.1)%
Pre-2019 revenue(5) 252.2 274.7 (6.4)% (8.2)%
Pre-2019 occupancy 70.4% 71.3% - (84)bps
Number of centres 645 682 - -
----------------------- ----- ----- ---------- ----------
A total of 24 new locations were added in the region and 61
locations were rationalised during 2020. At 31 December 2020 we had
a total of 645 centres in the region.
UK
Like our other markets, the UK had a strong first quarter, but
was then increasingly impacted by the COVID-19 pandemic from the
second quarter onwards. As anticipated and previously highlighted,
the performance of the UK business outside of central London was
more resilient. The demand for more distributed working has
increased sales in many of the satellite towns and cities outside
of London, as more customers adopt hybrid working.
% Change % Change
(constant (actual
GBPm 2020 2019 currency) currency)
----------------------- ----- ----- ---------- ----------
Total revenue(5) 388.8 426.3 (8.8)% (8.8)%
Open centre revenue(5) 379.7 381.4 (0.4)% (0.4)%
Pre-2019 revenue(5) 338.2 370.1 (8.6)% (8.6)%
Pre-2019 occupancy 71.0% 71.4% - (39)bps
Number of centres 304 312 - -
----------------------- ----- ----- ---------- ----------
Revenue from open centres(5) decreased 0.4% to GBP379.7m.
Pre-2019 revenue(5) declined by 8.6% to GBP338.2m (2019: GBP370.1m)
and total revenue(5) in the UK declined 8.8% to GBP388.8m,
reflecting the continued network rationalisation in the UK.
Pre-2019 occupancy decreased to 71.0% (2019: 71.4%).
A total of 13 new locations were added and 21 locations
rationalised in the UK during 2020. The net of these additions and
the network rationalisation programme led to an overall reduction
of eight locations in the region to 304 at 31 December 2020.
EBITDA
Adjusted EBITDA as reported reduced to GBP1,233.9m (2019:
GBP1,482.8m), due to the impact of COVID-19 on our business
performance.
Under pre-IFRS 16 reporting, adjusted EBITDA(1) declined from
GBP428.3m to GBP133.8m. Adjusted EBITDA still reflects the
significant drag from the investment in growth, which in 2020 was
GBP112.5m (2019: GBP27.6m), and a further GBP9.9m in respect of
closed centres (2019: GBP10.3m). The pre-2019 EBITDA(1), which
eliminates the drag from the investment in growth and therefore
offers a more representative indication of the underlying earnings
performance of the business, was GBP255.9m (2019: GBP435.3m).
Underlying performance has also been directly impacted as more
of our markets went into lockdown, resulting in reduced
profitability from the second quarter of 2020, that is expected to
improve as global vaccination rollout programmes advance
and restrictions are lifted. The impact that COVID-19 has had on
underlying trading performance is not recognised within adjusting
items.
Overhead investment
Whilst reported Group overheads, excluding adjusting items(1) of
GBP56.4m related to COVID-19, increased 12.3% at constant currency
to GBP312.9m (2019: GBP281.0m), these included GBP30.6m of
additional non-recurring costs related to corporate restructuring.
This was also true under pre-IFRS 16 reporting, with Group
overheads excluding adjusting items of GBP324.4m (2019: GBP280.0m).
Excluding these non-recurring costs, overheads(1) increased by 4.9%
to GBP293.8m, representing 11.8% of the Group's lower revenue
reported for 2020 (2019: 10.6%). The increased investment in
overheads, particularly in the second half, reflects the Group's
continued development of enterprise accounts and pivot to a
capital-light franchise growth model and a scaled platform of
services.
Operating loss - continuing operations
Adjusted operating profit(5) as reported was GBP37.8m (2019:
GBP286.8m). Including the adjusting items, the operating loss(5)
was GBP352.0m compared to the profit of GBP286.8m in 2019 due to
COVID-19.
Under pre-IFRS 16 reporting, adjusted operating loss(1)(5) for
the year ended 31 December 2020 was GBP173.8m (2019: profit of
GBP136.8m). In addition to the planned investment in overheads to
develop the business platform, the operating profit(1)(5) continues
to reflect the drag from growth investment of GBP175.3m (2019:
GBP42.5m) as well as GBP23.8m (2019: GBP37.8m) from centres closed
during 2020. Including the adjusting items of GBP379.5m, the
operating loss(1)(5) was GBP553.3m compared to a profit(1)(5) of
GBP136.8m in 2019.
Net finance costs
The Group reported net finance costs for the year to 31 December
2020 of GBP268.1m (2019: GBP231.8m), including GBP257.2m (2019:
GBP213.5m) related to interest on the Group's lease
liabilities.
Net finance costs in respect of bank lending decreased to
GBP10.9m (2019: GBP18.3m) as there was less need for debt usage
during the year. This primarily reflects the Group's laser focus on
cash generation, the benefit for the entire year of the proceeds
from the master franchise agreements completed last year, over
seven months' benefit from the GBP320m share placing in May 2020
and the lower interest rate benefit from the GBP350m convertible
bond issue at the start of December 2020.
Taxation
The reported effective tax rate for 2020 is (4.9)% (2019:
(40.5)%). The effective tax rate(1)(5) on continuing operations
under pre-IFRS 16 reporting was (7.7)% (2019: (13.1)%). Despite
reporting a significant loss for the year resulting from
challenging trading conditions due to COVID-19, the Group has
incurred a tax charge due to several factors. These include the
continuing profitability of certain countries and entities within
the overall Group and following some internal restructuring during
2020, we have reduced the deferred tax asset of GBP89.8m recognised
in 2019 by GBP20.1m, resulting in a 2020 deferred tax charge. The
tax charge benefited in 2020 from no US BEAT (base erosion and
anti-abuse tax) liabilities in contrast to the negative GBP17.5m
impact in 2019. The 2020 tax charge also benefitted from the
positive tax impact of the 2020 US CARES Act, resulting in a prior
year current tax credit of GBP10.6m in the US.
Dependent upon the Group's continuing ownership of specific
countries or regions which may change due to future potential
master franchise agreements, the impact of COVID-19 on future
results and how long it takes to utilise available tax losses, we
currently anticipate an effective tax rate in future years to move
back to a similar rate to that seen in the years prior to 2019 of
approximately 20%.
Earnings per share
Basic earnings per share were a loss of 67.9p (2019: profit of
50.5p). The loss per share from continuing operations before
adjusting items was 26.9p (2019: profit of 8.7p).
Under pre-IFRS 16 reporting, earnings per share(1) decreased in
the year ended 31 December 2020 from 56.4p, including the gain in
2019 on the strategic partnerships and deferred tax benefit, to a
loss per share of 63.5p. Earnings per share(1)(5) from continuing
operations reduced from 15.0p to a loss of 63.8p. Excluding the
adjusting items, the loss per share reduces to 24.0p.
Diluted earnings per(1) share for the year to 31 December 2020
were a loss of 63.5p (2019: 55.4p). Diluted earnings per
share(1)(5) on a continuing basis before adjusting items for the
year were a loss of 63.8p (2019: 14.7p).
The weighted average number of shares in issue for the year was
951,890,712 (2019: 892,737,688). The weighted average number of
shares for diluted earnings per share was 969,363,683 (2019:
908,939,911). The Group acquired 13,590,080 shares in the first
half of 2020, before the share repurchase programme was suspended,
to be held in treasury to satisfy future exercises under various
Group long-term incentive schemes. The Group reissued 1,968,169
shares from treasury to satisfy such exercises during 2020.
Cash flow and funding
Cash generation continues to be an attractive feature of our
business model and the Group generated cash monthly at the centre
level up until December when there was a modest operating cash
outflow resulting from the completion of deals with landlords that
have secured the significant long-term positive benefits noted
earlier. As more deals with landlords complete, further modest
outflows are expected in the first quarter of 2021.
Despite the negative impact the COVID-19 pandemic has had on
business activity and customer growth, and the reported financial
performance, the Group's cash performance has been very resilient
with a cash inflow(1) of GBP140.7m before net investment in growth
capital expenditure, investments, dividends, share repurchases and
adjusting items (2019: GBP224.6m).
As previously reported, the Group deployed capital in the fourth
quarter which included GBP276.2m on a potential investment which,
post the year end, did not proceed, and has resulted in a return of
that cash outflow in the first quarter of 2021.
IFRS 16 has no impact on the Group's cash flows other than
presentation of where items are classified on the cash flow
statement.
Cash flow
The table below reflects the Group's cash flow:
2020 2020 2019 2019
IFRS 16 (Pre-IFRS (Pre-IFRS IFRS 16
GBPm (As reported) impact 16) 16) impact (As reported)
---------------------------- --------------- --------- ---------- ---------- --------- ---------------
Adjusted EBITDA 1,233.9 1,100.1 133.8 428.3 1,054.5 1,482.8
Working capital 24.3 (218.0) 242.3 267.2 579.3 312.1
Growth-related partner
contributions - 106.6 (106.6) (263.0) 263.0 -
Maintenance capital
expenditure (81.9) 15.0 (96.9) (147.8) 39.1 (108.7)
Taxation (21.9) - (21.9) (48.8) - (48.8)
Finance costs (266.4) (249.4) (17.0) (20.7) (213.2) (233.9)
Finance lease liability
arising on new leases (917.8) (917.8) - - (1,872.8) (1,872.8)
Proceeds from partner
contributions (lease
incentives) 111.0 111.0 - - 204.1 204.1
Other items (6.8) 13.8 7.0 9.4 3.8 13.2
---------------------------- --------------- --------- ---------- ---------- --------- ---------------
Cash flow before growth
capital expenditure,
investments, share
repurchases and dividends 74.4 (66.3) 140.7 224.6 (1,100.8) (876.2)
Gross growth capital
expenditure (310.4) 47.1 (357.5) (652.0) 104.4 (547.6)
Growth-related partner
contributions 106.6 - 106.6 263.0 - 263.0
---------------------------- --------------- --------- ---------- ---------- --------- ---------------
Net growth capital
expenditure(9) (203.8) 47.1 (250.9) (389.0) 104.4 (284.6)
Total net cash flow
from operations (129.4) (19.2) (110.2) (164.4) (996.4) (1,160.8)
Purchase of shares (43.7) - (43.7) (49.5) - (49.5)
Dividend - - - (58.2) - (58.2)
Corporate financing
activities 1.8 - 1.8 5.4 - 5.4
Investment related
loan receivable (276.2) - (276.2) - - -
Net proceeds from
the issue of shares 313.9 - 313.9 - - -
Proceeds on convertible
bond 343.2 - 343.2 - - -
Debt element of convertible
bond (291.4) - (291.4) - - -
Proceeds from master
franchise 3.3 - 3.3 424.6 - 424.6
Opening net debt (6,840.1) (6,546.0) (294.1) (460.8) (5,643.4) (6,104.2)
Exchange movement 9.0 6.7 2.3 8.8 93.8 102.6
Closing net debt (6,909.6) (6,558.5) (351.1) (294.1) (6,546.0) (6,840.1)
---------------------------- --------------- --------- ---------- ---------- --------- ---------------
9. Net growth capital expenditure of GBP250.9m relates to the
cash outflow in the year to 31 December 2020. Accordingly, it
includes net capital expenditure related to locations added in 2019
and to be added in 2021, as well as those added in 2020. The total
net investment in the period for 2019 and 2021 additions amounted
to GBP93.4m.
Capital investment in the network
In line with the Group's expectations, net growth capital
expenditure in 2020 reduced by GBP80.8m to GBP203.8m (2019:
GBP284.6m). This reflects the dialling down of our growth programme
as part of the mitigating actions taken to offset the impact of
COVID-19 and the continued focus on pivoting to capital-light
growth, which is expected to result in further reductions in
capital expenditure in future years. Under pre-IFRS 16 reporting,
net growth capital expenditure(1) reduced by GBP138.1m to GBP250.9m
(2019: GBP389.0m).
During 2020 we added 141 new locations and rationalised 217
locations, mostly directly COVID-19 related. At 31 December 2020,
the Group's physical network comprised 3,313 locations globally,
providing the largest global and most widely distributed network.
The new locations added 4.0m sq. ft. of space. This, together with
the impact of the rationalisation programme, resulted in the Group
having 62.9m sq. ft. of flexible workspace at 31 December 2020
(2019: 62.4m sq. ft.).
Maintenance capital expenditure(1) also reduced year on year.
After the completion of the planned stepped up refurbishment
programme, notably in the first quarter, which increased investment
in the first half of the year to GBP80.7m (pre-IFRS 16: GBP91.5m),
investment slowed from the second quarter. Consequently,
maintenance capital expenditure(1) for 2020 reduced from GBP108.7m
in 2019 to GBP81.9m (pre-IFRS 16: from GBP147.8m in 2019 to
GBP96.9m). A further slowdown is anticipated for 2021.
Strong financial position
The Group has maintained a strong financial position throughout
2020. At 31 December 2020, the Group had significant liquidity
headroom of GBP802.3m.
Net debt at 31 December 2020 has increased to GBP6,909.6m from
GBP6,840.1m at 31 December 2019. Excluding debt related to lease
liabilities, the Group had net borrowings(1) of GBP351.1m (2019:
GBP294.1m). The year-end position is below the interim position at
30 June 2020 of GBP7,067.9m reflecting the network rationalisation
programme and related actions taken by the Group in response to
COVID-19.
The year-end net debt position includes GBP320m of gross
proceeds raised through the equity placing on 28 May 2020, GBP350m
from the convertible bond offering on 2 December 2020 less the debt
element of the convertible bonds, and GBP527.1m deployment of cash
for organic and inorganic growth and investments. The Group, as
previously announced, also increased the net debt to EBITDA
covenant on its GBP950m revolving credit facility. The new capital
raised and increased covenant flexibility will enable the Group to
further execute its stated strategy.
The lease liabilities recognised by the Group do not impact on
the Group's covenants which are based on pre-IFRS 16 accounting
standards.
Foreign exchange
The Group's results are exposed to translation risk from the
movement in currencies. During 2020 key individual exchange rates
have moved, as shown in the table below. Overall, these exchange
rate movements had a mixed but modest impact on the Group's
results. Revenue was reduced by GBP27.3m but gross profit and
operating profit increased by GBP9.5m and GBP27.1m respectively,
reflecting the relative contribution to Group profit from our US
business.
Risk management
Effective management of risk is an everyday activity for the
Group and, crucially, integral to our strategic planning. A
detailed assessment of the principal risks and uncertainties which
could impact the Group's long-term performance and the risk
management structure in place to identify, manage and mitigate such
risks can be found on pages 48 to 55 of the 2020 Annual Report and
Accounts.
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 2020.
Details of related party transactions that have taken place in the
period can be found in note 30.
Foreign exchange rates
At 31 December Annual year average
----------------- ------------------ -----------------------
Per GBP sterling 2020 2019 % 2020 2019 %
----------------- ---- ---- ------ ------ ----- --------
US dollar 1.37 1.32 3.8% 1.29 1.28 0.8%
Euro 1.11 1.18 (5.9)% 1.13 1.14 (0.9)%
----------------- ---- ---- ------ ------ ----- --------
Dividends and share repurchase programme
For the purposes of liquidity, we are ensuring that the Group
maintains sufficient funding especially in a period of significant
centre rationalisation. Our capital allocation policy remains in
place, prioritising investment in the long-term development of our
business and dividend distribution to shareholders. However, given
the prolonged uncertainty caused by COVID-19, we believe it is
prudent to protect our liquidity and as a result, future dividend
payments and a restart of our share repurchase programme are placed
on hold for the moment with a clear intention of the earliest
possible return to our stated shareholder return policy.
Going concern
The impact of COVID-19 on the global economy and the operating
activities of many businesses has resulted in a climate of
considerable uncertainty. The ultimate impact of the pandemic on
the Group is uncertain at the date of signing these financial
statements.
The Directors have assessed the potential cash generation of the
Group against a range of illustrative COVID-19 scenarios (including
a severe but plausible outcome), the liquidity of the Group,
funding available under the Group's bank facility and mitigating
actions to reduce operating costs and optimise cash flows during
the current environment.
In addition, the Group successfully raised GBP320m of equity in
May 2020 and issued GBP350m of unsubordinated unsecured Guaranteed
Convertible Bonds in December 2020 to take advantage of growth
opportunities and strengthen the Group's global leadership
position.
On the basis of these actions and assessments, the Directors
consider it appropriate to continue to adopt the going concern
basis in preparing the financial statements of the Group.
OUTLOOK
After an excellent start to the year, 2020 brought enormous
challenges for the Group which we have navigated in a robust manner
whilst maintaining a strong financial position. We have
successfully augmented our capital resources and are consequently
well poised to capitalise on the new world of hybrid working as
global vaccination programmes are rolled out, restrictions are
removed, and we emerge from this crisis.
We are already witnessing an unprecedented surge in new
enterprise deals. We are signing membership deals that are multiple
times larger than any previous deals in the Group's history and
there is a rich pipeline that represents over one million future
members. The quality and scale of these deals is demonstrably
generating greater momentum in the evident shift to hybrid working
solutions, which we are uniquely positioned to support.
Our business has shown great resilience through this period and,
with the actions we have taken to reset the Group, we are confident
this will bring us through the challenges and into the new world of
working as a stronger, more profitable business capable of
delivering increased cashflow and returns.
Eric Hageman
Chief Financial Officer
9 March 2021
Consolidated income statement
Year ended
Year ended 31 Dec
31 Dec 2019
GBPm Notes 2020 Restated(1)
------------------------------------------------------- ----- ---------- ------------
Revenue 3 2,480.2 2,648.9
Total costs of sales (2,425.5) (2,081.8)
------------------------------------------------------- ----- ---------- ------------
Cost of sales (2,108.4) (2,083.9)
Adjusting items to cost of sales 10 (71.1) -
(Loss)/profit on impairment of property, plant,
equipment and right-of-use assets 5 (246.0) 2.1
------------------------------------------------------- ----- ---------- ------------
Expected credit losses on trade receivables 5 (34.8) (2.0)
------------------------------------------------------- ----- ---------- ------------
Gross profit (centre contribution) 19.9 565.1
Total selling, general and administration expenses (371.9) (278.3)
------------------------------------------------------- ----- ---------- ------------
Selling, general and administration expenses (312.9) (281.0)
Adjusting items to selling, general and administration
expenses 10 (56.4) -
Share of (loss)/profit of equity-accounted investees,
net of tax 21 (2.6) 2.7
------------------------------------------------------- ----- ---------- ------------
Operating (loss)/profit 5 (352.0) 286.8
Finance expense 7 (271.1) (232.3)
Finance income 7 3.0 0.5
------------------------------------------------------- ----- ---------- ------------
Net finance expense (268.1) (231.8)
------------------------------------------------------- ----- ---------- ------------
(Loss)/profit before tax for the year from continuing
operations (620.1) 55.0
Income tax (expense)/credit 8 (30.1) 22.3
(Loss)/profit after tax for the year from continuing
operations (650.2) 77.3
------------------------------------------------------- ----- ---------- ------------
Profit after tax for the period from discontinued
operations 9 3.4 373.3
(Loss)/profit for the period attributable to
equity shareholders of the parent (646.8) 450.6
------------------------------------------------------- ----- ---------- ------------
(Loss)/earnings per ordinary share (EPS):
Attributable to ordinary shareholders
Basic (p) 11 (67.9) 50.5
Diluted (p) 11 (67.9) 49.6
From continuing operations
Basic (p) 11 (68.3) 8.7
Diluted (p) 11 (68.3) 8.5
------------------------------------------------------- ----- ---------- ------------
1. The comparative information has been restated to reflect the
impact of discontinued operations (note 9).
Consolidated statement of comprehensive income
Year ended Year ended
31 Dec 31 Dec
GBPm Notes 2020 2019
-------------------------------------------------------------- ----- ---------- ----------
(Loss)/profit for the year (646.8) 450.6
Other comprehensive income/(loss) that is or may be
reclassified to profit or loss in subsequent periods:
Cash flow hedges - effective portion of changes in
fair value - (0.5)
Foreign exchange recycled to profit or loss from discontinued
operations 9 - (8.8)
Foreign currency translation differences for foreign
operations 1.3 (24.5)
-------------------------------------------------------------- ----- ---------- ----------
Items that are or may be reclassified to profit or
loss in subsequent periods 1.3 (33.8)
-------------------------------------------------------------- ----- ---------- ----------
Other comprehensive income/(loss) that will never
be reclassified to profit or loss in
subsequent periods:
Re-measurement of defined benefit liability, net of
income tax 26 - -
-------------------------------------------------------------- ----- ---------- ----------
Items that will never be reclassified to profit or
loss in subsequent periods - -
-------------------------------------------------------------- ----- ---------- ----------
Other comprehensive income/(loss) for the period,
net of tax 1.3 (33.8)
-------------------------------------------------------------- ----- ---------- ----------
Total comprehensive (loss)/income for the year (645.5) 416.8
-------------------------------------------------------------- ----- ---------- ----------
Consolidated statement of changes in equity
Foreign
Issued currency
share Share Treasury translation Hedging Other Retained Total
GBPm Notes capital premium shares reserve reserve reserves earnings equity
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Balance at 1 January 2019 9.2 - (74.1) 68.2 0.3 25.8 538.4 567.8
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Total comprehensive income
for the year:
Profit for the year - - - - - - 450.6 450.6
Other comprehensive
income:
Cash flow hedges -
effective
portion of changes in
fair
value - - - - (0.5) - - (0.5)
Foreign exchange recycled
to profit or loss from
discontinued
operations - - - (8.8) - - - (8.8)
Foreign currency
translation
differences for foreign
operations - - - (24.5) - - - (24.5)
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Other comprehensive
income,
net of tax - - - (33.3) (0.5) - - (33.8)
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Total comprehensive income
for the year - - - (33.3) (0.5) - 450.6 416.8
Transactions with owners
of the Company
Share-based payments - - - - - - 0.7 0.7
Ordinary dividend paid 12 - - - - - - (58.2) (58.2)
Purchase of shares 22 - - (49.5) - - - - (49.5)
Proceeds from exercise of
share awards 22 - - 6.7 - - - (3.8) 2.9
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Balance at 31 December
2019 9.2 - (116.9) 34.9 (0.2) 25.8 927.7 880.5
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Total comprehensive
income/(loss)
for the year:
Loss for the year - - - - - - (646.8) (646.8)
Other comprehensive
income:
Foreign currency
translation
differences for
foreign operations - - - 1.3 - - - 1.3
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Other comprehensive
income,
net of tax - - - 1.3 - - - 1.3
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Total comprehensive
income/(loss)
for the year - - - 1.3 - - (646.8) (645.5)
Transactions with owners
of the Company
Share-based payments - - - - - - 6.4 6.4
Ordinary dividend paid 12 - - - - - - - -
Proceeds from issue of
ordinary
shares, net of costs 22 1.3 312.6 - - - - - 313.9
Purchase of shares 22 - - (43.7) - - - - (43.7)
Proceeds from exercise of
share awards 22 - - 6.5 - - - (4.3) 2.2
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Balance at 31 December
2020 10.5 312.6 (154.1) 36.2 (0.2) 25.8 283.0 513.8
-------------------------- ----- -------- -------- -------- ------------ -------- --------- --------- -------
Other reserves include GBP10.5m for the restatement of the
assets and liabilities of the UK associate, from historic to fair
value at the time of the acquisition of the outstanding 58%
interest on 19 April 2006, GBP37.9m arising from the Scheme of
Arrangement undertaken on 14 October 2008, GBP6.5m relating to
merger reserves and GBP0.1m to the redemption of preference shares
partly offset by GBP29.2m arising from the Scheme of Arrangement
undertaken in 2003.
Consolidated balance sheet
As at As at
31 Dec 31 Dec
GBPm Notes 2020 2019
----------------------------------------- ----- ------- -------
Non-current assets
Goodwill 13 695.5 674.6
Other intangible assets 14 53.3 45.0
Property, plant and equipment 15 6,855.9 7,190.7
------------------------------------------ ----- ------- -------
Right-of-use assets 15 5,646.9 5,917.4
Other property, plant and equipment 15 1,209.0 1,273.3
------------------------------------------ ----- ------- -------
Deferred tax assets 8 188.2 195.0
Other long-term receivables 16 55.0 61.0
Investments in joint ventures 21 11.3 13.8
------------------------------------------ ----- ------- -------
Total non-current assets 7,859.2 8,180.1
------------------------------------------ ----- ------- -------
Current assets
Inventory 1.3 1.3
Trade and other receivables 17 1,003.7 681.3
Corporation tax receivable 8 29.1 24.0
Cash and cash equivalents 23 71.0 66.6
------------------------------------------ ----- ------- -------
Total current assets 1,105.1 773.2
Total assets 8,964.3 8,953.3
Current liabilities
Trade and other payables (incl. customer
deposits) 18 1,007.6 788.8
Deferred income 328.9 322.6
Corporation tax payable 8 40.0 32.3
Bank and other loans 19 21.9 9.7
Lease liabilities 23 1,019.6 977.4
Provisions 20 17.5 8.9
------------------------------------------ ----- ------- -------
Total current liabilities 2,435.5 2,139.7
------------------------------------------ ----- ------- -------
Non-current liabilities
Other long-term payables 5.9 2.0
Deferred tax liability 8 0.2 -
Bank and other loans 19 400.2 351.0
Lease liabilities 23 5,538.9 5,568.6
Derivative financial liabilities 24 49.6 0.2
Provisions 20 13.5 6.9
Provision for deficit on joint ventures 21 4.6 2.9
Retirement benefit obligations 26 2.1 1.5
------------------------------------------ ----- ------- -------
Total non-current liabilities 6,015.0 5,933.1
Total liabilities 8,450.5 8,072.8
Total equity
Issued share capital 22 10.5 9.2
Issued share premium 22 312.6 -
Treasury shares 22 (154.1) (116.9)
Foreign currency translation reserve 36.2 34.9
Hedging reserve (0.2) (0.2)
Other reserves 25.8 25.8
Retained earnings 283.0 927.7
------------------------------------------ ----- ------- -------
Total equity 513.8 880.5
------------------------------------------ ----- ------- -------
Total equity and liabilities 8,964.3 8,953.3
------------------------------------------ ----- ------- -------
Approved by the Board on 9 March 2021
Mark Dixon ERIC HAGEMAN
Chief Financial
Chief Executive Officer Officer
CoNSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 Dec 31 Dec 2019
GBPm Notes 2020 Restated(1)
------------------------------------------------------- ----- ---------- ------------
Operating activities
(Loss)/profit for the year from continuing operations (650.2) 77.3
Adjustments for:
Profit from discontinued operations 9 0.6 21.9
Net finance expense 7 268.1 231.8
Share of loss/(profit) on equity-accounted investees,
net of income tax 21 2.6 (2.7)
Depreciation charge 15 1,186.3 1,159.7
------------------------------------------------------- ----- ---------- ------------
Right-of-use assets 15 946.0 1,010.0
Other property, plant and equipment 15 240.3 149.7
------------------------------------------------------- ----- ---------- ------------
Loss on impairment of goodwill 13 4.9 0.8
Loss on disposal of property, plant and equipment 5 93.1 24.4
(Profit)/loss on disposal of right-of-use assets 5,
and related lease liabilities 23 (25.7) 1.7
Loss/(profit) on disposal of intangible assets 5 0.1 (0.3)
Impairment/(reversal of impairment) of property, 5,
plant and equipment 15 82.1 (2.1)
5,
Loss on impairment of right-of-use assets 15 163.9 -
5,
Amortisation of intangible assets 14 8.7 9.7
Loss on disposal of other investments 21 1.6 -
8,
Tax expense/(credit) 9 30.4 (22.3)
Expected credit losses on trade receivables 5 34.8 2.0
Increase/(decrease) in provisions 20 15.2 (1.3)
Share-based payments 6.4 0.7
Other non-cash movements (4.4) (1.6)
------------------------------------------------------- ----- ---------- ------------
Operating cash flows before movements in working
capital 1,218.5 1,499.7
------------------------------------------------------- ----- ---------- ------------
Proceeds from partner contributions (reimbursement
of costs) 15 38.4 98.0
Increase in trade and other receivables (76.4) (108.7)
Increase in trade and other payables 77.3 (301.4)
------------------------------------------------------- ----- ---------- ------------
Cash generated from operations 1,257.8 1,187.6
------------------------------------------------------- ----- ---------- ------------
Interest paid and similar charges on bank loans
and corporate borrowings (17.6) (21.2)
Interest paid on lease liabilities 23 (249.4) (213.2)
Tax paid (21.9) (48.8)
Net cash inflows from operating activities 968.9 904.4
------------------------------------------------------- ----- ---------- ------------
Investing activities
Purchase of property, plant and equipment 15 (257.4) (356.4)
Purchase of subsidiary undertakings, net of cash
acquired 27 (26.8) (24.2)
Purchase of intangible assets 14 (16.5) (12.8)
Purchase of joint ventures 21 - (1.8)
Purchase of current other current receivables 17 (276.2) -
Proceeds on the sale of discontinued operations,
net of cash disposed of 9 3.3 424.6
Proceeds on sale of property, plant and equipment 8.2 0.6
Interest received 7 0.6 0.5
Net cash (outflows)/inflows from investing activities (564.8) 30.5
------------------------------------------------------- ----- ---------- ------------
Financing activities
Proceeds from issue of loans 876.5 850.5
Repayment of loans (1,109.8) (1,013.0)
Proceeds from issue of convertible bonds (net
of transaction costs) 19 343.2 -
Payment of lease liabilities 23 (898.1) (878.3)
Proceeds from partner contributions (lease incentives) 15 111.0 204.1
Proceeds from issue of ordinary shares, net of
costs 22 313.9 -
Purchase of treasury shares 22 (43.7) (49.5)
Proceeds from exercise of share awards 2.2 2.9
Payment of ordinary dividend 12 - (58.2)
Net
cash outflows from financing activities (404.8) (941.5)
------------------------------------------------------- ----- ---------- ------------
Net decrease in cash and cash equivalents (0.7) (6.6)
Cash and cash equivalents at beginning of the
year 66.6 69.0
Effect of exchange rate fluctuations on cash
held 5.1 4.2
Cash and cash equivalents at end of the year 23 71.0 66.6
------------------------------------------------------- ----- ---------- ------------
1. The comparative information has been restated to reflect the
impact of discontinued operations (note 9), interest charges on
lease liabilities and
partner contributions (note 2).
Notes to the accounts
1. Authorisation of financial statements
IWG plc is a public limited company incorporated in Jersey and
registered and domiciled in Switzerland. The Group and Company
financial statements for the year ended 31 December 2020 were
authorised for issue by the Board of Directors on 9 March 2021 and
the balance sheets were signed on the Board's behalf by Mark Dixon
and Eric Hageman. The Company's ordinary shares are traded on the
London Stock Exchange. The audited Group accounts are included from
pages 105 to 152.
IWG plc owns, and is a franchise operator of, a network of
business centres which are utilised by a variety of business
customers. Information on the Group's structure is provided in note
31, and information on other related party relationships of the
Group is provided in note 30.
The Group financial statements have been prepared and approved
by the Directors in accordance with Companies (Jersey) Law 1991 and
International Financial Reporting Standards as adopted by the
European Union ('Adopted IFRSs').
The Company prepares its parent company annual accounts in
accordance with accounting policies based on the Swiss Code of
Obligations; extracts from these unaudited accounts are presented
on page 153.
2. Accounting policies
Basis of preparation
The Group financial statements consolidate those of the parent
company and its subsidiaries (together referred to as the 'Group')
and equity account the Group's interest in joint ventures. The
extract from the parent company annual accounts presents
information about the Company as a separate entity and not about
its Group.
The accounting policies set out below have been applied
consistently to all periods presented in these Group financial
statements. Amendments to adopted IFRSs issued by the International
Accounting Standards Board (IASB) and the International Financial
Reporting Interpretations Committee (IFRIC) with an effective date
from 1 January 2020 did not have a material effect on the Group
financial statements, unless otherwise indicated.
The 2019 Consolidated Statement of Cash Flows has been restated,
whereby the Group previously disclosed:
- Interest charges on lease liabilities of GBP213.2m within the
'payment of lease liabilities' balance (GBP1,091.5m) within
financing activities.
- Partner contributions of GBP302.1m offset within 'Increase in
trade and other payables' for reimbursements for landlord assets
(GBP98.0m) and 'Proceeds for lease incentives' for lease incentives
(GBP204.1m).
Having considered feedback from the Financial Reporting Council,
the Group revisited these classifications and determined that:
- Cash flows related to lease interest payments (GBP213.2m in
2019) are material and should be disclosed separately as operating
cash flows, consistent with the treatment of other interest
payments. The 'payment of lease liabilities' balance in 2019 has
been adjusted accordingly.
- Cash flows related to partner contributions (both
reimbursements and lease incentives) are material and should be
disclosed separately with contributions received for reimbursements
(GBP98.0m in 2019) as operating cash flows and contributions
received for lease incentives (GBP204.1m in 2019) as financing cash
flows, with 'movement in trade and other payables' restated for
these changes respectively.
The following standards, interpretations and amendments to
standards were adopted by the Group for periods commencing on or
after 1 January 2020:
Amendments to References to Conceptual Framework in IFRS Standards
Definition of a Business (Amendments to IFRS 3)
Definition of Material (Amendments to IAS 1 and IAS 8)
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
COVID-19 Related Rent Concessions (Amendments to IFRS 16)(1)
-----------------------------------------------------------------------
1. This standard was not applied by the Group as adoption is
optional.
Judgements made by the Directors in the application of these
accounting policies that have significant effect on the
consolidated financial statements and estimates with a significant
risk of material adjustment in the next year are discussed in note
32.
The consolidated financial statements are prepared on a
historical cost basis, with the exception of certain financial
assets and liabilities that are measured at fair value or amortised
cost.
GOING CONCERN
The Group reported a loss after tax of GBP650.2m from continuing
operations for the year. This result includes a significant amount
of non-cash related charges. Net cash of GBP968.9m was generated
from operations during the year. Although the Group's balance sheet
at 31 December 2020 reports a net current liability position of
GBP1,330.4m the Directors do not consider that this gives rise to a
liquidity risk. A large portion of the net current liabilities
comprise non-cash liabilities such as deferred income which will be
recognised through future periods in the income statement. The
Group also holds customer deposits which are spread across a large
number of customers with no deposit for any individual customer
being material. Excluding deferred income and short-term lease
liabilities, the Group had net current assets of GBP18.1m at 31
December 2020.
The Group maintains a 12-month rolling forecast and a three-year
strategic outlook. It also monitors the covenants in its facilities
to manage the risk of breach. The Group expects to remain within
covenants throughout the forecast period. The Directors have
assessed the potential cash generation of the Group against a range
of illustrative COVID-19 scenarios (including a severe but
plausible outcome), mitigating actions to reduce operating costs
and optimise cash flows during the ongoing global restrictions, the
liquidity of the Group and funding available under the Group's
GBP950.0m Revolving Credit Facility. GBP731.3m was available and
undrawn at 31 December 2020. This facility is committed until March
2025 with an option to extend until 2026 (note 24).
The Directors consider that the Group is well placed to
successfully manage the actual and potential risks faced by the
organisation including risks related to COVID-19. (For more detail,
see 'Understanding and managing risk' in this report.)
On the basis of their assessment, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of at least 12
months from the date of approval of these consolidated financial
statements and consider it appropriate to continue to adopt the
going concern basis in preparing the financial statements of the
Group.
These Group consolidated financial statements are presented in
pounds sterling (GBP), which is IWG plc's functional currency, and
all values are in million pounds, rounded to one decimal place,
except where indicated otherwise.
The attributable results of those companies acquired or disposed
of during the year are included for the periods of ownership.
IFRs not yet effective
The following new or amended standards and interpretations that
are mandatory for 2021 annual periods (and future years) are not
expected to have a material impact on the Group financial
statements, unless otherwise stated:
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 1 January
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) 2021
Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 1 January
9 2021
Onerous contracts - Cost of Fulfilling a Contract (Amendments 1 January
to IAS 37) 2022
1 January
Annual Improvements to IFRS Standards 2018-2020 2022
Property, Plant and Equipment: Proceeds before Intended Use 1 January
(Amendments to IAS 16) 2022
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance 1 January
Contracts 2023
Amendments to IAS 8 Accounting policies, Changes in Accounting
Estimates and Errors: Definition 1 January
of Accounting Estimates 2023
Classification of Liabilities as Current or Non-current (Amendments 1 January
to IAS 1) 2023
------------------------------------------------------------------- ---------
There are no other IFRS standards or interpretations that are
not yet effective that would be expected to have a material impact
on the Group.
The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
Basis of consolidation
Subsidiaries are entities controlled by the Group. Control
exists when the Group controls an entity, when it is exposed to, or
has the rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power over the entity. The financial statements of subsidiaries are
included in the consolidated financial statements from the date
that control commences. The results are consolidated until the date
control ceases or the subsidiary qualifies as a disposal group, at
which point the assets and liabilities are carried at the lower of
fair value less costs to sell and carrying value.
Joint ventures are those entities over whose activities the
Group has joint control, whereby the Group has rights to the net
assets of the arrangement, rather than rights to its assets and
obligations for its liabilities. The consolidated financial
statements include the Group's share of the total recognised gains
and losses of joint ventures on an equity-accounted basis, from the
date that joint control commences until the date that joint control
ceases or the joint venture qualifies as a disposal group, at which
point the investment is carried at the lower of fair value less
costs to sell and carrying value. When the Group's share of losses
exceeds its interest in a joint venture, the Group's carrying
amount is reduced to nil and recognition of further losses is
discontinued except to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of a joint
venture.
Leases
The nature of the Group's leases relates to the rental of
commercial office real estate premises globally.
1. Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease. Right-of-use assets are measured at cost, less
any accumulated depreciation and impairment losses, and adjusted
for any re-measurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities
recognised and initial direct costs incurred. The recognised
right-of-use assets are depreciated on a straight-line basis over
the shorter of its estimated useful life and the lease term.
Right-of-use assets are subject to impairment review on an
annual basis.
2. Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments and variable lease payments that depend on an index or a
rate. The variable lease payments that do not depend on an index or
a rate are recognised as a rent expense in the period in which they
are incurred.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
as the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is re-measured if there is a
modification, a change in the lease term or a change in the
in-substance fixed lease payments.
3. Lease modifications
The carrying amount of lease liabilities is remeasured where
there is a modification, a change in the lease term, a change in
the lease payments (e.g. changes to future payments resulting from
a change in an index or rate used to determine such lease payments)
or a change in the assessment of an option to purchase the
underlying asset. The impact of the modification is recognised
against the carrying amount of the right-of-use assets or is
recorded in profit or loss if the carrying amount of the
right-of-use assets has been reduced to zero.
4. Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
short-term leases (i.e. those leases that have a lease term of 12
months or less from commencement). It also applies the lease of
low-value assets recognition exemption under IFRS 16 to leases that
are considered of low value. Lease payments on short-term leases
and leases of low-value assets are recognised as a rent expense on
a straight-line basis over the lease term.
5. Lessor accounting
There are no lessor arrangements in the Group as a result of the
contractual arrangements in place with customers which convey the
right to use an identified asset.
6. 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. Partner contributions representing a reimbursement to the
lessee (IWG) are accounted for as agency arrangements, and form
part of the lessor's (landlord's) assets.
Partner contributions where the Group retains ownership of the
fit-out assets are accounted for as a lease incentive. If received
at or before the lease commencement date, are accounted for by
reducing the right-of-use asset; and if received after the
commencement date, are accounted for as a reduction of the lease
liability and the right-of-use asset.
7. Lease term
The lease term represents the period from lease inception up to
either:
a. The earliest point at which the lease could be broken, where
break clauses exist;
b. The point at which the lease could be extended, but no
further, where extension options exist; or
c. To the end of the contractual lease term in all other
cases.
8. Lease break penalties
Lease break penalties where the lease term has been determined
as the period from inception up to a break clause and when there
are break payments or penalties, have been appropriately included
in the measurement of the lease liability.
DILAPIDATIONS
A provision is recognised for those potential dilapidation
payments when it is probable that an outflow will occur and can be
reliably estimated.
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 in two tranches, at 30 September
2020 and 31 December 2020 respectively. At each reporting date, the
Group reviews the carrying amount of these assets to determine
whether there is an indicator of impairment. If any indicator is
identified, then the assets' recoverable amount is
re-evaluated.
The carrying amount of the Group's other non-financial assets
(other than deferred tax assets and inventory), including
right-of-use assets, is reviewed at the reporting date to determine
whether there is an indicator of impairment. If any such indication
exists, the assets' 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 cash-generating unit (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.
The potential impairment of immovable property, plant and
equipment and right-of-use assets at the centre (CGU) level are
evaluated 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 centres or elsewhere in the
business that become obsolete or are damaged are assessed and
impaired where appropriate.
The recoverable amount of relevant assets is the greater of
their fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for
the cash-generating unit to which the asset belongs.
Goodwill
All business combinations are accounted for using the purchase
method. Goodwill is initially measured at fair value, being the
excess of the aggregate of the fair value of the consideration
transferred and the amount recognised for non-controlling
interests, and any previous interest held, over the net
identifiable assets acquired and liabilities assumed. If the fair
value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group reassesses whether it has
correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the
reassessment still results in an excess of the fair value of net
assets acquired over the aggregate consideration transferred
(negative goodwill), then the gain is recognised in profit or
loss.
Positive goodwill is stated at cost less any provision for
impairment in value. An impairment test is carried out annually
and, in addition, whenever indicators exist that the carrying
amount may not be recoverable. Negative goodwill is recognised
directly in profit or loss.
Intangible assets
Intangible assets acquired separately from the business are
capitalised at cost. Intangible assets acquired as part of an
acquisition of a business are capitalised separately from goodwill
if their fair value can be identified and measured reliably on
initial recognition.
Intangible assets are amortised on a straight-line basis over
the estimated useful life of the assets as follows:
Brand - Regus brand Indefinite life
Brand - Other acquired brands 20 years
Computer software Up to 5 years
Customer lists 2 years
----------------------------- ---------------
Amortisation of intangible assets is expensed through
administration expenses in the income statement.
Acquisitions of non-controlling interests
Acquisitions of non-controlling interests are accounted for as
transactions with owners in their capacity as owners and therefore
no goodwill is recognised as a result. Adjustments to
non-controlling interests arising from transactions that do not
involve the loss of control are based on a proportionate amount of
the net assets of the subsidiary.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any impairment in value. Asset lives and
recoverable amounts are reviewed on annual basis. Depreciation is
calculated on a straight-line basis over the estimated useful life
of the assets as follows:
Right-of-use assets (1) Over the lease term
Buildings 50 years
Leasehold improvements (1) 10 years
Furniture 10 years
Office equipment and telephones 5 - 10 years
Computer hardware 3 - 5 years
------------------------------- -------------------
1. 10 years represents the average useful economic life across
the lease portfolio. Actual economic useful lives determined for
leases in scope of IFRS 16 range from approximately 3 to in excess
of 10 years.
Revenue
The Group's primary activity and only business segment is the
provision of global workspace solutions.
The Group recognises revenue when it transfers services to a
customer. It is measured based on the consideration specified in a
contract with a customer. Services transfer to the customer equally
over the contract period based on the time elapsed. Where
discounted periods are granted to customers, service income is
spread on a straight-line basis over the duration of the customer
contract.
1. Workstations
Workstation revenue is recognised over time as the services are
provided. Amounts invoiced in advance are accounted for as deferred
income (contract liability) and recognised as revenue upon
provision of the service.
2. Customer service income
Service income (including the provision of meeting rooms) is
recognised over time as the services are delivered or at a point in
time depending on contractual obligations. In circumstances where
the Group acts as an agent for the sale and purchase of goods to
customers, only the commission fee earned is recognised as
revenue.
3. Management and franchise fees
Fees received for the provision of initial and subsequent
services are recognised over time as the services are rendered.
Fees charged for the use of continuing rights granted by the
agreement, or for other services provided during the period of the
agreement, are recognised as revenue as the services are provided
or the rights used.
4. Membership card income
Revenue from the sale of membership cards is deferred and
recognised over time within the period that the benefits of the
membership card are expected to be provided. Deferred revenue is
included in contract liabilities.
The Group has generally concluded that it is the principal in
its revenue arrangements, except where noted above.
ADJUSTING ITEMS
Significant infrequent transactions not indicative of the
underlying performance of the consolidated Group are reported
separately as non-recurring/adjusting items.
Adjusting items are separately disclosed by the Group to provide
readers with helpful, additional information on the performance of
the business across periods. In 2020, items arising specifically
from the impact of the COVID-19 pandemic have been deemed to meet
the definition of adjusting items. Each of these items are
considered to be significant in nature and/or size and are also
consistent with items treated as adjusting in prior periods in
which significant non-recurring transactions occurred. The
exclusion of these items is consistent with how the business
performance is planned by, and reported to, the Board. The profit
before tax and adjusting items measure is not a recognised profit
measure under IFRS and may not be directly comparable with adjusted
profit measures used by other companies. The classification of
adjusting items requires significant management judgement after
considering the nature and intentions of a transaction.
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 plans
is determined using the projected unit credit method.
Re-measurements, comprising actuarial gains and losses, the
effect of the asset ceiling 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.
Grants that compensate the Group for expenses incurred are
recognised in profit or loss on a systematic basis in the periods
in which the expenses are recognised.
Share-based payments
The share awards programme entitles certain Directors and
employees to acquire shares of the ultimate parent company (IWG
plc); these awards are granted by the ultimate parent company (IWG
plc) and are equity-settled.
The fair value of options and awards granted under the Group's
share-based payment plans outlined in note 25 is recognised as an
employee expense with a corresponding increase in equity. The fair
value is measured at grant date and spread over the period during
which the employees become unconditionally entitled to the options.
The fair value of the options granted is measured using the
Black-Scholes valuation model or the Monte Carlo method, taking
into account the terms and conditions upon which the options were
granted. The amount recognised as an expense is adjusted to reflect
the actual number of share options that vest in respect of
non-market conditions except where forfeiture is due to the expiry
of the option.
Taxation
Tax on the profit for the year comprises current and deferred
tax. Tax is recognised in the income statement except to the extent
that it relates to items recognised directly in equity, in which
case it is recognised in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax
assets and liabilities are not subject to discounting. The
following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets and
liabilities that affect neither accounting nor taxable profit other
than in a business combination; and differences relating to
investments in subsidiaries to the extent that they will probably
not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at the reporting
date.
A deferred tax asset is recognised for unused tax losses only to
the extent that it is probable that future taxable profits will be
available against which the asset can be utilised.
The carrying amount of a deferred tax asset or liability may
change for reasons other than a change in the temporary difference
itself. Such changes might arise as a result of a change in tax
rates or laws, a reassessment of the recoverability of a deferred
tax asset or a change in the expected manner of recovery of an
asset or the expected manner of a settlement of a liability. The
impact of these changes is recognised in the income statement or in
other comprehensive income depending on where the original deferred
tax balance was recognised.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Upon adoption of IFRIC Interpretation 23, in 2019, the Group
considered whether it has any uncertain tax positions, particularly
those relating to transfer pricing. The Company's and the
subsidiaries' tax filings in different jurisdictions include
deductions related to transfer pricing and the taxation authorities
may challenge those tax treatments. The Group determined, based on
its tax compliance and transfer pricing studies, that in most
jurisdictions it is probable that its tax treatments (including
those for the subsidiaries) will be accepted by the taxation
authorities. The Group has, where considered appropriate, provided
for the potential impact of uncertain tax positions where the
likelihood of tax authority adjustment is considered to be more
likely than not. The adoption of the interpretation did not have an
impact on the consolidated financial statements of the Group.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event that can be estimated reliably, and it is probable that
an outflow of economic benefits will be required to settle the
obligation.
Restructuring provisions are made for direct expenditures of a
business reorganisation where the plans are sufficiently detailed
and well-advanced and where the appropriate communication to those
affected has been undertaken at the reporting date.
Provision is made for closure costs to the extent that the
unavoidable costs of meeting the obligations exceed the economic
benefits expected to be delivered.
Equity
Equity instruments issued by the Group are recorded at the value
of proceeds received, net of direct issue costs.
When shares recognised as equity are repurchased, the amount of
the consideration paid, which includes directly attributable costs,
net of any tax effects, is recognised as a deduction from equity.
Repurchased shares are classified as treasury shares and are
presented in the treasury share reserve. When treasury shares are
sold or re-issued subsequently, the amount received is recognised
as an increase in equity and the resulting surplus or deficit on
the transaction is presented within retained earnings.
Inventory
Inventories relate to consumable items which are measured at the
lower of cost or net realisable value. The cost of inventories is
based on the first-in, first-out principle.
Net finance expense
Interest charges and income are accounted for in the income
statement on an accrual 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 an asset and recognised through the finance
expense over the term of the facility.
Where assets or liabilities on the Group balance sheet are
carried at net present value, the increase in the amount due to
unwinding the discount is recognised as a finance expense or
finance income as appropriate.
Costs arising on bank guarantees and letters of credit and
foreign exchange gains or losses are included in other finance
costs (note 7).
Interest-bearing borrowings and other financial liabilities
Financial liabilities, including interest-bearing borrowings,
are recognised initially at fair value less attributable
transaction costs. Subsequent to initial recognition, financial
liabilities are stated at amortised cost with any difference
between cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective
interest rate method.
The Group derecognises financial liabilities when the Group's
obligations are discharged, cancelled or expired.
Financial liabilities are classified as financial liabilities at
fair value through profit or loss where the liability is either
held for trading or is designated as held at fair value through
profit or loss on initial recognition. Financial liabilities at
fair value through profit or loss are stated at fair value with any
resultant gain or loss recognised in the income statement.
Compound financial instruments issued by the Group comprise
convertible bonds denominated in pounds sterling that can be
converted to ordinary shares at the option of the holder.
The debt component of compound financial instruments is
initially recognised at the fair value of a similar liability that
does not have an equity conversion option. The conversion option
represents a derivative financial liability and is initially
recognised as the difference between the fair value of the compound
financial instrument as a whole and the fair value of the liability
component. Any directly attributable transaction costs are
allocated to the debt host.
Subsequent to initial recognition, the debt component of a
compound financial instrument is measured at amortised cost using
the effective interest method. The derivative component of a
compound financial instrument is remeasured at fair value through
profit or loss. Interest related to the debt is recognised as a
finance expense in profit or loss.
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.
Financial assets
Financial assets are classified and subsequently measured at
amortised cost, fair value through the profit or loss, or fair
value through other comprehensive income (OCI). The classification
depends on the nature and purpose of the financial assets and is
determined on initial recognition.
Financial assets (including trade and other receivables) are
measured at amortised cost if both of the following conditions are
met:
- The financial asset is held within a business model whose
objective is to hold assets to collect contractual cash flows;
and
- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
Financial assets at fair value through profit or loss are
measured at fair value and changes therein, including any interest
or dividend income, are recognised in profit or loss.
Financial assets (including trade and other receivables) are
measured at fair value through OCI if both of the following
conditions are met:
- The financial asset is held within a business model whose
objective is achieved by both collecting cash flows and selling
financial assets; and
- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
IFRS 9 requires the Group to record expected credit losses on
all of its financial assets held at amortised cost, either on a
12-month or lifetime basis. The Group applies the simplified
approach to trade receivables and recognises expected credit losses
based on the lifetime expected losses. Provisions for receivables
are established based on both expected credit losses and
information available that the Group will not be able to collect
all amounts due according to the original terms of the
receivables.
Customer deposits
Deposits received from customers against non-performance of the
contract are held on the balance sheet as a current liability until
they are either returned to the customer at the end of their
relationship with the Group, or released to the income
statement.
Foreign currency transactions and foreign operations
Transactions in foreign currencies are recorded using the rate
of exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated
using the closing rate of exchange at the balance sheet date and
the gains or losses on translation are taken to the income
statement. Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated using
the exchange rate at the date of the transaction. The results and
cash flows of foreign operations are translated using the average
rate for the period. Assets and liabilities, including goodwill and
fair value adjustments, of foreign operations are translated using
the closing rate, with all exchange differences arising on
consolidation being recognised in other comprehensive income, and
presented in the foreign currency translation reserve in equity.
Exchange differences are reclassified to the income statement on
disposal.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and
are subject to an insignificant risk of change in value.
Discontinued operations
A discontinued operation is a component of the Group's business,
the operations and cash flows of which can be clearly distinguished
from the rest of the Group and which:
- represents a separate major line of business or geographic
area of operations;
- is part of a single co-ordinated plan to dispose of a separate
major line of business or geographic area of operations; or
- is a subsidiary acquired exclusively with a view to
resale.
Classification as a discontinued operation occurs at the earlier
of disposal or when the operation meets the criteria to be
classified as held-for-sale. When an operation is classified as a
discontinued operation, the comparative statement of profit or loss
and OCI is re-presented as if the operation had been discontinued
from the start of the comparative year.
Foreign currency translation rates
At 31 December Annual average
---------------- ----------------
2020 2019 2020 2019
---------- ------- ------- ------- -------
US dollar 1.37 1.32 1.29 1.28
Euro 1.11 1.18 1.13 1.14
---------- ------- ------- ------- -------
3. Segmental analysis
An operating segment is a component of the Group that engages in
business activities from which it may earn revenue and incur
expenses. An operating segment's results are reviewed regularly by
the chief operating decision-maker (the Board of Directors of the
Group) on a pre-IFRS 16 basis to make decisions about resources to
be allocated to the segment and assess its performance, and for
which discrete financial information is available. The segmental
information is presented on the same basis on which the chief
operating decision-maker received reporting during the year. The
presentation of reported segment profit or loss has changed in 2020
to a pre-IFRS 16 basis (2019: in accordance with IFRS) and
comparatives have been restated on this basis. Segmental assets and
liabilities continue to be presented in accordance with IFRS.
The business is run on a worldwide basis but managed through
four principal geographical segments (the Group's operating
segments): the Americas; EMEA (Europe, Middle East and Africa);
Asia Pacific; and the United Kingdom. These geographical segments
exclude the Group's non-trading, holding and corporate management
companies, which are included in the "Other" segment. The results
of business centres in each of these regions form the basis for
reporting geographical results to the chief operating
decision-maker. All reportable segments are involved in the
provision of global workplace solutions.
The Group's reportable segments operate in different markets and
are managed separately because of the different economic
characteristics that exist in each of those markets. Each
reportable segment has its own discrete senior management team
responsible for the performance of the segment.
Americas EMEA Asia Pacific United Kingdom Other Total
-------------------- ---------------------- -------------------- -------------------- ---------------- ----------------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Continuing Restated(5) Restated(5) Restated(5)
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- --------- --------- --------- ----------- ------- ----------- --------- --------- ------- ------- --------- -----------
Revenue from
external customers(1) 1,066.5 1,187.9 715.1 683.0 304.2 342.7 388.8 426.3 5.6 9.0 2,480.2 2,648.9
---------------------- --------- --------- --------- ----------- ------- ----------- --------- --------- ------- ------- --------- -----------
Mature (2) 969.8 1,099.8 564.0 575.1 252.2 274.7 338.2 370.1 5.6 9.0 2,129.8 2,328.7
2019 Expansions
(2) 53.4 20.7 103.4 36.8 27.1 10.6 31.5 11.3 - - 215.4 79.4
2020 Expansions
(2) 11.0 - 21.5 - 5.7 - 10.0 - - - 48.2 -
Closures (2) 32.3 67.4 26.2 71.1 19.2 57.4 9.1 44.9 - - 86.8 240.8
---------------------- --------- --------- --------- ----------- ------- ----------- --------- --------- ------- ------- --------- -----------
Gross profit
(centre contribution) (101.7) 220.5 23.0 123.4 (13.9) 28.4 (80.0) 28.9 2.7 12.9 (169.9) 414.1
Share of (loss)/profit
of equity-accounted
investees - - (0.1) 2.6 (0.2) (0.1) (2.3) 0.2 - - (2.6) 2.7
Operating
(loss)/profit (184.6) 155.6 (60.4) 60.2 (44.8) 1.8 (116.7) 0.4 (146.8) (81.2) (553.3) 136.8
Finance expense (13.9) (18.7)
Finance income 3.0 0.5
---------------------- --------- --------- --------- ----------- ------- ----------- --------- --------- ------- ------- --------- -----------
Profit before
tax for the
year (564.2) 118.6
Depreciation
and amortisation 161.4 133.0 60.9 45.8 33.1 29.3 41.2 43.7 10.6 8.8 307.2 260.6
Impairment
of assets - (0.7) - 0.2 - (1.2) - (0.4) - - - (2.1)
Assets(3) 3,460.0 3,797.4 2,542.0 2,294.4 676.5 730.1 1,925.4 1,699.6 360.4 431.8 8,964.3 8,953.3
Liabilities(3) (3,334.6) (3,443.7) (2,398.3) (2,058.9) (685.3) (639.6) (1,562.3) (1,426.5) (470.0) (504.1) (8,450.5) (8,072.8)
---------------------- --------- --------- --------- ----------- ------- ----------- --------- --------- ------- ------- --------- -----------
Net
assets/(liabilities) 125.4 353.7 143.7 235.5 (8.8) 90.5 363.1 273.1 (109.6) (72.3) 513.8 880.5
Non-current
asset additions(4) 886.2 1,139.1 867.6 779.4 321.5 224.2 320.0 455.5 36.7 172.6 2,432.0 2,770.8
---------------------- --------- --------- --------- ----------- ------- ----------- --------- --------- ------- ------- --------- -----------
1. Excludes revenue from discontinued operations (note 9).
2. Revenue has been disaggregated to reflect the basis on which
it is reported to the chief operating decision-maker. Further
information can be found in the unaudited "Segmental analysis --
Based on estimates" on pages 158 and 159.
3. Presented on a basis consistent with IFRS 16.
4. Excluding deferred taxation.
5. The comparative information has been restated to reflect the
impact of discontinued operations.
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.
The operating segment's results presented on a pre-IFRS 16 basis
reconcile to the financial statements as follows:
Americas EMEA Asia Pacific United Kingdom Other Total
---------------- -------------------- -------------------- ---------------- ------------ --------------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Continuing Restated(5) Restated(5) Restated(5)
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------- ------- ----------- ------- ----------- ------- ------- ----- ----- ------- -----------
Gross profit
(centre contribution) (101.7) 220.5 23.0 123.4 (13.9) 28.4 (80.0) 28.9 2.7 12.9 (169.9) 414.1
Rent 445.4 454.1 308.4 249.7 148.3 158.1 147.9 149.8 1.2 (0.1) 1,051.2 1,011.6
Depreciation
of right-of-use
assets/property,
plant and equipment (339.5) (376.8) (275.7) (235.0) (137.4) (128.6) (130.9) (140.2) (1.0) 6.2 (884.5) (874.4)
Other (9.0) 5.2 17.5 11.8 7.8 2.7 7.1 0.2 (0.3) (6.1) 23.1 13.8
---------------------- ------- ------- ------- ----------- ------- ----------- ------- ------- ----- ----- ------- -----------
Gross profit
(centre contribution)
- Reported (4.8) 303.0 73.2 149.9 4.8 60.6 (55.9) 38.7 2.6 12.9 19.9 565.1
---------------------- ------- ------- ------- ----------- ------- ----------- ------- ------- ----- ----- ------- -----------
Americas EMEA Asia Pacific United Kingdom Other Total
---------------- -------------------- -------------------- ---------------- --------------- --------------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Continuing Restated(5) Restated(5) Restated(5)
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- ------- ------- ----------- ------- ----------- ------- ------- ------- ------ ------- -----------
Operating
(loss)/profit (184.6) 155.6 (60.4) 60.2 (44.8) 1.8 (116.7) 0.4 (146.8) (81.2) (553.3) 136.8
Rent 445.5 454.1 308.4 249.7 148.3 158.1 160.8 149.8 2.2 - 1,065.2 1,011.7
Depreciation
of right-of-use
assets/property,
plant and
equipment (339.5) (376.8) (275.7) (235.0) (137.4) (128.6) (131.5) (140.5) (2.9) 5.4 (887.0) (875.5)
Other (9.1) 5.0 17.1 11.4 7.4 2.7 7.0 0.1 0.7 (5.4) 23.1 13.8
----------------- ------- ------- ------- ----------- ------- ----------- ------- ------- ------- ------ ------- -----------
Operating
(loss)/profit
- Reported (87.7) 237.9 (10.6) 86.3 (26.5) 34.0 (80.4) 9.8 (146.8) (81.2) (352.0) 286.8
----------------- ------- ------- ------- ----------- ------- ----------- ------- ------- ------- ------ ------- -----------
Americas EMEA Asia Pacific United Kingdom Other Total
------------ ------------------ ------------------ -------------- ----------- --------------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Continuing Restated(5) Restated(5) Restated(5)
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----- ----- ----- ----------- ----- ----------- ----- ------- ---- ----- ------- -----------
Depreciation
and amortisation 161.4 133.0 60.9 45.8 33.1 29.3 41.2 43.7 10.6 8.8 307.2 260.6
Depreciation
of right-of-use
assets/property,
plant and
equipment 339.5 376.8 275.7 236.7 137.4 127.0 131.5 140.5 2.9 (6.9) 887.0 874.1
----------------- ----- ----- ----- ----------- ----- ----------- ----- ------- ---- ----- ------- -----------
Depreciation
and amortisation
- Reported 500.9 509.8 336.6 282.5 170.5 156.3 172.7 184.2 13.5 1.9 1,194.2 1,134.7
----------------- ----- ----- ----- ----------- ----- ----------- ----- ------- ---- ----- ------- -----------
United
Americas EMEA Asia Pacific Kingdom Other Total
------------ ----------------- ----------------- ------------- ------------ ------------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Continuing Restated(5) Restated(5) Restated(5)
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----- ----- ---- ----------- ---- ----------- ---- ------- ----- ----- ----- -----------
Impairment
of assets - (0.7) - 0.2 - (1.2) - (0.4) - - - (2.1)
Impairment
of right-of-use
assets/property,
plant and
equipment 161.3 - 25.2 - 14.1 - 45.4 - - - 246.0 -
----------------- ----- ----- ---- ----------- ---- ----------- ---- ------- ----- ----- ----- -----------
Impairment
of assets -
Reported 161.3 (0.7) 25.2 0.2 14.1 (1.2) 45.4 (0.4) - - 246.0 (2.1)
----------------- ----- ----- ---- ----------- ---- ----------- ---- ------- ----- ----- ----- -----------
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 are as follows:
2020 2019
--------------------- ---------------------
External Non-current External Non-current
GBPm revenue assets(2) revenue assets(2)
----------------------------------------- -------- ----------- -------- -----------
Country of tax domicile - Switzerland(1) - - - -
United States of America 899.7 3,140.2 999.3 3,500.1
United Kingdom 388.8 1,613.5 426.3 1,653.5
All other countries 1,191.7 2,917.3 1,223.3 2,831.5
----------------------------------------- -------- ----------- -------- -----------
2,480.2 7,671.0 2,648.9 7,985.1
----------------------------------------- -------- ----------- -------- -----------
1. Revenue of GBPnil (2019: GBP39.1m) is included in
discontinued operations, following sale of master franchise
agreement.
2. Excluding deferred tax assets.
5. Operating (LOSS)/profit - continuing operations
Operating (loss)/profit has been arrived at after
charging/(crediting):
2020 2019
Notes GBPm GBPm(4)
------------------------------------------------------ ----- ------- --------
Revenue 2,480.2 2,648.9
Depreciation on property, plant and equipment(1) 15 1,185.5 1,125.0
------------------------------------------------------ ----- ------- --------
Right-of-use assets 15 945.4 982.0
Other property, plant and equipment 15 240.1 143.0
------------------------------------------------------ ----- ------- --------
Amortisation of intangible assets 14 8.7 9.7
Variable property rents payable in respect of
leases 64.9 43.7
Lease expense on low-value assets 3.4 0.9
Lease expense on short-term leases - 2.3
Staff costs 6 346.5 372.7
Facility and other property costs 431.9 419.0
Expected credit losses on trade receivables(2) 24 34.8 2.0
Loss on disposal of property, plant and equipment 93.1 31.0
(Profit)/loss on disposal of right-of-use assets
and related lease liabilities (25.7) 1.7
Impairment of goodwill 13 4.9 0.8
Loss/(profit) on disposal of intangible assets 14 0.1 (0.3)
Impairment/(reversal of impairment) of property,
plant and equipment(3) 15 246.0 (2.1)
------------------------------------------------------ ----- ------- --------
Impairment/(reversal of impairment) of other
property, plant and equipment 82.1 (2.1)
Impairment of right-of-use assets 163.9 -
------------------------------------------------------ ----- ------- --------
Other costs 435.5 358.4
------------------------------------------------------ ----- ------- --------
Operating (loss)/profit before equity-accounted
investees (349.4) 284.1
Share of (loss)/profit of equity-accounted investees,
net of tax 21 (2.6) 2.7
------------------------------------------------------ ----- ------- --------
Operating (loss)/profit (352.0) 286.8
------------------------------------------------------ ----- ------- --------
1. Excludes depreciation expenses related to discontinued
operations for right-of-use assets of GBP0.6m (2019: GBP27.7m) and
other property, plant and equipment of GBP0.2m (2019: GBP6.7m).
2. Of the GBP34.8m expected credit loss, GBP17.5m relates to
COVID-19 adjusting items (note 10).
3. Of the GBP246.0m impairment charge, GBP244.8m relates to
COVID-19 adjusting items (note 10).
4. The comparative information has been restated to reflect the
impact of discontinued operations.
2020 2019
GBPm GBPm
------------------------------------------------------- ----- -----
Fees payable to the Group's auditor and its associates
for the audit of the Group accounts 1.2 1.2
Fees payable to the Group's auditor and its associates
for other services:
The audit of the Company's subsidiaries pursuant to
legislation 3.1 2.8
Other services pursuant to legislation:
Tax services - -
Other services 0.2 0.2
Other non-audit services 1.0 -
------------------------------------------------------- ----- -----
6. Staff costs
2020 2019
GBPm(1) GBPm(1)
--------------------------------------------- -------- --------
The aggregate payroll costs were as follows:
Wages and salaries(2) 284.6 314.6
Social security 49.9 51.7
Pension costs 5.6 5.7
Share-based payments 6.4 0.7
--------------------------------------------- -------- --------
346.5 372.7
--------------------------------------------- -------- --------
1. Excludes staff costs related to discontinued operations of
GBP0.1m (2019: GBP11.0m).
2. Includes worldwide financial support schemes disclosed in
Note 10.
2020 2019
Average Average
full full
time time
equivalents(2) equivalents(3)
----------------------------------------------------- --------------- ---------------
The average number of persons employed by the Group
(including Executive Directors),
analysed by category and geography, was as follows:
Centre staff 6,467 7,599
Sales and marketing staff 425 462
Finance staff 775 749
Other staff 887 904
----------------------------------------------------- --------------- ---------------
8,554 9,714
----------------------------------------------------- --------------- ---------------
Americas 2,431 3,195
EMEA 2,592 2,744
Asia Pacific 1,248 1,268
United Kingdom 683 913
Corporate functions 1,600 1,594
----------------------------------------------------- --------------- ---------------
8,554 9,714
----------------------------------------------------- --------------- ---------------
3. The average full-time equivalents excludes employees for
countries sold during 2020 of 6 (2019: 227).
Details of Directors' emoluments and interests are given on
pages 84 to 96 in the Directors' Remuneration report, with audited
schedules identified where relevant.
7. Net finance expense
2020 2019
GBPm GBPm(2)
------------------------------------------------------- ------- --------
Interest payable and similar charges on bank loans and
corporate borrowings (12.8) (13.7)
Interest payable on finance lease liabilities(1) (249.4) (213.3)
------------------------------------------------------- ------- --------
Total interest expense (262.2) (227.0)
Other finance costs (including foreign exchange) (8.8) (5.1)
Unwinding of discount rates (0.1) (0.2)
------------------------------------------------------- ------- --------
Total finance expense (271.1) (232.3)
------------------------------------------------------- ------- --------
Financial liabilities measured at FVTPL (note 19) 2.4 -
Total interest income 0.6 0.5
------------------------------------------------------- ------- --------
Total finance income 3.0 0.5
------------------------------------------------------- ------- --------
Net finance expense (268.1) (231.8)
------------------------------------------------------- ------- --------
1. Excludes lease liability finance expense related to
discontinued operations of GBP0.1m (2019: GBP2.9m).
2. The comparative information has been restated to reflect the
impact of discontinued operations.
8. Taxation
(a) Analysis of charge in the year
2020 2019
GBPm GBPm
--------------------------------------------------------- ------ ------
Current taxation
Corporate income tax (42.8) (60.9)
Previously unrecognised tax losses and other differences 8.5 4.2
Over/(under) provision in respect of prior years 11.1 (0.6)
--------------------------------------------------------- ------ ------
Total current taxation (23.2) (57.3)
--------------------------------------------------------- ------ ------
Deferred taxation
Origination and reversal of temporary differences (6.9) 79.0
Previously unrecognised tax losses and other differences - 0.9
Under provision in respect of prior years - (0.3)
--------------------------------------------------------- ------ ------
Total deferred taxation (6.9) 79.6
--------------------------------------------------------- ------ ------
Tax (charge)/credit on continuing operations (30.1) 22.3
--------------------------------------------------------- ------ ------
(b) Reconciliation of taxation charge
2020 2019
--------------- --------------
GBPm % GBPm %
---------------------------------------------- ------- ------ ------ ------
(Loss)/profit before tax from continuing
operations (620.1) 55.0
---------------------------------------------- ------- ------ ------ ------
Tax on profit at 11.9% (2019: 14.6%) 73.8 (11.9) (8.0) (14.6)
Tax effects of:
Expenses not deductible for tax purposes (44.9) 7.2 (38.5) (70.0)
Items not chargeable for tax purposes 155.0 (25.0) 31.9 58.0
Recognition of previously unrecognised
deferred tax assets 8.5 (1.4) 5.0 9.1
Movements in temporary differences in
the year not recognised in deferred tax (451.2) 72.8 (49.0) (89.1)
Adjustment to tax charge in respect of
previous years 11.1 (1.8) (0.9) (1.6)
Differences in tax rates on overseas earnings 217.6 (35.1) 81.8 148.7
---------------------------------------------- ------- ------ ------ ------
(30.1) 4.8 22.3 40.5
---------------------------------------------- ------- ------ ------ ------
The applicable tax rate is determined based on the tax rate in
the canton of Zug in Switzerland which is the country of domicile
of the parent company of the Group for the financial year.
(c) Factors that may affect the future tax charge
Unrecognised tax losses to carry forward against certain future
overseas corporation tax liabilities have the following expiration
dates.
2020 2019
GBPm GBPm
------------------------------------------------------- ------- -------
2020 - 13.9
2021 24.9 31.7
2022 43.1 37.7
2023 45.9 50.2
2024 49.3 64.0
2025 53.8 44.9
2026 38.8 47.1
2027 18.5 17.3
2028 and later 1,106.9 472.9
------------------------------------------------------- ------- -------
1,381.2 779.7
Available indefinitely 919.3 640.9
------------------------------------------------------- ------- -------
Tax losses available to carry forward 2,300.5 1,420.6
------------------------------------------------------- ------- -------
Amount of tax losses recognised in deferred tax assets 1,029.0 488.5
------------------------------------------------------- ------- -------
Total tax losses available to carry forward 3,329.5 1,909.1
------------------------------------------------------- ------- -------
The following deferred tax assets have not been recognised due
to uncertainties over recoverability.
2020 2019
GBPm GBPm
--------------------------------- ------- -----
Intangibles 420.0 410.8
Accelerated capital allowances 26.4 17.7
Tax losses 564.5 347.3
Rent 48.6 11.2
Leases 22.7 23.1
Short-term temporary differences 3.7 5.6
--------------------------------- ------- -----
1,085.9 815.7
--------------------------------- ------- -----
Estimates relating to deferred tax assets, including assumptions
about future profitability, are re-evaluated at the end of each
reporting period.
(d) Corporation tax
2020 2019
GBPm GBPm
--------------------------- ------ ------
Corporation tax payable (40.0) (32.3)
Corporation tax receivable 29.1 24.0
--------------------------- ------ ------
(e) Deferred taxation
The movement in deferred tax is analysed below:
Property, Short-term
plant temporary
Intangibles and equipment Tax losses Rent Leases differences Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
Deferred tax asset
At 1 January 2019 (33.5) (24.8) 45.8 52.4 86.7 (9.3) 117.3
Current year movement 71.5 (5.9) 71.2 3.3 6.9 (66.1) 80.9
Prior year movement - (2.0) 1.1 0.2 - 0.4 (0.3)
Disposals - 0.6 (1.3) (0.1) - (1.4) (2.2)
Transfers - 0.1 - (0.1) - - -
Exchange rate movements 1.4 0.5 (1.3) (1.6) - 0.3 (0.7)
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
At 31 December 2019 39.4 (31.5) 115.5 54.1 93.6 (76.1) 195.0
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
Current year movement (19.0) (42.7) 137.6 9.6 13.4 (105.6) (6.7)
Prior year movement - - - - - - -
Disposals - - - - - - -
Transfers (0.2) (4.6) 4.2 0.6 - - -
Exchange rate movements 1.8 0.8 (0.3) (1.7) (0.1) (0.6) (0.1)
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
At 31 December 2020 22.0 (78.0) 257.0 62.6 106.9 (182.3) 188.2
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
Deferred tax liability
At 1 January 2019 (0.2) (4.7) 4.6 0.5 - (0.2) -
Current year movement - - (0.2) - - 0.2 -
Prior year movement - - - - - - -
Disposals - - - - - - -
Transfers - (0.1) - 0.1 - - -
Exchange rate movements - 0.2 (0.2) - - - -
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
At 31 December 2019 (0.2) (4.6) 4.2 0.6 - - -
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
Current year movement - - - - (0.2) - (0.2)
Prior year movement - - - - - - -
Disposals - - - - - - -
Transfers 0.2 4.6 (4.2) (0.6) - - -
Exchange rate movements - - - - - - -
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
At 31 December 2020 - - - - (0.2) - (0.2)
------------------------ ----------- -------------- ---------- ----- ------ ------------ -----
The movements in deferred taxes included above are after the
offset of deferred tax assets and deferred tax liabilities where
there is a legally enforceable right to set off and they relate to
income taxes levied by the same taxation authority.
At the balance sheet date, the temporary difference arising from
unremitted earnings of overseas subsidiaries was GBP11.9m (2019:
GBP12.1m). The only tax that would arise on these reserves would be
non-recoverable withholding tax.
As part of the Group's pivot towards franchising in 2019, the
Group recognised a deferred tax asset of GBP89.8m and a
corresponding deferred tax credit. This arose in connection with a
restructure during 2019 involving the move of the Group's
intellectual property (IP) and franchising arrangements from
Luxembourg to Switzerland, and was based on the expected future
value of annual amortisation on the fair market value of the IP at
the date of the restructuring, which is deductible for Swiss
corporate income tax purposes.
Further restructuring of Group cost allocations in 2020 has
resulted in a reduction in the recognition of the deferred tax
asset to GBP69.7m, resulting in a deferred tax charge of GBP20.1m,
based on the updated future value of annual amortisation on the
fair market value of the IP.
Tax losses have increased in 2020 as a result of both trading
conditions and a further simplification of the Luxembourg and
Switzerland head office structure.
The Directors have exercised judgement in determining the
appropriate timescale (which is aligned with the Group's business
planning processes) over which it is more likely than not that the
Group will earn sufficient future taxable profits to utilise the
available amortisation deductions.
9. Discontinued operations
During 2020, the Group completed the sale of various country
operations through the signing of master franchise agreements. The
financial impact of these transactions is treated as discontinued
operations in accordance with IFRS 5, however these operations
under franchise will continue to be an important strategic
component of the overall Group network. These transactions form
part of the larger change in strategy of the Group towards adopting
a franchising model. Fees from
franchising activities subsequent to sale are reflected as
franchise revenues in continuing operations.
Disposal of operations
During 2020, the Group completed the sale of individually
immaterial operations for a consideration of GBP3.3m (2019:
GBP104.3m). The results of these operations up to the date of
disposal were as follows:
2020 2019
GBPm GBPm
-------------------------------------------- ----- ------
Revenue 1.8 50.3
Expenses (0.9) (43.4)
-------------------------------------------- ----- ------
Profit before tax for the year 0.9 6.9
Income tax (expense)/credit (0.3) 2.8
-------------------------------------------- ----- ------
Profit after tax for the year 0.6 9.7
Gain on the sale of discontinued operations 2.8 84.5
-------------------------------------------- ----- ------
Profit for the year, net of tax 3.4 94.2
-------------------------------------------- ----- ------
The assets and liabilities of these operations at their
respective dates of disposal were as follows:
2020 2019
GBPm GBPm
------------------------------------------------- ----- -------
Total assets 2.9 141.2
Total liabilities (2.2) (124.2)
------------------------------------------------- ----- -------
Net assets 0.7 17.0
Costs directly associated with the disposal(1) (0.2) 5.0
Foreign exchange recycled to profit and loss - (2.2)
------------------------------------------------- ----- -------
0.5 19.8
Consideration on disposal (net of cash and debt) 3.3 104.3
------------------------------------------------- ----- -------
Gain on sale of discontinued operations 2.8 84.5
------------------------------------------------- ----- -------
1. Includes net payments received as final settlement to the
original agreements completed in 2019.
The net cash flows incurred by these operations are as
follows:
2020 2019
GBPm GBPm
-------------------------- ----- ------
Operating 1.3 15.2
Investing 0.3 (17.9)
Financing (1.0) (1.9)
-------------------------- ----- ------
Net cash inflow/(outflow) 0.6 (4.6)
-------------------------- ----- ------
Disposal of the Japanese operations (2019)
On 31 May 2019, the Group completed the sale of its Japanese
operations to TKP Corporation for a consideration of GBP320.3m,
with final adjustments recognised during the second half of
2019.
2020 2019
GBPm GBPm
-------------------------------------------- ----- ------
Revenue - 46.9
Expenses - (31.9)
-------------------------------------------- ----- ------
Profit before tax for the year - 15.0
Income tax expense - (2.8)
-------------------------------------------- ----- ------
Profit after tax for the year - 12.2
Gain on the sale of discontinued operations - 266.9
-------------------------------------------- ----- ------
Profit for the year, net of tax - 279.1
-------------------------------------------- ----- ------
The assets and liabilities of the Japanese operations as at 31
May 2019 were as follows:
2020 2019
GBPm GBPm
------------------------------------------------- ----- -------
Total assets - 281.4
Total liabilities - (245.5)
------------------------------------------------- ----- -------
Net assets - 35.9
Costs directly associated with the disposal - 24.1
Foreign exchange recycled to profit and loss - (6.6)
------------------------------------------------- ----- -------
- 53.4
Consideration on disposal (net of cash and debt) - 320.3
------------------------------------------------- ----- -------
Gain on sale of discontinued operations - 266.9
------------------------------------------------- ----- -------
The net cash flows incurred by the Japanese operations were as
follows:
2020 2019
GBPm GBPm
---------------- ----- -----
Operating - 6.6
Investing - (5.2)
Financing - -
---------------- ----- -----
Net cash inflow - 1.4
---------------- ----- -----
10. Covid-19 related adjusting items
In March 2020, following the declaration by the World Health
Organization of the COVID-19 pandemic (COVID-19) and subsequent
global government restrictions, the Group has been unable to
operate at full capacity. Given the political and economic
uncertainty resulting from COVID-19, the Group continues to see
significant volatility and business disruption, reducing expected
performance in 2021.
The impact that COVID-19 has had on underlying trading
performance is not recognised within adjusting items.
In order to improve the transparency and usefulness of the
financial information presented and improve year-on-year
comparability, the Group has identified net charges of GBP389.8m
relating to directly attributable charges resulting from COVID-19.
These charges are considered to be adjusting items as they meet the
Group's definition, as disclosed in previous annual reports, being
both significant in nature and value to the results of the Group in
the current period. GBP333.4m of these charges have been recognised
as adjusting items to cost of sales and GBP56.4m of these charges
have been recognised as adjusting items to selling, general and
administration expenses in the Group's income statement.
The charges relate to several separately identifiable areas of
accounting judgement and estimates as follows:
Year ended
31 Dec
2020
----------
Impairments of property, plant and equipment
(including right-of-use assets)(1) 244.8
Impairments of goodwill(2) 4.9
Provision for expected credit losses(1) 17.5
Network rationalisation(1) 77.5
Other one-off items including restructuring(3) 45.1
-------------------------------------------------- ----------
Total adjusting items 389.8
-------------------------------------------------- ----------
1. Included as an adjusting item in cost of sales.
2. Included as an adjusting item in selling, general and
administration.
3. Included as adjusting items in selling, general and
administration except for GBP6.4m in respect of worldwide financial
support schemes which is included
in costs of sales.
- Impairments of property, plant and equipment (including
right-of-use assets)
The continuation of COVID-19, including new and extended
preventative measures in most of the Group's markets, is expected
to prolong the impact on our business in 2021. As a result of these
measures, management carried out a comprehensive review exercise
for potential impairments across the whole portfolio at a
cash-generating units (CGUs) level.
The impairment review formed part of the Group's rationalisation
process undertaken throughout the year due to the impact
of COVID-19. This review compared the value-in-use of CGUs,
based on management's assumptions regarding likely future trading
performance, to the carrying values at 31 December 2020. Following
this review, a charge of GBP244.8m was recorded within net
operating expenses. Of this charge, GBP80.9m was recorded against
property, plant and equipment and a charge of GBP163.9m was
recorded against right-of-use assets.
- Impairments of goodwill
COVID-19 and linked restrictions has impacted our ability to
trade our way to sustainable profitable growth in certain markets.
As a result, the projected cash flows for the operations in certain
countries no longer supported the carrying value of the CGUs and an
impairment of GBP4.9m was recognised during 2020.
- Provision for expected credit losses
In light of the temporary closure of centres globally, the Group
reviewed the recoverability of its trade receivables profile and
booked an increase of the expected credit loss provision of
GBP17.5m. This increase reflects the greater likelihood of credit
default by the Group's debtors directly attributable to the impact
of COVID-19 and the significant change in the ageing profile of
trade receivables as a direct consequence of COVID-19.
The increase is relatively low compared to the overall debtor
profile as the Group has not historically incurred significant
credit losses and continues to maintain customer deposits as
additional security in the event of non-performance of
customer contracts.
- Network rationalisation
GBP77.5m of charges were incurred relating to network
rationalisations that occurred in the year, which includes the
write off of the book value of assets and direct closure costs
related to these centres. A separate rationalisation charge of
GBP15.3m has also been recorded which is not included as adjusting
items.
- Other one-off items including restructuring
During the year, the Group incurred GBP8.2m of transaction costs
in respect of master franchise agreements that did not complete due
to the outbreak of COVID-19. The Group fully expects to resume its
pivot towards a franchising model in due course.
Other charges of GBP43.3m were also incurred, including
severance costs and restructurings arising from mitigating actions
taken by the Group in respect of COVID-19, completed by 31 December
2020 as well as claims in respect of centre closures. In addition,
during the year, the Group received a total of GBP6.4m in respect
of worldwide financial support schemes to fund staff costs.
Should the estimated charges not prove to be in excess of the
amounts required, the release of any amounts provided for at
year-end would be treated as adjusting items.
11. Earnings per ordinary share (basic and diluted)
2020 2019
------------------------------------------------------------- ------------- ------------
Basic and diluted (loss)/profit for the year attributable
to shareholders (GBPm) (646.8) 450.6
Basic (loss)/earnings per share (p) (67.9) 50.5
Diluted (loss)/earnings per share (p) (67.9) 49.6
------------------------------------------------------------- ------------- ------------
Basic and diluted (loss)/profit for the year from continuing
operations (GBPm) (650.2) 77.3
Basic (loss)/earnings per share (p) (68.3) 8.7
Diluted (loss)/earnings per share (p) (68.3) 8.5
------------------------------------------------------------- ------------- ------------
Basic and diluted profit for the year from discontinued
operations (GBPm) 3.4 373.3
Basic earnings per share (p) 0.4 41.8
Diluted earnings per share (p) 0.4 41.1
-------------
Weighted average number of shares for basic EPS 951,890,712 892,737,688
Weighted average number of shares under option 41,016,473 34,671,862
Weighted average number of shares that would have been
issued at average market price (25,287,994) (19,932,772)
Weighted average number of share awards under the CIP,
PSP, DSBP and One-off Award 1,744,492 1,463,133
Weighted average number of shares on convertible bonds 76,408,203 -
------------------------------------------------------------- ------------- ------------
Weighted average number of shares for diluted EPS 1,045,771,886 908,939,911
------------------------------------------------------------- ------------- ------------
Options are considered dilutive when they would result in the
issue of ordinary shares for less than the market price of ordinary
shares in the period. The amount of the dilution is taken to be the
average market price of shares during the period minus the exercise
price. There were no material awards considered anti-dilutive at
the reporting date.
The Group issued GBP350.0m of convertible bonds in December
2020. The bond issue creates a potential 76,408,203 shares for
bondholders. This represents a potential 7.1% dilutive impact at
time of issue.
The average market price of one share during the year was
296.88p (2019: 338.28p), with a high of 469.00p on 17 January 2020
and a low of 114.00p on 18 March 2020.
12. Dividends
2020 2019
------------------------------------------------------- ---- -----
Dividends per ordinary share proposed - 4.80p
Interim dividends per ordinary share declared and paid
during the year - 2.15p
------------------------------------------------------- ---- -----
The Group initially declared a final dividend of 4.80 pence,
equating to GBP42.4m, on 3 March 2020, for the year ended 31
December 2019. However, in response to COVID-19, the Group
announced on 23 March 2020 the prudent and precautionary decision
to not pay this final dividend. Consequently, the resolution in
respect of the 2019 final dividend was not proposed at the AGM held
on 12 May 2020 and no dividends were paid during the year (2019:
GBP58.2m). The Company has proposed to shareholders that no final
dividend will be paid for the year ended 31 December 2020 (2019:
Nil).
Our capital allocation policy remains unchanged, prioritising
investment in the long-term growth of our business and dividend
distribution to shareholders. Given the uncertainty caused by
COVID-19 and in order to protect our liquidity in the short-term,
future dividend payments have been placed on hold with the
intention to review the return to our progressive dividend policy
when appropriate.
13. Goodwill
GBPm
--------------------------------------------- ------
Cost
At 1 January 2019 679.2
Recognised on acquisition of subsidiaries(1) 22.6
Disposal of goodwill (10.9)
Goodwill impairment (0.8)
Exchange rate movements (15.5)
--------------------------------------------- ------
At 31 December 2019 674.6
--------------------------------------------- ------
Recognised on acquisition of subsidiaries(1) 28.7
Disposal of goodwill -
Goodwill impairment (4.9)
Exchange rate movements (2.9)
--------------------------------------------- ------
At 31 December 2020 695.5
--------------------------------------------- ------
Net book value
At 31 December 2019 674.6
--------------------------------------------- ------
At 31 December 2020 695.5
--------------------------------------------- ------
1. Net of GBPNil (2019: GBP8.5m) derecognised on the
finalisation of the accounting for prior year acquisitions
previously reported on a provisional basis.
Cash-generating units (CGUs), defined as individual business
centres, are grouped by country of operation for the purposes of
carrying out impairment reviews of goodwill as this is the lowest
level at which it can be assessed. Goodwill acquired through
business combinations is held at a country level and is subject to
impairment reviews based on the cash flows of the CGUs within that
country.
The goodwill attributable to the reportable business segments is
as follows:
2020 2019
Carrying amount of goodwill included within: GBPm GBPm
--------------------------------------------- ----- -----
Americas 307.0 290.9
EMEA 142.5 138.6
Asia Pacific 26.6 26.2
United Kingdom 219.4 218.9
--------------------------------------------- ----- -----
695.5 674.6
--------------------------------------------- ----- -----
The carrying value of goodwill and indefinite life intangibles
allocated to two countries, the USA and the UK, is material
relative to the total carrying value, comprising 73% of the total.
The remaining 27% of the carrying value is allocated to a further
39 countries. The goodwill and indefinite life intangibles
allocated to the USA and the UK are set out below:
Intangible
Goodwill assets 2020 2019
` GBPm GBPm GBPm GBPm
---------------- -------- ---------- ----- -----
USA 286.1 - 286.1 268.7
United Kingdom 219.4 11.2 230.6 230.1
Other countries 190.0 - 190.0 187.0
---------------- -------- ---------- ----- -----
695.5 11.2 706.7 685.8
---------------- -------- ---------- ----- -----
The indefinite life intangible asset relates to the Regus
brand.
The value in use for each country has been determined using a
model which derives the individual value in use for each country
from the value in use of the Group as a whole. Although the model
includes budgets and forecasts prepared by management it also
reflects external factors, such as capital market risk pricing as
reflected in the market capitalisation of the Group and prevailing
tax rates, which have been used to determine the risk-adjusted
discount rate for the Group. Management believes that the projected
cash flows are a reasonable reflection of the likely outcomes over
the medium to long term. In the event that trading conditions
deteriorate beyond the assumptions used in the projected cash
flows, it is also possible that impairment charges could arise in
future periods.
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 2021, and for a further four years, that
follow a budgeting process approved by the Board;
- 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. 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 business. The terminal
value includes a three-year average inflation growth rate which
management believes is a reasonable long-term growth rate for the
countries in which the Group operates; 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 12.4% in 2019 to
8.2% in 2020 (post-tax WACC: 6.6%), reflecting an update/refinement
of the methodology and key assumptions used by the Group in
determining the WACC and changes in external information used to
determine the cost of equity. The country-specific pre-tax WACC
reflecting the respective market risk adjustment has been set
between 7.9% and 10.6% (2019: 9.9% to 15.7%).
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 11.0%
over the next five years. A terminal value centre gross margin of
16.0% is adopted from 2025, with a 2.1% long-term growth rate
assumed on revenue and costs into perpetuity. The cash flows have
been discounted using a pre-tax discount rate of 10.0% (2019:
14.0%). As disclosed in the sensitivities below, using the 2019
discount rate (before the update to the methodology and key
assumptions in 2020) would not have resulted in a value in use of
the CGU amounting to less than its carrying value.
The UK model assumes an average centre contribution of 14.0%
over the next five years. A terminal value centre gross margin of
21.0% is adopted from 2025, with a 2.2% long-term growth rate
assumed on revenue and costs into perpetuity. The cash flows have
been discounted using a pre-tax discount rate of 8.3% (2019:
12.0%). As disclosed in the sensitivities below, using the 2019
discount rate (before the update to the methodology and key
assumptions in 2020) would not have resulted in a value in use of
the CGU amounting to less than its carrying value.
Management has considered the following sensitivities:
- Market growth and WIPOS - Management has considered the impact
of a variance in market growth and WIPOS. The value in use
calculation shows that if the long-term growth rate was reduced to
nil, the recoverable amount of the US and UK would still be greater
than their carrying value.
- Discount rate - Management has considered the impact of an
increase in the discount rate applied to the calculation. The value
in use calculation shows that for the recoverable amount to be less
than its carrying value, the pre-tax discount rate would have to be
increased to 31% (2019: 59%) for the US and 18% (2019: 15%) for the
UK.
- Occupancy - Management has considered the impact of a variance
in occupancy. The value in use calculation shows that for the
recoverable amount to be less than its carrying value, occupancy in
all future years would have to decrease by 13% (2019: 17%) for the
US and 8% (2019: 2%) for the UK.
14. Other intangible assets
Customer
Brand lists Software Total
GBPm GBPm GBPm GBPm
---------------------------------------------- ----- -------- -------- ------
Cost
At 1 January 2019 63.6 32.5 66.1 162.2
Additions at cost 0.2 - 12.6 12.8
Acquisition of subsidiaries - - - -
Disposals (including discontinued operations) - - (0.5) (0.5)
Exchange rate movements (1.6) (0.7) (0.9) (3.2)
---------------------------------------------- ----- -------- -------- ------
At 31 December 2019 62.2 31.8 77.3 171.3
---------------------------------------------- ----- -------- -------- ------
Additions at cost - - 16.5 16.5
Acquisition of subsidiaries - 0.1 0.2 0.3
Disposals (including discontinued operations) - (0.6) (11.2) (11.8)
Exchange rate movements 2.9 (0.6) 0.2 2.5
---------------------------------------------- ----- -------- -------- ------
At 31 December 2020 65.1 30.7 83.0 178.8
---------------------------------------------- ----- -------- -------- ------
Amortisation
At 1 January 2019 37.4 32.3 50.0 119.7
Charge for year 2.6 0.3 6.8 9.7
Disposals (including discontinued operations) - (0.3) (0.5) (0.8)
Exchange rate movements (1.2) (0.7) (0.4) (2.3)
---------------------------------------------- ----- -------- -------- ------
At 31 December 2019 38.8 31.6 55.9 126.3
---------------------------------------------- ----- -------- -------- ------
Charge for year 1.1 - 7.6 8.7
Disposals (including discontinued operations) - (0.6) (11.1) (11.7)
Exchange rate movements 2.3 (0.4) 0.3 2.2
---------------------------------------------- ----- -------- -------- ------
At 31 December 2020 42.2 30.6 52.7 125.5
---------------------------------------------- ----- -------- -------- ------
Net book value
At 1 January 2019 26.2 0.2 16.1 42.5
---------------------------------------------- ----- -------- -------- ------
At 31 December 2019 23.4 0.2 21.4 45.0
---------------------------------------------- ----- -------- -------- ------
At 31 December 2020 22.9 0.1 30.3 53.3
---------------------------------------------- ----- -------- -------- ------
Included within the brand value is GBP11.2m relating to the
acquisition of the remaining 58% of the UK business in the year
ended 31 December 2006. The Regus brand acquired in this
transaction is assumed to have an indefinite useful life due to the
fact that the value of the brand is intrinsically linked to the
continuing operation of the Group.
As a result of the Regus brand acquired with the UK business
having an indefinite useful life no amortisation is charged but the
carrying value is assessed for impairment on an annual basis. The
brand was tested at the balance sheet date against the recoverable
amount of the UK business segment at the same time as the goodwill
arising on the acquisition of the UK business (see note 13).
15. Property, plant and equipment
Right-of-use Land and Leasehold Furniture Computer
assets(1) buildings improvements and equipment hardware Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
Cost
At 1 January 2019 8,304.9 146.3 1,455.0 709.1 136.9 10,752.2
Additions 2,157.7 10.6 230.6 101.8 13.4 2,514.1
Acquisition of subsidiaries 63.0 - 1.1 0.5 - 64.6
Disposals (1,046.2) (0.5) (174.7) (36.9) (13.4) (1,271.7)
Exchange rate movements (40.0) - (42.5) (24.8) (4.4) (111.7)
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
At 31 December 2019 9,439.4 156.4 1,469.5 749.7 132.5 11,947.5
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
Additions 501.4 2.2 267.3 89.5 9.4 869.8
Modifications(2) 664.1 - - - - 664.1
Acquisition of subsidiaries 3.0 - 4.1 0.9 0.1 8.1
Disposals(4) (1,073.5) (8.7) (193.7) (54.6) (10.9) (1,341.4)
Exchange rate movements (4.5) - (26.2) (10.5) (2.1) (43.3)
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
At 31 December 2020 9,529.9 149.9 1,521.0 775.0 129.0 12,104.8
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
Accumulated depreciation
At 1 January 2019 3,172.5 5.3 758.5 413.2 105.5 4,455.0
Charge for the year(3) 1,009.7 1.7 89.6 48.8 9.6 1,159.4
Disposals (706.9) (0.1) (115.0) (26.4) (10.1) (858.5)
Reversal of impairment - - (2.1) - - (2.1)
Exchange rate movements 46.7 (0.1) (27.3) (13.2) (3.1) 3.0
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
At 31 December 2019 3,522.0 6.8 703.7 422.4 101.9 4,756.8
Charge for the year(3) 946.0 2.5 173.8 54.1 9.9 1,186.3
Disposals(4) (736.5) (0.7) (108.1) (46.4) (10.2) (901.9)
Impairment 163.9 - 82.1 - - 246.0
Exchange rate movements (12.4) 0.1 (16.0) (9.3) (0.7) (38.3)
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
At 31 December 2020 3,883.0 8.7 835.5 420.8 100.9 5,248.9
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
Net book value
At 1 January 2019 5,132.4 141.0 696.5 295.9 31.4 6,297.2
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
At 31 December 2019 5,917.4 149.6 765.8 327.3 30.6 7,190.7
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
At 31 December 2020 5,646.9 141.2 685.5 354.2 28.1 6,855.9
---------------------------- ------------ ---------- ------------- -------------- --------- ---------
1. Right-of-use assets consist of property related leases.
2. Modifications includes lease modifications and
extensions.
3. Includes depreciation expenses related to discontinued
operations for right-of-use assets of GBP0.6m (2019: GBP27.7m) and
other property, plant and equipment of GBP0.2m (2019: GBP6.7m).
4. Included disposals related to discontinued operations for
right-of-use assets of GBP0.7m (2019: GBP274.6m) and other
property, plant and equipment of GBP1.2m (2019: GBP42.3m).
Impairment tests for property, plant and equipment (including
right-of-use assets) are performed on a cash-generating unit basis
when impairment triggers arise. Cash-generating units (CGUs) are
defined as individual business centres, being the smallest
identifiable group of assets that generate cash flows that are
largely independent of other groups of assets. The Group assesses
whether there is an indication that a CGU may be impaired,
including persistent operating losses, net cash outflows and poor
performance against forecasts. During the year, and as a direct
result of the challenging economic circumstances arising from
COVID-19, this gave rise to impairment tests in relation to various
centres where impairment indicators were identified.
The recoverable amounts of property, plant & equipment are
based on the higher of fair value less costs to sell and value in
use. The Group considered both fair value less costs to dispose and
value in use in the impairment testing on a centre by centre level.
Value in use calculations are based on cash flow projections and
discount rates for items of property, plant and equipment, on the
same basis as described in note 13. Impairment charges are
recognised within cost of sales in the consolidated income
statement. In 2020, the Group recorded impairment charges of
GBP163.9m in respect of right-of-use assets and GBP82.1m in respect
of leasehold improvements.
16. Other long-term receivables
2020 2019
GBPm GBPm
---------------------------------------------------- ----- -----
Deposits held by landlords against rent obligations 54.5 59.3
Other receivables 0.5 1.3
Amounts owed by joint ventures - 0.4
---------------------------------------------------- ----- -----
Total non-current 55.0 61.0
---------------------------------------------------- ----- -----
17. Trade and other receivables
2020 2019
GBPm GBPm
---------------------------------------------------- ------- -----
Trade receivables, net 285.1 242.1
Prepayments and accrued income 128.4 134.3
Other receivables 416.0 226.8
VAT recoverable 171.8 73.0
Deposits held by landlords against rent obligations 2.4 5.1
-------
Total current 1,003.7 681.3
---------------------------------------------------- ------- -----
Included within other receivables is GBP276.2m (2019: GBPNil) of
mezzanine and senior debt in an acquisition target that the Group
did not control as at 31 December 2020. This classification as a
current asset reflects the status of the counterparty in default
and that the debt was technically repayable on demand. The balances
have been recognised at amortised cost of GBP276.2m at 31 December
2020 and, as the acquisition did not complete, the debts were fully
repaid to the Group in February 2021.
18. Trade and other payables (including customer deposits)
2020 2019
GBPm GBPm
------------------------------ ------- -----
Customer deposits 423.6 476.8
Other accruals 160.0 96.8
Trade payables 270.7 116.4
VAT payable 125.6 46.2
Other payables 12.9 47.0
Other tax and social security 14.8 5.6
-------
Total current 1,007.6 788.8
------------------------------ ------- -----
19. Borrowings
The Group's total loan and borrowing position at 31 December
2020 and at 31 December 2019 had the following maturity
profiles:
Bank and other loans
2020 2019
GBPm GBPm
------------------------------------------------------- ----- -----
Repayments falling due as follows:
In more than one year but not more than two years 6.6 8.1
In more than two years but not more than five years(1) 392.8 341.3
In more than five years 0.8 1.6
------------------------------------------------------- ----- -----
Total non-current 400.2 351.0
Total current 21.9 9.7
------------------------------------------------------- ----- -----
Total bank and other loans 422.1 360.7
------------------------------------------------------- ----- -----
1. Includes convertible bond debt of GBP298.8m (2019:
GBPNil).
The Group issued GBP350.0m convertible bonds in December 2020,
raising GBP343.2m, net of transaction fees. At the date of issue
the convertible bonds were bifurcated between:
- A financial liability recognised at amortised cost of
GBP298.2m, by using the discounted cash flow of interest payments
and the bonds' nominal value; and subsequently remeasured at
amortised cost of GBP298.8m at 31 December 2020. The financial
liability is included in the above, falling due in more than two
but not more than five years.
- A derivative financial liability of GBP51.8m, not being
closely related to the host financial liability, is recognised
separately and measured at fair value through profit or loss (see
note 24). A gain has been recognised at 31 December 2020 of GBP2.4m
through net finance expenses, resulting in a year-end liability of
GBP49.4m.
Further information regarding the committed borrowings and the
convertible bonds can be found on page 139 in note 24.
20. Provisions
2020 2019
----------------------- -----------------------
Closures Other Total Closures Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- ----- ------ -------- ----- ------
At 1 January 13.0 2.8 15.8 14.1 3.0 17.1
------------------------ -------- ----- ------ -------- ----- ------
Provided in the period 40.3 4.5 44.8 20.4 2.6 23.0
Utilised in the period (29.0) - (29.0) (20.9) (2.9) (23.8)
Exchange rate movements (0.4) (0.2) (0.6) (0.6) 0.1 (0.5)
------------------------ -------- ----- ------ -------- ----- ------
At 31 December 23.9 7.1 31.0 13.0 2.8 15.8
------------------------ -------- ----- ------ -------- ----- ------
Analysed between:
Current 11.5 6.0 17.5 6.9 2.0 8.9
Non-current 12.4 1.1 13.5 6.1 0.8 6.9
------------------------ -------- ----- ------ -------- ----- ------
At 31 December 23.9 7.1 31.0 13.0 2.8 15.8
------------------------ -------- ----- ------ -------- ----- ------
Closures
Provisions for closures relate to the expected costs of centre
closures, including restructuring costs. Impairments of
right-of-use assets and property, plant and equipment (note 15),
are not included above.
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.
The Group is involved in various disputes, primarily related to
potential lease obligations, some of which are in the course of
litigation. Where there is a dispute and where, based on legal
counsel advice, the Group estimates that it is probable that the
dispute will result in an outflow of economic resources, provision
is made based on the Group's best estimate of the likely financial
outcome. Where a reliable estimate cannot be made, or where the
Group, based on legal counsel advice, considers that it is not
probable that there will be an outflow of economic resources, no
provision is recognised. There are no disputes which are expected
to have a material impact on the Group.
21. Investments in joint ventures
Provision
for deficit
Investments in
in joint joint
ventures ventures Total
GBPm GBPm GBPm
------------------------ ----------- ------------ -----
At 1 January 2019 12.2 (5.5) 6.7
Additions 1.8 - 1.8
Share of profit 0.1 2.6 2.7
Exchange rate movements (0.3) - (0.3)
------------------------ ----------- ------------ -----
At 31 December 2019 13.8 (2.9) 10.9
------------------------ ----------- ------------ -----
Share of loss (0.9) (1.7) (2.6)
Disposals (1.6) - (1.6)
Exchange rate movements - - -
------------------------ ----------- ------------ -----
At 31 December 2020 11.3 (4.6) 6.7
------------------------ ----------- ------------ -----
The Group has 46 joint ventures (2019: 59) 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-year
results of the joint ventures and do not represent the effective
share:
2020 2019
GBPm GBPm
----------------------------- ------ ------
Income statement
Revenue 28.3 30.2
Expenses (36.9) (34.3)
----------------------------- ------ ------
Loss before tax for the year (8.6) (4.1)
Tax charge (0.7) (0.7)
----------------------------- ------ ------
Loss after tax for the year (9.3) (4.8)
----------------------------- ------ ------
Balance sheet
Non-current assets 43.1 67.0
Current assets 50.8 52.0
Current liabilities (68.8) (74.3)
Non-current liabilities (36.4) (52.8)
----------------------------- ------ ------
Net liabilities (11.3) (8.1)
----------------------------- ------ ------
22. Share capital
Ordinary equity share capital
2020 2019
---------------------------- ----------------------
Nominal
Nominal value value
Number GBPm Number GBPm
------------------------------ ------------- ------------- ------------- -------
Authorised
Ordinary 1p shares in IWG plc
at 1 January 8,000,000,000 80.0 8,000,000,000 80.0
Ordinary 1p shares in IWG plc
at 31 December 8,000,000,000 80.0 8,000,000,000 80.0
------------------------------ ------------- ------------- ------------- -------
Issued and fully paid up
Ordinary 1p shares in IWG plc
at 1 January 923,357,438 9.2 923,357,438 9.2
Ordinary 1p shares issued for
cash in the year 133,891,213 1.3 - -
Ordinary 1p shares in IWG plc
at 31 December 1,057,248,651 10.5 923,357,438 9.2
------------------------------ ------------- ------------- ------------- -------
On 28 May 2020 the Group announced the placement of 133,891,213
new ordinary shares, with a par value of 1.0 pence each. The price
of 239.0 pence represented a discount of 8.1% to the middle market
closing price of 260.2 pence on 27 May 2020, with the Group
recognising net proceeds of GBP313.9m, with share premium of
GBP312.6m recognised.
Treasury share transactions involving IWG plc shares between 1
January 2020 and 31 December 2020
During the year, 13,590,080 shares were purchased in the open
market and 1,968,169 treasury shares held by the Group were
utilised to satisfy the exercise of share awards by employees. As
at 9 March 2021, 50,380,775 treasury shares were held. The holders
of ordinary shares in IWG plc are entitled to receive such
dividends as are declared by the Company and are entitled to one
vote per share at meetings of the Company. Treasury shares do not
carry such rights until reissued.
2020 2019
------------------ ------------------
Number Number
of shares GBPm of shares GBPm
------------------------------------ ----------- ----- ----------- -----
1 January 39,055,369 116.9 28,736,954 74.1
Purchase of treasury shares in IWG
plc 13,590,080 43.7 12,379,535 49.5
Treasury shares in IWG plc utilised (1,968,169) (6.5) (2,061,120) (6.7)
31 December 50,677,280 154.1 39,055,369 116.9
------------------------------------ ----------- ----- ----------- -----
23. Analysis of financial assets/(liabilities)
Debt Lease Lease
due due within due after
Cash Debt after one one Net financial
and cash Gross due within one year year Gross assets/
equivalents cash one year year(2)(3) (1) (1) debt (liabilities)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------ ----- ----------- ----------- ----------- ---------- --------- --------------
At 1 January 2019 69.0 69.0 (9.9) (519.9) (900.0) (4,743.4) (6,173.2) (6,104.2)
Cash flow (6.6) (6.6) - 162.5 171.7 919.8 1,254.0 1,247.4
Non-cash movements - - - 2.0 (262.5) (1,825.4) (2,085.9) (2,085.9)
Exchange rate
movements 4.2 4.2 0.2 4.4 13.4 80.4 98.4 102.6
------------------- ------------ ----- ----------- ----------- ----------- ---------- --------- --------------
At 31 December 2019 66.6 66.6 (9.7) (351.0) (977.4) (5,568.6) (6,906.7) (6,840.1)
------------------- ------------ ----- ----------- ----------- ----------- ---------- --------- --------------
Cash flow (0.7) (0.7) (13.1) (45.0) 151.6 995.9 1,089.4 1,088.7
Non-cash
movements(4) - - - (0.5) (200.5) (966.2) (1,167.2) (1,167.2)
Exchange rate
movements 5.1 5.1 0.9 (3.7) 6.7 - 3.9 9.0
------------------- ------------ ----- ----------- ----------- ----------- ---------- --------- --------------
At 31 December 2020 71.0 71.0 (21.9) (400.2) (1,019.6) (5,538.9) (6,980.6) (6,909.6)
------------------- ------------ ----- ----------- ----------- ----------- ---------- --------- --------------
1. There are no significant lease commitments for leases not
commenced at 31 December 2020.
2. Includes GBP298.8m (2019: GBPNil) convertible bond
liability.
3. Excludes the convertible bond derivative liability element at
the issue date value of GBP51.8m.
4. Includes early termination of lease liabilities of GBP362.8m
(2019: GBP344.0m) of which GBP0.8m (2019: GBP281.1m) is related to
discontinued operations.
Cash and cash equivalent balances held by the Group that are not
available for use amounted to GBP4.1m at 31 December 2020 (2019:
GBP8.3m). Of this balance, GBP1.6m (2019: GBP2.9m) is pledged as
security against outstanding bank guarantees and a further GBP2.5m
(2019: GBP5.4m) is pledged against various other commitments of the
Group.
Cash flows on lease liabilities consist of principal payments of
GBP898.1m (2019: GBP878.3m) and interest payments of GBP249.4m
(2019: GBP213.2m). Total cash outflows of GBP1,212.4m (2019:
GBP1,135.2m) for leases, including variable payments of GBP64.9m
(2019: GBP43.7m), were incurred in the year.
Non-cash movements of GBP1,166.7m (2019: GBP2,087.9m) represent
the movements on lease liabilities in relation to new leases, lease
modifications/remeasurements and lease cessations.
Cash flows on debt due within, and after, one year relate to
movements in the revolving credit facility and other borrowings.
These net movements align with the activities reported in the cash
flow statement after taking into consideration the GBP51.8m
derivative liability recognised separately.
The following amounts are included in the Group's consolidated
financial statements in respect of its leases:
2020 2019
------------------------------------------------------------ ------- ---------
Depreciation charge for right-of-use assets (946.0) (1,010.0)
Principal lease liability repayments (898.1) (878.3)
Interest expense on lease liabilities (249.4) (213.2)
Expense relating to short-term leases - 2.3
Expense relating to leases of low-value assets that
are not shown above as short-term leases 3.4 0.9
Expenses relating to variable lease payments not included
in lease liabilities 64.9 43.7
Total cash outflow for leases comprising interest and
capital payments 1,147.5 1,091.5
Additions to right-of-use assets 501.4 2,157.7
Gains/(losses) arising from sale and leaseback transactions - -
Income from sub-leasing right-of-use assets - -
------------------------------------------------------------ ------- ---------
24. Financial instruments and financial risk management
The objectives, policies and strategies applied by the Group
with respect to financial instruments and the management of capital
are determined at Group level. The Group's Board maintains
responsibility for the risk management strategy of the Group and
the Chief Financial Officer is responsible for policy on a
day-to-day basis. The Chief Financial Officer and Group Treasurer
review the Group's risk management strategy and policies on an
ongoing basis. The Board has delegated to the Group Audit Committee
the responsibility for applying an effective system of internal
control and compliance with the Group's risk management
policies.
Exposures to credit, interest rate and currency risks arise in
the normal course of business.
Going concern
The Strategic Report on pages 1 to 65 of the Annual Report and
Accounts sets out the Group's strategy and the factors that are
likely to affect the future performance and position of the
business. The financial review on pages 40 to 47 within the
Strategic Report reviews the trading performance, financial
position and cash flows of the Group. The Group's net debt position
increased by GBP69.5m to a net debt position of GBP6,909.6m as at
31 December 2020. Excluding the IFRS 16 lease liabilities, the net
debt position increased to GBP351.1m (2019: GBP294.1m). The
investment in growth is funded by a combination of cash flow
generated from the Group's mature business centres, cash
consideration received in franchising the business and debt. The
Group has a GBP950.0m revolving credit facility (RCF) provided by a
group of relationship banks with a final maturity in 2025 with an
option to extend until 2026. As at 31 December 2020, GBP731.3m of
the RCF was available and undrawn.
Although the Group has net current liabilities of GBP1,330.4m
(2019: GBP1,366.5m), 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 GBP423.6m (2019:
GBP476.8m) which are spread across a large number of customers and
no deposit held for an individual customer is material. Therefore,
the Group does not believe the balance represents a liquidity risk.
Excluding short-term lease liabilities and deferred income, the
Group has net current assets of GBP18.1m at 31 December 2020 (2019:
net current liabilities of GBP66.5m).
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future and, accordingly, continue to adopt the going
concern basis in preparing the Annual Report and Accounts.
Credit risk
Credit risk could occur where a customer or counterparty
defaults under the contractual terms of a financial instrument and
arises principally in relation to customer contracts and the
Group's cash deposits.
A diversified customer base, requirement for customer deposits,
and payments in advance on workstation contracts minimise the
Group's exposure to customer credit risk. No single customer
contributes a material percentage of the Group's revenue. The
Group's policy is to provide against trade receivables when
specific debts are judged to be irrecoverable or where formal
recovery procedures have commenced. A provision taking into account
the customer deposit held is created where debts are more than
three months overdue, which reflects the Group's experience of the
likelihood of recoverability of these trade receivables based on
both historical and forward-looking information. These provisions
are reviewed on an ongoing basis to assess changes in the
likelihood of recoverability.
The Group has assessed the other receivable balances for
expected credit losses, with no further provision required due to
the nature of these items.
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.
2020 2019
GBPm GBPm
--------------- ----- -----
Americas 113.6 40.2
EMEA 82.7 98.3
Asia Pacific 31.6 39.9
United Kingdom 57.2 63.7
--------------- ----- -----
285.1 242.1
--------------- ----- -----
All of the Group's trade receivables relate to customers
purchasing workplace solutions and associated services and no
individual customer has a material balance owing as a trade
receivable.
The ageing of trade receivables at 31 December was:
Gross Provision Gross Provision
2020 2020 2019 2019
GBPm GBPm GBPm GBPm
--------------------------- ----- --------- ----- ---------
Not overdue 161.5 - 178.2 -
Past due 0 - 30 days 27.9 - 32.1 -
Past due 31 - 60 days 16.9 - 13.1 -
Past due more than 60 days 104.5 (25.7) 26.4 (7.7)
--------------------------- ----- --------- ----- ---------
310.8 (25.7) 249.8 (7.7)
--------------------------- ----- --------- ----- ---------
At 31 December 2020, the Group maintained a provision of
GBP25.7m for expected credit losses (2019: GBP7.7m) arising from
trade receivables. The Group had provided GBP34.8m (2019: GBP2.0m)
in the year, utilised GBP16.8m (2019: GBP8.3m) and released GBPNil
(2019: GBP8.2m). Customer deposits of GBP423.6m (2019: GBP476.8m)
are held by the Group, mitigating the risk of default.
IFRS 9 requires the Group to record expected credit losses on
all of its receivables, either on a 12-month or lifetime basis. The
Group has applied the simplified approach to all trade receivables,
which requires the recognition of the expected credit loss based on
the lifetime expected losses. The expected credit loss is mitigated
through the invoicing of contracted services in advance and
customer deposits.
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
Liquidity risk represents the risk that the Group will not be
able to meet their obligations as they fall due. 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. During 2020, there has been
a sharp focus on cash generation by reducing cost, renegotiating
rents and rationalising the network. More than 1,500 leases were
renegotiated or restructured which resulted in short or long term
cash benefits. The Group has free cash and liquid investments
(excluding blocked cash) of GBP66.9m (2019: GBP58.3m). In addition
to cash and liquid investments, the Group had GBP731.3m 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. At 31 December 2020, the amount of
the facility remains GBP950.0m (2019: GBP950.0m) and the final
maturity extended in March 2020 to March 2025 with an option to
extend until 2026.
The Group actively reviews its exposure to interest rate
movements. The issuance of the fixed rate convertible bond
significantly reduces the Group's exposure to an increase in
interest rates. The final interest rate swap taken to hedge against
the floating interest rate obligations of debt drawn under the
revolving credit facility matured in February 2021. This has a
nominal amount of GBP30.0m and a fixed rate of 1.2%.
Market risk
The Group is exposed to market risk primarily related to foreign
currency exchange rates, interest rates and the market value of our
investments in financial assets. These exposures are actively
managed by the Group Treasurer and Chief Financial Officer in
accordance with a written policy approved by the Board of
Directors. The Group does not use financial derivatives for trading
or speculative reasons.
Interest rate risk
The Group manages its exposure to interest rate risk through the
relative proportions of fixed rate debt and floating rate debt. Any
surplus cash balances are invested short-term, and at the end of
2020 no cash was invested for a period exceeding three months
(2019: GBPNil).
Foreign currency risk
The Group is exposed to foreign currency exchange rate
movements. The majority of day-to-day transactions of overseas
subsidiaries are carried out in local currency and the underlying
foreign exchange exposure is small. Transactional exposures do
arise in some countries where it is local market practice for a
proportion of the payables or receivables to be in other than the
functional currency of the affiliate. Intercompany charging,
funding and cash management activity may also lead to foreign
exchange exposures. It is the policy of the Group to seek to
minimise such transactional exposures through careful management of
non-local currency assets and liabilities, thereby minimising the
potential volatility in the income statement. Net investments in
IWG affiliates with a functional currency other than pounds
sterling are of a long-term nature and the Group does not normally
hedge such foreign currency translation exposures.
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 22% to the euro.
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:
2020
--------------------
GBPm GBP EUR USD
--------------------------------------------- ----- ----- -----
Trade and other receivables 0.1 1.8 1.3
Trade and other payables (0.4) (4.1) (1.8)
---------------------------------------------- ----- ----- -----
Net statement of financial position exposure (0.3) (2.3) (0.5)
---------------------------------------------- ----- ----- -----
2019
--------------------
GBPm GBP EUR USD
--------------------------------------------- ----- ----- -----
Trade and other receivables - 1.3 0.5
Trade and other payables (0.2) (1.4) (2.4)
---------------------------------------------- ----- ----- -----
Net statement of financial position exposure (0.2) (0.1) (1.9)
---------------------------------------------- ----- ----- -----
Other market risks
The Group does not hold any equity securities for fair value
measurement under IFRS 9 and is therefore not subject to risks of
changes in equity prices in the income statement.
Sensitivity analysis
For the year ended 31 December 2020, it is estimated that a
general increase of one percentage point in interest rates would
have increased the Group's loss before tax by approximately GBP1.8m
(2019: decrease in profit of GBP3.8m) with a corresponding decrease
in total equity.
It is estimated that a five-percentage point weakening in the
value of the US dollar against pounds sterling would have increased
the Group's loss before tax by approximately GBP2.9m for the year
ended 31 December 2020 (2019: decrease in profit of GBP12.9m). It
is estimated that a five-percentage point weakening in the value of
the euro against pounds sterling would have increased the Group's
loss before tax by approximately GBP1.0m for the year ended 31
December 2020 (2019: decrease in profit of GBP5.9m).
It is estimated that a five-percentage point weakening in the
value of the US dollar against pounds sterling would have decreased
the Group's total equity by approximately GBP6.3m for the year
ended 31 December 2020 (2019: decrease of GBP11.1m). It is
estimated that a five-percentage point weakening in the value of
the euro against pounds sterling would have decreased the Group's
total equity by approximately GBP5.4m for the year ended 31
December 2020 (2019: decrease of GBP6.1m).
Capital management
The Group's parent company is listed on the UK stock exchange
and the Board's policy is to maintain a strong capital base. The
Chief Financial Officer monitors the diversity of the Group's major
shareholders and further details of the Group's communication with
key investors can be found in the Corporate Governance Report on
page 73. In 2006, the Board approved the commencement of a
progressive dividend policy to enhance the total return to
shareholders.
The Group's Chief Executive Officer, Mark Dixon, is a major
shareholder of the Company. Details of the Directors' shareholdings
can be found in the Directors' Remuneration report on pages 84 to
96. In addition, the Group operates various share option plans for
key management and other senior employees.
Treasury share transactions involving IWG plc shares between 1
January 2020 and 31 December 2020
During the year, 13,590,080 shares were purchased in the open
market and 1,968,169 treasury shares held by the Group were
utilised to satisfy the exercise of share awards by employees. As
at 31 December 2020, 50,677,280 treasury shares were held.
The Company declared and paid no interim dividend per share
during the year ended 31 December 2020 (2019: 2.15p) and proposed
no final dividend per share (2019: 4.80p per share). The dividend
initially proposed of 4.80p per share in the 2019 Annual Report and
Accounts was not proposed at the AGM held on 12 May 2020 and no
dividends were paid during the current year.
The Group's objective when managing capital (equity and
borrowings) is to safeguard the Group's ability to continue as a
going concern and to maintain an optimal capital structure to
reduce the cost of capital.
Effective interest rates
In respect of financial assets and financial liabilities, the
following table indicates their effective interest rates at the
balance sheet date and the periods in which they mature.
Except for lease liabilities, the undiscounted cash flow and
fair values of these instruments is not materially different from
the carrying value.
As at 31 December 2020
Effective Contractual
interest Carrying cash Less than More than
rate value flow 1 year 1-2 years 2-5 years 5 years
% GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Cash and cash equivalents 0.1% 71.0 71.0 71.0 - - -
Trade and other receivables(1) - 875.3 875.3 875.3 - - -
Other long-term receivables - 55.0 55.0 - 27.8 27.2 -
--------- --------- ----------- --------- --------- --------- ---------
Financial assets (2) 1,001.3 1,001.3 946.3 27.8 27.2 -
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Non-derivative financial
liabilities(3):
Bank loans and corporate
borrowings 2.8% (91.7) (91.7) - (1.0) (90.7) -
Convertible bonds
- debt host 3.8% (298.8) (358.8) (1.8) (1.8) (355.2) -
Lease liabilities 3.4% (6,558.5) (9,832.4) (1,186.4) (1,165.1) (3,054.4) (4,426.5)
Other loans 1.2% (31.6) (31.6) (21.9) (5.6) (3.3) (0.8)
Trade and other payables(4) - (1,007.6) (1,007.6) (1,007.6) - - -
Other long-term payables(4) - (4.1) (4.1) - (4.1) - -
Derivative financial
liabilities:
Convertible bonds
- embedded conversion
option - (49.4) (49.4) - - (49.4) -
Interest rate swaps
* Outflow - (0.2) (0.2) (0.2) - - -
- - - - - - -
* Inflow
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Financial liabilities (8,041.9) (11,375.8) (2,217.9) (1,177.6) (3,553.0) (4,427.3)
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
As at 31 December 2019
Effective Contractual
interest Carrying cash Less than More than
rate value flow 1 year 1-2 years 2-5 years 5 years
% GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Cash and cash equivalents 0.1% 66.6 66.6 66.6 - - -
Trade and other receivables(1) - 547.0 554.8 554.8 - - -
Other long-term receivables - 61.0 61.0 - 31.3 29.7 -
Financial assets (2) 674.6 682.4 621.4 31.3 29.7 -
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Non-derivative financial
liabilities(3):
Bank loans and corporate
borrowings 3.2% (340.2) (340.2) (0.1) (2.0) (338.1) -
Lease liabilities 3.5% (6,546.0) (8,965.4) (1,168.6) (1,164.7) (2,942.2) (3,689.9)
Other loans 0.8% (20.5) (20.5) (9.6) (6.1) (3.2) (1.6)
Trade and other payables(4) - (788.8) (788.8) (788.8) - - -
Other long-term payables(4) - (2.0) (2.0) - (2.0) - -
Derivative financial
liabilities:
Interest rate swaps
* Outflow - (0.2) (0.2) (0.2) - - -
- - - - - - -
* Inflow
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
Financial liabilities (7,697.7) (10,117.1) (1,967.3) (1,174.8) (3,283.5) (3,691.5)
------------------------------- --------- --------- ----------- --------- --------- --------- ---------
1. Excluding prepayments.
2. Financial assets are all held at amortised cost.
3. All financial instruments are classified as variable rate
instruments.
4. Excluding deferred rents.
Fair value disclosures
The fair values together with the carrying amounts shown in the
balance sheet are as follows:
31 December 2020 Carrying amount Fair value
------------------------------------------------------- ------------------------------
Cash flow
Cash, Other -
loans financial hedging Level Level Level
GBPm and receivables liabilities instruments Total 1 2 3 Total
--------------------------- ---------------- ------------ ------------ --------- ----- ----- ------- -------
Cash and cash equivalents 71.0 - - 71.0 - - - -
Trade and other receivables 875.3 - - 875.3 - 276.2 - 276.2
Other long-term receivables 55.0 - - 55.0 - - - -
Derivative financial
liabilities - (49.4) (0.2) (49.6) - (0.2) (49.4) (49.6)
Convertible bonds - (298.8) - (298.8) - - (298.8) (298.8)
Bank loans and corporate
borrowings - (91.7) - (91.7) - - - -
Other loans - (31.6) - (31.6) - - - -
Trade and other payables - (1,007.6) - (1,007.6) - - - -
Other long-term payables - (4.1) - (4.1) - - - -
--------------------------- ---------------- ------------ ------------ --------- ----- ----- ------- -------
1,001.3 (1,483.2) (0.2) (482.1) - 276.0 (348.2) (72.2)
--------------------------- ---------------- ------------ ------------ --------- ----- ----- ------- -------
Included within other receivables is GBP276.2m relating to
mezzanine and senior debts acquired in December 2020. The balances
have been recognised at fair value of GBP276.2m at 31 December
2020. The mezzanine and senior debt receivable balances have been
settled in full in February 2021.
At the date of issue, the GBP350.0m was bifurcated at GBP298.2m
and GBP51.8m between corporate borrowings (debt) and a derivative
financial liability respectively. At 31 December 2020, the debt was
valued at its amortised cost, GBP298.8m and the derivative
liability at its fair value, GBP49.4m.
31 December 2019 Carrying amount Fair value
----------------------------------------------------- --------------------------
Cash
flow
Cash, Other -
loans financial hedging Level Level Level
GBPm and receivables liabilities instruments Total 1 2 3 Total
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
Cash and cash equivalents 66.6 - - 66.6 - - - -
Trade and other receivables 547.0 - - 547.0 - - - -
Other long-term receivables 61.0 - - 61.0 - - - -
Derivative financial
liabilities - - (0.2) (0.2) - (0.2) - (0.2)
Bank loans and corporate
borrowings - (340.2) - (340.2) - - - -
Other loans - (20.5) - (20.5) - - - -
Trade and other payables - (788.8) - (788.8) - - - -
Other long-term payables - (2.0) - (2.0) - - - -
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
674.6 (1,151.5) (0.2) (477.1) - (0.2) - (0.2)
---------------------------- ---------------- ------------ ------------ ------- ----- ----- ----- -----
During the years ended 31 December 2020 and 31 December 2019,
there were no transfers between levels for fair value measured
instruments.
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 and level 3 fair values and methods used for
financial assets and liabilities not measured at fair value:
Type Valuation technique
-------------------------------------- ---------------------------------------------------
Cash and cash equivalents, For cash and cash equivalents, receivables/payables
trade and other receivables/payables, with a remaining life of less than one year
customer deposits and investment and customer deposits, the book value approximates
loan receivables the fair value because of their short-term
nature.
-------------------------------------- ---------------------------------------------------
Loans, overdrafts and debt The fair value of bank loans, overdrafts
element of and other loans approximates the carrying
convertible bonds value because interest rates are at floating
rates where payments are reset to market
rates at intervals of less than one year.
-------------------------------------- ---------------------------------------------------
Foreign exchange contracts, The fair values are based on a combination
interest rate swaps and of broker quotes, forward pricing, and swap
derivative element of convertible models. The fair value of the derivative
bonds element of convertible bonds has been calculated
with reference to unobservable credit spreads.
-------------------------------------- ---------------------------------------------------
Derivative financial instruments
The following table summarises the notional amount of the open
contracts as at the reporting date:
2020 2019
GBPm GBPm
--------------------------------------- ----- -----
Derivatives used for cash flow hedging 30.0 30.0
--------------------------------------- ----- -----
Committed borrowings
2020 2020 2019 2019
Facility Available Facility Available
GBPm GBPm GBPm GBPm
-------------------------- --------- ---------- --------- ----------
Revolving credit facility 950.0 731.3 950.0 485.9
-------------------------- --------- ---------- --------- ----------
The Group maintains a revolving credit facility provided by a
group of international banks. At 31 December 2020, the amount of
the facility remains GBP950.0m (2019: GBP950.0m) and the final
maturity extended in March 2020 to March 2025 with an option to
extend until 2026. As at 31 December, GBP731.3m was available and
undrawn under this facility.
The GBP950.0m revolving credit facility is subject to financial
covenants relating to net debt to EBITDA, and EBITDA plus rent to
interest plus rent on a pre-IFRS 16 basis. The Group is in
compliance with all covenant requirements.
The Group actively reviews its exposure to interest rate
movements. The issuance of the fixed rate convertible bond
significantly reduces the Group's exposure to an increase in
interest rates. The final interest rate swap taken to hedge against
the floating interest rate obligations of debt drawn under the
revolving credit facility matured in February 2021. This has a
nominal amount of GBP30.0m and a fixed rate of 1.2%.
CONVERTIBLE BONDS
In December 2020 the Group issued a GBP350.0m convertible bond,
issued by IWG Group Holdings Sarl, a subsidiary of Group
and guaranteed by IWG plc, which is due for repayment in 2027 if
not previously converted into shares. If the conversion option
is exercised by the holder of the option, the issuer has the
choice to settle by cash or equity shares in the Group. The holders
of the bond have the right to put the bonds back to the Group in
2025 at par. The bond carries a fixed coupon of 0.5% per annum. The
bond liability is split between corporate borrowings (debt) and a
derivative financial liability. At the date of issue, the GBP350.0m
was bifurcated at GBP298.2m and GBP51.8m between corporate
borrowings (debt) and a derivative financial liability
respectively.
At 31 December 2020, the debt was valued at its amortised cost,
GBP298.8m and the derivative liability at its fair value,
GBP49.4m.
The derivative liability represents a level 3 instrument, which
has been valued with reference to the total convertible bond price
(a level 1 valuation) minus the level 3 valuation of the debt host.
A change of 10 basis points in the credit spread that is indirectly
used to value the derivative liability would have increased or
decreased profit or loss by GBP1.1m.
25. Share-based payments
There are three share-based payment plans, details of which are
outlined below:
Plan 1: IWG Group Share Option Plan
During 2004 the Group established the IWG Group Share Option
Plan that entitles Executive Directors and certain employees to
purchase shares in IWG plc. In accordance with this programme,
holders of vested options are entitled to purchase shares at the
market price of the shares at the day before the date of grant.
The IWG Group also operates the IWG Group Share Option Plan
(France) which is included within the numbers for the IWG Share
Option Plan disclosed above. The terms of the IWG Share Option Plan
(France) are materially the same as the IWG Group Share Option Plan
with the exception that they are only exercisable from the fourth
anniversary of the date of grant, assuming the performance
conditions have been met.
Reconciliation of outstanding share options
2020 2019
------------------------ -----------------------
Weighted Weighted
Number average Number average
of exercise of exercise
share price per share price per
options share options share
--------------------------- ------------ ---------- ----------- ----------
At 1 January 32,511,195 200.34 36,441,222 191.87
Granted during the year 20,198,148 167.21 918,829 362.69
Lapsed during the year (11,124,669) 209.91 (2,787,736) 205.68
Exercised during the year (1,535,999) 145.00 (2,061,120) 143.37
--------------------------- ------------ ---------- ----------- ----------
Outstanding at 31 December 40,048,675 183.10 32,511,195 200.34
--------------------------- ------------ ---------- ----------- ----------
Exercisable at 31 December 4,477,253 156.40 4,807,175 142.44
--------------------------- ------------ ---------- ----------- ----------
Weighted
average
exercise
Numbers price per At 31 Dec Exercisable Expiry
Date of grant granted share Lapsed Exercised 2020 from date
------------------ ----------- ---------- ------------ ------------ ---------- --- ----------- ----------
23/03/2010 3,986,000 100.50 (3,499,063) (486,937) - 23/03/2013 23/03/2020
28/06/2010 617,961 75.00 (545,505) (72,456) - 28/06/2013 28/06/2020
01/09/2010 160,646 69.10 (146,728) (13,918) - 01/09/2013 01/09/2020
01/04/2011 2,400,000 114.90 (954,402) (1,055,598) 390,000 (1) 01/04/2014 01/04/2021
30/06/2011 9,867,539 109.50 (4,905,047) (4,768,465) 194,027 (1) 30/06/2014 30/06/2021
13/06/2012 11,189,000 84.95 (3,805,914) (6,382,726) 1,000,360 (1) 13/06/2015 13/06/2022
12/06/2013 7,741,000 155.60 (4,306,000) (2,752,173) 682,827 (1) 12/06/2016 12/06/2023
18/11/2013 600,000 191.90 (575,000) - 25,000 (1) 18/11/2016 17/11/2023
18/12/2013 1,000,000 195.00 (833,333) (166,667) - (1) 18/12/2016 17/12/2023
20/05/2014 1,845,500 187.20 (1,658,500) (160,300) 26,700 (1) 20/05/2017 19/05/2024
05/11/2014 12,875,796 186.00 (8,675,510) (1,229,402) 2,970,884 (2) 05/11/2017 04/11/2024
19/05/2015 1,906,565 250.80 (1,829,565) - 77,000 (2) 19/05/2018 18/05/2025
22/12/2015 1,154,646 322.20 (395,186) (25,000) 734,460 (2) 22/12/2018 22/12/2025
29/06/2016 444,196 272.50 (367,735) (11,009) 65,452 (2) 29/06/2019 29/06/2026
28/09/2016 249,589 258.00 (214,313) (7,055) 28,221 (2) 28/09/2019 28/09/2026
01/03/2017 1,200,000 283.70 - - 1,200,000 (2) 01/03/2020 01/03/2027
14/12/2017 1,000,507 197.00 (1,000,507) - - 14/12/2020 14/12/2027
10/10/2018 685,127 223.20 (685,127) - - 10/10/2021 10/10/2028
21/12/2018 (Grant
1) 300,000 203.10 - - 300,000 (3) 21/12/2021 21/12/2028
28/12/2018 (Grant
2) 20,900,000 199.80 (8,674,996) - 12,225,004 (2) 28/12/2021 28/12/2028
15/05/2019 613,872 341.90 (613,872) - - (3) 15/05/2022 15/05/2029
13/09/2019 196,608 402.30 (130,508) - 66,100 (3) 13/09/2022 13/09/2029
19/12/2019 108,349 408.60 (81,357)) - 26,992 (3) 19/12/2022 19/12/2029
02/04/2020 19,575,000 165.00 (162,500) - 19,412,500 (3) 02/04/2023 02/04/2030
15/05/2020 150,000 202.00 - - 150,000 (3) 15/05/2023 15/05/2030
05/08/2020 300,000 222.60 - - 300,000 (3) 05/08/2023 05/08/2030
09/09/2020 173,148 291.00 - - 173,148 (3) 09/09/2023 09/09/2030
------------------ ----------- ---------- ------------ ------------ ---------- --- ----------- ----------
Total 101,241,049 (44,060,668) (17,131,706) 40,048,675
------------------ ----------- ---------- ------------ ------------ ---------- --- ----------- ----------
1. These options have fully vested as of 31 December 2020.
2. The performance targets for these options have been met and
they are subject to vesting schedules as described below.
3. These options are subject to performance targets and vesting
schedules as described below.
The vesting of share options is subject to an ongoing employment
condition. As at 31 December 2020 there were 4,477,253 (2019:
4,807,175) outstanding share options which had fully vested with no
further performance or holding period requirements and which had a
weighted average exercise price of GBP156.40 (2019: GBP142.44).
Performance conditions for share options
November 2014 share options
The share options outstanding under this grant at 31 December
2020 reflect the options that have been awarded based on
achievement against the relevant performance targets and are now
vesting ratably over a five-year period, which began in November
2017 and will end in November 2021.
May 2015 share options
The share options outstanding under this grant at 31 December
2020 reflect the options that have been awarded based on
achievement against the relevant performance targets and are now
vesting ratably over a five-year period beginning May 2020 and
ending May 2024.
December 2015 share options
The share options outstanding under this grant at 31 December
2020 reflect the options that have been awarded based on
achievement against the relevant performance targets and are now
vesting ratably over a five-year period beginning December 2018 and
ending December 2022.
June 2016 share options
The share options outstanding under this grant at 31 December
2020 reflect the options that have been awarded based on
achievement against the relevant performance targets and are now
vesting ratably over a five-year period beginning June 2019 and
ending June 2023.
September 2016 share options
The share options outstanding under this grant at 31 December
2020 reflect the options that have been awarded based on
achievement against the relevant performance targets and are now
vesting ratably over a five-year period beginning September 2019
and ending September 2023.
March 2017 share options
The share options outstanding under this grant at 31 December
2020 reflect the options that have been awarded based on
achievement against the relevant performance targets and are now
vesting ratably over a three-year period beginning March 2020 and
ending March 2022.
December 2018 (Grant 1) share options
The share options outstanding under this grant at 31 December
2020 are subject to the Group ranking at or above the median for
TSR performance relative to a comparator group over a period of
three years with a minimum performance threshold of achieving a
ranking at the median TSR or above and the maximum award being
given for exceeding the comparator group median TSR performance by
10% or more. Any shares awarded based on achievement of these
performance targets will be subject to vesting ratably over a
three-year period beginning December 2021 and ending December
2023.
December 2018 (Grant 2) share options
The share options outstanding under this grant at 31 December
2020 reflect the options that have been awarded based on
achievement against performance targets and are now subject to
vesting ratably over a three-year period beginning December 2021
and ending December 2023.
May 2019 share options
The share options outstanding under this grant at 31 December
2020 are subject to Group performance targets based on Group
ranking at or above the median for TSR performance relative to a
comparator group over a period of three years. Any shares awarded
based on achievement of these performance targets will be subject
to vesting ratably over a three-year period beginning May 2022 and
ending May 2024.
September 2019 share options
The share options outstanding under this grant at 31 December
2020 are subject to Group performance targets based on Group
operating profit and the Group ranking at or above the median for
TSR performance relative to a comparator group over a period of
three years with a minimum performance threshold of achieving a
ranking at the median TSR or above and the maximum award being
given for exceeding the comparator group median TSR performance by
10% or more. Any shares awarded based on achievement of these
performance targets will be subject to vesting ratably over a
five-year period beginning September 2022 and ending September
2026.
December 2019 share options
The share options outstanding under this grant at 31 December
2020 are subject to Group performance targets based on Group
operating profit and the Group ranking at or above the median for
TSR performance relative to a comparator group over a period of
three years with a minimum performance threshold of achieving a
ranking at the median TSR or above and the maximum award being
given for exceeding the comparator group median TSR performance by
10% or more. Any shares awarded based on achievement of these
performance targets will be subject to vesting ratably over a
five-year period beginning December 2022 and ending December
2026.
April 2020 share options
The share options outstanding under this grant at 31 December
2020 are subject to performance targets with 50% of the options
subject to the achievement of a performance target based on the
Group ranking at or above the median for TSR performance relative
to a comparator group over a period of three years with a minimum
performance threshold of achieving a ranking at the median TSR or
above and the maximum award being given for exceeding the
comparator group median TSR performance by 10% or more. The
remaining 50% of outstanding options are subject to individual and
Group franchising targets for a three-year period with a minimum
performance threshold based on achieving a minimum level of
franchises and the maximum award based on achieving a stretch
target for franchises. Any shares awarded based on achievement of
these performance targets will then be subject to vesting ratably
over a three-year period beginning April 2023 and ending April
2025.
May 2020 share options
The share options outstanding under this grant at 31 December
2020 are subject to performance targets with 50% of the options
subject to the achievement of a performance target based on the
Group ranking at or above the median for TSR performance relative
to a comparator group over a period of three years with a minimum
performance threshold of achieving a ranking at the median TSR or
above and the maximum award being given for exceeding the
comparator group median TSR performance by 10% or more. The
remaining 50% of outstanding options are subject to individual and
Group franchising targets for a three-year period with a minimum
performance threshold based on achieving a minimum level of
franchises and the maximum award based on achieving a stretch
target for franchises. Any shares awarded based on achievement of
these performance targets will then be subject to vesting ratably
over a three-year period beginning May 2023 and ending May
2025.
August 2020 share options
The share options outstanding under this grant at 31 December
2020 are subject to performance targets with 50% of the options
subject to the achievement of a performance target based on the
Group ranking at or above the median for TSR performance relative
to a comparator group over a period of three years with a minimum
performance threshold of achieving a ranking at the median TSR or
above and the maximum award being given for exceeding the
comparator group median TSR performance by 10% or more. The
remaining 50% of outstanding options are subject to individual and
Group franchising targets for a three-year period with a minimum
performance threshold based on achieving a minimum level of
franchises and the maximum award based on achieving a stretch
target for franchises. Any shares awarded based on achievement of
these performance targets will then be subject to vesting ratably
over a three-year period beginning August 2023 and ending August
2025.
September 2020 share options
The share options outstanding under this grant at 31 December
2020 are subject to performance targets with 50% of the options
subject to the achievement of a performance target based on the
Group ranking at or above the median for TSR performance relative
to a comparator group over a period of three years with a minimum
performance threshold of achieving a ranking at the median TSR or
above and the maximum award being given for exceeding the
comparator group median TSR performance by 10% or more. The
remaining 50% of outstanding options are subject to individual and
Group franchising targets for a three-year period with a minimum
performance threshold based on achieving a minimum level of
franchises and the maximum award based on achieving a stretch
target for franchises. Any shares awarded based on achievement of
these performance targets will then be subject to vesting ratably
over a three-year period beginning September 2023 and ending
September 2025.
Measurement of fair values
The fair value of the rights granted through the employee share
purchase plan was measured based on the Monte Carlo simulation or
the Black-Scholes formula. The expected volatility is based on the
historic volatility adjusted for any abnormal movement in share
prices.
The inputs to the model are as follows:
December
September August May April December September May 2018
(Grant
2020 2020 2020 2020 2019 2019 2019 2)
--------------------- ---------- ---------- --------- --------- ---------- --------- --------- ---------
Share price on grant
date 291.00p 222.60p 202.00p 165.00p 408.60p 402.30p 341.90p 199.80p
Exercise price 291.00p 222.60p 202.00p 165.00p 408.60p 402.30p 341.90p 199.80p
Expected volatility 51.81% 51.88% 50.15% 49.02% 36.24% 36.33% 38.84% 37.66%
- 62.96% - 63.17% - 61.06% - 59.29% - 44.72% - - -
44.83% 45.75% 44.35%
Option life 3-7 years 3-7 years 3-7 years 3-7 years 3-7 years 3-7 years 3-5 years 3-5 years
Expected dividend 2.39% 3.12% 3.44% 4.21% 1.59% 1.62% 1.85% 2.95%
Fair value of option 122.93p 84.95p 71.39p 50.79p 141.77p 137.79p 120.77p 58.77p
at time of grant - 146.68p - 102.54p - 86.80p - 62.29p - 172.84p - - -
169.19p 141.08p 69.33p
Risk-free interest (0.08%) (0.08%) 0.00% 0.00% 0.57% 0.48% 0.52% 0.87%
rate - (0.04%) - (0.04%) - 0.06% - 0.06% - 0.65% - - - 1.01%
0.50% 0.60%
--------------------- ---------- ---------- --------- --------- ---------- --------- --------- ---------
December
2018 October December March September June December
(Grant
1) 2018 2017 2017 2017 2016 2015
--------------------- --------- --------- --------- --------- --------- --------- ---------
Share price on grant
date 203.10p 223.20p 197.00p 283.70p 258.00p 272.50p 322.20p
Exercise price 203.10p 223.20p 197.00p 283.70p 258.00p 272.50p 322.20p
Expected volatility 37.63% 37.15% 33.31% 27.42% 27.45% 27.71% 24.80%
- - - - - - -
44.25% 43.32% 35.93% 29.87% 32.35% 34.81% 37.08%
Option life 3-5 years 3-5 years 3-5 years 3-5 years 3-7 years 3-7 years 3-7 years
Expected dividend 2.90% 2.64% 2.69% 1.80% 1.80% 1.71% 1.40%
Fair value of option 39.36p 67.69p 40.06p 44.51p 40.96p 44.28p 29.76p
at time of grant - - - - - - -
46.42p 78.56p 44.20p 76.88p 67.89p 78.68p 90.61p
Risk-free interest 0.73% 0.70% 0.54% 0.23% 0.09% 0.14% 0.14%
rate - - - - - - -
0.88% 0.91% 0.75% 0.56% 0.38% 0.39% 0.21%
--------------------- --------- --------- --------- --------- --------- --------- ---------
Plan 2: IWG plc Co-Investment Plan (CIP) and Performance Share
Plan (PSP)
The CIP operated in conjunction with the annual bonus whereby a
gross bonus of up to 50% of basic annual salary was taken as a
deferred amount of shares (Investment Shares) to be released at the
end of a defined period of not less than three years, with the
balance of the bonus paid in cash. Awards of Matching Shares are
linked to the number of Investment Shares awarded and vest
depending on the Company's future performance. The maximum number
of Matching Shares which could be awarded to a participant in any
calendar year under the CIP was 200% of salary. As such, the
maximum number of Matching Shares which could be awarded, based on
Investment Shares awarded, was in the ratio of 4:1.
The PSP provides for the Remuneration Committee to make
standalone awards, based on normal plan limits, up to a maximum of
250% of base salary.
Reconciliation of outstanding share awards
2020 2019
---------- ----------
Number Number
of awards of awards
----------------------------------- ---------- ----------
At 1 January 2,370,535 1,991,250
PSP awards granted during the year 915,739 1,058,578
Lapsed during the year - (679,293)
Exercised during the year (48,506) -
----------------------------------- ---------- ----------
Outstanding at 31 December 3,237,768 2,370,535
----------------------------------- ---------- ----------
Exercisable at 31 December - 10,687
----------------------------------- ---------- ----------
There were no shares which were exercised during the year ended
31 December 2020. The weighted average share price at the date of
exercise for share awards exercised during the year ended 31
December 2020 was 288.60p (2019: Nil).
At 31
Date of Numbers Dec Release
Plan grant granted Lapsed Exercised 2020 date
----- ----------- --------- ------------ --------- --------- ----------
PSP 03/03/2016 1,038,179 (1,038,179) - - 03/03/2021
PSP 01/03/2017 1,095,406 (512,367) - 583,039 01/03/2022
PSP 07/03/2018 1,278,350 (597,938) - 680,412 07/03/2023
PSP 07/03/2019 1,058,578 - - 1,058,578 07/03/2024
PSP 04/03/2020 915,739 - - 915,739 04/03/2025
----- ----------- --------- ------------ --------- --------- ----------
5,386,252 (2,148,484) - 3,237,768
----------------- --------- ------------ --------- --------- ----------
At 31
Date of Numbers Dec Release
Plan grant granted Lapsed Exercised 2020 date
--------------------- ----------- --------- ----------- --------- ----- ----------
CIP: Matching shares 05/03/2014 647,688 (536,698) (110,990) - 05/03/2019
CIP: Matching shares 04/03/2015 831,808 (793,989) (37,819) - 04/03/2020
--------------------- ----------- --------- ----------- --------- ----- ----------
1,479,496 (1,330,687) (148,809) -
--------------------------------- --------- ----------- --------- ----- ----------
Measurement of fair values
The fair value of the rights granted through the employee share
purchase plan was measured based on the Monte Carlo simulation.
The inputs to the model are as follows:
04/03/2020 07/03/2019 07/03/2018 01/03/2017 03/03/2016 04/03/2015 06/03/2014
---------- ---------- ---------- ---------- ---------- ---------- --------------
PSP PSP PSP PSP PSP CIP CIP
---------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Share price on grant date 356.50p 244.90p 240.90p 283.70p 300.00p 225.00p 253.30p
Exercise price Nil Nil Nil Nil Nil Nil Nil
Number of simulations 250,000 250,000 250,000 250,000 250,000 250,000 250,000
Number of companies 32 32 32 32 32 32 32
Award life 5 years 5 years 5 years 5 years 5 years 3 years 3 years
Expected dividend 1.95% 2.57% 2.37% 1.80% 1.50% 1.78% 1.66%
Fair value of award at time 292.36p- 124.38p 124.92p 155.83p 183.08p 75.67p 83.11p-214.33p
of grant 192.98p - 188.43p - 189.26p - 236.08p - 277.36p -
114.6p
Risk-free interest rate 0.06% 0.79% 1.21% 0.56% 0.86% 1.01% 0.99%-1.47%
---------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
It is recognised by the Remuneration Committee that the
additional EPS targets represent a highly challenging goal and
consequently, in determining whether they have been met, the
Committee will exercise its discretion. The overall aim is that the
relevant EPS targets must have been met on a run-rate or underlying
basis. As such, an adjusted measure of EPS will be calculated to
assess the underlying performance of the business.
2014 CIP Investment and matching grants
The total number of matching awards made in 2014 to each
participant was divided into three separate equal amounts and is
subject to future performance periods of three, four and five years
respectively. The financial performance period resulted in 10,687
shares vesting in March 2019 pursuant to partial achievement of the
relative total shareholder return (TSR) target over the respective
period.
2015 CIP Investment and matching grants
The total number of matching awards made in 2015 to each
participant was subject to a future performance period of three
years which resulted in 37,819 shares vesting in March 2020, based
on partial achievement of the relative total shareholder return
(TSR) target.
2016 PSP Investment grant
The total number of shares awarded is subject to three different
performance conditions which were not met and therefore all awards
under this plan lapsed.
2017 PSP Investment grant
The total number of shares awarded was subject to three
different performance conditions with one third subject to defined
earnings per share (EPS) conditions, one third subject to relative
total shareholder return (TSR) conditions and one third subject
return on investment (ROI) conditions. These conditions were all
achieved based on 2019 results and the total 583,039 shares vested
subject to a holding period ending March 2021.
2018 PSP Investment grant
The total number of shares awarded was subject to three
different performance conditions, with one third subject to defined
earnings per share (EPS) conditions, one third subject to relative
total shareholder return (TSR) conditions and one third subject to
return on investment (ROI) conditions. These conditions are
measured over three financial years commencing on 1 January
2018.
Based on results as of 31 December 2020, the relative TSR target
of exceeding the comparator group median TSR by more than 10% was
achieved in full, resulting in the vesting of 226,804 shares
subject to a holding period ending March 2022. The performance
targets for EPS and ROI were not met and the share awards pursuant
to these targets lapsed.
2019 PSP Investment grant
The total number of shares awarded is subject to three different
performance conditions. These conditions are measured over three
financial years commencing on 1 January 2019. Thus, conditional on
meeting these performance targets, these shares will vest in March
2024. One third is subject to defined earnings per share (EPS)
conditions, one third is subject to relative total shareholder
return (TSR) conditions and one third is subject to return on
investment (ROI) conditions.
The EPS condition is based on the compound annual growth in EPS
over the performance period measured from EPS in the financial year
ending 31 December 2018 as follows:
% of one third of the award
Vesting scale that vests
------------------ --------------------------------
25% 100%
On a straight-line basis between
Between 5% and 25% 0% and 100%
5% 0%
------------------ --------------------------------
The TSR condition is based on the performance of the Group's TSR
growth against the median TSR growth of the comparator group as
follows:
% of one third of the award
Vesting scale that vests
------------------------------------ --------------------------------
Exceeds the median by 10% or more 100%
On a straight-line basis between
Exceeds the median by less than 10% 25% and 100%
Ranked at median 25%
Ranked below the median 0%
------------------------------------ --------------------------------
The ROI condition is based on the ROI improvement over the
performance period relative to ROI for the financial year ending 31
December 2018 as follows:
% of one third of the award
Vesting scale that vests
---------------------------------------- --------------------------------
Exceeds 2018 ROI plus 300 basis points 100%
Exceeds 2018 ROI by less than 300 basis On a straight-line basis between
points 0% and 100%
Equal to or less than the 2018 ROI 0%
---------------------------------------- --------------------------------
2020 PSP investment grant
The total number of shares awarded is subject to relative total
shareholder return (TSR) conditions, measured over three financial
years commencing on 1 January 2020. Thus, conditional on meeting
these performance targets, these shares will vest in December
2025.
The TSR condition is based on the performance of the Group's TSR
growth against the median TSR growth of the comparator group as
follows:
% of the awards that vests
------------------------------------ --------------------------
Exceeds the median by 10% or more 100%
On a straight-line basis
Exceeds the median by less than 10% between 25% and 100%
Ranked at median 25%
Ranked below the median 0%
------------------------------------ --------------------------
Plan 3: Deferred Share Bonus Plan
The Deferred Share Bonus Plan, established in 2016, enables the
Board to award options to selected employees on a discretionary
basis. The awards are conditional on the ongoing employment of the
related employees for a specified period of time. Once this
condition is satisfied, those awards that are eligible will vest
three years after the date of grant.
In March 2020, an award of 172,354 ordinary shares of 1p each in
the Company was granted to the Chief Executive Officer, Mark Dixon
and an award of 91,923 ordinary shares of 1p each in the Company
was granted to the Chief Financial Officer, Eric Hageman. The
awards are conditional on continuous employment and awards that are
eligible will vest in March 2023.
Reconciliation of outstanding share options
2020 2019
---------- ----------
Number Number
of awards of awards
------------------------------------ ---------- ----------
At 1 January 495,678 383,664
DSBP awards granted during the year 264,277 112,014
Lapsed during the year - -
Exercised during the year (383,664) -
------------------------------------ ---------- ----------
Outstanding at 31 December 376,291 495,678
------------------------------------ ---------- ----------
Exercisable at 31 December - -
------------------------------------ ---------- ----------
The weighted average share price at the date of exercise for
share awards exercised during the year ended 31 December 2020 was
360.62p (2019: Nil).
At 31
Date of Numbers Dec Release
Plan grant granted Lapsed Exercised 2020 date
----- ----------- -------- ------ --------- -------- ----------
DSBP 01/03/2017 383,664 - (383,664) - 01/03/2020
DSBP 07/03/2019 112,014 - - 112,014 07/03/2022
DSBP 04/03/2020 264,277 - - 264,277 04/03/2023
----- ----------- -------- ------ --------- -------- ----------
759,955 - (383,664) 376,291
----------------- -------- ------ --------- -------- ----------
Measurement of fair values
The fair value of the rights granted through the employee share
purchase plan was measured based on the Black-Scholes formula. The
expected volatility is based on the historic volatility adjusted
for any abnormal movement in share prices.
The inputs to the model are as follows:
March March March
2020 2019 2017
------------------------------------- ------- ------- -------
Share price on grant date 356.5 244.90p 283.70p
Exercise price Nil Nil Nil
Number of simulations - - -
Number of companies - - -
Award life 3 years 3 years 3 years
Expected dividend 1.95% 2.57% 1.80%
Fair value of award at time of grant 292.36p 188.42p 236.04p
Risk-free interest rate 0.00% 0.68% 0.23%
------------------------------------- ------- ------- -------
26. Retirement benefit obligations
The Group accounts for the Swiss and Philippines pension plans
as defined benefit plans under IAS 19 - Employee Benefits.
The reconciliation of the net defined benefit liability and its
components is as follows:
2020 2019
GBPm GBPm
----------------------------- ----- ------
Fair value of plan assets 4.8 11.0
Present value of obligations (6.9) (12.5)
----------------------------- ----- ------
Net funded obligations (2.1) (1.5)
----------------------------- ----- ------
27. Acquisitions
Current period acquisitions
During the year ended 31 December 2020 the Group made various
individually immaterial acquisitions for a total consideration of
GBP28.5m.
Provisional
fair Provisional
value fair
GBPm Book value adjustments value
--------------------------------------- ---------- ------------ -----------
Net assets acquired
Right-of-use assets 3.0 - 3.0
Other property, plant and equipment 5.1 - 5.1
Cash 1.7 - 1.7
Other current and non-current assets 12.3 - 12.3
Lease liabilities (3.0) - (3.0)
Current liabilities (14.8) - (14.8)
Non-current liabilities (5.9) - (5.9)
--------------------------------------- ---------- ------------ -----------
(1.6) - (1.6)
Previously held share of net assets(1) 1.4
Goodwill arising on acquisition 28.7
--------------------------------------- ---------- ------------ -----------
Total consideration 28.5
Cash flow on acquisition
Cash paid 28.5
--------------------------------------- ---------- ------------ -----------
Net cash outflow 28.5
--------------------------------------- ---------- ------------ -----------
1. The 2020 acquisitions include one stepped-acquisition where
the non-controlling interest in a former joint venture was acquired
by the Group.
The goodwill arising on the 2020 acquisitions reflects the
anticipated future benefits IWG can obtain from operating the
businesses more efficiently, primarily through increasing occupancy
and the addition of value-adding products and services. Of the
above goodwill, GBP28.7m is expected to be deductible for tax
purposes.
If the above acquisitions had occurred on 1 January 2020, the
revenue and net retained profit arising from these acquisitions
would have been GBP17.8m and GBP1.5m respectively. In the year, the
equity acquisitions contributed revenue of GBP2.6m and net retained
profit of GBP0.6m.
There was no contingent consideration arising on the 2020
acquisitions, nor was any contingent consideration paid during the
current year with respect to milestones achieved on previous
acquisitions. There are no contingent considerations held on the
Group's balance sheet at 31 December 2020.
The acquisition costs associated with these transactions were
GBP0.4m, recorded within administration expenses in the
consolidated income statement.
For 2020's acquisitions, the fair value of assets acquired has
only been provisionally assessed, pending completion of a fair
value assessment which has not yet been completed due to the
limited time available between the date of acquisitions and the
year-end date. The main changes in the provisional fair values
expected are primarily for customer relationships and plant,
property and equipment. The final assessment of the fair value of
these assets will be made within 12 months of the acquisition dates
and any adjustments reported in future reports.
Prior period acquisitions
During the year ended 31 December 2019 the Group made an
acquisition for a total consideration of GBP24.4m.
Final
fair Final
value fair
GBPm Book value adjustments value
------------------------------------- ---------- ------------ ------
Net assets acquired
Right-of-use assets 63.0 - 63.0
Other property, plant and equipment 1.6 - 1.6
Cash 5.5 - 5.5
Other current and non-current assets 6.8 - 6.8
Lease liabilities (63.0) - (63.0)
Current liabilities (7.6) - (7.6)
Non-current liabilities (4.5) - (4.5)
------------------------------------- ---------- ------------ ------
1.8 - 1.8
Goodwill arising on acquisition 22.6
------------------------------------- ---------- ------------ ------
Total consideration 24.4
Cash flow on acquisition
Cash paid 24.4
------------------------------------- ---------- ------------ ------
Net cash outflow 24.4
------------------------------------- ---------- ------------ ------
The goodwill arising on the 2019 acquisition reflects the
anticipated future benefits IWG can obtain from operating the
businesses more efficiently, primarily through increasing occupancy
and the addition of value-adding products and services. Of the
above goodwill, GBP22.6m was expected to be deductible for tax
purposes.
If the above acquisition had occurred on 1 January 2019, the
revenue and net retained profit arising from these acquisitions
would have been GBP28.3m and GBP4.4m respectively. During 2019, the
equity acquisition contributed revenue of GBP4.7m and net retained
profit of GBP1.2m.
There was no contingent consideration arising on the above
acquisition. Contingent consideration of GBP5.3m was paid during
the prior year with respect to milestones achieved on a previous
acquisition.
The acquisition costs associated with this transaction were
GBP0.3m, recorded within administration expenses in 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 2019.
28. Capital commitments
2020 2019
GBPm GBPm
---------------------------------------------------- ----- -----
Contracts placed for future capital expenditure not
provided for in the financial statements 147.0 196.4
---------------------------------------------------- ----- -----
These commitments are principally in respect of centre fit-out
obligations. There are no capital commitments in respect of joint
ventures at 31 December 2020 (2019: GBPNil).
29. Contingent assets and liabilities
The Group has bank guarantees and letters of credit held with
certain banks, predominantly in support of leasehold contracts with
a variety of landlords, amounting to GBP143.9m (2019: GBP144.5m).
There are no material lawsuits pending against the Group.
30. Related parties
Parent and subsidiary entities
The consolidated financial statements include the results of the
Group and its subsidiaries listed in note 31.
Joint ventures
The following table provides the total amount of transactions
that have been entered into with related parties for the relevant
financial year.
Amounts Amounts
Management owed owed
fees received by to
from related related related
GBPm parties party party
--------------- -------------- -------- --------
2020
Joint ventures 2.6 17.6 4.3
--------------- -------------- -------- --------
2019
Joint ventures 3.6 15.5 4.9
--------------- -------------- -------- --------
As at 31 December 2020, none of the amounts due to the Group
have been provided for as the expected credit losses arising on the
balances are considered immaterial (2019: GBPNil). All outstanding
balances with these related parties are priced on an arm's length
basis. None of the balances are secured.
Key management personnel
No loans or credit transactions were outstanding with Directors
or Officers of the Company at the end of the year or arose during
the year that are required to be disclosed.
Compensation of key management personnel (including
Directors)
Key management personnel include those personnel (including
Directors) that have responsibility and authority for planning,
directing and controlling the activities of the Group:
2020 2019
GBPm GBPm
------------------------------- ----- -----
Short-term employee benefits 6.7 8.2
Retirement benefit obligations 0.2 0.4
Share-based payments 1.9 1.4
------------------------------- ----- -----
8.8 10.0
------------------------------- ----- -----
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 GBP6.8m (2019: GBP2.0m). These awards are
subject to performance conditions and vest over three, four and
five years from the award date (refer to note 25 for further
details).
Transactions with related parties
During the year ended 31 December 2020 the Group acquired goods
and services from a company indirectly controlled by
a Director of the Company amounting to GBP5,629 (2019:
GBP18,764). There was a GBP5,629 balance outstanding at the
year-end
(2019: GBP18,764).
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
2020, their principal activities and countries of incorporation are
set out below:
% of % of
ordinary ordinary
shares shares
and and
Country votes Country votes
Name of undertaking of incorporation held Name of undertaking of incorporation held
----------------------------- ------------------ --------- ----------------------- ----------------- ---------
Trading companies Management companies
Regus Australia Management RGN Management Limited
Pty Ltd Australia 100 Partnership Canada 100
Regus Belgium SA Belgium 100 Pathway IP II Sarl Switzerland 100
Franchise International
Regus do Brasil Ltda Brazil 100 GmbH Switzerland 100
Regus Business Service Regus Service Centre
(Shenzen) Ltd China 100 Philippines B.V. Philippines 100
Regus Global Management
Regus Management ApS Denmark 100 Centre SA Switzerland 100
Regus Management (Finland) Regus Group Services
Oy Finland 100 Ltd United Kingdom 100
IW Group Services (UK)
RBC Deutschland GmbH Germany 100 Ltd United Kingdom 100
Regus HK Management Regus Management Group
Ltd Hong Kong 100 LLC United States 100
Regus CME Ireland Limited Ireland 100
Regus Business Centres Israel 100 Holding and finance
Limited companies
Regus Business Centres
Italia Srl Italy 100 IWG Enterprises Sarl Switzerland 100
Regus Management Malaysia IWG Group Holdings
Sdn Bhd Malaysia 100 Sarl Luxembourg 100
Regus Management de
Mexico, SA de CV Mexico 100 Genesis Finance Sarl Switzerland 100
Regus New Zealand Management
Ltd New Zealand 100 Pathway Finance Sarl Switzerland 100
Regus Business Centre Pathway Finance EUR
Norge AS Norway 100 2 Sarl Switzerland 100
Pathway Finance USD
IWG Management Sp z.o.o. Poland 100 2 Sarl Switzerland 100
Regus Management Singapore
Pte Ltd Singapore 100 Regus Group Limited United Kingdom 100
Regus Management Espana
SL Spain 100 Regus Corporation United States 100
IWG Management (Sweden)
AB Sweden 100
Avanta Managed Offices
Ltd United Kingdom 100
Basepoint Centres Limited United Kingdom 100
H Work LLC United States 100
RGN National Business
Centre LLC United States 100
RB Centres LLC United States 100
During the year, Redox plc was deconsolidated from the Group due
to the loss of control of the entity subsequent to it being placed
into formal bankruptcy proceedings. In addition, a further 132
entities incorporated in the USA, Canada and the UK are currently
in administration processes but have not been deconsolidated as
they have not met the requirements for deconsolidation as at 31
December 2020.
32. Key judgemental and estimates areas adopted in preparing
these accounts
The preparation of consolidated financial statements in
accordance with IFRS requires management to make certain judgements
and assumptions that affect reported amounts and related
disclosures.
Key judgements
Adjusting items
Adjusting items are separately disclosed by the Group so as to
provide readers with helpful additional information on the
performance of the business across periods. In 2020, items arising
specifically from the impact of the COVID-19 pandemic have been
deemed to meet the definition of adjusting items. Each of these
items are considered to be significant in nature and/or size and
are also consistent with items treated as adjusting in prior
periods in which significant non-recurring transactions occurred.
The exclusion of these items is consistent with how the business
performance is planned by, and reported to, the Board and the
Operating Committee. The profit before tax and adjusting items
measure is not a recognised profit measure under IFRS and may not
be directly comparable with adjusted profit measures used by other
companies. The classification of adjusting items requires
significant management judgement after considering the nature and
intentions of a transaction or provision.
Tax assets and liabilities
The Group is subject to income taxes in numerous jurisdictions.
Significant judgement is required in determining the worldwide
provision for income taxes. Where appropriate, the Group assesses
the potential risk of future tax liabilities arising from the
operation of its business in multiple tax jurisdictions and
includes provisions within tax liabilities for those risks that can
be estimated reliably. Changes in existing tax laws can affect
large international groups such as IWG and could result in
additional tax liabilities over and above those already provided
for.
Determining the lease term of contracts with renewal and
termination options
IFRS 16 defines the lease term as the non-cancellable period of
a lease together with the options to extend or terminate a lease,
if the lessee were reasonably certain to exercise that option.
Where a lease includes the option for the Group to extend the lease
term, the Group makes a judgement as to whether it is reasonably
certain that the option will be taken. This will take into account
the length of time remaining before the option is exercisable,
macro-economic environment, socio-political environment and other
lease specific factors.
The lease term represents the period from lease inception up to
either:
a. The earliest point at which the lease could be broken, where break clauses exist;
b. The point at which the lease could be extended, but no
further, where extension options exist; or
c. To the end of the contractual lease term in all other cases.
Key estimates
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 2020, including the sensitivity to changes
in those assumptions, can be found in note 13.
Deferred tax assets
We base our estimate of deferred tax assets and liabilities on
current tax laws and rates and, in certain cases, business plans
and other expectations about future outcomes. Changes in existing
laws and rates, and their related interpretations, and future
business results may affect the amount of deferred tax liabilities
or the valuation of deferred tax assets over time. Our accounting
for deferred tax consequences represents management's best estimate
of future events that can be appropriately reflected in the
accounting estimates. It is current Group policy to recognise a
deferred tax asset to the extent that it is probable that future
taxable profits will be available against which the assets can be
used.
Given the significant level of corporate developments in the
Group, the determination of the period of time representing
foreseeable future requires judgement to be exercised, using the
Group's business forecasting processes.
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.
While impairment of property, plant and equipment was noted as a
key estimate in the 2019 Annual Report and Accounts, COVID-19 has
accelerated the need for further network rationalisation. 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 and for centres which have been identified
as part of the Group's rationalisation programme. The key area of
estimation involved is in determining the recoverable amount of the
rationalised centres, over what period the rationalisation will
take place, and the level of moveable assets that will be utilised
in other centres.
The Group has considered the impact of COVID-19 with respect to
all judgements and estimates it makes in the application of its
accounting policies. This included assessing the impairment of
property, plant and equipment, goodwill and the recoverability of
trade receivables. The result of these reviews is detailed in note
10.
Estimating the incremental borrowing rates on leases
The determination of applicable incremental borrowing rates on
leases at the commencement of lease contracts also requires
judgement. The Group determines its incremental borrowing rates by
obtaining interest rates from various external financing sources
and makes certain adjustments to reflect the terms of the lease.
The Group considers the relevant market interest rate, based on the
weighted average of the timing of the lease payments under the
lease obligation. In addition, a spread over the market rate is
applied based on the cost of funds to the Group, plus a spread that
represents the risk differential of the lessee entity compared to
the Group funding cost.
Valuation of embedded conversion option (Level 3) in convertible
bonds
The embedded conversion option relating to the Group's issue of
convertible bonds is measured at mark-to-market with reference to
the traded price of the convertible bonds as well as external
valuation inputs based on credit comparables and bond spreads
across competitors and wider markets.
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.
Parent company accounts
Summarised extract of UNAUDITED Company balance sheet
(Accounting policies are based on the Swiss Code of
Obligations)
As at As at
31 Dec 31 Dec
2020 2019
GBPm GBPm
------------------------------------------- --------- ----------
Trade and other receivables 1.1 14.4
Prepayments 0.5 0.1
------------------------------------------- --------- ----------
Total current assets 1.6 14.5
Investments 3,272.3 644.6
------------------------------------------- --------- ----------
Total non-current assets 3,272.3 644.6
Total assets 3.273.9 659.1
Trade and other payables 7.0 6.3
Accrued expenses 1.1 2.7
------------------------------------------- --------- ----------
Total short-term liabilities 8.1 9.0
Long-term interest-bearing liabilities 99.3 332.3
------------------------------------------- --------- ----------
Total long-term liabilities 99.3 332.3
Total liabilities 107.4 341.3
------------------------------------------- --------- ----------
Issued share capital 10.5 9.2
Share premium 312.6 -
Reserves from capital contributions 2,126.8 2,126.8
Retained earnings (1,699.1) (32.4)
Profit/(loss) for the year 2,569.8 (1,668.9)
Treasury shares (154.1) (116.9)
------------------------------------------- --------- ----------
Total shareholders' equity 3,166.5 317.8
Total liabilities and shareholders' equity 3,273.9 659.1
------------------------------------------- --------- ----------
The values of the investments recognised have been considered by
the Directors and are considered fully recoverable.
Approved by the Board on 9 March 2021
Mark Dixon ERIC HAGEMAN
Chief Executive Officer Chief Financial Officer
Accounting policies
Basis of preparation
These financial statements were prepared in accordance with
accounting policies based on the Swiss Code of Obligations.
The Company is included in the consolidated financial statements
of IWG plc.
The balance sheet has been extracted from the non-statutory
accounts of IWG plc for the year ended 31 December 2020, which are
available from the Company's registered office, Dammstrasse 19,
CH-6300, Zug, Switzerland.
Investments
During 2020, the Company acquired the direct investments in IWG
Enterprises Sarl and Umbrella Management Limited as part of an
internal restructuring. This transaction resulted in the Company
recognising a dividend in specie of GBP2,966.0m and a corresponding
impairment in its investment of IWG Global Investments Sarl of
GBP360.0m. The value of the investments
recognised have been considered by the Directors and are
considered fully recoverable.
IFRS 16 Pro forma statements
Consolidated income statement (unaudited)
The purpose of these unaudited pages is to provide a
reconciliation from the 2020 financial results to the pro forma
statements
in accordance with the previous pre-IFRS 16 policies adopted by
the Group, and thereby give the reader greater insight into
the impact of IFRS 16 on the results of the Group. The pro forma
statements also reflect the impact of the adjusting items
during 2020.
Year
Year ended
ended Rent 31 Dec
31 Dec & 2020
2020 finance Other pre-IFRS
GBPm Notes As reported costs Depreciation adjustments Taxation 16
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Revenue 3 2,480.2 - - - - 2,480.2
Total costs of sales (2,425.5) (1,051.2) 884.5 (23.1) - (2,615.3)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Cost of sales (2,108.4) (1,051.2) 884.5 (33.3) - (2,308.4)
Adjusting items to cost of sales 10 (71.1) - - (235.8) - (306.9)
(Loss) on impairment of property,
plant, equipment and right-of-use
assets 5 (246.0) - - 246.0 - -
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Expected credit losses on trade
receivables 5 (34.8) - - - - (34.8)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Gross profit/(loss) (centre
contribution) 19.9 (1,051.2) 884.5 (23.1) - (169.9)
Total selling, general and
administration
expenses (371.9) (14.0) 2.5 - - (383.4)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Selling, general and administration
expenses (312.9) (14.0) 2.5 - - (324.4)
Adjusting items to selling, general
and administration expenses 10 (56.4) - - - (56.4)
Share of (loss)/profit of
equity-accounted
investees, net of tax 21 (2.6) - - - - (2.6)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Operating (loss)/profit 5 (352.0) (1,065.2) 887.0 (23.1) - (553.3)
Finance expense 7 (271.1) 249.4 - 7.8 - (13.9)
Finance income 7 3.0 - - - - 3.0
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Net finance expense (268.1) 249.4 - 7.8 - (10.9)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
(Loss)/profit before tax for the
year from continuing operations (620.1) (815.8) 887.0 (15.3) - (564.2)
Income tax expense 8 (30.1) - - - (13.2) (43.3)
(Loss)/profit after tax for the
year from continuing operations (650.2) (815.8) 887.0 (15.3) (13.2) (607.5)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Profit after tax for the period
from discontinued operations 9 3.4 (1.2) 0.7 0.2 - 3.1
(Loss)/profit for the period
attributable
to equity shareholders of the parent (646.8) (817.0) 887.7 (15.1) (13.2) (604.4)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Earnings per ordinary share (EPS):
Attributable to ordinary shareholders
(67.9
Basic (p) 11 ) (63.5)
(67.9
Diluted (p) 11 ) (63.5)
From continuing operations
(68.3
Basic (p) 11 ) (63.8)
(68.3
Diluted (p) 11 ) (63.8)
------------------------------------- ----- ------------ --------- ------------ ------------ -------- ---------
Pro forma adjustments recognised
The performance of the Group is impacted by the following
significant adjustments in adopting IFRS 16. The recognition of
these balances will not impact the overall cash flows of the Group
or the cash generation per share.
1. Right-of-use assets and related lease liabilities
These adjustments reflect the right-of-use assets recognised on
transition, together with the related lease liabilities. The
initial lease liabilities are equal to the present value of the
lease payments during the lease term that have not yet been paid.
The cost
of the right-of-use asset comprises the amount of the initial
measurement of the lease liability, plus any additional direct
costs associated with setting up the lease.
2. Rent and finance costs
Under IFRS 16 conventional rent charges are not recognised in
the profit or loss. The payments associated with these charges
instead form part of the lease payments used in calculating the
right-of-use assets and related lease liabilities noted above. The
lease liabilities are measured in subsequent periods using the
effective interest rate method, based on the applicable interest
rate determined at the date of transition. The related finance
costs arising on subsequent measurement are recognised directly
through profit or loss.
3. Depreciation and lease payments
Depreciation on the right-of-use assets recognised is
depreciated over the life of the lease on a straight-line basis,
adjusted for any period between the lease commencement date and the
date the related centre opens, reflecting the lease related costs
directly incurred in preparing the business centre for trading.
Lease payments reduce the lease liabilities recognised in the
balance sheet.
4. Taxation
The underlying tax charge is impacted by the change in the
profit before tax and deferred tax assets recognised.
5. Other adjustments
These adjustments primarily reflect the impairment of the
right-of-use assets and other property, plant and equipment as well
as the reversal of the closure cost provision on a pre-IFRS 16
basis. Certain parking, storage and brokerage costs are also
reversed, as they form part of the lease payments.
Consolidated balance sheet (unaudited)
Right-of-use
assets As at
As at & 31 Dec
31 Dec related Rent & Depreciation 2020
2020 lease finance & lease Other pre-IFRS
GBPm Notes As reported liability costs payments adjustments Taxation 16
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Non-current assets
Goodwill 13 695.5 - - - - - 695.5
Other intangible assets 14 53.3 - - - - - 53.3
Property, plant and
equipment 15 6,855.9 (6,758.9) 871.3 900.9 248.1 - 2,117.3
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Right-of-use assets 15 5,646.9 (6,758.9) - 946.0 166.0 - -
Other property, plant
and
equipment 15 1,209.0 - 871.3 (45.1) 82.1 - 2,117.3
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Deferred tax assets 8 188.2 - - - - (107.0) 81.2
Other long-term
receivables 16 55.0 - - - 0.5 - 55.5
Investments in joint
ventures 21 11.3 - - - - - 11.3
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Total non-current assets 7,859.2 (6,758.9) 871.3 900.9 248.6 (107.0) 3,014.1
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Current assets
Inventory 1.3 - - - - - 1.3
Trade and other
receivables 17 1,003.7 - 145.9 - - - 1,149.6
Corporation tax
receivable 8 29.1 - - - - - 29.1
Cash and cash
equivalents 23 71.0 - - - - - 71.0
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Total current assets 1,105.1 - 145.9 - - - 1,251.0
Total assets 8,964.3 (6,758.9) 1,017.2 900.9 248.6 (107.0) 4,265.1
Current liabilities
Trade and other payables
(incl. customer
deposits) 18 1,007.6 - 400.8 - - - 1,408.4
Deferred income 328.9 - - - - - 328.9
Corporation tax payable 8 40.0 - - - - - 40.0
Bank and other loans 19 21.9 - - - - - 21.9
Lease liabilities 23 1,019.6 (921.9) (249.3) 151.6 - - -
Provisions 20 17.5 - - - 247.8 - 265.3
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Total current
liabilities 2,435.5 (921.9) 151.5 151.6 247.8 - 2,064.5
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Non-current liabilities
Other long-term payables 5.9 - 949.2 - 0.5 - 955.6
Deferred tax liability 8 0.2 - - - (0.2) - -
Bank and other loans 19 400.2 - - - - - 400.2
Lease liabilities 23 5,538.9 (6,534.8) - 995.9 - - -
Non-current derivative
financial liabilities 24 49.6 - - - - - 49.6
Provisions 20 13.5 - - - 2.1 - 15.6
Provision for deficit on
joint ventures 21 4.6 - - - - - 4.6
Retirement benefit
obligations 26 2.1 - - - - - 2.1
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Total non-current
liabilities 6,015.0 (6,534.8) 949.2 995.9 2.4 - 1,427.7
Total liabilities 8,450.5 (7,456.7) 1,100.7 1,147.5 250.2 - 3,492.2
Total equity
Issued share capital 22 10.5 - - - - - 10.5
Issued share premium 22 312.6 - - - - - 312.6
(154.1
Treasury shares 22 ) - - - - - (154.1)
Foreign currency
translation
reserve 36.2 (14.8) - - - - 21.4
Hedging reserve (0.2 ) - - - - - (0.2)
Other reserves 25.8 - - - - - 25.8
Retained earnings 283.0 712.6 (83.5) (246.6) (1.6) (107.0) 556.9
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Total equity 513.8 697.8 (83.5) (246.6) (1.6) (107.0) 772.9
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Total equity and
liabilities 8,964.3 (6,758.9) 1,017.2 900.9 248.6 (107.0) 4,265.1
------------------------ ----- ------------ ------------ -------- ------------ ------------ -------- ---------
Consolidated statement of cash flows (unaudited)
Year
Year ended
ended 31 Dec
31 Dec Depreciation 2020
2020 Rent & lease Other pre-IFRS
GBPm Notes As reported & finance payments adjustments 16
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Operating activities
Loss for the year from continuing operations (650.2) (815.8) 887.0 (28.5) (607.5)
Adjustments for:
Profit from discontinued operations 9 0.6 (1.2) 0.7 0.2 0.3
Net finance expense 7 268.1 (249.4) - (7.8) 10.9
Share of loss on equity-accounted investees,
net of income tax 21 2.6 - - - 2.6
Depreciation charge 15 1,186.3 - (887.7) - 298.6
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Right-of-use assets 15 946.0 - (946.0) - -
Other property, plant and equipment 15 240.3 - 58.3 - 298.6
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Loss on impairment of goodwill 13 4.9 - - - 4.9
Loss on disposal of property, plant
and equipment 5 93.1 - - (11.5) 81.6
Profit on disposal of right-of-use 5,
assets and related lease liabilities 23 (25.7) - - 25.7 -
Loss on disposal of intangible assets 5 0.1 - - - 0.1
5,
Impairment of property, plant and equipment 15 82.1 - - (82.1) -
5,
Impairment of right-of-use assets 15 163.9 - - (163.9) -
5,
Amortisation of intangible assets 14 8.7 - - - 8.7
Gain on disposal of other investments 21 1.6 - - - 1.6
Tax expense 8,9 30.4 - - - 30.4
Expected credit losses on trade receivables 5 34.8 - - - 34.8
Increase in provisions 20 15.2 - - 247.8 263.0
Share-based payments 6.4 - - - 6.4
Other non-cash movements (4.4) - - 0.3 (4.1)
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Operating cash flows before movements
in working capital 1,218.5 (1,066.4) - (19.8) 132.3
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Proceeds from partner contributions
(reimbursement of costs) 15 38.4 - (38.4) - -
Increase in trade and other receivables (76.4) 14.7 - - (61.7)
Increase in trade and other payables 77.3 955.6 (748.7) 19.8 304.0
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Cash generated from operations 1,257.8 (96.1) (787.1) - 374.6
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Interest paid and similar charges on
bank loans and corporate borrowings (17.6) - - - (17.6)
Interest paid on lease liabilities 23 (249.4) 249.4 - - -
Tax paid (21.9) - - - (21.9)
Net
cash inflows from operating activities 968.9 153.7 (787.1) - 335.1
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Investing activities
Purchase of property, plant and equipment 15 (257.4) (153.7) - - (411.1)
Purchase of subsidiary undertakings,
net of cash acquired 27 (26.8) - - - (26.8)
Purchase of intangible assets 14 (16.5) - - - (16.5)
Purchase of joint ventures 21 - - - - -
Purchase of current assets 17 (276.2) - - - (276.2)
Proceeds on the sale of discontinued
operations, net of cash disposed of 9 3.3 - - - 3.3
Proceeds on sale of property, plant
and equipment 8.2 - - - 8.2
Interest received 7 0.6 - - - 0.6
Net cash outflows from investing activities (564.8) (153.7) - - (718.1)
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Financing activities
Proceeds from issue of loans 876.5 - - - 876.5
Repayment of loans (1,109.8) - - - (1,109.8)
Proceeds from issue of convertible
bonds (net of transaction costs) 19 343.2 - - - 343.2
Payment of lease liabilities 23 (898.1) - 898.1 - -
Proceeds from partner contributions
(lease incentives) 15 111.0 - (111.0) - -
Proceeds from issue of ordinary shares,
net of costs 22 313.9 - - - 313.9
Purchase of treasury shares 22 (43.7) - - - 2.2
Proceeds from exercise of share awards 2.2 - - - -
Payment of ordinary dividend 12 - - - - -
Net cash (outflows)/inflows from financing
activities (515.8) - 787.1 - 382.3
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
Decrease in cash and cash equivalents (0.7) - - - (0.7)
Cash and cash equivalents at beginning
of year 66.6 - - - 66.6
Effect of exchange rate fluctuations
on cash held 5.1 - - - 5.1
Cash and cash equivalents at end of
the year 23 71.0 - - - 71.0
--------------------------------------------- ----- ------------ ---------- ------------ ------------ ---------
SEGMENTAL ANALYSIS
Segmental analysis - based on estimates (unaudited)
United
Americas EMEA Asia Pacific Kingdom Other Total
2020 2020 2020 2020 2020 2020
(pre-IFRS (pre-IFRS (pre-IFRS (pre-IFRS (pre-IFRS (pre-IFRS
16 Basis) 16 Basis) 16 Basis) 16 Basis) 16 Basis) 16 Basis)
--- ---------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Pre2019(1)
Workstations(4) 194,127 138,942 79,810 94,240 - 507,119
Occupancy (%) 74.1% 73.9% 70.4% 71.0% - 72.9%
Revenue (GBPm) 969.8 564.0 252.2 338.2 5.6 2,129.8
----------- ----------- ------------ ----------- ----------- -----------
REVPOW (GBP) 6,742 5,491 4,488 5,052 - 5,761
2019 Expansions(2)
Workstations(4) 23,258 41,765 11,766 11,698 - 88,487
Occupancy (%) 49.9% 55.4% 59.4% 60.2% - 55.1%
Revenue (GBPm) 53.4 103.4 27.1 31.5 - 215.4
----------- ----------- ------------ ----------- ----------- -----------
2020 Expansions(5)
Workstations(4) 8,092 14,005 3,061 4,784 - 29,942
Occupancy (%) 24.2% 36.5% 35.9% 33.6% - 32.7%
Revenue (GBPm) 11.0 21.5 5.7 10.0 - 48.2
----------- ----------- ------------ ----------- ----------- -----------
Network rationalisations(3)
Workstations(4) 8,578 7,076 7,319 2,277 - 25,250
Occupancy (%) 45.5% 63.0% 61.7% 66.6% - 57.0%
Revenue (GBPm) 32.3 26.2 19.2 9.1 - 86.8
----------- ----------- ------------ ----------- ----------- -----------
Total
Workstations(4) 234,055 201,788 101,956 112,999 - 650,798
Occupancy (%) 68.9% 67.1% 67.5% 68.2% - 68.0%
Revenue (GBPm) 1,066.5 715.1 304.2 388.8 5.6 2,480.2
----------- ----------- ------------ ----------- ----------- -----------
REVPAW (GBP) 4,557 3,544 2,984 3,441 - 3,811
-------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Period end workstations(7)
Mature 193,629 143,256 81,959 96,237 - 515,081
2019 Expansions 23,339 42,939 12,070 11,880 - 90,228
2020 Expansions 10,809 21,142 4,659 9,295 - 45,905
Total 227,777 207,337 98,688 117,412 - 651,214
-------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Segmental analysis - based on estimates (unaudited)
United
Americas EMEA Asia Pacific Kingdom Other Total
2019 2019 2019 2019 2019 2019
(pre-IFRS (pre-IFRS (pre-IFRS (pre-IFRS (pre-IFRS (pre-IFRS
16 Basis) 16 Basis) 16 Basis) 16 Basis) 16 Basis) 16 Basis)
--- ---------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Pre-2019(1)
Workstations(4) 195,316 135,864 84,238 91,886 - 507,304
Occupancy (%) 77.2% 72.5% 71.3% 71.4% - 73.9%
Revenue (GBPm) 1,099.8 575.1 274.7 370.1 9.0 2,328.7
REVPOW (GBP) 7,296 5,835 4,577 5,640 - 6,211
2019 Expansions(2)
Workstations(4) 9,682 17,261 6,218 7,629 - 40,790
Occupancy (%) 40.0% 40.3% 37.4% 32.5% - 38.3%
Revenue (GBPm) 20.7 36.8 10.6 11.3 - 79.4
Network rationalisations(6)
Workstations(4) 11,516 12,021 11,390 9,976 - 44,903
Occupancy (%) 63.1% 66.3% 62.6% 57.1% - 62.5%
Revenue (GBPm) 67.4 71.1 57.4 44.9 - 240.8
Total
Workstations(4) 216,514 165,146 101,846 109,491 - 592,997
Occupancy (%) 74.8% 68.7% 68.2% 67.4% - 70.6%
Revenue (GBPm) 1,187.9 683.0 342.7 426.3 9.0 2,648.9
REVPAW (GBP) 5,486 4,136 3,365 3,893 - 4,467
-------------------------------- ----------- ----------- ------------ ----------- -----------
Notes:
1. The pre-2019 business comprises centres not opened in the
current or previous financial year.
2. Expansions include new centres opened and acquired
businesses.
3. A network rationalisation for the 2020 data is defined as a
centre closed during the period from 1 January 2020 to 31 December
2020.
4. Workstation numbers are calculated as the weighted average
for the year.
5. 2020 expansions include any costs incurred in 2020 for
centres which will open in 2021.
6. A network rationalisation for the 2019 comparative data is
defined as a centre closed during the period from 1 January 2019 to
31 December 2020.
7. Workstations available at year-end.
POST-TAX CASH RETURN ON NET INVESTMENT
The purpose of this unaudited page is to reconcile some of the
key numbers used in the returns calculation, on a pre-IFRS 16
basis, back to the Group's IFRS 16 pro forma statements, and
thereby give the reader greater insight into the returns
calculation drivers.
2020
2018 2019 2020 2021
Description Reference Aggregation Expansions Expansions Expansions Closures Total
---------------------- ---------------------- ------------ ----------- ----------- ----------- -------- -------
Post-tax cash return
on net investment (unaudited) 5.8% - - - - 1.2%
---------------------------------------------- ------------ ----------- ----------- ----------- -------- -------
Pro forma
income statement,
Revenue p154 2,129.8 215.4 48.2 - 86.8 2,480.2
Pro forma
income statement,
Centre contribution p154 277.5 (65.7) (32.4) (14.2) (12.0) 153.2
EBIT reconciliation
Loss on disposal of (analysed
assets below) - - - - 80.4 80.4
---------------------- ---------------------- ------------ ----------- ----------- ----------- -------- -------
Underlying centre contribution 277.5 (65.7) (32.4) (14.2) 68.4 233.6
Selling, general and Pro forma
administration income statement,
expenses p154 (249.6) (45.8) (17.0) (0.2) (11.8) (324.4)
---------------------- ---------------------- ------------ ----------- ----------- ----------- -------- -------
EBIT reconciliation
(analysed
EBIT below) 27.9 (111.5) (49.4) (14.4) 56.6 (90.8)
Depreciation and amortisation(1) 230.5 49.0 13.8 - 13.9 307.2
Amortisation of partner
contributions (70.3) (18.0) (6.1) - (29.8) (124.2)
Amortisation of acquired
lease fair value adjustments (0.5) - - - 0.3 (0.2)
---------------------------------------------- ------------ ----------- ----------- ----------- -------- -------
Non-cash items 159.7 31.0 7.7 - (15.6) 182.8
Taxation(2) (5.7) 22.3 9.9 2.9 (11.3) 18.1
---------------------------------------------- ------------ ----------- ----------- ----------- -------- -------
Adjusted net cash profit 181.9 (58.2) (31.8) (11.5) 29.7 110.1
Capital expenditure
Maintenance capital (analysed
expenditure below) 96.9 - - - - 96.9
Partner contributions
(analysed
Partner contributions below) (14.6) - - - - (14.6)
---------------------- ---------------------- ------------ ----------- ----------- ----------- -------- -------
Net maintenance capital
expenditure 82.3 - - - - 82.3
---------------------------------------------- ------------ ----------- ----------- ----------- -------- -------
Post-tax cash return 99.6 (58.2) (31.8) (11.5) 29.7 27.8
---------------------------------------------- ------------ ----------- ----------- ----------- -------- -------
Capital expenditure
Growth capital (analysed
expenditure below) 2,210.2 602.0 328.2 40.2 - 3,180.6
Partner contributions
(analysed
Partner contributions below) (505.3) (206.8) (116.5) (13.7) - (842.3)
---------------------- ---------------------- ------------ ----------- ----------- ----------- -------- -------
Net investment (unaudited) 1,704.9 395.2 211.7 26.5 - 2,338.3
---------------------------------------------- ------------ ----------- ----------- ----------- -------- -------
2020
2018 2019 2020 2021
EBITDA reconciliation Aggregation Expansions Expansions Expansions Closed Total
--------------------------- ------------------- ------------ ----------- ----------- ----------- ------ -------
Centre contribution 277.6 (65.7) (32.4) (14.2) (12.0) 153.2
Selling, general and
administration expenses (249.6) (45.8) (17.0) (0.2) (11.8) (324.4)
Depreciation and amortisation 230.5 49.0 13.8 - 13.9 307.2
------------------------------------------------ ------------ ----------- ----------- ----------- ------ -------
258.5 (62.5) (35.6) (14.4) (9.9) 136.1
Pro forma
Share of profit in joint income statement,
ventures p154 (2.6) - - - - (2.6)
--------------------------- ------------------- ------------ ----------- ----------- ----------- ------ -------
EBITDA on continuing
operations 255.9 (62.5) (35.6) (14.4) (9.9) 133.5
------------------------------------------------ ------------ ----------- ----------- ----------- ------ -------
1. Excludes depreciation expenses related to discontinued
operations of GBP0.1m.
2. Based on EBIT at the Group's long-term effective tax rate of
20%.
2020
Movement in capital expenditure 2018 2019 2020 2021
(unaudited) Aggregation Expansions Expansions Expansions Closures Total
-------------------------------- ------------ ----------- ----------- ----------- -------- -------
December 2019 2,343.5 528.8 93.7 - - 2,966.0
2020 Capital expenditure(3) - 82.8 232.3 40.2 - 355.3
Properties acquired - - 2.2 - - 2.2
Centre closures(4) (133.3) (9.6) - - - (142.9)
-------------------------------- ------------ ----------- ----------- ----------- -------- -------
December 2020 2,210.2 602.0 328.2 40.2 - 3,180.6
-------------------------------- ------------ ----------- ----------- ----------- -------- -------
3. 2021 expansions relate to costs and investments incurred in
2020 for centres which will open in 2021.
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.
2020
Movement in partner contributions 2018 2019 2020 2021
(unaudited) Expansions Expansions Expansions Expansions Closures Total
---------------------------------- ----------- ----------- ----------- ----------- -------- ------
December 2019 531.7 194.3 39.4 - - 765.4
2020 Partner contributions - 16.0 77.1 13.7 - 106.8
Centre closures(5) (26.4) (3.5) - - - (29.9)
---------------------------------- ----------- ----------- ----------- ----------- -------- ------
December 2020 505.3 206.8 116.5 13.7 - 842.3
---------------------------------- ----------- ----------- ----------- ----------- -------- ------
5. The partner contributions for an estate are reduced by the
partner contributions for centres closed during the year.
2020
EBIT reconciliation (unaudited) Reference GBPm
---------------------------------- ---------------------------- -------
EBIT (90.8)
Pro forma statement of
Loss on disposal of assets cash flows, p157 (80.4)
Pro forma income statement,
Share of profit in joint ventures p154 (2.6)
Adjusting items note 10, p125 (379.5)
Pro forma income statement,
Operating profit p154 (533.3)
---------------------------------- ---------------------------- -------
2020
Partner contributions (unaudited) Reference GBPm
----------------------------------------- ---------- -------
Opening partner contributions 640.0
-------
* Current 105.5
* Non-current 534.5
-------
Acquired in the period 2.5
Received in the period 121.7
-------
* Maintenance partner contributions 14.6
* Growth partner contributions 107.1
-------
Utilised in the period (126.7)
Business disposal -
Exchange differences (4.2)
----------------------------------------------------- -------
Closing partner contributions 633.3
----------------------------------------------------- -------
* Current 109.1
* Non-current 524.2
-------
2020
Capital expenditure (unaudited) Reference GBPm
------------------------------------------------- ----------------------- -----
Maintenance capital expenditure CFO review, p46 96.9
Growth capital expenditure CFO review, p46 357.5
-----
* 2020 Capital expenditure 355.3
* Properties acquired 2.2
-------------------------------------------------------------------------- -----
Total capital expenditure
Analysed as
Pro forma statement of
* Purchase of subsidiary undertakings cash flows, p157 26.8
Pro forma statement of
* Purchase of property, plant and equipment cash flows, p157 411.1
Pro forma statement of
* Purchase of intangible assets cash flows, p157 16.5
------------------------------------------------- ----------------------- -----
FIVE-YEAR SUMMARY
31 Dec 31 Dec 31 Dec 31 Dec
31 Dec 2019 2018 2017 2016
2020 Restated Restated Restated Restated
GBPm GBPm GBPm GBPm GBPm
------------------------------------------- --------- --------- --------- --------- ---------
Income statement (full year ended)
Revenue 2,480.2 2,648.9 2,398.2 2,237.8 2,127.7
Cost of sales (2,425.5) (2,081.8) (2,006.9) (1,845.2) (1,694.5)
Expected credit losses on trade
receivables (34.8) (2.0) (17.7) (16.2) (10.3)
------------------------------------------- --------- --------- --------- --------- ---------
Gross profit (centre contribution) 19.9 565.1 373.6 376.4 422.9
Administration expenses (369.3) (281.0) (248.0) (231.8) (255.0)
Share of (loss)/profit of equity-accounted
investees, net of tax (2.6) 2.7 (1.4) (0.8) (0.8)
------------------------------------------- --------- --------- --------- --------- ---------
Operating profit (352.0) 286.8 124.2 143.8 167.1
Finance expense (271.1) (232.3) (15.9) (14.1) (11.6)
Finance income 3.0 0.5 0.5 0.3 0.1
------------------------------------------- --------- --------- --------- --------- ---------
(Loss)/profit before tax for the
year from continuing operations (620.1) 55.0 108.8 130.0 155.6
Income tax (expense)/credit (30.1) 22.3 (29.6) (32.8) (35.0)
------------------------------------------- --------- --------- --------- --------- ---------
(Loss)/profit for the year from
continuing operations (650.2) 77.3 79.2 97.2 120.6
Profit after tax for the year from
discontinued operations 3.4 373.3 26.5 16.8 18.2
------------------------------------------- --------- --------- --------- --------- ---------
(Loss)/profit after tax for the
year (646.8) 450.6 105.7 114.0 138.8
------------------------------------------- --------- --------- --------- --------- ---------
Earnings per ordinary share (EPS):
Attributable to ordinary shareholders
Basic (p) (67.9) 50.5 11.7 12.4 14.9
Diluted (p) (67.9) 49.6 11.6 12.3 14.7
Weighted average number of shares
outstanding ('000s) 951,891 892,738 907,077 915,676 929,830
From continuing operations
Basic (p) (68.3) 8.7 8.7 10.6 13.0
Diluted (p) (68.3) 8.5 8.7 10.5 12.8
Weighted average number of shares
outstanding ('000s) 951,891 892,738 907,077 915,676 929,830
------------------------------------------- --------- --------- --------- --------- ---------
Balance sheet data (as at)
Intangible assets 748.8 719.6 721.7 712.1 738.1
Right-of-use assets 5,646.9 5,917.4 - - -
Property, plant and equipment 1,209.0 1,273.3 1,751.2 1,367.2 1,194.4
Deferred tax assets 188.2 195.0 30.6 23.0 29.3
Other assets 1,100.4 781.4 848.7 702.7 649.2
Cash and cash equivalents 71.0 66.6 69.0 55.0 50.1
------------------------------------------- --------- --------- --------- --------- ---------
Total assets 8,964.3 8,953.3 3,421.2 2,860.0 2,661.1
------------------------------------------- --------- --------- --------- --------- ---------
Current liabilities 2,435.5 2,139.7 1,429.5 1,224.7 1,183.1
Non-current liabilities 6,015.0 5,933.1 1,240.5 907.6 736.0
Equity 513.8 880.5 751.2 727.7 742.0
------------------------------------------- --------- --------- --------- --------- ---------
Total equity and liabilities 8,964.3 8,953.3 3,421.2 2,860.0 2,661.1
------------------------------------------- --------- --------- --------- --------- ---------
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