Annual Report and Accounts 2016 Accounts and Report Annual plc IWG International Workplace Group
L E A D I N G T H E W O R K P L A C E REVOLUTION
Annual Report and Accounts 2016 IWG is the global What’s inside leader for flexible workspace Strategic report 1 Performance highlights 3 Our brands and services IWG is the global leader in the fast-growing 10 Our business model 12 Chairman’s statement Workspace-as-a-Service (WaaS) sector with 14 Chief Executive Officer’s review approaching 3,000 locations in over 100 18 Our strategic objectives and KPIs 20 Our people countries and 1,000 cities across the world. 22 Chief Financial Officer’s review 27 Risk management and principal risks As the owner and operator of internationally 33 Corporate responsibility renowned brands like Regus, Spaces, Signature, Open Office, Kora and MOS, we provide local Governance and global networks for all kinds of businesses. 36 Board of Directors 38 Corporate governance From independent sole traders and fledgling 44 Nomination Committee report start-ups to the world’s largest corporations, 46 Audit Committee report 50 Directors’ Remuneration report we provide cutting-edge, inspirational 61 Directors’ report workspaces that support effective working 62 Directors’ statements and collaboration. Financial statements
63 Auditor’s report 66 Consolidated income statement 67 Consolidated statement of comprehensive income 68 Consolidated statement of changes in equity 69 Consolidated balance sheet 70 Consolidated statement of cash flows Please visit our new website iwgplc.com 71 Notes to the accounts 113 Parent company accounts 114 Segmental analysis 116 Post-tax cash return on net investment 118 Five-year summary 119 Glossary 120 Shareholder information
A glossary is included on page 119 which defines various alternative measures used to provide useful and relevant information. Strategic report Governance Financial statements
1 2,926
‘16 2,768
2,269
1,831 1,411 ‘12 ‘13 ‘14 ‘15
2,926 Number of locations ease in the network. 231ease in the network. 162.3
‘16 owth capital expenditure of £162.3m of capital expenditure owth 284.9
w in 2,926 locations, across 1,029 towns 1,029 w in 2,926 locations, across w city cluster field structure implementedw city cluster field structure G plc introduced as the new holding as the new G plc introduced ontinued investment in innovating new in innovating ontinued investment 206.6 ey focus on risk management focus ey eturns on new investment benefiting investment eturns on new company of the Group of company from operational scale and efficiency operational from C new and developing and services products location formats Ne K IW R 6% incr Net gr No 100 countries and cities in over in 2016 new locations in 2016 new
• • • • • • • •
• • • • 260.2 • • • • Operational highlights Operational 147.8 ‘12 ‘13 ‘14 ‘15 £162.3m Net growth capital Net growth (£m) expenditure
286.1
‘16
215.7
175.6
115.4 112.4 ‘12 ‘13 ‘14 ‘15 Cash flow before before flow Cash capital growth and expenditure dividends (£m) £286.1m e up 34% to 15.0p
; down 300bp as a percentage 300bp as a percentage ; down to £186.2m (15.8) to £2,233.4m and underlying
(2)
(2) (2) (2.6)
‘15 ‘16
10.0 13.9
(1)
16.6 21.3
(1) ease in full-year dividend to 5.1p (2015: 4.5p) ease in full-year 31.1
ated £286.1m or 30.8p per share of cash in 2016 of ated £286.1m or 30.8p per share 14.3
erheads reduced 13% erheads reduced
urrent trading in-line with management expectations in-line with management trading urrent 25.4 onservative balance sheet maintained with net debt balance onservative ey banking facility increased to £550.0m and maturity increased banking facility ey
operating profit up 14% profit operating extended to 2021, with option to extend to 2023 2021, with option to extend to extended C K 13% incr of revenues to 11.7% revenues of Gener Underlying earnings per shar C (0.4x underlying net debt: EBITDA) £151.3m of (before net growth capital expenditure, share buybacks, share expenditure, capital net growth (before 33% of increase an dividends and disposal proceeds), Ov Gr Impr to 25.1% ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 t constant currency t constant • • • • • • • • investments onpre-12 cashreturns post-tax oved • up5.5% oup revenue 2016 Post-tax cash 2016 Post-tax on net return year by investment of opening (%) A T • • • • • • • Key highlights Key • •
A successful and transformational year for the Group. Strongly Strongly Group. the for year transformational and A successful opportunities growth the structural benefit from to positioned sector. WaaS the within Performance highlights 1. onnetinvestment cashreturn ourpost-tax calculate we detailsonhow page10for urn to 2. International Workplace Group
WE ARE LEADING INNOVATIVE FLEXIBLE
The commercial property market has changed, and the fixed-lease contract is becoming less appealing to businesses. Instead, today’s cloud-based companies and business people are demanding unprecedented choice in where and how they work. We can provide everything they want. The ability to expand, contract or move – instantly. Cost-effective, transparent and simple agreements. 100% managed and maintained workspaces, in over 100 countries across the world. In short, we’re at the forefront of the WaaS sector.
2 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 3
Flexible, turnkey outsourced office managed solutions meeting customer in requirements any location Workplace Workplace recovery a disaster, of In the event to our international access centres business of network ourand 24/7 support from teamsdedicated operations toenable our customers continuity. business ensure DynamicOur award-winning solution Recovery Workplace SLA-guaranteed provides local recovery in optimal local recovery locations dependent upon disaster.the type of
Our entrepreneurial community connecting the from partners business of worlds and learning
Mobile the time, years’ In only a few will be global workplace who employees dominated by anything known never have other than the liberating of mobile technology. effects on” “always These tech-savvy, up make individuals already the of a high proportion – and it is workers world’s them to for nature second to them no barriers expect and wherever working want. they whenever are Our sites and services across helping businesses marry their needthe world agility with greater for demands growing employees’ and flexibility greater for balance. better work/life Friendly, sociable Friendly, to work, places great offering money value for
OUR BRANDS OUR SERVICES Exclusive, Exclusive, high-status properties business athat make statement powerful cost-effective customer contract. customer cost-effective compromise on quality, style value. or quality, on compromise
to meet or work as well as as well to meet or work Combined support services. of with our global network business space, co-working and meeting rooms lounges, our Virtual Office day offices, them thesolution gives need to they access space. flexible short-term, Home self- of The proportion and outsourced employed people in the global every is growing workforce seek freedom as they year the daily commute. from looking now Enterprises are in their flexibility greater for practices. employment This means continued in the number growth from people who work of home but still need places
Businesses increasingly know exactly what they want from their from want exactly they what know increasingly Businesses
Creative working Creative environments businesses for all sizes of
to individual requirements meaning there’s no need for them to ever to them for need no there’s meaning requirements individual to The line-up of services that we offer at all our sites is industryis leading sites our all at line-up offer The services we of that connectivity, IT helpdesks, firewall security, reception, food and beverage beverage and food reception, security, helpdesks, IT connectivity, firewall workspaces. Our line-up of different flexible formats is rapidly adaptable adaptable rapidly formats is flexible workspaces. Our line-up different of
and continuously growing. From 24/7 network monitoring to enterprise-level enterprise-level to network monitoring 24/7 From growing. continuously and and facilities management services, we provide everything required under a single, under services, everything required management provide we facilities and Places to work Places for everyone, everyone, for worldwide Office companies the world, Across successfully are all sizes of out their business growing from our workplaces, of in their can be flexible they at commitments property moment they the precise found need to be. They’ve to be don’t have that premises they Instead, capital intensive. solutionscan fit their property their the needs of around and their people – business not the other way round. major global headquarters tomajor global headquarters and satellite centres regional sales or support offices. them, the beauty of For with us is thatworking WE ARE LEADING
IWG’s position at the forefront of the WaaS sector is unchallenged, with approaching 3,000 locations throughout over 1,000 cities worldwide. And our industry leadership is set to grow, driven by market demand and the liberating impact of technology.
MAIN DRIVERS OF FLEXIBLE WORKING(1)
Businesses expanding abroad 19%
Businesses hoping to attract top staff 23%
Businesses hoping to improve staff retention 25%
Businesses wanting to be more reactive to market changes 35%
Businesses wanting to scale staff numbers more flexibly 35%
Businesses avoiding fixed leases 37%
Businesses wanting to be more agile as they seek to grow 38%
Workers demanding to work remotely 41%
Workers demanding to work closer to home 43%
Businesses wanting to reduce office costs 51%
4 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Mobile Technology The What does workforce enabling productivity this mean demanding change challenge for IWG? flexibility The demand for Research shows that Increasingly, the flexible IWG is uniquely well workplace flexibility is 64% of companies see workplace is becoming positioned to take becoming increasingly enabling their people to a source of competitive advantage of these urgent, driven by achieve more effective advantage for powerful trends. We employees and mobile working as a key companies. On the one are already the world’s employers, by customers priority(3). As a result, hand, it’s about utilising largest provider of flexible and by cost-conscious 89% of companies see space in a way that helps workspace solutions,
accountants. Of these, mobile working as the people work together with customers including Governance the workers’ voice is main driver behind the better, share knowledge successful entrepreneurs, loudest. With tech-savvy, take-up of cloud more easily and innovate the self-employed creative Millennials set to technologies(1). This is no more. On the other, it’s and multi-billion dominate the workplace surprise. In a world about enabling work-life dollar corporations. (2) by 2020 . Companies where devices, services integration, empowering Through our range of office are having to provide the and people are people to work, formats and our growing organisational structures increasingly connected independently or mobile, virtual office and in which they are most by technology, digital collaboratively, wherever workplace recovery effective, collaborative disruption is making they might be. Getting businesses, we are and innovative. 54% spend on a fixed physical this right pays great enabling people and of people are already location increasingly dividends, with businesses across the working remotely for obsolete. More companies across planet to work wherever, more than half the importantly, mobilisation the world reporting however and whenever
(1) Financial statements week , so giving them is shown over and that flexible working they want – all at a range the ability to work where over again to result in contributes directly of price points to suit they want, how they want a more engaged, more to the bottom line. every circumstance. and when they want is committed and more And our competitive crucial. productive workforce. GLOBAL TRENDS GLOBAL advantage will only strengthen further as demand increases and we continue to grow our network, our range of services and our varied formats.
54% 89% 80% of people now see mobile working of global workers work remotely as the main driver say that flexible for more than of cloud technology workers are better half of the week(1) take up(1) able to manage the Sources: demands of work 1 MindMetre Research and personal life(1) 2 Millennials at work, PwC 3 The expanding role of mobility in the workplace, Cisco Systems
5 W E A R E INNOVATIVE
Innovation is not all about technology. As well as major upgrades to our mobile app during 2016, we focused our innovation resources on areas as diverse as customer satisfaction, format design, business continuity and improving productivity for the mobile workforce.
The Citizen of the World organisation has named our Spaces format, aimed particularly at workers seeking to think, create and collaborate, as one of Australia’s coolest places to work. This reflects the format’s balanced approach that includes entertainment and wellbeing opportunities for people to bond and connect as well as work. Our mission to make business travel more productive for our customers continued in 2016, with the opening of new Regus Express locations at airports serving cities including Prague, Mumbai, Osaka, Sydney, Amsterdam and London (Stansted). As part of our strategy to sustain best-in-class service levels, we introduced a new customer-service feedback loop and courtesy-call programme in 2016. This is already enabling us more easily to develop new or improved service features based precisely on customer feedback. Spaces, Richmond, Australia.
6 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 7
3x increase booked in revenue our app through
Spencer Marks & Continuity, Head of Business Business Head of John Frost the last 12 months.” 12 last the occasions across Europe in Europe across occasions locations on three separate separate three on locations activation of work area recovery recovery area activation work of other requirements, urgent the as such 4x increase in downloads 2016 saw a four-fold increase in downloads and a three-fold increase and a three-fold in downloads increase a four-fold 2016 saw 2015. This to our mobile app compared through booked in revenue solutions of mobile and digital self-service role the growing reflects at the heart of our relationship with customers, enabling them to with customers, our relationship at the heart of many delivered bookings. We easily carry out all short-stay streamlined to the app during 2016, including improvements payment, admin and booking processes. “What attracted us to Regus Business Regus “What to us attracted quick in scheduling test rehearsals test and scheduling in quick operations team – it has been incredibly incredibly been has – it team operations Continuity Offerings and more specifically specifically more Offeringsand Continuity of working with the 24/7 business continuity business 24/7 the with working of their award-winning Dynamic Workplace We were also highly impressed with the ease the with impressed also highly were We Recovery solution was the SLA-guaranteed, the was solution Recovery in the UK and Ireland. and UK the in global reach. This covers our sites in multiple citiesmultiple in sites our covers This reach. global requirements additional support possible to scope throughout Asia Pacific and Europe and offersand the Europe and Asia Pacific throughout
The Regus Dynamic Workplace Dynamic Workplace The Regus solution received Recovery andthe 2016 BCI Continuity the Year of Innovation Resilience and Asia. in both Europe award WE ARE FLEXIBLE
From office space to creative co-working solutions, access to business lounges, day offices and meeting rooms in thousands of locations, we give our customers and their employees endless opportunities to work in the way that suits them best.
“As you’re growing, you require dedicated communication lines, a fully serviced reception, meeting rooms for your company’s reputation, and a facility for video conferencing. We’ve looked at a number of places for the company, but Regus made sense for us.”
Bayanda Khwela Headlines Media Group and W8 Records, Johannesburg, South Africa
8 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 9
The Netherlands Amsterdam,
Spaces Vijzelstraat Vijzelstraat Spaces
Sandra Tanahatoe Tanahatoe Sandra Switzerland. Switzerland. environment.” Zurich, I’ve perfect the got working and the event programme and programme the event and Regus, Regus, “Even though I have my own my I have though “Even office space, I love working working in love I space, office the working day. Add the services Add the day. working the of INCS AG, INCS AG, of the business club andthe connecting business club really gives me a buzz throughout me gives really with other members Spaces – it Partner and CEO Partner Stefan Kühn Stefan reasons I chose Regus.” I chose reasons clients – that was one of the of one was – that clients the infrastructure would be for our for be would infrastructure the “I considered the office choice from choice office the “I considered how considered important, I really so a clients’ perspective.a clients’ I’m actually the people around me who are more are who me around people the quite easy-going because of how much my office looks or where it me For it lookswhere is. or it’s office my I travel, so I don’t mind too much how much too mind I don’t so I travel, Our business model How we create value
Once again, our progress in 2016 justified our confidence in the Group’s business model, which is unchanged following the introduction of a new holding company, IWG plc. During the year we carried out rigorous planning, stress-testing and constant review. These clearly demonstrate that our business model remains fit for purpose.
Our Customers Returns business
The geographic scale of our operations Our customers – from self-employed Our approach to investment ensures is unmatched. As our physical network entrepreneurs to multinational corporations we deliver strong post-tax cash returns, grows, so does our lead over alternative – use our centres and services because generating long-term shareholder value workspace providers. Our business they want to be in the best places to through post-tax returns on net investment comprises four fundamental and focus on their business and its priorities. that are well in excess of our cost of capital. interconnected elements: our people, They stay because we provide them with Our focus is on optimising revenue our network, our products and our brands. an excellent service at competitive rates, generation through improving the We underpin these with: with a product that flexes to meet their performance of each location in our •• rigorous planning and business review every requirement. global network. This gives us the solid processes that support the execution foundation we need to deliver strong of our growth strategy; returns, particularly when combined with our discipline on overhead costs, •• constant investment in innovation which continue to fall as a percentage to differentiate us from our of revenues. competitors; and •• disciplined management procedures How we calculate our returns that enable us to minimise and control We base our returns on the post-tax the risks inherent in rapid growth. return divided by the net growth capital investment. Post-tax cash return = EBITDA less amortisation of partner contribution, less tax based on EBIT, less maintenance capital expenditure. Net growth capital investment = growth capital less partner contributions.
2016 Post-tax cash return on net investment by year of opening (%)(1) 31.1 25.4 21.3 16.6 14.3 13.9 10.0
‘15 ‘16
‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 (2.6) (15.8)
1. Turn to pages 116 and 117 to see how our calculation 10 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 of post-tax cash return on net investment reconciles to our audited statutory accounts. Strategic report Governance Financial statements 11
Investment Investment in growth £162.3m and diversity in partner relationships. and diversity enabling us to grow these are Together, Our network growth is enhanced by our by is enhanced growth Our network new in developing investment continued on focus and a greater location formats lower way with capital-efficient in a more risk. of levels plans Our ability to adapt our growth We continue to invest significantly in to invest continue We openings organic both through growth, continue and we acquisitions, and selective to find many high-quality opportunities criteria. returns that meet our stringent conditions changing market to reflect ouris another important aspect of the risk through capability to manage short With relatively cycle. economic with contracting lead times between location,a partner and opening a new in the are we depending on where can either rapidly we cycle, economic investment capitalise on a favourable growth. or restrict environment Net growth capital Net growth expenditure
Final Interim
5.10p
3.55 1.55
‘16
3.10 1.40
2.75 1.25
1.10 2.50
1.00 Returns to Returns shareholders 2.20 ‘12 ‘13 ‘14 ‘15 Under our progressive dividend policy, dividend policy, Under our progressive we have proposed to increase the 2016 to increase proposed have we treasury acquired 13%. We dividend by £34.2m during 2016. for shares Dividend per share (p) Dividend per share
£286.1m 286.1
‘16
215.7
175.6
115.4 112.4 ‘12 ‘13 ‘14 ‘15 Cash Cash flow before growth capital growth before flow Cash and dividends (£m) expenditure our continued investment in developing in developing investment our continued cash generation Strong our network. progressive underpins the Group’s as buybacks as well dividend and share locations to ourfunding the addition of highly disciplined in are We network. risk undertaking rigorous cash, our use of analysis prior to any decision being taken. A particularly attractive feature of the IWG of feature A particularly attractive conversion model is our strong business we into cash. The cash flows profit of our locations support from generate Chairman’s statement A year of substantial development
Revenue for the 2016 financial year IWG is a Jersey-incorporated company increased to £2,233.4m (2015: £1,927.0m), with its head office in Switzerland. The an increase of 5.5% at constant currency choice of Switzerland reflects, among (up 15.9% at actual rates). With the other factors, the increasing presence of Once again, we have improved operational efficiency, senior management located in Switzerland underlying operating profit grew 14% as the Group continues to streamline its delivered against our at constant currency to £186.2m (a 29% organisation in order to achieve synergies strategy as demonstrated improvement at actual rates). Underlying of scale while developing worldwide. profit before tax increased 34% to by a strong set of financial £174.7m. Our cash performance was Strategy results as well as the further again strong. Cash flow before growth Our strategy uniquely positions us to capital expenditure, share repurchases both drive and benefit from the exciting growth of our business and and dividends increased 33% to £286.1m. developments and growth in the flexible our global network. It was This strong financial performance has workspace market. We have continued driven a further increase in our post-tax our efforts to enhance our operating particularly pleasing to see cash returns on net growth investment. model with a focus on simplicity, scalability, our concerted efforts to These strong results were achieved people, cost control, risk management and improve efficiency result in alongside further strategic development great customer experience. of our business, growing our network We are actively pursuing our partnering lower overheads whilst we with the addition of 231 new locations, approach to investment, in which we also continued significant refining our formats to benefit our will increasingly become the facilitator growth in the number of customers, introducing innovative new between the property investor and the solutions, driving operational efficiencies end customer. We made good progress in our locations. through initiatives including a new city this area during 2016, targeting property clustered field structure and capital owners with a view to partnering with Douglas Sutherland efficiencies by focusing on partnering them in the expansion of our national Chairman with property owners. Throughout all networks across the world and entry into these activities, our strong cash new markets. This will have the effect of generation and disciplined investment improving returns and reducing risk across approach have once more enabled us the business. Our approach to enhancing to maintain a robust capital structure. property returns will also allow us to invest on an opportunistic basis directly in New name properties where the return is attractive. One highly visible change that took place Our large global footprint gives us the during the year was the change in name ability to constantly review our investments to IWG plc (International Workplace Group) in growth by region, by country and by for the new holding company of the Group. city. Our agile approach means that we There were several reasons for this move can rapidly adjust our investments based which supports our provision of flexible on evolving market conditions. workplace solutions under multiple brands, including Regus, Spaces, Signature, OpenOffice, Kora and MOS. In the Board’s view, while Regus will remain one of our flagship brands, we can better serve customers and optimise growth and returns by offering a segmented portfolio of workplace formats and solutions.
12 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report
Board Dividend
I would like to thank my Board colleagues We continue our commitment to a Governance for their valuable contributions during the sustainable and progressive dividend year, which helped the Group deliver in recognition of our confidence in the another strong set of results for the benefit long-term performance of the business of our customers, our business partners, and the strength of the Group’s financial our employees and our shareholders. position. The Board is recommending a On 17 February 2017 we announced 15% increase in the final dividend to that Lance Browne has resigned as a 3.55p. Subject to the approval of Non-Executive Director effective from the shareholders at the 2016 AGM, this will annual general meeting on 16 May 2017. be paid on 26 May 2017 to shareholders I wish to thank Lance for his wisdom, on the register at the close of business on insight and support in his role as Senior 28 April 2017. This represents an increase Independent Director as well as his many in the full-year dividend of over 13% to contributions to the Group’s overall 5.10p (2015: 4.50p). success. I look forward to working with Douglas Sutherland Financial statements François Pauly who will be proposed for Chairman the role of Senior Independent Director with effect from Lance’s resignation. 28 February 2017 People Each year our success is driven by the commitment and skill of our talented and experienced people. An engaged and dedicated workforce is vital to us achieving our global growth aspirations. We recently concluded our annual senior leadership conference, with active participation of almost 200 colleagues from around the world. The capabilities and enthusiasm displayed there renewed my confidence in our ability to continue to execute our strategy. Our success is testament to our people in every market and at every level. I would like to thank them on behalf of the Board for their strong performance and implementation of significant initiatives in what has been a transformational year for the Group, solidly positioning IWG for future growth.
13 Chief Executive Officer’s review Another year of high-quality growth
A fast-evolving market sector Our investment case The WaaS sector is a vibrant, modernising At IWG, we are giving employers and force in workplace provision across employees what they want and need. We the world. Technology increasingly are the primary enablers of this revolution frees organisations and individuals in how people are working globally. We from the shackles of the fixed lease, have more flexible workspaces worldwide allowing them to work in more than anyone else, serving organisations of productive and satisfying ways. all sizes. We also have a strong and growing Quite simply, companies don’t need their portfolio of brands to meet the needs of people to be in one place anymore and, the market. And our economies of scale, as generations emerge that have only ever years of experience, organisational agility known the liberating effects of technology, and focus on customer needs make us less the wide availability of flexible workspaces costly and easier to work with. is enabling a way of working that is With the workplace revolution, our continuing to grow rapidly. investment case continues to strengthen. A 2016 research paper from J.P. Morgan We have detailed plans to extend our states, “we believe that the impact of the current lead, in existing and new markets internet on transaction costs will result in across the world. We are increasingly During 2016, we a greater number of smaller firms/tenants positioned as the “intermediary” that seeking divisible, modular and flexible brings together our property-owner successfully expanded our office space. Concurrently, we expect partners with end customers – supplying business as the market larger firms will downsize, using technology one with strong cash flow and the other leader in one of the fastest- such as Artificial Intelligence, machine with workspace flexibility and access to learning and algorithms, while opening different formats. Our advantages are growing sectors of the up previously closed networks to engage tangible and important: we can expand global commercial property in the 21st century economy.” faster than our competitors; our operational efficiency is better and improving all The paper also states: “the long lease to a industry. This is the flexible the time as we work to streamline our large single tenant is at risk … and business management processes. The relevance and workspace or ‘Workspace- models not positioned to embrace the quality of our service offering is compelling. as-a-Service’ (WaaS) sector, flexible workspace era will risk being underexposed to a quickly growing and These advantages – scale, maturity, brands, which we pioneered under vibrant part of the emerging office market.” technological leadership, efficiency and agility – were all reflected in our financial our long-established Regus I could not agree more. In this new world, performance during 2016, when we technology in the shape of increasing brand and will continue successfully achieved the increased numbers of apps, VoIP (voice over internet revenue and reduced cost-base we targeted to lead under our new protocol) solutions and instant messaging to deliver improved margins and returns. holding company, IWG plc opportunities are making physical distance (International Workplace irrelevant. All that’s required is a fast and Strong financial performance stable internet connection. This is equally The post-tax cash return on net growth Group). important to increasingly dispersed investment from locations opened on corporations and to the growing number or before 31 December 2011 improved Mark Dixon of self-employed workers, who are looking to 25.1% from the 23.1% achieved in for co-working spaces as an alternative to Chief Executive Officer 2015 on the same estate. Rolling this working exclusively from home. estate forward one year, the 2016 post-tax cash return on net growth investment from locations opened on or before 31 December 2012 was 23.6% (2015: 21.5%). Group revenue increased by 5.5% at constant currency to £2,233.4m (2015: £1,927.0m) (up 15.9% at actual rates). Whilst we experienced a deceleration in revenue progression throughout the course of 2016, this reflected a number of factors including the base-line effect of prior year acquisitions and softening demand in certain geographic markets. We also took a more cautious and selective approach to growth and, in certain instances, sought to consolidate locations.
14 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Group income statement more partnering deals and the roll out of Strategic report % Change % Change our Spaces format. (actual (constant £m 2016 2015 currency) currency) We also benefited from the scale and Revenue 2,233.4 1,927.0 15.9% 5.5% spread of our global footprint. In last year’s Gross profit (centre contribution) 448.8 428.4 5% (4)% report, for example, I referred to the need Overheads (inc. R&D) (261.8) (283.9) (8)% (13)% to be ‘watchful’ in our Asia Pacific region, Underlying operating profit(1) 186.2 144.8 29% 14% due to the slowing Chinese economy. This Non-recurring items (1.0) 15.3 – – did cause some challenges during 2016, Operating profit 185.2 160.1 16% 3% which we successfully managed by taking early action and improving efficiencies Underlying profit before tax 174.7 130.4 34% across the Group. Profit before tax 173.7 145.7 19% Underlying taxation (34.9) (25.9) Americas Taxation (34.9) (25.8) Mature revenues in the Americas, our Underlying profit after tax for largest region, declined 2.2% at constant the year 139.8 104.5 34%
currency to £826.2m (up 10.5% at actual Governance Profit after tax for the year 138.8 119.9 16% rates). Total revenues for the region were Underlying EBITDA 380.7 290.0 31% 18% up 4.8% at constant currency to £923.0m EBITDA 379.7 305.3 24% (up 18.5% at actual rates). This 1. After contribution from joint ventures performance reflects a better relative On a regional basis, mature(2) revenues and contribution can be analysed as follows: result in the US offset by more pronounced Revenue Contribution Mature gross margin (%) weakness in other parts of the region, £m 2016 2015 2016 2015 2016 2015 most notably in Mexico, Brazil and Canada Americas 826.2 747.8 188.0 181.9 22.8% 24.3% which saw a further deceleration during EMEA 406.9 372.7 104.1 91.8 25.6% 24.6% the fourth quarter. Mexico has been a Asia Pacific 293.2 265.5 72.9 66.2 24.9% 24.9% difficult market, with the weak currency UK 358.5 361.2 83.9 84.3 23.4% 23.3% impacting business activity, and Brazil has Other 6.8 2.9 6.8 1.0 continued to struggle in a recessionary environment. In Canada our business has Total 1,891.6 1,750.1 455.7 425.2 24.1% 24.3% been affected by challenging market Financial statements 2. Centres open on or before 31 December 2014 conditions around the oil industry, particularly in Western Canada. Although a higher level of closures has dividends and buying back shares by 33% reduced Group revenues, it has been the to £286.1m (2015: £215.7m). This scale Performance across the US was, however, right thing to do for the profitability of our of cash generation more than funded our mixed with several very good areas and business. This, together with the very strong growth programme, the buyback of shares some much weaker, as management control of overhead costs which actually and the continuation of our progressive were challenged with implementing reduced by 13% at constant currency, dividend policy. Consequently our net debt the changes to the field structure across has delivered a 14% constant currency position reduced from an opening position a very large business, which extended into increase in underlying operating profit of £190.6m at 1 January 2016 to £151.3m the fourth quarter as anticipated. Although to £186.2m (2015: £144.8m) (up 29% at 31 December, 2016. This represents these moves have led to strong cost at actual rates). Overheads as a percentage an underlying Group net debt to EBITDA savings at the centre level, in the near-term of revenues have reduced three percentage leverage of 0.4 times, which is well below these have been offset by the impact of points from 14.7% to 11.7%, which is our internal 1.5 times limit and reflects the some related distraction and the need to a strong performance and one on which continuation of our prudent approach to grow into the capacity that has been we can continue to build. the Group’s capital structure. introduced in recent years through the growth programme. During 2016 we invested £162.3m of net growth capital expenditure, adding Performance by region Notwithstanding this, there has been a further 231 locations to the network, This year’s results represent an a gradual improvement in sales activity which stood at 2,926 locations at the endorsement of our strategy and and deals won since October. Whilst this end of the year. As expected this reflects investment case, as IWG drives growth is encouraging, and suggests the fourth a more selective approach to new alongside greater overhead efficiency quarter was a low point for our location openings, increasing traction and improved returns. We added 231 new performance in the region, it does take on partnering deals which result in locations during the year and we selectively a period of time for this to materialise in less capital intensity of new openings entered a new national market with our revenues, so we would expect a steady and a significantly lower level of Barbados. The rate of growth was, however, rebuilding throughout the coming year. deliberately tempered in response to acquisition growth. Although the mature gross profit margin for increased macro-economic and geopolitical the region declined from 24.3% to 22.8%, Converting profit into cash remains an uncertainties in certain geographies in overhead cost savings have been material attractive feature of our business model. order to maintain the quality of our new in the Americas. Average mature occupancy We increased our cash flow before locations and returns on investment, with investment in growth capital expenditure, was 78.8% (2015: 81.0%).
15 Chief Executive Officer’s review continued
We added 86 new locations into the region Asia Pacific UK during the course of the year. We are Mature revenues in Asia Pacific declined Mature revenue in the UK declined 0.7% expanding into more parts of the region 2.7% at constant currency to £293.2m to £358.5m, which is a better performance geographically and rolling out our Spaces (up 10.4% at actual rates). Total revenues than the 1.7% mature revenue decline in format. In total we had 1,212 locations in for the region were £363.2m, an increase constant currency for the Group overall. The the Americas at 31 December 2016. of 10.6% at constant currency (up 25.6% mature gross profit margin remained strong at actual rates). Mature occupancy was at 23.4% (2015: 23.3%), while mature EMEA 78.8% (2015: 79.4%) and the gross profit occupancy reduced from 80.5% to 75.4%. EMEA experienced a mixed performance. margin was maintained at 24.9%. While This reduction partly reflects a 5% increase Mature revenues for the region declined we still see a significant opportunity for in available inventory and the decision 2.2% at constant currency to £406.9m long-term growth in this region, we to selectively increase pricing in certain (up 9.2% at actual rates). Total revenues for approached 2016 with a little more locations. Total revenues in the UK EMEA increased 5.0% at constant currency caution and selectivity, with a particular increased 2.9% to £462.1m (2015: to £476.8m (up 17.3% at actual rates). The focus on partnering deals. As a result, £449.2m). After a relatively stable mature gross profit margin improved from we added 54 new locations during 2016 performance for the first nine months, 24.6% to 25.6% and gross profit increased compared to 146 in 2015. In total we had we started to experience some pressure 2% on a constant currency basis. Overhead 590 locations across the region at 31 on revenue growth in the fourth quarter. savings have been strong in the region December 2016. Another contributing factor to the decline and this has helped the operating profit Individual market performances during the in overall revenue growth in the UK has performance. Mature occupancy increased period have been varied. Our businesses been the large number of location closures from 76.4% to 78.5%. We added 80 in India and Hong Kong improved their and the more selective approach to growth. locations to the network during 2016, performance and our business in Japan In addition to complying with the including some small acquisitions towards was stable and in line with the Group Competition and Markets Authority ruling the end of the year. At 31 December 2016 performance. We experienced a to dispose of certain acquired locations we had 794 locations in EMEA. deceleration in growth in our businesses in the UK, we took the opportunity to Trading across this diverse region has been in China and Australia. Both these markets consolidate and refresh some of our mixed. Our overall performance in Northern weakened throughout the year, leading to a existing estate. This has given rise to a and Southern Europe has been good. very weak fourth quarter. The slowdown in higher than normal number of closures. Russia, on the other hand, has been a very growth in China has been well documented During 2016 we added 11 new locations difficult market as a result of the economic and similarly for Australia with its exposure but closed 28 locations. This reduced the environment and the weakness of the to natural resources. Notwithstanding the number of UK locations from 347 to 330 at Rouble against the US dollar, and required external factors that have presented a 31 December 2016. Although the closures significant reorganisation during the period. challenge to some of our businesses in had a negative impact on total revenues, Turkey has also been a more challenging the region, we have taken early action they helped to improve the gross profit. The market, as too has been the Middle East to introduce changes to improve the UK is a very operationally efficient region with a weak oil & gas industry. management team in the region. business, and with its further contribution We are now starting to see a gradual to the Group’s strong overhead improvement in sales activity in several performance, operating profits increased larger markets in Europe. significantly. We believe our cautious approach to the UK market was absolutely the right thing to have done, although it has contributed to a more challenging short-term outlook Our investment case for revenue growth. MARKET LEADER – NO 1 PLAYER IN Strategic direction Our strategy directly addresses the clear HIGHLY FRAGMENTED MARKET drivers of growth in the flexible workspace market. Despite our status as the clear global market leader by some distance, 1 2 3 4 5 the size of the market opportunity ahead and the relatively early stage in customer Structurally Attractive Proven Significant Prudent adoption of WaaS mean we have growing returns on ability to runway for management significant scope for growth. Even in demand investment manage growth with of capital our most mature market, the UK, there is and cash flow growth expected structure substantial growth potential, while the USA, incremental China and India between them offer scope post-tax cash to become far more significant parts of our returns well global business. above our cost of capital
16 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 To help us accelerate our progress towards management of our locations. While this Staying ahead of the game Strategic report our goals, we made some important was primarily introduced to generate higher Overall, our focus during 2016 – changes to our business model during productivity and better customer service, particularly in the first quarter – was on 2016, including: it has also significantly improved the cost standardising our business to make it more •• partnering with property owners and structure of the business. In fact, partly as easily scalable during 2017 and the years funders to bring investors together a result of this initiative, our overhead costs ahead. As such, 2016 was a transformative with our fast-growing customer base; fell by 13%, at constant currency, during year that I am confident will underpin 2016 despite a 6% increase in the size strong progress from the first half of 2017. •• educating business about the growing of the network. opportunities available within the WaaS I am pleased with the progress we have sector; and made in the last year, and am confident that Products and innovation during 2017 and beyond we will continue •• accelerating the digitisation of our We continued to be active in innovation to benefit from the significant structural business to drive efficiencies and during 2016, thanks to our determination growth opportunities that the WaaS sector better service. to offer customers the opportunity offers. As we expand further through to become more productive, more We are determined to lead and benefit accumulating new sites, strengthening our quickly than ever before and at the from the disruptive power of digital commitment to partnering with the global Governance lowest possible cost. technology and its impact on our industry. property industry, we will further extend As I have already said, we are committed As a company built on giving employers our existing competitive advantage. I am to further improving our position as the and employees what they want, we are in confident that our improved cost structure global leader of the WaaS sector. And it constant communication with customers will continue to deliver higher productivity almost goes without saying that to be to identify new products and services that and enhanced efficiency and deliver further relevant to corporations’ and workers’ would help add value to their operations benefits as we scale. and streamline their interactions with us. needs, physical space must keep pace Above all, I believe that our strengthening with technological change. This belief During 2016, such innovation extended leadership position, our commitment to is at the heart of our business today. beyond technology to embrace innovation and the flexibility we bring to We are not merely exploiting the developments including: fulfilling the needs of our customers means disruptive impact of the digital revolution •• cutting-edge location designs that reflect that we remain very well placed to deliver on traditional working practices. We are what companies and employees are attractive returns for shareholders. also using digital technologies to change looking for, such as the co-working Looking ahead to 2017, we have started Financial statements how we operate and improve what we format; to see a pick-up in sales activity in some have to offer our customers. •• constant enhancements to our formats, of our key markets, which is encouraging This is why we are constantly developing to ensure we are offering bespoke and, we believe, validates the significant new digital platforms, apps and customer environments to the different actions we have taken during 2016. communications. By doing this, and constituents of our market; Although it is still early in the new by expanding our global network of •• an award-winning workplace financial year and sales activity levels locations sited in the places people recovery solution; take time to feed through, we anticipate want to be, we are committed to staying an improvement in performance through ahead of any competition. •• developing digital access control the course of the year. Overall, the trading solutions; We demonstrated our organisational agility outlook for 2017 remains in line with by focusing more closely than ever before •• a proactive approach to measuring management’s expectations. on partnering with others in the property customer satisfaction and implementing Mark Dixon feedback in ever-improving service industry. This gathered pace during the Chief Executive Officer second half of the year and partnering is levels; and set to take on a more important role in •• a simplified pricing model. 28 February 2017 delivering our future development. We believe this will help ensure we We placed great emphasis, particularly in can support any organisation’s workspace the early months of 2016, on standardising needs, anywhere in the world. And, by our business and processes to enhance helping customers participate in shared the scalability of our business as we focus communities, we are enabling them on delivering high-quality growth. Cost to extract more value from their reductions were also a helpful by-product relationship with us and one another of our work on re-engineering our field through the co-promotion of their structure, in which we started using a products and services. city clustering approach to the local
17 Our strategic objectives and key performance indicators Our strategy is clear and simple
We leverage our global scale and market-leading position to provide customers across the world with convenient and innovative work environments that meet their needs, while delivering attractive and sustainable returns to our investors.
Strategic objectives and approach
Delivering attractive, Cash generation before 1 sustainable returns 2 growth
Revenue growth achieved through the addition of new locations, The strong conversion of profit into cash is an attractive feature the development of incremental revenue streams and the active of the IWG business model. The cash flows generated are management of the existing network to drive improved efficiency, available to support the ongoing development of our business, all contributing to improvements in gross profit. Combined with our progressive dividend policy and the buyback of shares. strong overhead cost control, this drives operating profit and cash flow, generating strong returns on investment well ahead of the Group’s cost of capital.
Key performance indicators 2016 Post-tax cash Cash flow per share return on net before net growth capex,
investment by year dividends and share 30.8 of opening (%) 31.1 buybacks
Overall 2016 return on net 25.4 During 2016 we generated 30.8p per 23.1 investment made up to 31 21.3 share of cash flow before growth capex, December 2011 of 25.1%. dividends and share buybacks 16.6 18.6 14.3 13.9 10.0
‘15 ‘16 12.2 11.8 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 (2.6)
13.7% (15.8) 30.8p ‘12 ‘13 ‘14 ‘15 ‘16 Total estate
Future ambitions and risks – for more information on risks see p27-32
Delivering profitable growth and strong, sustainable returns With our network growth leading to revenue growth and our strong is central to creating future shareholder value. IWG is committed focus on operational efficiency and cost control, we believe our to delivering these returns by optimising revenue development business model is well positioned to continue to convert profit and controlling costs. Our post-2011 investments are progressing strongly into cash. as expected.
18 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report
Strategic objectives and approach
Controlling costs Developing national 3 4 networks Governance We achieve cost control through operational excellence as well Network growth is demand-led. We respond to customers looking as the significant economies of scale and operational leverage to outsource more of their workplace needs and to benefit from that network growth brings. the flexibility and convenience we provide. By expanding our networks and developing our range of formats, we both increase our addressable audience and provide our existing customers with additional convenience. Our locations perform well in their own right, with the network then providing incremental opportunities. We continue to be mindful of growing only in locations where the potential investment opportunity meets our stringent returns criteria. We are also focused on increased partnering with property-owners and using more capital-efficient ways of expanding the network. Financial statements
Key performance indicators Total overheads as Network location
a % of revenues growth 2,926 18.5 18.5 2,768 Overheads as a % of revenues 231 new locations added, reduced 300bp to 11.7% 16.7 opening in 52 new towns and cities, at a net growth capital 2,269 14.7 investment of £162.3m 1,831 11.7 1,411
11.7% ‘12 ‘13 ‘14 ‘15 ‘16 2,926 ‘12 ‘13 ‘14 ‘15 ‘16 locations
Future ambitions and risks – for more information on risks see p27-32
We will continue to control overheads to deliver further economies We will continue to add breadth and convenience to the network of scale, notwithstanding continued and significant investments through further measured investment in high-quality assets, made in the business to develop the network and our operating across our range of formats, with the potential for attractive returns platform, processes and people. for shareholders. We are also focused on developing our range of location formats. As of 22 February 2017 we had visibility over approximately £120m of net growth capital expenditure for 2017, representing some 250 locations.
19 Our people Our talent strategy – providing the platform for global growth
Talent is a key component of our strategic objectives, which places our people strategy at the heart of our continuing road to success.
Our aim, first and foremost, is to ensure Multiple successors for every that we have the right people at the top of role and training the organisation and also that they in turn Increasingly, too, our focus is on succession have the right leadership teams in place planning at all levels. Identifying multiple to deliver our strategic objectives. successors for every role and leveraging Of equal importance is to get the people the opportunities represented by mobility who interface with our customers right between roles across our business are key as these are the people who look after constituents of our increasingly dynamic and build long-term relationships with succession plan. our valued customers every day. Succession planning extends outside the business. As a company that’s largely Talent: a strategic objective dedicated to direct – rather than agency With those two requirements in place – recruitment, our focused team-building everything else should follow. We activities across the world are giving us continually strive to have a strong an ever-more complete picture of the framework for the Group especially leading talent in all the countries where given the size of the Company, its global we operate. presence and the speed at which we are This is, of course, a distinct and growing growing. We are also aware of the ever- advantage for us. However, it is of little increasing competition in the market “The Group provides a great value unless we can attract and retain to secure the best talent. that talent for the long-term benefit working environment and These are some of the reasons why we of the Company. This driving need, sets the benchmark standard focus so much attention and effort on and the range of different experiences the attraction, development, growth and possessed by recruits as they join us, in its products and sales retention of the best individuals and teams means we need a very wide array of promotions. I am very we can find. We simply could not achieve training and learning interventions. our growth objectives without a genuinely glad to work with such At a senior level, we enable executives world-class team across the Group, to participate in leadership assessments dynamic leadership.” particularly at its most senior levels. with external companies. We also Tarek Abou Zeinab, As our business continued to grow in partner with leading business schools, 2016, we kept our focus on building the employ internal coaches and mentors Country Manager, leadership teams of our regional CEOs and carry out individualised, bespoke Lebanon, Jordan, and our functional operations, constantly training programmes. Saudi Arabia, searching for people with tremendous Iraq and capability, relevant experience and, Iran above all, plenty of development potential still ahead of them. Because our business is growing and changing at such speed, our senior people need as much agility as the Company itself. 95,000 e-learning training modules completed in 2016 globally
20 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 21
Island & Long Westchester Westchester Connecticut, Area Vice President, Vice Area Maria Paitchel, Maria Paitchel, want to dowant to business.” where our customerswhere by broadening the reach broadening by “I love the fact that we never we that fact the “I love we’re constantly growing constantly we’re get stagnant. We listen to our to listen We get stagnant. we can support them. can Andwe customers’ needs and actually of their business and how anticipate the needs changing
in our effort to retain the best talent. Theretain the best talent. to in our effort in our talent is unrelenting for competition lengths to ensure to great go so we market, is structure compensation that our overall that ensure also We highly competitive. from level at every high-potential people, tied in are to the Exco, recruit graduate incentives. with attractive the staff to develop our hardest Trying and loyalty that delivers satisfaction is one thing – measuring theretention is quite our efforts or otherwise of success in using the rare relatively are another. We satisfaction to measure Score Net Promotor on a quarterly basis. Doing so with such emphasises the importance regularity of our minds in the staff satisfaction of teams. and leadership managers aware are at all levels managers As a result, valuing and caring for of the importance of the organisation. the talent further down CEOs and functional teams Our regional talent-planning rigorous undertake so that we times a year several programmes all high-potential of aware constantly are and theirpeople in the organisation development. state of that taking this approach believe We in driving our continued to talent is key as the global leader of growth sector. the WaaS This is a vital focus for our business, our business, for This is a vital focus is that no advantage know because we skilled and than a highly powerful more top to bottom. from educated workforce, focus key is another naturally, Reward, This way we can ensure the best people the best can ensure This way we advantage Gaining business to start their career with the Company to start their career and their coach manager their line by after taking an online exam. and that looking after our customers are no exceptions. are there All new team members in local markets in local team members All new starter training new a specific have a peer level supported by programme starter the new At the end of coach. accredited are team members training, Chief Financial Officer’s review Strong cost discipline driving profit growth, cash generation and attractive returns
Return on investment Developing the network Our strategic focus remains on driving We continued to grow our unrivalled returns that achieve our post-tax cash network and this remains a strategic payback criteria, which typically is within priority. Increasing the depth and breadth four years. We have made further progress of our geographic scope, and addressing against this goal in 2016. For the 12 different styles of working and price points, months to 31 December 2016, the Group is a major differentiator for IWG and delivered a record post-tax cash return provides a competitive advantage as on net growth investment of 25.1% in well as building further resilience into the respect of locations opened on or before business. However, we rightly approached 31 December 2011 (up from 23.1% on 2016 with a high level of vigilance. We the same estate for the 12 months to have always maintained a sharp focus on 31 December 2015). Moving the our investment decision-making, reflecting aggregated estate forward and its critical importance to maintaining the incorporating the centres opened during strong returns into the future with our new 2012, the Group delivered a post-tax cash investments. Notwithstanding this, we were return on net growth investment of 23.6% even more selective during 2016 given the in respect of all locations opened on or uncertain macro-economic environment This has been a year of before 31 December 2012 (the equivalent and geopolitical issues in certain markets. return for the 12 months to 31 December During 2016, we invested £162.3m of significant transition, with 2015 on the same estate was 21.5%). net growth capital expenditure. This many important changes This very strong performance reflects the included expenditure on locations underlying progress in the profitability opened in 2015 and to be opened in implemented which we are of the Group from the continued focus 2017 of £54.1m. The majority of the confident will build further on efficiency and productivity, and the remaining investment related to the on the strong returns on economies of scale on overheads that 231 locations added to the network we enjoy as the Group continues to grow. in 2016, including a net investment investment the business The chart opposite shows the status of of £12.5m in property assets. These has delivered during 2016. our centre openings by year of opening. locations added approximately 3.4m sq ft, There has been good progress in the taking the Group’s total space globally to Our cost leadership has development of returns for centres added almost 48m sq ft as at 31 December 2016. been enhanced and we in 2012, 2013, 2014 and 2015 as they The significant majority of these locations continue to progress towards full maturity. were organic openings. This is in contrast have reduced overheads to 2015 when we invested net growth as a percentage of revenues capital expenditure of £284.9m, including £99.4m on acquisitions, adding 554 by three percentage points locations, the equivalent of 7.7m sq ft to 11.7% and target further of space. Another important focus area improvement. was the roll out of our Spaces format, which represented approximately 25% of the net growth capital expenditure. We remain Dominik de Daniel confident that the returns from these Chief Financial Officer investments will, in due course, be in line and Chief Operating Officer with the returns we generate on our historic investments.
22 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016
Post-tax cash returnon net investment by year of opening – 12 months Revenue Strategic report to 31 December (%) Group revenues increased 5.5% at constant currency to £2,233.4m (2015: 35 £1,927.0m), an increase of 15.9% at actual 30 rates. This revenue growth reflects the 25 31.1 growing contribution from additional 25.4 20 24.4 locations. This also represents a sequential 21.3 20.3 15 20.4 deceleration in growth over the course
16.6 of the year. There were a number of 14.3 13.9 10 13.3 contributing factors to this deceleration. 9.8 11.2 10.0 5 ‘15 ‘16 There was the base-line effect of acquisitions, the impact of a higher level 0 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 and of closures, together with some softening earlier -5 (8.0) (2.6) in market conditions across certain -10 geographies. These softer conditions (9.3) -15 (15.8)
accentuated the normal impact on the Governance -20 2016 business of absorbing the significant 2015 network growth in recent years. Mature revenues (from 2,153 like-for-like locations added on or before 31 December 2014) We continue to have a good pipeline of unlock the full benefit of our broad offering. declined 1.7% at constant currency to new openings. As of 22 February we had We have also implemented important £1,891.6m (2015: £1,750.1m), up 8.1% visibility on net growth capital expenditure changes to the compensation structure at actual rates. Mature occupancy was so far for 2017 of approximately £120m, for our colleagues operating our locations 78.2% (2015: 79.6%). representing approximately 250 locations by moving away from a largely sales and 4.0m sq ft of additional space. Notably, commission-based bonus system to one Gross profit we have a strong pipeline of locations based on financial performance. We believe Group gross profit declined 4% at constant within our Spaces co-working format. this will be important and better align currency rates to £448.8m (2015: Although these represent just over 15% business behaviour with the interests of £428.4m), up 5% at actual rates. The
of the total locations we currently see our shareholders. 2016 was therefore a reduction in Group gross margin from Financial statements in the pipeline, each individual Spaces transformational year and these changes 22.2% to 20.1% largely reflects the location, however, can be a factor of are now fully embedded into the business. dilution from a relatively large number approximately three times larger than the of financially immature locations within average footprint of a Regus location. Non-recurring items the overall estate resulting from the Consequently, these Spaces locations For 2016 we have reported a net loss significant investment in growing the account for approximately 40% of the on non-recurring items of £1.0m. This network over recent years (see table current pipeline of net growth capital non-recurring loss is in respect of three on page 24). The mature gross margin expenditure. items: the receipt of funds following the remained relatively stable at 24.1% settlement of a third-party litigation in (2015: 24.3%). Operational developments the UK; additional provision relating to We are constantly striving to improve a litigation action in California; and a loss Overhead efficiency improves further our business and future potential returns. on disposal of specific assets and liabilities As anticipated, the Group has made further Whilst this is an ongoing process, we acquired as part of the Avanta acquisition strong progress in relation to overhead implemented changes to the operational which were disposed of in the second half efficiency, thereby building on the field structure during 2016, introducing of the year following the UK Competition achievements in recent years. We have a city cluster approach to the management and Markets Authority inquiry. not only continued to reduce total and organisation of our locations. With The non-recurring gain of £15.3m in 2015 overheads as a percentage of revenues the in-field selling resource focused on reflected the £21.3m gain after expenses from 14.7% in 2015 to 11.7%, the a specific number of locations, we on the sale of various portfolios of property absolute level of investment in overheads believe this will better promote the active assets less two negative non-recurring reduced by 13% in constant currency marketing of the whole range of what is items relating to a litigation action in terms to £261.8m (2015: £283.9m) (down offered by the entire city cluster, including California and the Competition and 8% at actual rates). Changes implemented format and price point. Moreover, the Markets Authority’s review of the to our business model and structure during unrivalled scale of our business provides acquisition of Avanta in the UK, which 2016 to further improve the Group’s us with the opportunity to automate more reduced the overall net gain by £6m. productivity and financial performance processes to allow our employees to have also created further overhead efficiency. Except where specifically mentioned, greater focus on customer service across the following commentary and profit We continue to maintain a strong focus more than one location. We believe this and loss analysis exclude the impact on overhead discipline and anticipate will generate many positives for our of these non-recurring items. further scale benefits. business, including improved cost efficiency in the field, better productivity and a sharper focus on ‘selling the city’ to
23 Chief Financial Officer’s review continued
Financial performance Group income statement (before non-recurring items) % Change % Change 2016 2015 (actual (constant £m Underlying Underlying currency) currency) Revenue 2,233.4 1,927.0 15.9% 5.5% Gross profit (centre contribution) 448.8 428.4 5% (4)% Overheads (including R&D) (261.8) (283.9) (8)% (13)% Joint ventures (0.8) 0.3 Operating profit 186.2 144.8 29% 14% Net finance costs (11.5) (14.4) Profit before tax 174.7 130.4 34% Taxation (34.9) (25.9) Effective tax rate 20.0% 19.9% Profit for the period 139.8 104.5 34% Basic EPS (p) 15.0 11.2 34% Depreciation & amortisation 194.5 145.2 EBITDA 380.7 290.0 31% 18%
Gross margin Total £m Mature centres New centres Closed centres 2016 Revenue 1,891.6 309.3 32.5 2,233.4 Cost of sales (1,435.9) (322.2) (26.5) (1,784.6) Gross profit (centre contribution) 455.7 (12.9) 6.0 448.8 Gross margin 24.1% (4.2)% 18.5% 20.1%
Total £m Mature centres New centres Closed centres 2015 Revenue 1,750.1 108.5 68.4 1,927.0 Cost of sales (1,324.9) (120.5) (53.2) (1,498.6) Gross profit (centre contribution) 425.2 (12.0) 15.2 428.4 Gross margin 24.3% (11.1)% 22.2% 22.2%
Operating profit (excluding non- Tax In the period up to 19 December 2016, recurring items) The underlying effective tax rate for the when the Scheme of Arrangement to create As a result of the very strong control of year was 20.0% (2015: 19.9%). The IWG plc as the new holding company overheads, the incremental gross profit Group’s reported tax rate was 20.1% became effective, Regus purchased has dropped through to augment the Group (2015: 17.7%). Our expectation is that the 11,834,627 shares at a cost of £31.1m operating profit, which increased 14% at effective tax rate will remain around 20%. designated to be held in treasury to constant currency to £186.2m (2015: satisfy future exercises under various £144.8m), an increase of 29% at actual Earnings per share Group long-term incentive schemes. rates. Consequently, the underlying Group Earnings per share increased significantly Over the same period, Regus utilised operating margin increased from 7.5% in to 14.9p (2015: 12.8p). Excluding the 4,712,856 shares from treasury to satisfy 2015 to 8.3% in 2016. non-recurring items, underlying Group such exercises. At 19 December 2016, earnings per share increased 34% to 15.0p, 27,612,384 were held as treasury shares. Net finance costs reflecting the strong growth in underlying All these shares were cancelled as part The Group’s net finance costs decreased Group operating profit and the favourable of the Group reorganisation and Scheme 20% to £11.5m (2015: £14.4m). This foreign exchange tailwind. of Arrangement. reflects, in part, the reduction in net The weighted average number of In the period from 19 December 2016 debt from an opening position of £190.6m shares for the year was 929,830,458 to 31 December 2016, IWG plc purchased to £151.3m as at 31 December 2016 and (2015: 933,457,741). The weighted 1,280,032 shares designated to be held in lower funding costs in general. Following average number of shares for diluted treasury at a cost of £3.1m and 109,333 the weakness of sterling after the result earnings per share was 944,015,143 treasury shares were used to satisfy the of the UK Referendum on EU membership, (2015: 953,678,034). As at 31 December exercise of share awards by employees. there has been a favourable foreign 2016 the total number of shares in issue exchange movement. was 923,357,438.
24 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Cash flow Strategic report The table below reflects the Group’s cash flow: £m 2016 2015 Group EBITDA 380.7 290.0 Working capital 104.2 103.5 Less: growth-related partner contributions (66.1) (59.8) Maintenance capital expenditure (86.7) (74.9) Taxation (31.5) (29.1) Finance costs (16.1) (13.2) Other items 1.6 (0.8) Cash flow before growth capital expenditure, share repurchases, dividends and non-recurring disposal proceeds 286.1 215.7
Gross growth capital expenditure (228.4) (344.7) Less: growth-related partner contributions 66.1 59.8 (1) Net growth capital expenditure (162.3) (284.9) Governance
Total net cash flow from operations 123.8 (69.2)
Non-recurring disposal proceeds – 84.0 Less: costs of disposal – (4.0) Corporate financing activities (38.6) (32.0) Dividend (43.3) (38.8) Opening net cash/debt (190.6) (138.0) Exchange movements (2.6) 7.4 Closing net debt (151.3) (190.6) 1. Net growth capital expenditure of £162.3m relates to the cash outflow in 2016. Accordingly, it includes capital expenditure related to locations opened in 2015 and to be added in 2017 of £54.1m. The majority of the remaining investment relates to the 231 locations added in 2016, including a net investment in property assets of £12.5m. The total net investment in the 2016 additions amounts to £130.8m so far Financial statements
Cash flow and funding With our more selective approach to In May 2016, we extended and amended With the growth in profitability, cash network growth during 2016 and increased our key Revolving Credit Facility. The facility generation has been very strong during traction on our strategic priority of targeting was increased from £320.0m to £550.0m 2016. This ability to convert profits into less capital intensive growth, Group net and the maturity extended to 2021 cash continues to be a highly attractive debt decreased from £190.6m at 31 (previously 2020), with an option to extend feature of our business model. Cash December 2015 to £151.3m at 31 until 2023. The facility is denominated in generated before the net investment December 2016. This decrease comes after sterling but can be drawn in several major in growth capital expenditure, dividends taking the growth capital expenditure into currencies. This financing further improved and share repurchases, and excluding account, and after paying dividends of our debt maturity profile and provides the the non-recurring material £80m disposal £43.3m and spending £38.6m mainly on Group with adequate financial headroom proceeds, net of expenses, received in a combination of buying our own shares, to pursue its strategy. With this facility in 2015, increased 33% in 2016 to £286.1m as noted opposite, and settlement of place, the Group took the opportunity (2015: £215.7m), reflecting the strong employee share options. This represents to settle the €210m Schuldschein debt growth in underlying Group operating an underlying Group net debt : EBITDA securities prior to their final maturity. profit and very strong cash conversion. leverage ratio of 0.4 times, which is a very As well as the normal positive working conservative level, well below our internal capital development stemming from 1.5 times limit and reflects our continued our network growth programme and the prudent approach to the Group’s capital maturation of these locations, we have structure. Whilst our approach to our net also benefitted from more specific focus indebtedness has been prudent, we to unlock working capital. continue to recognise the long-term benefit of also operating with an efficient balance sheet.
25 Chief Financial Officer’s review continued
Foreign exchange rates At 31 December Annual average Per £ sterling 2016 2015 % 2016 2015 % US dollar 1.24 1.48 (16)% 1.35 1.53 (12)% Euro 1.17 1.36 (14)% 1.22 1.38 (12)% Japanese yen 145 179 (19)% 147 185 (21)%
Foreign exchange Related parties The Group’s results are exposed to There have been no changes to the type of translation risk from the movement in related party transactions entered into by currencies. During 2016 key individual the Group that had a material effect on the currency exchange rates have moved, financial statements for the period ended as shown in the table above. The 31 December 2016. Details of related party subsequent weakness in sterling following transactions that have taken place in the the UK Referendum on EU membership in period can be found in note 30 to the 2016 June provided a more positive boost to Annual Report and Accounts. the translation of our significant international earnings. Dividends Overall, the favourable impact of the Consistent with IWG’s progressive dividend movement in exchange rates increased policy and subject to shareholder approval, reported revenue, gross profit and we will increase the final dividend for 2016 operating profit by £199.7m, £36.3m by approximately 15% to 3.55p (2015: and £20.5m respectively. 3.10p). This will be paid on Friday, 26 May 2017, to shareholders on the register at the Risk management close of business on Friday 28 April 2017. The principal risks and uncertainties This represents an increase in the full-year affecting the Group remain broadly dividend of approximately 13%, taking it unchanged. A detailed assessment of from 4.50p for 2015 to 5.10p for 2016. the principal risks and uncertainties Dominik de Daniel which could impact the Group’s long-term Chief Financial Officer performance and the risk management and Chief Operating Officer structure in place to identify, manage and mitigate such risks can be found on pages 28 February 2017 27 to 32 and 46 to 48 of the Annual Report and Accounts.
26 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 27
ocess for all markets for ocess s reviews of all countries of s reviews eviews of every new location new every of eviews of risk management of and external audit plans and external eview of the status of our key risks our key the status of of eview and assessment of key risks key of and assessment Approves the annual internal Approves and Group functions; and Group Individual r and all acquisitions; investment Annual planning pr functions; and and Group R meeting. in each Audit Committee Monthly busines Assesses overall effectiveness effectiveness overall Assesses Contributes to the identificationContributes • • • • control framework. Risk management is at Risk management framework. control particularly do, we everything the heart of multiple markets across look to grow as we we this reason, For the world. around the throughout risk assessments conduct process review our business as part of year decisions. These and all investment activities include: • • • of our organisation. It is for this reason that this reason It is for our organisation. of into the is incorporated risk management as our business, of day-to-day management core in the Group’s reflected as being well oversees The Board and controls. processes and the strategy the risk management internalGroup’s of the effectiveness • risks which, with its experience and after risks which, with its experience will choose the Board due consideration, to accept. requires risk management Effective at all levels and engagement awareness
eviews risk profiles eviews ests compliance with internal controls ests compliance R T • • • • Board and assessment
Monitors risk identificationMonitors Accountable for the regular regular the for Accountable Audit Committee
review and appraisal of key risks key of appraisal and review external audit recommendations external General management General Senior leadership team Senior leadership Monitors progress against internal and progress Monitors Business assurance function assurance Business has zero tolerance of financial and ethics of tolerance has zero that Health, and ensures non-compliance & Security risks are Environmental Safety, as as low that are levels to managed practicable. reasonably the for responsibility Whilst overall with rests process risk management IWG attempts to minimise the likelihood attempts IWG to the According and mitigate the impact. or may elect to take the risk, IWG of nature and risk with controls risk, treat tolerate risk to third mitigating actions, transfer ceasing by parties, or terminate risk IWG operations. particular activities or responsibility it has delegated the Board, Committee. to the Audit assurance for for is responsible management Executive and maintaining implementing designing, internal control. systems of the necessary and the Board risks is prepared key A list of each of the severity assesses collectively and the it occurring of risk, the likelihood This in place. the controls of strength of any mitigating the effect allows approach in the final to be reflected procedures that It also recognises assessment. risk cannot be totally eliminated at an some are and that there cost acceptable For all known risks facing the business, the business, risks facing all known For
Responsible for compliance and ensuring that staff are adequately trained and ensuring that staff are compliance for Responsible and tolerance internal controls processes and controls processes Reviews effectiveness of effectiveness Reviews Defines IWG’s risk appetite IWG’s Defines Accountable for the design and the for Accountable As Advises and guides on policies and internal framework control risk studies
implementation of risk management implementation of • inconducting andtheBoard sists management • • •
Identification, mitigation and managementIdentification, mitigation and our to our strategy central risks are of process enterprise-wide risk management scope nature, the us to understand allows business our key and potential impact of to able are risks so we and strategic these effectively. manage be impacted by could business IWG’s to achieve failure various risks, leading to of or loss growth for targets strategic earnings, cash flow, financial standing, and reputation. on investment return Not all these risks are wholly within theNot all these risks are and it may be affected control Group’s manifested not yet are risks which by foreseeable. or reasonably is critical risk management Effective objectives our strategic to achieving assets our personnel, and protecting has therefore IWG and our reputation. to risk approach a comprehensive detail as set out in more management, Report. Governance in the Corporate the risk management A critical part of the impact and is to assess process so that risks occurring of likelihood mitigation plans can beappropriate and implemented. developed Risk management remains remains management Risk Risk management and principal risks principal and management Risk at the core of what we do we what of core the at Risk management and principal risks continued
Principal risks
Risk Mitigation Progress in 2016 Strategic
Lease obligations The single greatest financial This risk is mitigated in a number of ways: During 2016, the number of risk to IWG is represented by 1) 95% of our leases are ‘flexible’, meaning that they are either ‘flexible’ leases as a percentage the financial commitments terminable at our option within six months and / or located in of the total increased to 95% deriving from the portfolio of or assignable to a standalone legal entity, which is not fully from 94% on an enlarged estate. leases held across the Group. cross-guaranteed. In this way, individual centres are sustained At the end of 2016, we were Whilst IWG has demonstrated by their own profitability and cash flow. During the most operating 2,926 locations consistently that it has a recent downturn in selected markets we were able to in 1,029 towns and cities fundamentally profitable negotiate revised terms with our partners to reflect downward across over 100 countries. business model which works movements in market rates to help recovery. in all geographies, the 2) Over a third of the leases we entered into during 2016 were profitability of centres is variable in nature, which means that payments to landlords impacted by movements in vary with the performance of the relevant centre. In this way market rents, which, in turn, the ‘risk’ to profitability and cash flow of that centre from impact the price at which IWG fluctuations in market rates is softened by the consequent can sell to its customers. adjustment to rental costs. The fact that the outstanding 3) The sheer number of leases and geographic diversity of our lease terms with our landlords business reduces the overall risk to our business as the are, on average, significantly phasing of the business cycle and the performance of the longer than the outstanding commercial property market often varies from country to terms on our contracts with our country and region to region. customers creates a potential mismatch if rentals fall 4) Each year a significant number of leases in our portfolio reach significantly, which can impact a natural break point. profitability and cash flows.
Economic downturn An economic downturn could The Group has taken a number of actions to mitigate this risk: During 2016 the number of adversely affect the Group’s 1) More than a third of the leases added during 2016 were ‘flexible’ leases as a percentage operating revenues, thereby performance-related to a greater or lesser extent and our of the total increased to 95%. reducing operating profit rental payments, if any, vary with the performance of the We also increased the scale of performance or, in an extreme centre. our network by 6% and added 52 downturn, resulting in new towns and cities. Our monthly operating losses. 2) Lease contracts include break clauses when leases can be terminated at our behest. The Group also looks to stagger business performance reviews leases in locations where we have multiple centres so that provide early warning of any we can manage our overall inventory in those locations. impact on our business performance and allow 3) We review our customer base to assess exposure to a management to react with speed. particular customer or industry group. More generally, investment in our 4) The increasing geographic spread of the Group’s network management team has also led increases the depth and breadth of our business and provides to improved, more responsive better protection from an economic downturn in a single decision-making at a country market or region. and area level.
28 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 29 to In addition to major upgrades app during 2016, our MyRegus our innovation focused we as diverse on areas resources format as customer satisfaction, and continuity design, business the for productivity improving mobile workforce. our the scale of increased We 6% and added by network and cities. towns 52 new our of the roll-out accelerated We with the format co-working Spaces locations new seven opening of a strong of and the development 2017. pipeline for Dependency on the UK market growth by has been reduced outside the UK. being focused the new than 5% of Fewer locations added during 2016 in the UK. were During 2016 the opportunity some to consolidate was taken locations in the UK. position over Based on the current our leases with landlords 40% of variable in nature. in the UK are Progress in 2016 Progress Mitigation While physical barriers to entry into the flexible workspace workspace into the flexible to entry While physical barriers to establishing a the barriers low, are at a local level market making much higher hence are national or international network position our market competitor to challenge for any it difficult success. and commercial under its different range product a diverse also offers IWG which allows customer segments to cater to multiple brands the flexible across share and maintain market us to capture market. workspace monitoring political developments is continually The Group the medium to long-term in the UK to identify and assess on our may have and the impact that it Brexit implications of to result the EU is likely While the decision to exit business. uncertainty, political and economic in a sustained period of a material impact on this to have does not expect the Group in the UK. its performance its presence to growing has had a prudent approach The Group in the UK market. products new to develop in innovation invests continually IWG protect advantage, its competitive to increase and services revenue. of sources potential new and unlock revenues current Increased competition Increased in the competition Increased industry and an office serviced inability to maintain sustainable may advantage competitive share. market of in loss result to UK political Exposure developments to UK political Exposure including Brexit. developments Strategic Shifting demand and technology trends are developments Technology flexible driving demand for to recognise Failure working. product mean IWG’s these could is sub-optimal. offering Risk Risk management and principal risks continued
Risk Mitigation Progress in 2016 Financial
Funding The Group relies on external The Group constantly monitors its cash flow and financial We amended our key Revolving funding to support a net debt headroom development and maintains a 12-month rolling Credit Facility in May 2016 which position of £151.3m at the forecast and a three-year strategic outlook. The Group also is provided by a broad base of end of 2016. The loss of these monitors the relevant financial ratios against the covenants international banks. facilities would cause a liquidity in its facilities to ensure the risk of breach is being managed. The facility was increased from issue for the Group. The Group also stresses these forecasts with downside scenario £320.0m to £550.0m and the planning to assess risk and determine potential action plans. maturity extended to 2021 The Board intends to maintain a prudent approach to the Group’s (previously 2020), with an capital structure by holding the net debt : Group EBITDA leverage option to extend until 2023. ratio below c. 1.5 times. After taking into account usage Part of the annual planning process is a debt strategy and of the £550.0m facility for cash action plan to ensure that the Group will have sufficient drawings and bank guarantees, funding in place to achieve its strategic objectives. we had £299.4m of available and undrawn committed facility The Group also constantly reviews and manages the maturity as at 31 December 2016. profile of its external funding. IWG had a net debt : EBITDA ratio at 31 December 2016 of 0.4 times. There is significant headroom on each of the covenant ratios.
Exchange rates The principal exposures of the 1) Given that transactions generally take place in the functional Overall in 2016 the movement in Group are to the US dollar and currency of Group companies, the Group’s exposure to exchange rates increased reported the euro, with approximately transactional foreign exchange risk is limited. revenue, gross profit and operating 35.1% of the Group’s revenues 2) Where possible, the Group attempts to create natural hedges profit by £199.7m, £36.3m and being attributable to the US against currency exposures through matching income and £20.5m respectively. dollar and 13.8% to the euro. expenses, and assets and liabilities, in the same currency. During 2016 the Group settled Any depreciation or appreciation 3) The Group, where deemed appropriate, uses currency the exchange rate derivatives of sterling would have an swaps to maintain the currency profile of its external debt. related to the Schuldschein debt adverse or beneficial impact securities which were settled. to the Group’s reported financial performance and position respectively. The Group does not generally hedge the translation exchange risk of its business results. Rather, it assumes that shareholders will take whatever steps they deem necessary based on their varied appetites for exchange risk and differing base currency investment positions.
Interest rates Operating in a net debt position, The Group constantly monitors its interest rate exposure During 2016 the Group an increase in interest rates as part of its monthly treasury review. increased the level of interest would increase finance costs. As part of the Group’s balance sheet management it utilises rate protection with 51% of interest rate swaps. the Group’s debt being fixed until 2019.
30 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 31 All core production applications production All core been made PCI (Payment have Industry) compliant. Card and an external An internal review security specialists were by review and an ongoing completed monitoring and improvement is in place. programme policies has cyber insurance IWG immediate which provide in place of in the event services response a breach. testing regular undertake We procedures continuity business of adequate are that they to ensure and appropriate. Progress in 2016 Progress cess permissions are strictly segregated strictly segregated are permissions cess e agreement with our external data with our external e agreement opriate business interruption insurance is interruption insurance opriate business s continuity plans. s continuity oup maintains an active information security information oup maintains an active with all major legislation compliance oup ensures programme oup maintains a mandatory training orous investment approval process to review the to review process approval investment orous ong governance framework and policies on gifts and framework ong governance e continually monitor our security using internal resources using internal resources monitor our security e continually entralised procurement contracts with suppliers for for with suppliers contracts procurement entralised egular reviews to monitor effectiveness of controls. of to monitor effectiveness reviews egular key services and products. and products. services key A rig conditions against local market deal structure proposed and alternatives. C A str R Data, systems and ac to risk. exposure to reduce Busines A detailed servic back-up appropriate which incorporates provider centre and controls. procedures Ensuring appr in place. and bribery and corruption. conduct business hospitality, The Gr CIO with the Group of under the direction programme the Board. by oversight W The Gr and directives. The Gr security and of information awareness staff to promote best practice. compliance specialists to identify any vulnerabilities. and external Mitigation 3) Standardised processes to manage and monitor spend. manage to processes 3) Standardised 4) all aspects a detailed privacy policy that covers operates IWG data, data privacy including and not limited to personal of cookies and other data, financial information, demographic etc. communication marketing digital markers, 2) 2) 3) to cloud-based and SaaS servers. infrastructure 4) Transitioning this risk through: manages IWG 1) 5) 2) 4) 5) this risk through: manages IWG 1) This risk is mitigated as follows: This risk is mitigated as 1) 3)
Data protection and privacy Data protection with to comply is required IWG in the jurisdictions legislation in which it operates. Loss of critical systems Loss systems and The Group’s housed in applications are Should the data data centres. be impacted as a result centres outside the circumstances of could there control Group’s impact on be an adverse and operations the Group’s results. its financial therefore Fraud and supplier and Landlord fraud. related procurement Operational security Cyber an integrated towards The trend and use of digital economy cloud services external with the rise in combined increasing malicious attacks and warrants costs consequential particular attention to cyber security risks. Risk Risk management and principal risks continued
Risk Mitigation Progress in 2016 Growth
Ensuring demand is there to support our growth IWG has undertaken significant IWG mitigates this risk as follows: On aggregate, our new centres growth to develop local and 1) Each investment or acquisition proposal is reviewed and continue to perform in line with national networks. Adding approved by the Investment Committee. management expectations and capacity carries the risk of are delivering attractive returns. creating overcapacity. Failure to 2) The monthly business review process monitors new centre fill new centres would create a development against the investment case to ensure that the negative impact on the Group’s anticipated returns are being generated. profitability and cash generation. 3) As part of the annual planning process, a growth plan is agreed for each country which clearly sets out the annual growth objectives.
Human resources
Ability to recruit at the right level Our ability to increase our Mitigating actions include: Our capability to hire the best management capacity and 1) Succession planning discussions are an integral part talent continued to increase in capabilities through the hiring of our business planning and review process. 2016. Our direct recruitment of experienced professionals approach saved over £2m of not only supports our ability 2) Part of the annual planning process is the Human Resources search fees as our talent to execute our growth strategy, Plan, and performance against this Plan is reviewed through knowledge around the world but also enables us to improve the year. deepens and expands. This has succession planning throughout 3) Our global performance management system and quarterly allowed us to further plan for the Group. staff survey allow us to keep close to our employees and succession in important markets. maintain a two-way dialogue throughout the year. Our diversity continues to flourish 4) Regular external and internal evaluation of the performance with our workforce split fairly of the Board. evenly male/female.
Training and employee engagement As a service-based business One of the key items in the Human Resources Plan is the Global We trained all our employees, the strength and capabilities Induction & Training Plan, which sets out the key objectives for many through the IWG Online of our increasingly the forthcoming year. Performance against these objectives is Learning Academy, including geographically diverse team reviewed through the year. employees from new centre are critical to achieving our Our employee survey also provides insight into employee acquisitions and new talent strategic objectives. issues, which is then used to improve the Plan. to IWG. In 2016 employees undertook approximately eight different topics of training. Our online learning curriculum was a winner of the Most Dramatic Business Impact Award at the Cornerstone Client Excellence Awards 2016 for the impact that this training had on sales performance. This is just one example of our relevant and easy-to-access development initiatives for front-line employees. Experienced managers coach new peer level colleagues to give them the best start in the Group.
32 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 33
44
244 239
£237,479 43 38 and energy. For example, any new centres centres any new example, For and energy. such as consumption, with high energy will in 2015, Avanta from those acquired be reviewed and assimilated in 2017 to and assimilated be reviewed and align them efficient them more make This Strategy. Working with our Greener will include upgrading lighting to LED and will include upgrading and ventilation (heating, HVAC reviewing to ensure controls and air-conditioning) as possible. as energy-efficient are they in the early part of undertaken A review is that our UK business 2016 confirmed on target to achieve a 50% reduction in a 50% reduction to achieve on target 2020 (using carbon by energy-related 2007 as the baseline year). hygiene and education items, and 239 for used to support 244 projects in charities. Further detail is provided to support the charitable activities of financial donations to charities provide collect and humanitarian appeals. They gift in-kind materials, such as food, donate their skills and time in volunteering are in need. Initiatives to organisations our attended and supported by eagerly and wider stakeholders. customers spirit of Thanks to our employees’ various for and enthusiasm innovation many causes, our charitable activities take (such initiatives including in-centre forms, charitable networking projects, as recycling campaigns) and and collections events walks, activities such as sponsored off-site like at venues fun-runs and volunteering homes and soup kitchens. care orphanages, andIn total £237,479 was raised the table below: Charitable investments in numerous working As a global business to a responsibility have locations, we impact the can positively that we ensure in which our team members, communities and other suppliers customers, provide we As a company, live. stakeholders direct space, on working concessions our facilities donations and the use of and suppliers. customers our staff, part in take actively Our colleagues that charitable initiatives creating 20 54 132 219 78 100 195 2013 2014 2015 2016
£80,500 £155,329 £209,905
e tonnes were saved, saved, e tonnes were 2 we saw our overall reported emissions fall emissions reported our overall saw we a total achieved have again. This means we the start of 18% since around of reduction in 2011. reporting CRC to meet on continues Committee The Green and implements basis. It reviews a regular costs) (and their related take the actions we and energy water, our waste, to reduce is Committee carbon impacts. The Green and is seen throughout successful proving model in as an effective the Group sustainability management. to use specialist external continue We our monthly to record consultancies energy our centres across consumption energy and advise on the purchase, and to assist carbon and monitoring of management together with related cost avoidance of avoidance cost with related together a through achieved £270,000, which we operating centre of systematic review ESOS audit The and controls. procedures the UK was fullyand notification from was on time. So and completed compliant in the a further year our participation for in which Efficiency Scheme, Energy CRC Countries with community with community Countries activity engagement a significant reduction in carbon anda significant in 2016 in the UK. This can largely costs be attributed to the implementation of the UK’s response from recommendations Energy entitled Directive to the EU Energy Scheme (ESOS). Opportunity Savings 1,000 CO Around Efficiency schemes we made In addition to our global efforts, We took part in the Global Carbon We a (CDP) and received Project Disclosure good 2016. This is a for “B” score strong and year the previous from improvement the CDP that we indicator from a positive With the managing our carbon well. are our score being a “C”, industry average are clearly that we very demonstrates being proactive in responding to climate- in responding being proactive issues. change Projects Charities supported Donations made
Reducing environmental impact environmental Reducing its environmental of is conscious IWG as take Any actions we responsibilities. to diminish carbon emissions a company global impacts. negative will help to reduce our global to reducing committed are We sustainability at and to keeping footprint do we strategy; our business of the core on internal mitigation focusing this by and supporting our customers measures with theirs. our products many of nature, By their very our sustainable allowing inherently are to minimise their carboncustomers through usage waste and energy emissions, locations enables of network us. Our large live, they to where nearer people to work facilities while our video-conferencing meetings. for the need to travel eradicate to embed continue we As a company, and energy-efficiency carbon-reduction in our centres. policies and procedures by older sites This includes retrofitting controls. lighting and improving upgrading engagement a defined also have We on enabling customers with a focus agenda the to fully understand and employees to reduce can take actions that they of impact. Our range environmental reduced includes targeting initiatives and monitor actions to reduce paper usage, and recycling increased water, our use of electricity to reduce sharing best practice all Collectively, and gas consumption. to to contribute actions combine impact. our environmental reducing Although we are a worldwide organisation, a worldwide are Although we the that for remember constantly we a are we stakeholders our majority of generates Our presence local business. employ each location as we for wealth within the community local talent from on local supply-chain networks. and draw organisations new attracts Our business and grow helping to improve to the area, and in turn environment the business and local bringing further investment have opportunities to each location. We with each locala symbiotic relationship can only be successful – we community also successful. us are if those around Economic support for communities support for Economic At IWG, our commitment to the future of our communities continues communities our of future the to commitment IWG, our At the around locations more expand we into as develop and grow to existing and new to investment and change bring positive world. We lifting by others ourselves grow to continue only can We locations. around us. Corporate responsibility Corporate our communities to Committed Corporate responsibility continued
COMMUNITY HEROES
Our internal community recognition programme “Community Heroes” commends and celebrates the charitable giving that takes place across the world. This year, two projects tied for first place. They each received a $5,000 donation for the charities they support. The top projects in 2016 were:
EXTRACTING VALUE FROM WASTE
As an example of other geographic specific initiatives, our colleagues in Fortaleza, Brazil, continued their successful recycling programme throughout 2016, encouraging customers and their colleagues to collect and segregate paper, cardboard, plastic cups, toner cartridges and other office waste. Rather than disposing Tied 1st place: Dallas, USA – Raising “Our clients really embraced supporting of this waste, they give it to a local awareness of childhood cancer this cause as through it they were also orphanage which donates the recycled A networking event was held in support supporting our IWG colleague – a two-time material and in turn receives a reduced of Childhood Cancer Awareness Month. childhood cancer survivor who strongly monthly utilities bill. All clients in the centre attended, and believed in this cause.” Colleagues are holding similar initiatives several Business World clients also in the Republic of Ireland and the made an appearance. United Kingdom. They collect old printer cartridges, coffee capsules and even stamps to donate to charities, which as a result gain new revenue streams to help sustain their future.
Tied 1st place: Maryland, USA – “You feel great to be involved in such a Fighting hunger among children good thing, together with good people Canned foods were collected throughout who are doing GREAT things.” the year to provide under-privileged children with a meal a day.
All quotes are from IWG managers, colleagues or customers.
34 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 35
over 1.6 million registered charities. 1.6 million registered over will help that this platform believe We support to all the more even provide the globe. causes around great FACILITATING FACILITATING DONATIONS and our employees it easier for make To have we to charity, to give customers the My Charities and Causes continued to set This enables customers platform. corporate their own up and promote activities, track social responsibility to donations and record progress RESPONDING TO RESPONDING TO DISASTER our colleagues the globe, Around and stakeholders respond rapidly to rapidly respond and stakeholders their affecting disasters environmental to provide together working regions, example, support to those impacted. For with together in Texas, our colleagues quickly responded their customers, following a to a humanitarian effort A donation drive tornado in their area. callingwas immediately organised clothing and aid kits, bedding, first for individuals hygiene materials. Several to help clean up sites also volunteered after the event.
and stationery supplies for children and stationery supplies for towards helping buy school uniforms helping buy school uniforms towards living in poverty.” “The sale of over 200 shirts went “The over sale of 4th place: South Africa – Giving 12 4th place: charity for months of love Elizabeth in Port centre Our South African Elisabeth’s Love teamed up with Port the out and feed Story charity to reach homeless. and to the community back gives “Regus Regus you back too. Thank helps us give impact.” a positive helping us make for
3rd place: India – Supporting the place: 3rd International Day of Charity in India and customers Colleagues charitablelaunched a country-wide 400 people in campaign, in which over joined hands with than 90 centres more organisation. a local non-governmental stationery items, clothes, “Collecting was a wonderful and food books, toys causes.” worthwhile very activity for Thailand’s underprivileged children Thailand’s underprivileged 2nd place: Thailand – Providing for for Thailand – Providing 2nd place: children vulnerable donations charitable helped through were Foundation. to the Gift Happiness of Board of Directors Building our future growth
Douglas Sutherland Mark Dixon Dominik de Daniel Lance Browne Chairman Chief Executive Officer Chief Financial Officer and Senior Independent Chief Operating Officer Non-Executive Director Committee membership N N A R
Appointment to Old Regus 27 August 2008 Founder 1 November 2015 27 August 2008 Appointment to IWG 14 October 2016 14 October 2016 27 September 2016 14 October 2016 Experience Douglas was Chief Financial Chief Executive Officer and Dominik served for over nine Lance was previously Officer of Skype during its founder, Mark Dixon is one years as the Chief Financial Chief Executive Officer acquisition by eBay and was of Europe’s best known Officer of Adecco Group, the then Chairman of Standard also Chief Financial Officer at entrepreneurs. Since founding world leading provider of Chartered Bank (China) Ltd, SecureWave during its the Regus Group in Brussels, human resource solutions; Non-Executive Director of acquisition by PatchLink. Belgium in 1989, he has Dominik was also the Adecco IMI plc, Senior Advisor to Prior to this, Douglas was an achieved a formidable Group’s Head of Global the City of London, Chairman Arthur Andersen Partner with reputation for leadership and Solutions and was responsible of China Goldmines plc, international management innovation. Prior to Regus for global information and Director of Business responsibilities. He has served he established businesses in management and for Adecco Development at as a director of companies in the retail and wholesale food Group’s activity in China. Powergen International. multiple jurisdictions and was industry. A recipient of several Dominik previously held the the founding Chairman of the awards for enterprise, Mark Chief Financial Officer position American Chamber of has revolutionised the way at DIS AG, the market leader Commerce in Luxembourg. business approaches its in professional staffing in property needs with his Germany, before the company vision of the future of work. was ultimately acquired by Adecco Group. External appointments Douglas is currently also a Lance is Chairman of Director of Median Gruppe Travelex (China), and a S.à r.l. and Socrates Health WS Atkins International Solutions Inc. Advisory Board member.
BOARD BALANCE Board gender diversity Balance of Non-Executive AND DIVERSITY and Executive Directors 1 1 1 Female: 25% 1 Chairman: 1 The role of the Board is to 2 Male: 75% 2 2 Executive: 2 provide entrepreneurial 3 Non-Executive: 5 leadership and to review the 2 overall strategic development of the Group. 5
36 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 37
R A N Nina is currently a Non- Nina is currently Hikma of Director Executive and PLC Pharmaceuticals CNO Financial Group of Director Washington Life, (Bankers Penn National and Colonial Nina is companies). insurance of also Managing Partner Advisory whichHenderson industry consumer provides firms. to investment evaluations Nina is a Trustee Additionally, she where University Drexel of with Science holds a Bachelor of the 2010 received and honours Distinguished Alumni AJ Drexel of She is also a Director Award. of Service the Visiting Nurse and the Foreign York New Policy Association. Policy During her 30 year career with career During her 30 year and its predecessor Bestfoods CPC International,company Nina held a number of international and North management American general marketing and executive positions, including Vice and Bestfoods of President Grocery. Bestfoods of President as a director She has also served companies numerous of including AXA Financial Inc, Dutch Shell plc., Del Royal and Company Monte Food Corporation. Pactiv 14 October 2016 20 May 2014 Independent Non-Executive Independent Non-Executive Director Nina Henderson
ommittee ommittee emuneration Committee emuneration R f Remuneration Committee f Remuneration f Audit Committee f Nomination Committee A N François serves as the Senior serves François at Castik Advisory Partner and as Partners Capital of Director Non-Executive la Luxembourgeoise Group de Rothschild SA, Edmund Wealth (Holding) SA, Quilvest SA, M&C S.p.A andManagement also serves SA. François Cobepa several of on the Boards charitable organisations. François has over 30 years of 30 years has over François in the experience management banking sector. Until April as Chief served 2016 François the and Chairman of Executive Banque of Board Management Internationale à Luxembourg. management Previous includes Executive experience appointments at BIP S.A., Dexia Partners Investment and at Sal. Oppenheim Group jr. & Cie. S.C.A. 14 October 2016 19 May 2015 Independent Non-Executive Independent Non-Executive Director François Pauly François Member o Member o Member o Chairman, R Chairman, Audit C Chairman, Nomination C
R A R N A Key N R A N Florence is a director at ESL is a director Florence her and also shares Network, directorships, time between and venture consulting in companies investments and innovative providing internet services. Florence has over 30 years 30 years has over Florence corporate international of holding senior practice, finance Financière positions at BNP, Corporate Degroof Rothschild, plc 3i Infrastructure Finance, advisory M&A and her own has an boutique. Florence international perspective, New in Chicago, worked having She and Brussels. Paris York, andhas also taught economics ofpublished a number finance, books and articles on valuation, and has been a member of French several and entrepreneurship committees. innovation 14 October 2016 21 May 2013 Independent Non-Executive Independent Non-Executive Director Florence Pierre Florence 0-3 years: 2 0-3 years: 1 3-6 years: 3 6-9 years: 3 1 2 1 2 3 R A Length of tenure of Length of tenure Directors Non-Executive N Elmar is Chief Financial Officer Elmar is Chief the Executive and Member of Group. the RTL of Committee Member of He is also a Board (Spain) andAtresmedia (France) television Metropole the Broadcast and Chairman of SA. Europe Centre Elmar has extensive Elmar has extensive Since experience. management 2006 he has been the Chief of the Head Financial Officer, and a Centre Corporate Executive the Member of Group, the RTL of Committee the leading European Joiningentertainment network. in 2000 he has Group the RTL held the positions of previously and Mergers of President Vice President and Vice Acquisitions and Controlling. Strategy of Elmar wasPrior to joining RTL, & General President Vice Schoeller Felix of Manager Digital Imaging in the UK. 14 October 2016 1 June 2010 Elmar Heggen Independent Non-Executive Director Corporate Governance The good governance of the Company is the responsibility and focus of your Board
Dear shareholder I trust that you will find our reports to be This section is concerned with good fair, balanced and understandable; this governance and the approach that your is a reflection of how we do business and Board takes in order to promote an how the Board serves its stakeholders. effective and robust governance structure Board composition within the Group. It is the responsibility The composition of the Board remained of your Board to ensure and be responsible unchanged during the year. With the for the long-term success of the Company. resignation of Lance Browne and the During the year, as a result of the Scheme of proposal of François Pauly to replace him as Arrangement completed on 19 December Senior Independent Non-Executive Director 2016, Regus plc ceased to be the holding and Nomination Committee Chairman with company of the Group and a new parent effect from the annual general meeting, we company, IWG plc, was created. The Board will maintain a Board based on merit which and committees of IWG plc after the we believe encompasses the broad range reorganisation were therefore treated as a of skills, backgrounds and experience continuation of the Board and committees necessary to properly serve our of Regus plc prior to the reorganisation. shareholders. The mix of Board members Through the detail provided in the brings together many backgrounds and Your Board strives to reports contained in this section, I hope nationalities covering diverse executive we can provide you with an insight into responsibilities and, additionally, each facilitate effective, how we continually strive to achieve member brings with them distinct yet entrepreneurial and effective governance. complementary personal experiences and approaches to matters which include prudent management in Our approach to governance the evaluation of opportunities and order to deliver the long- We firmly believe that good governance management of risks. We continue to see starts with a strong Board providing term success of the the rewards and benefits of having such entrepreneurial leadership and setting strength and diversity on the Board. Company the values of the Group against a backdrop of prudent and appropriate safeguards, Nomination Committee The Nomination Committee report is set Douglas Sutherland checks and balances which are regularly reviewed and which ensure that the right out on pages 44 to 45. Chairman considerations underpin every decision Remuneration Committee we make. The Directors’ Remuneration report is set As your Board, it is our responsibility, out on pages 50 to 60 including the through a culture of openness and debate, Remuneration Policy on pages 51 to 55. to determine the conduct of the Group's Audit Committee and auditors business with particular focus on the In view of our continuing long-term following areas: ambition for growth and the significant • performance and progress; investments that have been made across the business, the Audit Committee has • major risks and their mitigation; continued to play a substantial role in • strategy; ensuring appropriate governance and • ethics, behaviours and values; challenge around our risk and assurance • people and how we can create a processes. This is covered in further detail high-performing team; on pages 27 to 32. Full details of the work of the Audit Committee are in the Audit • future development and succession; In this section Committee report on pages 46 • customers; and to 49. • accountability to shareholders. Douglas Sutherland Chairman
38 Corporate governance 44 Nomination Committee report 46 Audit Committee report 50 Directors’ Remuneration report 61 Directors’ report 62 Directors’ statements
38 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 38 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
39 39 nnualvalue in excess approval of long-term objectives and commercial strategy; the Audit Committee; Committee; Audit the approval of the annual budget; the Remuneration Committee; and and Committee; Remuneration the approval of regulatory announcements financial annual and interim the including statements; the Nomination Committee, (the “Committees”). approval of terms of reference andmembership of the Board and its Committees; approval of risk management strategy; changes to the Group’s capital structure; structure; capital Group’s the to changes changes to the Group’s management management Group’s to changes the and control structure; capital expenditure in excess of £5m; and material contracts (a of £5m).
The Board has a formal schedule of matters matters of formal schedule has a Board The reserved for its decision and which cannot include: These delegated. be • Board Committees support which committees three are There Board: the • • • • • • The Committees have been delegated delegated been have Committees The certainpowers by thefurther Board, details of which,together with theworkof the Committees, can be found on pages 44 to 60. The terms of reference of each Committee can be found on the Company’s website: www.iwgplc.com as acts Secretary Company The Secretary to all the Committees and minutes of meetings are circulated toall Board members. • • • • • Minutes are taken of all Board discussions are discussions of all Minutes taken Board Director a that event the In decisions. and the of running about the a concern has Company or a proposed action, and such remainsconcern unresolved, Directors ensure that any such concerns are recorded in the Board minutes. is responsible for leadership of the the of leadership for responsible is its effectiveness and ensuring Board on all of its role; aspects the strategy for the Group and ensures ensures and Group the for strategy the measures resources, that necessary the to implement in place are and controls the agreed strategy and tomonitor performance; and sets the Board meeting schedule schedule meeting Board sets the and and agenda; the values and standards form which of culture corporate of the basis the Company. the ensures thateach meeting covers an appropriate range of topics including business operations, strategy, projects special development, and administrative matters.
Board meetings On 19 times. met seven Board the In 2016 Scheme of the result as a 2016, December ofplc Arrangement, ceased toRegus be the holding company of thenew Group and a parent company, IWGplc, created. was For attendance, meeting of Board purposes the IWG plc is treated as a continuation of Regus plc is drawn. and no distinction Details of Board membership throughout set are at meetings attendance and year the out below: Role of the Chairman Chairman the Role of The Chairman: • Leadership Leadership Board the Role of The role of your Board is to facilitate effective, entrepreneurial and prudent management throughand that be to collectively responsible for the long-term sets: Board The Company. of the success • • • • Corporate Governance Code Governance Corporate 6/7 6/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 7/7 Attendance Attendance of meetings): of meetings): (out of possible (out of possible maximum number maximum number Director contact with Elmar Heggen Elmar Heggen Nina Henderson Pauly François FlorencePierre Members Douglas Sutherland, Chairman Lance Browne Daniel de Dominik Mark Dixon major shareholders. Further information on information Further shareholders. major this is provided in our Compliance on page 43. Statement The UK Corporate Governance Code, Code, Governance UK Corporate The Reporting Financial by the as published available and 2014 in September Council on www.frc.gov.uk (the “Code”), sets out a series of principles and provisions documenting good practice in governance. Our Corporate Governance Reportis structured to report against the main principles of the Code, which relate to: leadership, effectiveness, accountability, remuneration and relationswith Audit the with Together shareholders. Committee Report, the Nomination Committee Report and the Directors’ Remuneration Report, this Corporate GovernanceReport shows howwe have during Code of the principles the applied the all with complied we when 2016 provisions of the Code except in relation Independent to Senior UK Corporate Governance Code
The main principles of the UK UK the of principles main The remuneration accountability, ss, effectivene leadership, to relate shareholders. with relations and nd ournd reports to be Douglas Sutherland Sutherland Douglas Chairman Remuneration Committee Committee Remuneration The Directors’ Remuneration reportis set the 50 to 60 including out on pages Remuneration Policy on pages 51 to 55. and auditors Committee Audit In view of our continuing long-term significant the and for growth ambition across been made have that investments has Committee Audit the business, the continuedto play a substantialrole in and governance appropriate ensuring challenge aroundassurancerisk our and processes. This is coveredinfurther detail on pages 27 to 32. Full details of the work Audit the are in Committee Audit of the Committee report on pages46 49. to Nomination Committee Committee Nomination The Nomination Committee report is set 44 to 45. out on pages Board composition The composition of the Boardremained unchanged during the year.With the of Lance Browne the and resignation as him replace to Pauly of François proposal Director Non-Executive Independent Senior and Nomination Committee Chairman with effect from the annual general meeting, we which on merit based a Board maintain will range broad the encompasses we believe of skills, backgrounds and experience necessary to properly serve our shareholders. The mix of Board members brings together many backgrounds and nationalities covering diverseexecutive each additionally, and, responsibilities memberwithbrings them distinct yet complementary personal experiences include which to matters and approaches and opportunities of evaluation the management of risks. We continue to see the rewards and benefits of having such strength and diversityon the Board. I trust that you will fi will I you that trust this understandable; and balanced fair, is a reflection of how we do business and stakeholders. its serves Board how the p against a backdrop a backdrop p against performance and progress; major risks and their mitigation; strategy; strategy; ethics, behaviours and values; people and howwe can createa high-performing team; future development and succession; customers; and and customers; accountability to shareholders.
Our approach to governance governance to Our approach We firmly believe that good governance starts with a strong Boardproviding entrepreneurial leadership and setting Grou of the values the safeguards, appropriate and of prudent regularly are which balances and checks right the that ensure which and reviewed considerations underpin every decision we make. As your Board, itisour responsibility, through a culture of openness and debate, Group's of the conduct the to determine business with particular focus on the following areas: • Dear shareholder Dear shareholder with good is concerned This section your that approach the and governance an in order Board promote to takes structure governance robust and effective responsibility the It is Group. the within responsible be and ensure to Board your of for thelong-term successof the Company. During the year,as a result of the Scheme of Arrangement completed on 19 December holding the be to ceased plc Regus 2016, parent and a new Group of the company Board The created. plc, was IWG company, and committees of IWG plc after the reorganisation were therefore treated as a committees and Board of the continuation of Regusplcprior to the reorganisation. Through the detail provided in the I hope section, this in reports contained into with an insight you provide we can achieve to strive we continually how governance. effective • • • • • • • overnance overnance g Nomination Committee report 4 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 46 46 report Audit Committee 50 report Remuneration Directors’ 61 report Directors’ 62 statements Directors’ In this section 38 Corporate 4 Your Board strives to strives Board Your effective, facilitate and entrepreneurial in management prudent long- the deliver to order the of success term Company Sutherland Douglas Chairman 38 Corporate Governance Corporate Governance the is Company the of governance good The your Board focus of and responsibility Corporate Governance continued
Effectiveness Re-election of the Board Development, information and support Board composition All Executive and Non-Executive Directors All Directors have: The Board currently comprises the submit themselves for re-election by • the opportunity to meet with major Chairman, two Executive Directors and five shareholders annually. Directors appointed shareholders and have access to the Non-Executive Directors. The Board during the period since the last annual Company’s operations and employees. general meeting are required to seek considers all Non-Executive Directors to be • access to training which is provided on an election at the next annual general meeting independent and they each bring their own ongoing basis to meet particular needs under the Company’s articles of association. senior-level experience and objectivity to with the emphasis on governance and There have been no Directors appointed the Board. accounting developments. During the during the period since the last annual The composition of the Board and year the Company Secretary provided general meeting. Committees are both regularly reviewed. updates to the Board on relevant The Board considers that with the proposal Time commitment governance matters, whilst the Audit of François Pauly as Senior Independent In accordance with the terms of their Committee regularly considers new Non-Executive Director and Nomination appointment agreements, the Chairman and accounting developments through Committee Chairman, with effect from all Non-Executive Directors are expected to presentations from management, internal Lance Browne’s stepping down from the allocate such time as is necessary for the business assurance and the external Board, it will maintain the correct balance proper performance of their duties as auditors. Directors of the Company and are required of expertise, skills and dedication in order • access to the advice and services of the to advise the Board if there is a change in to discharge its duties effectively. Company Secretary, who is responsible circumstances which will impact on the Board appointments and succession for ensuring that Board procedures, time they are able to dedicate to the The Nomination Committee continues to be corporate governance and regulatory Company. responsible for leading the process for compliance are followed and complied Board appointments, which it does on the Copies of all Non-Executives’ appointment with. Appointment and removal of the basis of the evaluation of the balance of agreements are available for inspection at Company Secretary is a matter reserved skills, experience, independence and the Company’s Registered Office during for the Board. normal business hours and at the annual knowledge, and succession planning. The Board programme includes the receipt general meeting. Details of other Further details of the Nomination of monthly Board reports and presentations commitments held by the Directors are Committee’s work and responsibilities given at Board meetings from management disclosed on pages 36 and 37. are contained on pages 44 and 45. with strategic responsibilities. These, together with site visits, increase the Non- Executive Directors’ understanding of the business and sector. Should a Director request independent professional advice to carry out his duties, such advice is available to him or her at the Company’s expense.
Role of Board members Douglas Sutherland Mark Dixon There is a clear division of Chairman Chief Executive responsibilities at the head of the Responsible for leadership of the Board, Responsible for formulating strategy and Company between the running of the setting its agenda and monitoring its for its delivery once agreed by the Board. Board and the running of the Company’s effectiveness. He ensures that adequate time He creates a framework of strategy, values, business. No one individual Director has is available for discussion of all agenda items, organisation and objectives to ensure the unfettered powers of decision-making in particular strategic issues. Additionally, successful delivery of key targets, and and all Directors are required to act in the he ensures effective communication with allocates decision-making and best interests of the Company. shareholders and that the Board is aware responsibilities accordingly. of the views of major shareholders. He Dominik de Daniel facilitates both the contribution of the Non- Executive Directors and constructive relations Chief Financial Officer between the Executive Directors and Non- and Chief Operating Officer Executive Directors, and regularly meets Responsible as CFO for leading the finance with the Non-Executive Directors without and accounting functions. He is also the Executive Directors being present. In responsible for business ethics, good addition, he oversees the corporate governance, assisting with strategy and responsibility activities of the Group, compliance. Responsible as COO for the including community projects and implementation of the strategy across environmental impact initiatives. the Group.
40 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 40 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
41 41 an g Re y Timoth Company Secretary for is responsible Secretary Company The the through Board, the advising and matters governance on all Chairman, are minutes appropriate that ensuring meetings and of all Board taken discussions. Going concern concern Going The Directors, havingmade appropriate enquiries, have a reasonable expectation Company have Group and that the the adequate resources to continue in operationalexistence a period forof at least 12 months from the date of approval reason, this For statements. financial of the concern going the adopt to continue they pages on accounts the preparing in basis 118. 63 to for basis concern going In the adopting the statements, financial the preparing Directors have considered the further information included in the business activities commentary as set out on pages 14 to 19, as wellas theGroup’s principal out on pages as set uncertainties risks and 32. 27 to basis concern on going the details Further of preparation can be found in note 23 of on page 92. accounts to the notes the unts is included on is included unts ment are robust and Executive Directors s of appointment, s of appointment, udgement of the Non- of the udgement Non-Executive Directors Non-Executive and character counsel, independent The j which have an initial three-year term. term. three-year initial an have which enhances the development of strategy and and strategy of development the enhances Board. the of decision-making overall the the scrutinise Directors Non-Executive The performance of management and monitor the reporting of performance, satisfying themselves on the integrity of financial informationthat financialand controls and systems of risk manage for responsible also are They defensible. executive of levels appropriate determining remuneration. the to subject are Directors Non-Executive re-election requirements and serve the Company under letter Accountability reporting and business Financial In accordancewith its responsibilities the Board Annualthis considers Reportand Accounts, takenasa whole, to fair,be in addition to understandable and balanced providing theinformation necessary for Company’s the assess shareholders to position and performance,business model and strategy. A statement by the Company’s auditor about their responsibilitiesinrelation to the Annual Reportand Acco 65. 63 to pages The Board conducts regular reviews of the Group’s strategic direction. Countryand regional strategic objectives,plans and by set the are targets performance regularly and are Directors Executive of the context in the Board by the reviewed Group’s overall objectives. Further details of generates Company the on which basis the term longer the over value and preserves andthefor strategy delivering the objectivesof Company the are contained in 35. 1 to pages on Report Strategic the Lance Browne Lance Browne Senior Independent Director The Senior IndependentDirector acts as a the for and confidant board sounding Chairman, as an intermediary for other and leads necessary when and as Directors the appraisal of the Chairman’s performance.He is also availableto shareholders if they have concerns that cannot be resolved through normal channels. Board performance Board performance The Senior Independent Director annually Directors Non-Executive the leads performance evaluation of the Chairman, Directors Executive of the views the taking into account. Last year an independent external out. wasof carried Boardevaluation the of Board evaluation An internal annual for 2016. was performance conducted The results were reviewed and incorporated continuously to efforts ongoing our in effectiveness and processes the improve of the Board. There were noreportable matters identified and we continue to havefull confidence in the Board’s members processes.and
. p the opportunity to meet with major major with meet to opportunity the shareholders and have access tothe Company’s operations and employees. access to which training is providedon an basis meet particular ongoing to needs and on governance emphasis with the accountingdevelopments. During the year the Company Secretary provided updates to the Boardon relevant Audit the whilst matters, governance Committeeregularly considers new accounting developments through presentationsmanagement, from internal business assurance and the external auditors. access to the advice and services of the is responsible who Secretary, Company procedures, Board that ensuring for corporate governanceregulatory and compliance are followed and complied of the removal and with. Appointment Company Secretary is a matter reserved for the Board.
Development, information and support support and information Development, All Directors have: • • • The Board programme includes the receipt receipt the includes programme Board The presentations reports and of monthly Board given at Board meetings from management with strategic responsibilities. These, Non- the increase with visits, site together of the understanding Directors’ Executive business and sector. Shoulda Director request independent duties, his out carry to advice professional or her at to him the is available such advice Company’s expense. Dominik de Daniel de Dominik Daniel Officer Financial Chief and Chief Operating Officer finance the leading for as CFO Responsible and accounting functions. He is also responsible for business ethics, good and with strategy assisting governance, compliance. Responsible as COO forthe across of strategy implementation the Grou the Mark Dixon Chief Executive Responsiblefor formulating strategy and Board. the by agreed once delivery its for values, of strategy, a framework He creates organisationand objectives toensure the and targets, key of delivery successful and decision-making allocates responsibilities accordingly. ship of the Board, nce the last annual annual last the nce act initiatives. p las Sutherland las g Dou Chairman Responsible for leader setting its agenda and monitoring its He ensures that adequate time effectiveness. agenda items, discussion of all is available for in particular strategic issues. Additionally, with communication effective ensures he and that the Board is shareholders aware He shareholders. of the views of major the Non- facilitates both the contribution of Directors and constructiveExecutive relations between the Executive Directors and Non- and regularly meets Directors, Executive without with the Non-Executive Directors In being present. Directors the Executive the corporate addition, he oversees responsibility activities of the Group, including community projects and im environmental Re-election of the Board Board of the Re-election Directors Non-Executive and Executive All submit themselvesfor re-election by shareholders annually. Directors appointed during the period si to seek required are meeting general election at the next annual general meeting association. of articles Company’s the under appointed no Directors been have There annual last period the during the since general meeting. Time commitment In accordancewith the termsof their and Chairman the agreements, appointment all Non-Executive Directors are expected to the for necessary is as time such allocate proper performance of their duties as Directors of the Company and are required in a change is there if Board the advise to which will on the impact circumstances time they areable todedicate tothe Company. Copies of all Non-Executives’ appointment at inspection for available are agreements the Company’s Registered Office during annual at hours and the normal business general meeting. Details of other are Directors the by held commitments 37. 36 and on pages disclosed 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Role of Board members Board of Role of division is a clear There the of head the at responsibilities Company between the running of the Company’s of running the the and Board business.Noone individual Director has unfettered powers of decision-making to act in the required are Directors and all Company. of the best interests 40 Corporate continued Governance Effectiveness Board composition The Board currently comprises the Chairman, two Executive Directors and five Board The Directors. Non-Executive be to Directors all Non-Executive considers own their bring each they and independent senior-level experience and objectivity to Board. the and Board the of composition The Committees are both regularly reviewed. proposal with the that considers Board The of FrançoisPauly Senior as Independent Non-ExecutiveNomination Director and Committee Chairman, with effect from Lance Browne’sstepping downfrom the Board, it will maintain the correct balance of expertise, skills and dedication in order effectively. its duties to discharge succession and Board appointments The NominationCommittee continuesto be responsible for leading the process for on the it does which appointments, Board of balance of the evaluation of the basis and independence skills, experience, planning. succession and knowledge, Nomination of the details Further Committee’s work and responsibilities arecontained on pages 44 and 45. Corporate Governance continued
Longer-term viability The Board has delegated authority for Remuneration The Directors have also assessed the overseeing and reviewing the process Remuneration Committee viability of the Group and Company over of identifying, managing and reviewing The Board has established a Remuneration a three-year period to 31 December 2019. risks to the Audit Committee, which reports Committee with responsibility for the This is based on three years of strategic regularly to the Board. design and implementation of the outlook and planning and related stress Internal control systems Remuneration Policy for both Executive scenario testing. Whilst the Board has no The Board has delegated its responsibility Directors and the Chairman. In doing so, reason to believe that the Group will not be for the Company’s system of internal the Committee will pay due regard to viable over a longer period, using a three- control and risk management and for wider remuneration trends across the year period was chosen to give greater ensuring the effectiveness of this system Group, legal requirements and best certainty over the assumptions used. to the Audit Committee. Details of the corporate governance. The aim is to In making their assessment, the Directors system and the Committee’s review of ensure our Remuneration Policy is took account of the further information its effectiveness are reported on pages aligned to Company strategy, key business included in the business activities 46 to 48. objectives and the best interests of our commentary as set out on pages 14 to 19, Audit Committee and auditors shareholders and stakeholders. Further as well as the Group’s principal risks and The Board has established an Audit details of the Remuneration Committee’s uncertainties and related mitigation Committee consisting entirely of work is contained on pages 50 to 60. In approaches as set out on pages 27 to 32. Independent Non-Executive Directors. order to maintain transparency, approval They assessed potential financial and The Audit Committee has responsibility for the Company’s Remuneration Policy and operational aspects of various severe for ensuring the integrity of financial the Annual Report on Remuneration will be but plausible scenarios in the context information and the effectiveness of sought at the annual general meeting. of these principal risks and uncertainties financial controls and the internal control and potential combinations thereof along and risk management system. Further with the likely effectiveness of available details of the Audit Committee’s work mitigating actions. and responsibilities are contained on Based on this assessment, the Directors pages 46 to 49. have a reasonable expectation that the All members of the Audit Committee are Group and Company will be able to considered by the Board to be competent continue in operation and meet all in accounting and/or auditing. Furthermore, their liabilities as they fall due over and in compliance with the Code, the Board the period up to 31 December 2019. regards Elmar Heggen as the Committee Principal risks member possessing recent and relevant The Board is responsible for assessing financial experience. the nature and extent of the principal risks On recommendation of the Audit it is willing to take to achieve its strategic Committee, it is intended that a tender objectives and also those risks that threaten process for the external audit should its business model, future performance, be launched during 2018 and it is solvency or liquidity. The key risks to the proposed that KPMG be re-appointed Group and the steps taken to manage and as the auditor for the financial year mitigate them which were reviewed and ending 31 December 2017. approved by the Board are detailed on pages 27 to 32.
Control environment A clearly defined An induction process Provision to all team High standards of behaviour are organisation structure to educate new team members of a copy demanded from staff at all levels within with established members on the of the ‘Team Member the Group. The following procedures are responsibilities; standards required Handbook’ which in place to support this: from them in their contains detailed role, including guidance on business ethics and employee policies compliance, and the standards regulations and of behaviour internal policies; required of staff;
42 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 42 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
43 43 Provision E.1.1 – the Senior Independent Senior Independent – the E.1.1 Provision Non-Executive DirectorLance Browne does nothavewith regular meetings major external shareholders.
Insurance Insurance is programme insurance Group’s The reviewed annually and appropriate protect to obtained is cover insurance the Directors and senior management in against brought being a of claim event the any of them in their capacity as Directors and Officers of the Company. Compliance statement Compliance statement the with has complied Company The provisionsof the Code throughout the with 2016, 31 year ended December following: the of exception the • The Board considers it appropriate for main conduit be the Chairman to the Senior the than rather investors, to The Director. Non-Executive Independent Chairman participates in investor meetings and makes himself available for questions, of time major the at person, in request. upon as well as announcements The Chairmanregularly updates the Board and particularly the Senior Independent of results on the Director Non-Executive of investors. and opinions the his meetings that the Board considers the basis, this On Director Non-Executive Independent Senior issues of the awareness full gain to is able and concerns of major shareholders. Notwithstanding this policy, all Directors have a standing invitation to participate investors. with meetings in To underpin the the To underpin effectiveness of controls, policy Group's it is the and develop to recruit appropriately skilled management and staff of high calibre and with and integrity appropriate disciplines. Annual general general meeting Annual is year each meeting general annual The general annual held in May. the From 2017, and Switzerland in held be will meeting will be attended, other than in exceptional Board. of the all members by circumstances, In addition to theformal business ofthe meeting, thereis normally a trading invited are shareholders and update the given also are and questions ask to Directors the meet to opportunity informally afterwards. Noticeof theannual general meeting is documents with any related together required tobemailed to shareholders at least 20 working days before themeeting on proposed are resolutions and separate each issue. resolutions all of respect in voting The meeting general annual to be put to the of by means a poll vote. is conducted The level of proxy votes cast and the resolution, each and against for balance of abstentions, level with the together voting following announced are if any, that considers Board the Where poll. a on a significant proportion of votes have been cast againstresolution, a the actions which the Board intends to take tounderstand will result vote the behind reasons the also explained. be Financial and other information is made available on the Company’s website: www.iwgplc.com Operational audit and self-certification tools require which individual centre managers to confirm their adherence to and policies Group and procedures; Policies and procedure manuals and guidelines that accessible readily are Group’s through the intranet site; The Company reports formally to with the a year, twice shareholders half-year in typiresults cally announced August and the finalin resultsMarch. There are programmes for the Chief Executive Officer Financial Chief the and Officer to give presentations of these results investors, institutional Company’s the to other and London in media and analysts key locations. the and Officer Executive Chief The a close maintain Officer Financial Chief dialogue with institutional investors on the Company’s performance,governance, plans serve also meetings These and objectives. of the understanding an ongoing to develop Company’s of the any concerns and views shareholders. major Non-Executive Directors are given regular of institutional views the to as updates the attends Chairman The shareholders. main presentations of the half-year and to available is also and results full-year meet with shareholders on request. The principal communication with the is through shareholders private results half-year the Report, Annual meeting. general annual and the The Company continues to engage as its investor of Brunswick services the relations advisor. Relations with shareholders with shareholders Relations Dialogue with shareholders
; uired of staff q Provision toall team members of a copy Member ‘Team of the which Handbook’ detailed contains on guidance employee policies standards the and of behaviour re ;
Remuneration Remuneration Remuneration Committee a Remuneration established has Board The Committee with responsibility for the of the design and implementation Remuneration Policy for both Executive Directors and the Chairman. In doing so, the Committee will pay due regard to widerremuneration acrosstrends the and best requirements legal Group, corporate governance. The aim is to ensure our Remuneration Policy is alignedto Companystrategy, key business objectives and thebest interestsour of shareholders and stakeholders. Further Committee’s details of Remuneration the In 60. to 50 pages on contained is work order tomaintain transparency,approval for the Company’s Remuneration Policy and the Annual Report on Remuneration will be meeting. general annual the at sought olicies p An induction process An induction team new educate to members on the required standards in their them from role, including business ethics and compliance, regulations and internal A clearly defined organisation structure with established responsibilities; The Board has delegated authority for authority delegated has Board The process the reviewing and overseeing reviewing and managing of identifying, risks tothe Audit Committee,which reports regularly to the Board. Internal control systems systems control Internal responsibility its has delegated Board The forCompany’s theof system internal control and risk management and for system of this effectiveness the ensuring of the Details Committee. Audit to the system and the Committee’s review of are reported on pages its effectiveness 48. 46 to and auditors Committee Audit Audit an established has Board The Committee consisting entirely of Directors. Non-Executive Independent CommitteeThe Audit responsibility has for ensuring the integrityof financial information and the effectiveness of control internal the and controls financial and risk management system. Further work Committee’s details of the Audit and responsibilities are contained on 46 pages to 49. Allof members Committee the are Audit be competent to Board by the considered in accounting and/or auditing. Furthermore, Board the Code, with the and in compliance regards Elmar Heggen as the Committee member possessing recent and relevant experience. financial On recommendation of the Audit Committee, it is intended that a tender should audit external the for process and it is during 2018 be launched proposed that KPMG be re-appointed as the auditor for the financial year 2017. December 31 ending
t s principal risks and principal s 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Control environmen are of behaviour High standards demanded from staff at all levels within are procedures following The Group. the inplace to support this: 42 Corporate continued Governance viability Longer-term the assessed also have Directors The viability of the Group and Company over period to 2019. a 31 December three-year of strategic years three on based This is stress related and planning and outlook has no Board the Whilst testing. scenario reason tobelieve that theGroup will not be viable over a longer period, using a three- greater give to chosen was period year used. assumptions the over certainty In makingtheir assessment, the Directors took account of the further information included in thebusiness activities commentary as set out on pages 14 to 19, as Group’ as well the uncertainties and related mitigation approaches as seton pagesout27 to 32. financial and potential They assessed operational aspects of various severe context in the scenarios plausible but of these principalanduncertainties risks and potential combinations thereof along available of effectiveness likely with the mitigating actions. Directors the assessment, on this Based the that expectation a reasonable have to be will able and Company Group continue in operation andmeet all over due fall they as liabilities their 2019. 31 December up to period the Principal risks The Board is responsible for assessing the nature and extent of the principal risks it is willing to take to achieve its strategic threaten risks that and also those objectives its business model, future performance, the to risks key The liquidity. or solvency Group and the steps taken to manage and mitigate them which were reviewed and on detailed are Board by the approved 27 pages to 32. Nomination Committee report
Dear shareholder Succession planning I am pleased to present to you my We ensure that succession plans are report on the Nomination Committee in place for the orderly succession for (the “Committee”). appointments to the Board and senior Although there were no changes to the management positions, so that there Board composition, key activities in 2016 is an appropriate balance of skills and included the consideration of my successor experience within the Company and as Senior Independent Non- Executive on the Board. Director and Nomination Committee Succession planning discussions continue Chairman as I step down from the Board to be an integral priority of the Group’s after nine years. I am delighted with the business planning and review process, proposal that François Pauly takes on these as is the continued development of both responsibilities. management capacity and capabilities Our Board composition within the business. As at the date of this report, the Board Terms of reference comprises eight members, being: Below is a summary of the terms of • the Chairman (Douglas Sutherland); reference of the Nomination Committee: • two Executive Directors; and • Board appointment and composition – Our aim is for our Board to regularly review the structure, size • five Non-Executive Directors. and senior management and composition of the Board and IWG maintains a Board whose breadth make recommendations on the role and team to be reflective of and scope in terms of expertise, gender and nomination of Directors for appointment the international nature nationality reflect the size and geographical and reappointment to the Board for the of our business and the reach of the business. We believe the Board purpose of ensuring a balanced and is the right size to meet the requirements diverse Board in respect of skills, communities in which of the business and any changes to the knowledge and experience. Board’s composition and to its committees we operate. • Board Committees – to make can be managed without undue disruption. recommendations to the Board in Lance Browne Board appointments relation to the suitability of candidates Chairman Our regular internal Board review process for membership of the Audit and monitors effectiveness, performance, Remuneration Committees. The balance, independence, leadership and appointment and removal of Directors succession planning, enabling us to identify are matters reserved for the full Board. the capabilities and roles required for a Members of the Committee • Board effectiveness – to review annually particular Board appointment. In view of On 19 December 2016, as a result of and make appropriate recommendations the future development of the Group and the Scheme of Arrangement, Regus plc to the Board. our objective to continue to place strong ceased to be the holding company of emphasis on the diversity of the Board, the Group and a new parent company, the Nomination Committee maintains IWG plc, was created. For the purposes an ongoing programme of engagement of Committee attendance, IWG plc is with highly qualified female and male treated as a continuation of Regus plc Non-Executive Director candidates of and no distinction is drawn. Committee varied education, backgrounds and membership during the year and business experience. attendance at the meetings are set out below. We maintain a policy of diversity, as is reflected in our current Board of two Attendance women and six men, representing six (out of possible maximum number nationalities and seven countries of Members of meetings) residence. Along with their international operational experience, they also bring Length of tenure of Non-Executive Lance Browne, Directors within the Committee Chairman 4/4 in-depth working knowledge of multiple industries, business and organisational Elmar Heggen 4/4 2 models, corporate cultures, functional 0-3 years: 2 Nina Henderson 4/4 areas and business issues. Biographical 3-6 years: 1 François Pauly 4/4 details of the Directors are on pages 36 6-9 years: 3 Florence Pierre 4/4 to 37. We continue to monitor the broader Douglas Sutherland 4/4 discussion on diversity which we take into consideration whilst maintaining a merit 1 All members of the Committee are based approach to recommendations for independent. Board appointments. 3
44 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 44 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
45 45 51% 49% Female: Female: Male: 51% 49% Gender split of Group employees employees Group of Gender split
77% 23% Female: Female: Male: 77% Board comprisesthe eight members: Chairman (DouglasSutherland), five Non-Executive Directors and two considers Board The Directors. Executive be to Directors Non-Executive the all Directors the of names The independent. serving as and at 2016 31 December out are set details biographical their 36 and 37. on pages All Directors servedthroughout the review. under year IWG’saim isto appointa Board with varied backgrounds and gender to operate. we in which society the reflect Our Board composition Board Our As at the dateofthis report, the 23% Gender split of business centre centre business of Gender split employees
25% 75% Female: Female: Male: 75% 25% Board performance – to assist the the – assist to performance Board Chairman with the annual performance evaluation to assess the performance Board overall the of effectiveness and Directors. and individual Leadershipto – remaininformed fully issues and commercial about strategic mattersaffecting the Companyand to keep under review the leadership needs of the organisation to enable it to compete effectively.
Gender split of board of Gender split Lance Browne Browne Lance Chairman, Nomination Committee •
• Complete details of the above are available available are above of the details Complete website: Company’s on the www.iwgplc.com Board appointment and composition – to regularly review the structure, size and Board of the composition and make recommendationson the role and nomination of Directors for appointment for the Board the to reappointment and and a balanced ensuring of purpose skills, of in respect Board diverse and experience. knowledge Board Committees – to make recommendations to the Boardin relation to thesuitabilityof candidates formembership ofand the Audit Remuneration Committees. The appointment and removal of Directors are matters reserved for the full Board. Board effectiveness – to review annually and make appropriate recommendations Board. to the
Length of tenure of Non-Executive of Non-Executive of tenure Length Directors within the Committee Terms of reference Terms of reference Below is aof summarythe of terms reference of the Nomination Committee: • Succession planning planning Succession We ensure that succession plans are for succession orderly the for place in appointments to the Board and senior managementpositions, so that there is an appropriate balance of skills and experience within the Company and Board. on the Succession planning discussions continue to be an integral priority of the Group’s business planning and reviewprocess, of both development continued as is the management capacity and capabilities within the business. • • t undue disruption. ors are on pages 36 on pages ors are the Chairman (DouglasSutherland); two Executive Directors; and and Directors; Executive two five Non-Executive Directors.
Board appointments appointments Board Our regular internal Board review process monitors effectiveness, performance, and leadership independence, balance, identify to us enabling planning, succession the capabilities required roles forand a particular Board appointment. In view of and Group the of development future the place strong to continue to our objective of diversity Board, the on the emphasis the Nomination Committee maintains an ongoing programme of engagement with highly qualified female and male Non-Executive Director candidates of and backgrounds education, varied business experience. as is of diversity, policy a maintain We of two Board current in our reflected women and six men, representing six nationalities and seven countries of international their with Along residence. operational experience, they also bring multiple of knowledge working in-depth organisational and business industries, models, corporate cultures, functional Biographical issues. business and areas Direct of details the to 37. We continue to monitor the broader discussion on diversity which we take into consideration whilst maintaining a merit based approach to recommendations for Board appointments. Dear shareholder Dear shareholder I am pleased to present to you my report on the Nomination Committee (the “Committee”). to the changes no were there Although 2016 in activities key Board composition, included the consideration of my successor as Senior Independent Non- Executive Director and Nomination Committee Chairmanas I step downfrom the Board the with I am delighted years. nine after these on Françoisthat Pauly proposal takes responsibilities. composition Board Our As at the dateofthis report, the Board comprises eight members, being: • • • IWG maintains a Board whose breadth breadth whose a Board IWG maintains scopeand in terms of expertise, gender and geographical and size the reflect nationality reach of the business. We believe the Board requirements the meet to size right is the of thebusiness and any changes to the Board’s compositionand to its committees withou can be managed 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 Attendance Attendance of meetings) of meetings) (out of possible (out of possible maximum number maximum number al nature nature al ective of of ective 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Members Browne, Lance Chairman Elmar Heggen Nina Henderson François Pauly FlorencePierre Douglas Sutherland are Committee the of members All independent. Our aim is for our Board Board our for is aim Our management senior and refl be to team internation the the and business our of which in communities we operate. Browne Lance Chairman the Committee of Members of a result as 2016, 19 December On the Schemeof Arrangement, Regusplc ceased tobe the holding company of and a new parent Group the company, IWG plc, was created. For the purposes of Committee attendance, IWG plc is plc Regus of a as continuation treated Committee is drawn. and no distinction membership during the year and are meetings at the attendance set out below. 44 Nomination Nomination Committee report Audit Committee report
Dear shareholder Responsibilities As Chairman of the Audit Committee (the Below is a summary of the terms of “Committee”), I am pleased to present to reference of the Committee (the full you this year’s Committee report which text of which is available on the Company’s shows how the Committee applied the website (www.iwgplc.com)): principles of the UK Corporate Governance • Financial reporting – to provide support Code during 2016. to the Board by monitoring the integrity Key objective of financial reporting and ensuring that Acting on behalf of the Board, the the published financial statements of the Committee’s key objective is to provide Group and any formal announcements effective governance over the Company’s relating to the Company’s financial financial reporting; this is achieved by performance comply fully with the monitoring, reviewing and making relevant statutes and accounting recommendations to the Board in standards. respect of: • Internal control and risk systems – • the integrity of the Company’s external to review the effectiveness of the financial reporting; Group’s internal controls and risk • the Company’s system of internal control management systems. The Committee’s key and compliance; and • Internal audit – to monitor and review objective is to provide • the Company’s external auditors. the annual internal audit programme ensuring that the internal audit function effective governance Membership and meetings is adequately resourced and free from over the Company’s Six Committee meetings were held during management restrictions, and to review 2016. At the request of the Committee financial reporting. and monitor responses to the findings Chairman, the external auditors, the and recommendations of the Executive Directors, the Company Secretary internal auditor. Elmar Heggen (acting as secretary to the Committee), • External audit – to advise the Board Chairman the General Counsel and the Business Assurance Director may attend each on the appointment, reappointment, meeting. The Committee also when remuneration and removal of the required, and at least annually, meets external auditor. independently, without the presence • Employee concerns – to review the of management, with the Company’s Company’s arrangements under which external auditors and with the Business employees may in confidence raise any Assurance Director to informally discuss concerns regarding possible wrongdoing Members of the Committee matters of interest. in financial reporting or other matters. On 19 December 2016, as a result of The Audit Committee ensures that these the Scheme of Arrangement, Regus plc arrangements allow proportionate ceased to be the holding company of and independent investigation and the Group and a new parent company, appropriate follow-up action. IWG plc, was created. For the purposes The Chairman of the Audit Committee of Committee attendance, IWG plc is routinely reports to the Board on how treated as a continuation of Regus plc the Committee has discharged its and no distinction is drawn. Committee responsibilities, as well as highlighting membership during the year and any concerns that have been raised as attendance at the meetings are and when they arise. set out below. Attendance (out of possible maximum number Length of tenure of Non-Executive Members of meetings) Directors within the Committee Elmar Heggen,
Chairman 6/6 2 Lance Browne 6/6 0-3 years: 2 3-6 years: 1 Nina Henderson 6/6 6-9 years: 2 François Pauly 6/6 Florence Pierre 6/6
All members of the Committee are 2 independent. 1
46 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 46 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
47 47 tee confirms that a number of Group-wide procedures, policies and standards havebeen established; a framework for reporting and escalating ofmatters significance has been maintained; reviews of the effectiveness of management actions in addressing key Group risks identified by the and undertaken; been have Board a system of regular reports from management setting out key performance and risk indicators has been developed.
annual planning process, as well as the as well the as process, planning annual Group’smonthly review cycle. with together risks, principal Group’s The manages Group of the how an explanation 27 on pages presented are risks, these Report. Annual of this 32 to Internal control control Internal The Committee has a delegated responsibility from theBoard for the control of internal Company’s system and risk management and for reviewing the a Such system of this system. effectiveness and control evaluate to identify, is designed the with associated risks significant the Group’s achievement of its business objectiveswithviewa to safeguarding Group’s and the investments shareholders’ assets. Dueto thelimitations that are inherent in any systemof internal control, this system is designed tomeet the risks the and particular needs Company’s and is designed it is exposed, to which risk. eliminate than rather to manage Accordingly, such a system canprovide reasonable, butnot absolute, assurance against material misstatement or loss. In accordancewith the FRC Revised Guidance, the Commit identifying, for process an ongoing is there significant the managing and evaluating Group. by the risks faced During the year under review, the Committee continued torevisit its risk identification and assessment processes, invitingmembers Board and senior the discuss and convene to management Group’s key risks andmitigating controls. approach in been adopted has A risk-based establishing the Group’s system of internal control and in reviewingits effectiveness. To identify manageand key risks: • • • •
Board is made aware aware made is Board management structure structure management Valuation of intangibles and goodwill: and intangibles of Valuation has considered Committee The the impairment testingundertaken and disclosures made in relation to goodwill Company’s of the value the has and challenged intangibles and the keyassumptions made by management in their valuation Committee The methodology. considers appropriately that an by used been has approach cautious management and is satisfied that no impairmentof intangibles and goodwill 13 for and 12 notes See is required. further information.
Principal risks Principal risks and risks of a are number There uncertainties which could have an impact on the Group’s long-term performance. risk has a Group The and manage to identify, designed in place mitigate business risks. Risk assessment of part the an is integral and evaluation Risk management management Risk Audit the Board, of the On behalf Committee oversees and reviews an evaluating identifying, for process ongoing and managing the risks faced by the Group. financial their and risks business Major implications are appraised by the of the a part as executives responsible by endorsed are and process planning regional management. Keyrisks are reported to the Audit Committee, which in the that ensures turn of them. Theappropriatenessof controls having executives, by the is considered regard to cost, benefit, materiality and the risks Key crystallising. of risks likelihood and actions to mitigate those risks were Committee Audit the both by considered review, under year the in Board the and and were formally reviewed and approved put has Company The Board. by the to enable systems in place compliance EU Market of the requirements with the Abuse Regulation since it came intoeffect in July 2016. • Following its in-depth review of this Annual of this Annual review its in-depth Following the advised Committee has Report, the Board that itconsiders the Annual Report, and to balanced as a whole, fair, be taken information the providing understandable, necessary for shareholders to assess the Company’s position and performance, As such, and strategy. model business the Committee recommended the Annual Report to the Board. The Committee considered considered Committee The critical accounting policies and practices thereto; and changes changes in the control environment; environment; control in the changes control observations identified by auditor; the decisions delegated decisions and requiring to delegated judgements by management; adjustments resulting from the audit; clarity of the disclosures made and compliance with accounting standards andrelevant financial and governance reporting requirements; and the process surrounding compilation of the Annual Reportand Accounts are fair, balanced they to ensure and reasonable. Taxation: the taxationrisks arising from the Group’s operations when assessing the accounting for taxation related balances to analysis sensitivity applied and of key appropriateness the determine was the assessed Also judgements. recoverability of deferred tax assets and whether the recognition of additional deferredassets tax appropriate. be would (in disclosure and presentation The in 12) and IAS IAS 1 with accordance balances related of taxation respect the whether was as considered were risks the reflected Group’s disclosures inherent in theaccounting forthe taxation balances. The Committee is satisfied that appropriatejudgements made. been have
Financial reporting reporting Financial The mainfocus of Committee the was Audit this and results half-year of the review the Annual Report together with theformal announcements relating thereto; before recommending these to the Board we and judgements actions the that ensure made by management are appropriate. Particular focus is given to: • The following sections summarise the main and the of areas of focus Committee the in 2016: work undertaken of the results Activities of the Audit Committee Committee the Audit Activities of year the during
• • • • • • The Committee formally considers and minutes their consideration of the key audit matters before recommending the Board. the to statements financial reviewed and discussed Committee The with KPMG issues the following significant and management in relation to the financial for statements 2016: • ssible wrongdoing reappointment, Financial reporting – toprovide support integrity the by monitoring Board to the of financial reporting and ensuring that of the statements financial published the announcements formal and any Group relating to the Company’sfinancial performance comply fully with the and accounting statutes relevant standards. Internal control risk and systems – of the effectiveness the to review Group’s internal controls and risk management systems. Internal audit – to monitor and review the annualinternal audit programme ensuring that the internal audit function is adequately resourced and free from management restrictions, and to review andmonitor responses to the findings and recommendations of the internal auditor. External audit– to advise the Board appointment, on the remuneration and removalof the external auditor. Employee concerns– toreview the Company’s arrangements under which employees may in confidence raise any po regarding concerns matters. or other reporting in financial these that ensures Committee Audit The arrangements allow proportionate and investigation and independent appropriate follow-up action.
Length of tenure of Non-Executive of Non-Executive of tenure Length Directors within the Committee
Responsibilities Responsibilities Below is aof summarythe of terms referenceof theCommittee (the full text of which is available on the Company’s website (www.iwgplc.com)): • • • • • The Chairman of the Audit Committee routinely reports to the Board on how the Committee has discharged its responsibilities, as well as highlighting concernsany that have been raisedas arise. they when and the integrity of the Company’s external reporting; financial the Company’s system of internal control control of internal system Company’s the and and compliance; the Company’s external auditors.
Six Committee meetings were held during Committee of the request At the 2016. the auditors, external the Chairman, Secretary Company the Directors, Executive (actingas secretary to the Committee), the General Counseland the Business Assurance Director may attend each when also Committee The meeting. meets annually, at least and required, presence the without independently, with Company’s the of management, Business the with and auditors external Assurance Director to informally discuss matters of interest. Dear shareholder Dear shareholder As Chairmanof Committee the Audit (the “Committee”), I am pleased to present to you this year’s Committee report which shows how theCommitteeapplied the principles of the UK Corporate Governance Code during 2016. Key objective the Board, the of behalf on Acting provide to is objective key Committee’s Company’s the over governance effective by achieved is this reporting; financial monitoring, reviewingand making recommendations to the Boardin respect of: • meetings and Membership • • 6/6 6/6 6/6 6/6 6/6 6/6 6/6 6/6
Attendance Attendance of meetings) of meetings) y (out of possible (out of possible maximum number maximum number
2016 ACCOUNTS AND REPORT IWG PLC ANNUAL objective is to provide to is objective governance effective Company’s the over reporting. financial On 19 December 2016, as a result of a result as 2016, 19 December On the Schemeof Arrangement, Regusplc ceased tobe the holding company of and a new parent Group the company, IWG plc, was created. For the purposes of Committee attendance, IWG plc is plc Regus of a as continuation treated Committee is drawn. and no distinction membership during the year and are meetings at the attendance set out below. Members Heggen, Elmar Chairman Lance Browne Nina Henderson François Pauly FlorencePierre are Committee the of members All independent. The Committee’s ke Committee’s The Elmar Heggen Chairman the Committee of Members 46 Audit CommitteeAudit report Audit Committee report continued
The above process is designed to • The generation of targeted, action- The Committee and the Board regard provide assurance by way of cumulative oriented reports from the Group’s responsible corporate behaviour as an assessment and is embedded in operational sales and operating systems on a integral part of the overall governance management and governance processes. daily, weekly and monthly basis, which framework and believe that it should Key elements of the Group’s system provide management at all levels with be fully integrated into management of internal control which have operated performance data for their area of structures and systems. Therefore, the throughout the year under review are responsibility, and which help them to risk management policies, procedures and as follows: focus on key issues and manage them monitoring methods described above apply more effectively; equally to the identification, evaluation and • The risk assessments of all significant control of the Company’s safety, ethical and business decisions at the individual • The delivery of a centrally co-ordinated environmental risks and opportunities. This transaction level, and as part of the assurance programme by the business approach ensures that the Company has annual business planning process. A assurance department that includes the necessary and adequate information to Group-wide risk register is maintained key business risk areas. The findings identify and assess risks and opportunities and updated at least annually whereby and recommendations of each review affecting the Company’s long-term all Company-inherent risks are identified are reported to both management and value arising from its handling of and assessed, and appropriate action the Committee; and corporate responsibility and plans developed to manage the risk per • Annual internal control self-assessment corporate governance matters. the Company’s risk appetite. The Board and management certification exercise reviews the Group’s principal risks covering the effectiveness of financial The Committee has completed its annual register at least annually and and operational controls. This is based review of the effectiveness of the system management periodically reports on a comprehensive internal control of internal control for the year to on the progress against agreed actions questionnaire collated and reviewed 31 December 2016 and is satisfied to keep a close watch on how key risks by business assurance. Results and any that it is in accordance with the FRC are managed; necessary mitigating action plans are Revised Guidance and the Code. The assessment included consideration of • The annual strategic planning process, presented to senior management and the effectiveness of the Board’s ongoing which is designed to ensure consistency the Board. process for identifying, evaluating and with the Company’s strategic objectives. The maintenance of high standards of managing the risks facing the Group. The final budget is reviewed and behaviour which are demanded from staff approved by the Board. Performance at all levels in the Group. The following Whistle-blowing policy is reviewed against objectives at procedures are in place to support this: The Company has an externally hosted each Board meeting; • a clearly defined organisation structure whistle-blowing channel (‘EthicsPoint’), • Comprehensive monthly business with established responsibilities; which is available to all employees via review processes under which business • an induction process to educate new email, and on the Company’s intranet. performance is reviewed at business team members on the standards required The aim of the policy is to encourage all centre, area, country, regional and from them in their role, including employees, regardless of seniority, to bring functional levels. Actual results are business ethics and compliance, matters that cause them concern to the reviewed against targets, explanations regulation and internal policies; attention of the Audit Committee. are received for all material movements, • the availability of the ‘Team Member The Business Assurance Director, where and recovery plans are agreed Handbook’, via the Group’s intranet, appropriate and in consultation with the where appropriate; which contains the Company’s Code of senior management team, decides on • The documentation of key policies Business Conduct, detailed guidance on the appropriate method and level of and control procedures (including employee policies and the standards of investigation. The Audit Committee is finance, operations, and health and behaviour required of staff; notified of all material discourses made safety) having Group-wide application. • policies, procedure manuals and and receives reports on the results of These are available to all staff via the guidelines are readily accessible investigations and actions taken on a Group’s intranet system; through the Group’s intranet site; regular basis. The Audit Committee has • Formal procedures for the review the power to request further information, • operational audit and self-certification and approval of all investment conduct its own inquiries or order tools which require individual managers and acquisition projects. The Group additional action as it sees fit. to confirm their adherence to Group Investment Committee reviews and policies and procedures; and approves all investments. Additionally, the form and content of routine • a Group-wide policy to recruit investment proposals are standardised and develop appropriately skilled to facilitate the review process; management and staff of high calibre and integrity and with appropriate disciplines. • The delegation of authority limits with regard to the approval of transactions.
48 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 48 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 49 the audit process as a whole and its and a whole as audit process the facing challenges the for suitability Group; the the strength and independence of independence and strength the the external audit team; the audit team’s understanding of audit the understanding team’s environment; control the the culture of the external auditor in in auditor external the of culture the seeking continuousimprovement and quality; increased the quality and timeliness of and timeliness quality the communications and reports received; and the quality of interaction with with of interaction quality the management.
Elmar Heggen Elmar Heggen Chairman, Committee Audit In assessing the effectiveness of the of the effectiveness the In assessing the 2016 for audit process external Committee has considered: • • • • • • Following the Committee’s assessment assessment Committee’s Following the audit external of the effectiveness of the process for 2016 and of KPMG’s continuing has Committee the independence, recommended to the Board thata resolution toreappoint KPMG as the Company’sauditor in respect ofthe 2017 December 31 ending year financial be proposed at the annual general meeting. Committee’s Audit the Notwithstanding continued satisfaction with the performance of KPMG, as previously noted, the Committee has recommended process a tendering that Board the to launched, be should audit external the for during 2018. the Company’s policy to use the external external the use to policy Company’s the auditor for non-audit-related services external the of use the where only auditor will deliverdemonstrable a benefit to the Companyas compared to of providers potential of other use the impair not will it where and services the their independence or objectivity; all proposals for permitted defined non- audit services to use the external auditor must be submitted to, and authorised by, the Chief FinancialOfficer; permitted on advice include services non-audit and regulatory accounting financial reporting matters, reviews of internal accounting and risk management audits (e.g. non-statutory controls, of disposal and acquisitions regarding and in companies) interests and assets tax compliance and advisoryservices; prohibited non-audit services include include services non-audit prohibited book-keeping and other accounting services,actuarial valuation services, recruitment services in relation to key managementpositions transactionand dispositions) and mergers (acquisitions, banking investment includes that work services, preparation of forecasts or and deal proposals investment and services; execution KPMG is required to adhere toarotation policy requiring rotation of the lead audit partner at least every five years. new A responsibility took partner audit lead financial of the in respect audit for the 2016. December 31 ended year
Measures in place to safeguard KPMG’s KPMG’s safeguard to place in Measures independence were: • • • • The breakdown of the fees paid to the the to paid fees the of breakdown The external auditorduring the year to 31 can be found in note 2016 December 5 of the notestothe financial statements 79. on page 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 49 External audit auditor plc’s Regus was Luxemburg KPMG and 2016 31 December ended year for the Ireland KPMG date. this after so remains it as the in 2016 appointed were (‘KPMG’) auditors of IWG plc, following the Scheme a Jersey plc is of Arrangement.Whilst IWG KPMG, the with consultation after company, committee determined that appointing a audit Dublin KPMG registered Jersey needs the serve best would partner is Committee Audit The Group. of the external of the oversight for responsible auditor, including an annual assessment of their independenceobjectivityand and this. safeguard to place in measures the Duringthe year,KPMG audited the statements financial consolidated overview an provided and Group of the Company. of the results half-year of the KPMG performed non-auditservices in relation to: the Scheme of Arrangement, and Venezuela and India to services tax building certification services to Australia. an provided are services such Where explanation of how auditorobjectivity and independence are safeguarded needs to be provided.
Whistle-blowing policy hosted externally an has Company The (‘EthicsPoint’), channel whistle-blowing via employees all to is available which intranet. Company’s on the and email, all encourage is to policy of the aim The employees, regardless of seniority, to bring to the concern them cause that matters Committee. Audit of the attention where Director, Assurance Business The appropriatein and with consultation the managementsenior team,decides on of and level method appropriate the investigation. The Audit Committee is notified of all material discourses made and receives reports on the results of on a taken actions and investigations regular basis. The Audit Committee has the power to request further information, conduct its own inquiries or order fit. sees as it action additional The Committee theand regard Board responsible corporate behaviour as an integral part of the overall governance framework and believe that it should be fully integrated into management the Therefore, and systems. structures risk management policies, procedures and monitoring methods described above apply equally tothe identification,evaluation and control of the Company’s safety,ethicaland environmentalopportunities. risks and This Company has the that ensures approach the necessary and adequateinformation to opportunities and risks assess and identify affecting the Company’s long-term of handling its from arising value corporate responsibility and corporate governance matters. The Committee has completed its annual system of the effectiveness of the review of internalcontrol for the year to is satisfied and 2016 31 December FRC the with accordance in is it that The Code. and the Guidance Revised assessment included consideration of ongoing Board’s the of effectiveness the and evaluating identifying, for process managing the risks facing the Group. standards required standards The generationof targeted, action- orientedfrom reportsthe Group’s on a systems sales and operating which basis, monthly and weekly daily, providemanagement atall levels with of area their for data performance responsibility,andwhich help them to focus on key issues and manage them more effectively; The delivery of a centrally co-ordinated co-ordinated centrally a of delivery The business the by programme assurance assurance department that includes findings The areas. risk key business and recommendations of each review arereported to both management and and Committee; the Annualinternal control self-assessment and management certification exercise of financial effectiveness the covering is based This controls. and operational on a comprehensive internal control and reviewed collated questionnaire bybusiness assurance. Resultsand any are plans action mitigating necessary presented to senior management and Board. the a clearlydefined organisation structure responsibilities; with established an induction process to educate new new process educate to induction an on members team the from them in their role, including business ethicsand compliance, policies; and internal regulation the availability of the ‘Team Member Handbook’, via the Group’s intranet, of Code Company’s the contains which on guidance detailed Conduct, Business employee policies and the standards of behaviour requiredof staff; policies, procedure manuals and accessible readily are guidelines through the Group’s intranet site; operationalaudit and self-certification managers individual require which tools to confirm their adherence to Group procedures;policies and and a Group-wide policy to recruit and develop appropriately skilled and of calibre high staff and management integritywith and appropriate disciplines.
• • • The maintenance of high standards of of standards high maintenance The staff from demanded are which behaviour atall levels inthe Group. The following proceduresare in place to support this: • • • • • • 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL The risk assessments of all significant significant of all assessments risk The business decisions at theindividual of the and as part level, transaction annual business planning process. A Group-wide risk register is maintained whereby annually at least and updated all Company-inherent risks are identified action appropriate and and assessed, plans developed tomanage the risk per the Company’s risk appetite.TheBoard risks principal Group’s the reviews register at leastannually and managementperiodically reports actions agreed against progress on the risks key on how watch a close to keep are managed; The annual strategicplanning process, consistency ensure to is designed which objectives. Company’s strategic with the and is reviewed budget final The approved by the Board. Performance at objectives against is reviewed each meeting;Board Comprehensive monthly business review processes under which business performance is reviewed at business and regional area, country, centre, functional levels. Actual results are explanations targets, against reviewed are received for all material movements, and recovery plans are agreed where appropriate; The documentationof key policies (including procedures and control and health and operations, finance, application. Group-wide safety) having the via staff all to available are These system; Group’s intranet Formal procedures for the review investment of all and approval and acquisition projects. The Group Investment Committee reviews and approves all investments. Additionally, the form and content of routine are standardised proposals investment to facilitate the review process; The delegationoflimits authority with of transactions. approval the to regard
48 Audit CommitteeAudit report continued to designed is process above The of cumulative by way assurance provide assessment and isembedded in operational managementand governance processes. system Group’s the of elements Key operated have which control of internal are review under year the throughout as follows: • • • • • • Directors’ Remuneration report
Dear shareholder Annual bonus I am pleased to present this Directors’ 2016 was a year of continued growth and Remuneration Report. strong financial performance. The 2016 The Committee’s challenge is to ensure that annual bonus plan was measured against we set a policy that enables us to motivate an operating profit target. The achieved our people, to reward performance and operating profit of £186.2m resulted in a recruit the calibre of talent that will lead bonus equivalent to 140.1% of the the Company in sustaining its record of respective salaries of the two Executive profitable growth. Directors (the maximum being 150% of salary) being awarded. Half of the bonus This report sets out the Annual Report will be deferred in shares for three years on Remuneration on pages 55 to 60 vesting subject to continued employment. and this describes the amounts paid to Directors in respect of 2016. Co-Investment Plan Under the CIP the following two Over the last five years Regus has tranches vested during the year subject demonstrated continued growth and to performance against EPS and TSR sustained strong performance. Revenues targets: 2013 award tranche two vested have increased by over 92% and EPS has in full and 2014 award tranche one vested grown from 4.3p to 14.9p. This sustained partially. As reported in 2015, the CIP has financial growth has been reflected in our The Committee’s focus is been replaced by the Performance Share share price and market value. Continued to ensure that remuneration Plan and no new awards under the CIP will strong revenue and profit growth in 2016, be made. is designed to promote combined with a return on investment of the long-term success 13.7%, gives us confidence in the future The year ahead of the Company. and in our ability to meet our long-term The Remuneration Committee has made goals to continue to expand globally. the following decisions for 2017: • Following the adjustment to base salaries Nina Henderson Growth of this nature brings new challenges and demands. A key driver of in 2016, Executive Directors will receive Chairman the Company’s growth has been and will no increase to base salary in 2017; continue to be its people and their talents. • The annual maximum bonus will remain The Company’s human resource continues unchanged at 150% of base salary for to evolve, simultaneously adding new, Executive Directors with half of any bonus whilst retaining existing, capabilities paid deferred in shares which vest after and skills. three years. Performance will continue to be measured against stretching Last year, at the 2016 AGM, we renewed operating profit targets and deferral Members of the Committee our Remuneration Policy and were pleased will apply to any bonus awarded; and On 19 December 2016, as a result of to receive shareholder support for both the the Scheme of Arrangement, Regus plc Remuneration Policy and the Remuneration • Awards of 200% of base salary will be ceased to be the holding company of Report. The Remuneration Committee granted under the Performance Share the Group and a new parent company, believes the policy has served the Plan in line with the approved policy. The IWG plc, was created. For the purposes Company and shareholders well and is awards will vest subject to performance of Committee attendance, IWG plc is aligned to principles of best practice. As a measures over three financial years, treated as a continuation of Regus plc result no material changes are proposed 2017-2019, against EPS, relative TSR and and no distinction is drawn. Committee and this year there will only be a single Return on Investment targets. Any award membership during the year and advisory vote on this statement and the that vests will be subject to an additional attendance at the meetings are set Annual Report on Remuneration. two-year holding period. out below. The Committee considers the remuneration Attendance earned by the Executive Directors is a fair (out of possible reflection of Company performance and maximum number Length of tenure of Non-Executive the return delivered to shareholders. Members of meetings) Directors within the Committee On behalf of the Committee, I Nina Henderson, commend this report to you and look Chair 6/6 2 forward to your support for the resolution 0-3 years: 2 Lance Browne 5/6 at the annual general meeting. 3-6 years: 1 Elmar Heggen 6/6 6-9 years: 2 Nina Henderson François Pauly 6/6 Chairman of the Remuneration Committee Florence Pierre 6/6
All members of the Committee are 2 independent. 1
50 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 50 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
51 51 th; wn has ves: significant profit Performance framework framework Performance N/A N/A N/A selected are metrics Performance on the current based annually The majority objectives. business of the bonus will be linked to key there which of metrics, financial will typically be a 3 below). note element (see based threshold below Performance with payment zero in results of three-fifths than more no target. at available the bonus to 0% from rise Payments 100% of the maximum opportunity levels for the between performance targets. maximum and threshold While there are no performance performance no are there While targets attached to the payment factor a is performance salary, of salary annual the in considered review process. Benefit provision is set at an appropriate market rate competitive and the nature for location of the role. prescribed no There is maximum as some costs may change in accordance with conditions. market 7% of base salary. The Committee may set a reflect to level higher local practice and relevant. if regulation, 150% of base salary annum. per There is no prescribed prescribed no There is maximum salary. Salary normally will increases be broadly in line with increases awarded to the in employees other business, although the retains Committee discretion to award it if increases larger appropriate it considers change a reflect to (e.g. development role, in in performance and to align to or role, data). market Maximum Maximum review carriedoutduring the year, has theobjecti following ars from the Regus plc 2015 AGM held on 17 May 2016 and adopted by IWG adopted and May 2016 on 17 held AGM 2015 plc Regus ars from the ilst taking account ofgovernance bestpractice. cy is now approved and enacted rather than proposed. proposed. than rather enacted and approved cy is now shown on pages 51 to 55 for ease of reference. Please note that the information sho the strategic objectives for the Group; and and Group; the for objectives strategic the Provides an opportunity for additional reward (up to a maximum specified as a % of salary) targets against performance annual on based set and assessed by the Committee. Half of any annual bonus paid will be in three after vest will which shares deferred years, subject to continued employment but half The other targets. performance further no end. year the relevant following cash in paid is A dividend equivalent provision allows the at dividends, to pay the Committee on shares vested discretion, Committee’s (in cash or shares) at the time of vesting and dividends of reinvestment the assume may on a cumulative basis. Recovery and with-holding provisions apply to bonus awards (see note 1 below). Incorporates various cash / non-cash car company a include: may which benefits private allowance, fuel and allowance) (or where and, assurance, life insurance, health specific reflect to benefits other necessary, individual circumstances, such as housing representation allowances, relocation or fees, school of reimbursement allowances, benefits. expatriate other or allowances, travel Provided through participation in the (personal purchase money Company’s pension) scheme, under which the Company matches individual contributions up to a maximum of base salary. an of the form amend may The Company arrangements pension Director’s Executive in response to changes in legislation or similar developments. Salaries are set by the Committee. The the Committee. set by are Salaries such factors relevant all reviews Committee role, the of and responsibilities scope the as: the skills, experience and circumstances of role, in performance sustained the individual, within roles other for increase of the level market data. and appropriate the business, and any annually reviewed are Salaries from effective normally made changes 1st January. 2017 1 January The base salaries effective are set out on page 55 of the Annual Remuneration Report. reward annual create and performance with alignment further the via shareholders retention and delivery of deferred equity. benefits in line with the overall Group policy. competitive package. benefits competitive component component competitive remuneration fixed of to attract and retain people of the highest experience and calibre shape and to needed the Company’s execute strategy. To enable the Group to recruit and retain individuals with the capability to lead the Company on its ambitious future growth pa To ensure that our structures are transparent and capable of straightforward explanation externally and to employees; employees; and to externally explanation of straightforward capable and transparent are our structures that To ensure To align the targets for variable paywith To reflect the global operating model of the Group wh
Annual bonus and incentivise To Pension retirement provide To Benefits Benefits a provide To Component Component to strategy / link Purpose Base salary Operation a provide To Policy Table for Executive Directors Directors for Executive Table Policy The revised policy, which was developed as part of a remuneration Overview of Remuneration Policy Remuneration of Overview • Remuneration Policy Remuneration The full Directors’ RemunerationPolicy,approved forthree ye
plc as part of the Scheme of Arrangement is • been updated to take account of the fact that the poli the that fact of the account take to updated been • • Half of the bonus bonus the of Half rformance. The 2016 2016 The rformance. Following the adjustment to base salaries salaries base to adjustment Following the in 2016, Executivewill Directorsreceive no increase to base salary in 2017; remain will bonus maximum The annual salary for at 150% of base unchanged bonus any of with half Directors Executive after vest shares which in paid deferred continue will Performance years. three against stretching to be measured operating profit targets and deferral and awarded; any bonus to apply will Awards of 200% of base salary will be Share Performance the under granted Plan in line with the approved policy. The awards will vestsubject to performance measures over three financial years, EPS, TSR and against relative 2017-2019, Returnon Investment award targets. Any that vestswill be subjectto an additional two-year holding period.
Nina Henderson Nina Henderson Chairman of the Remuneration Committee The year ahead ahead The year The Remuneration Committee has made thedecisions following for 2017: • Annual bonus bonus Annual and growth of 2016 was a continued year pe strong financial against measured was plan bonus annual achieved The target. profit an operating operating profit of £186.2m resulted in a bonus equivalent to 140.1% of the Executive two the of salaries respective Directors (the maximum being of150% awarded. salary) being willbe deferred in shares for three years employment. continued to subject vesting Plan Co-Investment Under the CIP thefollowing two subject year the during vested tranches to performance EPS against TSRand vested two award tranche 2013 targets: one vested tranche award and 2014 in full has CIP the 2015, in reported partially. As been replaced by the Performance Share Plan and no new awards under theCIP will be made. • • The Committee considers the remuneration fair is a Directors Executive by the earned reflection of Company performance and the return delivered toshareholders. I Committee, of the On behalf commend this report to you and look forward toyour support for the resolution meeting. general annual at the en reflected in our in our en reflected Length of tenure of Non-Executive of Non-Executive of tenure Length Directors within the Committee Dear shareholder Dear shareholder I am pleased to present this Directors’ Remuneration Report. The Committee’s challenge istoensure that we set a policy that enables us to motivate our people,to reward performanceand recruit the calibreof talent that willlead the Company in sustaining its record of profitable growth. Report Annual the out sets report This onto 60 Remuneration on pages 55 the amounts paid to and this describes of 2016. in respect Directors years last five has Regus the Over and growth continued demonstrated sustained strong performance. Revenues have by increased over 92% and EPS has sustained This 14.9p. to from 4.3p grown has be financial growth Continued value. market and price share strong revenue and profit growth in 2016, combined with a returnon investment of future in the us confidence gives 13.7%, and in our ability to meet our long-term goals to continue to expand globally. Growthof this nature brings new challenges and demands. A key driver of will been and has growth Company’s the continue tobe its people and theirtalents. The Company’s human resource continues to evolve, simultaneously adding new, capabilities existing, retaining whilst and skills. we renewed 2016 Last year, at AGM, the pleased were and Policy Remuneration our the both for support shareholder to receive Remuneration Policy and the Remuneration Report. The Remuneration Committee the served has policy the believes and is well and shareholders Company alignedto principlespractice.of best As a result no material changes are proposed be a single will only there year and this the and statement this on vote advisory Annual Reporton Remuneration.
5/6 5/6 6/6 6/6 6/6 6/6 6/6 6/6 6/6 Attendance Attendance of meetings) of meetings) (out of possible (out of possible maximum number maximum number to promote promote to
2016 ACCOUNTS AND REPORT IWG PLC ANNUAL On 19 December 2016, as a result of a result as 2016, 19 December On the Schemeof Arrangement, Regusplc ceased tobe the holding company of and a new parent Group the company, IWG plc, was created. For the purposes of Committee attendance, IWG plc is plc Regus of a as continuation treated Committee is drawn. and no distinction membership during the year and set are meetings at the attendance out below. Members Henderson, Nina Chair Lance Browne Heggen Elmar François Pauly FlorencePierre are Committee the of members All independent. The Committee’s focus is is focus Committee’s The remuneration that ensure to designed is success long-term the of the Company. Nina Henderson Chairman the Committee of Members 50 Directors’ RemunerationDirectors’ report
Directors’ Remuneration report continued
Component Purpose / link to strategy Operation Maximum Performance framework Performance Motivates and rewards Awards will normally be made annually under The normal plan limit is Awards have a performance Share Plan the creation of long- the PSP, and will take the form of either nil- 250% of base salary. period of three financial years (“PSP”) term shareholder value. cost options or conditional share awards. starting at the beginning of the Aligns Executives’ Participation and individual award levels financial year in which the award interests with those will be determined at the discretion of the is made. Performance conditions of the shareholders. Committee within the policy. will measure the long-term Awards vest five years following grant, subject success of the Company (see to performance against pre-determined note 4 below). targets (measured after three years) which are In respect of each performance set and communicated at the time of grant. measure, performance below the Recovery and with-holding provisions threshold target results in zero apply to PSP awards (see note 1 below). vesting. The starting point for A dividend equivalent provision allows vesting of each performance element will be no higher than the Committee to pay dividends, at the 25% and rises on a straight line Committee’s discretion, on vested shares basis to 100% for attainment of (in cash or shares) at the time of vesting and levels of performance between may assume the reinvestment of dividends on a cumulative basis. the threshold and maximum targets. There is no opportunity to re-test. Shareholding To align Executive Executive Directors are expected to build N/A N/A guidelines Directors’ interests a holding in the Company’s shares to a with those of our long- minimum value of two times their base salary. term shareholders and This must be built via the retention of the net- other stakeholders. of-tax shares vesting under the Company’s equity based share plans.
Notes to the policy table: 1. Recovery and withholding provisions may be applied as a result of misconduct, material misstatement or error in calculation of performance. Awards subsequent to the grant but before the expiry of the holding period, may be reduced or an Executive Director may be required to repay an award at any time within three years of the date on which the award vests. 2. For the avoidance of doubt, by approval of the policy, authority has been given to the Company to honour any commitments entered into with current or former directors (such as the payment of a pension or the unwinding of legacy share schemes) that have been disclosed to shareholders in previous Directors’ Remuneration Reports. Details of any payments to former directors will be set out in the Annual Report on Remuneration as they arise. The previous Remuneration Policy included the CIP which has been replaced by the new PSP. Under the CIP, Executive Directors could defer a proportion of their bonus into shares and receive a performance based matching award for each deferred share. The final CIP awards were made in March 2015. Subject to satisfaction of the relevant performance targets, the final CIP awards will be fully vested and exercisable from 4 March 2020 until 4 March 2025. 3. Annual bonus performance measures are determined at the start of each year, based on the key business priorities for the year. The majority will be based on clear financial targets, including a significant weighting on profit, as this is the primary indicator of our sustainable growth. 4. PSP performance metrics are determined at the time of grant. Performance measures may include a measure of profitability (such as EPS), capital return (such as EVA or ROI) and other measures of long-term success (such as relative TSR). These measures align with our long-term goal of value creation for shareholders through underlying financial growth and above-market returns. 5. As IWG operates in a number of geographies employee remuneration practices vary across the Group to reflect local market practice. However, employee remuneration policies are based on the same broad principles. Our primary objective in awarding variable pay is to drive achievement of results, according to role, and to recognise and reward excellent performance. Accordingly, to account for variances in responsibilities, influence and seniority, incentive schemes are not uniform in approach. 6. In order to ensure that the remuneration policy achieves its intended aims, the Remuneration Committee retains discretion over the operation of certain elements of the variable pay policy. This includes the discretion to adjust the annual bonus and PSP outcome if it is not considered to be reflective of the wider performance of IWG. In addition the Committee may adjust elements of the Plans including but not limited to: • Participation; • The timing of the grant of award and/or payment; • The size of an award (up to plan limits) and/or payment; • Discretion relating to the measurement of performance in the event of a change of control; • Determination of a good leaver (in addition to any specified categories) for incentive plan purposes; • Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends); and • The ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose. Should any such discretions be exercised, an explanation would be provided in the following Annual Report on Remuneration and may be subject to shareholder consultation as appropriate. 7. The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company. For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted. The Committee may make minor amendments to the policy set out above (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.
52 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 52 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
53 53 for
ing Performance framework framework Performance Neither the Chairman the Chairman Neither nor the Non-Executive eligible are Directors performance any for remuneration. related lating the RemunerationPolicy r remuneration structures. Accordingly, There is no prescribed prescribed no is There maximum although fees will and fee increases be considered in line of increases the with workforce the wider rates. and market Maximum Maximum rectly with employees when formu der feedback received in relation to each annual general meet rk in the context of published shareholder guidelines. guidelines. shareholder published of context in the rk rectors, the Committeeregard has to theandpayemployment conditions ale fully. Such an approach was followed in relation to the changes of the Committee, including the Committee Chairman, attend perience and knowledge to and knowledge to perience perience and knowledge to and knowledge to perience t necessarily increased, annually and as annually and increased, necessarily t IWG shareholders IWG and supportou understand
and Non-Executive Directors and Directors Non-Executive Operation Operation determined by the Chairman and the Executive Directors. Directors. Executive the and Chairman the by determined Theappropriate, consider, Committee wheredata will pay similar scale. at companies of a chairing for fees additional with payable is fee A base the Senior being for and Committees Board key Director. Independent retainSet individuals and at a level to attract sufficient with the required skills, ex duties. its out carry effectively to the Board allow as determined by the Remuneration Committee. The The Committee. Remuneration the by determined as Committeeconsider, where will appropriate, pay data similar scale. at companies of a and Board all reflects A single fee which Committee duties. retainSet individuals and at a level to attract sufficient with skills, the required ex duties. its out carry effectively to the Board allow Reviewed, but not necessarily increased, annually and and annually increased, necessarily not but Reviewed,
the Company’s annual general meeting and are available to listen to views and to answer shareholders’ questions about about questions shareholders’ answer to and to views listen to available are and meeting general annual Company’s the Directors’ remuneration. The Committeealso reviews theexecutive remuneration framewo of employees within the Group. The Committee does not consult di not consult does Committee The Group. the within employees of lt with consu we will of discretion, exercise a of significant event in or the Policy, Remuneration the to made being are changes where shareholders, as appropriate, to explain our approach and ration to policy for 2016. Additionally, the Committee considers sharehol views of range the consider and shareholders largest our with engage actively We year. the during expressed views any alongside expressed. Except in exceptional circumstances, the members Consideration of shareholder views Consideration of shareholder The Committeeis dedicated toensuring that Consideration of conditions elsewhere in the Group in the elsewhere of conditions Consideration Di Executive of the remuneration the for policy the setting When Non-Executive Director fees fees Director Non-Executive no but Reviewed, Chairman fees fees Chairman Directors. Executive Policy Table for the Chairman the for Table Policy Component
d into withd current or former scretions available to it in ce. However, employee remuneration in previous Directors’ Remuneration vant performance targets, the final any time within three years of the date the operation of certain elements elements certain of operation the ayment were agreed (i) before before (i) agreed were ayment lts, according to role, and to recognise recognise and to to role, according lts, performance. Awards subsequent to the Awards have a performance performance a have Awards years financial three of period starting at the beginning of the financial yearwhich in the award conditions Performance made. is the long-term measure will success of the Company (see note 4 below). performance each of In respect the below performance measure, zero in results target threshold for point The starting vesting. performance each of vesting than higher no be element will 25% and rises on a straight line basis to 100% for attainment of between performance of levels maximum and the threshold opportunity no There is targets. to re-test. Performance framework framework Performance evious Remuneration Policy included included Policy Remuneration evious granted. The Committee may make schemes are not uniform in approach. approach. in uniform not are schemes n of the Committee, the payment se. be reflective of the wider performance performance wider the of reflective be h.
N/A N/A N/A N/A The normal plan limit is is limit plan normal The 250% of base salary. Maximum Maximum following grant, subject grant, subject following y has been given to the Company to honour any commitments entere Awards will normally be made annually normally made will be Awards under nil- either of the form take will and the PSP, cost options or conditional share awards. Participation and individual award levels the of the discretion at determined be will Committee within the policy. Awards vest five years pre-determined against performance to are which years) three after (measured targets set and communicated at the time of grant. Recovery and with-holding provisions apply to PSP awards (see note 1 below). A dividend equivalent provision allows the at dividends, to pay the Committee on shares vested discretion, Committee’s (in cash or shares) at the time of vesting and dividends of the reinvestment assume may on a cumulative basis. build to expected are Directors Executive a holding in the Company’s shares to a minimum value of two times their base salary. This must be built the retention ofvia the net- the Company’s under vesting shares of-tax share based equity plans. ble from 4 March 2020 until 4 March 2025. 2025. 4 March until 2020 4 March from ble Motivates and rewards long- of the creation value. term shareholder Aligns Executives’ those with interests shareholders. the of To align Executive interests Directors’ with those of our long- and term shareholders stakeholders. other Participation; Participation; The timing of the grant of award and/or payment; payment; and/or limits) (up to plan of an award size The Discretion relatingto the measurement of performancethe in event ofchange aof control; Determination of a good leaver (in addition to any specified categories) for incentive plan purposes; Adjustments required in certain circumstances(e.g. rights issues, corporate restructuring andspecial dividends);and The ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpo Should any such discretions be exercised, an explanation would be provided in the following Annual Report on Remuneration and may be subject to shareholder consultation as appropriate. 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL
The Committeereserves the rightto make anyremuneration payments and payments for loss of office (includingexercising any di connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the p opinio the in and, Company the of a Director not was individual relevant the when at a time (ii) or effect into came policy the of awards satisfying Committee the includes “payments” purposes these For Company. the of a Director becoming individual the for consideration in not was variable remuneration and, in relationtoan award over shares, the termstheof payment are at “agreed” the time the awardis without in legislation) of a change to take account or purposes or administrative tax control, exchange regulatory, (for above set out to policy the amendments minor obtaining shareholder approval for that amendment. Annual bonus performance measures are determined at the start of each year, based on the key business priorities for the year. The majorityyear. the for will be based on priorities business key the on based year, each of start at the determined are measures performance bonus Annual clear financial targets, including a significant weighting on profit, as this is the primary indicator of our sustainable growt PSP performance metrics are determined at the time of grant. Performance measures may include a measure of profitability (such as EPS), capital return (suchas through shareholders for creation value of goal our long-term with align measures These TSR). relative as (such success long-term of measures other and ROI) EVA or underlying financial growth and above-market returns. As IWG operates in a number of geographies employee remuneration practices vary across the Group to reflect local market practi policies are basedtheon samebroad principles. Our primaryobjective in awardingvariable payis to drive achievementresu of andreward excellentperformance. Accordingly, to accountfor variances in responsibilities, influence and seniority,incentive over discretion retains Committee Remuneration the aims, intended its achieves policy remuneration the that to ensure In order to considered not if it is outcome PSP and bonus annual the adjust to discretion the includes This policy. pay variable of the of IWG. In addition the Committee may adjust elements of the Plans including but not limited to: • • • • • • • Recoverywithholding and provisions may be applied asa result misconduct, of material misstatement orerror incalculation of at award an repay to may be required Director Executive or an be reduced may period, holding the of expiry the before but grant vests. award the on which authorit policy, of the approval of by doubt, avoidance the For directors (such as the payment of a pension or the unwinding of legacy share schemes) that have been disclosed to shareholders Reports. Details of any payments to former directors will be set out in the Annual Report on Remuneration as they arise. The pr a performance receive and shares into bonus of their a proportion defer could Directors Executive CIP, the Under PSP. new by the replaced been has which CIP the based matching award foreach deferredshare. The final CIP awardswere made inMarch 2015. Subject tosatisfaction ofthe rele CIP awards will befully vested andexercisa
7. 3. 4. 5. 6. 52 Directors’ RemunerationDirectors’ continued report Performance Plan Share (“PSP”) Shareholding guidelines Notes to the policy table: 1. 2. Component Component to strategy / link Purpose Operation Directors’ Remuneration report continued
Approach to recruitment remuneration When determining the remuneration package for a newly appointed Executive Director, the Committee would seek to apply the following principles: • The package must be sufficiently competitive to facilitate the recruitment of individuals of the highest calibre and experience needed to shape and execute the Company’s strategy. At the same time, the Committee would seek to pay no more than necessary. • The remuneration package for a new Executive Director would be set in accordance with the terms of the approved Remuneration Policy in force at the time of the appointment. Salaries would reflect the skills and experience of the individual, and may (but not necessarily) be set at a level to allow future salary progression to reflect performance in role. • The Committee may offer additional cash and/or share based payments in the year of appointment when it considers these to be in the best interests of the Company and, therefore, shareholders. Per the Remuneration Policy the maximum level of variable remuneration which may be awarded is 400% of salary (of which 250% is permitted under the PSP under the exceptional circumstances limit and 150% under the annual bonus plan). Performance conditions for variable pay in the year of appointment may be different to those applying to other Directors, which would be subject to stretching performance conditions. • Where an individual forfeits remuneration at a previous employer as a result of appointment to the Company, the Committee may offer compensatory payments or awards to facilitate recruitment. Such payments or awards could include cash as well as performance and non-performance-related share awards, and would be in such form as the Committee considers appropriate taking into account all relevant factors such as the form, expected value, anticipated vesting and timing of the forfeited remuneration. The aim of any such award would be to ensure that so far as possible, the expected value and structure of the award will be no more generous than the amount forfeited. • Any share-based awards referred to in this section will be granted as far as possible under the Company’s existing share plans. If necessary, awards may be granted outside of these plans as permitted under the Listing Rules, and in line with the approach and the limits set out above. • In the case of an internal appointment, variable pay awarded in respect of the incumbent’s prior role may pay out according to its terms of grant. In addition, any other ongoing remuneration obligations prior to their appointment may continue, provided that they are put to shareholders for approval at the first annual general meeting following their appointment. The remuneration package for a newly appointed Non-Executive Director would normally be in line with the structure set out in the Policy Table for Non-Executive Directors on page 53. Service contracts Executive Directors have service contracts with the Group which can be terminated by the Company or the Director by giving 12 months’ notice. This applies to current Executive Directors and would normally be applied as the policy for future appointments The Company may terminate employment of the Chief Executive by making a payment in lieu of notice which would not exceed 12 months’ salary. Under the current service agreements Mark Dixon’s contract provides that, on a change of control he may terminate the contract by giving one month’s notice and will, in addition to contractual payments for the one-month notice period, receive a payment equal to 12 months’ salary, and remain eligible for a discretionary bonus. The Chairman and Non-Executive Directors are appointed for a three-year term, which is renewable, with six months’ notice on either side, no contractual termination payments being due and subject to retirement pursuant to the Articles of Association at the annual general meeting. Policy on payment for loss of office Where an Executive Director leaves employment, the Committee’s approach to determining any payment for loss of office will normally be based on the following principles: • The Committee’s objective is to find an outcome which is in the best interests of the Company and its shareholders, taking into account the specific circumstances, contractual obligations and seeking to pay no more than is warranted. Payments in lieu of notice will not exceed 12 months’ salary and benefits. • Treatment of annual bonus: There is no contractual right to receive an annual bonus in the year of termination. However, the Committee has discretion for certain leavers to make a payment under the annual bonus. This will reflect the period of service during the year and performance (measured at the same time as performance for other plan participants, if feasible). Should the Committee make a payment in these circumstances, the rationale would be set out in the following Annual Report on Remuneration. • Treatment of share plans: If an Executive Director leaves employment with the Company unvested PSP and deferred bonus shares will lapse unless the Committee in its absolute discretion determines otherwise for reasons including, amongst others, injury, disability, retirement, redundancy and death. In such circumstances an Executive Director’s award normally vests based on the time served and in the case of the PSP, achievement of performance criteria. Should the Committee adjust the time pro-rating, then this would be explained in the following Annual Report on Remuneration. If the Executive Director ceases to be an employee for any reason other than those specified above then the award shall lapse immediately on such cessation.
54 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 54 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
. 55 55
t change der ny 44% 33% 23% Maximum Percentage Percentage ion of the £3,313,000 io: te s assumes s assumes Target 20% 36% 44% £1,791,000 2017 2016 lary (25% of maximum), vesting maximum), of (25% lary £825,000 £825,000£825,000 £725,000£725,000 0% 0% Chief Financial Officer and Chief Operating Officer Operating and Chief Financial Officer Chief Fixed 100% £776,000 Policy Table for Executive Directors. Thi Directors. Executive for Table Policy and full vesting of the normal PSP grant of 200% of base salary s Annual Statement) will be put to a single advisory sharehol advisory a single to put be will Statement) s Annual where such payments are made in good faith in discharge of discharge in faith in good made are payments such where determines, in its discretion, that awards will vest at the da at the vest will awards that discretion, in its determines, bonus of 90% of salary, 50% of sa anuary at 1 as January salaries current The awarded. been have ry increases ived in respect of any such non-executive directorship. directorship. non-executive such any of respect in ived 23% 44% 33% Maximum £3,776,000 damages for breach of such obligation)an or by way of settlement or compromise of a of the Remuneration Policy set out in the out in Policy set the Remuneration of the
appointments for Executive Directors Executive for appointments PSP Remuneration Target 20% 36% 44% £2,043,000 Chief Executive Officer Executive Chief Annual Bonus Fixed 100% £888,000 Fixed Pay Fixed claim arisingin connection with the termination of a Director’s office or employment. The Committee reserves the right to make additional exit payments existingan legal obligation (or way ofby “Fixed” represents fixed remuneration only (i.e. current salary, benefits and pension); of the maximum PSP award; “Target” represents fixed remuneration plus an annual at target “Maximum”maximum the represents annualbonusofof salary 150%
Dominik de Daniel Dominik de Daniel 0.7%. is workforce the by received increase salary base average the context, For Mark Dixon Base salaries Base salaries for Directors (audited) the Executive The Executive Directors’ salarieswerehowever, reviewed, no sala follows: as are 2016) to compared (and 2017 Implementation of the Remuneration Policy for 2017 2017 Remuneration for Policy of the Implementation The Annual Report on Remuneration set out below (and the Chairman’ Terms of reference Terms of reference The Committee’s terms of reference are available on the Company’s website (www.iwgplc.com). Annual Report on Report Annual the Committee of Members on is out set meetings at the and attendance year the during membership Committee independent. are Committee of the members All page 50. Illustration of Remuneration Policy Policy Remuneration Illustration of The charts below illustrate the application Policy in respect of external Board of external in respect Policy discret the At and Executive. Company the both for beneficial be may directorships non-executive external that It is recognised Board, Executive Directors are permitted to retain fees rece The terms of any other unvested share awards on termination will be as set out in the prior policy. policy. prior in out the be set as will on termination awards share unvested other of any terms The Committee the unless date vesting normal the on will Awards vest
of cessation. • vote at the2017 AGM. Theinformation below includes howwe intendtooperate our policy in2017 and the payoutcomes in respec of the 2016 financial year. year. financial 2016 of the the level of fixed remuneration (salary, benefits and pension) as at 1 January 2017 and the following in respect of each scenar in respect following and the 2017 as at 1 January pension) and benefits (salary, remuneration of fixed level the • • •
licy ffer d tee
wing wing ally
ely he f the f the re put its terms its terms account ured ther ther ll not he tances, If by such ment of needed needed nual ecessarily) ecessarily) certain would seek would to apply follo seek the in line with the approach and of the approvedRemuneration Po with the structure set out in t in out set structure the with able payin the year of appointment may be different to those t in accordance with the terms ed under the ListingRules, and as the Committee considers appropriate taking into account all Executive Director, theCommittee as aresult ofappointment to the Company, the Committeemayo -year term, which is renewable, with six months’ notice on ei months’ with six is renewable, which term, -year pay no more than is warranted. Payments in lieu of notice wi making a payment in lieu of notice which would not exceed retirement pursuant to the Articles of Association at the an s basedon thetime served and in the caseof PSP, the achieve s prior to their appointment may continue, provided that they a vested PSP and deferred bonus shares will lapse unless the Commit respect of the incumbent’s prior role may pay out according to vestingtheof and timing forfeited remuneration. The aimof any d would normally be applied as the policy for future appointments feasible). Should the Committee make a payment in these circums cluding, amongst others, injury, disability, retirement, redundancy and death. death. and redundancy retirement, disability, injury, others, amongst cluding, subject to stretching performance conditions. conditions. performance stretching to subject e, shareholders. Per the Remuneration Policy the maximum level of variable remuneration ting, then this would be explained in the following Annual Report on Remuneration. I ment, the Committee’s approach to determining any for payment loss of office will norm llowing Annual Report on Remuneration. on Remuneration. Report llowing Annual 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL in force at the time of the appointment. Salaries would reflect the skills and experience of the individual, and may (but n not (but may and individual, of the and experience skills the reflect would Salaries appointment. of the time at the in force be set at a level to allow future salary progression to reflect performance in role. into taking shareholders, its and Company the of interests best the in is which outcome an find to is objective Committee’s The the specific circumstances, contractual obligations and seeking to exceed 12 months’ salary benefits.and The package must be sufficiently competitive to facilitate the recruitment of individuals of the highest calibre and experience and calibre highest the of individuals of recruitment the facilitate to competitive sufficiently be must package The necessary. than no more pay to seek would Committee the time, same the At strategy. Company’s the execute and to shape The Committee may offer additional cash and/or share based payments in the year of appointment when it considers these to be in the the be in to these it considers when of appointment year the in payments based share and/or cash additional offer may Committee The of the Company and, therefor best interests and limit circumstances exceptional the under PSP the under permitted is 250% which (of of salary is 400% awarded be may which 150% under the annualplan). bonus Performance conditionsfor vari applying to other Directors, which would be of annual bonus: Treatment The remuneration package for a new Executive Director would be se Where an individual forfeitsremuneration previous at a employer compensatory payments or awards to facilitate recruitment. Such payments or awards could include cash as well as performance an non-performance-related share awards, and would be in such form relevant factors such as the form, expected value, anticipated plans: of share Treatment award would be to ensure that so far as possible, the expected value and structure of the award will be no more generous than t than generous more be no will award of the structure and value expected the possible, as far so that to ensure be would award amount forfeited. Any share-based awards referred to in this section will be granted as far as possible under the Company’s existing share plans. share existing Company’s the under as possible far as be granted will section to in this referred awards Any share-based necessary, awards may be granted outside of these plans as permitt above. out set limits the In the caseof an internal appointment, variable payawarded in obligation remuneration ongoing other any addition, In grant. of to shareholders for approval at the first annual general meeting following their appointment. appointment. their following meeting general annual first at the approval for to shareholders
Policy on payment for loss of office of office loss for payment on Policy employ leaves Director Executive an Where be based on the following principles: • 54 Directors’ RemunerationDirectors’ continued report remuneration to recruitment Approach When determining the remuneration package for a newly appointed principles: • Service contracts giving by Director or the Company the by be terminated can which Group the with contracts service have Directors Executive notice.12 months’ This applies to currentExecutive Directorsan The Company may terminate employment of the Chief Executive by 12 months’ salary. contract the may terminate he of control on a change that, provides contract Dixon’s Mark agreements service current the Under giving one month’s notice and will, in addition to contractual payments for the one-month notice period, receive a payment equal to 12 months’ salary, and remain eligible for a discretionary bonus. a three for appointed are Directors Non-Executive and Chairman The side, no contractual termination payments being due and subject to general meeting. • • • • There is no contractual right to receive an annual bonus in the year of termination. However, the Committee has discretion for (meas performance leavers and toyear make the a payment underduring the annual service of bonus. This period will the refl ect at the same time as performance for other plan participants, if would be fo out in the set rationale the • If an Executive Director leaves employment with the Company un Company the with employment leaves Director Executive an If in its absolute discretion determines otherwise for reasons in vest award normally Director’s Executive an In such circumstances performance criteria. Should the Committeeadjust the timepro-ra immediat lapse shall award the then above specified those than other reason any for employee an be to ceases Director Executive on such cessation. • • The remuneration package for a newly appointed Non-Executive Director would normally be in line 53. on page Directors Non-Executive for Table Policy Directors’ Remuneration report continued
Benefits and pension Benefits and pension provisions will operate in line with the approved policy. Annual bonus For 2017, the maximum bonus potential for both Executive Directors is 150% of salary. The on-target bonus is 90% of salary. Half of any bonus paid will be deferred into shares under the DSBP, which will vest after three years subject to continued employment. The 2017 annual bonus will include a measurement against operating profit ranging from threshold to stretch. The target is not being disclosed prospectively as it is commercially sensitive; however, a description of the performance against targets set will be included in next year’s Annual Report. Performance Share Plan (PSP) PSP awards will be made at 200% of salary to Executive Directors with performance measured over a three year period ending 31st December 2019. The awards will be subject to three independently operated performance metrics as summarised below: Threshold Maximum Performance conditions vesting Threshold performance vesting Maximum performance EPS (33.3% weighting) 0% Compound annual growth of 5% 100% Compound annual growth of 25% Relative TSR versus FTSE 350 excluding 25% Median 100% 10% compound annual growth investment trusts (33.3% weighting) above median Return on investment (33.3% weighting) 0% Return to be equal to 2016 100% Return to be 300 basis points performance above 2016 performance
Awards will be subject to a post-vesting holding period of two years. This required the Executive Directors to hold on to the net of tax number of vested shares for a period of two years following vesting. Chairman and Non-Executive fees (audited) Non-Executive Director fees were last increased in 2015 after a review in 2014. Since then the size and complexity of the Company has changed considerably resulting in an increased time commitment for the Non-Executives. In addition, the Non-Executive Chairman serves as a Non-Executive Director of certain Luxembourg companies which are part of the Group. After an external review of market comparables the following increases are proposed for 2017: Percentage £’000 2017 2016 change Non-Executive Chairman 250 200 25% Basic fee for Non-Executive Director 57 50 14% Additional fees: Chair of Audit Committee 12 10 20% Chair of Remuneration Committee 12 10 20% Senior Independent Director combined with Chair of Nomination Committee 12 12(1) 0% Variable dislocation allowance for non-Swiss directors(2) 2.5 to 7.5 2.5 to 7.5 0%
1. The Chairman of the Nomination Committee has been combined with the role of Senior Independent Director. The aggregate of the two fees has not increased 2. The level of dislocation allowance for non-Swiss Directors is determined according to their country of residence
56 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 56 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
57 57 d. 69.5 60.0 67.5 52.5 30.9 250.1 200.0 of 93.4% 1,968.3 ward Deferred Deferred pect of
: 304.0p. : 304.0p. slightly rred Total bonus (£’000) Bonus payable Bonus payable the 2015 2015 the 69.5 60.0 67.5 52.5 50.0 (% of maximum) 200.0 2,907.9 1,791.5 1,791.5
– – – – – – (£’000)
Cash bonus 747.2 747.2 achieved achieved
– – – – – – iled aboveiled reflects time serve 863.9 863.9 Bonus (£’000) awarded
Actual performance Actual performance – – – – – 120.8 120.8 587.0 587.0 – – – – – 93.4% £1,015.73 £507.86 £507.86 93.4% £1,155.83 £577.91 £577.91 1,015.7 1,015.7 1,155.8 1,155.8 (% of award) achievement achievement Performance required required Performance – – – – – Operating profit 8.5 41.1 – – – – – 50.8 57.8 150% 150% November 2015. Remuneration deta Mark Dixon under theCIP in previous which years vested inres – – – – – – e year ending 31 December 2016, together with the prior year prior year with the together 2016, December 31 ending e year 100% £172.0m £189.0m £186.2m
6.0 of base salary) (or cash equivalent) plus plus defined contributionequivalent) cash arrangements (or Bonus maximum(% Bonus maximum(% – – – – – 0 5.4 d for both Directors. d for both Directors. 1% of was awarde salary
local practice or employment regulations. regulations. or employment practice local 69.5 69.5 60.0 60.0 67.5 67.5 52.5 52.5 30.9 30.9 120.8 120.8 200.0 200.0 587.0 587.0
725 725 825 825 a three month average share price ending 31st December 2016 of 245.6p. 245.6p. of 2016 December 31st ending price share average month a three 69.5 69.5 60.0 60.0 67.5 67.5 52.5 52.5 50.0 50.0 Salary / Fees Salary / Fees Benefits Pension Annual bonus CIP 200.0 200.0 2016 2015 2016 2015 2016 2015 20162016 2015 2015 2016 2015
Dominik de Daniel Dominik de Daniel below the stretch target and hence the bonus of 140. bonus the target and stretch below the hence 50% of any bonus awarded is deferred into shares for a period of three years. Director Director Mark Dixon Dominik de Daniel The strong performance of the Group during 2016 resulted in the Group substantially exceeding the threshold target but falling falling but target threshold the exceeding substantially Group the in resulted 2016 during Group the of performance strong The Operating profit Operating profit The 2016 annual bonus plan was on performance against the following: Douglas Sutherland Douglas Sutherland bonus of 2016 annual Determination Dominik de Daniel joined IWG and was appointed to the Board on 1 on Board toappointed the was and IWG joined Daniel de Dominik any contributions in accordance with standard defe is awarded bonus the of Half year. financial relevant the of respect in awarded full is the shown bonus The – bonus Annual Lance Browne Lance Browne Non-Executive Directors Directors Non-Executive Mark Dixon The following table shows the total remuneration inrespect of th £’000 served. time reflects above detailed Remuneration 2015. May on 19 Board the to appointed was and IWG joined Pauly François insurance. life and insurance health private – Include Benefits Pension – Includes pension contributions of 7% of salary into intoshares for three years. CIP awards– Includes thevalueofMatching Share awards made to Remuneration outcomes for 2016 2016 for outcomes Remuneration (audited) table remuneration figure of Single total comparative. Measure Weighting Measure Target Maximum Elmar Heggen Heggen Elmar (100,303 will vest out of a shares maximum of shall vest(100,303 137,402) in on in March based ending 2016. performance 2017 value The a performance period ending in the relevant financial year. The vesting of the first of the 2013 Matching Shares is included in is included Shares Matching 2013 of the first of the vesting The year. financial relevant in the ending period a performance of vesting date on the price share actual the reflects figure The of 251,446). maximum of out the vested shares (245,788 column a 2014 of the first tranche the and maximum of 251,447) of a out will vest shares (251,447 award 2013 of the tranche second The reflects in and 2016 is shown which Nina Henderson Nina Henderson Florence Pierre François Pauly François Pauly
change man ket Percentage Percentage being being oyment. oyment. et of tax included in 0%
(1) 50 14% 50 20% 10 20% 10 200 25% 200 12 2016 2.5 to 7.5 7.5 to 2.5 0% wo fees has not increased increased not has wo fees
7 1 57 12 12 12 0 above median 2016 performance above 250 250 2 stretch. The targetis not 2.5 to 7.5 7.5 to 2.5 Maximum vesting Maximum performance 100% 100% points basis 300 to be Return 100% 100% annual growth 10% compound . The on-target. The bonusis90% of salary. th of 5% th of 100% Compound annualgrowth 25% of g profit ranging from g threshold to a description of the performance against targets set will be Return to be equal to 2016 equal Return to be performance Median Median Compound annual grow
(2) th Executive Directors is 150% of of is salary 150% Directors th Executive
Threshold Threshold vesting performance Threshold 25% 25% 0% 0% od ofod two years following vesting. eases are proposed for 2017: for 2017: proposed eases are were last increased in 2015 after a review in 2014. Since then the size and complexity of the Company of the and complexity size the then Since in 2014. a review 2015 after in were last increased 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL The Chairman of the Nomination Committee has been combined with the role of Senior Independent Director. The aggregate of the t the of aggregate The Director. Independent Senior of role the with combined been has Committee Nomination the of Chairman The The level of dislocation allowance for non-Swiss Directors is determined according to their country of residence
Variable dislocation allowance for non-Swiss directors non-Swiss for allowance dislocation Variable 1. 2. 56 Directors’ RemunerationDirectors’ continued report pension and Benefits Benefits and pension provisions will operate in line with the approved policy. bonus Annual For 2017, the maximum bonus potential for bo empl continued to subject years three after vest will which DSBP, the under shares into be deferred will paid bonus any of Half operatin against a measurement include will bonus annual 2017 The disclosedprospectivelyas it is commercially sensitive;however, (PSP) Plan Share Performance 31st ending period year a three over measured performance with Directors Executive to of salary 200% at made be will awards PSP December 2019. The awards will be subject to three independently operated performance metrics as summarised below: conditions Performance weighting) (33.3% EPS Awardswill be subject toapost-vesting holdingperiod of two years. Thisrequired the Executive Directorsto holdon to the n number of vested shares for a peri fees Chairman (audited) and Non-Executive fees Director Non-Executive Chair Non-Executive the addition, In Non-Executives. the for commitment time increased an in resulting considerably changed has serves as a Non-Executive Director of certain Luxembourg companies which are part of the Group. After an external review of mar £’000 Chairman Non-Executive Basic fee for Non-Executive Director Director Non-Executive for Basic fee fees: Additional Chair of Audit Committee Committee Chair of Remuneration Nomination Committee Senior of Independent combined Director with Chair Relative TSR versus FTSE 350 excluding excluding FTSE 350 versus TSR Relative investment trusts (33.3% weighting) next year’s Annual Report. Report. Annual year’s next comparables the following incr Return on investment (33.3% weighting) (33.3% Return on investment 0% Directors’ Remuneration report continued
CIP awards vesting in respect of 2016 performance The 2013 and 2014 Matching Share award is divided into three separate equal tranches subject to performance periods over three, four and five years from 1 January 2013 and 1 January 2014. The second tranche of the 2013 award and the first tranche of the 2014 award vested during the year. The vesting conditions for these tranches are outlined below: TSR target (25% of tranche) IWG TSR % achieved relative to FTSE 350 (excluding financial IWG TSR % achieved relative to FTSE All Share Total services and mining companies) (2014 award tranche 1) performance Return Index (2013 award tranche 2) performance % of shares period 01.01.2014 – 31.12.2016 period 01.01.2013 – 31.12.2016 vesting Below median Below index 0% Median Equal to index 25% Upper quartile or above Equal to index +15% p.a. 100%
EPS target (75% of tranche) Adjusted EPS targets for year ending 2016 Adjusted EPS targets for year ending 2016 (2013 award tranche 2) performance period % of shares (2014 award tranche 1) performance period 01.01.2014 – 31.12.2016 01.01.2013 – 31.12.2016 vesting 14.3p 14.0 25% 17.0p 16.0 100%
Straight-line vesting between these points. No vesting below the threshold target. Performance against the TSR and EPS targets set in 2013 and 2014 was such that 100% of the 2013 award and 73% of the 2014 award should vest. The Committee has reviewed these outcomes, including adjustments related to growth, and is content that they are a fair reflection of underlying performance over the period. EPS vesting: 75% TSR vesting: 25% Number of of award (% of award (% Average share price Estimated value Award Director shares vesting of maximum) of maximum) (1 October – 31st December 2016) (£’000) 2013 award tranche 2 Mark Dixon Matching: 251,447 100 100 245.6p 617.6 2014 award tranche 1 Mark Dixon Matching: 100,303 89 25 245.6p 246.3
Note the estimate value of the award is based on the average share price over the last quarter of the financial year. The actual value will be the value at the vesting date. PSP awards granted in the year PSP awards granted to Executive Directors on 3 March 2016 which vest subject to three year performance ending 31st December 2018 were as follows: Executive Number of LTIP awards Face/maximum value of awards at grant date(1) Mark Dixon 552,579 £1,640,000 Dominik de Daniel 485,600 £1,450,000
1. Based on a face value grant of 200% of salary and using a share price of 298.6p The awards are subject to three independently operated performance metrics:
Threshold Maximum Metric vesting Threshold vesting Maximum EPS (33.3% weighting) 0% Compound annual growth of 5% 100% Compound annual growth of 25% Relative TSR versus FTSE 350 (excluding 25% Median 100% 10% compound growth investment trusts) (33.3% weighting above median Return on Investment (33.3% weighting) 0% Return equal to 2015 performance 100% Return to be 300 basis points above 2015 performance
Total pension benefits During the year under review, the Executive Directors received pension contributions of 7% of salary into defined contribution arrangements (or cash equivalent) plus any contributions in accordance with standard local practice or employment regulations. Details of the value of pension contributions received in the year under review are set out in the Pension column of the single figure of remuneration table.
58 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 58 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
(5) 59 59 rsity rsity award One-off employees d during the the d during Group support Group support his market (4) Chief 41%97% 1% 1% Shares (11)% 1% Matching Executive a conditional award, details of details award, conditional a
(3) CIP hing Shares granted on
subject to continued employment tablished under ListingRule 9.4.2(2) R performance targets. The number of the date of grant and remain Shares Interests in share/option awards awards share/option in Interests re capital of the Company during the year year the during Company the of capital re Investment Investment
(2) 485,600 485,600 – – 328,751 share plan Performance Performance (1) met? of the Chief Executive Officer was to reflect reflect to was Officer Executive Chief of the Guideline Guideline Shareholding guidelines guidelines Shareholding required % of salary % of salary ersthe Group support employeesarelevantmore comparison. As out, for sets Directors who table serve following The eholding. – – 14,994 30,800 shares which will vestsubjectthe to achievement ofand EPS TS 596,589 200% Yes 400,000 100,000 Shares held 257,701,874 200% Yes 552,579 235,377 1,444,402
ts and shareholdings (audited) (audited) shareholdings ts and and additional context muneration Report, the increase in the salary salary in the increase the Report, muneration e 2015 Remuneration Report which were disclosed in th were disclosed which exercisable until the day before the tenth anniversary of the date of grant vest which and 2015, 4 March and 2014 5 March granted shares conditional unvested of form the in are Shares Investment CIP The period holding year a three of end at the conditional of unvested form the in are Shares Matching CIP The Matc 412,204 includes number the Dixon, Mark For 2016. 31 December as at were unvested which awards includes interests of share 2015 March 4 on granted shares Matching 529,304 and 2014, 5 March The one-off award is in the form of unvested conditional shares awarded to Dominik de Daniel as a one-off award arrangement es Dominik de Daniel joined IWG and was appointed to the Board on 2 November 2015. Upon appointment Dominik de Daniel was granted granted was Daniel de Dominik appointment Upon 2015. on 2 November Board to the appointed and was IWG joined de Daniel Dominik ThePerformance SharePlan is inthe form of unvested conditional shareswhich will become exercisableonthe fifth anniversary With the exception of the Directors’ interests disclosed in the table above, no Director had any additional interest in the sha the in interest additional any had Director no above, table the in disclosed interests Directors’ the of exception the With
Salary Salary Benefits Percentage change in remuneration of the Chief Executive Officer Officer Executive Chief the of remuneration in change Percentage ke-for- (on a li employees support Group and Officer Executive Chief the of in remuneration change percentage the shows below table The dive and scale significant the Given 2016. December 31 ending year the and 2015 December 31 ending year the between basis) like Lance Browne Lance Browne 3. 4. 5. Supporting disclosures Annual bonus 2. 1. Douglas Sutherland Douglas Sutherland Executive Directors Directors Executive Mark Dixon
Dominik de Daniel 6. Statement of share scheme interes scheme share Statement of a shar maintain up and build to required are Directors Executive
Non-Executive Directors Directors Non-Executive Elmar Heggen Heggen Elmar Nina Henderson François Pauly François Pauly of the overall global employee population, the Committee consid Re Directors’ 2015 in the explained rate, havingled theCompany through aperiod ofoutstanding success and substantialprofitability. year, the total number of shares held (including the interests of connected persons) as at 31 December 2016 alongside the interests in in interests the alongside 2016 December 31 at as persons) connected of interests the (including held shares of number total the year, Directors. Executive the for schemes share Florence Pierre
(1) 8 8
fair fair 014 014 Details of l value will be 100% 100% 25% 25% % of shares % of shares vesting % of shares vesting 0% 246.3 246.3 617.6 617.6 Estimated value Estimated (£’000) above median 2015 performance 2015 performance and the first tranche of the 2 of the tranche first the and performance periods over periods over three, performance Face/maximum value of awards at grant date grant of awards at value Face/maximum £1,640,000 £1,640,000 £1,450,000 £1,450,000 245.6p 245.6p 245.6p 245.6p Average share priceAverage (1 October – 31st December 2016) Maximum Maximum vesting 100% 100% 10% growth compound of 5% of 100% Compound annual growth25% of l to index +15% p.a. +15% l to index 25 25 100 100 TSR vesting:TSR 25% of award (% maximum)of Below index Below index Equa Equal to index Equal to index IWG TSR % achieved relative to FTSE All Share Total Total Share All FTSE to relative achieved % TSR IWG 2) performance award tranche (2013 Index Return – 31.12.2016 period 01.01.2013 Adjusted EPS targets for year ending 2016 period 2) performance (2013 award tranche 01.01.2013 – 31.12.2016 14.0 25% 25% 14.0 100% 16.0 st subject to three year performance ending 31st December 201 December 31st ending performance year three to st subject was such that 100% of the 2013 award and 73% of the 2014 award 2014 of the award and 73% 2013 of the 100% was that such nsion contributionsofof 7% salary into defined contribution second tranche of the 2013 award 2013 of the tranche second EPS vesting:EPS 75% of award (% maximum)of 552,579 552,579 485,600 485,600 Number of LTIP awards awards Number of LTIP Threshold Threshold Threshold vesting 25% 25% Median 0% 0% Compound annual growth Number of vesting shares ance period 01.01.2014 – 31.12.2016 period ance equivalent) plus any contributions in accordance with standard local practice or employment regulations. regulations. employment or practice local standard with accordance in contributions any plus equivalent) 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Based on a face value grant of 200% of salary and using a share price of 298.6p
of the value of pension contributions received in the year under review are set out in the Pension column of the single figure figure of single the column Pension the in out set are review under year in the received contributions pension of value of the remuneration table. Mark Dixon Mark Dixon Dominik de Daniel 1. metrics: performance operated independently three to subject are awards The Metric weighting) (33.3% EPS benefits Total pension pe received Directors Executive the review, under year the During arrangements (or cash 58 Directors’ RemunerationDirectors’ continued report performance 2016 of respect in vesting awards CIP to subject tranches equal rate sepa three into award is divided Share Matching and 2014 2013 The The January 2014. and 1 2013 1 January from five years and four below: outlined are tranches these for conditions vesting The year. the during vested award (25% of tranche) TSR target financial (excluding FTSE 350 to relative TSR % achieved IWG performance 1) award tranche (2014 companies) and mining services – 31.12.2016 period 01.01.2014 Below median Median Upper quartile or above (75% of tranche) EPS target Adjusted EPS targets for year ending 2016 1) perform (2014 award tranche 14.3p 17.0p target. threshold the below No vesting points. these between vesting Straight-line 2014 and in 2013 set targets EPS and TSR the against Performance Award Director 2 tranche 2013 award Dixon Mark Matching: 251,447 100 actua The year. financial of the quarter last the over price share average the on based is award of the value estimate the Note date. vesting at the value the in the year granted PSP awards ve on Directors which 3 March 2016 Executive to PSP awards granted were as follows: Executive 2014 award tranche 1 1 tranche 2014 award Dixon Mark Matching: 100,303 89 (excluding 350 FTSE versus TSR Relative weighting (33.3% investmenttrusts) Return on Investment (33.3% weighting) weighting) (33.3% Return on Investment 0% performance equal to 2015 Return 100% basis points above 300 Return to be should vest. The Committee has reviewed these outcomes, including adjustments related to growth, and is content that they are a are they that content is and growth, to related adjustments including outcomes, these reviewed has Committee The vest. should reflection of underlying performance over the period. Directors’ Remuneration report continued Directors’ report
Relative importance of spend on pay The Directors of IWG plc (the ‘Company’) The Corporate Responsibility Report, on All employees are encouraged to become The table below shows total employee remuneration and distributions to shareholders in respect of the years ending 31 December 2016 present their Annual Report and the audited pages 33 to 35, includes the sections involved in the Company’s performance. and 2015 and the percentage changes between years: financial statements of the Company and of the Strategic Report in respect of: Regular staff surveys are sent to staff asking Change 2015 its subsidiaries (together the ‘Group’) for • environmental matters; and for their feedback. 2016 2015 to 2016 the year ended 31 December 2016. • social and community issues. Political and charitable donations Total employee remuneration £335.6m £356.4m (6)% Directors It is the Group’s policy not to make political The People Report on page 20 of the Distributions to shareholders £43.3m £38.8m 12% The Directors of the Company who donations either in the UK or overseas. Strategic Report addresses employee held office during the financial year The Group made charitable donations Performance graph and table development and performance. under review were: of £237,479 during the year The graph below shows the TSR of IWG in the eight-year period to 31 December 2016 against the TSR of the FTSE 350 (excluding The Nomination Committee Report on Executive Directors (2015: £209,905). investment trusts) and All Share Indices. TSR refers to share price growth and assumes dividends are reinvested over the relevant period. pages 44 and 45 covers our diversity. Mark Dixon Capital structure The Committee considers the FTSE 350 (excluding investment trusts) relevant since it is an index of companies of similar size to IWG. The Directors’ statements on page 62 Dominik de Daniel The Company’s share capital comprises 800 include the statutory statement in 923,357,438 issued and fully paid up Non-Executive Directors respect of disclosure to the auditor. 700 Douglas Sutherland ordinary shares of 1p nominal value in Lance Browne The Directors do not consider any IWG plc (2015: 950,969,822 (Regus plc)). 600 Elmar Heggen contractual or other relationships All ordinary shares have the same rights to Nina Henderson with external parties to be essential vote at general meetings of the Company 500 François Pauly to the business of the Group. and to participate in distributions. There 400 Florence Pierre Results and dividends are no securities in issue that carry special Biographical details for the Directors Profit before taxation for the year rights in relation to the control of the 300 are shown on pages 36 and 37. was £173.7m (2015: £145.7m). Company. The Company’s shares are traded on the London Stock Exchange. 200 Details of the Directors’ interests The Directors are pleased to recommend and shareholdings are given in the a final dividend of £32.7m (2015: £28.8m), Details of the role of the Board of Directors 100 Remuneration Report on page 59. being 3.55p per share (2015: 3.10p per (the ‘Board’) and the process for the Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 share). The total dividend for the year will appointment of Directors can be found The Corporate Responsibility Report, International Workplace Group FTSE 350 Index (excl. investment trusts) therefore be 5.10p per share, made up of on pages 36 to 37, and 44 to 45. People Report, Corporate Governance The table below provides remuneration data for the Chief Executive Officer for each of the eight financial years over the equivalent period. the interim dividend of 1.55p per share Report, Nomination Committee Report, Substantial interests paid in October 2016 (2015: 1.40p per 2009 2010 2011 2012 2013 2014 2015 2016 Audit Committee Report, Remuneration At 28 February 2017, the Company has share) and, assuming the final dividend Report and Directors’ Statements on pages been notified of the following substantial Single total figure of remuneration £628k £759k £1,130k £1,773k £1,854k £2,770k £1,968k £2,908k is approved by shareholders at the 20 to 21 and 33 to 62 all form part of interests held in the issued share capital Bonus (% of maximum) 0% 19% 50% 100% 79% 100% 100% 93% forthcoming annual general meeting, an of the Company. (1) this report. Long-term incentive vesting (% of maximum) 0% 0% 0% 11% 35% 86% 97% 90.5% additional 3.55p per share (2015: 3.10p per Principal activity share) which is expected to be paid on 26 Number of 1. Based on 100% of the second tranche of the 2013 Matching Shares vesting and 73% of tranche one of the 2014 Matching Shares vesting The Company is the world’s ordinary % of issued May 2017 to shareholders on the register shares share capital leading provider of global office Advisors to the Remuneration Committee at the close of business on 28 April 2017. (1) outsourcing services. Estorn Limited 257,701,874 27.68 Details of the composition of the Remuneration Committee and attendance at Committee meetings is set out on page 50 of the Corporate Policy and practice on payment Prudential Plc 80,776,178 8.68 Governance Report. The Committee’s terms of reference are freely available on the Company’s website: www.iwgplc.com. Business review of creditors In addition to the designated members of the Remuneration Committee, the Chairman, Chief Executive Officer and Company Secretary The Directors have presented a Strategic The Group does not follow a universal 1. Mark Dixon indirectly owns 100% of also attended Committee meetings during the year although none were present during discussions concerning their own remuneration. Report as follows: code dealing specifically with payments Estorn Limited Aon Hewitt provided independent advice to the Committee during the year. Aon Hewitt was appointed by the Committee during 2016 The Chief Executive Officer’s Review and to suppliers but, where appropriate, Subsequent Events following a competitive selection process undertaken by the Committee. The fees charged by Aon Hewitt for the provision of independent Chief Financial Officer’s Review on pages our practice is to: There have been no significant subsequent advice to the Committee during 2016 were £49,000 (2015: £94,000). With regard to remuneration advice, the Committee is comfortable 14 to 19 and 22 to 26 respectively address: • agree the terms of payment upfront events that require adjustments or disclosure in this Annual Report. that Aon Hewett’s engagement partner and team are objective and independent. • review of the Company’s business with the supplier; Statement of voting at general meeting (pages 14 to 17); • ensure that suppliers are made aware Auditors The Committee is directly accountable to shareholders and, in this context, is committed to an open and transparent dialogue with • trends and factors likely to affect the of these terms of payment; and In accordance with Jersey law, a resolution for the reappointment of KPMG Ireland as shareholders on the issue of executive remuneration. The members of the Committee attend the Company’s annual general meeting and future development, performance and • pay in accordance with contractual auditors of the Company is to be proposed are available to answer shareholders’ questions about Directors’ remuneration. Votes cast by proxy and at the annual general meeting held position of the business (page 17); and other legal obligations. on 17 May 2016 in respect of remunerated related resolutions are shown in the table below: at the forthcoming annual general meeting. • development and performance during Employees Approval Votes For Votes Against the financial year (pages 22 to 26 ); and The Group treats applicants for Total votes Votes This report was approved by the Board Resolution # % # % cast Withheld • position of the business at the end of employment with disabilities with full on 16 February 2017. Approval of Remuneration Policy 649,889,542 82.62% 136,733,610 17.38% 786,623,152 45,600 the year (pages 23 to 26). and fair consideration according to their On behalf of the Board Approval of Annual Remuneration Report The Risk Management report, on pages skills and capabilities. for year ending 31 December 2016 584,579,868 74.48% 200,316,015 25.52% 784,895,883 1,772,869 27 to 32, includes a description of the Should an employee become disabled Timothy Regan principal risks and uncertainties facing during their employment, efforts are made Company Secretary For and on behalf of the Board the Company. to retain them in their current employment 28 February 2017 Nina Henderson or to explore opportunities for their retraining or redeployment elsewhere Chairman of the Remuneration Committee within the Group.
60 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 60 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 61 Strategic report Governance Financial statements
61 61 % of issued % of issued share capital share shares the samerights to ordinary ordinary Number of Number eys are sent to staff asking
257,701,874 27.68 (1) MarkDixon indirectly owns 100% of Limited Estorn
All employees are encouraged to become involved in the Company’s performance. surv staff Regular for their feedback. This report was approved by the Board 2017. 16 on February Board of the On behalf Regan Timothy Company Secretary 28 February 2017 Substantial interests interests Substantial Company the At has 2017, 28 February substantial following the of notified been interests held in the issued share capital of the Company. Estorn Limited Prudential Plc 1. 80,776,178 Events Subsequent There have no been subsequent significant 8.68 or adjustments require that events disclosure inthis Annual Report. Auditors In accordancewith Jersey law,a resolution for thereappointment of KPMGas Ireland auditors of the Company is to be proposed at the forthcoming annual general meeting. Approval Political donations and charitable It is the Group’spolicy not tomake political donations either in the UK or overseas. The Group made charitabledonations year the during of £237,479 £209,905). (2015: Capital structure comprises capital share Company’s The and fully paid up issued 923,357,438 ordinary sharesof 1p nominal value in plc)). (Regus 950,969,822 IWG plc (2015: All ordinary have shares vote at general meetings of the Company There in distributions. and to participate areno securitiesinissue that carry special of the control to the rights in relation Company. The Company’s shares are Exchange. Stock London on the traded Details of the role of the Board of Directors for process the the and ‘Board’) (the appointment of Directors can be found 45. to and 44 37, 36 to pages on r relationships r relationships agree the terms of payment upfront upfront payment of terms the agree with the supplier; ensure that suppliers aremade aware of these termsof payment;and pay in accordance with contractual and other legal obligations. environmental matters; and social and community issues.
Employees for applicants treats Group The employment with disabilitieswith full their to according consideration fair and skills and capabilities. Should an employee become disabled during their employment, efforts are made to retain them in their current employment their for opportunities explore or to retraining or redeployment elsewhere Group. the within Policy and practice on payment on payment practice and Policy of creditors universal a follow not does Group The code dealing specifically with payments to suppliers but, where appropriate, our practice isto: • Results and dividends dividends and Results Profit before taxation for the year £145.7m). (2015: was £173.7m The Directors are pleased torecommend £28.8m), (2015: of £32.7m dividend a final per 3.10p per share (2015: being 3.55p will year the for dividend total The share). of up made share, per be 5.10p therefore share per of 1.55p dividend interim the per 1.40p 2016 (2015: paid in October share) and, assuming the final dividend at the by shareholders is approved forthcoming annual general meeting, an per 3.10p per (2015: share additional 3.55p on 26 paid be to is expected which share) register the on shareholders to 2017 May 2017. April 28 on business of close the at • • The Corporate Responsibilityon Report, pages33 to 35,includes the sections of the Strategic Report in respect of: • • The People Report on page 20 of the Strategic Report addresses employee and performance. development The Nomination Committee Report on diversity. our covers 44 45 and pages 62 page on statements Directors’ The in statement statutory the include respectof disclosure to the auditor. The Directors donot considerany or othe contractual with external parties to be essential Group. of business the to the of the Company and and Company of the Officer’s Review on pages on pages Review Officer’s review of the Company’s business 17); 14 to (pages trends and factors likely to affect the future development, performance and positionof thebusiness (page 17); development and performance during during performance and development the financial year (pages 22 to 26 );and position of the business at the end of 26). 23 to (pages year the
The Directors have presented a Strategic Strategic a presented have Directors The follows: as Report and Review Officer’s Executive Chief The Financial Chief address: respectively 26 to 22 and 19 14 to • Business review review Business Principal activity world’s is the Company The leading provider of global office services. outsourcing Non-Executive Directors Non-Executive Douglas Sutherland Lance Browne Elmar Heggen Nina Henderson Pauly François Florence Pierre Biographical details for the Directors on pages 37. 36 and are shown interests Directors’ Details of the the in given are shareholdings and Remuneration Report on page 59. Report, Responsibility Corporate The People Report, Corporate Governance Report, Nomination Committee Report, Remuneration Report, Committee Audit on pages Statements Directors’ and Report 20 to all form part of 33 to 62 and 21 this report. Executive Directors Directors Executive Mark Dixon Dominik Daniel de Directors The Directors of the Company who financial year the held office during under review were: The Directors of IWG plc (the ‘Company’) audited the and Report Annual their present statements financial its subsidiaries (together the ‘Group’) for the (together its subsidiaries 2016. December 31 ended year the Directors’ report report Directors’ • • • The Risk Management report, on pages 27 to 32, includes a description of the facing uncertainties and risks principal Company. the
6 (1) 1 0 nd n. ble ble y 2 93% Votes orate 2016 2016 to 2016 Withheld pendent £2,908k 90.5% eting held th nt period. Change 2015 alent period. period. alent o IWG. o IWG. cast 2015 2015 £38.8m 12% £38.8m £356.4m (6)% £356.4m Total votes Total votes
6 % % 1 0 2 by the Committee during 2016 during 2016 by Committee the £43.3m £43.3m £335.6m £335.6m concerning their own remuneratio their concerning # Votes Against % th regard to remuneration advice, the Committee is comforta Committee the advice, remuneration regard to th the year. Aon Hewitt was appointed was appointed Hewitt Aon year. the # remuneration. Votes cast by proxy and at the annual general me is context, is committed to an open and transparent dialogue wi dialogue and transparent an open to is committed is context, to 31 December 2016 against the TSR of the FTSE 350 (excluding (excluding 350 FTSE of the TSR the against 2016 31 December to Votes For Votes For 542 82.62% 136,733,610 786,623,152 17.38% 45,600 jective and independent. 649,889, 584,579,868 74.48%5 200,316,01 784,895,883 25.52% 1,772,869 0% 0% 19% 50% 100% 79% 100% 100%
£628k £628k £759k £1,130k £1,773k £1,854k £1,968k £2,770k ng investment trusts) relevant since it is an indexof it companiesof similar since size t relevant trusts) investment ng on Committee and attendance at Committee meetings is set out on page 50 of the Corp of the is out on page 50 set meetings at Committee and attendance on Committee 2009 2010 2009 2011 2012 2013 2014 2015 nt partner and teamare ob 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL ing vest Shares Matching 2014 the of one tranche of 73% and vesting Shares Matching 2013 the of tranche second the of 100% on Based
Long-term incentive vesting (% of maximum) maximum) (% of vesting Long-term incentive 0% 0% 0% 11% 35% 86% 97% Resolution Resolution Statement of voting at general meeting voting at general Statement of in th and, shareholders to accountable directly is Committee The a meeting general annual Company’s the attend Committee of the members The remuneration. of executive issue on the shareholders areavailable toanswer shareholders’about questions Directors’ onMay17 2016 inrespect of remunerated related resolutions are shown in the tablebelow: Policy Approval of Remuneration Approval of Annual RemunerationReport for yearending 31 December 2016 For and on behalf of the Board Nina Henderson Committee Remuneration of the Chairman 60 Directors’ Remuneration Directors’ continued report pay on spend of importance Relative 31 December ending years the of in respect to shareholders distributions and remuneration employee total shows below table The years: between changes percentage the and 2015 and Total employee remuneration graph and table Performance period eight-year in the IWG of TSR the shows below graph The releva the over reinvested are dividends assumes and growth price share to refers TSR Indices. Share All and trusts) investment The Committeeconsiders the FTSE 350 (excludi equiv the over years financial eight of the each for Officer Executive Chief the for data remuneration provides below table The of remuneration figure Single total (% of maximum) Bonus 1. Committee Remuneration Advisors the to Remunerati of the Details of composition the www.iwgplc.com. website: Company’s on the available freely are reference of terms Committee’s The Report. Governance Secretar Company and Officer Executive Chief Chairman, the Committee, Remuneration the of members designated the to addition In were present none duringalthough discussions year the during meetings Committee attended also Distributions to shareholders Distributions to shareholders Aon Hewitt provided independentAonHewitt advice to the Committee during inde of provision the for Hewitt by Aon charged fees The Committee. by the undertaken process selection a competitive following Wi £94,000). (2015: £49,000 were 2016 during Committee the to advice engageme Hewett’s that Aon Directors’ statements
Statement of Directors’ responsibilities Under applicable law and regulations, the Statement of responsibility in respect of the Annual Report and Directors are also responsible for preparing We confirm that to the best of our financial statements a Directors’ Report, a Strategic Report, knowledge: The Directors are responsible for preparing a Remuneration Report and a Corporate • the financial statements prepared in the Annual Report and the Group financial Governance Statement that comply with accordance with the applicable set of statements in accordance with applicable that law and those regulations. accounting standards, give a true and law and regulations. The Directors are responsible for the fair view of the assets, liabilities, financial Company law requires the Directors to maintenance and integrity of the corporate position and profit or loss of the Group; prepare the Group financial statements and financial information included on the • the Directors’ Report, including content for each financial year. Under that law, they Company’s websites. contained by reference, includes a are required to prepare the Group financial Legislation in the UK and Jersey governing fair review of the development and statements in accordance with International the preparation and dissemination of performance of the business and the Financial Reporting Standards (‘IFRSs’) as financial statements may differ from position of the Group taken as a whole, adopted by the EU and applicable law. legislation in other jurisdictions. together with a description of the Under company law, the Directors must Statutory statement as to disclosure principal risks and uncertainties that not approve the financial statements unless to auditor they face; and they are satisfied that they give a true and The Directors who held office at the date • the Annual Report and financial fair view of the state of affairs of the Group of approval of these Directors’ statements statements, taken as a whole, is fair, and its profit or loss for the period. In confirm that: balanced and understandable and preparing each of the Group financial • so far as they are each aware, there is provides the information necessary statements, the Directors are required to: no relevant audit information of which for shareholders to assess the Group’s • select suitable accounting policies and the Group’s auditor is unaware; and position and performance, business then apply them consistently; model and strategy. • each Director has taken all the steps that • make judgements and estimates that he ought to have taken as a Director in are reasonable and prudent; order to make himself aware of any By order of the Board • for the Group financial statements, state relevant audit information and to whether they have been prepared in establish that the Group’s auditor Mark Dixon accordance with IFRSs as adopted by is aware of that information. Chief Executive Officer the EU; and These financial statements have • prepare the financial statements on been approved by the Directors of the the going concern basis unless it is Company. The Directors confirm that the Dominik de Daniel inappropriate to presume that the financial statements have been prepared Chief Financial Officer Group and the parent company will in accordance with applicable law and Chief Operating Officer continue in business. and regulations. 28 February 2017 The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that its financial statements comply with the Companies (Jersey) Law 1991 and Article 4 of the IAS Regulation. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
62 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 62 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
63 63 p and its taxation advisors, in x jurisdictionsaround the world. for the period. Particular focus g theaccounting for taxation ounts to be recognised with of taxation related balances on estimates of whether additional taxes taxes additional of whether on estimates relation to key model inputs. We checked the mathematical analysis sensitivity the examined We model. of the accuracy performedmanagement by Group andown performedour We assumptions. key the to in relation analysis sensitivity also compared the sum of projected discounted cash flows whether assess of to Group the capitalisation market to the the projected cash flows appear reasonable. We also assessed whether thedisclosures as setoutin note 12 were appropriate and in compliance with IAS 36. 3. Our application of materiality and an overview of the scope of the and an overview materiality of 3. Our application audit of our whole a as statements financial consolidated the for materiality The revenue, total of 1% or million), £19 (2015: million £21 at set was whichwe have determined, our in professional judgement, tobe Our response Our response Our approach tothe audit of taxationisunderpinned by the inclusionof KPMG international domesticand taxation in specialists assumptions the evaluate specialists These team. audit Group the and methodologies used by the Grou calculating the taxation provisions is placed on assumptions relating to provisions for uncertain tax positions and the recognition and recoverability of deferred assets. tax We specifically considered the taxation risks arising from the Group’s operations when assessin the determine to analysis and applied sensitivity balances related recoverability the assessed We judgements. key of appropriateness of deferred tax assets, which involved assessing theassumptions in relation to the utilisation of losses carried forward against projected taxable profits. We also considered whether the recognition of additional deferred taxbe assets appropriate. would We assessed the presentationand disclosure (inaccordance respect in 12) IAS and 1 with IAS and considered whether the Group’s disclosures reflected the risks inherent in the accounting for the taxation balances. Taxation (current tax liabilities of £17.7m; deferred tax deferred £17.7m; of liabilities tax (current Taxation of £2.4m) liabilities tax deferred of £29.3m and assets 71 pages Committee), Audit of the (Report 47 page Refer to Group the to 9 and 32 notes and policies) 76 (accounting to Statements. Financial The risk The Group operates in numerous ta As aresult, the tax chargeon profits is determinedaccording toa varietyof complex tax lawsand regulations. TheGroupencounters the during of tax matters on a range authorities by tax challenges normal course of business and recognises liabilities for anticipated based tax audit issues is underpinned liabilities of these calculation The be due. will by judgemental assumptions as the ultimate tax determination is uncertain. The related deferred tax assets liabilitiesand require the am in determining judgement consideration tothe timinglevel and offuture taxable income. in certain losses trading historic incurred has Group the Separately, tax complex include may made acquisitions and jurisdictions aspects.a As consequence, theGroup’s currentand deferred determining in used assumptions to sensitive are balances tax the appropriate liabilities and assets. idated financial ents give a true and fair fair and a true give ents d accounting policies and notes. notes. policies and accounting d ons arising from our our from arising ons sstatement that hadthe greatest cur if forecasted cash flows ove on theconsol the consolidated statement of of statement consolidated the re than the estimated recoverable er 2016 which comprise the the comprise which er 2016 of changes in equity, the consolidated consolidated in equity, the of changes
the consolidated financial statem financial consolidated the viewof the state of theGroup’saffairs as at 31 December year profit for ended; then of its the 2016 and the consolidated financial statements have been properly properly been have statements financial consolidated the Reporting Financial International with accordance in prepared and Union; European by the as adopted (IFRS) Standards the consolidated financial statements have been properly properly been have statements financial consolidated the of the requirements the with in accordance prepared Companies (Jersey) Law 1991.
Our audit procedures in this area included assessing the Group’s Group’s the assessing included area in this procedures audit Our impairment model for each CGU and evaluating the assumptions flow cash the specifically model, Group in the by the used projections, perpetuity rates and discount rates. We considered forecasts. Group’s the historical the of accuracy us assist specialists to the in valuation evaluating We used in particular Group, the by used methodologies and judgements thoserelating tothe discount rate used to determinethepresent projections. flow cash the of value possible, to where assumptions, Group’s the compared We externally derived data and performed our own assessment in decline in certain markets or where revenue and costs are subject subject are costs and revenue where or markets in certain decline spread is goodwill of recoverability The fluctuations. significant to across multiple geographies and economies, and is dependent on individual businesses acquired achieving or sustaining sufficient profitability in thefuture. involved uncertainty inherent the to due area on this focus We in forecasting and discounting future cash flows, particularly the of basis the forms which growth, revenue projected in assessment of recoverability. Our response amount, if future cash flows are not sufficient to recover the oc could This Group’s investment. There is a risk that the carrying amounts of the Group’s goodwill goodwill Group’s the of amounts carrying the that a risk is There mo be will assets and intangible Refer to page 47 (Report of the Audit Committee), pages 71 71 pages Committee), Audit of the (Report 47 page Refer to Group the 32 to and 13 12, notes and policies) 76 (accounting to Statements. Financial The risk Goodwill and intangible assets (£738.1m) (£738.1m) assets and intangible Goodwill 2. Our assessment of risks of material misstatement misstatement material of of risks assessment 2. Our In arriving at our audit opinion ab follows: as were audit Group our on effect statements the risks of material mi risks of the material statements In our opinion: opinion: In our • audit unmodified is statements financial the on opinion 1. Our We haveaudited the consolidated financial statementsof Plc IWG 31 Decemb ended year for the the sheet, balance consolidated the income, comprehensive consolidated statement relate the and statement flow cash Opinions and conclusi and Opinions of IWG plc plc of IWG statement, income consolidated The financial reportingframeworkbeen has that applied in their preparation Jerseyis law and International Financial Reporting audit Our Union. European by the as adopted (IFRS) Standards was conducted in accordancewith InternationalStandards on and Ireland). (UK (ISAs) Auditing Independent auditor’s report to the members members the to report auditor’s Independent • • Independent auditor’s report to the members of IWG plc (continued)
one of the principal benchmarks within the financial statements 4. We have nothing to report on the disclosures of principal relevant to members of the company in assessing financial risks performance. Based on the knowledge we acquired during our audit, we For certain account balances including goodwill, intangible assets, have nothing material to add or draw attention to in relation to: bank loans, share based payments, related party transactions and • The Directors’ statement on page 62 concerning the principal taxation, we applied materiality of £8 million, or 5% of pre-tax risks, their management, and, based on that, the Directors’ profit, as we believe a misstatement of amounts less than assessment and expectations of the Group continuing in materiality for the financial statements as a whole could be operation over the three-year period to 2019; or reasonably expected to influence a members’ assessment • The disclosures on page 41 concerning the use of the going of the financial performance of the Group. concern basis of accounting. We agreed with the Audit Committee to report corrected and 5. We have nothing to report in respect of the matters on uncorrected misstatements we identified through our audit with which we are required to report by exception a value in excess of £1 million (2015: £1 million). We also agreed Under the ISAs (UK & Ireland) we are required to report to you to report other audit misstatements below that threshold that we if, based on the knowledge we acquired during our audit, we believe warranted reporting on qualitative grounds. have identified information in the Annual Report that contains The structure of the Group’s finance function is such that a material inconsistency with either that knowledge or the certain transactions and balances are accounted for by central financial statements, a material misstatement of fact, or that Group finance teams, with the remainder accounted for in the is otherwise misleading. operating units. We performed comprehensive audit procedures, In particular, we are required to report to you if: including those in relation to the significant risks above, on those transactions and balances accounted for at Group and operating • We have identified any inconsistencies between the unit level. In determining those components in the Group on knowledge we acquired during our audit and the Directors’ which we perform audit procedures, we utilised size and risk statement that they consider the Annual Report and financial criteria in accordance with International Standards on Auditing statements as a whole is fair, balanced and understandable (UK and Ireland). and provides information necessary for shareholders to assess the entity’s position and performance, business model and In relation to the Group’s operating units, audits for Group reporting strategy; or purposes were performed at identified key reporting components, augmented by risk focused audit procedures which were • The report from the Audit Committee does not appropriately performed for all other components. These audits covered 83% disclose those matters that we communicated to the Audit of total Group revenue, 82% of Group total assets and 83% of Committee. Group profit before taxation. The Listing Rules require us to review: The Group audit team instructed component auditors as to the • The Directors’ statement, set out on page 62, in relation significant areas to be covered, including the relevant risks detailed to going concern and longer-term viability (page 42); above and the information to be reported back. Planning meetings • The part of the Corporate Governance Statement on page were held with component auditors in order to assess the key audit 39 relating to the Company’s compliance with the ten risks, audit strategy and work to be undertaken. The Group audit provisions of the UK Corporate Governance Code specified team approved the materiality of each of the components, which for our review; and ranged from £5.5m to £10m, having regard to the mix of size and • Certain elements of remuneration disclosures in the report risk profile of the Group across the components. to shareholders by the Directors. Detailed audit instructions were sent to the auditors in all of these identified locations. These instructions covered the significant 6. Our conclusions on other matters on which we are required audit areas to be covered by these audits (which included the to report by the Companies (Jersey) Law 1991 are set out relevant risks of material misstatement detailed above) and set below out the information required to be reported to the Group audit We have nothing to report in respect of the following matters team. Senior members of the Group audit team, including the lead where the Companies (Jersey) Law 1991 which requires us to engagement partner, attended each component audit closing report to you if, in our opinion: meeting via telephone conferencing facilities, at which the results • Adequate accounting records have not been kept by the of component audits were discussed with divisional and Group parent company; management. At these meetings, the findings reported to the • Returns adequate for our audit have not been received Group audit team were discussed in more detail, and any further from branches not visited by us; work required by the Group audit team was then performed by • The financial statements are not in agreement with the the component auditor. The Group audit team interacted with the accounting records; or component teams where appropriate during various stages of the audit, reviewed key working papers and were responsible for the • We have not received all the information and explanations scope and direction of the audit process. This, together with the we require for our audit. additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements.
64 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 64 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
65 65 onable assurance ce with ISAs (UK& Ireland)is nt to givereas ssurance of identifying material and expense as well as devoting as devoting well as and expense .responsibility Our is to audit ing Council’s Ethical Standards ce with ISAs (UK & Ireland) & Ireland) (UK ISAs with ce ncialand non-financial information KPMG KPMG Chartered Accountants, Statutory Audit Firm Place, St Stephen’s1 Stokes Green, Dublin 2, Ireland 28 February 2017 Cliona Mullen, Mullen, Cliona of on behalf and for for Auditors. Auditors. for An audit undertaken in accordan Basis of our report, responsibilities and restrictions on use use on restrictions and responsibilities report, our of Basis As explainedmore fullyin the Directors’responsibilities statement the for responsible are Directors 62, the on page out set and for being satisfied of financial statements preparation the fair view and a true give that they and express an opinion on the consolidated financial statements statements financial consolidated on the opinion an and express Standards and International law applicable with accordance in us to require standards Those & Ireland). (UK (ISAs) on Auditing Report Financial the with comply and disclosures amounts about the evidence obtaining involves in thefinancial statements sufficie significanttimeof the most experienced members of the audit team, in particular the engagement partner responsible for the audit, to subjective areas of the accounting and reporting. Our report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. the to Our state we might so audit undertaken been that work has Company’smembers those matterswe arerequired to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members we opinions the for or report, this for work, audit our for as a body, have formed. misstatement, material from free are statements financial the that whether caused by fraud or error. This includes an assessment the to appropriate are policies accounting the whether of: Group’s circumstances and havebeen consistently applied and accounting of significant reasonableness the disclosed; adequately of presentation overall and the Directors; by the made estimates the financial statements. fina the all we read In addition, designed to provide reasonable a to so. do Rather, it is not guaranteed or omissions misstatements the auditor plans the audit to determine the extent of testing needed to reduce to an appropriately low level the probability that does misstatements and undetected uncorrected of aggregate the This as a whole. statements financial the for materiality exceed not work on a audit requires us broad testing conduct to significant range of assets, liabilities, income in the AnnualReport and Accounts to identifymaterial inconsistencies with the statements audited financial consolidated and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider theimplications forour report. While an auditconducted in accordan our audit and the Directors’ Directors’ the and our audit e Annual Reportand financial e Annual Report containsthat respect of the following matters following matters of the respect Adequate accounting records have not been kept by the by the kept been not have records accounting Adequate parent company; The Directors’ statement on page 62 concerning the principal principal the 62 concerning page on statement Directors’ The Directors’ the on based that, and, management, their risks, in continuing Group of the expectations and assessment operation over the three-year period to 2019; or We have identified any inconsistencies between the we acquired during knowledge statement that they considerth understandable and balanced is fair, a whole as statements andprovides information necessary for shareholders toassess the entity’s position and performance, business model and or strategy; Returns adequate for our audit have not been received received been not have audit our for adequate Returns from branches not visited by us; The disclosures on page 41 concerning the use of the going going the of use the concerning 41 on page disclosures The accounting. of basis concern The reportfrom Committee the does Audit not appropriately to Audit the we communicated that matters those disclose Committee. The financial statements are not in agreement with the the with agreement in not are statements financial The accounting records; or The Directors’ statement, set out on page in62, relation to going concern and longer-term viability (page 42); We have not received all theinformationexplanations and we require for our audit. The part of the Corporate Governance Statement on page on page Statement Governance Corporate of the part The 39 relatingto theCompany’s compliance with the ten provisions of the UK Corporate Governance Code specified for ourreview; and Certain elements of remuneration disclosures in the report Directors. by the to shareholders
6. Our conclusions on other matters on which we are required required we are which on matters other on conclusions 6. Our out (Jersey) Law 1991 are set to report by the Companies below We have nothing toreport in us to requires which 1991 Law (Jersey) Companies the where report toif, youopinion: in our • 4. We have nothing to report on the disclosures of principal principal of disclosures the on report to nothing have We 4. risks Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to: • on matters the of respect in to report nothing have 5. We by exception to report are required we which Under the ISAs (UK & Ireland) we arerequired to report toyou we audit, our during we acquired knowledge on the if, based haveidentified information in th or the knowledge that with either inconsistency a material or of fact, that misstatement a material statements, financial misleading. is otherwise In particular, we are required to report to you if: • • • • • The Listing Rules require usreview: to • • • • to the auditors in all of these in order to assess the key audit audit key the assess to in order ereportedtofindings the s below that threshold that we that threshold below that s p audit team, including the lead the including team, p audit , related party transactions and cluding the relevant risks detailed significant risks above, on those on those above, risks significant 015: £1 million). 015: £1 million). We also agreed t team was then performed by by performed then was team t ement detailed above) and set each component audit closing audit each component 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 64 Independent report auditor’s to the of members plc (continued) IWG oneof the principalbenchmarks within the financial statements relevant to members of the company in assessing financial performance. For certain account balances including goodwill, intangible assets, bank loans, share based payments taxation, we applied materiality of £8 million, or 5% of pre-tax profit, as webelieve misstatement a ofamounts less than be could whole a as statements financial the for materiality reasonablyexpected toinfluence a members’ assessment of the financial performance of the Group. Weagreed with Committeeto the Audit report correctedand uncorrectedidentifiedourthrough we misstatementswith audit of in excess a £1 million (2 value misstatement audit to report other grounds. qualitative on reporting warranted believe that such is function finance Group’s of the structure The certain transactionsbalances and are accountedfor by central Groupfinance teams,with the remainder accountedfor in the operating units. We performed comprehensive audit procedures, the to relation in those including and operating at Group for accounted and balances transactions on Group in the components those determining In level. unit risk and size utilised we procedures, audit perform we which on Auditing Standards with International in accordance criteria Ireland). (UK and In relation tooperating the Group’s units,audits for Group reporting purposeswere performed at identified keyreporting components, were which procedures audit focused risk by augmented performedall for other components. Theseaudits covered 83% of totalrevenue, Group ofGroupof assets and 83% total 82% Group profit before taxation. as to the auditors component team audit Group The instructed in areas to be covered, significant meetings Planning back. to reported be information and the above were heldwith component auditors be to undertaken.work and The Groupstrategy audit audit risks, team approved the materiality of each of the components, which ranged from £5.5m to£10m, having regard to the mix of size and components. the across Group of the profile risk were sent instructions Detailed audit significant the covered instructions These locations. identified the included (which audits these by covered be to areas audit misstat material of risks relevant out the information required to be reported to the Group audit team. Senior members of the Grou engagement partner, attended results the at which facilities, conferencing telephone via meeting of component audits were discussedwith divisional andGroup management. At these meetings, th Group audit team were discussed in more detail, and any further worktherequired by audiGroup the component auditor.The Group audit team interacted with the component teams where appropriate during various stages of the audit, reviewed key working papers and were responsible for the the with together This, process. audit of the direction and scope additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group statements. financial Consolidated income statement
Year ended 31 Dec 2016 Year ended 31 Dec 2015 Non- Before non- recurring Before non- Non-recurring recurring items Total recurring items Total Continuing operations Notes items (note 6) £m items (note 6) £m Revenue 3 2,233.4 – 2,233.4 1,927.0 – 1,927.0 Cost of sales (1,784.6) – (1,784.6) (1,498.6) – (1,498.6) Gross profit (centre contribution) 448.8 – 448.8 428.4 – 428.4 Selling, general and administration expenses (258.9) (1.0) (259.9) (273.6) 15.3 (258.3) Research and development expenses (2.9) – (2.9) (10.3) – (10.3) Share of (loss)/profit of equity-accounted investees, net of tax 20 (0.8) – (0.8) 0.3 – 0.3 Operating profit 5 186.2 (1.0) 185.2 144.8 15.3 160.1 Finance expense 8 (11.6) – (11.6) (15.0) – (15.0) Finance income 8 0.1 – 0.1 0.6 – 0.6 Net finance expense (11.5) – (11.5) (14.4) – (14.4) Profit before tax for the year 174.7 (1.0) 173.7 130.4 15.3 145.7 Income tax expense 9 (34.9) – (34.9) (25.9) 0.1 (25.8) Profit after tax for the year 139.8 (1.0) 138.8 104.5 15.4 119.9
Profit attributable to: Equity shareholders of the parent 139.8 (1.0) 138.8 104.5 15.4 119.9 Non-controlling interests – – – – – – Profit after tax for the year 139.8 (1.0) 138.8 104.5 15.4 119.9
Earnings per ordinary share (EPS): Basic (p) 10 14.9 12.8 Diluted (p) 10 14.7 12.6
66 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 66 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – 67 67 £m 0.6 (5.3) (4.7) (5.0) (0.3) (0.3) 119.9 114.9 114.9 114.9 Year ended Year ended 31 Dec 2015 – – – £m 2.1 (0.3) 90.2 92.0 92.0 230.8 230.8 138.8 230.8 Year ended Year ended 31 Dec 2016
25 25 Notes fied to profit profit to fied to profit or loss in to profitor loss in ll neverll be reclassified profitto e or may be reclassi be may or e at will never be reclassified
Foreign currency translation differences for foreign operations operations foreign for differences translation currency Foreign or loss in subsequent periods periods subsequent in loss or Items of other comprehensive income that ar income comprehensive other of Items Total comprehensive income for the year year the for income comprehensive Total Items of other comprehensive income that wi income comprehensive other of Items periods subsequent in loss or Equity shareholders of the parent parent the of shareholders Equity Total comprehensive income for the year year the for income comprehensive Total to: attributable income comprehensive Total Other comprehensive income for the period, net of income tax tax income of net period, the for income Other comprehensive th income Other comprehensive tax income net of liability, benefit defined of Re-measurement Other comprehensive or income be may that is reclassified in to profit or loss subsequent periods: tax income of net statement, income the through recycled – hedges flow Cash Profit for the year year the for Profit
comprehensive income income comprehensive Consolidated statement of of statement Consolidated Cash flow hedges – effective portion of changes in fair value, net of income tax tax income of net value, fair in changes of portion effective – hedges flow Cash Non-controlling interests interests Non-controlling subsequent periods: £m Total
items items (note 6) (note 6) Non-recurring Non-recurring 12.8 12.6
– – – 0.3 0.3 0.3 – 0.6 0.6 0.6 – Year ended 31 Dec 2015 31 Dec Year ended items items (10.3) (10.3) (10.3) – (15.0) (15.0) (15.0) – (14.4) (14.4) (14.4) – (25.9) (25.8) 0.1 428.4 428.4 428.4 – 104.5 104.5 119.9 15.4 104.5 119.9 15.4 144.8 144.8 160.1 15.3 130.4 130.4 145.7 15.3 104.5 119.9 15.4 (273.6) 15.3 (258.3) 1,927.0 1,927.0 1,927.0 – (1,498.6) – (1,498.6) recurring recurring Before non- Before – £m 0.1 (2.9) (0.8) 14.7 14.9 Total (11.6) (11.5) (34.9) 448.8 138.8 138.8 185.2 173.7 138.8 (259.9) 2,233.4 (1,784.6) – – – – – – – – – – (1.0) (1.0) (1.0) (1.0) (1.0) (1.0) Non- items items (note 6) (note recurring recurring – 0.1 Year ended 31 Dec 2016 2016 Dec 31 ended Year (2.9) (0.8) items (11.6) (11.5) (34.9) 448.8 139.8 139.8 186.2 174.7 139.8 (258.9) 2,233.4 recurring recurring (1,784.6) Before non- Before 3 8 5 8 9 10 10 20 Notes
2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Basic (p) Diluted (p) Continuing operations operations Continuing Selling, general and administration expenses expenses administration Selling, general and Cost of sales Cost of sales contribution) (centre profit Gross 66 Consolidated income statement statement income Consolidated Revenue Earningsper shareordinary (EPS): Research and development expenses expenses development and Research Share of (loss)/profit of equity-accounted equity-accounted of (loss)/profit Share of of tax investees, net Equity shareholders of the parent parent the of shareholders Equity interests Non-controlling year the for tax after Profit Operating profit profit Operating Finance expense Finance income to: attributable Profit Net finance expense Profitbefore fortax the year Income expense tax year the for tax after Profit Consolidated statement of changes in equity
Foreign Issued currency Total Non- share Treasury translation Hedging Revaluation Other Retained shareholders’ controlling Total (1) capital shares reserve reserve reserve reserves earnings equity interests equity £m £m £m £m £m £m £m £m £m £m Balance at 1 January 2015 9.5 (19.9) 12.7 (2.7) 10.5 15.3 512.0 537.4 – 537.4 Total comprehensive income for the year: Profit for the year – – – – – – 119.9 119.9 – 119.9 Other comprehensive income: Re-measurement of defined benefit liability, net of income tax (note 25) – – – – – – (0.3) (0.3) – (0.3) Cash flow hedges – effective portion of changes in fair value, net of income tax – – – 0.6 – – – 0.6 – 0.6 Foreign currency translation differences for foreign operations – – (5.3) – – – – (5.3) – (5.3) Total other comprehensive income, net – – (5.3) 0.6 – – 119.6 114.9 – 114.9 Total comprehensive income for the year – – (5.3) 0.6 – – 119.6 114.9 – 114.9 Transactions with owners, recorded directly in equity Share-based payments – – – – – – 2.2 2.2 – 2.2 Ordinary dividend paid (note 11) – – – – – – (38.8) (38.8) – (38.8) Purchase of shares – (24.5) – – – – (11.9) (36.4) – (36.4) Proceeds from exercise of share awards – 1.5 – – – – 2.9 4.4 – 4.4 Balance at 31 December 2015 9.5 (42.9) 7.4 (2.1) 10.5 15.3 586.0 583.7 – 583.7 Total comprehensive income for the year: Profit for the year – – – – – – 138.8 138.8 – 138.8 Other comprehensive income: Cash flow hedges – recycled through the income statement – – – 2.1 – – – 2.1 – 2.1 Cash flow hedges – effective portion of changes in fair value, net of income tax – – – (0.3) – – – (0.3) – (0.3) Foreign currency translation differences for foreign operations – – 90.2 – – – – 90.2 – 90.2 Total other comprehensive income, net – – 90.2 1.8 – – 138.8 230.8 – 230.8 Total comprehensive income for the year – – 90.2 1.8 – – 138.8 230.8 – 230.8 Transactions with owners, recorded directly in equity Share-based payments – – – – – – 2.4 2.4 – 2.4 Ordinary dividend paid (note 11) – – – – – – (43.3) (43.3) – (43.3) Purchase of shares – (34.2) – – – – (1.3) (35.5) – (35.5) Proceeds from exercise of share awards – 8.5 – – – – (4.6) 3.9 – 3.9 Cancellation of treasury shares (0.3) 65.7 – – – – (65.4) – – – Balance at 31 December 2016 9.2 (2.9) 97.6 (0.3) 10.5 15.3 612.6 742.0 – 742.0
1. Attributable to equity holders of the parent On 19 December 2016, the Group entered into a court approved Scheme of Arrangement. As a result of the Scheme of Arrangement shares in Regus plc were cancelled and shares in the new Group holding company, IWG plc, were issued on the basis of one IWG plc share (nominal value one pence) for one share previously held in Regus plc (nominal value one pence). As a result, the shareholders of Regus plc became the shareholders of IWG plc. The establishment of IWG plc as the new parent company was accounted for as a common control transaction under IFRS and consequently the aggregate of the Group reserves have been attributable to IWG plc. At 31 December 2016, treasury shares represent 1,170,699 (2015: 20,490,613) ordinary shares of the Group that were acquired for the purposes of the Group’s employee share option plans and the share buy-back programme. During the year, prior to the Scheme of Arrangement on 19 December 2016, 11,834,627 (2015: 9,543,800) shares were purchased in the open market and 4,712,856 (2015: 1,936,642) treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. Subsequent to the Scheme of Arrangement, a further 1,280,032 shares were purchased in the open market and 109,333 treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 28 February 2017, 1,013,938 treasury shares were held. The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and joint ventures. The revaluation reserve arose on 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. Other reserves include £37.9m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5m relating to merger reserves and £0.1m to the redemption of preference shares partly offset by £29.2m arising from the Scheme of Arrangement undertaken in 2003.
68 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 68 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– 69 69 £m 9.2 5.3 1.6 7.6 4.1 0.8 9.5 5.6 7.4 (2.1) As at 15.0 53.8 36.4 63.0 17.9 63.9 14.0 10.5 15.3 (42.9) 583.7 612.2 557.8 639.6 816.5 240.7 383.8 245.3 658.2 586.0 583.7 917.0 1,085.7 1,743.9 2,327.6 1,688.0 2,327.6 31 Dec 2015 – £m 7.8 6.0 0.3 2.4 3.4 3.4 0.8 9.2 (2.9) (0.3) As at 17.7 97.6 10.5 15.3 52.8 29.3 83.7 13.6 34.8 50.1 742.0 875.2 276.4 532.1 193.6 736.0 612.6 742.0 685.3 517.1 602.0 2,661.1 1,183.1 1,919.1 1,194.4 2,059.1 2,661.1 31 Dec 2016
9 9 9 9 17 17 19 19 20 25 21 17 21 12 16 18 13 14 15 20 22 18 23 Notes
s t e
s s a t
n e r r u Provisions Provisions liabilities current Total Provisions ventures joint on deficit for Provision obligations Retirement benefit liabilities non-current Total shares Treasury Foreign currency translation reserve reserve translation currency Foreign reserve Revaluation Total non-current assets assets non-current Total Hedging reserve Total equity equity Total Mark Dixon Chief Executive Officer Chief Financial Officer and Chief Operating Officer de Dominik Daniel Total equity and liabilities liabilities and equity Total Approved by the Boardon 28 February2017 Non-controlling interests interests Non-controlling Total equity equity Total capital Issued share Total liabilities Total liabilities Other payables payables Other liabilities Non-current Current liabilities Current liabilities deposits) customer (incl. payables other and Trade Total assets Total C Trade receivablesother and
Non-current assets Non-current Goodwill Consolidated Consolidated balance sheet Bank and other loans Bank and other loans Other intangible assets Other intangible assets Corporation tax receivable Deferred income Corporation tax payable Non-current derivative liabilities financial Deferred tax liability equityshareholders’ Total Property, equipment plant and Other receivables long-term ventures in joint Investments Cash and cash equivalents assets current Total Bank and other loans reserves Other earnings Retained
Deferred tax assets
£m 2.1 2.4 3.9 (0.3) Total 90.2 (35.5) (43.3) equity equity 138.8 230.8 742.0 230.8 – – – – –– – – – – – – – £m Non- interests interests controlling controlling
– (1) £m 2.1 3.9 Total Total 90.2 90.2 (35.5) (35.5) 138.8 138.8 230.8 230.8 742.0 742.0 230.8 230.8 equity r 2016, 11,834,627 (2015: (2015: 11,834,627 r 2016, ares in Regus plc were cancelled cancelled were plc Regus in ares shareholders’ shareholders’ 109,333 treasury sharesheld by 4 October 2008, £6.5m ributable to IWG plc. plc. IWG to ributable ised to satisfy the exercise of share share of exercise the satisfy to ised the purposes of the Group’s
or one share previously held in Regus held in Regus previously share or one – – (0.3) – Arrangement undertaken in 2003. were held. £m 2.4 2.4 (1.3) (4.6) (65.4) (65.4) (43.3) (43.3) (43.3) 138.8 138.8 138.8 138.8 138.8 138.8 earnings earnings at the time of the acquisition of the Retained Retained £m Other reserves reserves –––– –– –– £m 10.5 15.3 612.6 reserve reserve Revaluation Revaluation ––– £m 2.1 (0.3) (0.3) reserve Hedging Hedging –––– – – –––– –––––––– –––––––– £m 12.7 (2.7) 10.5 15.3 537.4 512.0 – 537.4 90.2 90.2 1.8 97.6 90.2 1.8 reserve reserve Foreign Foreign currency currency translation me of Arrangement.aAs result the of Schemeof Arrangement sh 9) 7.4 (2.1) 10.5 15.3 583.7 586.0 – 583.7 £m 8.5 (2.9) 65.7 65.7 (34.2) shares shares Treasury
– – – – – – – (38.8) (38.8) – (38.8) – – (24.5) – – – – (11.9) (36.4) – (36.4) – – –– – – –– – (5.3) 0.6 – (5.3) – – (5.3) – – – 0.6 – 0.6 – – – – (0.3) – (0.3) – – – (0.3) – – 0.6 119.6 – 114.9 – – 119.6 – 114.9 114.9 0.6 (5.3) – – 114.9 – (5.3) – – – – – – – – – – – – – – – 119.9 119.9 – 119.9 – – – – – – – – – – – – – – – 2.2 2.2 – 2.2 £m 9.5 (19.9) 9.5 (42. 9.2 (0.3) share Issued capital capital
2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Attributable to equity holders of the parent parent of the holders to equity Attributable
1. Sche approved court a into entered the Group 2016, December On 19 68 Consolidated statement of changes in equity equity in of changes statement Consolidated 2015 January 1 at Balance Total comprehensive income for the year: the for income comprehensive Total year the for Profit income: Other comprehensive benefit defined of Re-measurement liability, net of income tax (note 25) of portion effective – hedges flow Cash fairtax changes net income in value, of for differences translation currency Foreign foreign operations net income, comprehensive other Total year the for income comprehensive Total Transactions owners, recordedwith directly in equity Share-based payments 11) paid (note dividend Ordinary shares of Purchase awards share of exercise from Proceeds 2015 December 31 at Balance year: the for income comprehensive Total – year the for Profit 1.5 – – – – 2.9 4.4 – 4.4 and shares in the new Group holding company, IWG plc, were issued on the basis of one IWG plc share (nominal value one pence) f pence) one value (nominal share plc IWG of one basis the on issued were plc, IWG company, holding Group new in the shares and company parent new the as plc IWG of establishment plc. The of IWG the shareholders became plc Regus of shareholders the result, a As pence). one value (nominal plc was accounted for as a common control transaction under IFRS and consequently the aggregate of the Group reserves have been att for acquired that were Group of the shares ordinary 20,490,613) (2015: 1,170,699 represent shares treasury 2016, December At 31 employee share option plans and the share buy-back programme. During the year, prior to the Scheme of Arrangement on 19 Decembe util were Group the by held shares treasury 1,936,642) (2015: 4,712,856 and market open the in purchased were shares 9,543,800) and market open in the purchased were shares 1,280,032 a further Arrangement, of Scheme the to Subsequent employees. by awards shares treasury 1,013,938 2017, at 28 February As employees. by awards share of exercise the satisfy to utilised were Group the and subsidiaries foreign of statements financial the of translation the from arising differences exchange record to used is reserve translation currency foreign The ventures. joint value fair to historic from associate UK the of liabilities and assets the of restatement the on arose reserve revaluation The outstanding 58% interest on 19 April2006. Otherreserves include£37.9m arising fromthe Schemeof Arrangement undertaken on 1 relating to merger reserves and £0.1m to the redemption of preference shares partly offset by £29.2m arising from the Scheme of Other comprehensive income: income: Other comprehensive the through recycled – hedges flow Cash statement income of portion effective – hedges flow Cash fairtax changes net income in value, of Foreign currency translation differences for for differences translation currency Foreign foreign operations Total other comprehensive income, net net income, comprehensive other Total Balance at 31 December 2016 2016 December 31 at Balance Total comprehensive income for the year year the for income comprehensive Total 11) paid (note dividend Ordinary Purchase of shares awards share of exercise from Proceeds Transactions owners, recordedwith directly in equity Share-based payments shares treasury of Cancellation Consolidated statement of cash flows
Year ended Year ended 31 Dec 2016 31 Dec 2015 Notes £m £m Operating activities Profit before tax for the year 173.7 145.7 Adjustments for: Net finance expense 8 11.5 14.4 Share of loss/(profit) of equity-accounted investees, net of tax 20 0.8 (0.3) Depreciation charge 5, 14 181.8 134.2 Loss/(gain) on disposal of property, plant and equipment 5 1.0 (0.3) Impairment of property, plant and equipment 14 – 0.9 Amortisation of intangible assets 5, 13 12.7 11.0 Amortisation of acquired lease fair value adjustments 5 (3.1) (4.6) (Decrease)/increase in provisions 19 (3.2) 2.8 Share-based payments 2.4 2.2 Other non-cash movements (3.4) (3.0) Operating cash flows before movements in working capital 374.2 303.0 Decrease/(increase) in trade and other receivables 81.0 (121.5) Increase in trade and other payables 23.2 221.0 Cash generated from operations (before assets held for sale) 478.4 402.5 Loss/(profit) on disposal of assets held for sale 6 2.2 (21.3) Cash generated from operations 480.6 381.2 Interest paid (16.2) (13.8) Tax paid (31.5) (29.1) Net cash inflow from operating activities 432.9 338.3
Investing activities Purchase of subsidiary undertakings (net of cash acquired) 26 (8.9) (99.4) Proceeds on the sale of assets held for sale 6 3.3 84.0 Dividends received from joint ventures 20 0.9 – Purchase of joint ventures 20 (1.3) (1.9) Proceeds on sale of property, plant and equipment 16.1 9.5 Purchase of property, plant and equipment 14 (313.8) (311.5) Purchase of intangible assets 13 (5.5) (8.7) Interest received 8 0.1 0.6 Net cash outflow from investing activities (309.1) (327.4)
Financing activities Net proceeds from issue of loans 599.8 383.2 Repayment of loans (670.0) (330.5) Repayment of principal under finance leases – (0.1) Settlement of financial derivatives (7.0) – Purchase of shares (35.5) (36.4) Proceeds from exercise of share awards 3.9 4.4 Payment of ordinary dividend 11 (43.3) (38.8) Net cash outflow from financing activities (152.1) (18.2)
Net decrease in cash and cash equivalents (28.3) (7.3) Cash and cash equivalents at beginning of year 63.9 72.8 Effect of exchange rate fluctuations on cash held 14.5 (1.6) Cash and cash equivalents at end of year 22 50.1 63.9
70 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 70 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 71
ors ting ting the ts. ts. s presents s presents ial ial ’) all values ed financial ed financial her cern basis and and et assets of commences olicies. nd liabilities liabilities nd rried at the at the rried ell and and ell clude the Group’s Group’s the clude y the Group has rights to the n to the rights Group y has the ese are presented on page 113. 113. on page presented are ese tisation – Amendments to IAS 38 38 IAS to tisation – Amendments unting policies that have significant effect on the consolidat on the effect significant have that policies unting erations – Amendments to IFRS 11 to IFRS erations – Amendments e future. For this reason they continue to adopt the going con going the adopt to continue they reason this For e future. t out on pages 14 to 17 as well as the Group’s principal risks t ventures. The extract from the parent company annual account Obligations; extracts Obligations; extracts from th company andcompanyits subsidiaries (togetherreferred to as the ‘Group influence, but not control, over thefinancial andoperating p to a variety of business customers. on Information the customers. a variety of business to alifies as a disposal group at which point the investment is ca investment the point at which group as a disposal alifies e Group has joint control, whereb control, joint has Group e uence commences until the date that significant influence ceases or ceases influence significant that date the until commences uence ons for its liabilities. The consolidated financial statements in onate restatement of accumulated depreciation – Amendments to IAS 16 16 IAS to – Amendments depreciation accumulated of restatement onate onate restatement of accumulated amor effective date from 1 January 2016 did not have a material effect on the Group financ effect on the a material not from did have January 1 date 2016 effective eparing the consolidated financial statements, the Directors have considered the furt the considered have Directors the statements, financial consolidated the eparing antriskof material adjustment inthe nextyear are discussedinnote 32. lue as described in note 23. 23. in note described lue as
2016 ACCOUNTS AND REPORT IWG PLC ANNUAL the arrangement, rather than rights to its assets and obligati and assets its to rights than rather arrangement, the control joint that date the from basis, accounted equity an on ventures joint of losses and gains recognised total the of share qu venture joint or the ceases control joint that date the until information about the Company as a separate entity and not about its Group. statemen financial Group in these presented periods all to consistently applied been have below out set policies accounting The Amendments toadopted IFRSsissued by the International AccountingStandards Board (IASB)and the International Financial Repor an with (IFRIC) Committee Interpretations indicated. otherwise unless statements, The following standards, interpretations and amendments to standards were adopted by the Group for periods commencing on or after 2016: 1 January IAS 1 Disclosure Initiative (Amendment to IAS 1) 71 The Directors, having made appropriate enquiries, have a reasonable expectation that the Group and the Company have adequate adequate have Company the and Group the that expectation reasonable a have enquiries, appropriate made having Directors, The resources to continue in operational existence for the foreseeabl and equity account the Group’s interest in the associate and join associate in the interest Group’s the account and equity acco of these application in the Directors the by made Judgements with a signific estimates and statements a assets financial of certain exception the with basis, cost on a historical prepared are statements financial consolidated The that are measured at fair va on 66 to pages 112. statements financial consolidated in preparing the for pr basis concern going In the adopting information included in the business activities commentary as se 28 as set out on pages to 32. uncertainties Furtherdetails on the going concernbasis of preparation can befound in note 23 to the notesto the consolidatedfinancial st atements 92. on page and currency, functional plc’s IWG is which (£), sterling pounds in presented are statements financial consolidated Group These value. carrying th activities whose over entities those are that ventures Joint IAS 16 Revaluation method – proporti IAS 38 Revaluation method – proporti s to costs less value fair of lower at the carried is investment the point which at group disposal a as qualifies associate the Basis of preparation preparation of Basis parent the of those consolidate statements financial Group The 2. Accounting policies The Group and Company financial statements for the year ended 31 December 2016 were authorised for issue by the Board of Direct of Board by the issue for authorised were 2016 December 31 ended year the for statements financial Company and Group The plc is a public IWG de Daniel. by Dominik and Mark behalf Dixon Board’s on the signed were balance sheets the 2017 and on 28 February limited company incorporated in Jersey and registered and domiciled in Switzerland. The Company’s ordinary shares are traded on Exchange. Stock London IWG plc owns a network of business centres which are leased 30. note in provided is Group of the relationships party related other on information and 31, note in provided is structure Group’s 1991 Law (Jersey) Companies with accordance in Directors the by approved and prepared been have statements financial Group The rent pa its prepares Company The IFRSs’). (‘Adopted Union European by the adopted as Standards Reporting Financial and International of Code Swiss the with accordance in accounts annual company IFRS 11 IFRS 14 Various Accountingofquisitions for interests Ac in Joint op Deferral Accounts Regulatory Cycle) – 2014 (2012 Improvements Annual otherwise. indicated where except place, decimal one to rounded pounds, in million are of ownership. periods the for included are year the of during disposed or acquired companies of those results attributable The significant has Group the which in entities those are Associates on of associates expense and income recognised total of the share Group’s the include statements financial consolidated The an equity accounted basis, from the date that significant infl lower of fair value less costs to sell and carrying value. 1. Authorisation of financial statements statements of financial 1. Authorisation Notes to the accounts accounts the to Notes – – £m 0.9 2.8 2.2 9.5 0.6 4.4 (0.3) (0.3) (4.6) (3.0) (1.9) (8.7) (0.1) (1.6) (7.3) 14.4 11.0 84.0 72.8 63.9 (21.3) (13.8) (29.1) (99.4) (36.4) (38.8) (18.2) 145.7 134.2 402.5 381.2 221.0 303.0 338.3 383.2 (121.5) (311.5) (327.4) (330.5) Year ended Year ended 31 Dec 2015
– – £m 0.8 1.0 2.2 2.4 0.9 3.3 0.1 3.9 (3.2) (3.1) (3.4) (8.9) (1.3) (5.5) (7.0) 11.5 11.5 12.7 12.7 81.0 81.0 23.2 23.2 16.1 16.1 63.9 63.9 14.5 50.1 50.1 (16.2) (16.2) (31.5) (31.5) (35.5) (35.5) (43.3) (43.3) (28.3) (28.3) 173.7 173.7 181.8 181.8 478.4 478.4 480.6 374.2 374.2 432.9 432.9 599.8 599.8 (313.8) (313.8) (309.1) (309.1) (670.0) (670.0) (152.1) (152.1) Year ended Year ended 31 Dec 2016 31 Dec 2016
5 8 5 6 6 8 20 20 19 14 14 26 26 13 20 11 20 22 5, 14 5, 14 5, 13 5, 13 Notes ase fair value adjustments adjustments value fair ase at beginning of year 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 70 Consolidated Consolidated statement of cash flows Operatingactivities Profitbefore fortax the year Adjustments for: Net finance expense expense Net finance net of tax investees, equity-accounted of Share loss/(profit) of Depreciation charge ofLoss/(gain) property, on disposal plant and equipment Impairment equipment property, of and plant Amortisation of intangible assets assets intangible of Amortisation Amortisation of acquired le (Decrease)/increase in provisions Share-based payments Other non-cash movements Other non-cash movements for sale of assets held on disposal Loss/(profit) operations from generated Cash Interest paid Operating cash flows before movements in working capital capital working movements in before cash flows Operating receivables other and trade in Decrease/(increase) payables other and trade in Increase sale) for held assets (before operations from generated Cash Tax paid Net cash inflow from operating activities activities operating from inflow cash Net Investing activities activities Investing Purchase of property, equipment plant and assets of intangible Purchase Purchase of subsidiary undertakings (net of cash acquired) acquired) cash of (net undertakings subsidiary of Purchase sale for held assets of sale the on Proceeds Dividendsreceived from joint ventures Purchase of joint ventures ofProceeds property,equipment and on sale plant received Interest Net cash outflow from investing activities activities investing from outflow cash Net Financing activities activities Financing Net proceeds from issue of loans issue of loans from Net proceeds Repayment of loans leases finance under principal of Repayment derivatives financial of Settlement Purchase of shares Proceeds from exercise of share awards awards share of exercise from Proceeds Payment of ordinary dividend dividend of ordinary Payment Net cash outflow from financing activities activities financing from outflow cash Net Net decrease in cash and cash equivalents and cash equivalents in cash decrease Net held cash on fluctuations rate exchange of Effect Cash and cash equivalents equivalentscash and Cash ofyearend at Notes to the accounts continued
2. Accounting policies (continued) 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. On 19 April 2006, the Group acquired the remaining 58% of the shares of the UK business that were not already owned by the Group. As a result the Group fully consolidated the UK business from that date. The acquisition was accounted for through the purchase method and as a consequence the entire assets and liabilities of the UK business were revalued to fair value. The effect of these adjustments on the 42% of the UK business already owned was reflected in the revaluation reserve. On 14 October 2008, Regus plc acquired the entire share capital of Regus Group plc in exchange for the issue of new shares of Regus plc on the basis of one share in Regus plc for one share held previously in Regus Group plc. At the date of the transaction, Regus plc had nominal assets and liabilities and therefore the transaction was accounted for as a reverse acquisition of Regus plc by Regus Group plc. Consequently, no fair value acquisition adjustments were required and the aggregate of the Group reserves have been attributed to Regus plc. On 19 December 2016, under a Scheme of Arrangement between Regus plc, the former holding company of the Group, and its shareholders, under Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by The Royal Court of Jersey, all the issued shares in Regus plc were cancelled and an equivalent number of new shares in Regus plc were issued to IWG plc in consideration for the allotment to shareholders of one ordinary share in IWG plc for each ordinary share in Regus plc that they held on the record date 18 December 2016. The establishment of IWG plc as the new parent company was accounted for as a common control transaction under IFRS. Consequently, no fair value acquisition adjustments were required and the aggregate of the Group reserves have been attributed to IWG plc. IFRSs not yet effective Except for IFRS 16 Leases, the following new or amended standards and interpretations that are mandatory for 2017 annual periods (and future years) are not expected to have a material impact on the Company: IAS 7 Disclosure Initiative – Amendments to IAS 7 1 January 2017 IAS 12 Recognition of Deferred Tax Assets for Unrealised losses – Amendments to IAS 12 1 January 2017 IFRS 9 Financial Instruments 1 January 2018 IFRS 15 Revenue from Contracts with Customers 1 January 2018 IFRS 16 Leases 1 January 2019
The adoption of IFRS 16 will result in the recognition of a significant right-of-use asset together with corresponding lease liabilities. The Group is in the process of quantifying the related impact. 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. 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 2016. 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) are reviewed at the reporting date to determine whether there is an indicator of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount. Impairment losses are recognised in the income statement. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Group has identified individual business centres as the CGU. We evaluate the potential impairment of property, plant and equipment at the centre (CGU) level where there are indicators of impairment. Centres (CGUs) are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed. Individual fittings and equipment in our centres or elsewhere in the business that become obsolete or are damaged are assessed and impaired where appropriate.
72 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 72 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
73 73 rm. statement statement urnover or of
s finance s finance assessment dent the the ounted at re no opening ny previous t nd nd all of the loss of in addition, in addition, is recognised in tribution is ecognition. ll. value in use, is in excess of of is in excess Indefinite life 20 years Up to 5 years 2 years contract the of duration Minimum in the calculation of minimum lease payments. payments. of minimum lease calculation in the of the assets as follows: of assets the from transactions that do not involve the the involve not that do from transactions the fair value of the net assets acquired acquired net assets of the fair value the sactions with owners in their capacity as owners and therefo n indicesn or non-guaranteed rental payments based on centre t theasset. For an asset that does not generatelargely indepen sses thatwe incur early inthe centre life. Thepartner con rs (property owners and landlords) towards the initial costs of costs initial the towards landlords) and owners (property rs er the estimated useful life r the cash-generating unit to which the asset belongs. belongs. asset the which to unit cash-generating r the h administration expenses in the income statement. statement. income in the expenses h administration of the net assets of the subsidiary. tions and rent-free periods, are included sets acquiredliabilities and assumed. If ments to non-controlling interests arising
e of gain the net assets then transferred, acquired over the aggregate consideration ying amount may not be recoverable. ying amount be not may recoverable. goodwill is recognised as a result. Adjust a result. as is recognised goodwill control are based on a proportionate amount The commencement of the lease term is the date from which the Group is entitled to use the leased asset. The lease term is the is the term lease The asset. leased the use to entitled is Group the which from date the is term lease the of commencement The non-cancellable period of the lease, together with any further periods for which the Group has the option to continue to lease option. that exercise will Group the that certain reasonably it is lease of the inception at the when and asset Contingent rentals include rent increases based on future inflatio leases. All other leases, including all of the Group’s property leases, are categorised as operating leases. leases. as operating categorised are leases, property Group’s of the all including leases, other All leases. Lease incentives, includingpartner contribu income in the recognised are rentals Contingent payments. lease minimum of calculation the from excluded are and profitability as they areincurred. disc point, break first to the lease of the terms the under payable amounts net of the an estimate are provisions lease Onerous liability. to the specific risks and the of money value time the reflects that rate pre-tax an appropriate lo the and property of the fit-out the including centre, a business Partner contributions Partner contributions Partner contributionsare contributions fromour businesspartne Operating leases Operating leases te lease the over basis on a straight-line statement income the in recognised are leases operating under payments lease Minimum Assets held for sale are measured at the lower of the carrying value of the identified asset and its fair value less to se cost less value fair and its asset identified of the value carrying the of lower at the measured are sale for held Assets Leases a classified are of ownership rewards and risks of all the substantially assumes Group the which for leases and equipment Plant the aggregate of the fair value of the consideration transferred and the amount recognised for non-controlling interests, and a and interests, non-controlling for recognised amount and the transferred consideration of the value fair the of aggregate the interest held,over the net identifiable as software Computer Customer lists Management agreements sale Assets held for Amortisation of intangible assets is expensed is expensed throug of assets intangible Amortisation interests of non-controlling Acquisitions as tran for accounted are interests of non-controlling Acquisitions Brand – Regus brand Brand – Regus brand brands acquired Other – Brand Intangible assets Intangible assets sition of an acqui as part acquired assets at Intangible cost. capitalised are business the from separately acquired assets Intangible r on initial reliably measured and identified can be value fair if their goodwill from separately capitalised are of a business Goodwill Goodwill excess the being at cost, measured initially is Goodwill method. purchase the using for accounted are combinations All business The recoverable amount of relevant assets is the greater of their fair value less costs to sell and value in use. In assessing assessing In use. in value and sell to costs less value fair their of greater the is assets relevant of amount recoverable The marke current reflects that rate discount a pre-tax using value present their to discounted are flows cash future estimated the assessments of the time value of money and the risks specific to a acquired assets of all the identified correctly it has whether re-assesses Group the transferred, consideration aggregate the re- the If date. acquisition at the recognised be to amounts the measure to used procedures the reviews and assumed liabilities ov basis on a straight-line amortised are assets Intangible 2. Accounting policies (continued) policies Accounting 2. amount recoverable Calculation of
still results in an excess of the fair of valu the excess in an still results profit or loss. Positivegoodwill cost at stated is provisionany for less impairment in value. An impairmentannuallyouttestis carried and, whenever indicatorsexist that the carr treated as a lease incentive and is amortised over the period of the lease. lease. of the period the over amortised and is incentive as a lease treated cash inflows,the recoverable amount isdetermined fo r p. As s s for to
thod and egus plc able buted nts on nts he ued te to d date
from from ed. nts on the on the nts plc had as the as the ol . abilities. The over the the over 1 January 2018 1 January 2018 1 January 2019 1 January 2017 2017 1 January 2017 1 January ble amount ) exceeds its recover its ) exceeds change for the issue of new shares of for R change the issue verse acquisition of Regus plc by Regus Group plc. Regus by plc Regus of acquisition verse or constructive obligations or made payme sh-generating unit (CGU unit sh-generating to affect those returns through its power
company was accountedwasfor company a as common control transactionunde s and interpretationss and that aremandatory for 2017 annualperiod new shares in Regus plc were issued to IWG plc in consideration to plc in consideration IWG issued plc were in Regus new shares ther than deferred tax assets) are reviewed at the reporting da s cash inflows that are largelyindependentof the cash inflows date. The acquisition was accounted for through the purchase me gnificant right-of-use asset together with corresponding lease li lease with corresponding together asset right-of-use gnificant ation for the purposes of carrying out impairment reviews of goodwill as this is t reporting date, the Group reviews the carrying amount of these assets to determine to assets determine amount of carrying these the Group reviews date, the reporting Arrangement between Regus plc, the former holding company of the Group, and its e the transaction was accounted for as a re for was accounted transaction e the the extent that the Group has incurred legal legal has incurred Group the that extent the ement with the entity and has the ability and has the entity with ement the d by the Group. Control exists when the Group controls an entity when it is exposed to, or to, h it when is exposed an entity Group d exists when controls Group. Control the by the any standard, interpretation or amendment that has been issued but is not yet effective. but is effective. yet not has been issued that or amendment interpretation any standard, 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that contr that date the from statements financial consolidated the in included are subsidiaries of statements financial The entity. which at group, a disposal as qualifies subsidiary the or ceases control date the until consolidated are results The commences. point the assets andliabilitiesof arefair carried valueless atcoststhelower to sellvalue. and carrying entified individual business centres as the CGU. CGU. as the centres business otherassetsor groups individual of assets.The Group has identified indicators are there where level (CGU) centre the at equipment and plant property, of impairment potential the evaluate We of impairment. oper of by country are grouped (CGUs) Centres lowest level at which it can be assessed. assessed are damaged or are obsolete become that business the in elsewhere or centres in our equipment and fittings Individual appropriate. where impaired and rights to, variable returns from its involv Group is in the process of quantifying the related impact. impact. related the quantifying of process is in the Group The Group has notearly adopted assets non-financial of Impairment recovera the use, for not available yet are that assets intangible and life useful indefinite an have that assets For goodwill, each At 2016. September 30 at estimated was re-evaluated is amount recoverable assets’ the then identified is indicator any If impairment. of indicator an is there whether The carrying amount of the Group’sother non-financialassets (o determine whether there is an indicator of impairment. If any such indication exists, the asset’s recoverable amount is estimat An impairmentloss is recognised whenever the carrying amount of an asset or its ca statement. income the in recognised are losses Impairment amount. A CGU is the smallest identifiable group of assets that generate 72 Notes to the accounts continued accounts to the Notes (continued) policies Accounting 2. ognitionrec and of nil to reduced is amount carrying Group’s the venture, a joint in interest its exceeds losses of share Group’s the When further losses is discontinued except to behalf of a joint venture. Grou by the owned already not were that business UK of the shares of 58% the remaining the acquired Group the 2006, On 19 April a result the Group fullyconsolidated the UK business from that yet effective not IFRSs standard amended or new following the Leases, 16 IFRS for Except IAS 7 IAS 12 IAS 7 to Amendments – Initiative Disclosure IFRS 9 IAS 12 to Amendments – losses Unrealised for Assets Tax Deferred of Recognition IFRS 15 Financial Instruments IFRS 16 Customers from Contracts with Revenue Leases The adoptionof 16 will IFRS result in the recognitiona si of consolidation of Basis Subsidiaries areentities controlle as a consequence the entire assets and liabilities of the UK business were revalued to fair value. The effect of these adjustme these of effect The value. fair to revalued were business UK the of liabilities and assets entire the consequence a as 42% of the UK business already owned was reflected in the revaluation reserve. plc in ex Group of Regus capital share entire plc acquired the Regus 2008, On 14 October Regus transaction, the of date the At plc. Group Regus in previously held share one for plc Regus in share one of basis the on nominal assetsand liabilities and therefor attributed been have reserves Group of the aggregate the and required were adjustments acquisition value fair no Consequently, Regus plc. of a Scheme under On 19 2016, December iss the all Jersey, of Court Royal The by as sanctioned and Law 1991, (Jersey) Companies of the 125 Article under shareholders, shares in Regus plc were cancelled and an equivalent number of recor the on held they that plc in Regus share ordinary each for plc IWG in share ordinary of one shareholders to allotment the parent new as the plc of IWG establishment The 2016. 18 December attri been have reserves Group the of aggregate the and required were adjustments acquisition value fair no Consequently, IFRS. plc. IWG to (and future years) are notexpected to haveamaterial impacton theCompany: Notes to the accounts continued
2. Accounting policies (continued) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Buildings 50 years Leasehold improvements 10 years Furniture 10 years Office equipment and telephones 5 years Computer hardware 3 – 5 years
Revenue Revenue from the provision of services to customers is measured at the fair value of consideration received or receivable (excluding sales taxes). Where rent-free periods are granted to customers, rental income is spread on a straight-line basis over the length of the customer contract. • Workstations Workstation revenue is recognised when the provision of the service is rendered. Amounts invoiced in advance are accounted for as deferred income and recognised as revenue upon provision of the service. • Customer service income Service income (including the rental of meeting rooms) is recognised as services are rendered. In circumstances where IWG acts as an agent for the sale and purchase of goods to customers, only the commission fee earned is recognised as revenue. • Management and franchise fees Fees received for the provision of initial and subsequent services are recognised as revenue as the services are rendered. Fees charged for the use of continuing rights granted by the agreement, or for other services provided during the period of the agreement, are recognised as revenue as the services are provided or the rights used. • Membership card income Revenue from the sale of membership cards is deferred and recognised over the period that the benefits of the membership card are expected to be provided. These categories represent all material sources of revenue earned from the provision of global workplace solutions. Employee benefits The majority of the Group’s pension plans are of the defined contribution type. For these plans the Group’s contribution and other paid and unpaid benefits earned by the employees are charged to the income statement as incurred. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Re-measurements, comprising actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets, excluding net interest, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income (OCI) 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’, ‘selling, general and administration expenses’ and ‘research and development expenses’ in the consolidated income statement: service costs comprising current service costs; past service costs; and gains and losses on curtailments and non-routine settlements. Settlements of defined benefit schemes are recognised in the period in which the settlement occurs. Share-based payments The share option programme entitles certain employees and Directors to acquire shares of the ultimate parent company; these awards are granted by the ultimate parent and are equity settled. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes valuation model or the Monte Carlo method, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. Options under the Co-investment Plan (CIP) are granted by the Company to certain employees and are equity settled. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at grant date and spread over the period during which the employees become unconditionally entitled to payment. The fair value of the share appreciation rights is measured based on the Monte Carlo valuation model, taking into account the terms and conditions upon which the instruments were granted.
74 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 74 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
75 75 sts, sts, net crease tely as late to ceed d and nding the the nding g purposes g purposes the balance balance the (note 8). 8). (note ented in in ented ast namortised l recognition. l recognition. ent tax ent ligation. rrying value mption value the effective effective the will be available prepayment mbination; and current tax fit or loss are stated ion costs. inancial assets or or assets inancial r held for trading or is or trading for r held abilities for financial reportin nancing transaction costs that re transaction nancing vestments, available-for-sale f available-for-sale vestments, ary differences are not provided for: the initial recognition of goodwill; rrying amountsof assets andli ement accruals on an basis. Fi nt that it nt that exte the to except statement income in the recognised is Tax purchased sharesare classified as treasury sharesand are pres outflow ofeconomic benefitswill be required to settle the ob of the borrowings on an effective interest rate method. ither accounting nor taxable profit other than in a business co ilities, liab and pected mannerof assets of realisation amount or carrying settlementthe of yableof previous years. in respect nse or finance income as appropriate. as appropriate. income finance or nse lossrecognised in theincome statement. the initial recognitionof assetsand liabilities thataffect ne andtheamounts used for taxation purposes. Thefollowing tempor relates to items recognised directly in equity, in which case it is recognised in equity. in equity. it is recognised case in which in equity, directly recognised items to relates Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at sheet date, and any adjustment to taxpa Deferred taxprovidedon is temporary differences between the ca differences relating toinvestments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Theamount of deferred taxon providedtheex is based earnings. retained within is presented transaction on the or deficit surplus resulting the and in equity the treasury share reserve. When treasury shares are sold or re-issued subsequently, the amount received is recognised as an in an as recognised is received amount the subsequently, re-issued or sold are shares treasury When reserve. share treasury the items. non-recurring on initia is determined and assets financial of the purpose and nature on the depends classification The and receivables. loans ofit pr or loss, held-to-maturity in through value at fair either classified are assets Financial Significant, infrequent transactions not indicative of the underlying performance of the consolidated Group are reported separa reported are Group consolidated the of performance underlying the of indicative not transactions infrequent Significant, assets Financial Non-recurring items items Non-recurring Interest bearing borrowings and other financial liabilities liabilities financial other and Interest bearing borrowings transact attributable less value fair at initially recognised are borrowings, bearing interest including liabilities, Financial of any taxeffects, is recognised as a deductionequity.from Re expenses Net finance Interest charges and income are accounted for in the income stat rede and cost between difference any with cost at amortised stated are liabilities financial recognition, initial to Subsequent period the over statement income in the recognised being expired. or cancelled discharged, are obligations Group’s the when liabilities financial derecognises Group The is eithe liability the where loss or profit through value at fair liabilities as financial classified are liabilities Financial designated as held at fair value through profit or loss on initial recognition. Financial liabilities at fair value through pro or gain resultant any with value fair at Equity instruments issued by the Group are recorded at the value of proceeds received, net of direct issue costs. costs. issue of direct net received, proceeds of value at the recorded are Group by the issued instruments Equity co attributable directly includes which paid, consideration the of amount the repurchased, are equity as recognised shares When Equity Equity Provisions Provisions of a p as a result obligation or constructive legal a present has Group the when sheet balance in the is recognised A provision Taxon the profitfor the year comprises currentand deferred tax. event that can be estimated reliably, and it is probable that an ca the within recognised are and method rate interest effective the using expense interest to charged are liabilities financial a as recognised are facilities credit of arrangement the for paid Fees sheet. balance the on liability financial related the of u relevant the drawn being of a facility event the In facility. of the term the over expense finance the through and recognised using expense interest the to charged and liability financial the of value carrying the within recognised is fee the of portion interest rate method. unwi to due amount in the increase the value, present at net carried are sheet balance Group the on liabilities or assets Where expe as finance a is recognised discount costs finance other in included are losses or gains exchange foreign and of credit and letters bank guarantees on arising Costs 2. Accounting policies (continued) policies Accounting 2. Taxation
against which the asset can be utilised. utilised. can be asset the which against against assets tax current off to set right enforceable is a legally there when offset are liabilities and assets tax Deferred liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its curr assetsliabilities and on a net basis. using tax rates enacted or substantively enacted at the reporting date. A deferred taxasset isrecognised forall unusedtax losses only to theextent that itis probable thatfuture taxableprofits Restructuring provisions are made for direct expenditures of a business reorganisationwhere theplans are sufficiently detaile well advanced and where the appropriate communication to those affected has been undertaken at the reporting date. date. reporting the at undertaken been has affected those to communication appropriate the where and advanced well ex a contract under obligations the of meeting costs unavoidable the that extent to the contracts onerous for is made Provision of capital. cost average weighted an appropriate using discounted be delivered, to expected benefits economic the re
as
d ement, on which on which ue of the lue of the is due
oss in in oss ulated uding uding her paid recognised d earnings d earnings on plan on plan ch and ch and ilments. fits offits the membership a card 50 years 50 years 10 years 10 years 5 years 35 – years debit or credit to retaine to or credit debit ed to the options. The fair va asset. The asset. Group recognisese th following ments are not reclassified to profit or l spread on a straight-line basis over the length of the ed over the period that the bene the period ed over that the or for other services provided during the period of the agre ised as services are rendered. In circumstances where IWG acts acts IWG where In circumstances rendered. are services as ised del or the Monte Carlo method, taking into account the terms an terms the account into taking method, Carlo Monte or the del ees become unconditionally entitl ees become unconditionally entitled to payment. The fairof value the ct of theasset ceiling,excluding net interest and thereturn balance sheet with a corresponding ent and past service costs as well as gains and losses on curta as well as and losses gains costs ent and past service e net defined benefit liability or in the period in which the settlement occurs. occurs. settlement the in which period the in e charged to the income statement asincurred. the period in which theyoccur. Re-measure come statement: servicecosts comprising currentservice costs; past servicecosts; useful life of the assets as follows:
s e ods are granted to customers, rental income is rental income to customers, ods are granted e f e
s i e e h m m c o o n c c a r n n i f i d d e r c n i a v
a c r t s p e n n i e s o h i r s t m e r a e e t m g s b o a k t r m n s o a e u Service income (including the rental of meeting rooms) is recogn as revenue. is recognised earned fee commission the only to customers, of goods purchase and sale the for an agent M W Workstation revenue is recognised when the provision of the service is rendered. Amounts invoiced in advance are accounted for for accounted are in advance invoiced Amounts is rendered. service of the provision the when is recognised revenue Workstation as deferred income and recognised as revenue upon provision of the service. C Revenue from the sale of membership cards is deferred and recognis expected to be provided. Fees received for the provision of initial and subsequent services are recognised as revenue as the services are rendered. Fees rendered. are services the as revenue as recognised are services subsequent and initial of provision the for received Fees agreement, by the granted rights of continuing use the for charged used. rights the or provided are services the as revenue as recognised are M 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL
on a straight-line basis over the estimated estimated the over basis a on straight-line • Share-based payments payments Share-based are rds awa these company; parent ultimate of the shares acquire to Directors and employees certain entitles programme option share The settled. equity are and parent ultimate by the granted is measured value fair The in equity. increase a corresponding with expense employee as an recognised is granted options of value fair The employ the which during period the over spread and date at grant mo valuation Black-Scholes the using is measured granted options were granted. options the which upon conditions forfeiture where except vest that options of share number actual the to reflect is adjusted as an expense recognised amount The vesting. for threshold the achieving not prices share to only val fair The settled. equity are and employees certain to Company the by granted are (CIP) Plan Co-investment the under Options initially is value fair The in equity. increase a with corresponding as an expense is recognised employee to the payable amount employ the which during period the over spread and date at grant up conditions and terms the account into taking model, valuation Carlo Monte the on based measured is rights appreciation share the instruments were granted. 74 Notes to the accounts continued accounts to the Notes (continued) policies Accounting 2. equipment and plant Property, depreciation and any impairment accumulated in less at value.cost Depreciation is stated is equipment calc and plant Property, Buildings Leasehold improvements Furniture telephones and equipment Office hardware Computer Revenue Revenue from the provision of services to customers is measuredat the fair value of consideration received or receivable (excl sales taxes). Where rent-free peri contract. customer • benefits Employee ot and contribution Group’s the plans these For type. contribution defined of the are plans pension Group’s of the majority The and unpaid benefits earned by the employees ar method. credit unit projected the using is determined plan benefit defined the under benefits providing of cost The Re-measurements,actuarial comprising andlosses, gains the effe assets, excluding net interest, are recognised immediately in the Netinterest is calculatedbyapplying thediscount rate to th changes in the net defined benefit obligation under ‘cost of sales’, ‘selling, general and administration expenses’ and ‘resear in consolidated in the expenses’ development andgainslosses and on curtailments and non-routine settlements. Settlements of defined benefit schemes are recognised • These categories represent all material sources of revenue earned from the provision of global workplace solutions. • through other comprehensive income (OCI) in periods. subsequent Service costs are recognised in profit or loss, and include curr Notes to the accounts continued
2. Accounting policies (continued) Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income, are recognised in profit or loss. Held-to-maturity financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised costs using the effective interest rate method. Available-for-sale financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognised in OCI and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is reclassified to profit or loss. Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest rate method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when recognition would be immaterial. Customer deposits Deposits received from customers against non-performance of the contract are held on the balance sheet as a current liability until they are returned to the customer at the end of their relationship with the Group. Foreign currency transactions and foreign operations Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the closing rate of exchange at the balance sheet date and the gains or losses on translation are taken to the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The results and cash flows of foreign operations are translated using the average rate for the period. Assets and liabilities, including goodwill and fair value adjustments, of foreign operations are translated using the closing rate, with all exchange differences arising on consolidation being recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. Exchange differences are released to the income statement on disposal. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and are subject to an insignificant risk of changes in value. Derivative financial instruments The Group’s policy on the use of derivative financial instruments can be found in note 23. Derivative financial instruments are measured initially at fair value and changes in the fair value are recognised through profit or loss unless the derivative financial instrument has been designated as a cash flow hedge whereby the effective portion of changes in the fair value are deferred in equity. Foreign currency translation rates At 31 December Annual average 2016 2015 2016 2015 US dollar 1.24 1.48 1.35 1.53 Euro 1.17 1.36 1.22 1.38 Japanese yen 145 179 147 185
3. Segmental analysis – statutory basis An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including those that relate to transactions with other operating segments. An operating segment’s results are reviewed regularly by the chief operating decision maker (the Board of Directors of the Group) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The business is run on a worldwide basis but managed through four principal geographical segments: Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; and the United Kingdom. These geographical segments exclude the Group’s non-trading, holding and corporate management companies. The results of business centres in each of these regions form the basis for reporting geographical results to the chief operating decision maker. All reportable segments are involved in the provision of global workplace solutions. The Group’s reportable segments operate in different markets and are managed separately because of the different economic characteristics that exist in each of those markets. Each reportable segment has its own discrete senior management team responsible for the performance of the segment. The accounting policies of the operating segments are the same as those described in the Annual Report and Accounts for the Group for the year ended 31 December 2015. The performance of each segment is assessed on the basis of the segment operating profit, which excludes internal revenue, corporate overheads and foreign exchange gains and losses arising on transactions with other operating segments.
76 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 76 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
(1) 77 77 £m 2.5 0.3 1.5 0.5 (3.5) 49.2 2015 (25.8)
427.2 238.8 143.2 300.8 assets 1,927.0 1,928.5 2,918.9 (2,869.7) ns, ns, Total Total Non-current attributed attributed £m 1.1 0.1 (0.8) (2.9) 2016 (34.9) 287.4 446.4 267.6 192.0 ucts. Revenue Revenue ucts. (123.2) 2015 3,581.0 2,233.4 2,234.5 6.2 (3,704.2) 636.3449.2835.3 720.5 282.2 646.4 – – – – – External External revenue 1,927.0 1,651.6 £m 1.7 1.7 1.5 2.9 2.9 2.9 4.9 (6.9) (6.9) (0.2) (0.2) (0.2) (0.2) 2015 (12.0) (12.0)
– – – – – (1) £m 1.5 1.4 8.3 8.3 5.9 5.9 segments segments (0.1) 2016 14.5 14.5 (13.3) (13.3) (15.3) 930.0 930.0 347.1 738.2 assets All other operating operating other All 2,029.8 2,029.8 – Non-current Non-current £m 1.2 (0.8) (0.8) (1.6) (2.6) 30.3 30.3 46.6 84.6 25.2 2015 842.1 449.2 450.4 107.7 (811.8) 2016 25.1 – 766.6 462.1 979.6 £m 1.0 revenue (0.1) (0.9) (1.0) External External 2,233.4 86.3 37.9 92.7 29.3 2016 837.4 462.1 463.1 110.4 (751.1) – – – £m (6.4) (1.3) (3.5) 58.9 58.2 26.0 19.0 2015 321.4 289.1 289.1 (327.8) – – – £m (1.5) (2.9) Asia Pacific Asia Pacific Kingdom United 38.5 67.5 36.8 26.3 2016 (55.6) 390.4 363.2 363.2 (446.0) tedfrom services related to theprovision ofworkplace solutio er contributes a material percentage of the Group’s revenue. assets analysed by foreign country is as follows: £m 1.1 0.3 0.5 (0.4) (3.6) aningfulto separate this group intofurther categories prodof 90.5 21.9 48.4 40.5 2015 406.6 406.9 506.6 (611.9) (105.3) EMEA £m 0.1 0.1 (0.7) (0.3) (1.8) 28.6 47.6 48.4 2016 603.1 476.8 476.9 101.6 (761.6) (158.5) – – – £m (9.2) (9.2) (0.2) (0.2) 99.7 99.7 72.2 2015 129.1 129.1 779.2 779.2 779.2 171.0 146.9 146.9 1,247.1 1,247.1 (1,118.0) (1,118.0) – – – £m 3.2 (0.2) 2016 (13.9) (13.9) 101.9 101.9 923.0 923.0 923.0 161.0 103.0 163.4 1,748.6 1,748.6 (1,745.4) (1,745.4)
Americas Excluding deferredtax assets.
oint ventures oint ventures Assets Finance expense Finance expense Finance income Finance income Segment revenues Depreciation and amortisation Liabilities
1. Country of tax domicile – Switzerland (2015: Luxembourg) Luxembourg) (2015: Switzerland – of tax domicile Country America of States United including fees earned from franchise agreements and commissions earned from the sale of outsourced workplace solution products. solution workplace of outsourced sale the from earned commissions and agreements franchise from earned fees including Revenuefrom internal customers is determined by reference tocurrentmarket prices. disclosures – entity-wide analysis 4. Segmental is revenue all therefore solutions, workplace global of provision is the segment business only and activity primary Group’s The to a single group of similar products and services. It is not me Revenue in the “All other operating segments” category is genera category operating segments” other “All in the Revenue Non-current asset additions j Gross profit contribution) (centre Revenues Revenues from customers external Revenues from customers internal 3.Segmental analysis statutory– basis (continued)
£m United Kingdom All other countries Net assets/(liabilities) Reportable segment profit (before joint venture) of (loss)/profit Share of Taxation expense is recognised where the service is provided. provided. is service the where recognised is custom single no and base diversified customer has a Group The The Group’s revenuefrom externalcustomers and non-current 185 1.53 1.38 2015
t and up sible orporate s to the the s to erial. . Interest . Interest on debt debt on ntil they d oss oss loans and orical cost in ts and her he gains or operations dividend foreign 147 147 trument has been 1.35 1.35 1.22 bsequent to initial initial to bsequent 2016 Annual average Annual average a current liability u liability current a 179 179 1.48 1.48 1.36 2015 cisions about resources to be to resources about cisions g segment’s results are reviewe e basis of the segment operating profit, operating profit, segment of e basis the 145 1.24 1.17 2016 At 31 December At 31 December from which it may earnit mayfrom revenues which and incur principal geographical segments:Europe,Middle Americas;Eas exchange gains and losses arising on transactions with other other with on transactions arising and losses gains exchange these regions formthese basisthe regions reportingfor geographical result using theeffective interest ratemethod, less any impairment ctors of the Group) to make de make to Group) of the ctors the closing rate of exchange at the balance sheet date and t and date sheet balance at the exchange of rate closing the exchange ruling at the date of the transaction. Monetary asse Monetary transaction. of at ruling the date the exchange n, otherthan impairmentlosses and foreign currency differences ge differences arising on consolidation being recognised in ot in recognised being consolidation on arising differences ge cept forcept short-term receivableswhen recognition beimmat would r operating segments. An operatin r operating segments. with the Group. Group. the with ormance of each segment is assessed on th is assessed each segment of ormance n-performance of the contract are held theon balance sheet as Group thatengages in business activities of their relationship e markets. Each reportable segment has its own discrete senior management team respon ns and operations foreign 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL regularly by the chief operating decision maker (the Board of Dire available. is information financial discrete which and for performance, its assess and segment the to allocated The business is run on a worldwide basis but managed through four instruments, are recognised in OCI and accumulated in the fair value reserve. When these assets are derecognised, the gain or l gain the are derecognised, assets these When reserve. value fair the in accumulated and in OCI recognised are instruments, accumulated in equity is reclassified to profit or loss. as classified are market active an in quoted not are that payments or determinable fixed have that receivables other and Trade receivables. Loans and receivables are measured at amortised cost income is recognised by applying the effective interest rate, ex c and holding non-trading, Group’s the exclude segments geographical These Kingdom. United the and Pacific; Asia (EMEA); Africa management companies. The results of business centres in each of Euro Japanese yen 3. Segmental analysis – statutory basis An operatingsegmentof is thea component expenses,including those that relate to transactions withothe 76 Notes to the accounts continued accounts to the Notes (continued) policies Accounting 2. or interest any including therein, changes and value fair at measured are or loss profit through value fair at assets Financial or loss. in profit recognised are income, initial to equent Subs costs. transaction attributable directly any plus value at fair recognised initially are assets financial Held-to-maturity method. rate interest effective the using costs amortised at measured are they recognition, Su costs. transaction attributable directly any plus value at fair recognised initially are assets financial Available-for-sale therei changes and value fair at measured are they recognition, deposits Customer Deposits received from customers against no transactio Foreign currency Transactions foreign in currencies are recordedrate theusing of liabilities denominated in foreign currencies are translated using of hist in terms measured are that liabilities and assets Non-monetary statement. income the to taken are on translation losses a foreign currency are translated using the exchange rate at thedate of the transaction. The results and cash flows of foreign equivalents cash and Cash value. in changes of risk insignificant an to subject are and hand in and bank at cash comprise equivalents cash and Cash instruments financial Derivative The Group’s policy on the use of derivative financial instruments can be found in note 23. Derivative financial instruments are measured translation rates Foreign currency US dollar chief operating decision maker. All reportable segments are involved in the provision of global workplace solutions. solutions. workplace of global provision in the involved are segments reportable All maker. decision operating chief economic different the of because separately managed are and markets different in operate segments reportable Group’s The of each in exist thos that characteristics which excludes internal revenue, corporate overheads and foreign operating segments. arereturned to thecustomer at theend ins financial derivative the unless loss or profit through recognised are value fair the in changes and value fair at initially in equity. deferred are value fair in the of changes portion effective the whereby hedge flow as a cash designated are translated using the average rate for the period. Assets and liabilities, including goodwill and fair value adjustments, of adjustments, value fair and goodwill including and liabilities, Assets period. the for rate average the using translated are exchan all with rate, closing the using translated are operations comprehensive income, and presented in the foreign currency reservetranslation in equity. Exchange differences are released to the incomeon statement disposal. for the performance of the segment. segment. of the performance the for Gro the for and Accounts Report Annual in the described those as same the are segments operating of the policies accounting The perf The 2015. 31 December ended year for the Notes to the accounts continued
4. Segmental analysis – entity-wide disclosures (continued) 2016 Operating Share of Gross profit profit joint Depreciation (centre before joint venture Operating Finance Finance and Profit £m Revenue contribution) venture loss profit expense income amortisation before tax Reportable segment results 2,234.5 446.4 267.6 (0.8) 266.8 (2.9) 0.1 192.0 264.0 Exclude: Internal revenue (1.1) (1.1) – – – – – – – Corporate overheads – 3.5 (80.6) – (80.6) (13.3) – 2.5 (93.9) Foreign exchange gains and losses – – – – – 4.6 – – 4.6 Non–recurring items – – (1.0) – (1.0) – – – (1.0) Published Group total 2,233.4 448.8 186.0 (0.8) 185.2 (11.6) 0.1 194.5 173.7
2015 Operating Share of Gross profit profit joint Depreciation (centre before joint venture Operating Finance Finance and Profit £m Revenue contribution) venture profit profit expense income amortisation before tax Reportable segment results 1,928.5 427.2 238.8 0.3 239.1 (3.5) 0.5 143.2 236.1 Exclude: Internal revenue (1.5) (1.5) – – – – – – – Corporate overheads – 2.7 (94.3) – (94.3) (12.5) 0.1 2.0 (106.7) Foreign exchange gains and losses – – – – – 1.0 – – 1.0 Non–recurring items – – 15.3 – 15.3 – – – 15.3 Published Group total 1,927.0 428.4 159.8 0.3 160.1 (15.0) 0.6 145.2 145.7
2016 Net assets/ £m Assets Liabilities (liabilities) Reportable segment results 3,581.0 (3,704.2) (123.2) Exclude: Segmental inter-company amounts (1,035.9) 1,989.6 953.7 Corporate overhead assets and liabilities (excluding amounts due to/from reportable segments): Cash 21.4 – 21.4 Deferred taxation 17.0 – 17.0 Bank and other loans – (184.7) (184.7) Other 77.6 (19.8) 57.8 Published Group total 2,661.1 (1,919.1) 742.0
2015 Net assets/ £m Assets Liabilities (liabilities) Reportable segment results 2,918.9 (2,869.7) 49.2 Exclude: Segmental inter-company amounts (726.0) 1,429.3 703.3 Corporate overhead assets and liabilities (excluding amounts due to/from reportable segments): Cash 29.8 – 29.8 Deferred taxation 24.3 – 24.3 Bank and other loans – (234.4) (234.4) Other 80.6 (69.1) 11.5 Published Group total 2,327.6 (1,743.9) 583.7
78 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 78 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – – – 79 79 £m £m £m £m 1.0 2.9 0.8 6.5 4.0 0.9 (0.3) (1.2) (4.6) (3.2) (1.2) (2.8) 58.7 84.0 10.3 49.6 59.9 21.3 21.3 15.3 11.0 38.4 2015 2015 2015 2015 (35.6) 134.2 657.5 356.4 – – – – £m £m £m £m 5.5 3.3 1.4 0.4 2.5 4.5 1.4 0.5 6.4 1.0 3.4 0.9 (0.9) (2.2) (2.2) (1.3) (1.0) (0.9) (3.1) 12.7 10.3 36.7 2016 2016 2016 2016 (50.2) 181.8 822.3 335.6
4 7 14 1 13 23 Notes ase fair value adjustments adjustments value fair ase , plant and equipment and plant , y able to the Group’s auditor Group’s the to able accounts Group the of audit the for associates its and y Other services services Other Tax services services Tax The audit of the Company’s subsidiaries pursuant to legislation legislation to pursuant subsidiaries the Company’s of The audit Property Property Contingent paid rents Equipment Equipment Other services pursuant to legislation: legislation: to pursuant services Other Impairment equipment property, of plant and contributions Amortisation of partner Amortisation of acquired le Staff costs Staff costs Competition & Markets Authority investigation sale held for Liabilities Loss/(profit) on disposal ofLoss/(profit) property, plant and equipment disposal on Rents payable in respect of operating leases leases operating of respect in Rents payable items non-recurring on (Loss)/profit
Net assets held for sale Proceeds on disposal Trade and other payables payables other and Trade Liabilities Liabilities Assets Assets Goodwill (note 12) Disposal of assets held for sale sale for held of assets Disposal The followingmajor classes of assets andliabilities were disposedof as partof theassets heldfor sale: Disposal of assets held for sale for sale held Disposal of assets settlement litigation from Proceeds 6. Non-recurring items Fees pa Fees services: other for associates its and auditor Group’s the to payable Fees
Amortisation of intangibles Depreciation propert on 5. Operating profit Operating profit has been arrived at after charging/(crediting):
Disposal related costs costs related Disposal disposal on (Loss)/profit California class action action California class Trade receivablesother and Property, equipment plant and sale for held Assets Provision for bad debts debts Provision bad for – 4.6 57.8 17.0 21.4 Profit Profit 742.0 953.7 264.0 173.7 (184.7) before tax before (liabilities) before tax before Net assets/ assets/ Net Net assets/ (liabilities)
– – 2.5 (93.9) and and 192.0 192.0 194.5 194.5 (19.8) (19.8) (184.7) (184.7) (1,919.1) (1,919.1) (3,704.2) (3,704.2) (123.2) Liabilities Liabilities 2015 2016 amortisation amortisation Depreciation Depreciation amortisation amortisation Depreciation Depreciation – – (1.0) – – – – 1.0 – – – – – – – – – – 15.3
0.1 – – (234.4) (234.4) income income income Finance Finance Finance 29.8 29.8 29.8 – 24.3 24.3 – 80.6 11.5 (69.1) 17.0 17.0 77.6 21.4 Assets Liabilities Liabilities Assets Assets Assets (726.0) (726.0) 1,429.3 703.3 2,918.9 (2,869.7) (2,869.7) 2,918.9 49.2 (1,743.9) 2,327.6 583.7 2,661.1 2,661.1 3,581.0 3,581.0 (1,035.9) (1,035.9) 1,989.6 – – – – 4.6 (2.9) Finance Finance Finance expense expense – 1.0 – – – 2016 2015 (1.0) profit profit (80.6) (13.3) 266.8 185.2 (11.6) 0.1 Operating Operating Operating – – – – – – – 15.3 loss (0.8) (0.8) joint joint joint joint profit venture venture venture venture Share of Share of Share of – – profit profit 267.6 venture venture Operating Operating Operating before joint joint before before joint joint before – (1.0) – 3.5 (80.6) (centre (centre (centre (centre Gross profit Gross profit Gross profit profit Gross contribution) contribution) contribution) contribution) – – 2.7 (94.3) – (94.3) (12.5) 0.1 2.0 (106.7) – – – – – – (1.1) (1.1)
1,927.0 1,927.0 159.8 428.4 0.3 160.1 (15.0)145.7 145.2 0.6 1,928.5 1,928.5 238.8 427.2 0.3 239.1 (3.5)236.1 143.2 0.5 2,234.5 2,234.5 446.4 2,233.4 2,233.4 448.8 186.0 Revenue
2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Published Group total Non–recurring items Non–recurring – Published Group total – 15.3 £m Non–recurring items amounts inter-company Segmental Exclude: segments): reportable to/from due amounts (excluding liabilities and assets overhead Corporate Cash Deferred taxation Bank and other loans Other Reportablesegment results amounts inter-company Segmental Exclude: segments): reportable to/from due amounts (excluding liabilities and assets overhead Corporate Cash Deferred taxation Bank and other loans Other Published Group total 78 Notes to the accounts continued accounts to the Notes (continued) disclosures – entity-wide analysis 4. Segmental segment Reportable results revenue Internal Exclude: segment Reportable results Exclude: revenue Internal Corporate overheads gains exchange Foreign (1.5) and losses (1.5) – Reportablesegment results £m £m £m Revenue £m Revenue Published Group total Corporate overheads overheads Corporate gains exchange Foreign and losses Notes to the accounts continued
6. Non-recurring items (continued) During 2016 the Group disposed of specific assets and liabilities acquired as part of the Avanta Services Offices Group plc acquisition in accordance with the agreed settlement with the United Kingdom Competition & Markets Authority for a consideration of £3.3m. During 2014 the Group completed a project to dispose of the assets and liabilities of specific non-core operations to release the related capital originally invested in these operations. The sale of these assets and liabilities, which were previously classified as assets held for sale, completed during February 2015 for a consideration of £84.0m and a non-recurring profit of £21.3m after expenses. Proceeds from litigation settlement A settlement agreement between former shareholders and directors of a company acquired by the Group was reached during 2016. This settlement entitled IWG to a share of the reparations agreed, with £2.5m received during the year. California class action During 2015 a class action was filed against the Group alleging a breach of labour regulations in California. While the outcome of this legal action remains uncertain, the Group has provided for an additional £1.3m in respect of any potential settlement and related legal costs. Competition & Markets Authority investigation The United Kingdom Competition & Markets Authority initiated an inquiry into competition in the serviced offices industry after the Group acquired Avanta Serviced Offices Group plc during 2015. This inquiry was completed in early 2016. During 2015 the Group provided for £2.8m in respect of related legal costs. 7. Staff costs 2016 2015 £m £m The aggregate payroll costs were as follows: Wages and salaries 282.2 302.5 Social security 45.6 46.5 Pension costs 5.4 5.2 Share-based payments 2.4 2.2 335.6 356.4
2016 2015 Average Average full time full time equivalents equivalents The average number of persons employed by the Group (including Executive Directors), analysed by category and geography, was as follows: Centre staff 6,551 6,842 Sales and marketing staff 425 467 Finance staff 768 778 Other staff 864 1,203 8,608 9,290
Americas 2,802 3,064 EMEA 2,044 2,107 Asia Pacific 1,746 1,832 United Kingdom 907 996 Corporate functions 1,109 1,291 8,608 9,290
Details of Directors’ emoluments and interests are given on pages 50 to 60 in the Remuneration Report, with audited schedules identified where relevant.
80 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 80 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – 81 % 81 £m £m 5.6 0.2 3.2 0.6 0.6 (3.0) (3.5) (1.1) (1.2) (9.5) (9.5) (3.9) (1.6) 11.2 2015 2015 (15.0) (14.4) (18.1) (24.6) (11.3) (25.8) e – – 2015 £m £m £m 8.2 0.3 4.6 1.5 4.4 1.4 0.4 0.1 0.1 (4.6) (3.2) (8.6) (5.9) (7.4) (7.4) (3.3) (0.9) 40.2 27.6 2016 2016 (42.6) (29.2) (23.3) (16.0) (25.8) (17.7) (30.4) (24.5) (12.2) (10.4) (34.9) (11.6) (11.5) 145.7
– % 1.7 2.7 19.5 19.5 35.1 (14.6) (14.6) (15.3) (49.2) (20.1) – 2016 £m 2.9 4.8 33.8 61.0 (25.4) (26.5) (85.5) (34.9) 173.7 ogniseddeferred assets tax ding foreign exchange) foreign ding Over/(under) provision in respect of prior years years prior of respect in provision Over/(under) taxation current Total taxation deferred Total Movementsin temporary differences in therecognised year not deferred in tax Differences in tax rates on overseas earnings earnings overseas on rates tax in Differences Previously unrecognised tax losses and other differences differences other and losses tax unrecognised Previously differences other and losses tax unrecognised Previously Adjustment to tax charge of respect Adjustment previoustax to years in Items not chargeable for tax purposes purposes tax for chargeable Items not Unwinding of discount rates Unwinding of discount Total finance expense
Non-recurring items not chargeable for tax purposes purposes tax for chargeable not items Non-recurring Total interest expense Total interest expense income finance Total Recognition unrec of previously Expenses not deductiblefor tax purposes The applicable tax rate is determined based on the tax rate in the canton of Zug in Switzerland (2015: Luxembourg) which was th was which Luxembourg) (2015: Switzerland in Zug of canton the in rate tax the on based determined is rate tax applicable The Tax on profit at 14.6% (2015: 29.22%) 29.22%) (2015: 14.6% at profit on Tax Tax effects of: Profit before tax Tax charge on profit profit on charge Tax charge taxation of (b) Reconciliation statutory tax rate applicableinthe countryof domicileof the parent companyof theGroup for the financial year. Origination and reversal temporary of differences Deferredtaxation Current taxation taxation Current tax Corporate income 9. Taxation year in the of charge Analysis (a) Net finance expense expense Net finance Total interest income income Total interest rates Unwinding of discount Other finance costs (inclu costs finance Other Interest payable and similar charges on bank loans and corporate borrowings borrowings corporate and loans bank on charges similar and payable Interest leases finance on charges similar and payable Interest 8. Net finance expense expense 8. Net finance
Over/ (under) provision in respect in Over/ (under) prior years of provision £m 5.2 2.2 is 996 467 778 46.5 2015 2015 1,291 9,290 302.5 356.4 6,842 9,290 3,064 2,107 1,832 1,203 Average full time time full dentified equivalents the Group the al costs. uisition he related
£m assets held for 5.4 2.4 425 425 768 768 864 907 45.6 45.6 2016 2016 1,109 8,608 282.2 282.2 335.6 6,551 8,608 2,802 2,044 1,746 Average full time full time equivalents equivalents
During 2015 the Group provided for provided Group the During 2015 rring profit of £21.3m after expenses. expenses. after rring profit of £21.3m acquired as part of the Avanta Services Offices Group plc acq quiry was completed in early 2016. in was completed quiry ons withagreed, £2.5m received during the year. by the Group was reached during 2016. Th 2016. during reached was Group by the acquired of a company directors and olders consideration of £84.0m and a non-recu and £84.0m of consideration sts are given on pages 50 to 60 in the Remuneration Report, with audited schedules i schedules with audited Report, 50 on pages Remuneration sts are to 60 in the given 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Corporate functions functions Corporate settlement entitled IWG to a share of the reparati of the a to share IWG entitled settlement Details of Directors’ emoluments and intere relevant. where 80 Notes to the accounts continued accounts to the Notes 6. Non-recurring items (continued) Group the 2016 During disposedof specific assets andliabilities of £3.3m. a consideration for Authority & Markets Competition Kingdom United the with settlement agreed the with in accordance t release to operations non-core specific of liabilities and assets the of dispose to project a completed Group the 2014 During as classified previously were which liabilities, and assets of these sale The operations. in these invested originally capital for 2015 February during a sale, completed settlement litigation Proceeds from A settlementagreement between formershareh action California class of legal this outcome the While in California. regulations of labour a breach alleging Group the against filed was action a 2015 class During action remains uncertain, the Group has provided for an additional £1.3m in respect of any potential settlement and related leg investigation Authority Markets & Competition after industry offices serviced in the competition into inquiry an initiated Authority & Markets Competition Kingdom United The in This 2015. Group plc Offices during Serviced acquired Avanta in£2.8mrespect of relatedcosts. legal costs Staff 7. follows: as were costs payroll aggregate The Wages and salaries Social security Pension costs Share-based payments category by analysed Directors), Executive (including Group the by employed persons of number average The geography,and follows: was as Centre staff staff Sales and marketing Finance staff Finance staff Other staff Americas EMEA Asia Pacific United Kingdom Notes to the accounts continued
9. Taxation (continued) (c) Factors that may affect the future tax charge Unrecognised tax losses to carry forward against certain future overseas corporation tax liabilities have the following expiration dates: 2016 2015 £m £m 2016 – 3.4 2017 7.3 6.3 2018 8.2 10.1 2019 15.6 18.9 2020 57.2 45.3 2021 37.8 8.8 2022 18.8 13.8 2023 21.7 12.2 2024 and later 92.4 41.8 259.0 160.6 Available indefinitely 453.9 226.6 Tax losses available to carry forward 712.9 387.2 Amount of tax losses recognised in deferred tax assets 131.2 113.4 Total tax losses available to carry forward 844.1 500.6
The following deferred tax assets have not been recognised due to uncertainties over recoverability. 2016 2015 £m £m Intangibles 22.0 26.7 Accelerated capital allowances 24.5 19.4 Tax losses 187.7 101.2 Rent 11.3 9.2 Short-term temporary differences 8.2 8.2 253.7 164.7
Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each reporting period. (d) Corporation tax 2016 2015 £m £m Corporation tax payable (17.7) (14.0) Corporation tax receivable 34.8 17.9
82 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 82 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – 83 83 £m 0.5 0.4 0.2 2.2 0.3 (9.9) (1.6) (0.9) (0.2) (2.4) Total 36.4 29.3 here – – (1.8) £m 0.2 0.1 1.7 0.5 2.6 0.5 (0.8) (0.5) (1.0) (2.1) (2.2) temporary temporary Short-term differences differences
– – – – – – – (0.9) 0.7 £m 0.4 (0.2) 0.6 0.3 (1.5) (2.2) 0.2 (0.3) 0.2 9.6 9.9 (0.4) (0.2) (0.2) Rent Rent 50.5 50.5 69.8 – £m 0.7 1.3 0.2 0.3 2.4 3.9 1.9 (0.1) (3.2) (0.3) 32.0 34.3 Tax losses Tax losses £m 0.4 (0.8) (0.4) 0.2 (0.6) 1.6 0.1 0.2 (1.5) (1.9) (0.1) (3.2) (4.4) (1.3) (0.1) (0.7) (14.0) (20.5) Property, Property, plant and plant equipment equipment etof deferred assets tax deferredliabilities and tax where t fits pro taxable forecast are there that basis on the x liabilities – (0.4) 0.8 – – – – – – (5.6) 4.0 (0.2) – – (1.0) 1.1 .0) (9.7) (3.3) 3.5 11.4 (0.1) £m 0.2 (1.4) 0.1 (0.1) 1.7 0.3 (2 (0.2) (1.1) 0.3 (3.2) (0.1) (0.9) 2.2 (0.3) (2.3) (0.1) (0.3) (0.4) (4.0) (34.4) 11.4 31.4 36.7 (5.1) 40.0 (39.6) (11.5) (54.8) Intangibles Intangibles e reserves would be non-creditable withholding tax. temporary differences consist predominantly of provisions deductible when paid. Exchange movement 2016 January 1 At Transfers Exchange movement 2016 December 31 At 2016 December 31 At Prior year movement year movement Prior year movement Prior Exchange movement in theentities concerned. was £94.1m subsidiaries of overseas earnings unremitted from arising difference temporary the date, sheet balance At the thes on arise would that tax only The £189.9m). (2015: The movementsin deferred taxes included aboveare after theoffs Transfers movement Current year Current year movement movement Current year Deferred liability tax At 1 January 2015 Prior year movement movement year Prior Current year movement movement Current year Deferred tax asset asset tax Deferred 2015 January 1 At The movement in deferred tax is analysed below: movement Current year 9. Taxation (continued) (continued) 9. Taxation taxation Deferred (e)
Prior year movement year movement Prior Transfers At 1 January 2016 At 1 January 2016 Transfers Exchange movement Exchange movement isa legallyenforceable right to setoff and theyrelate toincome taxeslevied bythe same taxation authority. Deferred tax assets recognisedon short-term Deferred tax assets have been recognised in of excess deferred ta £m £m £m 9.2 8.2 3.4 8.8 6.3 26.7 19.4 10.1 18.9 45.3 13.8 12.2 41.8 17.9 2015 2015 2015 (14.0) 101.2 164.7 113.4 160.6 226.6 387.2 500.6 ion dates: h – £m £m £m 8.2 7.3 8.2 22.0 22.0 24.5 11.3 15.6 15.6 57.2 37.8 18.8 21.7 92.4 34.8 34.8 2016 2016 2016 (17.7) (17.7) 187.7 187.7 253.7 131.2 131.2 453.9 453.9 712.9 844.1 259.0
overseas corporation tax liabilities have the following expirat ed in deferred tax assets assets tax deferred ed in 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL (d) Corporation tax tax Corporation (d) Corporation tax payable 82 Notes to the accounts continued accounts to the Notes (continued) 9. Taxation charge future tax may affect the that Factors (c) Unrecognised tax losses to carry forward against certain future 2016 The following deferred tax assets have not been recognised due to uncertainties over recoverability. Intangibles allowances capital Accelerated Tax losses Rent Short-term temporary differences Estimatesrelating to deferred tax assets,including assumptionsaboutfuture profitability, arere-evaluated at theend ofeac reporting period. 2017 2017 2018 2019 2020 2021 2022 2023 later 2024 and indefinitely Available forwardcarry to available losses Tax Amount of tax losses recognis forwardcarry to available losses tax Total Corporation tax receivable Notes to the accounts continued
10. Earnings per ordinary share (basic and diluted) 2016 2015 Profit attributable to equity shareholders of the parent (£m) 138.8 119.9 Weighted average number of shares outstanding during the year 929,830,458 933,457,741 Average market price of one share during the year 283.67p 270.09p Weighted average number of shares under option during the year 26,744,249 33,758,590 Exercise price for shares under option during the year 133.74p 130.10p Profit Earnings per share 2016 2015 2016 2015 £m £m pence pence Basic and diluted profit for the year attributable to shareholders and basic earnings per share 138.8 119.9 14.9 12.8 Diluted earnings per share 14.7 12.6 Basic and diluted profit for the year attributable to shareholders and basic earnings per share (before non-recurring items) 139.8 104.5 15.0 11.2 Diluted earnings per share (before non-recurring items) 14.8 11.0 Weighted average number of shares for basic EPS (number) 929,830,458 933,457,741 Weighted average number of shares under option during the year 26,744,249 33,758,590 Weighted average number of shares that would have been issued at average market price (14,295,963) (18,516,654) Weighted average number of awards under the CIP and LTIP 1,736,399 4,978,357 Weighted average number of shares for diluted EPS (number) 944,015,143 953,678,034
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 significant options considered anti-dilutive at the reporting date. 11. Dividends 2016 2015 Dividends per ordinary share proposed 3.55p 3.10p Interim dividends per ordinary share declared and paid during the year 1.55p 1.40p
Dividends of £43.3m were paid during the year (2015: £38.8m). The Company has proposed to shareholders that a final dividend of 3.55p per share will be paid (2015: 3.10p). Subject to shareholder approval, it is expected that the dividend will be paid on 26 May 2017. 12. Goodwill £m Cost At 1 January 2015 497.2 Recognised on acquisition of subsidiaries 110.6 Exchange differences 4.4 At 31 December 2015 612.2 Recognised on acquisition of subsidiaries(1) 6.8 Disposals (1.3) Transferred to assets held for sale (note 6) (4.5) Exchange differences 72.1 At 31 December 2016 685.3 Net book value At 31 December 2015 612.2 At 31 December 2016 685.3
1. Net of £3.2m derecognised on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis Cash-generating units (CGUs), defined as individual business centres, are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed. Goodwill acquired through business combinations is held at a country level and is subject to impairment reviews based on the cash flows of the CGUs within that country.
84 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 84 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
85 85 £m £m
on cost cost 2015 2015 150.5 240.0 232.9 623.4
5% usiness external count s mature. Group’s Group’s able from the seeable o conclude umptions tries. iness in the the in iness growth growth rate tive to hich have been £m amount £m 35.4 29.9 2016 2016 311.1119.4 260.2 219.4 100.4 685.3 221.7 612.2 286.3 230.6 696.5 179.6 – – – – £m onable long-term onable long-term s and restructurings are that s and restructurings assets assets th rate of 3% (2016: 3%); 3%); of 3% th rate (2016: Intangible Intangible £m 685.3 11.2 179.6 286.3 219.4 11.2 Goodwill WACC reflecting the respective market risk adjustment has reflect an average annual grow annual an average reflect country. The Group pre-tax WACC decreased from 12.7% in 2015 to to in 2015 from 12.7% decreased WACC pre-tax Group The country. . In the event that trading conditions deteriorate beyond the ass the beyond deteriorate conditions trading that event the . In ining 26% of the carrying value is allocated to a further 40 coun 40 a further to allocated is value carrying the of 26% ining using a pre-tax discount rate of 11% (2015: 13%). 13%). (2015: of 11% rate discount pre-tax a using that impairment chargesarise couldin future periods. cated to the USA and the UK are set out below: below: out set are UK and the USA the to cated gross margin of 21% is adopted from 2021, with a 2% long-term growth rate assumed from with a assumed growth rate of is adopted 2021, 2% margin long-term gross 21% nt rate for the Group. Management believes that the projected cash flows a reason are flows cash projected the that believes Management Group. the for nt rate le business segments is as follows: ss margin of 21% is adopted from 2021, with a 2% long-term growth rate assumed on revenue and and from on with a assumed ss growth rate of is adopted 2021, revenue 2% margin long-term 21% Future cash flows areon basedforecasts prepared by management. Themodel excludes cost saving anticipatedbut had not been committed to at thedate of the determinationof the valueinuse. Thereafter, forecastshave been prepared by management for a further four years from 2017 that These forecasts exclude the impact of acquisitive growth expected to take place in future periods; periods; future in place to take expected growth acquisitive of impact the exclude forecasts These Management consider these projections to be a reasonable projection of margins expected at the mid-cycle position. Cash flows flows Cash position. mid-cycle the at expected of margins projection be a reasonable to projections these consider Management a is reas believes management which rate growth 2% a using extrapolated been have 2019 beyond for any of the markets in which the relevant countries operate. A terminal value is included in the assessment, reflecting the the reflecting assessment, in the is included value A terminal operate. countries relevant the in which markets of the any for and businesses; of the nature long-term and the markets in these operate to continue it will that expectation The Group appliesa country specificpre-tax discount rate tothepre-tax cashflowsfor each country. The country specific dis each for adjusted then is WACC Group The Group. the for (WACC) of capital cost average weighted underlying on the based is rate 11.3% in 2016 (post-tax WACC: 9.0%). The country specific pre-tax pre-tax specific country The 9.0%). WACC: (post-tax in 2016 11.3% country to reflect the assessed market risk specific to that that to risk specific market assessed the reflect to country 17.3%). to 12.1% (2015: 14.2% and between 10.7% been set
Asia Pacific business segment business segment Asia Pacific UK business segment UK business segment Other countries Other countries reflection of the likelyoutcomes over the medium to long term e market capitalisation of the Group and prevailing tax rates, w rates, tax factors, prevailing such as and capital Group market of the risk pricing as reflected capitalisation in the market used to determinethe risk adjusted discou used in theprojected cash flows, it isalso possible country: each for use in value calculating in used been have assumptions key following The • value in use of the Group as a whole. Although the model includes budgets and forecasts prepared by management it also reflects also it management by prepared forecasts and budgets includes model the Although as a whole. Group of the use in value year ended 31 December 2006 (see note 13). 13). note (see 2006 December 31 ended year country each for in use value individual the derives which a model using determined has been country each for in use value The The indefinite life intangible asset relates to the brand value arising from the acquisition of the remaining 58% of the UK bus UK the of 58% remaining the of acquisition the from arising value brand the to relates asset intangible life indefinite The USA UK The carrying valueof goodwill and indefinitelife intangibles allocated to two countries, the USA and the UK, is materialrela EMEA business segment segment business EMEA Carrying amount of goodwill included within the: the: within goodwill included of Carrying amount segment business Americas the total carrying value comprising 74%of the total. Therema 12. Goodwill (continued) (continued) 12. Goodwill The goodwillattributable to the reportab
• The goodwilland indefinite life intangibles allo • • revenue and cost into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 14% (2015: 16%). 16%). (2015: 14% of rate discount pre-tax a using discounted been have flows cash The perpetuity. into cost and revenue from annum at per 3% grow costs and Revenue 5 years. next the over of 21% contribution centre average an assumes model UK The gro value centre A terminal 2017. discounted been have cash flows The perpetuity. into centre structure at the end of the year. These models therefore do not reflect the expected improvement in margin as new centre new as margin in improvement expected the reflect not do therefore models These year. the of end at the structure centre at 1. grow costs and at 2.5% grows Revenue years. five next the over of 20% contribution centre average an assumes model US The value centre A terminal 2017. from per annum events are unlikely to result in a change in the projections of such of a significant nature as to result projections in in thethe goodwill in a change carrying result to unlikely are events b related the on based are goodwill of impairment the in assessing used models forecast The amount. recoverable their exceeding The amounts by which the values in use exceed the carrying amounts of goodwill are sufficiently large to enable the Directors t Directors the enable to large sufficiently are of goodwill amounts carrying the exceed in use values the which by amounts The that a reasonably possible change in the key assumptions would not result in an impairment charge in any of the countries. Fore £m 4.4 6.8 (1.3) (4.5) 12.8 12.6 11.2 11.0 72.1 2015 2015 2015 pence 3.10p 1.40p 497.2 110.6 612.2 119.9 612.2 685.3 685.3
270.09p 130.10p inations is 4,978,357 33,758,590 33,758,590 rice. There (18,516,654) 933,457,741 933,457,741 953,678,034 ry shares in 6 May 2017. 6 2017. May 14.9 14.9 14.7 14.7 15.0 15.0 14.8 14.8 2016 2016 2016 pence pence 3.55p 3.55p 1.55p 138.8 138.8 283.67p 283.67p 133.74p 133.74p Earnings per share share per Earnings 1,736,399 1,736,399 26,744,249 26,744,249 26,744,249 26,744,249 929,830,458 929,830,458 929,830,458 929,830,458 944,015,143 (14,295,963) (14,295,963)
l basis l basis £m 2015 119.9 119.9 104.5 104.5 Profit Profit £m 2016 138.8 139.8 which it can be assessed. Goodwill acquired through business comb bject to shareholderapproval, itisexpected that thedividend will bepaidon 2 vidual business are centres, grouped countryby operationof for out thepurposes of carrying year (2015: £38.8m). The Company has proposed to shareholders that a final dividend of dividend final a that shareholders to proposed Company has The £38.8m). (2015: year
share (basic and diluted) anti-dilutive atthereporting date. (1) 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Net of £3.2m derecognised on the finalisation of the accounting for prior year acquisitions previously reported on a provisiona a on reported previously acquisitions year prior for accounting the of finalisation the on derecognised £3.2m of Net
Weighted average number of shares under option during the year the year during option under shares of number average Weighted the year during option under shares for price Exercise 3.55p per share will be paid (2015: 3.10p). Su 3.10p). will be paid (2015: per share 3.55p 12. Goodwill Cost At 1 January 2015 Recognised on acquisition of subsidiaries Exchange differences 2015 December 31 At Recognised on acquisition of subsidiaries 1. as indi defined (CGUs), units Cash-generating impairment reviews of goodwill as this is the lowest level at held ata country leveland issubject to impairment reviewsbased on the cashflows of the CGUs within that country. 84 Notes to the accounts continued accounts to the Notes ordinary per Earnings 10. (£m) parent the of shareholders equity to attributable Profit the year during outstanding shares of number average Weighted the year during share one of price market Average and shareholders to attributable year the for profit diluted and Basic share per earnings basic per share earnings Diluted ordina of price market the than less for shares ordinary of issue in the result would they when dilutive considered are Options p exercise the minus period the during of shares price market average be the to is taken dilution of the amount The period. the were no significantoptions considered 11. Dividends proposed share ordinary per Dividends year the during paid and declared share ordinary per dividends Interim were paid during the of £43.3m Dividends Basic and diluted profit for the year attributable to shareholders and and shareholders to attributable year the for profit diluted and Basic items) non-recurring (before share per earnings basic items) non-recurring (before per share earnings Diluted Weighted average number of shares for basic EPS (number) (number) EPS basic for shares of number average Weighted the year during option under shares of number average Weighted market average at issued been have would that shares of number average Weighted price LTIP CIP and the under awards of number average Weighted (number) EPS diluted for shares of number average Weighted Disposals 6) (note for sale held assets to Transferred Exchange differences 2016 December 31 At value book Net 2015 At 31 December 2016 At 31 December Notes to the accounts continued
12. Goodwill (continued) Management has considered the following sensitivities: Market growth and WIPOW – Management has considered the impact of a variance in market growth and WIPOW. The value in use calculation shows that if the long-term growth rate was reduced to nil, the recoverable amount of the US and UK would still be greater than their carrying value. Discount rate – Management has considered the impact of an increase in the discount rate applied to the calculation. The value in use calculation shows that for the recoverable amount to be less than its carrying value, the pre-tax discount rate would have to be increased to 24% (2015: 30%) for the US and 38% (2015: 36%) for the UK. 13. Other intangible assets Customer Brand lists Software Total £m £m £m £m Cost At 1 January 2015 54.1 24.9 51.2 130.2 Additions at cost – – 8.7 8.7 Acquisition of subsidiaries – 4.1 – 4.1 Exchange rate movements 2.2 (0.2) (1.2) 0.8 At 31 December 2015 56.3 28.8 58.7 143.8 Additions at cost 0.2 – 5.3 5.5 Acquisition of subsidiaries(1) – 1.1 – 1.1 Disposals – (0.1) (0.3) (0.4) Exchange rate movements 8.8 2.8 2.9 14.5 At 31 December 2016 65.3 32.6 66.6 164.5
Amortisation At 1 January 2015 22.3 23.2 32.0 77.5 Charge for year 2.2 2.9 5.9 11.0 Exchange rate movements 1.1 0.4 – 1.5 At 31 December 2015 25.6 26.5 37.9 90.0 Charge for year 2.5 2.4 7.8 12.7 Disposals – (0.1) – (0.1) Exchange rate movements 5.2 2.6 1.3 9.1 At 31 December 2016 33.3 31.4 47.0 111.7
Net book value At 1 January 2015 31.8 1.7 19.2 52.7 At 31 December 2015 30.7 2.3 20.8 53.8 At 31 December 2016 32.0 1.2 19.6 52.8
1. Includes £1.0m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis
Included within the brand value is £11.2m relating to the acquisition of the remaining 58% of the UK business in the year ended 31 December 2006. The Regus brand acquired in this transaction is assumed to have an indefinite useful life due to the fact that the value of the brand is intrinsically linked to the continuing operation of the Group. As a result of the Regus brand acquired with the UK business having an indefinite useful life no amortisation is charged but the carrying value is assessed for impairment on an annual basis. The brand was tested at the balance sheet date against the recoverable amount of the UK business segment at the same time as the goodwill arising on the acquisition of the UK business (see note 12). The remaining amortisation life for non-indefinite life brands is eight years.
86 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 86 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
87 87 £m £m 3.9 0.9 4.0 5.5 53.5 63.0 Total 2015 (45.0) (26.8) 313.8 298.3 181.8 138.6 1,194.4 2,310.4 1,116.0 £m £m 9.8 0.7 0.2 5.3 (3.0) (2.9) 15.6 13.9 16.1 84.3 38.4 78.2 83.7 2016 122.7 hardware Computer
– – – £m 0.6 0.6 3.3 2.0 23.4 3.3 (1.2) 5.6 (8.9) (8.9) 49.4 49.4 47.8 57.9 57.9 83.3 (10.7) (10.7) 378.9 378.9 249.3 628.2 628.2 equipment equipment Furniture and and Furniture £m 2.6 0.9 3.5 81.0 (14.9) (20.0) 116.4 215.7 198.9 652.4 880.8 1,533.2 Leasehold improvements – 18.1 – – – – – 469.961.9 290.6 822.4 – – 85.1 37.4 11.7 134.2 – (2.0) 0.6 (0.6) (2.0) – £m 2.6 904.0 430.9 75.8 1,413.3 0.2 389.8 253.7 50.8 694.5 2.4 514.2 177.2 25.0 718.8 0.4 0.4 (2.6) (9.6) (0.2) (2.0) (14.4) (0.2) (3.9)– (1.1) (5.2) 11.4 220.0 18.5 61.6 311.5 11.4 1,136.0 94.9 497.1 1,739.4 26.3 11.4 666.1 206.5 33.0 917.0 25.9 26.3 (11.4) Land and buildings buildings
(1) Includes £1.5m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis
Disposals Disposals Exchange rate movements At 1 January 2016 2016 January 1 At Acquired lease fair value asset asset value fair lease Acquired At 31 December 2016 2016 At 31 December 2016 At 31 December Disposals Exchange rate movements Exchange rate movements Exchange rate movements Disposals Exchange rate movements 2016 January 1 At
Amounts owed by joint ventures ventures joint by owed Amounts 15. Other long-term receivables 15. Other long-term receivables rent obligations by landlords against Deposits held Additions include £nil in respect of assets acquired under finance leases (2015: £nil). £nil). (2015: leases finance under acquired assets of respect in £nil include Additions At 31 December 2016 2016 At 31 December 1. At 1 January 2015 2015 At 1 January year for the Charge Impairment value book Net 2015 At 1 January 2015 At 31 December Charge for the year year the for Charge Disposals depreciation Accumulated Acquisition of subsidiaries Additions Additions At 1 January 2015 2015 January 1 At Cost Additions Acquisition of subsidiaries 14. Property, plant and equipment equipment and plant 14. Property,
£m 9.1 5.5 1.1 Total 14.5 12.7 111.7 164.5 unt of 31 in use greater e carrying e carrying e increased e increased – (0.1) – – 4.1 – 1.5 £m 5.3 19.6 19.6 52.8 Software
– 8.7 8.7 8.7 – – £m 2.9 2.9 11.0 5.9 1.7 19.2 19.2 52.7 1.7 2.3 2.3 20.8 53.8 4.1 0.4 2.6 1.3 1.2 2.8 2.9 2.4 7.8 1.1 lists lists (0.1) (0.1) (0.3) (0.4) Customer – – – – – £m 2.2 1.1 2.2 (0.2) (1.2) 0.8 5.2 8.8 2.5 0.2 31.8 56.3 28.8 143.8 58.7 22.3 32.0 77.5 23.2 25.6 37.9 90.0 26.5 54.1 24.9 130.2 51.2 30.7 33.3 31.4 47.0 32.0 65.3 32.6 66.6 Brand Brand definite useful life no amortisation is charged but th nil, the recoverable amount of the US and UK would still be be still would UK and US the of amount recoverable the nil, the UK business having UK business an the in the continuing operationof the Group.
(1) 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Includes £1.0m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis
Exchange rate movements Exchange rate movements 2016 December 31 At value book Net At 1 January 2015 Acquisition of subsidiaries At 31 December 2015 2015 At 31 December 2016 December 31 At Exchange rate movements Exchange rate movements 2016 December 31 At Amortisation At 1 January 2015 for Charge year Exchange rate movements 2015 December 31 At for Charge year Disposals Acquisition of subsidiaries Exchange rate movements 2015 December 31 At Additions at cost Disposals 1. ended year in the UK business of 58% the remaining of the acquisition to the relating is £11.2m value brand the within Included December 2006. TheRegus brand acquired in this transaction is assumed to have anindefinite useful life due to thefact thatthe value to linked is intrinsically brand of the with acquired brand Regus of the result As a amo recoverable the against date sheet balance at the tested was brand The basis. annual an on impairment for assessed is value 12). note (see business UK the of acquisition the on arising goodwill as the time same at the segment business UK the The remaining amortisationlife for non-indefinite life brands is eight years. 86 Notes to the accounts continued accounts to the Notes (continued) 12. Goodwill sensitivities: following the has considered Management use in value The WIPOW. and growth market in variance a of impact the considered has Management – WIPOW and growth Market calculation shows that if the long-term growthrate was reducedto value. carrying than their value The calculation. the to applied rate discount the in increase an of impact the considered has Management – rate Discount b to have would rate discount pre-tax the value, carrying its than less be to amount recoverable the for that shows calculation 36%) UK. for the US and for (2015: 38% the 30%) (2015: to 24% assets 13. Other intangible Cost At 1 January 2015 Additions at cost Notes to the accounts continued
16. Trade and other receivables 2016 2015 £m £m Trade receivables 202.6 206.2 Amounts owed by joint ventures 7.7 4.9 Other receivables 76.2 102.6 Acquired lease fair value asset 1.7 2.5 Deposits held by landlords against rent obligations 7.6 15.8 Prepayments and accrued income 171.8 158.5 VAT recoverable 49.5 67.3 517.1 557.8
17. Trade and other payables (including customer deposits) 2016 2015 £m £m Trade payables 60.3 94.2 VAT payable 53.1 60.8 Other tax and social security 9.0 10.4 Customer deposits 421.0 331.6 Deferred partner contributions 68.5 48.3 Amounts owed to joint ventures 1.6 1.6 Rent accruals 137.4 112.2 Acquired lease fair value liability 3.2 3.7 Other accruals 111.1 133.0 Other payables 10.0 20.7 Total current 875.2 816.5
2016 2015 £m £m Deferred partner contributions 265.4 199.5 Rent accruals 250.9 169.6 Acquired lease fair value liability 8.3 11.0 Other payables 7.5 3.7 Total non-current 532.1 383.8
88 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 88 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– 89 89 £m £m 0.1 3.1 6.8 5.3 7.6 6.9 9.2 88.0 33.2 Total 2015 124.1 245.3 254.5 ases. ases. ture, – £m £m 6.9 7.8 2016 Other 186.7 193.6 201.4 2015
– – – 0.1 £m 3.9 2.9 3.9 5.27.7 4.9 0.4 12.9 0.3 7.3 5.27.7 12.9 4.0 2.9 4.0 3.0 0.1 3.0 (3.2) (0.8)(3.2) (4.0) e following maturity profiles: closures Onerous leases and and leases – £m 5.3 9.4 6.0 3.4 9.4 (3.0) (5.5) (0.3) 12.9 Total – £m 5.2 3.0 5.9 5.7 0.2 5.9 (1.6) (0.4) (0.3) Other Other 2016 – – £m 7.7 2.3 3.5 0.3 3.2 3.5 (1.4) (5.1) timated future costs of centre closures andonerous property le closures closures Onerous leases and and leases cted tobeutilised expires by 31 December 2025. pected to beutilised is uncertain. Total bank and otherand bank Total loans Utilised period in the Non-current December 31 At Exchange differences At 31 December December 31 At Provided in the period period the in Provided Other na their to due which, of end, year the at outstanding Group the against claims of costs estimated the include provisions Other Onerous leases and closures leases and closures Onerous es to the relate costs closure and leases onerous for Provisions Current Current expe are provisions the which over period maximum The the maximum period over which they are ex Analysed between: between: Analysed Acquired in the period period the in Acquired At 1 January At 1 January 19. Provisions Total currentTotal Repayments falling due as follows: follows: as due falling Repayments year: one than more after due falling Amounts year but not more than two years In more than one Bank and other loans loans other Bank and 18. Borrowings The Group’s total loan andborrowing th position had 2015 at31 December December at 31 and 2016
In more than two years but not more than five years years than five two years but not more In more than Provisions released In more than five years years In more five than Total non-current Total £m £m £m 4.9 2.5 1.6 3.7 3.7 15.8 67.3 94.2 60.8 10.4 48.3 20.7 11.0 2015 2015 2015 102.6 206.2 158.5 557.8 331.6 112.2 133.0 816.5 199.5 169.6 383.8 £m £m £m 7.7 1.7 7.6 9.0 1.6 3.2 8.3 7.5 76.2 76.2 49.5 60.3 53.1 68.5 10.0 2016 2016 2016 202.6 202.6 171.8 517.1 421.0 137.4 875.2 265.4 532.1 111.1 250.9
ncluding customer deposits) deposits) customer ncluding 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 88 Notes to the accounts continued accounts to the Notes other receivables 16. Trade and receivables Trade ventures Amounts owed by joint Other receivables asset value fair lease Acquired rent obligations by landlords against Deposits held income accrued Prepayments and VAT recoverable (i payables other and Trade 17. payables Trade VAT payable security Other tax and social Customer deposits contributions partner Deferred Amounts owed to joint ventures Rent accruals liability value fair lease Acquired Other accruals payables Other current Total contributions partner Deferred Rent accruals liability value fair lease Acquired payables Other Total non-current Notes to the accounts continued
20. Investments in joint ventures Provision for Investments in deficit in joint ventures joint ventures Total £m £m £m At 1 January 2015 0.7 (0.7) – Additions 1.9 – 1.9 Share of profit 3.2 (2.9) 0.3 Other – (0.5) (0.5) Exchange rate movements (0.2) – (0.2) At 31 December 2015 5.6 (4.1) 1.5 Additions 6.8 – 6.8 Dividends received (0.9) – (0.9) Share of loss (1.5) 0.7 (0.8) Disposal of investment 3.0 – 3.0 Exchange rate movements 0.6 – 0.6 At 31 December 2016 13.6 (3.4) 10.2
The Group has 41 joint ventures at the reporting date all of which are individually immaterial. The Group has a legal obligation in respect of its share of any deficits recognised by these operations. The results of the joint ventures below are the full results of the joint ventures and do not represent the effective share: 2016 2015 £m £m Income statement Revenue 23.5 27.6 Expenses (22.5) (24.9) Profit before tax for the year 1.0 2.7 Tax charge (0.7) (0.5) Profit after tax for the year 0.3 2.2 Net assets/(liabilities) Non-current assets 12.2 8.4 Current assets 28.0 27.1 Current liabilities (30.3) (32.6) Non-current liabilities (2.1) (9.7) Net assets 7.8 (6.8)
90 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 90 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
91 91 £m £m (1.5) 2015 2015 atisfy atisfy lders for , e vote e vote st of
ued in d date, Nominal value value Nominal
– – – – – – – – – – – – – – – – Number 9,543,800 24.5 9,543,800 (1,936,642) 12,883,455 19.9 12,883,455 20,490,613 42.9 20,490,613 950,969,822 9.5 950,969,822 8,000,000,000 80.0 8,000,000,000 Number of shares Number shares of
e open market by IWG plc and and plc by IWG market open e £m £m 3.1 2.9 9.5 9.2 9.2 (8.3) (0.2) (0.3) (9.2) 42.9 42.9 31.1 80.0 80.0 80.0 (65.7) December 2016 Nominal value value Nominal awards by employees. At 28 February 2017 February At 28 employees. by awards nisation and Scheme of Arrangement. The ho 2016 2016 2016 and 31 December 2016 Number (109,333) 1,280,032 1,170,699 (4,712,856) nuary 2016 and 19 2016 and nuary 20,490,613 11,834,627 6,642) treasury shares held by Regus plc were utilised to s to were utilised plc by Regus held shares treasury 6,642) (27,612,384) (27,612,384) 950,969,822 923,357,438 923,357,438 (923,357,438) 8,000,000,000 8,000,000,000 2 shares were purchased in 2 were purchased th shares Number Number shares of December 2015: 9,543,800) shares were purchased in open shares were purchased the 9,543,800) 2015: December gus plc, the former holding company of the Group, and its vidends as were declared by the Company and were entitled to on shares did not carry such rights until reissued. shares did carry until reissued. not rights such exercise of share awards by employees. were cancelled as part of the Group reorga s. At 19 December 2016, 27,612,384 (year ended 31 December 2015: 20,490,613) shares shares 20,490,613) 2015: December 31 ended (year 27,612,384 2016, December At 19 s. Treasury shares in Regus plc utilised utilised plc Regus in shares Treasury Issued and fully paid up paid and fully Issued Purchase of treasury shares in IWG plc plc IWG in shares treasury of Purchase Cancellation of treasury shares in Regus plc treasury shares in Regus Cancellation of 31 December Ordinary shares in IWG plc issued on formation of the company company the of formation on issued plc IWG in shares Ordinary 2016 December plc at 31 in IWG 1p shares Ordinary £1.3m (2015: £11.9m) to directly settle the the settle directly to £11.9m) (2015: £1.3m In addition to the treasury share transactions, the Group purchased 467,291 (2015: 4,451,486) shares on the open market at a co a at market open the on shares 4,451,486) (2015: 467,291 purchased Group the transactions, share treasury the to addition In 1 January 1 January plc Regus in shares treasury of Purchase market by Regus plc and 4,712,856 (year ended 31 December 2015: 1,93 2015: December 31 ended (year 4,712,856 and plc Regus by market December 19 between shares plc IWG involving transactions share Treasury 1,280,03 2016, to 2016 31 December from period In December 19 the of satisfy exercise to share by IWG plc were utilised the shares held treasury 109,333 Treasury share transactions involving Regus plc shares between 1 Ja plc shares between transactions involvingRegus share Treasury 31 ended (year 11,834,627 2016, 19 December period ending In the On 19 December 2016 under a Scheme of Arrangement between Re between of a Scheme Arrangement under On 19 2016 December Ordinary 1p shares in Regus plc at 1 January January 1p shares in Regus plc at 1 Ordinary Authorised Authorised 2016 and January Regus plc at 1 in 1p shares Ordinary 2016 19 December shareholders, under Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by The Royal Court of Jersey, all the iss the all Jersey, of Court Royal The by as sanctioned and Law 1991, (Jersey) Companies of the 125 Article under shareholders, shares in Regus plc were cancelled and an equivalent to plc in consideration IWG issued number ofplc were in Regus new shares recor on the held they that plc in Regus share ordinary each for plc IWG in share ordinary of one shareholders to allotment the shares of issue the for exchange in plc Regus of capital share issued the of all acquired plc IWG a result As 2016. 18 December share. plc Regus one for share plc IWG one of ratio in plc the IWG 21. Share capital capital 21. Share capital share equity Ordinary
1,013,938 shares were held as treasury shares. The holders of ordinary shares in IWG plc are entitled to receive such dividends such receive to entitled are plc in IWG shares ordinary of holders The shares. as treasury held were shares 1,013,938 carry not do shares Treasury Company. the of meetings at share per vote one to entitled are and Company the by declared are as such rights until reissued. Treasury shares in IWG plc utilised utilised plc IWG in shares Treasury Cancellation of 1p shares in Regus plc held in treasury treasury in held plc Regus in shares 1p of Cancellation plc IWG in shares ordinary for exchanged plc Regus in shares Ordinary Ordinary 1p shares in IWG plc at 19 December 2016 and and 2016 December 19 at plc IWG in shares 1p Ordinary 2016 31 December ofordinary shares in Regusplc wereentitled to receive suchdi Treasury Company. of the at meetings share per the exercise of exercise share the awards by employee were heldas treasury shares. These shares £m £m 2.7 8.4 2.2 3.0 0.6 6.8 (0.5) (6.8) (9.7) (0.8) 27.6 27.1 Total 10.2 2015 (24.9) (32.6) n in respect respect n in
– – – – (0.9) £m £m 0.7 1.0 0.3 7.8 (3.4) (0.7) (2.1) 23.5 23.5 12.2 12.2 28.0 2016 (22.5) (22.5) (30.3) (30.3) deficit in Provision for Provision joint ventures ventures joint
– – (0.5) (0.5) £m 0.7 (0.7) (0.7) 0.7 – 1.9 1.9 – 3.2 0.3 (2.9) 5.6 1.5 (4.1) 3.0 0.6 6.8 (0.2) (0.2) (0.2) – (0.9) (1.5) 13.6 13.6 joint ventures ventures joint Investments in in Investments joint ventures 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Disposal of investment Exchange rate movements 2016 December 31 At 90 Notes to the accounts continued accounts to the Notes 20. Investments in At 1 January 2015 Additions profit of Share Other Exchange rate movements 2015 At 31 December Additions Dividends received loss Share of obligatio legal a has Group The immaterial. individually are which of all date reporting at the ventures joint 41 has Group The operations. these by recognised deficits any of share its of share: effective the represent do not and ventures of joint the results full the are below ventures joint of the results The statement Income Revenue Expenses Profit before tax for the year the year for tax before Profit charge Tax Profit after tax for the year year the for tax after Profit assets/(liabilities) Net Non-current assets assets Current Current liabilities Non-current liabilities Non-current liabilities Net assets assets Net Notes to the accounts continued
22. Analysis of financial assets/(liabilities) At Exchange At 1 Jan 2016 Cash flow movements 31 Dec 2016 £m £m £m £m Cash and cash equivalents 63.9 (28.3) 14.5 50.1 Gross cash 63.9 (28.3) 14.5 50.1 Debt due within one year (9.2) 2.1 (0.7) (7.8) Debt due after one year (245.3) 68.1 (16.4) (193.6) (254.5) 70.2 (17.1) (201.4) Net financial assets/(liabilities) (190.6) 41.9 (2.6) (151.3)
Cash and cash equivalent balances held by the Group that are not available for use amounted to £11.3m at 31 December 2016 (2015: £16.0m). Of this balance, £9.6m (2015: £12.5m) is pledged as security against outstanding bank guarantees and a further £1.7m (2015: £3.5m) is pledged against various other commitments of the Group. 23. 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. Exposure to credit, interest rate and currency risks arise in the normal course of business. Going concern The Strategic Report on pages 1 to 32 of the Annual Report and Accounts sets out the Group’s strategy and the factors that are likely to affect the future performance and position of the business. The financial review on pages 22 to 26 within the Strategic Report reviews the trading performance, financial position, and cash flows of the Group. During the year ended 31 December 2016, despite the Group making a significant investment in growth, the Group’s net debt position decreased by £39.3m to a net debt position of £151.3m as at 31 December 2016. The investment in growth is funded by a combination of cash flow generated from the Group’s mature business centres and debt. The Group has a £550.0m revolving credit facility provided by a group of relationship banks with a final maturity extended until 2021, with a further option to extend to 2023. As at 31 December 2016, £299.4m was available and undrawn. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, continue to adopt the going concern basis in preparing the Annual Report and Accounts. Credit risk Credit risk could occur where a customer or counterparty defaults under the contractual terms of a financial instrument and arises principally in relation to customer contracts and the Group’s cash deposits. A diversified customer base, requirement for customer deposits, and payments in advance on workstation contracts minimise the Group’s exposure to customer credit risk. No single customer contributes a material percentage of the Group’s revenue. The Group’s policy is to provide against trade receivables when specific debts are judged to be irrecoverable or where formal recovery procedures have commenced. A provision is created where debts are more than three months overdue which reflects the Group’s historical experience of the likelihood of recoverability of these trade receivables. These provisions are reviewed on an ongoing basis to assess changes in the likelihood of recoverability. The maximum exposure to credit risk for trade receivables at the reporting date, analysed by geographic region, is summarised below. 2016 2015 £m £m Americas 37.8 41.2 EMEA 71.1 68.9 Asia Pacific 41.8 33.7 UK 51.9 62.4 202.6 206.2
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.
92 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 92 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements – – – 93 93 £m ) 2015
ies ths. Provision Provision had .
gement
tect rity Group a me countries facility facility of cy asons. asons. . h an nd forecast f the affiliate. affiliate. f the free cash ill be be ill £m 7.4 20.8 (11.6) 31.2 2015 Gross 217.8 (11.6) 158.4 – – £m (0.1) 2016 (19.0) (19.0) (19.1) sures. It is the policy of the to extend to 2023. Following Following 2023. to extend to Provision Provision currency assets and liabilities, £3.2m). Customer deposits of Customer £3.2m). deposits ional exposures do arise in so arise exposures do ional ng the year, the amount of the the of amount the year, the ng Group has adequate Group liquidity has adequate meet to £m deferred income, were £304.7m at were £304.7m income, deferred 43.9 12.0 35.6 2016 Gross Gross 221.7 130.2 awn under this revolving credit facility. facility. credit revolving this under awn rate liability for a three-year period wit nt (continued) .1m), the Group does not consider that this gives rise rise to gives this that not consider does Group the .1m), so lead to foreign exchange expo The majority of day-to-day transactions of overseas subsidiar against potential bad debts (2015: £11.6m) arising from trade from trade arising £11.6m) (2015: debts bad potential against ge exposure is small. Transact careful management of non-local relative proportions of fixed rate debt and floating rate debt current liabilities, excluding excluding liabilities, current ent. Net investments in IWG affiliates with a functional curren functional a with in IWG affiliates Net investments ent. .0m (£162.7m) debt securities issued in 2014 and the associated the and in 2014 issued securities debt (£162.7m) .0m ial instruments to manage its transactional foreign exchange es ores receivables to be in other than the functional currency o ial risk manageme services and requires deposits from its customers. its customers. from deposits requires and services ted borrowings. The Directors consider the the consider Directors The borrowings. ted come statement. Although the Group holds customer deposits of £421.0m (2015: £331.6m (2015: £421.0m of deposits customer Group holds the Although statement. come £70m and $30m were swapped intoa fixed t current liabilities comprise non-cash liabilities such as deferred income which w and 1.8% (excluding funding margin). margin). funding (excluding 1.8% and cember 2016, £299.4m was available and undr and was available £299.4m 2016, cember esents a liquidity risk. The net net risk. The liquidity a esents financial instruments are only transacted with counterparties of sound credit ratings, and mana and ratings, credit of sound counterparties with transacted only are instruments financial ts. These exposures are actively managed by the Group treasury department in accordance with with in accordance department treasury Group the by managed actively are exposures These ts. recognised in future periods through the in the Therefore, material. is customer an individual for held and no deposit of customers number a large across spread are these repr balance the believe does not average fixed rate of respectively 0.7% of respectively rate fixed average £446 (2015: of £581.1m liabilities current net has Group the Although £205.4m). (2015: 2016 31 December liquidity risk. A large proportion of the ne The debt provided under the bank facility is floating rate, however, as part of the Group’s balance sheet management and pro to and management sheet balance Group’s of the as part however, rate, is floating facility bank the under provided debt The rates, in interest increase a future against hedging wererepaidat in full.31 De As does not expect any of these counterparties to fail to meet their obligations. 210 EUR “Schuldschein” the facility, credit the of extension the Past due 31 – 60 days days 60 31 – Past due More than 60 days days 60 than More Foreign currency risk risk Foreign currency The Group isexposed toforeign currencyexchange rate movements. Interest rate risk The Groupexposure manages its tointerestrate risk throughthe Market risk Market risk The Group isexposed tomarket risk primarilyrelated to foreign currencyexchange rates, interestrates, and themarket value of its revenue in advance of the provision of office derivative and investments Cash has Group The due. fall they as obligations financial its meet to liquidity sufficient have to expects and expenditure capital Group the investments, liquid and cash to addition In £47.9m). (2015: of £38.8m cash) blocked (excluding investments liquid and its commit under available and undrawn £299.4m requirements. day-to-day The Group maintains a revolving credit facility provided by a oup ofgr internationalbanks. Duri option with a further 2021, until extended maturity and the £550.0m to from was £320.0m increased asse in financial our investments re or speculative trading for derivatives financial use not does Group The of Directors. Board by the approved policy a written mon three exceeding period a for invested was cash no 2016 of end the at and short-term, invested are balances cash surplus The Liquidity risk Liquidity risk a facilities, credit undrawn and available the position, cash global the monitoring by closely risk liquidity manages Group The At 31 December 2016, the Group maintained a provision of a £19.1m provision Group maintained At the 2016, 31 December Not overdue overdue Not 30 days 0 – Past due receivables. The Group had provided £10.3m (2015: £6.5m) in the year and utilised £4.5m (2015: (2015: £4.5m utilised in the year and £6.5m) (2015: provided £10.3m Group had The receivables. of risk the default. mitigating Group, by the are held £331.6m) (2015: £421.0m majo the collects Group as the not overdue are that receivables trade for required is generally provision no believes Group The statem income in the volatility potential the minimising thereby 23. and financ instruments Financial was: 31 December at receivables trade of ageing The otherthan sterling areof along-term natureand theGroup does notnormally hedge such foreign currencytranslation exposures From time to time the Group uses short-term derivativefinanc exposures where these exposures cannot be eliminated through balancing the underlying risks. No transactions of a speculative of speculative a No transactions risks. underlying the balancing through eliminated be cannot exposures these where exposures nature are undertaken. are carried out in local currency and the underlying foreign exchan where it is localmarket practice forproportion a of thepayabl al may activity management cash and funding, charging, Intercompany Group toseek to minimisesuch transactionalexposures through At £m £m (7.8) 41.2 68.9 33.7 62.4 50.1 50.1 2015 206.2 (193.6) (151.3) (201.4) ce roup’s or roup as at ef elow. l are l are cy is to al rity 31 Dec 2016 rt reviews likely ses nges in roup’s risk £m £m 37.8 71.1 51.9 41.8 2016 202.6 Exchange movements movements £m ing the Annual Report Annual the ing Cash flow ation contracts minimiseation contracts G the rategy of the Group and the Chi to Repo Strategic the within 26 At £m (9.2) 2.1 (0.7) 63.963.9 (28.3) (28.3) 14.5 14.5 (190.6) 41.9 (2.6) (254.5) (17.1) 70.2 (245.3) 68.1 (16.4) GroupCommittee Audit the responsibility f 1 Jan 2016 ncern basis in prepar ncern provided by a group of relationship banks with a final matu d payments in advance on workst in advance d payments ination ofination flow cash generated from the Group’s mature business reporting date, analysed by geographic region, is summarised b ts under the contractual terms of a financial instrument and ari Accounts sets out the Group’s strategy and the factors that are that factors and the strategy Group’s out the sets Accounts s a material percentage of the Group’s revenue. The Group’s poli The financial review on pages 22 on pages review financial The . As at undrawn. and was available £299.4m 31 2016, December mpliance with the Group’s risk management policies. financial risk management management risk financial risks in arise the business. of course normal going basis. The Board has delegated has Board The basis. going to the the Group’s net debt position decreased by £39.3m to net a debt position of £151.3m riousother commitments of the Group. ccordingly, continue to adopt the going co ntracts and the Group’s cash deposits. cash Group’s the and ntracts les relate to customers purchasing workplace solutions and associated services and no individu IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL provide against trade receivables when specific debts are judged are debts specific when receivables trade against provide to be irrecoverable or have procedures recovery formal where Acommenced. more are debts where is created provision reflects which overdue months three than experien historical Group’s the anon reviewed are provisions These cha assess to receivables. basis trade ongoing these of recoverability of likelihood the of the likelihood of recoverability. The maximum exposure tofor credit risk trade receivables at the principally in relation to customer co A diversified customer base, requirement for customer deposits, an exposure to customer credit risk. No single customer contribute Americas EMEA Asia Pacific UK receivab trade Group’s All of the receivable. a trade as owing balance material a has customer 92 Notes to the accounts continued accounts to the Notes 22. Analysis of financial assets/(liabilities) equivalents cash and Cash cash Gross year one within due Debt year one after due Debt equivalent and cash Cash held balances by amounted use for available not are that Group the to £11.3m at £9.6m balance, Of this £16.0m). (2015: 2016 31 December is pledged £12.5m) (2015: bank guarantees outstanding against as security and a further va against is pledged £3.5m) (2015: £1.7m and instruments Financial 23. torespect with Group the capita by of applied management strategies the and and policies instruments objectives, financial The determined at Group level. The Group’s Board maintains responsibility for themanagement risk st G the review Treasurer Group and Officer Financial Chief The basis. on a day-to-day policy for is responsible Officer Financial management strategy and policies on an on anapplying effective system of internal control and co Exposure to credit,interest rate and currency concern Going The Strategic Report on pages 1 to 32 of the Annual Report and Credit risk Credit risk could occur where a customer or counterparty defaul Net financial assets/(liabilities) financial Net to affect the future performance and position of the business. the trading performance, financial position, and cash flows of the Group. During the year the During Group. the of flows G cash the and despite position, 2016, financial December 31 ended performance, trading the amaking significant investment in growth, by a comb is funded in growth investment 31 The 2016. December facility credit revolving a has £550.0m Group The and debt. centres extended until 2021, with a further option to extend to extend to option with a further 2021, until extended 2023 enquiries, making After the have Directors a reasonable expectation that adequate has Group the existence resources for the foreseeable future toional operat in continue a and, and Accounts. Notes to the accounts continued
23. Financial instruments and financial risk management (continued) 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: 2016 £m GBP JPY EUR USD Trade and other receivables – – 15.1 19.1 Trade and other payables (0.5) (0.1) (26.5) (18.7) Net statement of financial position exposure (0.5) (0.1) (11.4) 0.4 2015 £m GBP JPY EUR USD Trade and other receivables – – 9.1 16.4 Trade and other payables (1.4) (1.2) (21.9) (19.4) Net statement of financial position exposure (1.4) (1.2) (12.8) (3.0)
Other market risks The Group does not hold any available-for-sale equity securities and is therefore not subject to risks of changes in equity prices in the income statement. Sensitivity analysis For the year ended 31 December 2016, it is estimated that a general increase of one percentage point in interest rates would have decreased the Group’s profit before tax by approximately £1.9 m (2015: decrease of £1.7m) with a corresponding decrease in total equity. It is estimated that a five percentage point weakening in the value of the US dollar against sterling would have decreased the Group’s profit before tax by approximately £8.8m for the year ended 31 December 2016 (2015: decrease of £6.0m). It is estimated that a five percentage point weakening in the value of the euro against sterling would have decreased the Group’s profit before tax by approximately £2.7m for the year ended 31 December 2016 (2015: decrease of £1.8m). It is estimated that a five percentage point weakening in the value of the US dollar against sterling would have decreased the Group’s total equity by approximately £11.3m for the year ended 31 December 2016 (2015: £10.7m). It is estimated that a five percentage point weakening in the value of the euro against sterling would have decreased the Group’s total equity by approximately £0.4m for the year ended 31 December 2016 (2015: £5.9m). Capital management The Group’s parent company is listed on the UK stock exchange and the Board’s policy is to maintain a strong capital base. The Chief Financial Officer monitors the diversity of the Group’s major shareholders and further details of the Group’s communication with key investors can be found in the Corporate Governance Report on page 43. 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 the major shareholder of the Company and all executive members of the Board hold shares in the Company. Details of the Directors’ shareholdings can be found in the report of the Remuneration Committee on pages 50 to 60. In addition, the Group operates various share option plans for key management and other senior employees.
Treasury share transactions involving Regus plc shares between 1 January 2016 and 19 December 2016 In the period ended 19 December 2016, 11,834,627 (year ended 31 December 2015: 9,543,800) shares were purchased in the open market by Regus plc and 4,712,856 (year ended 31 December 2015: 1,936,642) treasury shares held by Regus plc were utilised to satisfy the exercise of share awards by employees. At 19 December 2016, 27,612,384 (year ended 31 December 2015: 20,490,613) shares were held as treasury shares. These shares were cancelled as part of the Group reorganisation and Scheme of Arrangement described in note 21.
94 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 94 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – – – – – – – – – – – 95 95 £m 5 years More than 2017, 2017, concern concern end of of end – – – – – – – £m (0.3) 39.1 39.1 (186.7) (187.0) 2-5 years years 2-5
– – – – – – – £m (6.9) (7.9) 39.1 39.1 39.1 (14.8) (14.8) 1-2 years years 1-2 e open market by plc IWG e open market – – – – – £m (7.8) 50.1 1 year year 1 359.4 409.5 (421.0) (128.6) (557.4) year ended 31 December 2016 and proposed and proposed 31 2016 December ended year Less than Less than nt (continued) 2016 and 31 December 2016 – – – £m (7.8) (0.3) 50.1 437.6 487.7 (193.6) (421.0) (136.5) (759.2) cash flow 2 shares were purchased in 2 were purchased th shares Contractual – – – £m (7.8) (0.3) 50.1 value 418.5 468.6 (193.6) (421.0) (136.5) (759.2) Carrying ial risk manageme – – – – – – – (1) rate % 0.0% 2.9% 4.6% interest interest 1.55p per share (2015: 1.40p) during the the during 1.40p) (2015: per share 1.55p Effective Effective l liabilities, the following table indicates their effective interest rates at the balance sheet
e instruments is not materially different from the carrying value. : (1) rest rate swaps
(2) Inflow Inflow Inflow Inflow Outflow Outflow Outflow
• • • • All financial instruments are classified as variable rate instruments. instruments. rate variable as classified are instruments financial All cost. amortised at held all are assets Financial
1. 2. Derivative financial liabilities: liabilities: Derivative financial Cross-currency inte Non-derivative liabilities financial borrowings Bank loans and corporate Cash and cash equivalents Trade receivablesother and As at 31 December 2016 2016 December As at 31 Effective interest rates rates Effective interest In respect of financial assets and financia In the period from 19 December 2016 to 31 December 2016, 1,280,03 2016, to 2016 31 December from period December In 19 the and109,333 treasury shares held byplc IWG were utilised to satisfy theexercise of share awardsby employees. 28 At February shares. treasury as were held shares 1,013,938 an of The dividend Company declared interim and to maintain an optimal capital structure to reduce the cost of capital. The Group has a net debt position of £151.3m at the borrowings. undrawn of committed £205.1m) (2015: £299.4m and £190.6m) (2015: 2016 date and the periods in which they mature. Interest payments are excluded from the table. Theflow undiscountedof cash thes 23. Financial instruments and financ instruments 23. Financial December 19 between shares plc IWG involving transactions share Treasury
a final dividend of 3.55p per share (2015: 3.10p per share), a 15% increase on the 2015 dividend. dividend. 2015 on the increase a 15% per share), 3.10p (2015: share per of 3.55p dividend a final a going as continue to ability Group’s the safeguard is to borrowings) and (equity capital managing when objective Group’s The Financial liabilities Financial assets Other loans Customer deposits payables other and Trade swaps rate Interest
0.4 sive USD
point s 50 to to 50 s hold five e year e year oximately ve h key Chief Chief of the Group’s Group’s ces in the EUR 15.1 15.1 19.1 (26.5) (26.5) (11.4) (18.7) – – 9.1 16.4 – 2016 2015 JPY USD EUR JPY int in interest rates would ha rates int in interest ed the commencementprogres a of tion and Schemeof Arrangement December 2016 – – erling would have decreased the erling would have decreased the (1.4) (1.2) (21.9) (19.4) (1.4) (1.2) (12.8) (3.0) GBP GBP (0.5)(0.5) (0.1) (0.1) nt (continued) ,612,384 (year ended 31 December 2015: 20,490,613) 2015: 31 December ended (year ,612,384 nuary 2016 and 19 2016 and nuary 5: 1,936,642) treasury shares held by Regus plc were utilised were plc Regus by held shares treasury 1,936,642) 5: l increase of one percentage po percentage of one l increase ctions held in a currency other than the functional currency ge 43. In 2006, the Board approv Board the In 2006, 43. ge 31 December 2015: 9,543,800) shares were purchased in shares were purchased the 9,543,800) 31 2015: December n be found in the report of the Remuneration Committee on page d as as d part of the Group reorganisa m (2015: decrease of £1.7m) with a corresponding decrease decrease with a corresponding of £1.7m) decrease m (2015: lue of the US dollar against st against US dollar of lue the st against US dollar of lue the areholdersfurther and of details Group’s the communicationwit ial risk manageme r the year ended 31 December 2016 (2015: decrease of £6.0m). It is estimated that a that estimated It is of £6.0m). decrease (2015: 2016 31 December ended year r the
rious share option plans for key management and other senior employees. e awards by employees. At 19 December 2016, 27 2016, December At 19 employees. by e awards ely £11.3m for the year ended 31 December 2016 (2015: £10.7m). It is estimated that a five percentage a five that estimated It is £10.7m). (2015: 2016 December 31 ended year the for ely £11.3m 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL shares were held as treasury shares. These shares were cancelle were shares These shares. as treasury held were shares 21. in note described dividend policy toenhance thetotal return to shareholders. Board the of members executive all and Company the of shareholder major the is Dixon, Mark Officer, Executive Chief Group’s The ca shareholdings Directors’ of the Details Company. in the shares 60. In addition, the Group operates va weakening in the value of the euro against sterling would have decreased the Group’s total equity by approximately £0.4m for th for £0.4m approximately by equity total Group’s the decreased have would sterling against euro the of value in the weakening £5.9m). (2015: 2016 December 31 ended decreased theGroup’s profit before tax by approximately £1.9 in total equity. va in the point weakening a percentage five that It is estimated profit before tax by approximately £8.8m fo appr by tax before profit Group’s the decreased have would sterling against euro the of value the in weakening point percentage £1.8m). of decrease (2015: 2016 31 December ended year for the £2.7m va in the point weakening a percentage five that It is estimated by approximat total equity 1 Ja plc shares between transactions involvingRegus share Treasury ended (year 11,834,627 2016, December 19 ended period In the 201 December 31 ended (year plc and 4,712,856 Regus by market open of shar exercise the to satisfy 94 Notes to the accounts continued accounts to the Notes and financ instruments 23. Financial The foreign currency exposure arising from open third party transa relatedentitysummarised is as follows: Trade receivablesother and payables other and Trade Netfinancial position exposure of statement Trade receivables other and Other market risks pri equity in of changes risks to subject not therefore is and securities equity available-for-sale any not hold does Group The income statement. analysis Sensitivity a genera that it is estimated 2016, 31 December ended For year the management Capital The base. capital a strong maintain is to policy Board’s the and exchange stock UK on the listed is company parent Group’s The sh major Group’s of the diversity the monitors Officer Financial investors can be found in the Corporate Governance Report on pa £m £m Trade and other payables payables and other Trade Netfinancial position exposure of statement Notes to the accounts continued
23. Financial instruments and financial risk management (continued) As at 31 December 2015 Effective Carrying Contractual Less than More than interest rate value cash flow 1 year 1-2 years 2-5 years 5 years %(1) £m £m £m £m £m £m Cash and cash equivalents 0.4% 63.9 63.9 63.9 – – – Trade and other receivables – 454.0 465.6 408.4 26.7 30.5 – Financial assets(2) 517.9 529.5 472.3 26.7 30.5 –
Non-derivative financial liabilities(1): Bank loans and corporate borrowings 4.0% (245.3) (245.3) – (124.1) (88.0) (33.2) Other loans 12.4% (9.2) (9.2) (9.2) – – – Customer deposits – (331.6) (331.6) (331.6) – – – Trade and other payables – (191.5) (191.5) (187.8) (3.7) – –
Derivative financial liabilities: Cross-currency interest rate swaps – Outflow – (14.2) (135.3) – (135.3) – – – Inflow – – 121.1 – 121.1 – – Interest rate swaps – Outflow – (0.8) (0.8) – – (0.8) – – Inflow – – – – – – – Financial liabilities (792.6) (792.6) (528.6) (142.0) (88.8) (33.2)
1. All financial instruments are classified as variable rate instruments 2. Financial assets are all held at amortised cost Fair value disclosures The fair values together with the carrying amounts shown in the balance sheet are as follows:
31 December 2016 Carrying amount Fair value Other Fair value – Loans and financial hedging £m receivables liabilities instruments Total Level 1 Level 2 Level 3 Total Cash and cash equivalents 50.1 – – 50.1 – – – – Trade and other receivables 418.5 – – 418.5 – – – – Bank loans and corporate borrowings – (193.6) – (193.6) – – – – Other loans (7.8) – (7.8) – – – – Customer deposits – (421.0) – (421.0) – – – – Trade and other payables – (136.5) – (136.5) – – – – Derivative financial liabilities – – (0.3) (0.3) – (0.3) – (0.3) 468.6 (758.9) (0.3) (290.6) – (0.3) – (0.3) Unrecognised gain –
31 December 2015 Carrying amount Fair value Other Fair value – Loans and financial hedging £m receivables liabilities instruments Total Level 1 Level 2 Level 3 Total Cash and cash equivalents 63.9 – – 63.9 – – – – Trade and other receivables 454.0 – – 454.0 – – – – Bank loans and corporate borrowings – (245.3) – (245.3) – – – – Other loans (9.2) – (9.2) – – – – Customer deposits – (331.6) – (331.6) – – – – Trade and other payables – (191.5) – (191.5) – – – – Derivative financial liabilities – – (15.0) (15.0) – (15.0) – (15.0) 517.9 (777.6) (15.0) (274.7) – (15.0) – (15.0) Unrecognised gain –
96 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 96 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – – 97 97 £m 4.6 2015 2015 2015 2015 210.0 EUR m GBP m USD m the the and Available ging and and rotect facility facility indirectly; h an average interest are – £m 75.0 70.0 30.0 2015 2016 2016 2016 320.0549.2 205.1 209.7 154.2 EUR m GBP m USD m Facility Facility
– – £m 2016 299.4 299.4 299.4 Available to extend to 2023. Following Following 2023. to extend to s/payables with a remaining life of less less of life remaining a with s/payables ng the year, the amount of the the of amount the year, the ng – – £m 2016 550.0 550.0 Facility Facility rate liability for a three-year period wit nt (continued) ere wereere no between transferslevels fair for value measured at are observable for the asset or liability, either directly or directly either or liability, asset the for at are observable d on the inputs used in the valuation techniques as follows: follows: as techniques valuation the in used inputs the on d The fair value of bank loans, overdrafts and other loans approximates the carrying carrying the approximates loans other and overdrafts loans, bank of value fair The Valuation technique technique Valuation value because interest rates are at floating rates where payments are reset to market market to reset are payments where rates floating at are rates interest because value one year. of less than rates at intervals For cash and cash equivalents, receivable equivalents, cash For cash and swap models. than one year and customer deposits, the book value approximates the fair value value fair the approximates value the book deposits, customer and year one than nature. short-term their of because ial risk manageme was available and undrawn under this facility. facility. this under undrawn and available was ing level3 fair value measurements were held. at are not based on observable market data. £70m and $30m were swapped intoa fixed Level 1: quoted prices in active markets for identical assets or liabilities; or liabilities; assets identical for markets in active prices 1: quoted Level Levelother2: inputsthan quoted prices included in level1 th and Level 3: inputs for the asset or liability th asset for 3: the inputs Level
extension of the credit facility, the “Schuldschein” EUR 210.0m (£162.7m) debt securities issued in 2014 and the associated hed associated the in 2014 and issued securities debt (£162.7m) EUR 210.0m “Schuldschein” the credit of facility, the extension fixed raterespectivelyof and 1.8% (excluding fundingmargin). 0.7% nants cove relating financial to to is subject net facility debt credit to revolving EBITDA, £550.0m The and EBITDA plus rent to plusrent. The Group is in compliance with all covenant requirements. Total Total was increased from £320.0m to £550.0m and the maturity extended until 2021, with a further option with a further 2021, until extended maturity and the £550.0m to from was £320.0m increased were repaidat in full. As December, 31 £299.4m p to and management sheet balance Group’s of the as part however, rate, is floating facility credit the under provided debt The rates, in interest increase a future against The Group maintains a revolving credit facility provided by a oup ofgr internationalbanks. Duri Schuldschein loan note loan Schuldschein Revolving credit facility Derivatives used for cash flow hedging hedging flow cash for used Derivatives Committed borrowings Derivatives used for cash flow hedging hedging flow cash for used Derivatives Derivatives used for cash flow hedging hedging flow cash for used Derivatives There was no significant unobservable input used in our valuation techniques. instruments financial Derivative date: reporting as at the contracts open of the amount notional the summarises table following The Foreign exchange contracts and interest rate swaps swaps rate interest and contracts exchange Foreign pricing forward quotes, broker of combination a on based are values fair The Loans and overdrafts overdrafts and Loans Type Type other and Cash and cash equivalents, trade receivables/payables and customer deposits instruments, and no financial instruments requir techniques Valuation values Fair as possible. far as data observable market uses Group the a or liability, an asset of value fair the measuring When categorised into different levels in a fair value hierarchy base • 23. Financial instruments and financ instruments 23. Financial th 2016, December 31 and 2015 December 31 ended years the During
Guarantee and letter of credit facility facility credit of letter and Guarantee • • The following tables show the valuation techniques used in measuring level 2 fair values and methods used for financial assets assets financial for used methods and values fair 2 level measuring in used techniques valuation the show tables following The value: at fair measured not liabilities – – – – – – – – – – – – £m (0.3) (0.3) Total 5 years More than – – – – –– – – – –
– – – – £m
2-5 years years 2-5 – – – – – – – – – – Fair value Fair value Fair value Fair value (0.3) (0.3)
– – – – – – – – – (0.8)– – – – – – – £m – – – – – – – – – 1-2 years years 1-2 Level 1Level 2 Level 3 Level – (33.2) (88.0) (124.1) – – (135.3) – – 121.1 – – £m 1 year year 1 (7.8) 63.9 Total 1 Level 2 Level 3 Level Total 50.1 Total 418.5 (290.6) (193.6) (421.0) (136.5) Less than Less than nt (continued) – – 454.0 – – – – – (191.5) – – – – – – – (9.2) – – – – – – – – (245.3) – – – – – – – (331.6) – – – – £m (0.3)(0.3) (0.3) cash flow hedging hedging hedging hedging Contractual Fair value – Fair value Fair value – Fair value instruments instruments – (15.0) (15.0) – (15.0) – (15.0) – – – – – £m value (9.2) (7.8) 517.9 529.5 472.3 30.5 26.7 – (792.6) (792.6) (528.6) (33.2) (88.8) (142.0) Other Other Other Carrying (193.6) (421.0) (136.5) Carrying amount Carrying amount Carrying amount Carrying amount financial financial financial liabilities liabilities ial risk manageme
(245.3) (245.3) – – (14.2) (135.3) – – 454.0 465.6 408.4 26.7 30.5 – – – – 121.1 – (191.5) (191.5) (187.8) (3.7) – (0.8)– (0.8) – (331.6)– (331.6) (331.6) (1)
– – – – (191.5) – – – – – (245.3) – (331.6) % 4.0% 0.4% 63.9 63.9 63.9 63.9 63.9 50.1 50.1 12.4% (9.2) 12.4% (9.2) (9.2) 454.0 454.0 517.9 (777.6)517.9 (15.0) (274.7) – (15.0) – (15.0) 418.5 418.5 468.6 468.6 (758.9) Effective Effective Loans and Loans and and Loans interest rate interest receivables receivables receivables receivables
(1): rest rate swaps
(2)
deposits loans loans 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL All financial instruments are classified as variable rate instruments instruments rate variable as classified are instruments financial All cost amortised at held all are assets Financial Inflow Inflow
Financial liabilities – Outflow – swaps rate Interest – – – Outflow Outflow – Financial assets
Customer Trade and other payables liabilities: Derivative financial Cross-currency inte 31 December 2015 £m equivalents cash and Cash receivables and other Trade borrowings Bank loans and corporate Other loans Customer deposits payables other and Trade liabilities financial Derivative 96 Notes to the accounts continued accounts to the Notes and financ instruments 23. Financial 2015 December As at 31 Cash and cash equivalents receivables and other Trade 1. 2. Fair value disclosures follows: as are sheet balance in the shown amounts carrying the with together values fair The 2016 31 December £m Cash and cash equivalents Trade receivablesother and Non-derivative liabilities financial Bank loans and corporate borrowings borrowings Bank loans and corporate Other Unrecognised gain Unrecognised gain Bank loans and corporate borrowings Bank loans and corporate Other loans Customer deposits payables other and Trade liabilities Derivative financial Notes to the accounts continued
24. Share-based payments There are three share-based payment plans, details of which are outlined below: Plan 1: IWG Group Share Option Plan During 2004 the Group established the IWG Group Share Option Plan that entitles Executive Directors and certain employees to purchase shares in IWG plc (previously Regus plc). In accordance with this programme, holders of vested options are entitled to purchase shares at the market price of the shares at the day before the date of grant. The IWG Group also operates the IWG Group Share Option Plan (France) which is included within the numbers for the IWG Share Option Plan disclosed above. The terms of the IWG Share Option Plan (France) are materially the same as the IWG Group Share Option Plan with the exception that they are only exercisable from the fourth anniversary of the date of grant, assuming the performance conditions have been met.
Reconciliation of outstanding share options 2016 2015 Weighted Weighted average average Number of exercise price Number of exercise price share options per share share options per share At 1 January 29,494,624 155.35 36,096,491 144.20 Granted during the year 1,848,431 301.59 1,906,565 250.80 Lapsed during the year (2,972,532) 190.48 (4,062,226) 205.94 Exercised during the year (3,850,899) 101.69 (4,446,206) 95.12 Outstanding at 31 December 24,519,624 169.62 29,494,624 155.35 Exercisable at 31 December 6,357,981 119.87 2,853,016 100.00
Weighted average Numbers exercise price At 31 Dec Exercisable Date of grant granted per share Lapsed Exercised 2016 from Expiry date 23/03/2010 3,986,000 100.50 (3,463,777) (410,255) 111,968 23/03/2013 23/03/2020 28/06/2010 617,961 75.00 (546,198) (50,413) 21,350 28/06/2013 28/06/2020 01/09/2010 160,646 69.10 (146,728) (9,856) 4,062 01/09/2013 01/09/2020 01/04/2011 2,400,000 114.90 (954,402) (481,866) 963,732 01/04/2014 01/04/2021 30/06/2011 9,867,539 109.50 (4,900,647) (3,361,911) 1,604,981 30/06/2014 30/06/2021 31/08/2011 300,000 67.00 – (300,000) – 31/08/2014 31/08/2021 02/09/2011 1,000,000 74.35 (92,667) (907,333) – 01/09/2014 02/09/2021 13/06/2012 11,189,000 84.95 (3,765,180) (3,081,614) 4,342,206 13/06/2015 13/06/2022 12/06/2013 7,741,000 155.60 (3,306,265) (609,927) 3,824,808 12/06/2016 12/06/2023 18/11/2013 600,000 191.90 (575,000) – 25,000 18/11/2016 17/11/2023 18/12/2013 1,000,000 195.00 – – 1,000,000 18/12/2016 17/12/2023 20/05/2014 1,845,500 187.20 (1,578,400) – 267,100 20/05/2017 19/05/2024 05/11/2014 12,875,796 186.00 (2,414,810) – 10,460,986 05/11/2017 04/11/2024 19/05/2015 1,906,565 250.80 (1,686,565) – 220,000 19/05/2018 18/05/2025 22/12/2015 1,154,646 322.20 – – 1,154,646 22/12/2018 22/12/2025 29/06/2016 444,196 272.50 (175,000) – 269,196 29/06/2019 29/06/2026 28/09/2016 249,589 258.00 – – 249,589 28/09/2019 28/09/2026 Total 57,338,438 142.14 (23,605,639) (9,213,175) 24,519,624
Nil options awarded during the year under the IWG Share Option Plan (France) are included in the above table (2015: Nil), nil lapsed during the year (2015: 33,603) and nil were exercised during the year (2015: 13,861).
98 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 98 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
99 99 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 1/3 EPS EPS time. to vest to vest to to vest to vest to vest to vest to
Proportion Proportion Proportion Proportion Proportion Proportion Proportion Proportion lows: oyee for a specified period of for a specified oyee e year ending 31 December 2011, 31 December ending e year owth operating profit for the year ending year owth operating profit for the 2012, 2012, December 31 ending profit year for the pre-growth on , based g employment of the related empl related of the employment g sed on pre-growth profit for th at are eligible to vest have vested as follows: at are eligible to vest have vested as follows: ded in September 2011, based on the pre-gr on the based 2011, in September ded eligible to vest have vested as follows: Those options th Those options th
4
4
4 4 ust 201 g August 2016 August 2016 2016 September June 2017 June 2015 June 2016 June 2012 share option plan plan option share 2012 June 2012 June in awarded options for the targets performance Group The September 201 September 2015 September as follows: vest will to vest eligible are that options those satisfied, are conditions performance Once met. partially were September 2011 share option plan awar options for the targets performance The August 2015 August 2015 Au August 2011 share option plan plan option share 2011 August ongoin on the were conditional in options awarded The 2011 August follows: as vested have vest to eligible are that options those satisfied, is condition this Once met. partially were 2012, 31 December June 201 June June 2015 June 2011 share option plan plan option share 2011 June The Group and regional performance targets for the options awarded in June 2011, based on pre-growth profit for the year ending April 201 April 2015 April 2011 share option plan plan April share option 2011 The performance targets for theoptions awarded in April 2011, ba 2014 2014 2013 2013 March, June and September 2010 share option plan The Group and regional performance targets for the options in March,awarded June and September based2010, on a combination of 2015 were partiallymet. Thoseoptions that are April 2016 met. partially were 2011, 31 December June 2016 24. Share-based payments (continued) (continued) payments Share-based 24. share options for conditions Performance
andthe IWG TotalShareholder Return (TSR)achieved % relative to the FTSE AllShare Total Return indexis atleast at the medi an over the performance period for the year2010,ending were partially met. Those options that are eligible to vest have vested as fol ion rchase average average per share n with Weighted Weighted shares at ons have exercise price price exercise apsed during apsed 2015 from from Expiry date Number of 1,906,565 250.80 1,906,565 2,853,016 100.00 2,853,016 Exercisable Exercisable (4,062,226) 205.94 (4,062,226) (4,446,206) 95.12 36,096,491 144.20 36,096,491 29,494,624 155.35 29,494,624 share options share options 2016 301.59 301.59 155.35 155.35 190.48 190.48 101.69 119.87 119.87 169.62 169.62 average average per share per share At 31 Dec Weighted Weighted exercise price price exercise – 17/11/2023 18/11/2016 25,000 – 22/12/2025 22/12/2018 1,154,646 – 04/11/2024 05/11/2017 10,460,986 – 17/12/2023 18/12/2016 1,000,000 – 29/06/2026 29/06/2019 269,196 – 28/09/2026 28/09/2019 249,589 – 18/05/2025 19/05/2018 220,000 – 19/05/2024 20/05/2017 267,100 2016 Number of Number 1,848,431 6,357,981 (2,972,532) (3,850,899) 29,494,624 24,519,624 share options share – – (300,000) 31/08/2021 31/08/2014 – – – – average average per share Lapsed Exercised Weighted Weighted exercise price price exercise granted granted Numbers 617,961 617,961 75.00 (546,198) 300,000 (50,413) 67.00 28/06/2020 28/06/2013 21,350 160,646 160,646 69.10 (146,728) (9,856) 01/09/2020 01/09/2013 4,062 600,000 600,000 191.90 (575,000) 444,196 272.50 (175,000) 249,589 249,589 258.00 1,154,646 1,154,646 322.20 2,400,000 2,400,000 114.90 (954,402) (481,866) 01/04/2021 01/04/2014 963,732 1,000,000 1,000,000 74.35 (92,667) 1,000,000 (907,333) 195.00 02/09/2021 01/09/2014 – 3,986,000 3,986,000 100.50 (3,463,777) 9,867,539 (410,255) 109.50 23/03/2020 23/03/2013 111,968 (4,900,647) (3,361,911) 30/06/2021 30/06/2014 1,604,981 1,906,565 1,906,565 250.80 (1,686,565) 7,741,000 7,741,000 155.60 (3,306,265) 1,845,500 (609,927) 187.20 12/06/2023 12/06/2016 3,824,808 (1,578,400) 57,338,438 142.1457,338,438 (23,605,639) (9,213,175) 24,519,624 12,875,796 12,875,796 186.00 (2,414,810) 11,189,000 11,189,000 84.95 (3,765,180) (3,081,614) 13/06/2022 13/06/2015 4,342,206 gus plc).accordance In with thisprogramme, holdersof vestedoptions areentitled topurchase 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 22/12/2015 22/12/2015 the market price of the shares at the day before the date of grant. grant. of date the before day the at shares the of price market the Opt Share IWG the for numbers the within included is which (France) Plan Option Share Group IWG the operates also Group IWG The Pla Option Share Group IWG the as same the materially are (France) Plan Option Share IWG the of terms The above. disclosed Plan conditi performance the assuming of grant, of date the anniversary fourth the from exercisable only are they that exception the been met. l nil Nil), (2015: table above in the included are (France) Plan Option Share IWG the under year the during awarded options Nil 13,861). (2015: year the during were exercised nil and 33,603) (2015: year the 98 Notes to the accounts continued accounts to the Notes payments 24. Share-based below: outlined are of which details plans, payment share-based three are There Plan Option Share Group IWG 1: Plan to pu employees certain and Directors Executive entitles that Plan Option Share Group IWG the established Group the 2004 During Re plc (previously in IWG shares Reconciliation of outstanding share options At 1 January year the during Granted grant Date of 23/03/2010 28/06/2010 01/09/2010 01/04/2011 30/06/2011 31/08/2011 18/12/2013 18/12/2013 05/11/2014 19/05/2015 29/06/2016 Lapsed during the year year the during Lapsed year the during Exercised December Outstanding at 31 Exercisable at 31 December 02/09/2011 13/06/2012 12/06/2013 18/11/2013 20/05/2014 28/09/2016 28/09/2016 Total Total Notes to the accounts continued
24. Share-based payments (continued) June 2013 share option plan The Group performance targets for the options awarded in June 2013, based on Group operating profit for the year ending 31 December 2013, were partially met. Those options that are eligible to vest will vest as follows: Proportion to vest June 2016 1/3 June 2017 1/3 June 2018 1/3
November 2013 share option plan The options awarded in November 2013 are partly subject to a performance target based on the earnings before tax for the years ending 31 December 2016 and 31 December 2017, such that the number of shares vesting will be subject to the satisfaction of a pre-determined earnings before tax target in 2016 and 2017. Once performance conditions are satisfied, those options that are eligible to vest will vest on the anniversary of the grant date in the year following achievement of one or more of the target thresholds. Those options not subject to the performance targets are eligible to be exercised in three equal tranches from the third anniversary of the grant date.
December 2013 share option plan The options awarded in December 2013 are subject to a performance target based on the earnings before tax for the years ending 31 December 2018 and 31 December 2021, such that the number of shares vesting will be subject to the satisfaction of a pre-determined earnings before tax target in 2018 and 2021. Once performance conditions are satisfied, those options that are eligible to vest will vest on the anniversary of the grant date in the year following attainment of one or more of the target thresholds. Those options not subject to the performance targets are eligible to be exercised in three equal tranches from the third anniversary of the grant date.
May 2014 share option plan The options awarded in May 2014 are conditional on the ongoing employment of the related employees for a specified period of time. Once this condition is satisfied, those options that are eligible to vest will vest as follows: Proportion to vest May 2017 1/3 May 2018 1/3 May 2019 1/3
November 2014 share option plan The options awarded in November 2014 are conditional on the ongoing employment of the related employees and the achievement of margin targets. The dates and percentage of options vesting are dependent on the year in which the margin targets are achieved, the earliest dates on which the options are eligible to vest is as follows: Proportion to vest November 2017 1/5 November 2018 1/5 November 2019 1/5 November 2020 1/5 November 2021 1/5
100 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 100 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
n 101 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 1/5 101 of ng to vest to vest to to vest to to vest to Proportion Proportion Proportion Proportion Proportion Proportion Proportion rliest p operating profit for the year ending ending year the for profit p operating s that are eligible to vest will vest as follows:
2018 2018 y 31 December 2016. Once performance conditions are satisfied those options that are eligible to vest will vest as follows: follows: as vest will vest to eligible are that options those satisfied are conditions performance Once 2016. December 31 June 2021 June 2022 June 2023 option those is satisfied, condition this Once time. 2021 September 2022 September 2023 September
September 2019 2019 September 2020 September
September 2016 share option plan period a specified for employee related of the employment ongoing on the conditional are 2016 September in awarded options The June 2020 June 2019 June 2016 share option plan plan option share 2016 June to Group are subject performance2016 in June awarded targets options based The on Grou December 2018 2018 December 2019 December December 2015 share option plan plan option share 2015 December endi year the for profit operating Group on based targets performance Group to subject are 2015 December in awarded options The Ma 2019 May targets. The dates and percentage of options vesting are dependent on the year in which the margin targets are achieved, the ea the achieved, are targets margin the which in year on the dependent are vesting options of percentage and dates The targets. 2020 May 2021 May 2022 May follows: as vest will vest to eligible are that options those satisfied are conditions performance Once 2016. December 31 2020 December 2021 December 2022 December 24. Share-based payments (continued) (continued) payments Share-based 24. plan option May share 2015 margi of achievement the and employees related the of employment ongoing on the conditional are 2015 May in awarded options The
dates on which the options are eligible to vest is as follows: 1/5 1/5 1/5 1/5 1/5 1/3 1/3 1/3 1/3 1/3 1/3 to vest to to vest to to vest to of rmined me.
Proportion Proportion Proportion Proportion Proportion Proportion gible to te in theyear te in the
to the satisfaction satisfaction the to ployees and the achievement of fore tax for the yearsending ofit for the year ending ending year ofit for the sting will be subject will be subject sting target based on the earnings be earnings on the based target shares vesting will be subject to the satisfaction of a pre-dete of satisfaction the to subject be will vesting shares 2013, based on Group operating pr 2013, based 2017, such that the number of shares ve of shares number the such that 2017,
the third anniversary of the grant date. date. grant of the anniversary third the t. Thoset. options thatareeligible will to vest vest asfollows: e eligible to vest is as follows: IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 2017 2017 y a pre-determined earnings before tax targetin 2016 and 2017. da grant of the anniversary on the vest will vest to eligible are that options those satisfied, are conditions performance Once be e to eligibl are targets performance to the subject not options Those thresholds. target of the more or one of achievement following exercised in three equal tranches from plan option share 2013 December performance a to subject are 2013 December in awarded options The of number that the such 2021, December and 31 2018 31 December beforeearnings tax targetin 2018 and 2021. da grant of the anniversary on the vest will vest to eligible are that options those satisfied, are conditions performance Once eli are targets performance to the subject not options Those thresholds. target of the more or one of attainment following year date. grant the of anniversary third the from tranches equal in three exercised be plan option May share 2014 ti of period a specified for employees related the of employment ongoing on the conditional are 2014 May in awarded options The follows: as vest will vest to eligible are that options those is satisfied, condition this Once November 2014 share option plan share option November 2014 em related of the employment ongoing on the conditional are 2014 November in awarded options The the achieved, are targets margin the which in year on the dependent are vesting options of percentage and dates The targets. margin ar options the which on earliest dates 2017 November 2018 November 2019 November 2020 November 2021 November 100 Notes to the accounts continued accounts to the Notes (continued) payments Share-based 24. plan option share 2013 June June in awarded options for the targets performance Group The June 2016 June 2017 June 2018 plan share option November 2013 a performance to target subject basedpartly on are the 2013 earnings November before in tax awarded for options theThe and 31 2016 December December years ending 31 Ma May 2018 2018 May 2019 May 31 December 2013, were partially me partially were 2013, 31 December Notes to the accounts continued
24. Share-based payments (continued) 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: September June December May November May December 2016 2016 2015 2015 2014 2014 2013 Share price on grant date 258.00p 272.50p 322.20p 250.80p 188.40p 191.00p 195.00p Exercise price 258.00p 272.50p 322.20p 250.80p 186.00p 187.20p 195.00p Expected volatility 27.45% – 27.71% – 24.80% – 27.23% – 24.67% – 27.30%– 32.91% 32.35% 34.81% 37.08% 30.12% 33.53% 41.91% Number of simulations – –––– –– Number of companies – –––– –– Option life 3–7 years 3–7 years 3–7 years 3–7 years 3–7 years 3–5 years 5–8 years Expected dividend 1.80% 1.71% 1.40% 1.59% 2.02% 2.00% 1.46% Fair value of option at time of grant 40.96p – 44.28p – 29.76p – 42.35p – 27.24p – 30.80p– 52.41p – 67.89p 78.68p 90.61p 69.12p 54.58p 59.63p 65.95p Risk-free interest rate 0.09% – 0.14% – 0.14% – 0.81% – 0.90% – 0.99%– 1.57%– 0.38% 0.39% 0.21% 1.53% 1.81% 1.47% 2.30p
November June June September August June 2013 2013 2012 2011 2011 2011 Share price on grant date 191.90p 158.00p 88.55p 72.50p 75.90p 110.70p Exercise price 191.90p 155.60p 84.95p 74.35p 67.00p 109.50p Expected volatility 32.69% 40.31%– 47.87%– 52.59%– 52.61%– 51.55%– 48.98% 52.74% 46.08% 46.13% 44.99% Number of simulations – 30,000 30,000 30,000 30,000 30,000 Number of companies – – – – – – Option life 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years Expected dividend 1.46% 2.03% 3.27% 3.66% 3.49% 2.35% Fair value of option at time of grant 45.73p 39.21p– 29.88p– 22.89p– 27.32p– 39.41p– 58.39p 31.12p 22.71p 27.01p 40.96p Risk-free interest rate 1.22% 0.67%– 0.65%– 1.16%– 1.29%– 1.81%– 1.20% 1.11% 1.75% 1.91% 2.57%
April 2011 September 2010 June 2010 March2010 EPS TSR EPS TSR EPS TSR Share price on grant date 116.30p 70.60p 70.60p 73.20p 73.20p 94.00p 94.00p Exercise price 114.90p 69.10p 69.10p 75.00p 75.00p 100.50p 100.50p Expected volatility 51.23%– 50.28%– 50.28%– 46.18%– 46.99%– 47.02%– 46.74%– 45.54% 45.61% 45.61% 54.32% 56.36% 64.82% 55.98% Number of simulations 30,000 30,000 30,000 30,000 30,000 30,000 30,000 Number of companies – FTSE All FTSE All FTSE All FTSE All FTSE All FTSE All Share Share Share Share Share Share Index Index Index Index Index Index Option life 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years Expected dividend 2.24% 3.40% 3.40% 3.28% 3.28% 2.55% 2.55% Fair value of option at time of grant 42.19p– 22.80p– 21.51p– 35.20p– 12.40p– 45.49p– 19.50p– 44.80p 23.60p 21.51p 42.70p 17.40p 61.77p 26.30p Risk-free interest rate 2.33%– 1.51%– 1.51%– 2.76%– 2.76%– 3.07%– 3.07%– 3.04% 2.17% 2.17% 3.05% 3.05% 3.38% 3.38%
102 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 102 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – (2) (3) (4) (1) (1) 103 103 % 2015 awards er er n s Number of 1,039,760 5,760,289 3,673,686 (1,251,818) (1,874,545) See below See below See below See below See below 06/03/2016 05/03/2017 04/03/2018 03/03/2021 h the h the – – – 2016 date Release 2016 date Release 2016 awards (9,129) 220,789 353,909 502,894 103,051 412,204 132,326 529,304 At 31 Dec At 31 Dec Number of Number 1,038,179 2,254,477 3,292,656 3,673,686 1,038,179 (1,410,080) lt it inappropriate to set specific respectively respectively
– – – – – an three years, wit years, an three – (304,294) –– (58,871) (75,626) – % of basic annual salary will be taken a be taken will salary annual basic % of which can be awarded, based on Investment Investment on based can be awarded, which period of not less th less not of period granted Lapsedgranted Exercised Lapsed Exercised Numbers Numbers one awards, based on normal plan limits, up to a maximum of 250 oss bonus of up to 50 up to of bonus oss tching Shares are 6 March 2016, 6 March 2017 and 6 March 2018 2018 March 6 and 2017 March 6 2016, March 6 are Shares tching Date of grant Date of grant Date 06/03/2013 1,217,176 (317,687) (396,595) 05/03/2014 647,68804/03/2015 (235,484) 831,808 (302,504) 18/03/200823/03/2009 5,922,916 8,614,284 (3,748,117) (1,954,010) (5,440,175) (2,820,200) 06/03/2013 304,294 05/03/2014 161,922 04/03/2015 207,952 es) to be released at the ofend a defined ch, thech, maximum number of Matching Shares tment Plan (CIP) and Performance Share Plan (PSP) Share Plan Performance and (CIP) Plan tment performance conditions for Matching Shares under the CIP which were awarded in March 2008 and March 2009 2009 March and 2008 March in awarded were which CIP the under Shares Matching for conditions performance Therelease for dates the threetranches of the 2013 CIP March Ma 2019 March 5 and 2018 March 5 2017, March 5 are Shares Matching CIP 2014 March the of tranches the three for dates release The 2020 is 4 March CIP 2015 March the of awards Share Matching the for date release The As indicatedintheRemuneration Report inthe Annual Report for the yearended 31 Decemberthe 2009, Remuneration Committeefe
Exercised during the year year the during Exercised CIP: Matching shares CIP: Matching shares PSP awards granted during the year the year during granted PSP awards CIP: Matching shares CIP: Matching shares CIP: Matching shares Outstanding at 31 December December Outstanding at 31 of basesalary. Shares awarded, is in the ratio of 4:1. The PSPprovides for the Remuneration Committee tomake stand-al the Company’s future performance. The maximum number of Matching Shares which can be awarded to a participant in any calendar underyear theof CIPsu salary. is 200% As 2. 3. 4.
17,908,040 (10,043,967)1. (5,609,596) CIP: Investment shares shares CIP: Investment shares CIP: Investment CIP: Matching shares CIP: Matching shares shares CIP: Investment a deferred amount of shares (Investment Shar o depending vest will and awarded Shares Investment of number the to linked are Shares Matching of Awards in cash. paid balance Plan CIP: Matching shares Plan Plan 03/03/2016 PSP 1,038,179 The weighted average share price at the date of exercise for share awards and options exercised during the year ended 31 Decemb ended year the during exercised options and awards share for of exercise date at the price share average weighted The Exercisable at 31 December CIP awards granted during the year year the during granted awards CIP At 1 January At 1 January Reconciliation of share outstanding awards The CIP operates in conjunction with the annual bonus whereby a gr whereby bonus annual the with in conjunction operates CIP The 244.98p). (2015: was 302.63p 2016 24. Share-based payments (continued) (continued) payments Share-based 24. Co-Inves Plan 2: plc IWG
Lapsed during the year year the during Lapsed June 2011 2013 Index Share Share 2.30p 3.38% 2.57% 26.30p 40.96p 65.95p or FTSE All All FTSE 3.07%– 3.07%– 1.81%– 1.81%– 1.57%– 1.57%– 55.98% 44.99% 19.50p– 19.50p– 39.41p– 39.41p– 32.91% 52.41p – 52.41p – 46.74%– 46.74%– 51.55%– December December are prices. prices. are May March2010 March2010 2011 2014 Index Share Share August 3.38% 1.91% 1.47% 61.77p 27.01p 59.63p FTSE All All FTSE 3.07%– 3.07%– 1.29%– 0.99%– 64.82% 46.13% 45.49p– 45.49p– 27.32p– 41.91% 30.80p– 30.80p– 47.02%– 47.02%– 52.61%– 27.30%– 27.30%– 2011 2014 Index Index Share Share 3.05% 3.05% 1.75% 1.75% 1.81% 17.40p 17.40p 22.71p 22.71p 54.58p FTSE All All FTSE 2.76%– 2.76%– 1.16%– 1.16%– 56.36% 56.36% 46.08% 46.08% 12.40p– 12.40p– 33.53% 33.53% 22.89p– 22.89p– 0.90% – 0.90% – 27.24p – 27.24p – 46.99%– 52.59%– November 24.67% – – 24.67% September May June June 2010 June 2010 2012 2015 Index Share Share 3.05% 1.11% 1.53% 42.70p 31.12p 69.12p FTSE All All FTSE 2.76%– 2.76%– 0.65%– 0.65%– 54.32% 52.74% 35.20p– 35.20p– 30.12% 29.88p– 29.88p– 0.81% – 0.81% – 42.35p – 42.35p – 46.18%– 47.87%– 27.23% – – 27.23% 0 30,000 30,000 30,000 30,000 June 2013 2015 Index Share Share 2.17% 1.20% 0.21% 21.51p 58.39p 90.61p FTSE All All FTSE 1.51%– 45.61% 48.98% 21.51p– 21.51p– 37.08% 0.14% – 0.14% – 29.76p – 50.28%– December December 24.80% – – 24.80% – 30,00 – – – – – – –––– –– –––– –––– –– –––– EPS TSR EPS TSR EPS TSR 0% 3.40% 3.28%2.55% 3.28% 2.55% June 2013 2016 Index Share Share 2.17% 1.46% 2.03%1.22% 3.27% 0.67%– 3.66% 3.49% 2.35% 0.39% 1.71% 1.40% 1.59% 2.00% 2.02% 1.46% 45.73p 39.21p– 23.60p 78.68p 1.51%– 45.61% 32.69% 40.31%– 22.80p– 22.80p– 34.81% 191.90p 155.60p 84.95p 74.35p 67.00p 109.50p 191.90p 158.00p 88.55p 72.50p 75.90p 110.70p 272.50p 322.20p 250.80p 191.00p 188.40p 195.00p 272.50p 322.20p 250.80p 187.20p 186.00p 195.00p 0.14% – 0.14% – 44.28p – 44.28p – 50.28%– November 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years 3–5years 3–7 years 3–7 years 3–7 years 3–7 years 3–5 years 5–8 years 27.71% – – 27.71% – – 2016 3.04% 44.80p 0.38% 1.80% 67.89p 45.54% 32.35% 0.09% – – 0.09% 258.00p 258.00p 40.96p – – 40.96p 51.23%– April 2011 2010 September 3–7 years 3–7 27.45% – – 27.45% September September 114.90p 69.10p 69.10p 75.00p 100.50p 75.00p 100.50p 116.30p 70.60p 70.60p 73.20p 73.20p 94.00p 94.00p 42.19p– – FTSE All 2.33%–
2.24% 3.4 30,000 30,000 30,000 30,000 30,000 30,000 30,000 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years 3–5 years
IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Option life dividend Expected Fair value option at time of of grant rate interest Risk-free The inputs to the modelare asfollows: Risk-free interest rate rate interest Risk-free date on grant Share price price Exercise volatility Expected simulations of Number companies Number of 102 Notes to the accounts continued accounts to the Notes (continued) payments Share-based 24. Measurement of fair values simulation Carlo Monte the on based was measured plan purchase share employee the through granted rights the of value fair The on the is based historic volatilityvolatility adjusted expected for The any abnormalformula. movement Black-Scholes the in sh date grant on price Share simulations Number of date on grant Share price price Exercise volatility Expected simulations Number of companies of Number Option life dividend Expected Fair value option at time of of grant Number of companies companies Number of Option life Exercise price volatility Expected Expected dividend dividend Expected Fair value option at time of of grant rate interest Risk-free Notes to the accounts continued
24. Share-based payments (continued) 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: 03/03/2016 04/03/2015 05/03/2014 06/03/2013 23/03/2009 18/03/2008 PSP CIP CIP CIP CIP(1) CIP(1) Share price on grant date 300.00p 225.00p 253.30p 143.50p 65.50p 80.50p Exercise price Nil Nil Nil Nil Nil Nil Number of simulations 250,000 250,000 250,000 250,000 200,000 200,000 Number of companies 32 32 32 32 32 36 Award life 5 years 3 years 3 years 3 years 3 years 3 years Expected dividend 1.5% 1.78% 1.66% 2.23% 2.72% 1.19% Fair value of award at time of grant 183.08p– 75.67p– 83.11p– 83.11p– 47.97p 61.21% 277.36p 114.6p 214.33p 134.21p Risk-free interest rate 0.86% 1.01% 0.99%– 0.35% 1.92% 3.86% 1.47%
1. The CIP Matching Shares and Share Option Plan awards made in 2008 and 2009 did not have performance conditions set by the Remuneration Committee at the date of the award. A valuation was performed for those awards based on the terms that applied to similar awards made in previous years. The Remuneration Committee set the performance conditions for the awards made in 2008 and 2009 effective from 22 March 2010 and the valuation of these awards was updated in the year ended 31 December 2010. It is recognised by the Remuneration Committee that the additional EPS targets represent a highly challenging goal and consequently, in determining whether they have been met, the Committee will exercise its discretion. The overall aim is that the relevant EPS targets must have been met on a run-rate or underlying basis. As such, an adjusted measure of EPS will be calculated to assess the underlying performance of the business. While the Remuneration Committee reserves the right to adjust EPS as it sees fit at the time, by way of example, the following adjustments may be considered for the 2008 and 2009 grants: • In a fast-growing company such as IWG, costs are necessarily incurred in one year to drive profits in future years. Thus it is important to ensure management is not incentivised to cut back on these investments to meet EPS targets in any one year. Accordingly, those costs, incurred in the vesting year, which it considers necessary to drive future growth, will be excluded from the EPS calculation. These would include, inter alia, the costs of the business development departments, excess marketing expenditures and current year losses from investing in new locations; • Any one-off or non-recurring costs will be excluded; • It is expected that in the relevant periods the cash tax rate will rise as cumulative tax losses are utilised, thereby increasing progressively the challenge of achieving a 14p EPS target. This will then be further complicated by the need to recognise deferred tax assets as the business strengthens, reducing the accounting rate of tax in one year and increasing it in the next. To provide greater clarity and incentive to management, EPS will be calculated based upon the cash tax rate up to a maximum of 30%; and • The Remuneration Committee is of the opinion that the EPS and performance targets are a transparent and accurate measure of the Company’s performance at this time and are the key corporate metrics for driving long-term shareholder value. In addition, the TSR condition will ensure that executives are encouraged to focus on ensuring that the Company’s return to shareholders is competitive compared to comparable companies.
104 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 104 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
(1) (1) 105 0% 18p 22p 26p 30p 105 was 2017 2014 25% 100% ct d te to the lative relative ned elate to targets, the the targets, the first 200% or above 200% or Equal to orthe below index IWG TSR % achieved relative to relative TSR % achieved IWG IWG TSR % achieved relative to relative TSR % achieved IWG Above100% below101% but FTSE All Total Return Share index FTSE All Total Return Share index 15p 17p 16p 20p 17p 23p 18p 26p For each complete 1% above 100% 1% above complete each For 2015 2016 2015 2012 2013 2012 12.0p 14.0p12.0p 14.6p12.6p 15.3p13.3p 16.0p 16.0p14.0p 16.6p 17.3p 18.0p three separate equal amounts and equal three separate tively. The vesting of these awards was of these vesting The tively. Adjusted EPS targets for the financial years ending years financial for the Adjusted EPS targets Adjusted EPS targets for the financial years ending years financial for the Adjusted EPS targets rformance periods. The remaining 25% of each were subject to re spectively. conditional Thus, onmeeting theperformance targets, years respectively. Thus,conditional on meeting theperformance eminimum adjustedEPS for target that year is achieved. spective periods. The targets were as follows: respective periods. The targets are as follows: follows: as are targets The periods. respective following modifications to the awards made in 2008 and 2009 and that the following the and that 2009 and 2008 in made awards the to modifications following ese awards effective from 22 March 2010. from 22 March 2010. effective awards ese Over the three-, four- or five-year performance period. Over the three-, four- or five-year performance period.
% of awards eligible for vesting for vesting % of awards eligible % of awards eligible for vesting for vesting % of awards eligible adjusted earnings per share (EPS) targets over the respective pe respective the over targets (EPS) share per earnings adjusted financial years ending 31 December 2012, 31 December 2013 and 31 December 2014 respec 2014 31 December and 2013 December 31 2012, December ending 31 years financial define to subject was amounts three the of each of 75% targets. performance corporate challenging of achievement the to subject total shareholder returnover (TSR) targets the re h 2014 and the third vested in March 2015. These vesting dates rela dates vesting These in March 2015. vested March third in and 2014 the vested second the 2013, March in vested amount first to be subject will of each 25% remaining The periods. performance respective the over targets (EPS) share per earnings adjusted total shareholder returnover (TSR) targets the p.a. + 15% Equal to index 1. Below index Below index Equal to index Nowill shares respectivevest in each year unless th for vesting % of awards eligible 50% 50% 25% 25% subject to future performanceofperiods three, five four and 0.75% of Increments 100% to future performance periods of three, four and five years re awards of these vesting The respectively. 2017 31 December and 2016 December 31 2015, December 31 ending years financial the defi to is subject amounts of three the each of 75% targets. performance corporate challenging of achievement to the is subject 75% 100% 1. grants matching and Investment CIP 2013 The total number of matching awards made in 2013 to each participant was divided into three separate equal amounts and is subje 25% 25% for vesting % of awards eligible Nil 50% 50% 25% 25% 2008 and 2009 CIP Investment and matching grants grants and matching Investment CIP 2009 2008 and the to agreed Committee Remuneration The would apply to conditions th performance into was divided participant to and in made awards each 2009 2008 of matching number total The 75% 100% 24. Share-based payments (continued) (continued) payments Share-based 24. as follows: are conditions performance The
amount will vest in March 2016, the second will vest in March 2017 and the third will vest in March 2018. These vesting dates r dates vesting will These in March 2018. vest will third the and in March 2017 vest second the in March amount will vest 2016, (1) se n, red
ntly, ntly, tion. de important targets adjustments adjustments ng CIP (1) 47.97p 61.21% 47.97p eration Committee these awards was updated 32 32 32 36 NilNil Nil CIPCIP 0.35% 1.92% 3.86% 1.92% 0.35% 83.11p– 134.21p 134.21p 32 Nil CIP 1.66% 1.19% 2.72% 2.23% 1.47% 3 years 3 years 3 years 3 years 0.99%– 83.11p– 253.30p 80.50p 65.50p 143.50p 214.33p 214.33p 250,000 250,000 200,000 200,000 32 Nil CIP 114.6p 75.67p– ate metrics for driving long-term shareholder value. In additio 04/03/2015 05/03/2014 06/03/2013 23/03/2009 18/03/2008 pment departments, excessmarket ing expenditures and current 32 Nil rlying unde the assess to calculated be will EPS of measure adjusted an 1.5% 1.78% 0.86% 1.01% 5 years5 years 3 300.00p 225.00p 250,000 250,000 277.36p 277.36p 183.08p– 183.08p– 03/03/2016 PSP s are necessarily incurred in one year to drive profits in future years. Thus it is Thus years. in future profits to year drive in one incurred necessarily s are In a fast-growing companysuchas IWG, cost to ensure management is not incentivised to cut back on these investments to meet EPS targets in any one year. Accordingly, tho calcula EPS the from excluded be will growth, future drive to necessary it considers which year, vesting the in incurred costs, develo business of the costs alia, the inter would include, These locations; in new investing from losses year Any one-off or non-recurring costs will be excluded; It is expected that in the relevant periods the cash tax rate will rise as cumulative tax losses are utilised, thereby increasi thereby utilised, are losses tax as cumulative rise will rate tax cash the periods relevant in the that expected is It defer recognise to need by the complicated be further then will This target. EPS a 14p achieving of challenge the progressively tax assets as thebusiness strengthens,reducing theaccounting rate of taxone in yearand increasing itin the next.Toprovi greater clarity and incentivetomanagement, EPS will be calculated based upon the cash taxrate up toamaximum of 30%; and The Remuneration Committee is of the opinion that the EPS and performance targets are a transparent and accurate measure measure accurate and a transparent are targets performance and EPS the that opinion is of the Committee Remuneration The of theCompany’s performance at this timeand are the key corpor the TSR condition will ensure that executives are encouraged to focus on ensuring that the Company’s return to shareholders is to shareholders return Company’s the that ensuring on focus to encouraged are executives that ensure will condition TSR the competitive compared to comparable companies. IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL The CIP Matching Shares and Share Option Plan awardsmade in2008 and 2009 did nothave performance conditions setby theRemun at the date of the award. A valuation was performed for those awards based on the terms that applied to Remuneration similar The awards years. made in previous of valuation the and 2010 22 March from effective 2009 and 2008 in made awards the for conditions performance the set Committee 2010. December 31 ended in the year
104 Notes to the accounts continued accounts to the Notes (continued) payments Share-based 24. values fair of Measurement simulation. Carlo Monte the on based was measured plan purchase share employee the through granted rights the of value fair The The inputs to the modelare asfollows: date grant on price Share 1. conseque and goal challenging a highly represent EPS targets additional the that Committee Remuneration the by It is recognised EPS relevant the that is aim overall The its discretion. exercise will Committee the met, been have they whether in determining must have been met on a run-rate or underlying basis. As such, business. of the performance following the example, of way by time, the at fit sees it as EPS adjust to right the reserves Committee Remuneration the While grants: and 2009 2008 for the may be considered • Exercise price simulations Number of companies Number of Award life Award life dividend Expected • Fair value award at time of of grant rate interest Risk-free • •
Notes to the accounts continued
24. Share-based payments (continued) 2014 CIP Investment and matching grants The total number of matching awards made in 2014 to each participant was divided into three separate equal amounts and is subject to future performance periods of three, four and five years respectively. Thus, conditional on meeting the performance targets, the first amount will vest in March 2017, the second will vest in March 2018 and the third will vest in March 2019. These vesting dates relate to the financial years ending 31 December 2016, 31 December 2017 and 31 December 2018 respectively. The vesting of these awards is subject to the achievement of challenging corporate performance targets. 75% of each of the three amounts is subject to defined adjusted earnings per share (EPS) targets over the respective performance periods. The remaining 25% of each will be subject to relative total shareholder return (TSR) targets over the respective periods. The targets are as follows: Adjusted EPS targets for the financial years ending % of awards eligible for vesting 2016 2017 2018 25% 14.3p 16.1p 17.1p 50% 15.2p 17.4p 18.9p 75% 16.1p 18.8p 20.7p 100% 17.0p 20.2p 22.5p
No shares will vest in each respective year unless the minimum adjusted EPS target for that year is achieved.
IWG TSR % achieved relative to % of awards eligible for vesting FTSE All Share Total Return index(1) Below index 0% Median 25% Upper quartile or above 100%
1. Over the three-, four- or five-year performance period.
2015 CIP Investment and matching grants The total number of matching awards made in 2015 to each participant is subject to a future performance period of three years. Conditional on meeting the performance targets, the matching shares will vest in March 2020. The vesting date relates to the adjusted earnings per share (EPS) performance in the last finance year of the performance period, being 31 December 2017. The vesting of these awards is subject to the achievement of challenging corporate performance targets. 75% is subject to defined adjusted EPS targets over the performance period. The remaining 25% will be subject to relative total shareholder return (TSR) targets over the period. The targets are as follows: Compound annual growth in adjusted EPS % of awards eligible for vesting over the performance period 25% 24% 100% 32%
The target is based on compound annual growth from an equivalent “base year” EPS figure for 2014 of 7.4p. IWG TSR % achieved relative to FTSE 350 Index (excluding financial services % of awards eligible for vesting and mining companies) Below index 0% Median 25% Upper quartile or above 100%
106 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 106 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– – – – 107 0% 0% 0% 107 ficer ficer 2015 25% year 100% 100% 100% 100% awards award ree 328,751 328,751 March Number of hieved. The The hieved. Vesting at target at Vesting – – – – 2016 awards 328,751 328,751 Number of Number
% of one third of the award that vest % of one third of the award that vest % of one third of the award % of one third of the award that vest 5% Target Target On a straight-line basis between 0% and 100% 0% basis between On a straight-line On a straight-line basis between 0% and 100% 0% basis between On a straight-line On a straight-line basis between 25% and 100% 25% basis between On a straight-line ich performance conditions are ac granted to the Company’s Chief Financial Of Financial Chief Company’s the to granted TSR ofTSR the comparator group follows: as subject to relative total shareholder return (TSR) (TSR) return shareholder total relative to subject S over the performance period measured from EPS in the financial ructured as a conditional award and was granted under a one-off ars, if and to the extent to wh s points gs per share (EPS) conditions, one third is third one conditions, per share (EPS) gs nce of the Group’s TSR against the median median the against TSR Group’s of the nce returnon investment (ROI) conditions. ending 31 December 2015 as follows: as follows: 2015 December 31 ending conditions and one third is subject to The EPS condition isbased on the compound annualgrowth in EP Exercised during the year year the during Exercised December Outstanding at 31 Lapsed during the year year the during Lapsed Exercisable at 31 December One-off award granted during the year year the during granted award One-off At 1 January At 1 January Reconciliation of outstanding share options Performance metric metric Performance Compound annual growth over in EPS performance the period In November 2015, an award of 328,751 ordinary of 1p each shares in Company In the was an ordinary November award of 328,751 2015, andChiefOperating Officer, Dominik de Daniel. Theaward was st ROI improvement exceeds 2015 ROI by less than 300 basi 300 less than by ROI 2015 exceeds ROI improvement Award 3: One-Off Plan Vesting scale scale Vesting plus 300 basis points ROI 2015 exceeds ROI improvement The ROI condition isbasedoveron the ROIimprovement theperformanceperiod relative to ROIfor the financial yearending 31 as follows: 2015 December TSR growth exceeds the median by 10% or more more 10% or by the median exceeds TSR growth by less than 10% median the exceeds TSR growth The TSR condition is based on the performa on the based is The TSR condition scale Vesting Vesting scale scale Vesting 25% 25% 5% and Between 5% TSR ranked at median the median below ranked is TSR growth ROI 2015 the than less equal to or is ROI 9.4.2(2). Rule Listing under established arrangement ye five over vest will award the events of course normal In the applicable performance target is set out below: 24. Share-based payments (continued) (continued) payments Share-based 24. grant PSP Investment 2016 th over measured are conditions These conditions. performance different three to subject are awarded shares of number total The
financial years commencing on 1 January 2016. Thus, conditional on meeting these performance targets, these shares will vest in vest will shares these targets, performance these on meeting conditional Thus, 2016. on January 1 commencing years financial 2021. One third is subject to defined earnin defined to is subject third One 2021. (1)
0% 0% 24% 32% 25% 25% 100% 100% ct these ts over ts over relative ned justed elate the first he targets targets he and mining companies) and mining over the performance period performance over the IWG TSR % achieved relative to relative TSR % achieved IWG IWG TSR % achieved relative to relative TSR % achieved IWG FTSE All Total Return Share index 2016 2018 2017 16.1p 18.8p 20.7p 18.8p 16.1p 22.5p 20.2p 17.0p 14.3p 16.1p 17.1p 16.1p 14.3p 18.9p 17.4p 15.2p Compound annual growth in adjusted EPS growth in adjusted Compound annual FTSE 350 Index (excluding financial services services financial FTSE 350 Index (excluding respectively. The vesting of these awards of these vesting The respectively. Adjusted EPS targets for the financial years ending years financial for the Adjusted EPS targets tive total shareholder return (TSR) targets over the period. T period. the over targets (TSR) return shareholder total tive ipant is subject to a future performance period of three years. spectively. Thus, conditionalonmeeting theperformance targets, eminimum adjustedEPS for target that year is achieved. respective periods. The targets are as follows: follows: as are targets The periods. respective 2016, 31 December 2017 and 31 December 2018 2018 31 December and 2017 31 December 2016,
IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Over the three-, four- or five-year performance period.
25% 25% 100% The target is basedon compound annual growth fromanequivalent “baseyear” EPS figurefor 2014 of 7.4p. for vesting % of awards eligible Below index Median Upper quartile or above 106 Notes to the accounts continued accounts to the Notes (continued) payments Share-based 24. grants matching and Investment CIP 2014 The total number of matching awards made in 2014 to each participant was divided into three separate equal amounts and is subje to future performance periods of three, four and five years re 31 December ending years financial to the defi to is subject amounts of three the each of 75% targets. performance corporate challenging of achievement to the is subject to be subject will of each 25% remaining The periods. performance respective the over targets (EPS) share per earnings adjusted total shareholder returnover (TSR) targets the 25% 50% 75% 100% Nowill shares respectivevest in each year unless th for vesting % of awards eligible Below index Median Upper quartile or above 1. grants matching and Investment CIP 2015 The total number of matching awards made in 2015 to each partic ad the to relates date vesting The 2020. March in vest will shares matching the targets, performance the meeting on Conditional of vesting The 2017. December 31 being period, performance the of year finance last in the performance (EPS) share per earnings targe EPS adjusted defined to subject is 75% targets. performance corporate challenging of achievement the to subject is awards the performance period.will Theremainingbe 25% subject torela as follows: are for vesting % of awards eligible % of awards eligible for vesting for vesting % of awards eligible amount will vest in March 2017, the second will vest in March 2018 and the third will vest in March 2019. These vesting dates r dates vesting These will in March 2019. vest will third the and 2018 in March vest second the in March amount will vest 2017, Notes to the accounts continued
25. Retirement benefit obligations The Group accounts for the Swiss and Philippines pension plans as defined benefit plans under IAS 19 (2011) – Employee Benefits. The reconciliation of the net defined benefit asset/(liability) and its components are as follows: 2016 2015 £m £m Fair value of plan assets 5.8 3.9 Present value of obligations (6.6) (4.7) Net funded obligations (0.8) (0.8)
26. Acquisitions Current period acquisitions During the year ended 31 December 2016 the Group made a number of individually immaterial acquisitions for a total consideration of £10.8m. Provisional fair value Provisional £m Book value adjustments fair value Net assets acquired Intangible assets – 0.1 0.1 Property, plant and equipment 2.4 – 2.4 Cash 1.2 – 1.2 Other current and non-current assets 2.6 – 2.6 Current liabilities (5.4) – (5.4) Non-current liabilities (0.1) – (0.1) 0.7 0.1 0.8 Goodwill arising on acquisition 10.0 Total consideration 10.8 Less: Fair value adjustment of historical investment in acquired joint venture (2.5) Less: Contingent consideration (0.9) 7.4 Cash flow on acquisition Cash paid 7.4 Net cash outflow 7.4
The goodwill arising on the above 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. £0.1 m of the above goodwill is expected to be deductible for tax purposes. If the above acquisitions had occurred on 1 January 2016, the revenue and net retained profit arising from these acquisitions would have been £10.1m and £0.2m respectively. In the year, the equity acquisitions contributed revenue of £3.7m and net retained loss of £0.5m. There was £0.9m contingent consideration arising on the 2016 acquisitions. Contingent consideration of £2.7m (2015: £1.1m) was also paid during the current year with respect to milestones achieved on prior year acquisitions. The acquisition costs associated with these transactions were £0.5m, recorded within administration expenses within the consolidated income statement. For a number of the acquisitions in 2016, the fair value of assets acquired has only been provisionally assessed at the reporting date. The main changes in the provisional fair values expected are for the fair value of the leases (asset or liability), customer relationships and plant, property and equipment. The final assessment of the fair value of these assets will be made within 12 months of the acquisition date and, any adjustments reported in future reports. The Group continued to complete acquisition transactions subsequent to 31 December 2016, which will be accounted for in accordance with IFRS 3. Due to the timing of these transactions, it is not practical to disclose the information associated with the initial accounting for these acquisitions.
108 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 108 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
£m £m 3.6 109 109 Final 46.7 Total 2015 n of fair value £3.0m. dated dated goodwill ould have esses more ecognised he capital £m £m Final Final 42.6 2016 fair value fair value plant and and plant equipment equipment adjustments Motor vehicles, Motor vehicles,
£m 2.6 2.6 1.0 (1.0) (1.0) (1.0) 715.7 1.3715.7 717.0 123.8 123.8 123.8 123.8 123.8 123.8 123.8 107.0 (3.2)107.0 –124.8 103.8 124.8 922.7 –922.7 922.7 2,029.0 2.02,029.0 3.33,667.4 2,031.0 3,670.7 Property Property fair value fair value Provisional Provisional – (48.3) 1.6 (46.7) – – 25.5 25.5 £m 3.8 0.5 21.8 22.3 2.8 3.2 17.8 21.0 2.6 Total 883.7 2,387.9 1,170.4 4,442.0 fair value fair value Provisional Provisional adjustments – – £m 1.3 1.0 2.3 (7.7) (0.4) (8.1) (1.4) (9.5) 27.5 (3.2) 24.3 1.5 25.8 18.0 15.0 25.5 (48.3) plant and and plant 2016 2015 Book value equipment equipment Motor vehicles, vehicles, Motor m, recordedwithin administration expenseswithin the consoli s on new centres opening in 2017. In addition, our share of t £m cipated futurebenefits IWGobtain can fromoperating the busin 882.4 2,386.9 1,170.4 4,439.7 Property
£nil at 31 December 2016 (2015: £2.0m). £2.0m). (2015: 2016 December at 31 £nil cupancy and the addition of value-adding products and services. £37.2m of the above of the £37.2m services. and products of value-adding addition the and cupancy n arisingn on the above acquisitions. assets assets Current liabilities liabilities Current Non-current liabilities liabilities Non-current Other current and non-current non-current Other current and Property, equipment plant and Cash Between one and five years years five and one Between commitments of joint ventures amounted amounted to of joint ventures commitments
Lease obligations falling due: due: falling obligations Lease Within one year 28. Non-cancellable operating lease commitments As at the reporting date the Groupwas committed tomaking thefollowing payments in respectofoperating leases: These commitments are principally in respect of fit out obligation out fit of in respect principally are commitments These Contracts placed for future capital expenditure not provided for in the financial statements statements financial the in for provided not expenditure capital future for placed Contracts 27. Capital commitments commitments 27. Capital £124.8m. £124.8m. Cash paid outflow cash Net efficiently, primarily through increasing oc The goodwill arising on the above acquisitions reflects the anti the reflects acquisitions above the on arising goodwill The Cash flow on acquisition acquisition on flow Cash Goodwill arising on acquisition Goodwill arising on Less: Contingent consideration £m acquired assets Net Intangible assets During the year ended 31 December 2015 the Group made a number of individually immaterial acquisitions for a total consideratio total a for acquisitions immaterial individually of a number made Group the 2015 December 31 ended year the During consideration Total is expected to be deductible for tax purposes. w acquisitions these from arising profit retained net and revenue the 2015, on 1 January occurred had acquisitions above If the consideratio contingent £1.0m was There £3.8 were transactions these with associated costs acquisition The 26. Acquisitions (continued) 26. Acquisitions Prior period acquisitions
been £94.1m and £2.1m respectively. In the year, the equity acquisitions contributed revenue of £68.1m and net retained loss of loss retained net and £68.1m of revenue contributed acquisitions equity the year, the In respectively. £2.1m and £94.1m been income statement. The prior year comparativeinformation has not beenrestated due to the immaterial natureof thefinal fair valueadjustmentsr in 2016.
After five years five years After £m 3.9 (4.7) (0.8) 2015 nce n also fair value dated dated £0.5m. Provisional Provisional date and, and, date goodwill ould have esses more ng date. The The ng date. (2.5) £m 5.8 onships and plant, and onships al accounting for (6.6) (0.8) 2016 fair value fair value Provisional Provisional adjustments adjustments
10.0 10.8 (0.9) 7.4 7.4 7.4
– – 0.1 0.1 2.4 2.4 2.4 – 1.2 1.2 – 2.6 2.6 – 0.7 0.1 0.8 (5.4) (5.4) (5.4) – (0.1) (0.1) – Book value Book value ned benefit plans under IAS 19 (2011) – Employee Benefits. – Employee Benefits. 19 (2011) IAS under plans benefit ned nt to 31 December 2016, which will be accounted for in accorda will be accounted which 2016, nt 31 to December m, recordedwithin administration expenseswithin the consoli cipated futurebenefits IWGobtain can fromoperating the busin t practical to disclose the information associated with the initi with the associated information the to disclose t practical t/(liability) and its components are as follows: follows: are as t/(liability) and its components pines pension plans as as plans defi pension pines cupancy and the addition of value-adding products and services. £0.1 m of the above of the m £0.1 services. and products of value-adding addition the and cupancy
IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL paid during the current year withrespect tomilestones achievedon prior year acquisitions. £0.5 were transactions these with associated costs acquisition The income statement. reporti the at assessed provisionally been only has acquired assets of value fair the 2016, in acquisitions the of a number For relati customer liability), or (asset leases the of value fair the for are expected values fair provisional the in changes main acquisition of the 12 months within made be will assets these of value fair of the assessment final The and equipment. property any adjustments reported in future reports. The Group continued to completeacquisition transactions subseque no is it transactions, of these timing the to Due 3. with IFRS acquisitions. these efficiently, primarily through increasing oc is expected to be deductible for tax purposes. w acquisitions these from arising profit retained net and revenue the 2016, on 1 January occurred had acquisitions above If the of loss retained net and £3.7m of revenue contributed acquisitions equity the year, the In respectively. £0.2m and £10.1m been was £1.1m) (2015: of £2.7m consideration Contingent acquisitions. 2016 arising on the consideration contingent was £0.9m There The goodwill arising on the above acquisitions reflects the anti the reflects acquisitions above the on arising goodwill The 108 Notes to the accounts continued accounts to the Notes obligations benefit 25. Retirement and Philip Swiss for the accounts Group The The reconciliation of the net defined benefitasse assets plan Fair value of obligations of value Present 26. Acquisitions acquisitions period Current consideratio total a for acquisitions immaterial individually of a number made Group the 2016 December 31 ended year the During £10.8m. of £m acquired assets Net Intangible assets Property, equipment plant and Cash assets non-current Other current and Current liabilities Non-current liabilities acquisition Goodwill arising on consideration Total acquired vestment in venture joint in historical of adjustment value Fair Less: Less: Contingent consideration acquisition on flow Cash Cash paid outflow cash Net Net funded obligations obligations Net funded Notes to the accounts continued
28. Non-cancellable operating lease commitments (continued) Non-cancellable operating lease commitments exclude future contingent rental amounts such as the variable amounts payable under performance-based leases, where the rents vary in line with a centre’s performance. The Group’s non-cancellable operating lease commitments do not generally include purchase options nor do they impose restrictions on the Group regarding dividends, debt or further leasing. 29. Contingent assets and liabilities The Group has bank guarantees and letters of credit held with certain banks, substantially in support of leasehold contracts with a variety of landlords, amounting to £151.7m (2015: £122.8m). There are no material lawsuits pending against the Group. 30. Related parties Parent and subsidiary entities The consolidated financial statements include the results of the Group and its subsidiaries listed in note 31. Joint ventures The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year. Management fees received Amounts Amounts from related owed by owed to £m parties related party related party 2016 Joint ventures 2.9 8.6 8.0 2015 Joint ventures 2.2 7.2 7.6
As at 31 December 2016, £nil of the amounts due to the Group have been provided for (2015: £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: 2016 2015 £m £m Short-term employee benefits 12.7 11.3 Retirement benefit obligations 0.5 0.4 Share-based payments 0.5 0.7 13.7 12.4
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 £2.9m (2015: £3.5m). These awards are subject to performance conditions and vest over three, four and five years from the award date. Transactions with related parties During the year ended 31 December 2016 the Group acquired goods and services from a company indirectly controlled by a Director of the Company amounting to £30,228 (2015: £15,466). There was a £27,720 balance outstanding at the year end (2015: £15,466). All outstanding balances 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.
110 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 110 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
111 111
% of ordinary share and votes held
100 100 100
e set United States States United 100 United Kingdom 100
Luxembourg 100 100 Luxembourg
Luxembourg Luxembourg 100
United Kingdom Kingdom United 100
Country of incorporation
United States 100
United Kingdom States United UnitedKingdom 100
Luxembourg Luxembourg 100
Luxembourg 100
ldings Group Limited gus H Holdings LLC Umbrella Holdings Sarl Sarl Holdings Umbrella Name of undertaking Principal activity – Management – activity Principal (continued) companies Regus Management Group LLC LLC Regus Management Group Principal activity – Holding and finance finance and Holding – activity Principal companies
LLC Corporation Regus 16, their principal activities and countries of incorporation ar 100 100 Regus 100 100 Umbrella Global Ho
% of ordinary share and votes held 100 100 Ltd Managers Property Office Serviced 100 100 Holdings AG Umbrella International Switzerland 100
100 100 Regus Ltd Management (UK) Sweden Sweden 100 United States United States 100 United States United States 100 Netherlands Netherlands 100 Re Switzerland Switzerland 100 United States States United 100 United Kingdom Kingdom United 100 France France 100 Germany Germany 100 Japan United Kingdom 100 Kingdom United 100 Country of incorporation Brazil Brazil Brazil Australia Australia 100 United States States United 100
Luxembourg Luxembourg 100 Italy Hong Kong Hong 100 Plc Regus United Kingdom Kingdom United 100 Luxembourg 100 de CV Mexico 100 Regus H Holdings Ltd Pte Ltd Singapore 100 Umbrella Group de CV de CV Mexico 100 CV CV Mexico 100 Regus Business Centre SA SA Regus Business Centre AB (Sweden) Management Regus ABC Business Limited Centres KBC Holdings Limited Regus Management Group (Pty) Ltd Regus Management Group (Pty) Ltd Ltd Management HK Regus South Africa Regus GmbH & Co. KG GmbH Regus Avanta Managed Offices Ltd Ltd Avanta Managed Offices MWB Business Exchange Centres Ltd MWB Business Exchange Centres Ltd Limited Centre Corporate Stonemartin Kingdom United 100 Kingdom United 100 HQ Global Workplaces LLC LLC Workplaces Global HQ RGN-BSuites Holdings, LLC Holdings, RGN-BSuites
Regus do Brasil Ltda Regus do Brasil Ltda Name of undertaking Trading – activity Principal companies 31. Principal Group companies companies 31. Principal Group The Group’s principal subsidiary undertakings at 31 December 20
out below: Excellent Business Centres GmbH GmbH Centres Business Excellent Srl Italia Regus Business Centres Germany Pty Regus Australia Management 100 Regus Management Singapore Corp Holdings Partner RGN Limited Canada 100 RGN National Business Centre LLC LLC National Business Centre RGN United States 100 HQ Do Brazil Administracao de bens e bens de HQ Do Brazil Administracao Ltda servicos Regus Management de Mexico,SA Regus Management de Mexico,SA BV Regus Amsterdam Regus Japan KK Regus Japan KK Office Suites Plus Properties LLC LLC Properties Plus Suites Office Regus Paris SAS Regus SAS Paris Principal activity – Management – activity Principal companies Regus Business Centres LLC LLC Regus Business Centres Regus Business Centres SA de SA Regus Business Centres Centros de Negocios Regus Centros de Negocios SA RBW Global Sarl Pathway Finance Sarl Sarl Finance Pathway Regus Service Centre Philippines BV SA Regus Global Management Centre Ltd Services Group Regus Philippines Switzerland 100 100 £m 0.4 0.7 8.0 11.3 12.4
2015 ns owed to Amounts rom ecting related party related ed in th a variety
ng the year, year, ng the the balances balances the
£m 0.5 0.5 12.7 12.7 13.7 2016 owed by Amounts related party party related
2.2 7.6 2.2 7.2 2.9 8.6 parties parties from related from related Management fees received fees received support ofwi leasehold contracts nt rental amounts such as thevariable amounts payable under with these balances outstanding All £nil). (2015: for provided been s and and s services from a company indirectly controlled by a Director certain banks, substantially in substantially banks, certain e are no material lawsuits pending against the Group. e the rents vary in line with a centre’s performance. wereoutstanding with Directors or officers of the Companyat the end of the yearorarose duri ts and liabilities IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Short-term employee benefits benefits employee Short-term obligations Retirement benefit Share-based payments grant awards of value fair full The year. the in charge accounting the reflect above table the in included payments Share-based f years and five four three, over vest and conditions performance to subject are awards These £3.5m). (2015: was £2.9m year the award date. the parties Transactions with related good acquired Group the 2016 December 31 ended year the During 110 Notes to the accounts continued accounts to the Notes 28. Non-cancellable operating lease commitments (continued) continge future exclude commitments lease operating Non-cancellable performance-based wher leases, The Group’s non-cancellableoperating lease commitments dogenerallynot include purchase options nor do they imposerestrictio on the Group regarding dividends, debt or further leasing. asse 29. Contingent The Group has bank guarantees and letters of credit held with Ther £122.8m). (2015: £151.7m to amounting landlords, of 30. Related parties entities Parent subsidiary and 31. note in listed subsidiaries its and Group the of results the include statements financial consolidated The ventures Joint The following table provides the total amount of transactions that have been entered into with related parties for the relevant year. financial £m 2016 ventures Joint 2015 Joint ventures have Group the to due amounts of the £nil 2016, 31 December As at are secured. balances of the None basis. length arm’s an on priced are parties related personnel management Key transactions or loans No credit Directors): (including personnel of key management Compensation Keymanagement personnel includethose personnel (including Directors) that haveresponsibility and authority planning, for dir Group: of the activities the and controlling of the Company amounting to £30,228 (2015: £15,466). There was a £27,720 balance outstanding at the year end (2015: £15,466). £15,466). (2015: end year at the outstanding balance a was £27,720 There £15,466). (2015: to £30,228 amounting Company of the All outstanding balances with these related parties are priced on an arm’s length basis and are to be settled in cash. None of are secured. that are required to be disclosed. Notes to the accounts continued
32. Key judgemental areas adopted in preparing these accounts The preparation of consolidated financial statements in accordance with IFRS requires management to make certain judgements and assumptions that affect reported amounts and related disclosures. Fair value accounting for business combinations For each business combination, we assess the fair values of assets and liabilities acquired. Where there is not an active market in the category of the non-current assets typically acquired with a business centre or where the books and records of the acquired company do not provide sufficient information to derive an accurate valuation, management calculates an estimated fair value based on available information and experience. The main categories of acquired non-current assets where management’s judgement has an impact on the amounts recorded include tangible fixed assets, customer list intangibles and the fair market value of leasehold assets and liabilities. For significant business combinations management also obtains third-party valuations to provide additional guidance as to the appropriate valuation to be included in the financial statements. Valuation of intangibles and goodwill We evaluate the fair value of goodwill and other intangible assets to assess potential impairments on an annual basis, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. We evaluate the carrying value of goodwill based on our CGUs aggregated at a country level and make that determination based upon future cash flow projections which assume certain growth projections which may or may not occur. We record an impairment loss for goodwill when the carrying value of the asset is less than its estimated recoverable amount. Further details of the methodology and assumptions applied to the impairment review in the year ended 31 December 2016, including the sensitivity to changes in those assumptions, can be found in note 12. Impairment of property, plant and equipment We evaluate the potential impairment of property, plant and equipment at a centre (CGU) level where there are indicators of impairment at the balance sheet date. In the assessment of value-in-use, key judgemental areas in determining future cash flow projections include: an assessment of the location of the centre; the local economic situation; competition; local environmental factors; the management of the centre; and future changes in occupancy, revenue and costs of the centre. Tax assets and liabilities We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing laws and rates, and their related interpretations, and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates. It is current Group policy to recognise a deferred tax asset when it is probable that future taxable profits will be available against which the assets can be used. The Group considers it probable if the entity has made a taxable profit in the previous year and is forecast to continue to make a profit in the foreseeable future. Where appropriate, the Group assesses the potential risk of future tax liabilities arising from the operation of its business in multiple tax jurisdictions and includes provisions within tax liabilities for those risks that can be estimated reliably. Changes in existing tax laws can affect large international groups similar to IWG and could result in significant additional tax liabilities over and above those already provided for. Onerous lease provisions We have identified certain poor performing centres where the lease is considered onerous, i.e. the Group does not expect to recover the unavoidable lease costs up to the first break point. The accounts include a provision for our estimate of the net amounts payable under the terms of the lease to the first break point, discounted at the Group weighted average cost of capital, where appropriate. Dilapidations Certain of our leases with landlords include a clause obliging the Group to hand the property back in the condition as at the date of signing the lease. The costs to bring the property back to that condition are not known until the Group exits the property so the Group estimates the costs at each balance sheet date. However, given that landlords often regard the nature of changes made to properties as improvements, the Group estimates that it is unlikely that any material dilapidation payments will be necessary. Consequently, provision has been made only for those potential dilapidation payments when it is probable that an outflow will occur and can be reliably estimated.
112 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 112 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
– £m 8.5 3.3 2.6 9.2 8.5 3.3 2.6 5.9 113 (2.7) (2.9) 113 As at and. and. 2,296.4 2,295.4 2,296.4 2,304.9 2,299.0 2,304.9 nd title Obligations) Obligations) 31 Dec 2016 (Swiss Code of of Code (Swiss
ce, Dammstrasse 19, CH-6300, Zug, Switzerl Zug, CH-6300, 19, Dammstrasse ce, ailable from the Company’s registered offi ailable registered from Company’s the Code of Obligations) of Obligations) Code
Total current assets assets current Total Total short-term liabilities liabilities long-term Total reserves Legal capital Treasury shares shares Treasury equityshareholders’ Total Basis of preparation preparation of Basis (32 Reporting Financial and Accounting on Law Swiss the of principles the to according prepared were statements financial These Chief Executive Officer Accounting policies Chief Financial Officer and Chief Operating Officer Approved by the Boardon 28 February2017 Mark Dixon de Dominik Daniel shareholders’ liabilitiesTotal equity and of Obligations). Swiss Code of the plc. of IWG statements financial consolidated in the included is Company The the for Obligations of Code Swiss the under prepared plc of IWG accounts non-statutory the from extracted has been sheet balance The av are which 2016, December 31 ended period capital Issued share liabilities Total Trade and other payables payables other and Trade Long-term bearing interest liabilities assets Total Investments Investments Assets Assets Trade receivablesother and
Summarised extract of Company balance sheet sheet balance Company of extract Summarised Swiss the under (prepared Parent company accounts accounts company Parent Total non-current assets assets non-current Total period the for Loss Reserves from capital contributions contributions Reserves from capital
value value ctions ctions ates. ates. airment pany vailable over the the over include: include: e carrying e carrying le under mpairment iness y. t in the t in the ate t to continue t continue to o the o the and and deferred tax itional tax tax itional against which the the which against business be estimated ons applied tothe i g the year year g the or durin on basis, an annual in the condition as at thed d assets and liabilities. For significant For and liabilities. d assets IWG and could result in significant add in significant result could and IWG ityto changesin those assumptions, canbe found innote 12. with IFRS requires management to make certain judgements and rrent taxlawsand rates and, in certain cases, business plans ation, management calculates an estimated fair value based on a e Group tothe propertyback hand siness centre or where the books and records of the acquired com acquired of the records and books the where or centre siness the Group assesses the potential riskof future tax liabilities arising from the sets and liabilities acquired. Where there is not an active marke r those potential dilapidation payments when it is probable that an outflow will h may or may not occur. We record an impairment loss for goodwill when the carrying ibles and thefairmarket valueof leasehol affect large international groups similar to ncy, revenue and costs of the centre. centre. of the costs and revenue ncy, coverable amount. Further details of the methodology and assumpti and methodology of the details Further amount. coverable ose already provided for. IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL of signing the lease. The costs to bring the property back to that condition are not known until the Group exits the property s property the exits Group the until known not are condition that to back property the bring to costs The lease. the signing of made of changes nature the regard often landlords that given However, date. sheet balance each at costs the estimates Group toproperties as improvements, the Groupestimates that it is unlikely that anymaterial dilapidation payments will be necessar Consequently, provision has been made only fo occur and can be reliably estimated. if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. We evaluate th proje flow cash future upon based determination that make and level a at country aggregated on our CGUs based of goodwill value whic projections growth certain assume which Onerous lease provisions to rec expect not does Group the i.e. onerous, is considered lease the where centres performing poor certain identified We have payab amounts net of the estimate our for a provision include accounts The point. break first up to the costs lease unavoidable appropriate. where of capital, cost average weighted Group at the discounted point, break first to the lease of the terms the Dilapidations Certain of our leases with landlords include a clause obliging th 112 Notes to the accounts continued accounts to the Notes 32. Key judgemental areas adopted in preparing these accounts in accordance statements financial of consolidated preparation The combinations business for value accounting Fair For each business combination, we assess the fair values of as goodwill and intangibles of Valuation ts to assess asse potential impairments intangible other and of goodwill value fair the evaluate We and equipment property, plant of Impairment of imp indicators are there where level (CGU) at a centre equipment and plant property, of impairment potential the evaluate We at the balance sheetdate. In the assessmentof value-in-use, key judgemental areas in determining future cashprojectionsflow ment of manage the factors; environmental local competition; situation; economic local the centre; the of location of the an assessment the centre; and future changes in occupa liabilities and Tax assets We base our estimate of deferred tax assets and liabilities on cu other expectations about future outcomes. Changes in existing laws and rates, and their related interpretations, and future bus results may affect the amount of deferred tax liabilities or valuationthe of deferred tax assets over time. Our accounting for estim consequences representsaccounting management’s in the estimatebest reflected appropriately ofbe can futurethat ents ev It is current Group policy to recognise a deferred tax asset when it is probable that future taxable profits will be available forecas is and year previous in the profit a taxable made has entity the if probable it considers Group The used. be can assets to make a profit in the foreseeable future. Where appropriate, can that risks those for liabilities tax within provisions includes and jurisdictions tax multiple in business its of operation laws can tax in existing Changes reliably. assumptions that affect reported amounts and related disclosures. with a bu acquired typically assets of non-current the category donotprovide sufficient informationto deriveaccurate an valu information and experience. include recorded amounts the on impact an has judgement management’s where assets non-current acquired of categories main The list intang customer fixed assets, tangible to valuation as appropriate the to guidance additional provide to valuations third-party obtains also management combinations financial statements. in the be included is of asset re less the its estimated than sensitiv the including 2016, 31 December ended year in the review liabilitiesover and above th Segmental analysis
Segmental analysis – management basis (unaudited) United Americas EMEA Asia Pacific Kingdom Other Total 2016 2016 2016 2016 2016 2016 Mature(1) Workstations(4) 138,433 71,159 66,928 56,000 – 332,520 Occupancy (%) 78.8% 78.5% 78.8% 75.4% – 78.2% Revenue (£m) 826.2 406.9 293.2 358.5 6.8 1,891.6 Contribution (£m) 188.0 104.1 72.9 83.9 4.4 453.3 REVPOW 7,572 7,283 5,559 8,489 – 7,277
2015 Expansions(2) Workstations(4) 26,891 16,542 22,138 10,539 – 76,110 Occupancy (%) 58.3% 63.5% 51.1% 76.1% – 59.8% Revenue (£m) 81.1 63.0 55.8 72.6 – 272.5 Contribution (£m) (12.2) 3.7 (1.6) 17.3 – 7.2
2016 Expansions(2) Workstations(4) 7,718 4,005 4,325 3,080 – 19,128 Occupancy (%) 30.4% 34.2% 31.0% 57.2% – 35.6% Revenue (£m) 12.1 6.2 7.6 9.4 1.5 36.8 Contribution (£m)(5) (12.9) (5.2) (3.4) (0.1) 1.5 (20.1)
Closures Workstations(4) 886 280 1,739 2,877 – 5,782 Occupancy (%) 63.3% 57.5% 72.5% 81.3% – 74.7% Revenue (£m) 3.6 0.7 6.6 21.6 – 32.5 Contribution (£m) (1.9) (1.0) (0.4) 9.3 – 6.0
Total Workstations(4) 173,928 91,986 95,130 72,496 – 433,540 Occupancy (%) 73.4% 73.8% 70.1% 75.0% – 73.0% Revenue (£m) 923.0 476.8 363.2 462.1 8.3 2,233.4 Contribution (£m) 161.0 101.6 67.5 110.4 5.9 446.4 Unallocated contribution (£m) – – – – – 2.4 REVPAW (£) 5,307 5,183 3,818 6,374 – 5,151
Period end workstations(6) Mature 139,919 72,652 67,554 57,832 – 337,957 2015 Expansions 28,107 16,826 22,408 11,659 – 79,000 2016 Expansions 14,415 7,290 8,665 3,849 – 34,219 Total 182,441 96,768 98,627 73,340 – 451,176
114 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 114 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
2 . 115 115 Total 2015 – 51.1% – 78.3% – 79.6% – 15.2 – (12.0) – 68.4 – 108.5 2015 Other
–1
2015 United Kingdom 2015 Asia Pacific Asia 4.7 10.6 44.2 2015 EMEA –––– 8.9 (1.7) (0.8) 0.9 16.8 (9.2) (0.5) (8.9) 6.6 22.5 29.2 13.0 43.8 2015 181.9 91.8 66.2 84.3 (0.2) 424.0 5,215 5,219 3,679 – 6,835 5,186 779.2171.0 406.6 90.5 289.1 58.2 2.9 449.2 (0.2) 107.7 1,927.0 427.2 2,268 1,263 2,950 – 6,100 12,581 6,757 7,024 5,033– 8,414 6,747 747.8 372.7 265.5 361.2 2.9 1,750.1 48.5% 51.6% 32.8%73.0% 81.4% 64.5% 80.7% 81.9% 81.0% 76.4% 79.4% 80.5% 78.5% 73.9% 74.0% – 80.7% 77.0% 10,514 7,189 9,178 – 6,292 33,173 Americas 149,414 77,901 78,571 – 65,721 371,607 136,632 69,449 66,443 – 53,329 325,853 gement basis (unaudited) (unaudited) basis gement
(2)
(4) (4) (4) (4)
(3) (1) Workstation numbers are calculated as the weighted average for the year year the for average weighted as the calculated are numbers Workstation 2017 in open will which centres for 2016 in incurred costs any includes expansions 2016 Workstations available at period end The mature business comprises centres not opened in the current or previous financial year year financial previous or current the in opened not centres comprises business mature The Expansionsinclude new centres opened and acquired businesses 2016 December 31 to 2015 1 January from period the during closed a centre as defined is data comparative 2015 the for A closure
Total Closures 4. 5. 6. Unallocated contribution (£m) (£m) contribution Unallocated REVPAW(£) Occupancy (%) (%) Occupancy (£m) Revenue (£m) Contribution Workstations Mature
Notes: 1. 2. 3. Segmental analysis – mana – analysis Segmental
REVPOW 2015 Expansions
(£m) Contribution
(£m) Revenue Revenue (£m) (£m) Contribution Workstations
Workstations Workstations (%) Occupancy (%) Occupancy (%) Occupancy
(£m) Contribution (£m) Revenue 7.2 6.0 2.4 32.5 36.8 Total 2016 7,277 272.5 5,782 5,151 78.2% 59.8% 35.6% 74.7% 73.0% 19,128 76,110 34,219 79,000 332,520 337,957 451,176 433,540
– – – – – – – – – – – – – – – – – – – – – 1.5 (20.1) 4.4 453.3 2016 Other Other
– 9.4 1.5 9.3 17.3 17.3 2016 3,080 6,374 3,849 8,489 2,877 110.4 110.4 5.9 446.4 United United Kingdom – (1.6) 2016 363.2 462.1 8.3 2,233.4 293.2 358.5 6.8 1,891.6 Asia Pacific – 3.7 (5.2) (3.4) (0.1) 2016 EMEA 476.8 101.6 67.5 406.9 104.1 72.9 83.9 – 3.6 0.7 6.6 21.6 886 280 1,739 (1.9) (1.0) (0.4) 81.1 63.0 55.812.1 72.6 6.2 7.6 2016 (12.9) (12.2) 7,718 4,005 4,325 923.0 161.0 5,307 5,183 3,818 826.2 188.0 7,572 7,283 5,559 73.4% 73.8% 70.1% 75.0% 78.8% 78.5% 78.8% 75.4% 58.3% 63.5% 51.1%30.4% 76.1% 34.2% 31.0%63.3% 57.2% 57.5% 72.5% 81.3% 26,891 16,542 22,138 10,539 28,10714,415 16,826 7,290 22,408 8,665 11,659 139,919 72,652182,441 67,554 96,768 57,832 98,627 73,340 173,928 91,986 95,130 72,496 138,433 71,159 66,928 56,000 Americas
gement basis (unaudited) (unaudited) basis gement
(6)
(5) (2) (2)
(4) (4) (4) (4) (4)
(1) IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 114 Segmental analysis analysis Segmental mana – analysis Segmental Total Workstations (%) Occupancy (£m) Revenue (£m) Contribution (£m) contribution Unallocated REVPAW(£) Period end workstations Mature 2015 Expansions 2016 Expansions Total Mature Workstations Occupancy (%) Revenue (£m) Contribution (£m) REVPOW 2015 Expansions Workstations Occupancy (%) Revenue (£m) Contribution (£m) 2016 Expansions Workstations Occupancy (%) Revenue (£m) (£m) Contribution Closures Workstations Occupancy (%) Revenue (£m) Contribution (£m)
Post-tax cash return on net investment
The purpose of this unaudited page is to reconcile some of the key numbers used in the returns calculation back to the Group’s audited statutory accounts, and thereby, give the reader greater insight into the returns calculation drivers. The methodology and rationale for the calculation are discussed in the Chief Financial Officer’s review on page 22 of these accounts. 2013 2014 2015 2016 2017 Description Reference Aggregation Expansions Expansions Expansions Expansions Closures Total Post-tax cash return on net investment 21.5% 10.0% (2.6%) (15.8%) – – 13.7%
Revenue Income statement, p66 1,678.2 213.4 272.5 36.8 – 32.5 2,233.4 Centre contribution Income statement, p66 419.0 36.7 7.2 (19.0) (1.1) 6.0 448.8 (Profit)/loss on disposal of assets EBIT reconciliation (analysed below) (0.5) – – – – 1.5 1.0 Underlying centre contribution 418.5 36.7 7.2 (19.0) (1.1) 7.5 449.8 Selling, general and administration Income statement, p66 expenses(1) (165.3) (30.8) (49.6) (13.2) (0.1) (2.8) (261.8) EBIT EBIT reconciliation (analysed below) 253.2 5.9 (42.4) (32.2) (1.2) 4.7 188.0 Depreciation and amortisation Note 5, p79 124.6 23.2 34.0 8.3 – 4.4 194.5 Amortisation of partner contributions Note 5, p79 (32.3) (6.7) (7.9) (3.2) – (0.1) (50.2) Amortisation of acquired lease fair value Note 5, p79 adjustments (3.8) (0.3) 1.0 – – – (3.1) Non-cash items 88.5 16.2 27.1 5.1 – 4.3 141.2 (2) Taxation (50.7) (1.2) 8.5 6.4 0.2 (0.9) (37.7) Adjusted net cash profit 291.0 20.9 (6.8) (20.7) (1.0) 8.1 291.5 Maintenance capital expenditure Capital expenditure (analysed below) 81.0 5.7 – – – – 86.7 Partner contributions Partner contributions (analysed below) (20.4) (0.8) – – – – (21.2) Net maintenance capital expenditure 60.6 4.9 – – – – 65.5 Post-tax cash return 230.4 16.0 (6.8) (20.7) (1.0) 8.1 226.0
Growth capital expenditure Capital expenditure 1,247.4 207.0 325.0 183.7 30.0 – 1,993.1 (analysed below) Partner contributions(3) Partner contributions (analysed below) (174.8) (47.1) (66.0) (52.9) (3.3) – (344.1) Net investment 1,072.6 159.9 259.0 130.8 26.7 – 1,649.0
1. Including research and development expenses 2. Based on EBIT at the Group’s long-term effective tax rate of 20% 3. The 2015 expansions includes £9.9m of partner contributions arising in 2016
116 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 116 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
£m 8.9 5.5 117 117 86.7 25.6 (13.1) (13.1) 228.4 313.8 215.9 315.1
Closures Total Note 14, p87 Note 14, p87 Note 13, p86 Cash flow, p70 Cash flow, p70 Cash flow, p70 Cash flow, p70 CFO review, p25 p25 CFO review, p25 CFO review, 2017
y , y y y ible Expansions Expansions g
t investment has been fullyrecovered 2016
(6) (6) Expansions Expansions 2016 Capital expenditure of intan Purchase Purchase of propert of Purchase Proceeds on propert disposals disposals undertakings undertakings Properties acquired acquired Properties Proceeds on propert Purchase ofsubsidiar The proceeds on the property disposal of £13.1m is is £13.1m of disposal property the on proceeds The plant property, of on disposal proceeds the in included on statement Flow Cash Group the in equipment and page 70 plant and equipment plant and equipment assets assets 2015
• • • • • • expenditure capital Total Analysed as • 6. 2016 2016 expenditure Capital Maintenance capital expenditure Reference Growth capital expenditure Expansions – 9.9 3.3 87.3 49.0 21.2 52.9 68.5 48.3 (50.2) 247.8 265.4 199.5 333.9 2014 Expansions
– – (11.4) – – – (11.4) – – 37.3 30.0 148.6 – 215.9 – – – 25.6 – – 25.6 2013 (25.1) (1.4) (6.1) – – – (32.6) Note 5, p79 Note 17, p88 Note 17, p88 Note 17, p88 Note 17, p88 1,272.5 208.4 305.2 9.5 – – 1,795.6 1,247.4 207.0 325.0 183.7 30.0 – 1,993.1
Aggregation (3) Current Current Non-current
• • 2014 expansions and before Current Current Non-current 2015 expansions 2016 expansions 2017 expansions
• partnerClosing contributions Utilised period in the Exchange differences 2016 2016 contributions Partner partner Opening Reference contributions • £m • period the in Acquired the period in Received • • • (1.0) (1.0) (0.8) 188.0 188.0 186.2 186.2 p66 p66 Income Income Income
statement, statement, statement, Note 5, p79 Note p79 5, (4)
(5)
2017 expansionsrelate to costs and investments incurred 2016 in for centres whichwill open in 2017 tha where only but year, the during closed centres in investment the by reduced is estate an for expenditure capital growth The
Sharejoint profit of on ventures profit Operating Movement in capital expenditure expenditure capital in Movement EBIT (before non- recurring items) Loss on disposal of assets 2016 2016 EBIT reconciliation Reference £m 4. 5. 2015 Growth capital expenditure capital Growth expenditure 2015 2016 expenditure Capital 2016 2016
2016 Growth capital expenditure capital Growth expenditure 2016 Properties acquired acquired Properties disposals Property closures Centre audited onale for the 2017 Expansions ClosuresExpansions Total
2016 Expansions Expansions 2015 Expansions 2014 Expansions (0.5) – – – (3.8) 1.5 – (0.3) 1.0 1.0 – – – (3.1) 81.0 5.7 – – – – 86.7 88.5 16.2 27.1 5.1 60.6 4.3 – 141.2 4.9 – – – – 65.5 2013 (20.4) (0.8) – – – – (21.2) (32.3) (6.7) (7.9) (3.2) (0.1) – (50.2) (50.7) (1.2) 8.5 6.4 0.2 (0.9) (37.7) 419.0 36.7 7.2 (19.0) 6.0 (1.1) 124.6 448.8 23.2 34.0 8.3 4.4 – 194.5 291.0 20.9 (6.8) (20.7) 230.4 8.1 (1.0) 291.5 16.0 (6.8) (20.7) 8.1 (1.0) 226.0 418.5 36.7253.2 7.2 5.9 (19.0) 7.5 (1.1) (42.4) 449.8 (32.2) 4.7 (1.2) 188.0 (174.8) (47.1) (66.0) (3.3) (52.9) – (344.1) (165.3) (30.8) (49.6) (13.2) (2.8) (0.1) (261.8) 21.5% 10.0% (2.6%) (15.8%) – – 13.7% 1,247.4 207.0 325.0 30.0 183.7 – 1,993.1 1,678.2 213.4 272.5 36.8 32.5 – 2,233.4 1,072.6 159.9 259.0 26.7 130.8 – 1,649.0 Aggregation
Note 5, p79 Note 5, p79 Note 5, p79 (analysed below) below) (analysed below) (analysed (analysed below) below) (analysed below) (analysed (analysed below) below) (analysed below) (analysed EBIT reconciliation EBIT reconciliation EBIT reconciliation Capital expenditure expenditure Capital expenditure Capital Partner contributions contributions Partner contributions Partner Income statement, p66 Income statement, p66 Income statement, p66
(3)
(1) (2) IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL Including research and developmentexpenses Based on EBITGroup’s atthe long-termeffective ratetax of 20% The 2015 expansions includes £9.9m of partner contributions arising in 2016
Revenue Centre contribution Centre contribution contributions Partner (Profit)/loss on disposal of (Profit)/loss assets on disposal contributions Amortisation of partner Partner contributions contributions Partner Net investment investment Net EBIT Adjusted net cash profit profit cash net Adjusted 1. 2. 3. 116 Post-tax cash return on net investment investment net on return cash Post-tax Group’s the to back calculation returns the in used numbers key the of some reconcile to is page unaudited this of purpose The statutoryaccounts, and thereby, give the readergreater insight into the returns calculation drivers. Themethodology and rati accounts. these of 22 page on review Officer’s Financial Chief in the discussed are calculation Reference Description investment net on return cash Post-tax Growth capital expenditure Amortisation offair acquired lease value adjustments expenditure capital maintenance Net Selling, general and administration administration and Selling, general expenses Depreciation amortisationand Maintenance capital expenditure Underlying centre contribution contribution centre Underlying items Non-cash Taxation return cash Post-tax Five-year summary
Full year ended Full year ended Full year ended Full year ended Full year ended 31 Dec 2016 31 Dec 2015 31 Dec 2014 31 Dec 2013 31 Dec 2012 £m £m £m £m £m Income statement Revenue 2,233.4 1,927.0 1,676.1 1,533.5 1,244.1 Cost of sales (1,784.6) (1,498.6) (1,293.0) (1,159.7) (923.4) Gross profit (centre contribution) 448.8 428.4 383.1 373.8 320.7 Administration expenses before non-recurring expenses (258.9) (273.6) (270.9) (275.9) (225.7) Research and development (2.9) (10.3) (8.7) (7.2) (4.5) Operating profit (before non-recurring items) 187.0 144.5 103.5 90.7 90.5 Non-recurring items (1.0) 15.3 – – – Operating profit (including non-recurring items) 186.0 159.8 103.5 90.7 90.5 Share of post-tax profit/(loss) of joint ventures (0.8) 0.3 0.8 0.1 (0.3) Profit before financing costs 185.2 160.1 104.3 90.8 90.2 Finance expense (11.6) (15.0) (17.3) (10.5) (5.9) Finance income 0.1 0.6 0.1 1.2 0.8 Profit before tax for the year 173.7 145.7 87.1 81.5 85.1 Income tax expense (34.9) (25.8) (17.2) (14.6) (14.2) Profit after tax for the year 138.8 119.9 69.9 66.9 70.9
Attributable to: Equity shareholders of the parent 138.8 119.9 69.9 66.9 70.9 Minority interests – – – – – 138.8 119.9 69.9 66.9 70.9
Earnings per ordinary share (EPS): Basic (p) 14.9p 12.8p 7.4p 7.1p 7.5p Diluted (p) 14.7p 12.6p 7.2p 7.0p 7.5p Weighted average number of shares outstanding (‘000s) 929,830 933,458 944,082 943,775 941,922
Balance sheet data (as at 31 December) Intangible assets 738.1 666.0 549.9 491.7 363.9 Property, plant and equipment 1,194.4 917.0 718.8 608.7 437.5 Deferred tax assets 29.3 36.4 40.0 33.4 33.9 Other assets 649.2 644.3 565.2 423.8 333.9 Cash and cash equivalents 50.1 63.9 72.8 84.7 132.3 Total assets 2,661.1 2,327.6 1,946.7 1,642.3 1,301.5 Current liabilities 1,183.1 1,085.7 891.9 758.8 612.5 Non-current liabilities 736.0 658.2 517.4 369.3 161.6 Equity shareholders’ funds 742.0 583.7 537.4 514.2 527.4 Total equity and liabilities 2,661.1 2,327.6 1,946.7 1,642.3 1,301.5
118 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 118 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements
119 119 clients. This is expressed as is expressed This clients. WIPOW WIPOW workstation occupied per income Workstation Underlying performance Performancebefore non-recurring items like Like for The financial performance from centresowned and operated for priorperiod month a full to 12 theof start thefinancial which year, comparative a full-year have therefore business Mature ownedOperationsfor monthfullperiod a 12 prior to theof start the financial yearoperated and throughout thecurrentfinancial year, which therefore have a full-year comparative Occupancy Occupied workstations divided by available workstations expressedpercentage as a workstations Occupied Workstations whichare in use by year the for average a weighted REVPAW workstation available per revenue Total workstations) (Revenue/available REVPOW Total revenue per occupied workstation is is expressed as a weighted revenues less direct operating the EBIT and after deducting deducting EBIT and after the
Post-tax cash return return cash Post-tax capital partner any of amortisation the less achieved, EBITDA contribution, less tax based on maintenance capital expenditure Forward order book book Forward order The future workstation revenue already contracted with clients time in a point at Client enquiries about IWG products or services Expansions A general termwhich includesnew business centresestablished by IWGand acquired centres in the year EBITDAR EBITDAR Earnings before interest, tax, depreciation, amortisation and rent Enquiries expenses before but administrative expenses EBIT Earnings before interest and tax EBITDA Earnings before interest, tax, depreciation and amortisation Centre contribution Centre contribution Gross profit comprising centre The total numberof workstations in theGroup (also termed this year, the During Inventory). used is number absolute the ends period At average. Glossary workstations Available Glossary Glossary
£m 31 Dec 2012 Full year ended ended year Full £m 31 Dec 2013 Full year ended ended year Full
– – – – – – £m 0.1 1.2 0.8 1.2 0.1 0.8 (0.3) 0.1 31 Dec 2014 Full year ended ended year Full – £m 0.3 0.6 15.3 36.433.9 33.4 40.0 63.9 72.8 84.7 132.3 (10.3) (4.5) (7.2) (8.7) (15.0) (10.5) (17.3) (5.9) (25.8) (14.2) (14.6) (17.2) 12.8p12.6p 7.4p7.5p 7.1p 7.2p 7.0p 7.5p 428.4 320.7 373.8 383.1 144.590.5 90.7 103.5 159.8160.190.5 90.7 103.5 90.2 90.8 104.3 145.7119.985.1 81.5 87.1 70.9 66.9 69.9 119.970.9 66.9 69.9 119.970.9 66.9 69.9 666.0 363.9 491.7 549.9 917.0 437.5 608.7 718.8 644.3 333.9 423.8 565.2 658.2 161.6 369.3 517.4 583.7 527.4 514.2 537.4 (273.6) (270.9) (275.9) (225.7) 1,927.0 1,244.1 1,533.5 1,676.1 2,327.61,085.7 1,301.5 1,642.3 1,946.7 612.5 758.8 891.9 2,327.6 1,301.5 1,642.3 1,946.7 (1,498.6) (1,159.7) (1,293.0) (923.4) 933,458 941,922 943,775 944,082 31 Dec 2015 Full year ended ended year Full – £m 0.1 (2.9) (1.0) (0.8) 29.3 50.1 (11.6) (34.9) 14.9p 14.7p 448.8 187.0 186.0 185.2 173.7 138.8 138.8 138.8 738.1 649.2 736.0 742.0 (258.9) 2,233.4 1,194.4 2,661.1 1,183.1 2,661.1 929,830 (1,784.6) 31 Dec 2016 Full year ended ended Full year IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 2016 ACCOUNTS AND REPORT IWG PLC ANNUAL 118 Five-year summary summary Five-year statement Income Revenue Cost of sales Gross profit (centre contribution) contribution) (centre profit Gross Operating profit (before non-recurring items) items) non-recurring (before profit Operating Administration expenses before non-recurring expenses expenses non-recurring before expenses Administration Research and development development and Research items Non-recurring items) non-recurring (including profit Operating costs financing before Profit Finance income Share of post-tax profit/(loss)Sharejoint ventures post-tax of of expense Finance Profitbefore fortax the year year the for tax after Profit Income tax expense Attributable to: parent the of shareholders Equity Minority interests interests Minority Earningsper shareordinary (EPS): Basic (p) Diluted (p) (‘000s) outstanding shares of number average Weighted December) 31 at (as data sheet Balance Intangible assets Property, equipment plant and Deferred assets tax Other assets Other assets Cash and cash equivalents Total assets Total Current liabilities Non-current liabilities Equity shareholders’ funds funds shareholders’ Equity Total equity and liabilities liabilities and equity Total Shareholder information
Corporate directory Legal advisors to the Company as to English law Secretary and Registered Office Slaughter and May Tim Regan, Company Secretary One Bunhill Row IWG plc London EC1Y 8YY Registered Office: Registered Head Office: Legal advisors to the Company as to Jersey law 22 Grenville Street Dammstrasse 19 Mourant Ozannes St Helier CH-6300 22 Grenville Street Jersey Zug St Helier JE4 8PX Switzerland Jersey JE4 8PX Registered Number Legal advisors to the Company as to Swiss law Jersey Switzerland Bär & Karrer Ltd 101523 122154 Brandschenkestrasse 90 Registrars CH-8027 Capita (Registrars) Jersey Limited Zurich 12 Castle Street Switzerland St Helier Corporate stockbrokers Jersey JE2 3RT Investec Bank plc Auditor 2 Gresham Street KPMG London EC2V 7QP 1 Stokes Place J.P. Morgan Cazenove St. Stephen’s Green 25 Bank Street Dublin 2 Canary Wharf DO2 DE03 London E14 5JP Ireland Financial PR advisors Brunswick Group LLP 16 Lincoln’s Inn Fields London WC2A 3ED
120 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 120 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 The Forest Stewardship Council® (FSC) is an international network which promotes responsible management of the world’s forests. Forest certification is combined with a system of product labelling that allows consumers to readily identify timber-based products from certified forests. Designed and produced by Black Sun Plc | www.blacksunplc.com Printed in England by the Pureprint Group Annual Report and Accounts 2016 Accounts and Report Annual plc IWG
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