Source - LSE Regulatory
RNS Number : 0782S
IWG PLC
07 March 2023
 

 

 

 

 

7 March 2023

PRELIMINARY RESULTS ANNOUNCEMENT

IWG plc, the largest provider of hybrid workspace globally including its Regus and Spaces brands and an unrivalled network of 3,345 buildings across 120 countries, issues its preliminary results for the twelve months ended
31 December 2022.

IWG DELIVERS HIGHEST-EVER REVENUE IN ITS 34-YEAR HISTORY

·  Highest-ever revenue in IWG's 34-year history with 24% growth in system-wide revenue to £3.1bn

·  Highest-ever network footprint of more than 65 million sq. ft. - market leader worldwide by far

·  Continued cost discipline with central overhead costs remaining almost flat, despite global inflationary pressure

·  Momentum continues going into 2023 with higher revenue, higher operating profit, higher occupancy and higher pricing in December 2022

·  All delivered with operating profit of £147m in 2022

Delivering both growth and cash in 2022

·  System-wide revenue1 growth of 24% reflecting both increased demand for flexible working and higher pricing

·  EBITDA2 increase of 442% to £317m (2021: £59m) driven by combination of higher revenue and cost focus

·  Cash flow from business activities of £151m (2021: outflow of £(219)m), delivering net debt reduction

·  26.5% of building capacity remaining with occupancy at 73.5%

Clear progress on expansion priorities

·  Record signing of 462 new capital-light contracts completed in 2022 delivering both further capacity increases across the network and an even more unrivalled global network

·  Continued strong momentum for new capital-light contracts with 2023 signings on track to exceed 2022

·  Network now at 3,345 locations worldwide, with 65.1 million sq. ft. of space under management

Worka

·  Continue to deliver on announced strategy to combine IWG's digital assets together with the Instant Group (investment in 2022) under a new brand, Worka

·  Total Worka revenue up 105% year-on-year to £271m (2022 pro-forma4 revenue: £304m), with EBITDA of £112m
(2022 pro-forma4 EBITDA: £117m)

·  IWG reaffirms Worka to operate independently, continuing plans to evaluate reducing its ownership stake

SUMMARY FINANCIALS

The Group reports results in accordance with IFRS. Some results are additionally presented before the application of IFRS 16 (in accordance with IAS 17 accounting standards)2 as it provides useful information to stakeholders on how the Group is managed, and reporting for bank covenants and certain lease agreements. The primary difference between the two standards is the treatment of operating lease liabilities. There is no difference between underlying cash flow. A reconciliation between EBITDA before the application of IFRS 16 and the IFRS 16 EBITDA is provided in the CFO review.

Preliminary results (£m)

2022

2021

Constant
currency

Actual
currency

System-wide revenue1

3,086

2,498

+18%

+24%

Group revenue

2,751

2,227

+17%

+24%

EBITDA

1,336

1,026

+22%

+30%

Operating profit/(loss)

147

(87)

n.m.

n.m.

EBITDA, before application of IFRS 16

317

59

+389%

+442%

Adjusted EBITDA, before application of IFRS 16

308

80

+250%

+287%

EPS3

(11.3)

(26.2)

n.m.

n.m.

Cash flow from business activities5

151

(219)

n.m.

n.m.

1.  System-wide revenue represents the total of all revenue made by both non-consolidated and consolidated locations globally

2.  Before the application of IFRS 16 as defined in the Alternative performance measures section

3.  Basic EPS (p) from continuing operations

4.  Pro-forma for Instant Group investment for the full year

5.  Cash flow from operations less tax, interest and payment of lease liabilities (see p. 18)

Mark Dixon, Chief Executive of IWG plc, said:

"The growth juggernaut in hybrid working continues and 2022 has been a record year for IWG with our highest-ever revenue produced in our 34-year history, up 24% from 2021. We have delivered this through our multi-brand strategy, primarily Regus and Spaces, and continue to have the largest global network of hybrid workspace by far. We have also shown that we can deliver both high levels of growth and profitability alongside EBITDA and cash flow generation. We have done this through a combination of higher demand for flexible work products, higher pricing and continued cost discipline, and I am looking forward to continuing this momentum in 2023.

During 2023 we will continue building on our capital-light growth strategy which allows us to capitalise on the growing pipeline of property investors seeking to maximise their returns by partnering with IWG. We continue to be well-placed to deliver further revenue, profitable growth and reducing leverage as more companies permanently embrace hybrid working as their preferred model, with IWG set to benefit most as by far the leading global player.

I would like to thank the entire IWG team for their hard work in 2022, and also our customers for their continued support."

 

Outlook and guidance

The demand for hybrid working solutions continues to grow as businesses globally seek to reduce their real estate costs and respond to the needs of their employees. Whilst there are macroeconomic headwinds around global growth, which can impact demand, plus challenges for the Group from inflation and interest rates impacting costs, we remain cautiously optimistic about the outlook for 2023, with underlying EBITDA before application of IFRS 16 during the month of December 2022 at c.£30m. We are confident that EBITDA will be in line with management's expectations with net debt falling during the year. However, it should be noted that the Group is operationally leveraged, resulting in profitability moving up and down with relatively small changes in revenue.

 

Financial calendar

21st March 2023

2022 Annual Report & Accounts publication

25th April 2023

First quarter 2023 trading update

8th August 2023

Interim 2023 results

7th November 2023

Third quarter 2023 trading update

 

Details of results presentation

Mark Dixon, Chief Executive Officer, and Charlie Steel, Chief Financial Officer, will be hosting a presentation of the results today for analysts and investors at 9.00am GMT.

Conference call dials (for the live call, no PIN or password is required; callers just need to state they are dialling in for the IWG call):

UK & International            +44 (0) 33 0551 0200

UK Toll Free                     0808 109 0700

Replay (available for 7 days) After the LIVE presentation.

UK & International        +44 (0) 203451 9993

UK Toll Free                     0800 633 8453

Replay PIN:                      1247003#

 

Further information


IWG plc

Brunswick Tel: + 44 (0) 20 7404 5959

Mark Dixon, Chief Executive Officer

Charlie Steel, Chief Financial Officer

Nick Cosgrove

Peter Hesse

 

Chairman's statement

Hybrid working is driving flexible workspace mainstream

The hybrid model is becoming the preferred way of working for millions of people across the planet. This reflects major societal and behavioural change, as technological advances empower people to work wherever they are most productive. IWG is uniquely positioned to benefit from these fundamental changes to how work is conducted.

Hybrid working is leading companies to replace their expensive conventional HQs in city centres with smaller, more flexible workspaces, while simultaneously taking on advanced workspaces in the suburbs and smaller communities close to where their employees live to benefit from the fundamental changes to how work is conducted. As a result, our rapidly growing network is bringing new opportunities into the heart of local communities, and companies of all sizes are using IWG across multiple locations as they continue to shift their real estate strategies to focus on flexibility.

This shift delivers benefits to multiple groups. To businesses, helping them reduce costs, meet their ESG priorities and win the war for talent. To their people, enabling them to lead happier, healthier, less costly and less environmentally damaging lives closer to where they live. To communities, through increased local business opportunities. To our shareholders, from improved financial returns as we implement our strategy to capture the opportunities from hybrid working.

While addressing the changes being brought by hybrid working, IWG remained concentrated on the fundamentals to deliver a strong finish to a year impacted by unforeseen geopolitical and economic developments. This resulted in IWG reporting record revenues, a record network footprint, steady increases to occupancy and pricing, and limited impacts from inflation due to strict cost discipline. When viewed in the context of the challenges over the last three years, these results are a significant accomplishment that reflects the dedication and continued hard work of our people.

Our people

We continually aim to bring our people every opportunity to build a great career with us. We provide the means for them to develop their talent and capabilities in a diverse, inclusive and often challenging environment that enables them to stretch themselves and represent IWG as a truly progressive force.

I would like to extend my personal thanks to everybody who has been responsible for IWG's outstanding achievements during the year, especially those team members who have continued to represent the Company so brilliantly in all our markets across the world. Our people provide great service to our millions of customers, delivering to each and every one of them a great day at work. I remain immensely proud and grateful to them for maintaining the IWG difference and our position at the forefront of one of the world's most exciting and important business sectors.

Our strategy

As true pioneers of flexible workspace, we have the coverage, the offer, the approach, the technology, and the people to place us front of mind for any business wishing to explore the advantages of hybrid. As previously announced, to capture the opportunities created by the rapid shift to hybrid working, we have organised to improve focus on three important areas.

First, we continue to develop our platform benefitting from years of investment and experience in effectively operating the largest global workspace physical network. This includes industry leading systems and processes to manage all aspects of flexible workspace and deliver services in an efficient and cost-effective manner. Our ongoing management platform developments will further improve efficiencies and service levels while addressing new opportunities from hybrid working.  

Second, our network development organisation is accelerating the capital-light expansion of our physical network through management agreements, partnering and franchising as building owners adapt to providing flexible workspace. Having the largest and fastest growing flexible workspace network in convenient locations will be key to meeting the needs of hybrid workers.

Finally, during 2022 we completed the merger of certain digital assets with the Instant Group to create Worka, the world's leading integrated independent workspace digital platform for serving the needs of the broader flexible workspace market.

Our Board

I remain indebted to my Board colleagues for their continued dedication to fulfilling the IWG vision and the outstanding quality of advice that they have brought to the business during yet another very active year. I would like to take this opportunity to thank Florence Pierre, who left the Board in November after nine years as an active Board member, as well as Glyn Hughes, who stepped down as Chief Financial Officer in October. We also welcomed three new Directors during the year, who bring a wealth of experience and important new perspectives on our business.

Tarun Lal joined us in May, bringing extensive international franchising expertise. Tarun has over 20 years of experience gained with Yum! Restaurants, where his executive roles have included Global Chief Operating Officer KFC and Managing Director - KFC Middle East, Pakistan, Turkey, Africa, and India. Currently he is President of KFC U.S.

Charlie Steel joined us in November as CFO. Previously, Charlie was CFO of Babylon Holdings, a New York Stock Exchange listed digital health delivery and AI diagnosis business.

Sophie L'Helias joined us in December. A trained lawyer, Sophie is currently the President of LeaderXXchange™, which promotes diversity and sustainability in governance, leadership and investment through solutions for companies and investors seeking impact. She has public board experience in the US and Europe and was a co-founder of the International Corporate Governance Network.

We continue to implement the results of our internal board review process in our plans and have full confidence in the Board members and processes. We will maintain our focus on strategic objectives and succession planning at the Board level in 2023.

Our environmental journey

We are committed to advancing on our environmental journey and delivering against the objectives we have set. We are proud to be doing so much to promote and lead the global uptake of the hybrid-working model. This is at the forefront of efforts to reduce the negative effects of the daily commute, reducing both the environmental impact and personal time associated with travel. Recent research we have conducted with Arup highlights the importance of this shift, identifying the commute as a major contributor. By moving away from local daily commutes and working locally some of the time an average worker's carbon footprint can be reduced by up to 70%, making it a fundamentally important issue for all of us.

We are also actively reducing our own carbon footprint as part of the implementation of our robust ESG strategy. The actions we have already taken resulted in our AA ESG rating by MSCI. And, while we work towards our objective to achieve net zero carbon emissions by 2040, to eliminate the remaining net effect of our operating activities in the interim we are investing in a range of carbon removal projects to achieve carbon neutrality during 2023.

As part of our journey, we are working to convert to certified green electricity with the goal to achieve this by 2030. We are improving the efficiency of our global supply chain by consolidating it into regional hubs that reduce the overall impact of our logistics operations. In addition, our colleagues from across the world are leading numerous initiatives to reduce waste and promote recycling in our centres.

Looking ahead

While we enter 2023 with great confidence in the future, we are fully cognizant of the challenging economic and geopolitical environment in which we and our customers will be operating throughout the coming year. We will remain focused on our purpose at IWG, to help people have a great day at work. By enabling them to increasingly work in the ways they want and closer to home, we are actively improving the way people live - not just at work but in many other aspects of their lives as well.

IWG is a clear leader in enabling the changes from hybrid working and has everything in place to build on that lead: a rapidly growing global network, an efficient management platform, industry leading technology, an expanding customer base, a broad brand and service portfolio to meet the needs of our customers and property owners, our people experienced in all aspects of delivering flexible workspace, and the vision and drive necessary to ultimately benefit from these changes. We therefore look forward to a future of profitable growth providing opportunities and rewards for our people, customers, partners and investors in 2023 and beyond.

 

Douglas Sutherland

Chairman

 

Chief Executive Officer's Review

Leading the global shift to hybrid

For many years, I have been saying that I believed companies and their employees would eventually move to a hybrid working model, with people being given the flexibility to get their work done when and where they're most productive. This shift was taking place pre-Covid at a gradual pace, but now it's happening at break-neck speed, and there there's no turning back. Hybrid working is here to stay.

Hybrid working is better for people, cheaper and far more flexible for companies. The advent of hybrid has made it redundant for companies to tie themselves into inflexible and expensive long-term contracts on city-centre properties, while also having a hugely positive impact on the environment.

This type of working is being rapidly adopted by companies worldwide. It's no longer just about plans or intentions, as we can see in our record numbers for 2022, it's already changed the actions business leaders are taking when it comes to managing their property footprint. In IWG's recent CFO study, half of the financial leaders surveyed have already opted for some form of hybrid working solutions1.

The reasoning for this shift to hybrid is simple: the approach gives them the flexibility to scale up or down quickly without being locked into lengthy contracts. It's also 'a no brainer' when it comes to profit, with an independent Global Analytics survey recently showing that hybrid working can save organisations an average of more than $11,000 per employee per year2.

Savings of that scale ramp up dramatically. It's estimated that since Cisco went hybrid five years ago it has saved around $500 million by cutting around half of its real-estate footprint3.

We see a future where between 30% and 50% of white-collar workers (well over a billion people) will work in the hybrid style. Significant academic research and opinion reinforces this prediction and highlights why companies are embracing the model.

According to Stanford University's Professor Nicholas Bloom, acknowledged as the leading academic expert on hybrid: "Firms don't do things that lose them money. They do things that make them money. That's why every firm just about out there is doing hybrid, because it's such a no-brainer to increase profit"4.

This future world of work is one in which we thrive, as the global market leader of hybrid working products supplied from our platform. A new real estate frontier, where buildings are 'linked together' to form a single work platform that can be accessed by millions in a convenient, productive and efficient way. Most importantly, work becomes more local for many, with growing indications that the fast-changing working habits of millions of people across the world mean the days could be numbered for one of the greatest drivers of global warming: the daily commute.

Little has done more over the years to depress, stress and irritate workers than the daily commute, affecting people in otherwise fantastic careers, in exceptional cities and with great employers. It separates families, fractures communities, pollutes the environment and wastes vast amounts of time and money.

Today the daily commute is entirely unnecessary, because the office is no longer a physical place that people have to go to. Rather, it is a digital space, where data saved in the cloud is accessible at any time, from anywhere.

While sophisticated web-based technology has been around for a few years, it is only since the pandemic that companies have seen first-hand not only that hybrid works, but that they are able to thrive under the model. Firms are able to operate more efficiently with a more productive workforce, while employees are happier as they see hybrid working as the equivalent of a 7% to 8% pay rise4.

A bright future

As we enter 2023, our focus is sharper than ever and we have completely repositioned the Company and its strategy in three key areas to enable us to deliver against our full potential.

The first of these is an unrelenting focus on growing our margin, driven by strong performance on new and embedded price, sequential improvements in occupancy, service revenue growth and strict control of costs.

The second is our parallel focus on the rapid growth of our network coverage in partnership with the property industry and investors using capital-light expansion methods such as management agreements, partnering deals and franchising.

Finally, we are committed to accelerating the growth of our Worka business following our investment in the Instant Group at the beginning of Q1 in 2022.

 

1.  IWG Research, 2022

2.  Global Workplace Analytics: Latest Work-at-Home/Telecommuting/Remote Work Statistics - Global Workplace Analytics

3.  BBC STORYWORKS

4.  What we now know about hybrid work (charterworks.com)

Only expanding as a green business

There are two distinct yet complementary trends that companies are embracing that are driving the demand for hybrid working solutions. First, companies are downsizing in city centres, replacing long, restrictive, and expensive leases with flexible space with operators like IWG. Second, they are taking on flexible workspace in local neighbourhoods, closer to where their people live and want to be.

These drivers are empowering us to grow faster than ever before, supporting our plans to add new signed locations during 2023 and bring the benefits of hybrid to many more people.

Growth is clearly a priority for IWG, but we are determined only to expand as a carbon-neutral organisation. The action we have taken to restrict and offset IWG plc's environmental impact is having the desired effect; our strong rating by MSCI was upgraded to AA and I am pleased to say that we are on track to achieve carbon neutrality during 2023.

Driving growth at IWG

Hybrid working is sometimes presented as a binary choice, between people working from home and a central headquarters, but this misses the point entirely.

All studies show employees don't want to spend hours commuting each day to work in an inconveniently located office. Now, the remarkable advances in cloud technology and video conferencing software - both vital to enabling effective hybrid working - mean they don't need to. That is why we are seeing a fundamental shift in the geography of work with the centre of gravity moving towards the local communities where people actually live.

This rapidly growing demand for hybrid working is propelling the IWG business forward. The demand to work locally is particularly strong in the suburbs, former dormitory towns, satellite villages and countryside communities that used to be denuded of their people in the working week by the irresistible draw of the big city. In parallel, businesses everywhere are now typically opting for a fraction of their former conventional city-centre space in favour of sites closer to where their employees live and actually want to be. 

Just look at the sites of some of our most recent openings. In the UK: Gerrards Cross, Buckinghamshire (population 8,000); Marlow, also in Buckinghamshire (14,000); and Chippenham in Wiltshire (relatively large at 45,000). In the USA: Kodak, Tennessee (10,500); Destin, Florida (14,000); Blufton, South Carolina (27,700); Middleton, Wisconsin (20,000); Ridgeland, Mississippi (24,000); and Stafford, Virginia (5,500).

That is not to say that businesses are abandoning city centres: far from it. Increasingly, we are helping companies shake off the expense of the long-term, city-centre lease and replace it with a flexible, cost-effective agreement on a smaller space in one of our city-based centres. This, too, is a trend that is proving highly beneficial for IWG and as a result we will continue to expand across metropolitan, suburban and rural locations. Make no mistake the office is most definitely not dead; it has just changed location.

Our financial performance in 2022

With all the trends on our side it is no surprise that our financial results for 2022 were very strong with the highest-ever revenue in IWG's 34-year history with 24% growth in system-wide revenue to £3.1bn.

The strong financial results we generated, with growth in revenue and operating profit, are providing outstanding momentum for the business. We also started to grow our network strongly by signing 462 new centres in 2022, and we are planning for even stronger network growth in the year ahead.

My greatest thanks go to all our team members, who were the driving force behind our success in achieving excellent results in an extraordinary year for our global market and our business.

Looking to the year ahead

We enter 2023 with strong momentum behind us. The future is extremely bright for IWG and all our stakeholders as we continue to grow our customer base, our global network and our matchless portfolio of brands and other solutions.

We remain ambitious and hungry for yet greater success Our ultimate goal is to grow by thousands of centres over the coming years, further consolidating our position at the forefront of the most important and positive revolution in the world of work.

With the market trends on our side, the right strategy, the right people and the right impetus, we are superbly placed to deliver against all our ongoing growth ambitions.

 

Mark Dixon

Founder and CEO, IWG plc

 

Chief Financial Officer's review

In 2022 IWG showed the ability to grow rapidly and profitably

2022 has been an extraordinary year for the Group, demonstrating the ability to deliver its highest-ever system-wide revenue of £3.1bn in IWG's 34-year history whilst simultaneously increasing operating profit and cash generation. Combining the Group's unique brand strategy and unrivalled global network with historic investment in new centre capacity positions the business well for 2023.

Financial performance

The Group reports 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.


Group income statement

Preliminary results (£m)

2022

2021

Constant currency

Actual currency

System-wide revenue

3,086

2,498

+18%

+24%

Group revenue

2,751

2,227

+17%

+24%

Gross profit

575

243

+124%

+137%

Overheads

(427)

(328)

+27%

+30%

Joint ventures

(1)

(2)



Operating profit/(Loss)

147

(87)

n.m.

n.m.

Net finance cost

(252)

(172)


+47%

Loss before tax from continuing operations

(105)

(259)


-59%

Taxation

(16)

(10)



Effective tax rate

-15%

-4%



Loss after tax from continuing operations

(121)

(269)



Profit after tax from discontinued operations

1

59



Loss for the period

(120)

(210)

 

 

Basic EPS (p)





From continuing operations, adjusted

(10.1)

(23.4)



Attributable to shareholders

(11.2)

(20.4)



Depreciation & amortisation

1,189

1,110

+2%

+7%

Profit on discontinued operations

-

3



EBITDA

1,336

1,026

+22%

+30%

Network rationalisation charge

58

71



Reversal of impairment of PP&E

(73)

(125)



Provision for expected credit losses

-

53



Asset impairment of Russia & Ukraine

9

-



Other one-off items incl. restructuring

19

32



Total adjusting items

13

31



EBITDA adjusted

1,349

1,057

+20%

+28%

 

Changes to segmental reporting

In March 2022 we invested in The Instant Group, which is the world's largest independent marketplace for flexible working solutions for a smarter working world, with an innovative technology platform and award-winning digital marketing capabilities (refer to note 28 for financial details). As stated at the time of the investment in The Instant Group, the intention was to combine this business with some of IWG's other assets, including digital assets, to form Worka. During the year this integration progressed as planned and as a result we have made changes to our segmental reporting. Worka is operated by an independent management team.

We have also split the Group pre-Worka into three principal geographical segments: the Americas, Asia and EMEA (Continental Europe including UK, Middle East and Africa). As part of our focus on operational efficiency we have organised our main management functions and processes on a global basis. These geographical segments reflect how we practically exercise our global management through groupings based on time zones, economic relationships, market characteristics, cultural similarities, and language clusters. As a result, the UK is now included in the EMEA segment reporting.

 

Revenue

System-wide revenue increased by 24%, or 18% at constant currency, to £3,086m. Group revenue also increased by 24%, or 17% at constant FX, to £2,751m. All three geographic regions reported good year-on-year revenue growth. In particular, our largest region of EMEA had strong revenue growth to £1,199m (17% at constant FX) and Americas to £1,024m (8% at constant FX). Asia still had significant COVID-19 restrictions throughout much of 2022, in particular in China, and therefore revenue growth was weaker to £248m (2% at constant FX). Worka grew to £271m (103% at constant FX) impacted in particular by investment in The Instant Group in March 2022. On a pro-forma basis, had we consolidated The Instant Group for the full year in 2022, Worka had revenue of approximately £304m.


Revenue

Preliminary results (£m)

2021

Constant currency

EMEA

1,199

1,027

+17%

Americas

1,024

836

+8%

Asia

248

231

+2%

Other

9

1

n.m.

Group pre-Worka

2,480

2,095

+12%

Worka

271

132

+103%

Group

2,751

2,227

+17%

Worka pro-forma4

304

132

+128%

4.  Pro-forma for Instant Group investment for the full year

Gross Profit

Revenue improvement coupled with cost control resulted in a 124% improvement of gross profit to £575m (2021: £243m).


Gross Profit

Preliminary results (£m)

2022

2021

Constant currency

EMEA

191

78

+141%

Americas

184

73

+123%

Asia

51

20

+153%

Other

11

(6)

n.m.

Group pre-Worka

437

165

+148%

Worka

138

78

+76%

Group

575

243

+124%

Overheads

We are pleased that investment in our in-country sales teams and our marketing to support our pivot to capital-light growth is yielding results with 462 new deals signed in 2022. This investment to grow our network, coupled with the investment to fill our centres and the impact of The Instant Group investment, resulted in Group increased overheads of £(427)m (2021: £(328)m).

Operating Profit/(Loss) adjusted - continuing operations

In 2022 our results recovered strongly and we are pleased to report an operating profit for year of £147m compared to a loss of £(87)m in 2021.

EBITDA

The Group's EBITDA increased by 22% at constant currency to £1,336m from £1,026m in 2021. This EBITDA improvement demonstrates the great progress we made in restructuring our centre costs, mitigating the inflationary impacts and benefiting from increasing revenue.

The Group reports 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. Results are additionally presented before the application of IFRS 16 (in accordance with IAS 17 accounting standards) as it provides useful information to stakeholders on how the Group is managed, and reporting for bank covenants and certain lease agreements. The primary difference between the two standards is the treatment of operating lease liabilities. There is no difference between underlying cash flow.

Before the application of IFRS 16 the Group's EBITDA increased by 389% at constant currency to £317m from £59m in 2021.

To bridge the Group's EBITDA of £1,336m under the IFRS 16 standard to £317m under IAS 17, we need to recognise rental income on subleases which are recognise as lease receivables under IFRS 16, rental costs on our lease portfolio reflected as lease liabilities under IFRS 16 and centre closure and other costs which are reflected as impairments under IFRS 16.


EBITDA bridge

Preliminary results (£m)


2022

2021

EBITDA

1,336

1,026

Rent income

50

-

Rent expense

(1,059)

(997)

Centre closure & other cost

(10)

30

EBITDA before application of IFRS 16

317

59

Network rationalisation charge

25

60

Closure cost provision release

(71)

(125)

Provision for expected credit losses

-

53

Asset impairment of Russia & Ukraine

19

-

Other one-off items incl. restructuring

18

33

Total adjusting items

(9)

21

Adjusted EBITDA before application of IFRS 16

308

80

All our segments reported strong results, led by EMEA with EBITDA up 26% at constant FX from £474m to £597m, Asia up 19% at constant FX from £115m to £144m and Americas up 15% at constant FX from £451m to £588m. Worka EBITDA was at £112m (2021: £75m) positively impacted by The Instant Group investment in March 2022. On a pro-forma basis, i.e. including The Instant Group for full 12 months, Worka EBITDA was at £117m.


EBITDA by segment

Preliminary results (£m)

FY
2022

FY
2021

Constant
ccy

EMEA

597

474

+26%

Americas

588

451

+15%

Asia

144

115

+19%

Other

(105)

(108)

-2%

Group pre-Worka

1,224

932

+23%

Worka

112

75

+48%

Continuing operations

1,336

1,007

+25%

Discontinuing operations

-

19


Group

1,336

1,026

+22%

Worka (pro-forma)4

117

75


Adjusting items

As in prior years, in order to improve the transparency and usefulness of the financial information presented and to improve year-on-year comparability the Group identified net adjusting items on operating profit of £13m compared to £31m in 2021, of which all £13m are non-cash items (2021: £8m).

These adjusting items in 2022 primarily reflect COVID-19 related network rationalisation charges of £58m vs. £71m in 2021, a reversal of impairment of property, plant and equipment of £(73)m vs. £(125)m in 2021 and other one-off items including restructuring costs of £19m vs. £32m in 2021. Additionally, a charge related to the asset impairment of Russia and the Ukraine of £9m as a result of the ongoing geopolitical tensions was also recognised.

Foreign exchange

The overall impact of exchange rate movements over the course of the year increased revenue by £133m and EBITDA by £79m. The Group's results are exposed to translation risk from the movement in currencies. During 2022 key exchange rates moved, as shown in the table below.

Foreign exchange rates


At 31 Dec

Average

£ sterling

2022

2021

%

2022

2021

%

US dollar

1.21

1.35

-10%

1.23

1.38

-11%

Euro

1.13

1.19

-5%

1.17

1.16

1%

Network growth

Our focus has been and will continue to be on the expansion through partnerships. 91% (or 421 deals out of 462) of deals we signed in 2022 in total were capital-light. As a result, we are continuing to improve the quality of our portfolio as we grow our global network.

Total occupancy of the Group's continued operations improved strongly by 530 bps in 2022 to 73.5% (2021: 68.2%). This is a great achievement. It also means that we still have 26.5% of centre capacity to grow revenues at low marginal cost and with minimal further investment.

 

The Group's overall pricing continued to improve throughout the year and importantly ahead of cost inflation, with year-on-year pricing increasing by 7%, albeit down from the all-time high of Q1 2020. Our ability to increase prices is tied closely to macroeconomic inflation rates, and therefore we expect that our ability to pass on inflationary increases to customers will slow as inflation reduces globally.

We continue to manage prices appropriately and continue to mitigate ongoing inflationary pressures through our strong focus on supplier consolidation and renegotiation, further strengthening our industry cost leadership. Cost efficiency and focus on profitable growth is our key focus area together with our focus on capital-light growth.


2022

2021

YoY
change

Number of centres

3,345

3,314

+31

Centre openings

152

146


Centre rationalisations

(121)

(145)


Number of SQFT

65.1m

64.1m

+2%

Total new centre deals signed

462

193

+139%

Of which capital light

421

182


Average total occupancy

73.5%

68.2%

+530 bps

Embedded price, indexed*

95

89

+7%

*   Price per square foot, Q1 2020 = 100

Finance costs and taxation

The Group reported a net finance expense for the year of £(252)m (2021: £(172)m). The net finance expense includes interest on the Group's lease liabilities of £(230)m (2021: £(166)m) and borrowing facilities of £(22)m (2021: £(6)m). The increase in the finance expense related to the borrowing facilities is driven by increased interest rates globally and increased debt related to the investment in The Instant Group in March 2022 mitigated by a £27m gain on the mark-to-market of the option element of the convertible bond (gain of £23m). Excluding the mark-to-market of the convertible bond the financial expense related to the borrowing facilities was £(49)m (2021: £(29)m).

The effective tax rate is -15% (2021: -4%). Despite reporting a loss for the year, the Group incurred a tax charge due to the continuing profitability of certain countries and entities within the overall Group. Looking forward, factors that may potentially influence the effective tax rate include the shape of the recovery in the Group's trading performance, the availability of tax losses and the continuing ownership of specific countries or regions which may change due to future potential franchise agreements.

Earnings per share

Earnings per share improved in the year from a loss of (20.4)p to a loss of (11.2)p. Earnings per share from continuing operations on an adjusted basis was a loss of (10.1)p compared to a loss of (23.4)p in 2021.

Diluted earnings per share for the year was a loss of (11.3)p (2021: loss of (26.2)p). Diluted earnings per share on a continuing basis on an adjusted basis for the year was a loss of (10.1)p (2021: loss of (24.2)p).

The weighted average number of shares in issue during the year was 1,006,884,755 (2021: 1,007,214,854). The weighted average number of shares for diluted earnings per share was 1,090,855,142 (2021: 1,102,444,936). 2,174,738 shares were acquired in the period to be held in treasury to satisfy future exercises under various Group long-term incentive schemes. The Group reissued 1,442,606 shares from treasury to satisfy such exercises during the year. At 31 December 2022 the Group held 50,564,853 treasury shares (2021: 49,832,721).

Cash flow - continuing operations

In 2022 we demonstrated that actions taken to manage cost tightly, restructure centres where necessary and improve revenue resulted in £151m of cash inflow from business activities compared to an outflow of £(219)m in 2021. Net maintenance capital expenditure was £5m lower in 2022 at £(90)m (2021: £(95)m).

Cash inflow before growth capex and corporate activities was £90m (2021: outflow of £(240)m).

Net growth capital expenditure was at £(141)m (2021: £(104)m) mainly due to centres we signed in prior years. It is important to note that in 2022 we signed a total of 462 new centre deals (2021: 193 deals signed) which will be added to our global and widely distributed network in the future. 91% or 421 deals out of these 462 deals in total were capital-light which will result in significantly reduced net growth capital expenditure investments in future years.

Net cash for the year increased by £77m as cash outflow before investments, share repurchase and dividends of £(359)m (2021: £(334)m) was financed through net proceeds on transactions of £54m and net proceeds from loans of £386m.

 


Cash flow

Preliminary results (£m)


2022

2021

Operating profit/(loss)

147

(87)

Depreciation & amortisation

1,189

1,110

Profit on discontinued operations

-

3

EBITDA

1,336

1,026

Rent income

50

-

Rent expense

(1,059)

(997)

Centre closure & other costs

(10)

30

EBITDA before application of IFRS 16

317

59

Working capital (excl. amortisation of partner contributions)

22

(129)

Working capital related to the amortisation of partner contributions

(104)

(95)

Maintenance capital expenditure (net)

(90)

(95)

Other items5

6

41

Cash inflow/(outflow) from business activities6

151

(219)

Tax paid

(24)

(5)

Finance costs on bank & other facilities

(37)

(16)

Cash inflow/(outflow) before growth capex and corporate activities

90

(240)

Gross growth capital expenditure

(180)

(154)

Growth-related partner contributions

39

50

Net growth capital expenditure

(141)

(104)

Purchase of subsidiary undertakings (net of cash)

(307)

11

Cash outflow before corporate activities

(358)

(333)

Purchase of shares

(5)

-

Investment-related loan receivable

-

283

Net proceeds on transactions

54

19

Net proceeds from loans

386

36

Net cash inflow for the year

77

5

Opening net cash

78

71

FX movements

6

2

Closing cash

161

78

5.  Includes capitalised rent related to centre openings (gross growth capital expenditure) of £(12)m (2021: £(20)m)

6.  Cash flow before growth capex, corporate activities, tax and finance cost on bank & other facilities

Cash at year-end 2022 was £161m (2021: £78m). Mainly due to the investment in The Instant Group we increased our loan balance by £(386)m to £(861)m and non-cash movements, which was further impacted by foreign exchange losses of £(12)m. This resulted in net debt before application of IFRS 16 of £(712)m (2021: £(397)m).

Under IFRS, we are obliged to report net debt including operating leases which comprise c.90% of our net debt balance. During 2022 we paid principal and interest on finance leases of £1,227m and recognised new principal and interest on net lease investments of £(48)m. Non-cash movements and currency impact on lease liabilities and investments increased the liability by £(950)m. Hence, total IFRS 16 related lease liabilities at the end of 2022 were £(5,892)m (2021: £(6,121)m).

As a result, net debt at the end of 2022 was at £(6,604)m compared with £(6,518)m at the end of 2021. Again, the increase in net debt was primarily driven by £(307)m of acquisitions (predominantly The Instant Group in March 2022), growth capex related to centre openings which we signed in prior years and the impact of currency changes.


Net debt

Preliminary results (£m)

2022

2021

Closing cash

161

78

Opening loans

(475)

(422)

Net proceeds from issue & repayment of loans

(386)

(36)

Non-cash movements & FX impact on loans

(12)

(17)

Net financial debt

(712)

(397)

Opening lease liabilities

(6,121)

(6,559)

Principal & interest payments on finance leases

1,227

1,032

Non-cash movements (net)

(524)

(712)

Principal & interest received on net lease investment

(48)

-

FX impact on lease liabilities & investments (net)

(426)

118

Net debt

(6,604)

(6,518)

 

Risk management

Effective management of risk is an everyday activity for the Group and, crucially, integral to our growth planning. A detailed assessment of the principal risks and uncertainties which could impact the Group's long-term performance and the risk management structure in place to identify, manage and mitigate such risks can be found on pages 66 to 75 of the 2021 Annual Report and Accounts. The principal risks and uncertainties are unchanged, other than climate change risk, where an inadequate ESG strategy would mean that IWG is unable to manage climate related exposures. IWG manages this risk in the following ways:

·  ESG is firmly on the agenda for the Board;

·  IWG is exposed to physical and transitional climate related risks and are exposed to assessment throughout the year; and

·  ESG considerations are an integral part of our businesses, and our strategy will continue to evolve to address climate related risks and opportunities. The Group continually reviews its product offering to provide low carbon services; and In changing asset allocations towards decarbonising operations and value chains.

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 twelve months ended 31 December 2022. Details of related party transactions that have taken place in the period can be found in note 31.

Dividends and share repurchase

Given continuing macroeconomic uncertainties and geopolitical tensions the Group continued to focus on maintaining sufficient funding. As a result, dividend payments currently remain on hold with a clear intention to return to our progressive dividend policy at the earliest possible opportunity. During the year the Group made a number of small-scale share repurchases, in total acquiring 2.1m shares to be held in treasury at a cost of £5m.

Financing

The Group has a combination of debt financing instruments, including:

•  Convertible bond of £318m (face value £350m, 2021: £308m) with an interest rate of 0.5%, due for repayment in 2027 with an option for the bondholders to put the instrument back to the Group in 2025 at par; and

•  Net financial debt (excluding the convertible bond) at 31 December 2022 of £394m. This includes a non-recourse bridge facility against the Worka group, the gross balance of which was £270m at 31 December 2022

As at year-end 2022 the Group complied with all facility covenants. The financial instruments are discussed in relation to the going concern assessment below.

 

Going Concern

The Group reported a loss after tax of £(121)m (2021: £(269)m) from continuing operations for the year, while net cash of £1,147m (2021: £735m) was generated from operations during the year. Although the Group's balance sheet at 31 December 2022 reports a net current liability position of £1,868m (2021: £1,435m) which could give rise to a potential liquidity risk, the Directors concluded and are satisfied after a comprehensive review that no liquidity risk exists after taking into account the following considerations:

1. The Group has funding available under the Group's £750m revolving credit facility. £173m (2021: £530m) was available and undrawn at 31 December 2022. This facility is committed until March 2025 with an option to extend until 2026 (note 25);

2. The Group's initial £330m non-recourse bridge facility, to fund the investment in The Instant Group, matures in September 2023. The Instant Group, combined with the IWG digital assets in Worka, has been highly cash generative and reduced its net debt to £176m, excluding £4m of lease liabilities, at 31 December 2022. Based on the modelled scenarios the Directors expect that Worka will continue to reduce its net debt position by September 2023, and has already been doing so at the start of 2023. The Group is pursuing various options available to address the bridge facility refinancing, including but not limited to: repaying the bridge facility through asset sales, cash generated from operations, and/or the extension or replacement of this facility to ensure continued funding of this highly successful and cash generative business; and

3. 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 potential breach. The Group expects to remain within covenants throughout the forecast period. In reaching this conclusion, the Directors have assessed:

1. the potential cash generation of the Group against a range of illustrative scenarios (including a severe but plausible outcome); and

2. mitigating actions to reduce operating costs and optimise cash flows during any ongoing global restrictions.

Based on the above, the Directors consider that the Group is well placed to successfully manage the actual and potential liquidity risks faced by the organisation subject to successful resolution of the uncertainty with regard to the bridge facility referred to in section 2 above.

 

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 Group consolidated financial statements and consider it appropriate to continue to adopt the going concern basis in preparing the financial statements of the Group.

 

Charlie Steel

Chief Financial Officer

 

Consolidated income statement


£m

Notes

Year ended
31 Dec 2022

Unaudited

Restated(1)


Revenue

3

2,751

2,227


Total cost of sales


(2,182)

(1,885)


Cost of sales


(2,169)

(1,869)


Adjusting items to cost of sales(2)

 

(65)

(70)


Net reversal of impairment of property, plant, equipment and right-of-use assets(2)

3,5

52

54


Expected credit reversal/(losses) on trade receivables(2)

5

6

(99)


Gross profit (centre contribution)

3

575

243


Total selling, general and administration expenses


(427)

(328)


Selling, general and administration expenses


(406)

(295)


Adjusting items to selling, general and administration expenses

10

(21)

(33)


Share of loss of equity-accounted investees, net of tax

21

(1)

(2)


Operating profit/(loss)

5

147

(87)


Finance expense

7

(287)

(198)


Finance income

7

35

26


Net finance expense


(252)

(172)


Loss before tax for the year from continuing operations


(105)

(259)


Income tax expense

8

(16)

(10)


Loss after tax for the year from continuing operations


(121)

(269)


Profit after tax for the period from discontinued operations

9

1

59


Loss for the year


(120)

(210)


Attributable to equity shareholders of the Group


(117)

(205)


Attributable to non-controlling interests

23

(3)

(5)







Loss per ordinary share (EPS):










Attributable to ordinary shareholders





Basic (p)

11

(11.2)

(20.4)


Diluted (p)

11

(11.2)

(20.4)







From continuing operations





Basic (p)

11

(11.3)

(26.2)


Diluted (p)

11

(11.3)

(26.2)

1.  The comparative information has been restated to reflect the impact of discontinued operations (note 9).

2.  The net reversal of adjusting items of £17m (2021: £2m) comprises the following items included in the balances referenced (note 10):
A reversal of the impairment of property, plant and equipment and right-of-use assets of £73m (2021: £125m), impairment of Ukraine and Russia of £9m (2021: £nil), the adjusting items to costs of sales of £65m (2021: £70m) and £nil (2021: £53m) of the expected credit losses on trade receivables balances reported.

The above consolidated income statement should be read in conjunction with the accompanying notes.

 

Consolidated statement of comprehensive income


£m

Notes

Year ended
31 Dec 2022

Unaudited

Year ended
31 Dec 2021


Loss for the year


(120)

(210)







Other comprehensive income/(loss) that is or may be reclassified to profit or loss in subsequent periods:





Foreign exchange recycled to profit or loss from discontinued operations

9

-

-


Foreign currency translation gain/(loss) for foreign operations


5

(20)


Items that are or may be reclassified to profit or loss in subsequent periods


5

(20)







Other comprehensive income that will never be reclassified to profit or loss in
subsequent periods:





Items that will never be reclassified to profit or loss in subsequent periods


-

-







Other comprehensive profit/(loss) for the period, net of tax


5

(20)







Total comprehensive loss for the year, net of tax


(115)

(230)


Attributable to shareholders of the Group


(112)

(225)


Attributable to non-controlling interests

23

(3)

(5)

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

 

Consolidated statement of changes in equity

£m

Notes

Issued
share
capital

Share premium

Treasury
shares

Foreign
currency
translation
reserve

Other
reserves(1)

Retained earnings

Total
equity attributable to equity shareholders

Non-controlling interests

Total equity

Balance at 1 January 2021


10

313

(154)

36

26

283

514

-

514

Total comprehensive income/(loss)
for the year:











Loss for the year


-

-

-

-

-

(205)

(205)

(5)

(210)

Other comprehensive income/(loss):











Foreign exchange recycled to profit or loss from discontinued operations

9

-

-

-

-

-

-

-

-

-

Foreign currency translation gain/(loss) for foreign operations


-

-

-

(20)

-

-

(20)

-

(20)

Other comprehensive income/(loss), net of tax


-

-

-

(20)

-

-

(20)

-

(20)

Total comprehensive income/(loss)
for the year


-

-

-

(20)

-

(205)

(225)

(5)

(230)

Transactions with owners of the Company











Share-based payments

6

-

-

-

-

-

6

6

-

6

Ordinary dividend paid

12

-

-

-

-

-

-

-

-

-

Purchase of shares

22

-

-

-

-

-

-

-

-

-

Proceeds from exercise of share awards

22

-

-

3

-

-

(2)

1

-

1

Total transactions with owners of the Company


-

-

3

-

-

4

7

-

7

Acquisition of subsidiary with non-controlling interests

23

-

-

-

-

-

-

-

14

14

Balance at 31 December 2021


10

313

(151)

16

26

82

296

9

305

Total comprehensive income/(loss)
for the year:











Loss for the year


-

-

-

-

-

(117)

(117)

(3)

(120)

Other comprehensive income/(loss):











Foreign exchange recycled to profit or loss from discontinued operations

9

-

-

-

-

-

-

-

-

-

Foreign currency translation gain/(loss) for foreign operations


-

-

-

5

-

-

5

-

5

Other comprehensive income, net of tax


-

-

-

5

-

-

5

-

5

Total comprehensive income/(loss)
for the year


-

-

-

5

-

(117)

(112)

(3)

(115)

Transactions with owners of the Company











Share-based payments

6

-

-

-

-

-

4

4

-

4

Ordinary dividend paid

12

-

-

-

-

-

-

-

-

-

Purchase of shares

22

-

-

(5)

-

-

-

(5)

-

(5)

Proceeds from exercise of share awards

22

-

-

4

-

-

(4)

-

-

-

Total transactions with owners of the Company


-

-

(1)

-

-

-

(1)

-

(1)

Acquisition of subsidiary with non-controlling interests

23

-

-

-

-

-

-

-

53

53

Divestiture of subsidiary with non-controlling interests

23

-

-

-

-

-

-

-

(7)

(7)

Balance at 31 December 2022 (unaudited)


10

313

(152)

21

26

(35)

183

52

235

1.  Other reserves include £11m 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, £38m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6m relating to merger reserves and £nil to the redemption of preference shares, partly offset by £29m arising from the Scheme of Arrangement undertaken in 2003.

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated balance sheet


£m

Notes

As at
 31 Dec 2022

Unaudited

As at
 31 Dec 2021


Non-current assets





Goodwill

13

934

704


Other intangible assets

14

214

78


Property, plant and equipment

15

6,234

6,376


Right-of-use assets

15

5,009

5,254


Other property, plant and equipment

15

1,225

1,122


Non-current net investment in finance leases

24

95

-


Deferred tax assets

8

350

327


Other long-term receivables

16

57

50


Investments in joint ventures

21

45

45


Other investments


-

-


Total non-current assets


7,929

7,580







Current assets





Inventory


1

1


Trade and other receivables

17

919

734


Current net investment in finance leases

24

52

-


Corporation tax receivable

8

19

19


Cash and cash equivalents

24

161

78


Total current assets


1,152

832


Total assets


9,081

8,412







Current liabilities





Trade and other payables (incl. customer deposits)

18

1,202

923


Deferred revenue


455

346


Corporation tax payable

8

45

36


Bank and other loans

19,24

285

22


Lease liabilities

24

1,002

932


Provisions

20

31

8


Total current liabilities


3,020

2,267







Non-current liabilities





Other long-term payables


11

10


Deferred tax liability

8

145

141


Bank and other loans

19,24

588

453


Lease liabilities

24

5,037

5,189


Derivative financial liabilities

25

-

27


Provisions

20

37

12


Provision for deficit on joint ventures

21

6

6


Retirement benefit obligations

27

2

2


Total non-current liabilities


5,826

5,840


Total liabilities


8,846

8,107







Total equity





Issued share capital

22

10

10


Issued share premium


313

313


Treasury shares

22

(152)

(151)


Foreign currency translation reserve


21

16


Other reserves


26

26


Retained earnings


(35)

82


Total shareholders' equity


183

296


Non-controlling interests

23

52

9


Total equity


235

305


Total equity and liabilities


9,081

8,412

 

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

 

Consolidated statement of cash flows


£m

Notes

Year ended
31 Dec 2022

Unaudited

Year ended
31 Dec 2021

Restated(1)


Operating activities





Loss for the year from continuing operations


(121)

(269)


Adjustments for:





Profit from discontinued operations

9

-

2


Net finance expense(2)

7

252

173


Share of loss on equity-accounted investees, net of tax

21

1

2


Depreciation charge

15

1,145

1,096


Right-of-use assets

15

955

893


Other property, plant and equipment

15

190

203


Loss on impairment of goodwill

13

3

-


Loss on disposal of property, plant and equipment

5

34

64


Profit on disposal of right-of-use assets and related lease liabilities

5,24

(31)

(42)


Profit on sales of current assets


-

(1)


Loss on disposal of intangible assets

5

-

-


Net reversal of impairment of property, plant and equipment

5,15

(13)

(7)


Net reversal of impairment of right-of-use assets

5,15

(39)

(47)


Amortisation of intangible assets

5,14

44

14


Negative goodwill arising on an acquisition

28

-

(1)


Tax expense

8

16

10


Expected credit reversal/(losses) on trade receivables

5

(6)

99


Increase/(decrease) in provisions

20

40

(15)


Share-based payments

6

4

6


Other non-cash movements


(3)

(11)


Operating cash flows before movements in working capital


1,326

1,073


Proceeds from partner contributions (reimbursement of costs)(4)

15

19

20


Increase in trade and other receivables


(97)

(127)


Increase/(decrease) in trade and other payables


191

(40)


Cash generated from operations


1,439

926


Interest paid and similar charges on bank loans and corporate borrowings


(38)

(19)


Interest paid on lease liabilities

24

(230)

(167)


Tax paid


(24)

(5)


Net cash inflows from operating activities


1,147

735







Investing activities





Purchase of property, plant and equipment

15

(242)

(221)


Payment of initial direct costs related to right-of-use assets


(1)

-


Interest received on net lease investment

7

7

-


Payment received from net lease investment

24

41

-


Purchase of subsidiary undertakings, net of cash acquired

28

(307)

11


Purchase of intangible assets

14

(39)

(34)


Purchase of other investments


-

(33)


Proceeds on the sale of discontinued operations, net of cash disposed of

9

1

52


Proceeds on sale of property, plant and equipment


1

1


Proceeds on other current receivables(3)

17

-

283


Interest received

7

1

3


Net cash (outflows)/inflows from investing activities


(538)

62







Financing activities





Proceeds from issue of loans

 24

1,340

983


Repayment of loans

 24

(954)

(947)


Payment of lease liabilities

24

(997)

(865)


Proceeds from partner contributions (lease incentives)(4)

15

31

36


Proceeds from Non-controlling interests

23

53

-


Purchase of treasury shares

22

(5)

-


Proceeds from exercise of share awards


-

1


Payment of ordinary dividend

12

-

-


Net cash outflows from financing activities


(532)

(792)







Net increase in cash and cash equivalents


77

5


Cash and cash equivalents at beginning of the year


78

71


Effect of exchange rate fluctuations on cash held


6

2


Cash and cash equivalents at end of the year

24

161

78

1.  The comparative information has been restated to reflect the impact of discontinued operations (note 9).

2.  The net finance expense includes mark-to-market adjustments of £27m (2021: £23m).

3.  Included in other receivables at 31 December 2020 was mezzanine and senior debt recognised at amortised cost of £276m. This receivable balance was fully repaid to the Group in February 2021, in addition to associated costs reimbursements, resulting in an additional £1m gain on settlement.

4.  The total proceeds from partner contributions relating to the reimbursement of costs and lease incentives of £50m (2021: £56m) are allocated between maintenance partner contributions of £11m (2021: £6m) and growth partner contributions of £39m (2021: £50m).

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Notes to the accounts

1. Authorisation of financial statements

The financial information presented in this preliminary release does not constitute full statutory financial statements. The Annual Report and Financial Statements will be approved by the Board of Directors and reported on by the Auditor in due course. Accordingly, the financial information is unaudited. The Group financial statements for the year ended 31 December 2021 have been published. The audit report on those financial statements was unqualified.

IWG plc is a public limited company incorporated in Jersey and registered and domiciled in Switzerland. The Company's ordinary shares are traded on the London Stock Exchange.

IWG plc owns, and is a franchise operator of, a network of business centres which are utilised by a variety of business customers. Information on the Group's structure is provided in note 32, and information on other related party relationships of the Group is provided in note 31.

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').

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 2022 did not have a material effect on the Group financial statements, unless otherwise indicated.

The following standards, interpretations and amendments to standards were adopted by the Group for periods commencing on or after 1 January 2022, with no material impact on the Group:

Onerous contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

Annual Improvements to IFRS Standards 2018-2020

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

Reference to the Conceptual Framework - Amendments to IFRS 3

These Group consolidated financial statements are presented in pounds sterling (£), which is IWG plc's functional currency, and all values are in million pounds, except where indicated otherwise.

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.

The attributable results of those companies acquired or disposed of during the year are included for the periods of ownership.

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 33.

Climate change

The potential climate change-related risks and opportunities to which the Group is exposed, have been assessed by management, who assessed the potential financial impacts relating to the identified risks, primarily considering the useful lives of, and retirement obligations for, property, plant and equipment, the possibility of impairment of goodwill and other long-lived assets and the recoverability of the Group's deferred tax assets. Management has exercised judgement in concluding that there are no further material financial impacts of the Group's climate-related risks and opportunities on the consolidated financial statements. These judgements will be kept under review by management as the future impacts of climate change depend on environmental, regulatory and other factors outside of the Group's control which are not all currently known."

Going concern

The Group reported a loss after tax of £121m (2021: £269m) from continuing operations for the year, while net cash of £1,147m (2021: £735m) was generated from operations during the year. Although the Group's balance sheet at 31 December 2022 reports a net current liability position of £1,868m (2021: £1,435m) which could give rise to a potential liquidity risk, the Directors concluded and are satisfied after a comprehensive review that no liquidity risk exists after taking into account the following considerations:

1.           The Group had funding available under the Group's £750m revolving credit facility. £173m (2021: £530m) was available and undrawn at 31 December 2022. This facility is committed until March 2025 with an option to extend until 2026 (note 25);

2.           The Group's £330m non-recourse bridge facility, to fund the investment in The Instant Group, matures in September 2023. The Instant Group, combined with the IWG digital assets in Worka has been highly cash generative and reduced its net debt to £176m, excluding £4m of net lease liabilities, at 31 December 2022. Based on the modelled scenarios the Directors expect that Worka will continue to reduce its net debt position by September 2023. The Group is pursuing various options available to address this, including repaying the bridge facility through asset sales, cash generated from operations, and/or the extension or replacement of this facility to ensure continued funding of this highly successful and cash generative business; and

3.           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 potential breach. The Group expects to remain within covenants throughout the forecast period. In reaching this conclusion, the Directors have assessed:

•  the potential cash generation of the Group against a range of illustrative scenarios (including a severe but plausible outcome); and

•  mitigating actions to reduce operating costs and optimise cash flows during any ongoing global restrictions.

 

Details of the principal risks, outcomes of modelled and stress-tested scenarios are set out in the Viability statement.

Based on the above, the Directors consider that the Group is well placed to successfully manage the actual and potential liquidity risks faced by the organisation subject to successful resolution of the uncertainty with regard to the bridge facility referred to in section 2 above.

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 Group consolidated financial statements and consider it appropriate to continue to adopt the going concern basis in preparing the financial statements of the Group.

IFRS not yet effective

The following new or amended standards and interpretations that are mandatory for 2023 annual periods (and future years) are not expected to have a material impact on the Group financial statements:

Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12

1 January 2023

Classification of Liabilities as Current or Non-Current (Amendment to IAS 1)

1 January 2023

IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts

1 January 2023

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition
of Accounting Estimates

1 January 2023

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)

1 January 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 primarily 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 fixed lease payments.

3. Lease modifications

The carrying amount of lease liabilities is re-measured 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. 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 for lease incentives are received at or before the lease commencement date for commercial reasons and, where the Group retains ownership of the fit-out assets, are accounted for as a lease incentive and recognised by reducing the right-of-use asset. Any other partner contributions for lease incentives received subsequent to the commencement of the lease are accounted for as part of the associated lease modification.

6. Lease term

The lease term represents the period from lease inception up to either:

•   The earliest point at which the lease could be broken, where break clauses exist;

•   The point at which the lease could be extended, but no further, where extension options exist; or

•   To the end of the contractual lease term in all other cases.

7. 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.

8. Net investment in finance leases

The Group acts as an intermediate lessor where certain commercial office real estate properties, rented under a separate 'head' lease agreement, are sublet as part of a separate sublease agreement. Interest in the 'head' lease and sublease are accounted for separately, with the classification of the sublease assessed with reference to the right-of-use assets arising from the head lease (not with reference to the underlying asset).

The initial net investment in finance leases is equal to the present value of the lease receipts during the lease term that have not yet been paid. The right-of-use asset arising from the head lease is offset by the initial measurement of the net investment in the finance lease, plus any additional direct costs associated with setting up the lease.

If the sublease agreement contains lease and non-lease components, the Group applies IFRS 15 in determining the allocation of the agreement consideration.

Client contributions are contributions received from sub-lessees towards the initial costs of preparing the commercial property for their use, including the fit-out of the property. These contributions represent a reimbursement of costs incurred by the Group and are accounted for as agency arrangements, and form part of the sub-lessees' assets.

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 at 30 September 2022. 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.

At each reporting date, the Group assesses whether there is an indication that a previously recognised impairment loss has reversed because of a change in th estimates used to determine the impairment loss. If there is such an indication, and the recoverable amount of the impaired asset or CGU subsequently increases, then the impairment loss is generally reversed.

A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Group has identified individual business centres as the CGU.

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 - service agreements

2 years

Customer lists - sublease agreements

Up to 5 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 an 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 and equipment

5 - 10 years

Computer hardware

3 - 5 years

1.  10 years represents the average useful economic life across the lease portfolio.

 

Revenue

The Group's primary activity is the provision of fully integrated, end-to-end global workspace solutions.

1. Workstations

The Group recognises workstation 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. Invoices are generally issued in advance, on a monthly basis with normal credit terms of 15 days, and initially recognised as deferred revenue.

Workstation revenue is recognised over time as the services are provided. Amounts invoiced in advance are accounted for as deferred revenue (contract liability) and recognised as revenue upon provision of the service.

2. 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 are measured based on the contractually agreed percentage of revenue, generated by the operation, except where a different basis is determined in the contractual arrangements. Fees charged for other services provided, during the period of the agreement, are recognised as revenue as the services provided or the rights used. Invoices are generally issued on a monthly basis with normal credit terms of 30 days.

3. Customer service income

Service income (including the provision of workspace bookings, meeting rooms and inventory management) is recognised over time as the services are delivered or at a point in time depending on contractual obligations. Invoices are generally issued when the service is provided and subject to immediate settlement. 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.

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.

5. 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.

The Group has concluded that it is the principal in its revenue arrangements, except where noted above.

Deferred revenue

Invoices issued in advance of services provided, in accordance with contractual arrangements with customers, are held on the balance sheet as a current liability until the services have been rendered.

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. Items arising specifically from the impact of the COVID-19 pandemic, geopolitical circumstances in the Ukraine and related sanctions against Russia, have been deemed to meet the definition of adjusting items. Each of these items is 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. Adjusting items recognised are based on the actual costs incurred and/or calculated on a basis consistent with the key judgements and estimates disclosed in note 33. The classification of adjusting items requires management judgement after considering the nature and intentions of a transaction. Where necessary, this judgement applied is based on a formal methodology, including the comparison of current centre performance against pre-COVID-19 performance, to determine whether or not some, or all, of the associated costs are arising in the ordinary course of business.

 

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 26 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, 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 rate method. The derivative component of a compound financial instrument is re-measured 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 25. 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.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments to the gross carrying amount of the financial assets.

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, on either a 12-month or a 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.

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.

Non-controlling interests

Non-controlling interests are measured initially at their proportionate share of the acquiree's identifiable net assets at the date of acquisitions.

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 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.

Foreign currency translation rates


At 31 December

Annual average



2022

2021

2022

2021

US dollar

1.21

1.35

1.23

1.38

Euro

1.13

1.19

1.17

1.16

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 distinct 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. Segmental assets and liabilities continue to be presented in accordance with IFRS.

The business is run on a worldwide basis but managed through two operating segments. The Group's primary operating segment is managed through three principal geographical segments: the Americas; EMEA (Continental Europe including UK, Middle East and Africa); and Asia Pacific. The results of business centres in each of these regions, based on time zones; economic relationships; market characteristics; cultural similarities; and language clusters, form the basis for reporting geographical results to the chief operating decision-maker. As a result, the UK is now included in the EMEA regional reporting. These geographical segments exclude the Group's non-trading, holding and corporate management companies, which are included in the Other segment. The impact from The Instant Group investment (note 28) has been incorporated into Worka, which is disclosed as a separate operating segment. The combined digital assets in Worka, represents the world's leading fully integrated workspace platform. 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 distinct senior management team responsible for the performance of the segment.

£m

Americas

EMEA(2)

Asia Pacific

Other

Pre-Worka

Worka

Total

Continuing operations

2022

2021

Restated(1)

2022

2021
Restated(1)

2022

2021
Restated(1)

2022

2021

Restated(1)

2022

2021
Restated(1)

2022

2021

Restated(1)

2022

2021
Restated(1)

Reported revenue(3)

1,024

836

1,199

1,027

248

231

9

1

2,480

2,095

271

132

2,751

2,227

Rent income

-

-

-

-

-

-

-

-

-

-

50

-

50

-

Revenue on pre-IFRS 16 basis

1,024

836

1,199

1,027

248

231

9

1

2,480

2,095

321

132

2,801

2,227

Workstation revenue(4)

709

611

904

793

188

179

-

-

1,801

1,583

50

-

1,851

1,583

Fee income

3

1

19

13

10

10

2

-

34

24

-

-

34

24

Customer Service income(5)

312

224

276

221

50

42

7

1

645

488

271

132

916

620

Gross profit/(loss) (centre contribution)

82

(8)

120

14

26

3

13

(5)

241

4

142

78

383

82

Share of loss of equity-accounted investees

-

-

(1)

(2)

-

-

-

-

(1)

(2)

-

-

(1)

(2)

Operating (loss)/profit

(23)

(94)

23

(78)

2

(19)

(130)

(130)

(128)

(321)

85

73

(43)

(248)

Finance expense









(37)

(31)

(13)

-

(50)

(31)

Finance income









27

26

-


27

26

(Loss)/profit before tax for the year









(138)

(326)

72

73

(66)

(253)

Depreciation and amortisation

166

147

116

111

27

27

21

16

330

301

30

1

360

302

Impairment of assets

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Assets(3)

3,587

3,364

3,782

3,937

549

532

475

535

8,393

8,367

688

44

9,081

8,412

Liabilities(3)

(3,445)

(3,232)

(3,559)

(3,682)

(538)

(540)

(752)

(645)

(8,294)

(8,099)

(552)

(8)

(8,846)

(8,107)

Net assets/
(liabilities)

142

132

223

255

11

(8)

(277)

(110)

99

268

136

36

235

305

Non-current asset additions(6)

131

50

211

172

32

48

29

82

403

352

24

-

427

352

1.  Restated to exclude revenue from discontinued operations (note 9) and/or the separate disclosure of the Worka segment.

2.  Includes UK performance as follows: Revenue of £386m (2021: £346m), gross profit of £34m (2021: loss of £11m) and operating profit of £13m (2021: loss of £34m)

3.  Presented on a basis consistent with IFRS 16.

4.  Includes customer deposits

5.  Includes membership card income

6.  Excluding deferred taxation.

 

Operating profit in the 'Other' category is generated from services related to the provision of workspace solutions, offset by corporate overheads.

The operating segment's results presented on a pre-IFRS 16 basis reconcile to the financial statements as follows:

 

£m

Americas

EMEA

Asia Pacific

Other

Pre-Worka

Worka

Total

Continuing operations

2022

2021

Restated(1)

2022

2021
Restated(1)

2022

2021
Restated(1)

2022

2021

Restated(1)

2022

2021
Restated(1)

2022

2021

Restated(1)

2022

2021
Restated(1)

Gross profit/(loss) (centre contribution) - pre-IFRS 16

82

(8)

120

14

26

3

13

(5)

241

4

142

78

383

82

Rent income

-

-

-

-

-

-

-

-

-

-

(50)

-

(50)

-

Rent

434

414

443

448

126

116

8

4

1,011

982

47

1

1,058

983

Depreciation of property, plant and equipment including right-of-use assets

(345)

(317)

(389)

(378)

(90)

(91)

(3)

(5)

(827)

(791)

(1)

-

(828)

(791)

Other

13

(16)

17

(6)

(11)

(8)

(7)

-

12

(30)

-

(1)

12

(31)

Gross profit/(loss)
(centre contribution)

184

73

191

78

51

20

11

(6)

437

165

138

78

575

243

1.  Restated to reflect the impact of discontinued operations on a pre-IFRS 16 basis and/or the separate disclosure of the Worka segment.

 

£m

Americas

EMEA

Asia Pacific

Other

Pre-Worka

Worka

Total

Continuing operations

2022

2021

Restated(1)

2022

2021
Restated(1)

2022

2021
Restated(1)

2022

2021

Restated(1)

2022

2021
Restated(1)

2022

2021

Restated(1)

2022

2021
Restated(1)

Operating profit/(loss) - pre-IFRS 16

(23)

(94)

23

(78)

2

(19)

(130)

(130)

(128)

(321)

85

73

(43)

(248)

Rent income

-

-

-

-

-

-

-

-

-

-

(50)

-

(50)

-

Rent

434

414

443

448

126

116

9

5

1,012

983

47

-

1,059

983

Depreciation of property, plant and equipment including right-of-use assets

(345)

(317)

(389)

(378)

(90)

(91)

(4)

(7)

(828)

(793)

(1)

-

(829)

(793)

Other

11

(16)

15

(7)

(11)

(9)

(5)

2

10

(30)

-

1

10

(29)

Operating profit/(loss)

77

(13)

92

(15)

27

(3)

(130)

(130)

66

(161)

81

74

147

(87)

1.  Restated to reflect the impact of discontinued operations on a pre-IFRS 16 basis (note 5) and/or the separate disclosure of the Worka segment.

 

£m

Americas

EMEA

Asia Pacific

Other

Pre-Worka

Worka

Total

Continuing operations

2022

2021

Restated(1)

2022

2021
Restated(1)

2022

2021
Restated(1)

2022

2021

Restated(1)

202

2021
Restated(1)

2022

2021

Restated(1)

2022

2021
Restated(1)

Depreciation and amortisation - pre-IFRS 16

166

147

116

111

27

27

21

16

330

301

30

1

360

302

Depreciation of property, plant and equipment including right-of-use assets

345

317

389

378

90

91

4

7

828

793

1

-

829

793

Depreciation and amortisation

511

464

505

489

117

118

25

23

1,158

1,094

31

1

1,189

1,095

1.  Restated to reflect the impact of discontinued operations on a pre-IFRS 16 basis (note 5) and/or the separate disclosure of the Worka segment.

 

£m

Americas

EMEA

Asia Pacific

Other

Pre-Worka

Worka

Total

Continuing operations

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

2022

2021

Impairment of assets - pre-
IFRS 16

-

-

-

-

-

-

-

-

-

-

-

-

-

-

(Net reversal) /impairment of property, plant and equipment including right-of-use assets

(30)

(56)

(16)

(3)

(6)

5

-

-

(52)

(54)

-

-

(52)

(54)

(Net reversal) /Impairment of assets

(30)

(56)

(16)

(3)

(6)

5

-

-

(52)

(54)

-

-

(52)

(54)

 

4. Segmental analysis - entity-wide disclosures

The Group's primary activity is the provision of global workplace solutions, therefore all revenue is attributed to a single group of similar products and services. Relevant product categories have; however, been included in the segmental analysis in note 3. 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:


2022

2021

£m

External
revenue

Non-current

assets(1)

External
revenue

assets(1)

Country of tax domicile - Switzerland

5

-

4

-

United States of America

868

2,787

694

2,737

EMEA

1,199

3,264

1,027

3,467

Worka

271

429

132

34

All other countries(2)

408

1,099

370

1,015


2,751

7,579

2,227

7,253

1.  Excluding deferred tax assets.

2.  Revenue of £nil (2021: £34m) is included in discontinued operations (note 9).

5. Operating profit/(loss) - continuing operations

Operating profit/(loss) has been arrived at after crediting/(charging):

£m

Notes


2022

Revenue


2,751

2,227





Depreciation on property, plant and equipment(2)

15

(1,145)

(1,081)

Right-of-use assets

15

(955)

(880)

Other property, plant and equipment

15

(190)

(201)

Amortisation of intangible assets

14

(44)

(14)

Variable property rents payable in respect of leases

24

(68)

(63)

Lease expense on low-value assets

24

-

(1)

Staff costs

6

(423)

(342)

Facility and other property costs


(496)

(414)

Expected credit reversal/(losses) on trade receivables(3)

25

6

(99)

Loss on disposal of property, plant and equipment


(34)

(64)

Profit on disposal of right-of-use assets and related lease liabilities


31

42

Impairment of goodwill

13

(3)

-

Net reversal of impairment of property, plant and equipment(4)

15

52

54

Net reversal of impairment of other property, plant and equipment


13

7

Net reversal of impairment of right-of-use assets


39

47

Negative goodwill arising on acquisition

28

-

1

Other costs


(479)

(331)

Operating profit/(loss) before equity-accounted investees


148

(85)

Share of loss of equity-accounted investees, net of tax

21

(1)

(2)

Operating profit/(loss)


147

(87)

1.  The comparative information has been restated to reflect the impact of discontinued operations.

2.  Excludes depreciation expenses related to discontinued operations for right-of-use assets of £nil (2021: £13m) and other property, plant and equipment of £nil (2021: £2m).

3.  Of the £6m reversal of expected credit loss (2021: charge of £99m), £nil (2021: £53m) relates to COVID-19 adjusting items (note 10).

4.  The net reversal of impairment of £52m (2021: £54m) includes an additional impairment of £39m (2021: £97m), offset by the reversal of £91m (2021: £151m) previously provided for (note 15).

 

£m


2022


2021

Fees payable to the Group's auditor and its associates for the audit of the Group accounts

(2)

(1)

Fees payable to the Group's auditor and its associates for other services:



The audit of the Company's subsidiaries pursuant to legislation

(3)

(3)

Other services pursuant to legislation

-

-

Other non-audit services

-

-

 

6. Staff costs

£m


2022(1)

2021
Restated(1)

The aggregate payroll costs were as follows:



Wages and salaries(2)

357

281

Social security

55

50

Pension costs

7

5

Share-based payments

4

6


423

342

1.  Excludes staff costs related to discontinued operations of £nil (2021: £2m).

2.  Includes worldwide financial support schemes disclosed in note 10.


2022
Average
full-time

 Equivalents(1)

2021
Average
full-time

 Equivalents(1)

The average number of persons employed by the Group (including Executive Directors),
analysed by category and geography, was as follows:



Centre staff

6,572

6,142

Sales and marketing staff

532

510

Finance staff

647

640

Other staff

1,005

947


8,756

8,239




Americas

2,778

2,518

EMEA

3,356

3,129

Asia Pacific

995

998

Corporate functions

1,627

1,594


8,756

8,239

1.  The average full-time equivalents exclude employees for disposals during 2022 of 2 (2021: 65).

Details of Directors' emoluments and interests are given in the Directors' Remuneration report.

7. Net finance expense

£m

Notes


2022

Interest payable and similar charges on bank loans and corporate borrowings


(39)

(42)

Interest payable on lease liabilities(2)


(230)

(166)

Total interest expense


(269)

(208)

Other finance costs(3)


(18)

10

Unwinding of discount rates


-

-

Total finance expense


(287)

(198)





Interest income


1

3

Interest received on net lease investment


7

-

Fair value gain on financial liabilities measured at FVTPL

19

27

23

Total finance income


35

26





Net finance expense


(252)

(172)

1.  The comparative information has been restated to reflect the impact of discontinued operations.

2.  Excludes lease liability finance expense related to discontinued operations of £nil (2021: £1m).

3.  Excludes interest expense related to discontinued operations of £nil (2021: £nil).

 

8. Taxation

(a) Analysis of charge in the year

£m


2022

2021
Restated(1)

Current taxation



Corporate income tax

(40)

(24)

Previously unrecognised tax losses and temporary differences

6

8

Over provision in respect of prior years

1

5

Total current taxation

(33)

(11)

Deferred taxation


 

Origin and reversal of temporary differences

9

1

Previously unrecognised tax losses and other differences

8

-

Total deferred taxation

17

1

Tax charge on continuing operations

(16)

(10)

1.  The comparative information has been restated to reflect the impact of discontinued operations.

(b) Reconciliation of taxation charge


2022

2021
Restated(1)


£m

%

£m

%

Loss before tax from continuing operations

(105)


(259)


Tax on profit at 11.9% (2021: 11.9%)

13

(12)

31

(12)

Tax effects of:





Expenses not deductible for tax purposes

(34)

32

(29)

11

Items not chargeable for tax purposes

12

(11)

34

(13)

Previously unrecognised temporary differences expected to be used in the future

14

(14)

8

(3)

Current year temporary differences not currently expected to be used

(55)

52

(113)

44

Adjustment to tax charge in respect of previous years

1

(1)

5

(2)

Differences in tax rates on overseas earnings

33

(31)

54

(21)


(16)

15

(10)

4

1.  The comparative information has been restated to reflect the impact of discontinued operations.

The applicable tax rate is determined based on the tax rate in the canton of Zug in Switzerland, which was the statutory tax rate applicable in the country of domicile of the parent company of the Group at the end of 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.

£m


2022


2021

2022

-

33

2023

54

41

2024

40

48

2025

56

49

2026

65

70

2027

72

36

2028

341

37

2029

71

25

2030 and later

1,434

1,431


2,133

1,770

Available indefinitely

1,468

1,302

Tax losses available to carry forward

3,601

3,072

Amount of tax losses recognised in deferred tax assets

64

125

Total tax losses available to carry forward

3,665

3,197

Additional tax losses have been generated in 2022. The above loss expiry table excludes £254m (2021: £238m) US state tax losses.

 

The following deferred tax assets have not been recognised due to uncertainties over recoverability.

£m


2022


2021

Intangibles

368

390

Accelerated capital allowances

33

30

Tax losses

852

758

Rent

63

49

Leases

37

30

Short-term temporary differences

11

7


1,364

1,264

(d) Corporation tax

£m


2022


2021

Corporation tax payable

(45)

(36)

Corporation tax receivable

19

19

(e) Deferred taxation

The movement in deferred tax is analysed below:

£m

Intangibles

Property,
plant and equipment

Tax losses

Rent

Leases

Other temporary differences

Total

Deferred tax asset








At 31 December 2020

22

(78)

257

63

107

(182)

189

Current year movement

-

1

(17)

5

4

18

11

Prior year movement

-

-

(199)

-

-

-

(199)

Disposals

-

-

-

-

-

-

-

Transfers(1)

48

77

-

-

1

200

326

Exchange rate movements

-

-

-

-

-

-

-

At 31 December 2021

70

-

41

68

112

36

327

Current year movement

12

(4)

(16)

(4)

8

25

21

Prior year movement

1

13

(14)

(3)

-

3

-

Disposals

-

-

-

-

-

-

-

Transfers

-

-

-

-

-

-

-

Exchange rate movements

(6)

(9)

4

8

-

5

2

At 31 December 2022

77

-

15

69

120

69

350









Deferred tax liability








At 31 December 2020

-

-

-

-

-

-

-

Current year movement

(3)

(6)

-

-

(5)

1

(13)

Prior year movement

-

-

-

-

-

198

198

Disposals

-

-

-

-

-

-

-

Transfers(1)

(48)

(77)

-

-

(1)

(200)

(326)

Exchange rate movements

-

-

-

-

-

-

-

At 31 December 2021

(51)

(83)

-

-

(6)

(1)

(141)

Current year movement

(6)

2

-

(1)

2

(1)

(4)

Prior year movement

-

-

-

-

-

-

-

Disposals

-

-

-

-

-

-

-

Transfers

-

-

-

-

-

-

-

Exchange rate movements

-

-

-

-

-

-

-

At 31 December 2022

(57)

(81)

-

(1)

(4)

(2)

(145)

1.  In 2021 the Group separately presented deferred tax assets and deferred tax liabilities on a country-by-country, or entity-by-entity basis where available. The transfers line in the table above reflects the adjustment required to the opening balances as at 1 January 2021 to reflect this change in presentation.

 

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. The closing deferred tax position above represents the aggregated deferred tax asset or liability position within individual legal entities, with some companies recognising deferred tax assets and others recognising deferred tax liabilities. The closing position is a net deferred tax asset of £350m (2021: £327m) and a deferred tax liability of £145m (2021: £141m). 

In evaluating whether it is probable that taxable profits will be earned in future accounting periods for the purposes of deferred tax asset recognition, management based their analysis on the Board-approved three-year forecasts prepared for the purposes of reviewing goodwill for impairment.

Recognised deferred tax assets include assets that have arisen in the United States where despite recent losses the Group considers it probable that sufficient taxable profits will be available against which these assets can be utilised over a period of three years, based on the period corresponding to the Group's business forecasting processes. Recent losses recorded in the United States were incurred during a period of uncertainty as a result of the global COVID-19 pandemic. Management is confident that the Group will return to profitability in this region within the aforementioned period. No reasonably possible change in any of the key assumptions would result in a significant reduction in projected tax profits such that the recognised deferred tax asset would not be realised.

In 2022 the deferred tax asset recognised in respect of the fair market value of IP resulting from a group restructure in 2019, in relation to which the amortisation is deductible for Swiss corporate income tax purposes, increased to £77m (2021: £70m) and this is included as Intangibles in the deferred tax table above. Recognition of this deferred tax asset is based on the approved three-year forecast.

To address concerns about uneven profit distribution and tax contributions of large multinational corporations, various agreements have been reached at the global level, including an agreement by over 135 jurisdictions to introduce a global minimum tax rate of 15%. In December 2021, the Organisation for Economic Co-operation and Development (OECD) released a draft legislative framework, followed by detailed guidance released March 2022, that is expected to be used by individual jurisdictions that signed the agreement to amend their local tax laws. Once changes to the tax laws in any jurisdiction in which the Group operates are enacted or substantively enacted, the Group may be subject to top-up tax. At the date when the financial statements were authorised for issue, one jurisdiction in which the Group operates had enacted or substantively enacted the tax legislation related to the top-up tax. The Group may be potentially subject to the top-up tax because it operates in countries where the statutory tax rate is below 15%. Management is closely monitoring the progress of the legislative process in each jurisdiction in which the Group operates in. At 31 December 2022 the Group did not have sufficient information to determine the potential quantitative impact.

9. Discontinued operations

During 2022, the Group completed the sale of various operations through the signing of 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. Closures in the ordinary course of business are not considered part of discontinued operations.

Disposal of operations

During the year, the Group completed the sale of individually immaterial operations for the consideration of £1m (2021: £52m). The results of these operations up to the date of disposal were as follows:

£m


2022

2021

Restated(1)

Revenue

-

34

Expenses

-

(31)

Operating profit

-

3

Net finance expense

-

(1)

Profit before tax for the year

-

2

Income tax expense

-

(4)

Loss after tax for the year

-

(2)

Gain on the sale of discontinued operations

1

61

Profit after tax for the year

1

59

1.  The comparative information has been restated to reflect the impact of discontinued operations.

The assets and liabilities of these operations at their respective dates of disposal were as follows:

£m


2022


2021

Total assets

1

72

Total liabilities

(1)

(82)

Net liabilities

-

(10)

Costs directly associated with the disposal

-

1

Foreign exchange recycled to profit and loss

-

-


-

(9)

Consideration on disposal (net of cash and debt)(1)

1

52

Gain on sale of discontinued operations

1

61

1.  The consideration recognised includes a non-cash element of £nil (2021: £33m).

The net cash flows incurred by these operations are as follows:

£m


2022

2021

Restated(1)

Operating

-

48

Investing

-

(2)

Financing

(1)

(46)

Net cash outflow

(1)

-

1.  The comparative information has been restated to reflect the impact of discontinued operations.

10. Adjusting items

The Group has recognised the following adjusting items for the year ended 31 December 2022:

£m


2022


2021

COVID-19 related adjusting items

4

31

Impairment of Ukraine and Russia

9

-

Total adjusting items

13

31

COVID-19 related adjusting items

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 continued to see significant volatility and business disruption, impacting performance in 2022.

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 recognised a net charge of £4m (2021: £31m) 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, of being significant in both nature and value to the results of the Group in the current period. Reversals of £17m (2021: £2m) have been recognised as adjusting items to cost of sales and charges of £21m (2021: £33m) have been recognised as adjusting items to selling, general and administration expenses in the Group's income statement.

The charges relate to several separateIy identifiable areas of accounting judgement and estimates as follows:


2022

2021

£m

Cost of sales

Selling, general and administration costs

Cost of sales

Selling, general and administration costs

Net reversal of impairment of property, plant and equipment (including right-of-use assets)

(73)

-

(125)

-

Impairment of goodwill

-

3

-

-

Provision for expected credit losses

-

-

53

-

Network rationalisation

58

-

71

-

Other one-off items including restructuring(1)

(2)

18

(1)

33

Total COVID-19 related adjusting items

(17)

21

(2)

33

1.  Included as adjusting items in selling, general and administration except for £2m (2021: £1m) 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 some of the Group's markets, continues to prolong the impact on our business in 2022. As a result of these measures, management continues to carry 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 ongoing rationalisation process undertaken 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 2022. Following this review, a net reversal of £73m (2021: net reversal of £125m) was recognised within cost of sales. Of this net reversal, £22m (2021: £38m) and £51m (2021: £87m) were recognised against property, plant and equipment and right-of-use assets respectively.

•  Impairments of goodwill

COVID-19 and linked restrictions impacted our ability to trade our way to sustainable profitable growth in certain markets. As a result, the projected cash flows for these markets continued to be evaluated to determine the carrying value of the CGUs, with an additional impairment of £3m taken during 2022 (2021: £nil).

•  Provision for expected credit losses

The Group continues to review the recoverability of its trade and other receivables portfolio; however, no additional expected credit loss was deemed necessary (2021: £53m). The provision for expected credit losses reflecting the greater likelihood of credit default by the Group's debtors, directly attributable to the impact of COVID-19, is fully utilised as at 31 December 2022.

•  Network rationalisation

£58m (2021: £71m) 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 £nil (£2021: £6m) has also been recorded which is not included as adjusting items.

•  Other one-off items including restructuring

During the year, the Group incurred £nil (2021: £1m) of transaction costs in respect of master franchise agreements that did not complete due to the outbreak of COVID-19.

Other charges of £18m (2021: £32m) 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 2022, as well as claims in respect of centre closures. In addition, during the year, the Group received a total of £2m (2021: £1m) in respect of worldwide financial support schemes.

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.

Impairment of Ukraine and Russia

As a result of geopolitical circumstances in the Ukraine and related sanctions against Russia, the Board has taken the decision to recognise a total provision of £9m against the gross assets of both its Russian and Ukrainian operations. These operations are not material to the Group, representing less than 1% of both total revenue and net assets of the Group. Accordingly, the Group's significant accounting judgements, estimates and assumptions have not changed.

11. Earnings per ordinary share (basic and diluted)



2022


2021

Basic and diluted loss for the year attributable to shareholders (£m)

(120)

(210)

Basic loss per share (p)

(11.2)

(20.4)

Diluted loss per share (p)

(11.2)

(20.4)

Basic and diluted loss for the year from continuing operations (£m)

(121)

(269)

Basic loss per share (p)

(11.3)

(26.2)

Diluted loss per share (p)

(11.3)

(26.2)

Basic and diluted profit for the year from discontinued operations (£m)

1

59

Basic earnings per share (p)

0.1

5.9

Diluted earnings per share (p)

0.1

5.4

Weighted average number of shares for basic EPS

1,006,884,755

1,007,214,854

Weighted average number of shares under option

35,393,807

39,512,057

Weighted average number of shares that would have been issued at average market price

(29,608,587)

(22,437,997)

Weighted average number of share awards under the CIP, PSP, DSBP and One-off Award

1,776,964

1,747,819

Weighted average number of shares on convertible bonds

76,408,203

76,408,203

Weighted average number of shares for diluted EPS

1,090,855,142

1,102,444,936

 

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 £350m 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 207.05p (2021: 321.95p), with a high of 302.10p on 4 January 2022 and a low of 115.40p on 12 October 2022.

12. Dividends

£m


2022


2021

Dividends per ordinary share proposed

-

-

Interim dividends per ordinary share declared and paid during the year

-

-

Given continuing macroeconomic uncertainties and geopolitical tensions, the Group's capital allocation policy remains unchanged, prioritising investment in the long-term growth of our business and dividend distribution to shareholders.

In order to protect our liquidity in the short-term, no dividend will be paid for the year ended 31 December 2022 (2021: £nil) and future dividend payments continue to be placed on hold, with the intention to review the return to our progressive dividend policy when appropriate.

13. Goodwill

£m


Total

Cost


At 31 December 2020

696

Recognised on acquisition of subsidiaries(1)

16

Goodwill derecognised on sale of subsidiaries

(1)

Goodwill impairment

-

Exchange rate movements

(7)

At 31 December 2021

704

Recognised on acquisition of subsidiaries(1)

188

Goodwill derecognised on sale of subsidiaries

-

Goodwill impairment

(3)

Exchange rate movements

45

At 31 December 2022

934



Net book value


At 31 December 2021

704

At 31 December 2022

934

1.  Net of £nil 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 and Worka 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 carrying amount of goodwill attributable to the reportable business segments is as follows:

£m


2022

2021

Restated(1)

Americas

314

283

EMEA

373

367

Asia Pacific

27

25

Worka(2)

220

29


934

704

1.  Restated to reflect the impact of the separate disclosure of the Worka segment.

2.  Includes goodwill of £183m relating to the acquisition of The Instant Group and £5m from other immaterial acquisitions (note 28).

The carrying value of goodwill and indefinite life intangibles allocated to the USA, UK and Worka is material relative to the total carrying value, comprising 78% of the total. The remaining 22% of the carrying value is allocated to a further 38 countries. The goodwill and indefinite life intangibles allocated to the USA, UK and Worka are set out below:

£m

Goodwill

Intangible

assets(1)

2022

2021

Restated(2)

USA

290

-

290

262

United Kingdom

219

11

230

230

Worka(3)

220

-

220

29

Other countries

205

-

205

194


934

11

945

715

1.  The indefinite life intangible asset relates to the Regus brand.

2.  Restated to reflect the impact of the separate disclosure of Worka.

3.  Includes goodwill of £183m relating to the acquisition of The Instant Group and £5m from other immaterial acquisitions (note 28).

The value-in-use for each country has been determined using a model which derives the present value of the expected future cash flows for each individual country and Worka. 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 2023, 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; and

·  The Group applies a country-specific pre-tax discount rate to the pre-tax cash flows for each country. The country-specific discount rate is based on the underlying weighted average cost of capital (WACC) for the Group. The Group WACC is then adjusted for each country to reflect the assessed market risk specific to that country. The Group pre-tax WACC increased from 7.5% in 2021 to 9.1% in 2022 (post-tax WACC: 6.7%). The country-specific pre-tax WACC reflecting the respective market risk adjustment has been set between 8.1% and 11.0% (2021: 7.2% to 9.7%).

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 only result in a recognised impairment of £3m (2021: £nil), in respect of individually immaterial 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 21% (2021: 24%) over the next five years. A terminal value centre gross margin of 23% is adopted from 2027, with a 0% long-term growth rate assumed on revenue and costs into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 8.5% (2021: 8.3%).

The UK model assumes an average centre contribution of 13% (2021: 18%) over the next five years. A terminal value centre gross margin of 20% is adopted from 2027, with a 0% long-term growth rate assumed on revenue and costs into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 9.1% (2021: 7.5%).

The Worka model assumes an average contribution of 36% over the next five years. A terminal value centre gross margin of 38% is adopted from 2027, with a 0% long-term growth rate assumed on revenue and costs into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 9.1%.

Management has considered the following sensitivities:

·  Market growth and REVPOS - Management has considered the impact of a variance in market growth and REVPOS. The value-in-use calculation shows that if the long-term growth rate is nil, the recoverable amount of the US, UK and Worka 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 216.6% (2021: 88.1%) for the US, 14.4% (2021: 25.3%) for the UK and 12.0% for Worka.

·  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 17.1% (2021: 23.0%) for the US and 8.1% (2021: 12.0%) for the UK.

 

14. Other intangible assets

£m

Brand

Customer
lists

Software

Total

Cost





At 31 December 2020

65

31

83

179

Additions at cost

-

-

34

34

Acquisition of subsidiaries

2

2

1

5

Disposals

-

-

-

-

Exchange rate movements

-

-

-

-

At 31 December 2021

67

33

118

218

Additions at cost

-

-

39

39

Acquisition of subsidiaries

24

77

40

141

Disposals

-

-

-

-

Exchange rate movements

-

1

2

3

At 31 December 2022

91

111

199

401






Amortisation





At 31 December 2020

42

31

53

126

Charge for year

1

1

12

14

Disposals

-

-

-

-

Exchange rate movements

-

-

-

-

At 31 December 2021

43

32

65

140

Charge for year

2

17

25

44

Disposals

-

-

-

-

Exchange rate movements

-

2

1

3

At 31 December 2022

45

51

91

187






Net book value





At 31 December 2020

23

-

30

53

At 31 December 2021

24

1

53

78

At 31 December 2022

46

60

108

214

During the year ended 31 December 2022, the Group completed the investment in The Instant Group. As part of the purchase price allocation, the Group engaged with third party experts in recognising acquired brands valued at £24m, customer lists from sublease agreements of £77m and digital asset software of £40m.

Included within the brand value is £11m 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

£m

Right-of-use

 assets(1)

Land and buildings

Leasehold improvements

Furniture and equipment

Computer hardware

Total

Cost







At 31 December 2020

9,530

150

1,521

775

129

12,105

Additions

176

11

110

73

7

377

Modifications(2)

479

-

-

-

-

479

Acquisition of subsidiaries

78

-

23

2

-

103

Disposals(4)

(852)

(1)

(147)

(33)

(6)

(1,039)

Exchange rate movements

(123)

-

(22)

(6)

(2)

(153)

At 31 December 2021

9,288

160

1,485

811

128

11,872

Additions

253

-

139

78

6

476

Modifications(2)

313

-

-

-

-

313

Acquisition of subsidiaries

4

-

16

-

-

20

Disposals(4)

(826)

-

(84)

(36)

(6)

(952)

Exchange rate movements

622

-

149

70

10

851

At 31 December 2022

9,654

160

1,705

923

138

12,580








Accumulated depreciation







At 31 December 2020

3,883

8

836

421

101

5,249

Charge for the year(3) (6)

893

3

134

58

8

1,096

Disposals(4) (5)

(675)

-

(66)

(24)

(5)

(770)

Net reversal of impairment(7)

(47)

-

(7)

-

-

(54)

Exchange rate movements

(20)

-

-

(4)

(1)

(25)

At 31 December 2021

4,034

11

897

451

103

5,496

Charge for the year(3) (6)

955

3

115

65

7

1,145

Disposals(4) (5)

(563)

-

(61)

(25)

(5)

(654)

Net reversal of impairment(7)

(39)

-

(13)

-

-

(52)

Exchange rate movements

258

-

103

42

8

411

At 31 December 2022

4,645

14

1,041

533

113

6,346








Net book value







At 31 December 2020

5,647

142

685

354

28

6,856

At 31 December 2021

5,254

149

588

360

25

6,376

At 31 December 2022

5,009

146

664

390

25

6,234

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 £nil (2021: £13m) and other property, plant and equipment of £nil (2021: £2m).

4.  Includes disposals related to discontinued operations for right-of-use assets of £1m (2021: £39m) and other property, plant and equipment of £nil (2021: £24m).

5.  Disposals are net of £9m (2021: £19m) in respect of COVID-19 related adjusting items previously provided for (note 10).

6.  Depreciation is net of £11m (2021: £25m) in respect of COVID-19 related adjusting items previously provided for (note 10).

7.  The net reversal of impairment of £52m (2021: £54m) includes an additional COVID-19 related impairment of £22m (2021: £70m), offset by the reversal of £75m (2021: £151m) previously provided for (note 10).

The key assumptions and methodology in calculating right-of-use assets and the corresponding lease liability remain consistent with those noted in notes 2 and 33.

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, this gave rise to impairment tests in relation to various centres where impairment indicators were identified.

The recoverable amounts of property, plant and 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, on a basis consistent with the impairment testing described in note 13. Impairment charges are recognised within cost of sales in the consolidated income statement. In 2022, the Group recorded a net reversal of impairment charges of £39m (2021: £47m) in respect of right-of-use assets and a net reversal of £13m (2021: £7m) in respect of leasehold improvements.

 

16. Other long-term receivables

£m


2022


2021

Deposits held by landlords against rent obligations

57

50

Other receivables

-

-


57

50

17. Trade and other receivables

£m


2022


2021

Trade receivables, net

395

262

Prepayments and accrued income

152

134

Other receivables

174

146

Partner contributions receivables

23

30

VAT recoverable

172

159

Deposits held by landlords against rent obligations

3

3


919

734

18. Trade and other payables (including customer deposits)

£m


2022


2021

Customer deposits

447

385

Other accruals

252

189

Trade payables

220

163

VAT payable

119

104

Other payables

147

67

Other tax and social security

17

15


1,202

923

During 2021 the Group conducted a review of its customer deposits for inactive customer accounts. Based on this review, the Group released the financial liabilities in respect of such deposits where the obligation qualified for derecognition. The effect of these changes was an increase in operating profit of £22m in 2021.

19. Borrowings

The Group's total loan and borrowing position at 31 December 2022 and at 31 December 2021 had the following maturity profiles:

Bank and other loans

£m


2022


2021

Repayments falling due as follows:



In more than one year but not more than two years

5

5

In more than two years but not more than five years(1)

581

446

In more than five years

2

2

Total non-current

588

453

Total current

285

22

Total bank and other loans

873

475

1.  Includes convertible bond debt of £318m (2021: £308m).

The Group issued £350m convertible bonds in December 2020, raising £343m, net of transaction fees. At the date of issue, the convertible bonds were bifurcated between:

·  A financial liability recognised at amortised cost of £298m, by using the discounted cash flow of interest payments and the bonds' nominal value; and subsequently remeasured at amortised cost of £318m (2021: £308m) at 31 December 2022. 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 £52m, not being closely related to the host financial liability, was recognised separately and measured at fair value through profit or loss (note 25). A gain has been recognised at 31 December 2022 of £27m (2021: £23m) through net finance expenses, resulting in a year-end liability of £nil (2021: £27m).

Further information regarding the committed borrowings and the convertible bonds can be found in note 25.

 

20. Provisions


2022

2021

£m

Closures

Other

Total

Closures

Other

Total

At 1 January

13

8

21

24

7

31

Acquired in the period

7

-

7

-

4

4

Provided in the period

38

6

44

12

3

15

Utilised in the period(1)

(1)

(6)

(7)

(22)

(7)

(29)

Exchange rate movements

3

-

3

(1)

-

(1)

At 31 December

60

8

68

13

7

20

Analysed between:







Current

23

8

31

1

7

8

Non-current

37

-

37

12

-

12

At 31 December

60

8

68

13

7

20

1.  Includes provisions release related to discontinued operations of £nil (2021: £nil).

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 31 December 2022, 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

£m

Investments in joint ventures

Provision for deficit in
joint ventures

Total

At 31 December 2020

11

(5)

6

Acquisition of joint ventures(1)

33

-

33

Share of loss

-

(2)

(2)

Exchange rate movements

1

1

2

At 31 December 2021

45

(6)

39

Acquisition of joint ventures

-

-

-

Share of loss

(1)

-

(1)

Exchange rate movements

1

-

1

At 31 December 2022

45

(6)

39

1.  The acquisition of joint ventures was settled via a non-cash transaction of £33m.

The Group has 82 centres operating under joint venture agreements (2021: 82) 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:

£m


2022


2021

Income statement



Revenue

86

35

Expenses

(88)

(38)

Loss before tax for the year

(2)

(3)

Tax charge

(1)

-

Loss after tax for the year

(3)

(3)

Balance sheet



Non-current assets

153

137

Current assets

329

169

Current liabilities

(322)

(160)

Non-current liabilities

(139)

(126)

Net assets

21

20



 

22. Share capital

Ordinary equity share capital


2022

2021


Number

Nominal value
£m

Number

Nominal value
£m

Authorised





Ordinary 1p shares in IWG plc at 1 January

8,000,000,000

80

8,000,000,000

80

Ordinary 1p shares in IWG plc at 31 December

8,000,000,000

80

8,000,000,000

80

Issued and fully paid up





Ordinary 1p shares in IWG plc at 1 January

1,057,248,651

10

1,057,248,651

10

Ordinary 1p shares issued for cash in the year

-

-

-

-

Ordinary 1p shares in IWG plc at 31 December

1,057,248,651

10

1,057,248,651

10

Treasury share transactions involving IWG plc shares between 1 January 2022 and 31 December 2022

During the year, 2,174,738 shares were purchased in the open market and 1,442,606 treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 7 March 2023, 50,564,853 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.


2022

2021


Number
of shares


£m

Number
of shares


£m

1 January

49,832,721

151

50,677,280

154

Purchase of treasury shares in IWG plc

2,174,738

5

-

-

Treasury shares in IWG plc utilised

(1,442,606)

(4)

(844,559)

(3)

31 December

50,564,853

152

49,832,721

151

23. Non-controlling interests

During 2022, the Group completed the investment in The Instant Group, acquiring 100% of the equity voting rights. In a separate transaction, the Group sold a 15% non-controlling equity interest in a subsidiary of the Worka structure for a consideration of £53m. The Group no longer exercises control of its 57% investment in The Wing and disposed of the remaining £7m non-controlling interest during the year.

The following table summarises the information relating to each of the Group's subsidiaries that have a material non-controlling interest.

£m


2022


2021

NCI percentage

15%

43%

Non-current assets

413

42

Current assets

282

11

Non-current liabilities

(131)

(24)

Current liabilities

(163)

(7)

Net assets

401

22

Net assets attributable to NCI

52

9

Revenue

138

1

Loss after tax

(13)

(12)

Other comprehensive income

-

-

Total comprehensive income

(13)

(12)

Loss allocated to NCI

(3)

(5)

Other comprehensive income allocated to NCI

-

-

Cash flows from operating activities

31

(14)

Cash flows from investing activities

49

29

Cash flows from financing activities

(33)

(7)

Net increase in cash and cash equivalents

47

8

 

24. Net debt analysis

£m

Notes


2022


2021

Cash and cash equivalents


161

78

Current net investment in finance leases


52

-

Non-current net investment in finance leases


95

-

Gross cash and lease receivables


308

78

Debt due within one year


(285)

(22)

Debt due after one year(1)(2)


(588)

(453)

Lease due within one year(3)


(1,002)

(932)

Lease due after one year(3)


(5,037)

(5,189)

Gross debt


(6,912)

(6,596)

Net debt


(6,604)

(6,518)

Derivative liability

19

-

(27)



(6,604)

(6,545)

1.  Includes £318m (2021: £308m) convertible bond liability.

2.  Excludes the convertible bond derivative liability element at 31 December 2022 of £nil (2021: £27m).

3.  There are no significant lease commitments for leases not commenced at 31 December 2022.

The following table shows a reconciliation of net cash flow to movements in net debt:

£m


2022


2021

Net debt at 1 January

(6,518)

(6,910)

Net increase in cash and cash equivalents

77

5

Interest received on net lease investment

(7)

-

Payment received from net lease investment

(41)

-

Proceeds from issue of loans

(1,340)

(983)

Repayment of loans

954

947

Interest paid on lease liabilities

230

167

Payment of lease liability

997

865

Non-cash movements(1)

(534)

(729)

Exchange rate movements

(422)

120

Net debt at 31 December

(6,604)

(6,518)

1.  Includes acquired debt of £nil (2021: £6m), interests accrued on the convertible bond liability of £10m (£10m) and movements on leases in relation to new leases, lease modifications/re-measurements and lease cessations of £524m (2021: £713m). Early termination of lease liabilities represent £294m (2021: £232m) of the non-cash movements, including £1m (2021: £52m) related to discontinued operations.

Cash and cash equivalent balances held by the Group that are not available for use amounted to £7m at 31 December 2022 (2021: £7m). Of this balance, £1m (2021: £2m) is pledged as security against outstanding bank guarantees and a further £6m (2021: £5m) is pledged against various other commitments of the Group.

Cash flows on debt 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 £nil (2021: £27m) derivative liability and a £nil (2021: £nil) cash flow hedging liability recognised separately.

The following amounts are included in the Group's consolidated financial statements in respect of its leases:

£m


2022


2021

Depreciation charge for right-of-use assets

(955)

(893)

Principal lease liability repayments

(997)

(865)

Interest expense on lease liabilities

(230)

(167)

Expenses relating to leases of low-value assets that are not shown above as short-term leases

-

1

Expenses relating to variable lease payments not included in lease liabilities

68

63

Total cash outflow for leases comprising interest and capital payments

1,227

1,032

Additions to right-of-use assets

253

176

Acquired right-of-use assets

4

78

Interest income on net lease investment

7

-

Principal payments received from net lease investment

41

-

Total cash outflows of £1,295m (2021: £1,095m) for leases, including variable payments of £68m (2021: £63m), were incurred in the year.

 

25. 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 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 within the Strategic Report reviews the trading performance, financial position and cash flows of the Group. The Group's net debt position increased by £86m (2021: decreased by £392m) to a net debt position of £6,604m (2021: £6,518m) as at 31 December 2022. Excluding the IFRS 16 net investment in finance leases and lease liabilities, the net debt position increased to £712m (2021: £397m). 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 had a £750m 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 2022, £173m (2021: £530m) of the RCF was available and undrawn.

Although the Group has net current liabilities of £1,868m (2021: £1,435m), 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 revenue of £455m (2021: £346m) which will be recognised in future periods through the income statement. The Group holds customer deposits of £447m (2021: £385m) 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 net current liabilities represents a liquidity risk.

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. Trade debtors that are more than three months overdue are considered to be in default and therefore, under the simplified lifetime approach, are impaired in full. This reflects the Group's experience of the likelihood of recoverability of these trade receivables based on both historical and forward-looking information. These provisions, which take into consideration any customer deposits held, 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 expected credit losses recognised due to the nature and default history 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.

£m


2022

2021

Restated(1)

Americas

151

103

EMEA

192

135

Asia Pacific

28

22

Worka

24

2


395

262

1.  Restated to reflect the impact of the separate disclosure of the Worka segment.

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:


2022

2021

£m

Gross

Provision

Gross

Provision

Not overdue

312

-

220

-

Past due 0 - 30 days

40

-

21

-

Past due 31 - 60 days

19

-

7

-

Past due 61 - 90 days

15

-

4

-

Past due more than 90 days

19

(10)

38

(28)


405

(10)

290

(28)

 

At 31 December 2022, the Group maintained a provision of £10m for expected credit losses (2021: £28m) arising from trade receivables. The Group had provided £nil (2021: £99m) in the year, utilised £12m (2021: £98m) and released £6m (2021: £nil). Customer deposits of £447m (2021: £385m) 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, on either a 12-month or a 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 its 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. In response to ongoing political and economic uncertainty, the Group continues to focus on cash generation by reducing cost, renegotiating rents and rationalising the network, resulting in short-term or long-term cash benefits. The Group has free cash and liquid investments (excluding blocked cash) of £154m (2021: £71m). In addition to cash and liquid investments, the Group had £173m (2021: £530m) available and undrawn under its committed borrowings. The Directors consider the Group has adequate liquidity to meet day-to-day requirements.

The Group maintained a revolving credit facility provided by a group of international banks. At 31 December 2022, the amount of the facility is £750m (2021: £950m) and the final maturity was 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 had a nominal amount of £30m 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 2022 no cash was invested for a period exceeding three months (2021: £nil).

Foreign currency risk

The Group is exposed to foreign currency exchange rate movements. The majority of day-to-day transactions of overseas subsidiaries are carried out in local currency and the underlying foreign exchange exposure is small. Transactional exposures do arise in some countries where it is local market practice for a proportion of the payables or receivables to be in other than the functional currency of the affiliate. Intercompany charging, funding and cash management activity may also lead to foreign exchange exposures. It is the policy of the Group to seek to minimise such transactional exposures through careful management of non-local currency assets and liabilities, thereby minimising the potential volatility in the income statement. Net investments in IWG affiliates with a functional currency other than 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 36% (2021: 35%) of the Group's revenue being attributable to the US dollar and 23% (2021: 23%) 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:


2022

£m

GBP

EUR

USD

Trade and other receivables

-

4

7

Trade and other payables

(1)

(11)

(15)

Net statement of financial position exposure

(1)

(7)

(8)

 


2021

£m


GBP

EUR

USD

Trade and other receivables


-

2

1

Trade and other payables


(1)

(8)

-

Net statement of financial position exposure


(1)

(6)

1

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 2022, 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 £4m (2021: £1m) 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 £2m for the year ended 31 December 2022 (2021: £1m). 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 £3m for the year ended 31 December 2022 (2021: £nil).

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 £5m for the year ended 31 December 2022 (2021: £8m). 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 £2m for the year ended 31 December 2021 (2021: £4m).

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. 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. 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 2022 and 31 December 2022

During the year, 2,174,738 shares were purchased in the open market and 1,442,606 treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 31 December 2022, 50,564,853 treasury shares were held.

The Company declared and paid no interim dividend per share during the year ended 31 December 2022 (2021: nil pence) and proposed no final dividend per share (2021: nil pence per share).

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 and the convertible bond, the undiscounted cash flow and fair values of these instruments is not materially different from the carrying value.

As at 31 December 2022

£m

Effective
interest rate
%

Carrying
value

Contractual
cash flow

Less than
1 year

1-2 years

2-5 years

More than
5 years

Cash and cash equivalents

0.3%

161

161

161

-

-

-

Trade and other receivables(1)

-

767

767

767

-

-

-

Net investment in finance leases

5.6%

147

172

60

36

51

25

Other long-term receivables

-

57

57

-

29

28

-

Financial assets(2)


1,132

1,157

988

65

79

25









Non-derivative financial liabilities(3):








Bank loans and corporate borrowings

4.8%

(266)

(266)

-

-

(266)

-

Convertible bonds - debt host

3.8%

(318)

(356)

(2)

(2)

(352)

-

Lease liabilities

4.1%

(6,039)

(8,235)

(1,264)

(1,203)

(2,795)

(2,973)

Other loans

0.0%

(289)

(289)

(283)

(3)

(1)

(2)

Deferred and contingent consideration

-

(8)

(8)

(4)

(2)

(2)

-

Trade and other payables

-

(1,198)

(1,198)

(1,198)

-

-

-

Other long-term payables

-

(7)

(7)

-

(7)

-

-

Derivative financial liabilities:








Convertible bonds - embedded conversion option

-

-

-

-

-

-

-

Financial liabilities


(8,125)

(10,359)

(2,751)

(1,217)

(3,416)

(2,975)

 

As at 31 December 2021

£m

Effective
interest rate
%

Carrying
value

Contractual
cash flow

Less than
1 year

1-2 years

2-5 years

More than
5 years

Cash and cash equivalents

0.0%

78

78

78

-

-

-

Trade and other receivables(1)

-

600

600

600

-

-

-

Net investment in finance leases

-

-

-

-

-

-

-

Other long-term receivables

-

50

50

-

25

25

-

Financial assets(2)


728

728

678

25

25

-









Non-derivative financial liabilities(3):








Bank loans and corporate borrowings

4.0%

(137)

(137)

(1)

-

(136)

-

Convertible bonds - debt host

3.8%

(308)

(357)

(2)

(2)

(353)

-

Lease liabilities

3.3%

(6,121)

(7,869)

(1,095)

(1,069)

(2,564)

(3,141)

Other loans

0.0%

(30)

(30)

(21)

(5)

(2)

(2)

Deferred and contingent consideration

-

(12)

(12)

(8)

-

(2)

(2)

Trade and other payables

-

(915)

(915)

(915)

-

-

-

Other long-term payables

-

(6)

(6)

-

(6)

-

-

Derivative financial liabilities:








Convertible bonds - embedded conversion option

-

(27)

(27)

-

-

(27)

-

Financial liabilities


(7,556)

(9,353)

(2,042)

(1,082)

(3,084)

(3,145)

1.  Excluding prepayments.

2.  Financial assets are all held at amortised cost.

3.  All financial instruments are classified as variable rate instruments.

 

Fair value disclosures

The fair values together with the carrying amounts shown in the balance sheet are as follows:

31 December 2022

Carrying amount

Fair value

£m

Cash,
loans and receivables

Other financial liabilities

Total


Level 1

Level 2

Level 3

Total

Cash and cash equivalents

161

-

161


-

-

-

-

Trade and other receivables(1)

767

-

767

-

-

-

-

Other long-term receivables

57

-

57

-

-

-

-

Derivative financial liabilities

-

-

-

-

-

-

-

Bank loans and corporate borrowings

-

(266)

(266)

-

-

-

-

Convertible bonds

-

(318)

(318)

-

-

(318)

(318)

Other loans

-

(289)

(289)

-

-

-

-

Deferred and contingent consideration

-

(8)

(8)

-

-

(8)

(8)

Trade and other payables

-

(1,198)

(1,198)

-

-

-

-

Other long-term payables

-

(7)

(7)


-

-

-

-


985

(2,086)

(1,101)


-

-

(326)

(326)

 

31 December 2021

Carrying amount

Fair value

£m

Cash,
loans and receivables

Other
 financial liabilities

Total


Level 1

Level 2

Level 3

Total

Cash and cash equivalents

78

-

78


-

-

-

-

Trade and other receivables(1)

600

-

600


-

-

-

-

Other long-term receivables

50

-

50


-

-

-

-

Derivative financial liabilities

-

(27)

(27)


-

-

(27)

(27)

Bank loans and corporate borrowings

-

(137)

(137)


-

-

-

-

Convertible bonds

-

(308)

(308)


-

-

(308)

(308)

Other loans

-

(30)

(30)


-

-

-

-

Deferred and contingent consideration

-

(12)

(12)


-

-

(12)

(12)

Trade and other payables

-

(915)

(915)


-

-

-

-

Other long-term payables

-

(6)

(6)


-

-

-

-


728

(1,435)

(707)


-

-

(347)

(347)

1.  Excluding prepayments.

At the date of issue, the £350m was bifurcated at £298m and £52m between corporate borrowings (debt) and a derivative financial liability respectively. At 31 December 2022, the debt was valued at its amortised cost, £318m (2021: £308m) and the derivative liability at its fair value, £nil (2021: £27m).

During the years ended 31 December 2022 and 31 December 2021, 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 3 fair values and methods used for financial assets and liabilities not measured at fair value:

Type

Valuation technique

Cash and cash equivalents, trade and other receivables/payables, customer deposits and investment loan receivables

For cash and cash equivalents, receivables/payables with a remaining life of less than one year and customer deposits, the book value approximates the fair value because of their short-term nature.

Loans, overdrafts and debt element of
convertible bonds

The fair value of bank loans, overdrafts and other loans approximates the carrying value because interest rates are at floating rates where payments are reset to market rates at intervals of less than one year.

Contingent consideration, foreign exchange contracts, interest rate swaps and derivative element of convertible bonds

The fair values are based on a combination of broker quotes, forward pricing, and swap models. The fair value of the derivative element of convertible bonds has been calculated with reference to unobservable credit spreads.

Derivative financial instruments

Committed borrowings


2022

2021

£m

Facility

Available

Facility

Available

Revolving credit facility

750

173

950

530

Bridge facility

330

-

-

-

The Group maintains a revolving credit facility provided by a group of international banks. At 31 December 2022, the amount of the facility remains £750m (2021: £950m) and the final maturity was extended in March 2020 to March 2025 with an option to extend until 2026. As at 31 December, £173m (2021: £530m) was available and undrawn under this facility.

The £750m revolving credit facility is subject to financial covenants which include EBITDA, minimum liquidity, interest cover and net debt to EBITDA ratio. The Group continued to operate in compliance with the covenants agreed with the lenders.

A £330m non-recourse bridge facility specifically to fund the investment in The Instant Group, has been fully utilised. The bridge facility, with an outstanding balance of £270m, has a maturity in September 2023. This facility is secured and is subject to interest cover and net debt to EBITDA covenants. The Instant Group, combined with the IWG digital assets in Worka has reduced its net debt to £176m, excluding £4m net lease liabilities, at 31 December 2022 and continues to be highly cash generative.

Convertible bonds

In December 2020 the Group issued a £350m convertible bond, issued by IWG Group Holdings S.à r.l. and transferred in the year to IWG International Holdings S.à r.l., a subsidiary of the 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 £350m was bifurcated at £298m and £52m between corporate borrowings (debt) and a derivative financial liability, respectively. At 31 December 2022, the debt was valued at its amortised cost, £318m (2021: £308m) and the derivative liability at its fair value, £nil (2021: £27m).

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 £1m (2021: £1m).

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.

 

26. 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 eligible employees to purchase shares in IWG plc. In accordance with this programme, holders of vested options are entitled to purchase shares at the mid-market closing 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


2022

2021


Number of
share options

Weighted average
exercise price
 per share

Number of
share options

Weighted average
exercise price
per share

At 1 January

 42,827,743

195.65

42,926,841

184.38

Granted during the year

18,603,116

130.85

3,508,813

313.90

Lapsed during the year

 (7,829,580)

215.97

(2,566,253)

190.35

Exercised during the year

 (1,297,155)

118.47

(1,041,658)

142.60

Outstanding at 31 December

52,304,124

 171.48

42,827,743

195.65

Exercisable at 31 December

 12,273,441

 213.23

11,694,349

198.51

 

Date of grant

Numbers
granted

Weighted average
exercise price per share

Lapsed

Exercised

At 31 Dec
2022


Exercisable from

Expiry date

13/06/2012

 11,189,000

84.95

 (3,944,407)

 (7,244,593)

 -

(1)

13/06/2015

13/06/2022

12/06/2013

 7,741,000

155.60

 (4,306,000)

 (3,061,233)

 373,767

(1)

12/06/2016

12/06/2023

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

 (9,366,754)

 (1,671,285)

 1,837,757

(2)

05/11/2017

04/11/2024

19/05/2015

 1,906,565

250.80

 (1,862,565)

-  

 44,000

(2)

19/05/2018

18/05/2025

22/12/2015

 1,154,646

322.20

 (395,186)

 (25,000)

 734,460

(1)

22/12/2018

22/12/2025

29/06/2016

 444,196

272.50

 (389,150)

 (11,009)

 44,037

(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

(1)

01/03/2020

01/03/2027

21/12/2018 (Grant 1)

 300,000

203.10

 (75,000)

 -  

 225,000

(2)

21/12/2021

21/12/2028

28/12/2018 (Grant 2)

 20,900,000

199.80

 (8,841,662)

 (166,668)

 11,891,670

(2)

28/12/2021

28/12/2028

15/05/2019

 613,872

341.90

 (595,834)

 -  

 18,038

(2)

15/05/2022

15/05/2029

13/09/2019

 196,608

402.30

 (156,608)

 -  

 40,000

(2)

13/09/2022

13/09/2029

19/12/2019

 108,349

408.60

 (81,428)

 -  

 26,921

(2)

19/12/2022

19/12/2029

02/04/2020

 20,325,000

165.00

 (4,020,834)

 -  

 16,304,166

(3)

02/04/2023

02/04/2030

15/05/2020

 450,000

202.00

 (300,000)

 -  

 150,000

(3)

15/05/2023

15/05/2030

05/08/2020

 300,000

222.60

 (300,000)

 -  

 -  

(1)

05/08/2023

05/08/2030

09/09/2020

 173,148

291.00

 (155,964)

 -  

 17,184

(3)

09/09/2023

09/09/2030

26/03/2021

 466,377

342.80

 (58,345)

 -  

 408,032

(3)

26/03/2024

26/03/2031

11/05/2021

 318,645

376.60

 -  

 -  

 318,645

(3)

11/05/2024

11/05/2031

28/06/2021

 487,964

307.40

 (487,964)

 -  

 -  

(1)

28/06/2024

28/06/2031

12/08/2021

 580,655

310.00

 (161,292)

 -  

 419,363

(3)

12/08/2024

12/08/2031

10/11/2021

 1,500,000

297.70

 (1,500,000)

 -  

 -  

(1)

10/11/2024

10/11/2031

09/12/2021

 155,172

290.00

 (155,172)

 -  

 -  

(1)

09/12/2024

09/12/2031

09/03/2022

 204,659

255.00

 -  

 -  

 204,659

(3)

09/03/2025

09/03/2032

10/05/2022 (Grant 1)

1,042,774

222.10

 -  

 -  

1,042,774

(3)

10/05/2025

10/05/2032

17/05/2022 (Grant 2)

 382,791

242.30

 -  

 -  

 382,791

(3)

17/05/2025

17/05/2032

14/10/2022 (Grant 1)

 15,087,586

117.95

 (406,953)

 -  

 14,680,633

(3)

14/10/2025

14/10/2032

17/10/2022 (Grant 2)

 600,000

122.25

 -  

 -  

 600,000

(3)

17/10/2025

17/10/2032

01/12/2022

 1,285,306

159.35

 -  

 -  

 1,285,306

(3)

01/12/2025

01/12/2032

 

104,085,198


(39,433,931)

(12,347,143)

52,304,124




1.  These options have fully vested as of 31 December 2022.

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 2022, there were 12,273,441 (2021: 11,649,349) outstanding share options which had fully vested with no further performance or holding period requirements and which had a weighted average exercise price of £213.23 (2021: £198.51).

Performance conditions for share options

June 2013 share options

The share options outstanding under this grant at 31 December 2022 reflect the options that have been awarded and vested, based on achievement against the relevant performance targets and are now exercisable with an expiry date of June 2023.

May 2014 share options

The share options outstanding under this grant at 31 December 2022 reflect the options that have been awarded and vested, based on achievement against the relevant performance targets and are now exercisable with an expiry date of May 2024.

November 2014 share options

The share options outstanding under this grant at 31 December 2022 reflect the options that have been awarded and vested, based on achievement against the relevant performance targets and are now exercisable with an expiry date of November 2024.

May 2015 share options

The share options outstanding under this grant at 31 December 2022 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 2022 reflect the options that have been awarded and vested, based on achievement against the relevant performance targets and are now exercisable with an expiry date of December 2025.

June 2016 share options

The share options outstanding under this grant at 31 December 2022 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 2022 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 2022 reflect the options that have been awarded and vested, based on achievement against the relevant performance targets and are now exercisable with an expiry date of March 2027.

December 2018 (Grant 1) share options

The share options outstanding under this grant at 31 December 2022 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 December 2021 and ending December 2023.

December 2018 (Grant 2) share options

The share options outstanding under this grant at 31 December 2022 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 2022 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 May 2022 and ending May 2024.

September 2019 share options

The share options outstanding under this grant at 31 December 2022 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 2022 and ending September 2026.

December 2019 share options

The share options outstanding under this grant at 31 December 2022 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 2022 and ending December 2026.

 

April 2020 share options

The share options outstanding under this grant at 31 December 2022 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 2022 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.

September 2020 share options

The share options outstanding under this grant at 31 December 2022 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.

March 2021 share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning March 2024 and ending March 2026.

May 2021 share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning May 2024 and ending May 2026.

August 2021 share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning August 2024 and ending August 2026.

March 2022 share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning March 2025 and ending March 2027.

 

May 2022 (Grant 1) share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning May 2025 and ending May 2027.

May 2022 (Grant 2) share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning May 2025 and ending May 2027.

October 2022 (Grant 1) share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning October 2025 and ending October 2027.

October 2022 (Grant 2) share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning October 2025 and ending October 2027.

December 2022 share options

The share options outstanding under this grant at 31 December 2022 are subject to Group performance targets 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. Any shares awarded based on achievement of these performance targets will then be subject to vesting ratably over a three-year period beginning December 2025 and ending December 2027.

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
2022

October
2022

(Grant 2)

October
2022

(Grant 1)

May

2022

(Grant 2)

May

2022

(Grant 1)

March
2022

Share price on grant date

159.35p

122.25p

117.95p

242.30p

222.10p

255.00p

Exercise price

159.35p

122.25p

117.95p

242.30p

222.10p

255.00p

Expected volatility

54.01% -

59.92%

53.34% -

58.16%

53.30% -

58.05%

53.48% -

56.71%

54.59% -

56.66%

54.33% -

57.32%

Option life

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

Expected dividend

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

Fair value of option at time of grant

106.53p - 113.10p

81.12p -

85.29p

78.24p -

 82.21p

153.52p - 158.97p

142.70p - 145.61p

162.79p - 168.44p

Risk-free interest rate

3.22% -

3.24%

3.22% -

3.24%

3.22% -

3.24%

1.42% -

1.60%

1.42% -

1.60%

1.41% -

1.49%

 



August
2021

May

2021

March

2021

September

2020

May

2020

April

2020

December
2019

September
2019

Share price on grant date

310.00p

376.60p

342.80p

291.00p

202.00p

165.00p

408.60p

402.30p

Exercise price

310.00p

376.60p

342.80p

291.00p

202.00p

165.00p

408.60p

402.30p

Expected volatility

53.67% -

57.07%

53.78% -

59.19%

53.64% -

59.13%

51.81% - 62.96%

50.15% - 61.06%

49.02% - 59.29%

36.24% - 44.72%

36.33% - 44.83%

Option life

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

3-5 years

3-7 years

3-7 years

Expected dividend

1.12%

0.96%

1.00%

2.39%

3.44%

4.21%

1.59%

1.62%

Fair value of option at time of grant

163.92p - 171.67p

202.75p - 217.81p

183.02p -

196.95 p

122.93p - 146.68p

71.39p - 86.80p

50.79p - 62.29p

141.77p - 172.84p

137.79p - 169.19p

Risk-free interest rate

0.37% -

0.49%

0.16% -

0.34%

0.15% -

0.33%

(0.08%) - (0.04%)

0.00% - 0.06%

0.00% - 0.06%

0.57% - 0.65%

0.48% - 0.50%

 


May
2019

December
2018
(Grant 2)

December
2018
(Grant 1)

March
2017

September
2016

June
2016

December
2015

May
2015

Share price on grant date

341.90p

199.80p

203.10p

283.70p

258.00p

272.50p

322.20p

250.80p

Exercise price

341.90p

199.80p

203.10p

283.70p

258.00p

272.50p

322.20p

250.80p

Expected volatility

38.84% - 45.75%

37.66% - 44.35%

37.63% -
44.25%

27.42% -
29.87%

27.45% -
32.35%

27.71% -
34.81%

24.80% -
37.08%

27.23% -
30.12%

Option life

3-5 years

3-5 years

3-5 years

3-5 years

3-7 years

3-7 years

3-7 years

3-7 years

Expected dividend

1.85%

2.95%

2.90%

1.80%

1.80%

1.71%

1.40%

1.59%

Fair value of option at time of grant

120.77p - 141.08p

58.77% - 69.33%

39.36p -
46.42p

44.51p -
76.88p

40.96p -
67.89p

44.28p -
78.68p

29.76p -
90.61p

42.35p -
69.12p

Risk-free interest rate

0.52% - 0.60p

0.87% - 1.01%

0.73% -
0.88%

0.23% -
0.56%

0.09% -
0.38%

0.14% -
0.39%

0.14% -
0.21%

0.81% -
1.53%

Plan 2: IWG plc Performance Share Plan (PSP)

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


2022

2021


Number of awards

Number of awards

At 1 January

 3,160,617

3,237,768

PSP awards granted during the year

 1,289,217

959,015

Lapsed during the year

 (1,324,583)

(1,036,166)

Exercised during the year

 (583,039)

-

Outstanding at 31 December

 2,542,212

3,160,617

Exercisable at 31 December

-

-

There were 583,039 shares which were exercised during the year ended 31 December 2022 (2021: nil). The weighted average share price at the date of exercise for share awards exercised during the year ended 31 December 2022 was 256.00p (2021: nil pence).

Plan

Date of grant

Numbers
granted

Lapsed

Exercised

At 31 Dec
2022

Release date

PSP

01/03/2017

 1,095,406

 (512,367)

 (583,039)

 -  

01/03/2022

PSP

07/03/2018

 1,278,350

 (1,051,546)

 -  

 226,804

07/03/2023

PSP

07/03/2019

 1,058,578

 (848,474)

 -  

 210,104

07/03/2024

PSP

04/03/2020

 915,739

 (306,407)

 -  

 609,332

04/03/2025

PSP

26/03/2021

 959,015

 (320,887)

 -  

 638,128

26/03/2026

PSP

09/03/2022

 1,289,217

 (431,373)

 -  

 857,844

09/03/2027



 6,596,305

 (3,471,054)

 (583,039)

 2,542,212


 

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:



March
2022

March
2021

March
2020

March
2019

March
2018

Share price on grant date

255.00p

346.40p

356.50p

244.90p

240.90p

Exercise price

nil

nil

nil

nil

nil

Number of simulations

250,000

250,000

250,000

250,000

250,000

Number of companies

32

32

32

32

32

Award life

5 years

5 years

5 years

5 years

5 years

Expected dividend

0.00%

1.00%

1.95%

2.57%

2.37%

Fair value of award at time of grant

167.75p - 254.14p

206.19p- 312.37p

292.36p- 192.98p

124.38p - 188.43p

124.92p - 189.26p

Risk-free interest rate

1.45%

0.33%

0.06%

0.79%

1.21%

It is recognised by the Remuneration Committee that the 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.

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.

Based on results as of 31 December 2021, the relative TSR target of exceeding the comparator group median TSR by less than 10% was achieved, resulting in the vesting of 118,055 shares subject to a holding period ending March 2023. The performance targets for EPS and ROI were not met and the share awards pursuant to these targets lapsed.

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 relative 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 award that vests

Exceeds the median by 10% or more

100%

Exceeds the median by less than 10%

On a straight-line basis between 25% and 100%

Ranked at median

25%

Ranked below the median

0%

 

2021 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 2021. Thus, conditional on meeting these performance targets, these shares will vest in March 2026.

The relative 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 award that vests

Exceeds the median by 10% or more

100%

Exceeds the median by less than 10%

On a straight-line basis between 25% and 100%

Ranked at median

25%

Ranked below the median

0%

2022 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 2022. Thus, conditional on meeting these performance targets, these shares will vest in March 2027.

The relative 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 award that vests

Exceeds the median by 10% or more

100%

Exceeds the median by less than 10%

On a straight-line basis 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.

Reconciliation of outstanding share options


2022

2021


Number of awards

Number of awards

At 1 January

 376,291

 376,291

DSBP awards granted during the year

 683,166

-

Lapsed during the year

 -  

-

Exercised during the year

 (112,014)

-

Outstanding at 31 December

 947,443

 376,291

Exercisable at 31 December

 -  

-

The weighted average share price at the date of exercise for share awards exercised during the year ended 31 December 2022 was 256.00p (2021: nil pence).

Plan

Date of grant

Numbers
granted

Lapsed

Exercised

At 31 Dec
2022

Release date

DSBP

07/03/2019

 112,014

 -  

 (112,014)

 -  

07/03/2022

DSBP

04/03/2020

 264,277

 -  

 -  

 264,277

04/03/2023

DSBP

09/03/2022

 171,415

 -  

 -  

 171,415

09/03/2025

DSBP

02/11/2022

 511,751

 -  

 -  

 511,751

02/11/2027



 1,059,457

 -  

 (112,014)

 947,443


 

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:


November 2022

March
2022

March
2020

March
2019

Share price on grant date

131.90p

255.00p

356.50p

244.90p

Exercise price

nil

nil

nil

nil

Number of simulations

-

-

-

-

Number of companies

-

-

-

-

Award life

5 years

3 years

3 years

3 years

Expected dividend

0.00%

0.00%

1.95%

2.57%

Fair value of award at time of grant

131.18p

254.14p

292.36p

188.42p

Risk-free interest rate

3.24%

1.41%

0.00%

0.68%

27. 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:


2022

2021

£m

Switzerland

Philippines

Total

Switzerland

Philippines

Total

Fair value of plan assets

6

-

6

5

-

5

Present value of obligations

(7)

(1)

(8)

(6)

(1)

(7)

Net funded obligations

(1)

(1)

(2)

(1)

(1)

(2)

 

28. Acquisitions

Current period acquisitions

The Instant Group

On 8 March 2022, the Group completed the investment in The Instant Group, acquiring 100% of the equity voting rights, for a total consideration of £324m. The primary reason for the investment was to combine The Instant Group with the IWG digital assets, to form Worka.

In a separate transaction on 8 March 2022, the Group sold a 15% non-controlling equity interest in a subsidiary of the Worka structure, for a consideration of £53m.

£m

Book value

Final
fair value adjustments

Final
fair value

Net assets acquired




Intangible assets

2

139

141

Right-of-use assets

3

-

3

Other property, plant and equipment

15

-

15

Net investment in finance leases

177

-

177

Cash

25

-

25

Other current and non-current assets

64

-

64

Lease liabilities

(172)

-

(172)

Provisions due within one year

(7)

-

(7)

Current liabilities

(111)

6

(105)


(4)

145

141





Goodwill arising on acquisition



183

Total consideration



324

Cash flow on acquisition




Cash paid



324

Less: cash acquired



(25)

Net cash outflow



299

The goodwill arising on this acquisition reflects the future benefits anticipated by the IWG Group.

If the above acquisition had occurred on 1 January 2022, the revenue and net retained loss arising from this acquisition would have been £121m and £10m respectively. In the year, this acquisition contributed revenue of £104m and net retained loss of £11m.

The was no deferred or contingent consideration arising on this acquisition.

The acquisition costs associated with this transaction were £11m, recorded within administration expenses in the consolidated income statement.

Other immaterial acquisitions

During the year ended 31 December 2022 the Group made various other individually immaterial acquisitions for a total consideration of £5m.

£m

Book value

Provisional
fair value adjustments

Provisional
fair value

Net assets acquired




Right-of-use assets

1

-

1

Other property, plant and equipment

1

-

1

Lease liabilities

(1)

-

(1)

Current liabilities

(1)

-

(1)


-

-

-





Goodwill arising on acquisition



5

Total consideration



5

Less: deferred consideration



(1)

Less: contingent consideration



(1)

Cash flow on acquisition




Cash paid



3

Net cash outflow



3

The goodwill arising on these other immaterial 2022 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, £5m is expected to be deductible for tax purposes.

If the above acquisitions had occurred on 1 January 2022, the revenue and net retained profit arising from these acquisitions would have been £2m and £nil respectively. In the year, the acquisitions contributed revenue of £1m and net retained profit of £nil.

Deferred consideration of £1m arose on the acquisitions made in the year and is held on the Group's balance sheet at
31 December 2022. In addition, £5m deferred consideration relating to prior period acquisitions is held on the Group's balance sheet at 31 December 2022.

Contingent consideration of £1m arose on the 2022 acquisitions. Contingent consideration of £5m was paid and £1m released, during the current year, with respect to milestones, achieved or not achieved, on previous acquisitions. In addition, £1m contingent consideration is held on the Group's balance sheet at 31 December 2022.

The acquisition costs associated with these transactions were £nil, recorded within administration expenses in the consolidated income statement.

For acquisitions completed in 2022, except for The Instant Group, the fair value of assets acquired has only been provisionally assessed, pending completion of a fair value assessment which has not yet been completed. The main changes in the provisional fair values expected are primarily for customer relationships and property, plant and equipment. The final assessment of the fair value of these assets will be made within 12 months of the acquisition dates and any adjustments reported in future reports.

Goodwill of £188m arose relating to 2022 acquisitions.

 

Prior period acquisitions

During the year ended 31 December 2021 the Group made acquisitions for a total consideration of £30m.

£m

Book value

Provisional
fair value adjustments

Final
fair value adjustments

Final
fair value

Net assets acquired





Intangible assets

1

-

-

1

Right-of-use assets

78

-

-

78

Other property, plant and equipment

25

-

-

25

Cash

32

-

-

32

Other current and non-current assets

13

-

-

13

Lease liabilities

(81)

-

-

(81)

Current liabilities

(27)

-

-

(27)

Provisions due after one year

(4)

-

-

(4)

Non-current liabilities

(7)

-

-

(7)


30

-

-

30

NCI based on their proportionate interest in the recognised amounts of the assets and liabilities of The Wing




(15)

Goodwill arising on acquisition




16

Negative goodwill arising on acquisition




(1)

Total consideration




30

Less: deferred consideration




(5)

Less: contingent consideration




(4)

Cash flow on acquisition





Cash paid




21

Less: cash acquired




(32)

Net cash inflow




(11)

Goodwill of £16m arose relating to 2021 acquisitions. Goodwill arising on acquisitions in 2021 includes negative goodwill of £1m, recognised as part of the selling, general and administration expenses in the consolidated income statement.

The goodwill arising on the 2021 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, £16m is expected to be deductible for tax purposes.

Deferred consideration of £5m arose on the acquisitions made in the year and was held on the Group's balance sheet at 31 December 2021.

Contingent consideration of £4m arose on the 2021 acquisitions. No contingent consideration was paid during the current year with respect to milestones achieved on previous acquisitions.

The acquisition costs associated with these transactions were £1m, 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 2022.

29. Capital commitments

£m


2022


2021

Contracts placed for future capital expenditure not provided for in the financial statements

76

89

These commitments are principally in respect of centre fit-out obligations. There are £1m (2021: £1m) of capital commitments in respect of joint ventures and no significant lease commitments for leases not commenced at 31 December 2022.

30. 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 £337m (2021: £309m). There are no material lawsuits pending against the Group.

 

31. Related parties

Parent and subsidiary entities

The consolidated financial statements include the results of the Group and its subsidiaries.

Joint ventures

The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year.

£m

Management fees received from related parties

Amounts
owed by
related party

Amounts
owed to
related party

2022




Joint ventures

6

51

49

2021




Joint ventures

4

20

20

As at 31 December 2022, none of the amounts due to the Group have been provided for as the expected credit losses arising on the balances are considered immaterial (2021: £nil). All outstanding balances with these related parties are priced on an arm's length basis. None of the balances are secured.

Key management personnel

No loans or credit transactions were outstanding with Directors or Officers of the Company at the end of the year or arose during the year that are required to be disclosed.

Compensation of key management personnel (including Directors)

Key management personnel include those personnel (including Directors) that have responsibility and authority for planning, directing and controlling the activities of the Group:

£m


2022


2021

Short-term employee benefits

6

4

Retirement benefit obligations

-

-

Share-based payments

3

2


9

6

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 £6m (2021: £6m). These awards are subject to performance conditions and vest over three, four and five years from the award date (note 26).

Transactions with related parties

During the year ended 31 December 2022 the Group acquired goods and services from a company indirectly controlled by a Director of the Company amounting to an insignificant amount of £19,015 (2021: £27,319). There was a £5,217 balance outstanding at the year-end (2021: £6,751).

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.

 

32. Principal Group companies

The Group's principal subsidiary undertakings at 31 December 2022, their principal activities and countries of incorporation are set out below:

Name of undertaking

Country of incorporation

% of ordinary shares and votes held


Name of undertaking

Country of incorporation

% of ordinary shares and votes held

Trading companies




Management companies



Regus Australia Management Pty Ltd

Australia

100


RGN Management Limited Partnership

Canada

100

Regus Belgium SA

Belgium

100


Pathway IP II S.à r.l.

Switzerland

100

Regus do Brasil Ltda

Brazil

100


Franchise International GmbH

Switzerland

100

Regus Business Service (Shenzen) Ltd

China

100


Regus Service Centre Philippines B.V.

Philippines

100

Regus Management ApS

Denmark

100


Regus Global Management Centre SA

Switzerland

100

Regus Management (Finland) Oy

Finland

100


Regus Group Services Ltd

United Kingdom

100

RBC Deutschland GmbH

Germany

100


IW Group Services (UK) Ltd

United Kingdom

100

Regus CME Ireland Limited

Ireland

100


Regus Management Group LLC

United States

100

Regus Business Centres Limited

Israel

100





Regus Business Centres Italia S.r.l.

Italy

100


Holding and finance companies



Regus Management Malaysia Sdn Bhd

Malaysia

100


IWG Enterprise S.à r.l.

Switzerland

100

Regus Management de Mexico, SA de CV

Mexico

100


IWG Group Holdings S.à r.l.

Luxembourg

100

Regus New Zealand Management Ltd

New Zealand

100


IWG International Holdings S.à r.l.

Luxembourg