FLEXIBLE WORKSPACE – THE REVOLUTION ADVANCES
ANNUAL REPORT AND ACCOUNTS 2017 Introduction
A GLOBAL REVOLUTION
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1 Who we are THE GLOBAL LEADER FOR FLEXIBLE WORKSPACE
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LARGE CORPORATES SMES
Big companies have multiple needs. Above all, they Every company is different, in scale, culture and require flexible space to help them attract and retain ambition – we have the resources to meet every need, talent, be agile and optimise their costs and logistics. however diverse, in over 3,100 locations and 1,000 Just as they don’t want to get involved with property cities across the world. management, so property companies don’t want to deal with multiple different customers. That’s where we fit in. Adding value • 7KHDELOLW\WRRSHUDWHIURPKLJKTXDOLW\SUHVWLJLRXV Adding value sites that align with their own growth ambitions • ,PSURYHGILQDQFLDOSHUIRUPDQFHWKURXJKFRVWVDYLQJV • 7KHRSSRUWXQLW\WRWDNHRQORFDWLRQVFRVWHIIHFWLYHO\ UHGXFHGFDSLWDOH[SHQGLWXUHEHWWHUULVNPLWLJDWLRQDQG WRbEHFORVHWRFOLHQWVDQGDFFHOHUDWHVSHHGWRPDUNHW ORZHUYDFDQF\UDWHV • $FKRLFHRIZRUNVSDFHH[SHULHQFHVWRPDWFKWKHLURZQ • 7KHKHLJKWHQHGDELOLW\WRIUHHXSFDSLWDOIRULQYHVWPHQW corporate image and aspirations LQYDOXHJHQHUDWLQJDVVHWVDQGLQLWLDWLYHV • 5HOLDEOHDQGQRQLQWUXVLYHVHUYLFHDQGVXSSRUWZLWK • *UHDWHUEXVLQHVVDJLOLW\HQDEOLQJWKHPWRVFDOHXSDQG QRbUHTXLUHPHQWWRHPSOR\QRQFRUHVWDII GRZQLQbUHVSRQVHWRPDUNHWFKDQJHV • $FFHVVWRWKHODWHVWWHFKQRORJ\ZLWKWHFKQLFDO • 2SSRUWXQLWLHVWRRXWVRXUFHQRQFRUHIXQFWLRQVVR VXSSRUWDQGDEXVLQHVVFODVVLQIUDVWUXFWXUH WKH\FDQFRQFHQWUDWHRQWKHYDOXHDGGLQJHOHPHQWV • 7KHDYDLODELOLW\RIPHHWLQJVSDFHVLQWKHFHQWUHVZKHUH RIWKHLUEXVLQHVV WKH\DUHEDVHGDQGFRQYHQLHQWGURSLQFHQWUHVDFURVV • 7KHEHQHILWVRIZRUNLQJZLWKDODUJHJOREDOQHWZRUNWKDW the world UHIOHFWVWKHLURZQVFDOH • &RQVWDQWLQQRYDWLRQDQG5 'IURPDFRPPLWWHG • $WWUDFWLQJDQGUHWDLQLQJWKHEHVWWDOHQWWKURXJK IOH[LEOHZRUNVSDFHSURYLGHU providing inspiring workspaces in places where • *DLQLQJDFFHVVWRNH\VNLOOVLQWDOHQWKRWVSRWVDURXQG SHRSOHZDQWWRZRUNRUZLWKFRPPXQLWLHVWKH\ the world want to work with • (IILFLHQWNH\DFFRXQWPDQDJHPHQWDQGWKHRSSRUWXQLW\ WRZRUNZLWKXVFROODERUDWLYHO\ • 5DSLGHIIHFWLYHDQGFRVWHIILFLHQWZRUNSODFH UHFRYHU\bVROXWLRQV
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START-UPS INDIVIDUALS
Every business was a start-up once. We have the We never forget that individuals are businesses too, property portfolio and infrastructure to take a needing inspiring environments and collaborative business from concept to multinational. Indeed, some communities, the latest technology and reliable of the start-ups we have worked with are now among support. the biggest companies in the world. We look forward to helping emerging generations of entrepreneurs hit Adding value the same growth curve. • 7KHSRZHUIXOQHWZRUNLQJRSSRUWXQLW\WKDWFRPHV IURPZRUNLQJZLWKLQDFRPPXQLW\RIOLNHPLQGHG Adding value SURIHVVLRQDOV • &RVWHIIHFWLYHIXOO\HTXLSSHGVSDFHVWKDWKHOSWKHP • 7KHFKDQFHWRZRUNLQDQDIIRUGDEOHDQGSURIHVVLRQDO SXQFKDERYHWKHLUZHLJKWIRUKHLJKWHQHGFUHGLELOLW\ HQYLURQPHQWZLWKQRQHRIWKHSURGXFWLYLW\ DPRQJFOLHQWVSURVSHFWVDQGHPSOR\HHV GUDZEDFNVRIZRUNLQJIURPKRPHRUDORFDOFDI« • )OH[LEOHOHDVHVZLWKPLQLPDOOHDGWLPHVDQG • *DLQLQJDFFHVVWRUHVRXUFHVDQGH[SHUWLVHWKDWZRXOG QRbVHWXSFRVWV not be possible when working on their own • 5HOLDEOHVHUYLFHVXSSRUWWKDWIUHHVHQWUHSUHQHXUVWR • 7KHDYDLODELOLW\RIVHUYLFHVXSSRUWWKDWHQDEOHVWKHP FRQFHQWUDWHRQJHWWLQJWKHLUYHQWXUHRIIWKHJURXQG WRIRFXVRQYDOXHJHQHUDWLQJDFWLYLWLHV • A clear and compelling upgrade path that can cater • &RPSDQ\WKURXJKRXWWKHGD\WRSUHYHQWWKH IRUWKHLUQHHGVDWHYHU\VWDJHRIGHYHORSPHQW ORQHOLQHVVDQGIUXVWUDWLRQWKDWORQHZRUNHUVFDQ • $FFHVVWRYLUWXDORIILFHVHUYLFHVWKDWJLYHWKHPWKH VRPHWLPHVH[SHULHQFH IUHHGRPWRZRUNZKHUHYHUWKH\QHHGWR • $FFHVVWRWKHODWHVWWHFKQRORJLHVWRGLIIHUHQWLDWH • 7KHRSSRUWXQLW\WRZRUNLQLQVSLULQJVSDFHVZKLFK WKHPIURPWKHLUFRPSHWLWRUV align an appealing vibe with a corporate standard • 7KHDELOLW\WRXVHPHHWLQJVSDFHVDQGGURSLQ RIbTXDOLW\DQGVHUYLFH centres around the world • 7KHFKDQFHWREUDLQVWRUPZLWKDQGOHDUQIURPPRUH established businesses
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Cash Investment in growth Governance We are highly disciplined in our use One day soon, flexible working will simply of cash, underpinning and justifying be known as working. It is on the verge any investment decision with rigorous Returns to of becoming the norm for businesses risk-analysis processes. Every potential everywhere, as the advantages of investment is evaluated by our internal shareholders flexible and remote working become Investment Committee and has to meet increasingly recognised. our stringent financial criteria before We are therefore investing in our formats being approved. and national networks to meet customer Our ability to convert profit into cash During 2017, we acquired treasury shares demand, with a focus on growth markets is a particularly attractive feature of the for £51.1 million. In addition, we have across the world. We are increasingly IWG business model. This is because proposed under our progressive dividend aiming to link these networks to create policy to increase the 2017 dividend by we have the opportunity to reinvest the a global infrastructure that enables Financial statements cash flows generated from our locations 12% to 5.70p. business integration on a truly directly into attractive locations global scale. to further develop our network. Working in partnership with landlords It is this strong cash generation that is an important factor within this growth supports our ability to deliver a strategy, which has the added benefit of consistently progressive dividend significantly reducing the need to invest and share buybacks. our own capital. All potential investment is rigorously evaluated and has to meet our stringent financial hurdles before being approved. The agility of our business model allows our growth plans to be adjusted to reflect changing market conditions, which is an important aspect of our ability to manage risk through the economic cycle. We can Cash flow before growth capital Dividend per share either rapidly capitalise on a favourable expenditure, share repurchases (p) investment environment or restrict and dividends (£m) growth when necessary. £215.5m 5.70p
Net growth capital expenditure £272.5m Final nterim
21 Chairman’s statement A YEAR OF CONTINUED STRONG RETURNS
Our constructive, resilient and proven business model positions us well to continue to seize the opportunities generated by the flexible workspace sector.
DOUGLAS SUTHERLAND CHAIRMAN
For the period Group revenue increased 2017 was a year during which we saw the Our constructive, resilient and proven from £2,233.4m to £2,352.3m, benefits of our strong and balanced business model positions us well to representing an increase of 1.9% at global portfolio. While the year was not continue to seize the opportunities constant currency (up 5.3% at actual without its challenges, most notably in generated by the flexible workspace rates). Revenue from all our open centres London, our good performance in growth sector. Our operational scale, diverse (excluding closed centres) grew 4.2% to markets across the world meant that we customer base, innovative approach to £2,322.4m (2016: £2,154.8m) at constant delivered a set of results which we are service and format development, strong currency (up 7.8% at actual rates). The well-positioned to build on in 2018 and post-tax returns and cash-generative growth in open centre revenue beyond. capabilities should enable us to deliver increasing shareholder returns while accelerated sequentially through the We were also pleased to note the strong continuing to invest in growth. second half of the year, which provides underlying performance of the business, a strong platform for 2018. In line with which is shown by an annual post-tax Our strategy previous guidance, operating profit cash return on net investment made up declined 15% at constant currency from Our strategy enables us to drive, and to to 31 December 2012 of 20.8%, benefit from, the continuing and £185.2m to £163.2m, down 12% at significantly above our cost of capital. actual currency. accelerating growth of the flexible This performance underpins our workspace market. We further enhanced the operational continuing commitment to a sustainable efficiency of the business with overheads and progressive dividend (see over), In terms of our ability to drive growth, our reducing in absolute terms from £262.8m underlining our confidence in the market-leading global footprint means to £237.6m (down 12% at constant long-term prospects of the Group. we can constantly review our investments currency) and as a percentage of in growth by region, country and city. For Our confidence is well-placed. All the example, Germany is a particularly revenue by a further 1.7 percentage evidence suggests that we are fast points to 10.1%. This was achieved whilst attractive market where we significantly approaching a tipping point which will improved our profile during 2017. building the scale of our business and our see the flexible workspace option, in national networks with the opening of However, we still only provide some which we are the leading global supplier, 100 centres in a country which has the 314 new centres, adding c. 5.5m sq. ft. become the norm for progressive of workspace globally. Notwithstanding potential for many times that number businesses worldwide as they seek of locations. this increased investment in growth flexibility, employee satisfaction and cost (including £110.2m on property), the efficiency. strong cash generation capability of the business ensured we maintained a robust and conservative capital structure.
22 IWG PLC ANNUAL REPORT AND ACCOUNTS 2017 Strategic report
The growth potential therefore remains Our people Our operational scale, diverse huge, and we intend to focus on growing Our performance in 2017 was driven by in this and other similarly promising the energy and commitment of our customer base, innovative markets. This approach of reviewing our talented workforce. approach to service and format investments based on evolving market The engagement demonstrated by more development, strong post-tax conditions and opportunities also helps us manage risk through the economic than 220 attendees representing 110 returns and cash-generative cycle. countries at our recent annual leadership capabilities should enable us to conference was extremely impressive. In terms of benefiting from growth, there The participants were clearly excited to deliver increasing shareholder is no doubt that continuing to grow our be part of the leading, global flexible share of the global flexible workspace workspace operator. returns while continuing to Governance sector should deliver increased revenue invest in growth. and returns. I would like to thank everybody involved for their continued enthusiasm for We also recognise, however, that our providing outstanding service to our focus on growth should not distract us customers and growing our business. from other priorities. During 2017 and Their contributions remain key to our into 2018, therefore, we focused on success. delivering an enhanced service proposition to customers, prioritising the Dividend development of key accounts. We also As I have already stated, we continue our continued to assess and develop new commitment this year to a sustainable formats, to gain from improved market and progressive dividend, which reflects segmentation by geography and our confidence in the long-term prospects business type. of the business and the strength of our
cash generation. Accordingly, the Board Financial statements Above all, we have continued our is recommending an 11% increase in the established efforts to improve further our final dividend to 3.95p. Subject to the operating model with a determined focus approval of shareholders at the 2018 on simplicity, scalability, people, cost AGM, this will be paid on 25 May 2018 control, risk management and delivering to shareholders on the register at the a great customer experience. close of business on 27 April 2018. This Our Board represents an increase in the full-year I would again like to thank my Board dividend of 12% to 5.70p (2016: 5.10p). colleagues for their valuable contribution during 2017, which helped the Group deliver a robust performance in the face of challenging conditions in some DOUGLAS SUTHERLAND markets. CHAIRMAN
6 March 2018
23 &KLHI([HFXWLYH2IILFHUşVUHYLHZ THE REVOLUTION ADVANCES
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Performance by region On a regional basis, mature(1) revenue and contribution can be analysed as follows: Revenue Contribution 0DWXUHJURVVPDUJLQ eP 2017 2017 2017 Americas 926.4 177.6 19.2% (0($ 486.1 105.6 21.7% $VLD3DFLILF 351.1 74.3 21.2% UK 398.2 79.2 19.9% Other 2.9 6.8 (0.2) 6.8 Total 2,164.7 436.5 20.2%
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26 ,:*3/&$118$/5(3257$1'$&&28176 Asia Pacific We added 57 new centres into Asia Outlook Strategic report Revenue from all the open centres Pacific, taking the total as at 31 2017 was an important year for the increased 5.1% at constant currency to December 2017 to 638 centres. The flexible workspace industry globally and £379.3m. Total revenue in the region focus of this growth was in Japan, India, we remain confident that IWG will increased 2.2% at constant currency to China, Australia and, in the fourth quarter, continue to drive, and benefit from, the £383.2m (up 5.5% at actual rates). In the New Zealand where, including an accelerating customer demand and Mature business, revenue performance acquisition, we more than doubled our growth of flexible working. With the was stronger in the second half of the network to 16 locations. During 2017 competitive advantage from our year. Although mature revenue declined we added Kazakhstan to our network. operational scale, global network and by a modest 0.6% at constant currency UK quality of service and technology, we are for the year as a whole (up 2.6% at actual optimally positioned to benefit from Revenue from all the open centres rates), we saw signs of positive these long-term structural growth drivers. increased 1.6% to £425.8m. Total improvement in the fourth quarter. revenue (including closed centres) Our Group strategy remains unchanged. Mature occupancy increased from 71.8% declined 4.8% to £440.0m. Revenue We will continue to invest in our network to 73.0% and the gross margin improved from the Mature business in the UK so we can deliver future earnings growth from 20.4% to 21.2%. It was also declined 2.9% to £398.2m after a weak and increasing shareholder returns. We Governance pleasing to see the build-up of third quarter. will continue to focus on partnerships to momentum in the Mature business across drive capital efficiency and to grow and There were two contrasting performances several countries, including Japan and interlink our multi-brand national from our business in London and that of Australia. Both ended the year strongly. networks to enable more deals with the rest of the UK, as previously reported. Some markets, however, like India and larger corporates. Alongside investing for Revenue outside London increased and China, performed below our expectations. growth, we will focus on delivering saw sequential quarterly year-on-year attractive returns on the investments we improvement. Mature revenue in London have made in recent years and Partnering with property declined significantly and was monetising our leading network. A particularly weak throughout the second companies relentless focus on execution and half. Even within the London market there A glance at the figures shows why so disciplined approach to risk management were varied performances, with softer many real estate companies are keen will be key to delivering this. to partner with IWG. Recent research demand experienced in the City. While 2017 was not without its Financial statements from CBRE shows that: Although enquiry levels remained weak compared to the rest of the UK, there was challenges, the improved revenue • 71% of occupiers believe having a distinct improvement in average deal performance in Q4 on the back of a flexible workspace is vital to size in the fourth quarter. The absence of strong uplift in sales activity provides a delivering their corporate real larger deals in London had been a strong platform for growth in 2018. Sales estate objectives particular issue, especially in the third activity trends remain good and we • Up to 30% of corporate real estate quarter. With the decline in mature anticipate improved revenue growth portfolios could be flexible revenue, especially in a high value during the year. These trends, together workspaces by 2030 market like London, on a relatively fixed with the very positive outlook for our • 84% of survey respondents cost base in the near term, the mature industry, are reflected in our decision to believe that the move towards gross margin declined from 23.4% to increase the dividend by 12%, and flexible workspace is a permanent 19.9%. Mature occupancy reduced from maintain our progressive dividend policy. trend 75.6% to 72.1%. We look forward to the future with • The compound annual growth rate We added 56 new locations in the UK, great confidence. of flexible workspace is expected with a focus on the regions outside to be 24% between 2016 and London. During the first half we acquired 2020. Basepoint which added 31 locations Not only are we the world leader in primarily in the South of England which MARK DIXON providing businesses of all sizes with were very complementary to our existing Chief Executive Officer network. Basepoint broadens our product flexible workspace, we also offer real 6 March 2018 estate partners a uniquely powerful offering in the UK in terms of price point, route into this growth via an geographic presence and type of operating platform that creates new workspace as well as adding another channels into every market, sector brand to the Group. We now have 313 and industry. More than that, we locations in the UK at 31 December 2017. have the expertise, the platform and the infrastructure to manage their customer relationships for them in a highly efficient way.
27 2XUVWUDWHJLFREMHFWLYHVDQGNH\SHUIRUPDQFHLQGLFDWRUV A CLEAR AND SIMPLE STRATEGY
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Strategic objectives and approach
Delivering attractive, Cash generation sustainable returns before growth
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Key performance indicators SRVWWD[FDVK &DVKʑRZSHUVKDUH return on net EHIRUHQHWJURZWK LQYHVWPHQWE\\HDU FDSH[GLYLGHQGVDQG S RIRSHQLQJ Total estate VKDUHEX\EDFNV 2YHUDOOUHWXUQRQQHW 'XULQJZHJHQHUDWHGSRI LQYHVWPHQWPDGHXSWR FDVKIORZSHUVKDUHEHIRUHJURZWK 'HFHPEHURI FDSH[GLYLGHQGVDQGVKDUHEX\EDFNV
(6.9) ‘17 ‘17 23.5 (9.6) ‘16 ‘16 30.8
‘15 7.3 ‘15 23.1 ‘14 11.3 ‘14 18.6 ‘13 14.0 ‘13 12.2 ‘12 17.1 ‘12 11.8 ‘11 16.7
‘10 17.7
‘09 22.6
Future ambitions and risks – for more information on risks see p37-43
'HOLYHULQJSURILWDEOHJURZWKDQGVWURQJVXVWDLQDEOHUHWXUQVLV With our network growth delivering revenue growth over the FHQWUDOWRFUHDWLQJIXWXUHVKDUHKROGHUYDOXH:HDUHFRPPLWWHG ORQJWHUPDQGRXUVWURQJIRFXVRQRSHUDWLRQDOHIILFLHQF\DQG WRDFKLHYLQJWKLVE\RSWLPLVLQJUHYHQXHGHYHORSPHQWDQG FRVWFRQWURORXUEXVLQHVVPRGHOLVZHOOSRVLWLRQHGWRFRQYHUW FRQWUROOLQJFRVWVWKURXJKRXWRXUJOREDOQHWZRUNRIORFDWLRQV SURILWLQWRFDVK
28 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report
Controlling costs Developing national 4 networks oenneFinancial statements Governance :HDFKLHYHFRVWFRQWUROWKURXJKRSHUDWLRQDOH[FHOOHQFHDVZHOO We are continuing to grow our networks in those markets with DVWKHVLJQLILFDQWHFRQRPLHVRIVFDOHDQGRSHUDWLRQDOOHYHUDJH the greatest growth potential and where demand is strongest. that network growth brings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areas. UHWXUQVFULWHULD:HDUHDOVRIRFXVHGRQFDSLWDOOLJKWZD\VRI H[SDQGLQJWKHQHWZRUNLQFOXGLQJSDUWQHULQJZLWKSURSHUW\ RZQHUVIRURSWLPDOULVNPDQDJHPHQW
Total overheads as Network location DRIUHYHQXH growth 2YHUKHDGVDVDRI QHZORFDWLRQVDGGHG UHYHQXHVUHGXFHGES RSHQLQJLQQHZWRZQVDQG locations FLWLHVDWDQHWJURZWKFDSLWDO LQYHVWPHQWRIePRIZKLFK ePZDVRQSURSHUW\DVVHWV with workspace operations
‘17 10.1 ‘17 3,125
‘16 11.8 ‘16 2,926
‘15 14.7 ‘15 2,768
‘14 16.7 ‘14 2,269
‘13 18.5 ‘13 1,831
‘12 18.5 ‘12 1,411
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32 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report
Operational developments Revenue &RQVWDQWO\VWULYLQJWRLPSURYHRXU 5HSRUWHG*URXSUHYHQXHLQFUHDVHG Our Mature business showed EXVLQHVVDQGWKHIXWXUHSRWHQWLDOUHWXUQV DWFRQVWDQWFXUUHQF\WReP is an ongoing process. We have added eP DQLQFUHDVHRIDWDFWXDO SRVLWLYHUHYHQXHJURZWK QHZEUDQGVDQGIRUPDWVWRRXUSRUWIROLR UDWHV:HH[SHULHQFHGDUHYHQXH LQ4DWFRQVWDQWFXUUHQF\ WRHQKDQFHRXUDELOLW\WRPDWFKFXVWRPHU DFFHOHUDWLRQWKURXJKRXWDW with the growth rate accelerating GHPDQG7KHXQULYDOOHGVFDOHRIRXU FRQVWDQWFXUUHQF\1RWDEO\*URXS EXVLQHVVSURYLGHVXVZLWKWKHSODWIRUPWR UHYHQXHJURZWKDWFRQVWDQWFXUUHQF\ WKURXJKRXWWKHTXDUWHUZKLFK automate more processes and unlock the DFFHOHUDWHGIURPLQWKHWKLUG provides a good starting point RSSRUWXQLW\IURPDOORZLQJRXUHPSOR\HHV TXDUWHUWR LQWKHIRXUWKTXDUWHU IRU WRKDYHJUHDWHUIRFXVRQFXVWRPHU This revenue growth acceleration was service. We believe this will generate GULYHQE\DOOUHJLRQVH[FHSWWKH8. Financial statements Governance PDQ\SRVLWLYHVIRURXUEXVLQHVV ZKHUHUHYHQXHVWDELOLVHGVHTXHQWLDOO\ LQFOXGLQJIXUWKHULPSURYHGFRVW through the quarter. Revenue growth FRPSDUHGWRDGHFOLQHDWFRQVWDQW HIILFLHQF\ IURPDOORSHQFHQWUHVZDVVWURQJHUDQG FXUUHQF\IRUWKHVL[PRQWKVWR-XQH DFFHOHUDWHGIURPLQWKHWKLUG DQGDGHFOLQHIRUWKHWKLUG 7RXQORFNWKHJURZLQJRSSRUWXQLW\ZLWK TXDUWHUWRLQWKHIRXUWKTXDUWHU TXDUWHU7KLVZDVSULPDULO\GULYHQE\ FRUSRUDWHDFFRXQWVZHKDYHIRFXVHG ZKLFKGHOLYHUHGDLQFUHDVHIRUWKH improvements in the Americas and Asia more investment in this area. This \HDUDOODWFRQVWDQWFXUUHQF\7KHVH 3DFLILFDQGWRDOHVVHUH[WHQW(0($ LQYHVWPHQWLQFOXGHGWKHEROVWHULQJRIRXU LPSURYHPHQWVUHIOHFWWKHVWURQJXSOLIWLQ 0DWXUHRFFXSDQF\UHPDLQHGVROLGDW corporate accounts team to establish a VDOHVDFWLYLW\VLQFH2FWREHU ZLWKWKHGHFOLQHLQ WHDPRIVSHFLDOLVWVLQVWUDWHJLFPDUNHWLQJ RFFXSDQF\LQWKH8.RIIVHWE\ and selling to large corporations. We Our Mature business showed positive improvements in the other regions. believe this is an important investment UHYHQXHJURZWKLQ4DW IRUWKHIXWXUHRIWKHEXVLQHVVDQGZHDUH FRQVWDQWFXUUHQF\ZLWKWKHJURZWKUDWH 7KHFRQWLQXDWLRQRIWKHVHVDOHVDFWLYLW\ DOUHDG\VHHLQJWKHFRVWEHQHILWZLWKQHZ DFFHOHUDWLQJWKURXJKRXWWKHTXDUWHU WUHQGVUHLQIRUFHVRXUYLHZWKDWPDWXUH FRQWUDFWZLQVDQGDKHDOWK\SLSHOLQHRI ZKLFKSURYLGHVDJRRGVWDUWLQJSRLQWIRU UHYHQXHFDQLPSURYHLQ IXWXUHRSSRUWXQLWLHV:HDUHDOVR )RUWKH\HDUPDWXUHUHYHQXHDW $GGLWLRQDOO\ZHH[SHFWPDWXUHUHYHQXH investing in our development capabilities FRQVWDQWFXUUHQF\ IURPWKH WREHQHILWIURPWKHPDWXUDWLRQRIWKH WRHVWDEOLVKDVWURQJSLSHOLQHRIJURZWKLQ OLNHIRUOLNHORFDWLRQVDGGHGRQRUEHIRUH \HDU*URXSORFDWLRQRSHQLQJV IXWXUH\HDUV 'HFHPEHU GHFOLQHGWR ORFDWLRQV ZKLFKZHUHLQFRUSRUDWHGLQWR eP XSDWDFWXDOUDWHV WKH0DWXUHEXVLQHVVRQ-DQXDU\
Post-tax cash return on net investment by year group 12 months to December (%) 31.1 25.0 22.6 21.3 17.7 17.1 16.7 16.6 14.0 13.9 11.3
10.0 ‘16 ‘17 7.3
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34 ,:*3/&$118$/5(3257$1'$&&28176 Operating profit )RUWKH\HDUWR'HFHPEHU,:* Strategic report &DVKJHQHUDWHGEHIRUHWKH The absolute reduction in overheads in SOFSXUFKDVHGVKDUHV GHVLJQDWHGWREHKHOGLQWUHDVXU\DWD net investment in growth KDVKHOSHGWRPLWLJDWHVRPHRIWKH GURSWKURXJKRIWKHUHGXFWLRQLQJURVV FRVWRIePDQG WUHDVXU\ FDSLWDOH[SHQGLWXUHGLYLGHQGV SURILW*URXSRSHUDWLQJSURILWGHFUHDVHG VKDUHVZHUHXVHGWRVDWLVI\WKHH[HUFLVH and share repurchases was DWFRQVWDQWFXUUHQF\WReP RIVKDUHDZDUGVE\HPSOR\HHV$VDW 'HFHPEHUWKH*URXSKHOG eP eP eP GRZQDWDFWXDO UDWHV &RQVHTXHQWO\WKH*URXSRSHUDWLQJ VKDUHVLQWUHDVXU\ UHʑHFWLQJWKHVWURQJFDVK PDUJLQGHFUHDVHGIURPLQWR Cash flow and funding LQ conversion characteristic &DVKJHQHUDWLRQFRQWLQXHVWREHDKLJKO\ RIbRXUbEXVLQHVVbPRGHO Net finance costs DWWUDFWLYHIHDWXUHRIRXUEXVLQHVVPRGHO 7KH*URXSşVQHWILQDQFHFRVWVLQFUHDVHG $OWKRXJKUHSRUWHGRSHUDWLQJSURILW WReP eP 7KLVUHIOHFWV GHFOLQHGDVQRWHGDERYH*URXS(%,7'$ PRUHLQWHUHVWSDLGRQDKLJKHUOHYHORI UHPDLQHGEURDGO\VLPLODUWRWKHOHYHO drawdown on the Revolving Credit UHSRUWHGLQZKLFKSURYLGHVDJRRG oenneFinancial statements Governance )DFLOLW\ZLWKDQLQFUHDVHLQQHWGHEWIURP LQGLFDWLRQRIWKHVFDOHRIFDVKJHQHUDWHG DQRSHQLQJSRVLWLRQRIePWR in the period. e PDVDW'HFHPEHU7KHUH &DVKJHQHUDWHGEHIRUHWKHQHW ZDVDOVRDVPDOOQHJDWLYHLPSDFWIURP LQYHVWPHQWLQJURZWKFDSLWDOH[SHQGLWXUH IRUHLJQH[FKDQJHPRYHPHQWVFRPSDUHG dividends and share repurchases was WRDSRVLWLYHEHQHILWLQIROORZLQJ eP eP UHIOHFWLQJWKH WKHZHDNQHVVRIVWHUOLQJDIWHUWKHUHVXOW VWURQJFDVKFRQYHUVLRQFKDUDFWHULVWLFRI RIWKH8.5HIHUHQGXPRQ(8 RXUEXVLQHVVPRGHO2XUSHUIRUPDQFHLQ membership. EHQHILWHGIURPVRPHVSHFLILF Tax QRQUHFXUULQJSURMHFWVWRXQORFN DSSUR[LPDWHO\ePRIDGGLWLRQDO 7KHHIIHFWLYHWD[UDWHIRUWKH\HDUZDV working capital. 7KHLQFUHDVHLQ HIIHFWLYHWD[UDWHLVSULPDULO\GXHWR :HKDYHH[SHULHQFHGLQFUHDVHGWUDFWLRQ GHFUHDVHGUHFRJQLWLRQRIGHIHUUHGWD[ RQRXUVWUDWHJLFSULRULW\RIWDUJHWLQJOHVV DVVHWVLQWKH862XUH[SHFWDWLRQLVWKDW FDSLWDOLQWHQVLYHJURZWK,QDGGLWLRQZH WKHHIIHFWLYHWD[UDWHZLOOFRQWLQXHWREH LQYHVWHGePLQSURSHUW\ DURXQG LQYHVWPHQWVGXULQJWKH\HDU$VD FRQVHTXHQFH*URXSQHWGHEWLQFUHDVHG Earnings per share IURPePDW'HFHPEHUWR *URXSHDUQLQJVSHUVKDUHIRU e PDW'HFHPEHULQOLQH UHGXFHGWRS S 7KLV ZLWKRXUH[SHFWDWLRQV7KLVLQFUHDVHDOVR GHFUHDVHSULPDULO\UHIOHFWVWKH FRPHVDIWHUSD\LQJGLYLGHQGVRIeP ORZHUOHYHORISURILWDELOLW\7KLVZDVRQO\ DQGVSHQGLQJePRQEX\LQJRXURZQ PDUJLQDOO\RIIVHWE\WKHUHGXFWLRQ VKDUHV7KLVUHSUHVHQWVD*URXSQHWGHEW LQWKHZHLJKWHGDYHUDJHQXPEHURI (%,7'$OHYHUDJHUDWLRRIWLPHV:KLOVW VKDUHVRXWVWDQGLQJIRUWKH\HDU our approach to our borrowing continues 7KHZHLJKWHGDYHUDJHQXPEHURIVKDUHV WREHSUXGHQWZHFRQWLQXHWRUHFRJQLVH IRUWKH\HDUZDV WKHORQJWHUPEHQHILWRIDOVRRSHUDWLQJ 7KHZHLJKWHGDYHUDJH ZLWKDQHIILFLHQWEDODQFHVKHHW QXPEHURIVKDUHVIRUGLOXWHGHDUQLQJVSHU We continue to have adequate headroom VKDUHZDV WKURXJKRXUeP5HYROYLQJ&UHGLW $VDW'HFHPEHU )DFLOLW\WRH[HFXWHRXUVWUDWHJ\:H WKHWRWDOQXPEHURIVKDUHVLQLVVXHZDV LPSURYHGWKHGHEWPDWXULW\SURILOHRIWKLV IDFLOLW\GXULQJWKHILUVWKDOIRIE\ H[WHQGLQJLWWR SUHYLRXVO\ 7KHUHLVDIXUWKHURSWLRQWRH[WHQGXQWLO 7KHIDFLOLW\LVSUHGRPLQDQWO\ denominated in sterling but can be drawn in several major currencies.
35 Chief Financial Officer’s review continued
Cash flow The table below reflects the Group’s cash flow: £m 2017 2016 Group EBITDA 376.2 379.7 Working capital 44.2 104.2 Less: growth-related partner contributions (80.6) (66.1) Maintenance capital expenditure (95.6) (86.7) Taxation (22.4) (31.5) Finance costs (11.9) (16.1) Other items 5.6 2.6 Cash flow before growth capital expenditure, share repurchases and dividends 215.5 286.1
Gross growth capital expenditure (353.1) (228.4) Less: growth-related partner contributions 80.6 66.1 Net growth capital expenditure(1) (272.5) (162.3)
Total net cash flow from operations (57.0) 123.8 Purchase of shares (51.1) (35.5) Dividend (48.5) (43.3) Corporate financing activities 4.2 (3.1)
Opening net debt (151.3) (190.6) Exchange movement 7.3 (2.6) Closing net debt (296.4) (151.3)
1. Net growth capital expenditure of £272.5m relates to the cash outflow in 2017. Accordingly, it includes capital expenditure related to locations opened before 2017 and to be opened in 2018 of £30.4m. The remaining investment relates to the 314 locations added in 2017, including a net investment in property assets of £110.2m. The total net investment in the 2017 additions amounts to £268.8m so far
Foreign exchange rates At 31 December Annual average Per £ sterling 2017 2016 % 2017 2016 % US dollar 1.35 1.24 9% 1.30 1.35 (4)% Euro 1.13 1.17 (3)% 1.14 1.22 (7)% Japanese yen 152 145 5% 145 147 (1)%
Foreign exchange structure in place to identify, manage and the final dividend for 2017 by 11% to The Group’s results are exposed to mitigate such risks can be found on pages 3.95p (2016: 3.55p). This will be paid on translation risk from the movement in 37 to 43 and 58 to 60 of the Annual Friday, 25 May 2018, to shareholders on currencies. During 2017 key individual Report and Accounts. the register at the close of business on Friday, 27 April 2018. This represents currency exchange rates have moved, as Related parties shown in the table above. Overall, the an increase in the full-year dividend There have been no changes to the type favourable impact of the movement in of 12%, taking it from 5.10p for 2016 of related party transactions entered into exchange rates increased reported to 5.70p for 2017. by the Group that had a material effect revenue, gross profit and operating profit on the financial statements for the period by £77.1m, £12.3m and £6.4m ended 31 December 2017. Details of respectively. related party transactions that have taken DOMINIK DE DANIEL place in the period can be found in note Risk management CHIEF FINANCIAL OFFICER The principal risks and uncertainties 31 to the 2017 Annual Report and AND CHIEF OPERATING OFFICER affecting the Group remain broadly Accounts. unchanged. A detailed assessment of the Dividends 6 March 2018 principal risks and uncertainties which Consistent with IWG’s progressive could impact the Group’s long-term dividend policy and subject to performance and the risk management shareholder approval, we will increase
36 IWG PLC ANNUAL REPORT AND ACCOUNTS 2017 Risk management and principal risks RISK MANAGEMENT REMAINS AT THE CORE OF WHAT WE DO
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37 Risk management and principal risks continued
Principal risks Risk Mitigation Changes since 2016 Strategic
Lease obligations 7KHVLQJOHJUHDWHVWILQDQFLDOULVN 7KLVULVNLVPLWLJDWHGLQDQXPEHURIZD\V 'XULQJWKHQXPEHURIŞIOH[LEOHşOHDVHVDVD WR,:*LVUHSUHVHQWHGE\WKH RIRXUOHDVHVDUHŞIOH[LEOHşPHDQLQJ SHUFHQWDJHRIWKHWRWDOLQFUHDVHGWR IURP ILQDQFLDOFRPPLWPHQWVGHULYLQJ WKDWWKH\DUHHLWKHUWHUPLQDEOHDWRXU RQDQHQODUJHGHVWDWH IURPWKHSRUWIROLRRIOHDVHVKHOG RSWLRQZLWKLQVL[PRQWKVDQGRUORFDWHG $WWKHHQGRIZHZHUHRSHUDWLQJ across the Group. in or assignable to a standalone legal ORFDWLRQVLQWRZQVDQGFLWLHVDFURVVRYHU Whilst IWG has demonstrated HQWLW\ZKLFKLVQRWIXOO\FURVV FRXQWULHV FRQVLVWHQWO\WKDWLWKDVD JXDUDQWHHG,QWKLVZD\LQGLYLGXDO 6WDWXVŜ6DPH IXQGDPHQWDOO\SURILWDEOH FHQWUHVDUHVXVWDLQHGE\WKHLURZQ business model which works in SURILWDELOLW\DQGFDVKIORZ'XULQJWKH 5DWLQJŜ+LJK DOOJHRJUDSKLHVWKHSURILWDELOLW\ most recent downturn in selected 6WUDWHJLF2EMHFWLYHŜ'HOLYHULQJDWWUDFWLYH RIFHQWUHVLVDIIHFWHGE\ markets we were able to negotiate sustainable returns; Controlling costs PRYHPHQWVLQPDUNHWUHQWV UHYLVHGWHUPVZLWKRXUSDUWQHUVWRUHIOHFW ZKLFKLQWXUQLPSDFWWKHSULFHDW downward movements in market rates to which IWG can sell to its KHOSUHFRYHU\ customers. 2YHURIWKHOHDVHVZHHQWHUHGLQWR 7KHIDFWWKDWWKHRXWVWDQGLQJ GXULQJZHUHYDULDEOHLQQDWXUH lease terms with our landlords ZKLFKPHDQVWKDWSD\PHQWVWRODQGORUGV DUHRQDYHUDJHVLJQLILFDQWO\ YDU\ZLWKWKHSHUIRUPDQFHRIWKHUHOHYDQW longer than the outstanding FHQWUH,QWKLVZD\WKHŞULVNşWR terms on our contracts with our SURILWDELOLW\DQGFDVKIORZRIWKDWFHQWUH customers creates a potential IURPIOXFWXDWLRQVLQPDUNHWUDWHVLV PLVPDWFKLIUHQWDOVIDOO VRIWHQHGE\WKHFRQVHTXHQWDGMXVWPHQW VLJQLILFDQWO\ZKLFKFDQLPSDFW to rental costs. SURILWDELOLW\DQGFDVKIORZV 7KHVKHHUQXPEHURIOHDVHVDQG JHRJUDSKLFGLYHUVLW\RIRXUEXVLQHVV reduces the overall risk to our business DVWKHSKDVLQJRIWKHEXVLQHVVF\FOHDQG WKHSHUIRUPDQFHRIWKHFRPPHUFLDO SURSHUW\PDUNHWRIWHQYDULHVIURP FRXQWU\WRFRXQWU\DQGUHJLRQWRUHJLRQ 4 (DFK\HDUDVLJQLILFDQWQXPEHURIOHDVHV LQRXUSRUWIROLRUHDFKDQDWXUDOEUHDN point.
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38 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report
Risk Mitigation Changes since 2016 Strategic
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External appointments (OPDULV&KLHI)LQDQFLDO2IILFHU DQG'HSXW\&KLHI([HFXWLYH 2IILFHURIWKH57/*URXS +HLVDOVRD%RDUG0HPEHU RI$WUHVPHGLD 6SDLQ DQG 0HWURSROH7HOHYLVLRQ )UDQFH DQG&KDLUPDQRIWKH%URDGFDVW &HQWUH(XURSH6$ Experience (OPDUKDVH[WHQVLYH PDQDJHPHQWH[SHULHQFH 6LQFHKHKDVEHHQ&KLHI )LQDQFLDO2IILFHU+HDGRIWKH Corporate Centre and a Member RIWKH([HFXWLYH&RPPLWWHH ELMAR HEGGEN ,1'(3(1'(17 121(;(&87,9(',5(&725 R A N 0D\ Appointment to IWG 2FWREHU Appointment to Old Regus ,1'(3(1'(17 121(;(&87,9(',5(&725 FLORENCE PIERRE WLPHEHWZHHQGLUHFWRUVKLSV SULYDWHHTXLW\LQYHVWPHQWV LQKLJURZWKFRPSDQLHV providing innovative and GLJLWDOEDVHGVHUYLFHV managing her art collection and mountain trekking. )ORUHQFHDOVRVKDUHVKHU External appointments RILQWHUQDWLRQDOFRUSRUDWH ILQDQFHSUDFWLFHKROGLQJ VHQLRUSRVLWLRQVDW%13 )LQDQFLªUH5RWKVFKLOG 'HJURRI&RUSRUDWH)LQDQFH L,QIUDVWUXFWXUHSOFDQGKHU RZQ0 $DGYLVRU\ERXWLTXH )ORUHQFHKDVDQLQWHUQDWLRQDO SHUVSHFWLYHKDYLQJZRUNHGLQ &KLFDJR1HZ Dear shareholder I trust that you will find our reports to be This section is concerned with good fair, balanced and understandable; this is governance and the approach that a reflection of how we do business and your Board takes in order to promote how the Board serves its stakeholders. an effective and robust governance Board composition structure within the Group. It is the Following the 2017 annual general responsibility of your Board to ensure and meeting, Lance Browne resigned, with be responsible for the long-term success of François Pauly simultaneously replacing the Company through facilitating effective him as Senior Independent Non-Executive entrepreneurial and prudent management. Director and Nomination Committee Through the detail provided in the Chairman. We maintain a Board based on reports contained in this section, I hope merit which we believe encompasses the we can provide you with an insight into broad range of skills, backgrounds and how we continually strive to achieve experience necessary to properly serve our effective governance. shareholders. The mix of Board members brings together many backgrounds and Our approach to governance nationalities covering diverse executive We firmly believe that good governance responsibilities and, additionally, each starts with a strong Board providing member brings with them distinct yet entrepreneurial leadership and setting complementary personal experiences 7KHDLPRI\RXU%RDUGLV the values of the Group against a backdrop and approaches to matters which include WRVHWWKHYDOXHVRIWKH of prudent and appropriate safeguards, the evaluation of opportunities and checks and balances which are regularly &RPSDQ\WKURXJKDFXOWXUH management of risks. We continue to see reviewed and which ensure that the right the rewards and benefits of having such RIRSHQQHVVDQGGHEDWH considerations underpin every decision strength and diversity on the Board. we make. Nomination Committee DOUGLAS SUTHERLAND As your Board, it is our responsibility, CHAIRMAN through a culture of openness and The Nomination Committee report is set out on pages 56 to 57. debate, to determine the conduct of the Group's business with particular Remuneration Committee focus on the following areas: The Directors’ Remuneration report is set • performance and progress; out on pages 62 to 73 including the Remuneration Policy on pages 64 to 68. • major risks and their mitigation; • strategy; Audit Committee and auditors In view of our continuing long-term • ethics, behaviours and values; ambition for growth and the significant • people and how we can create investments that have been made across a high-performing team; the business, the Audit Committee has continued to play a substantial role in • future development and succession; ensuring appropriate governance and • customers; and challenge around our risk and assurance • accountability to shareholders. processes. This is covered in further detail on pages 37 to 43. Full details Independent Committee of the work of the Audit Committee are An Independent Committee comprised of in the Audit Committee report on pages the Chairman and Non-Executive Directors 58 to 61. was formed to consider the unsolicited approach nearing year end by funds DOUGLAS SUTHERLAND CHAIRMAN ,QWKLVVHFWLRQ managed by affiliates of Brookfield Asset Management, Inc. and Onex Corporation. The discussions ended on 1 February 2018. 50 Corporate governance 56 Nomination Committee report 58 Audit Committee report 62 Directors’ Remuneration report 74 Directors’ report 75 Directors’ statements 50 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 51 approval of long-term objectives the Audit Committee; Committee; Audit the and commercial strategy; the Remuneration Committee; and and Committee; Remuneration the approval of the annual budget; the Nomination Committee approval of regulatory announcements financial annual and interim the including statements; approval of terms of reference and membership ofand the Board and its Committees; approval of risk management strategy; changes to the Group’s capital structure; structure; Group’s capital the to changes changes to the Group’s management Group’s to changes the management and control structure; capital expenditure in excess of £5m; and material contracts (annualvalue in excess 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 Thereare three committeeswhich support Board: the • • • • • • (the “Committees”). delegated been have Committees The powerscertainfurther by the Board, work with the together details of which, of the Committees, can be found on pages 56 to 73. Thereferenceof terms eachof Committee can be found on the Company’s website: www.iwgplc.com acts as Secretary Company The Secretary to all the Committees and minutes of meetings are circulated toall Board members. • • • • • • • Minutes are taken of all Board discussions discussions all Board of are taken Minutes Director a that event the In decisions. and of the 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. 7/7 Attendance Attendance of meetings): (out of possible (out of possible maximum number maximum number 3/3 (1) Mark Dixon Mark Dixon Dominik de Daniel Lance Browne François Pauly Elmar Heggen Florence Pierre 7/7 Nina Henderson 7/7 1. 2017 16 May on board the left Browne Lance 6/7 6/7 7/7 7/7 Members Douglas Sutherland, Chairman is responsible for leadership of the the of leadership for responsible is its effectiveness Board and ensuring on all of its role; aspects the strategy for the Group and ensures ensures and Group the for strategy the measures resources, necessary that the are in place to and controls implement the agreed strategy and tomonitor performance; and the values form and standards which of culture corporate of the basis the Company. the schedule meeting Board sets the and and agenda; ensures that each meetingensures covers that an appropriate rangeofincluding topics business operations, strategy, projects special development, and administrative matters. Board meetings times. met seven Board the In 2017 Details of Board membership throughout are at meetings attendance and year the set out below: Role of the Chairman of the Chairman Role Chairman: The • LEADERSHIP Role of the Board The role of your Board is to facilitate effective, entrepreneurial and prudent managementandthat through to be collectively responsible for the long-term sets: Board The Company. of the success • • • • The UK Corporate Governance Code, as as Code, Governance Corporate UK The Reporting Financial by the published available and 2014 in September Council out sets “Code”), (the on www.frc.org.uk a series of principles and provisions documenting good practice in governance. Our CorporateGovernance Reportis structured to report against the main principles of the Code, which relate to: leadership, effectiveness, accountability, remunerationwith and relations 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 2017 provisions of the Code except in relation contact Director Independent to Senior Further shareholders. major with our in is provided on this information 55. on page Statement Compliance UK CORPORATE GOVERNANCE UK CORPORATE CODE Corporate Governance continued EFFECTIVENESS Re-election of the Board Development, information and Board composition All Executive and Non-Executive Directors support The Board currently comprises the submit themselves for re-election by All Directors have: shareholders annually. Directors appointed Chairman, two Executive Directors and • the opportunity to meet with major during the period since the last annual four Non-Executive Directors. The Board shareholders and have access to the general meeting are required to seek considers all Non-Executive Directors to Company’s operations and employees; be independent and they each bring their election at the next annual general meeting own senior-level experience and objectivity under the Company’s articles of association. • access to training which is provided on an to the Board. There have been no Directors appointed ongoing basis to meet particular needs during the period since the last annual with the emphasis on governance and The composition of the Board general meeting. accounting developments. During the year and Committees are both regularly the Company Secretary provided updates reviewed and the Board considers the Time commitment to the Board on relevant governance correct balance of expertise, skills and In accordance with the terms of their matters, whilst the Audit Committee dedication in order to discharge its duties appointment agreements, the Chairman regularly considers new accounting effectively has been maintained. and all Non-Executive Directors are developments through presentations Board appointments and succession expected to allocate such time as is from management, internal business necessary for the proper performance of assurance and the external auditors; and The Nomination Committee continues to their duties as Directors of the Company be responsible for leading the process for and are required to advise the Board if • access to the advice and services of the Board appointments, which it does on the there is a change in circumstances which Company Secretary, who is responsible for basis of the evaluation of the balance of will impact on the time they are able to ensuring that Board procedures, corporate skills, experience, independence and dedicate to the Company. governance and regulatory compliance are knowledge, and succession planning. followed and complied with. Appointment Further details of the Nomination Copies of all Non-Executives Directors’ and removal of the Company Secretary is Committee’s work and responsibilities appointment agreements are available for a matter reserved for the Board. are contained on pages 56 and 57. inspection at the Company’s registered office during normal business hours and at The Board programme includes the receipt the annual general meeting. Details of other of monthly Board reports and presentations commitments held by the Directors are given at Board meetings from management disclosed on pages 48 and 49. 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 He creates a framework of strategy, values, business. No one individual Director has time is available for discussion of all organisation and objectives to ensure the unfettered powers of decision-making agenda items, in particular strategic successful delivery of key targets, and and all Directors are required to act in issues. Additionally, he ensures effective allocates decision-making and the best interests of the Company. communication with shareholders and responsibilities accordingly. that the Board is aware of the views of major shareholders. He facilitates both the DOMINIK DE DANIEL contribution of the Non-Executive Directors CHIEF FINANCIAL OFFICER and constructive relations between the AND CHIEF OPERATING OFFICER Executive Directors and Non-Executive Responsible as CFO for leading the Directors, and regularly meets with the Non- finance and accounting functions. He Executive Directors without the Executive is also responsible for business ethics, Directors being present. In addition, he good governance, assisting with strategy oversees the corporate responsibility and compliance. Responsible as COO activities of the Group, including community for the implementation of the strategy projects and environmental impact initiatives. across the Group. 52 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 53 TIMOTHY REGAN TIMOTHY REGAN COMPANY SECRETARY is responsible Secretary Company The for advising the Board, through the Chairman, on all governance matters and ensuring that appropriate minutesare taken ofall Boardmeetings and discussions. Going concern The Directors, havingmade appropriate enquiries,have a reasonableexpectation have Company Group and that the the adequate resources to continue in operationalexistence perioda for of at least 12 months from the date of approval reason, this For statements. financial of the concern going the adopt to continue they on pages accounts the basis in preparing 125. 80 to for basis concern going the In adopting the statements, financial the preparing Directorshave considered thefurther informationincludedbusiness in the activities commentary as set out on pages 24 to 29, as wellas theGroup’s principal out on pages as set uncertainties risks and 43. 37 to basis concern going on the details Further of preparation can be found in note 24 of the notes to the accounts on page 105. udgement of the Non-Executive Directors NON-EXECUTIVE DIRECTORS DIRECTORS NON-EXECUTIVE and character counsel, independent The j enhances the development of strategy and and strategy of development the enhances Board. of the 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 that financialinformationand controls and systems of risk management are robust responsible also are They and defensible. for determiningappropriate levels of executive remuneration. to subject are Directors Non-Executive serve and requirements re-election the the Company under letters of appointment, term. three-year initial an have which ACCOUNTABILITY ACCOUNTABILITY businessFinancial and reporting In accordancewith its responsibilities the Board considersthis Annualand Report Accounts, takenasa whole, tobe fair, in addition and understandable balanced to providing the information necessary Company’s the assess to for shareholders position and performance, business model and strategy. A statement by the Company’s auditor about their responsibilitiesinrelation to is included and Accounts Report Annual the 79. 76 to pages on The Board conducts regular reviews of the Group’s strategic direction.and Country regional strategicplans and objectives, by set the are targets performance regularly and are Directors Executive of context the in Board the by the reviewed Group’s overall objectives. Further details of Company generates the on which basis the term longer over the value and preserves forthe delivering strategy and the objectivesof the Company are contained in 47. 1 to pages on Report Strategic the The Senior Independent Director acts for confidant and board a sounding as the Chairman,for as an intermediary necessary when as and Directors other Chairman’s of the appraisal the and leads performance.He is also availableto shareholders if they have concerns that cannot be resolved through normal channels. FRANÇOIS PAULY DIRECTOR SENIOR INDEPENDENT Board performance performance Board The Senior IndependentDirector annually Directors’ Non-Executive the leads performance evaluation of the Chairman, Directors Executive of views the the taking into account. of Board evaluation An internal annual for 2017. was performance conducted The results were reviewed and incorporated continuously to efforts our ongoing in effectiveness and processes the improve of the Board. There were noreportable we continueidentified and matters to havefull confidence in the Board’s membersprocesses. and Corporate Governance continued Longer-term viability The Board has delegated authority for REMUNERATION The Directors have also assessed the overseeing and reviewing the process of Remuneration Committee identifying, managing and reviewing risks viability of the Group and Company over a The Board has established a Remuneration to the Audit Committee, which reports three-year period to 31 December 2020. Committee with responsibility for the regularly to the Board. This is based on three years of strategic 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 ensure In making their assessment, the Directors system and the Committee’s review of our Remuneration Policy is aligned to took account of the further information its effectiveness are reported on pages Company strategy, key business objectives included in the business activities 58 to 60. and the best interests of our shareholders commentary as set out on pages 24 to 29, and stakeholders. Further details of the Audit Committee and auditors as well as the Group’s principal risks and Remuneration Committee’s work is uncertainties and related mitigation The Board has established an Audit contained on pages 62 to 73. In order approaches as set out on pages 37 to 43. Committee consisting entirely of to maintain transparency, approval for the They assessed potential financial and Independent Non-Executive Directors. Annual Report on Remuneration will be operational aspects of various severe The Audit Committee has responsibility sought at the annual general meeting. for ensuring the integrity of financial but plausible scenarios in the context of these principal risks and uncertainties information and the effectiveness of and potential combinations thereof along financial controls and the internal control with the likely effectiveness of available and risk management system. Further mitigating actions. details of the Audit Committee’s work and responsibilities are contained on Based on this assessment, the Directors pages 58 to 61. have a reasonable expectation that the Group and Company will be able to All members of the Audit Committee are continue in operation and meet all their considered by the Board to be competent liabilities as they fall due over the period in accounting and/or auditing. Furthermore, up to 31 December 2020. and in compliance with the Code, the Board regards Elmar Heggen as the Committee Principal risks member possessing recent and relevant The Board is responsible for assessing the financial experience. nature and extent of the principal risks it is On recommendation of the Audit 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 be its business model, future performance, launched during 2018 and it is proposed solvency or liquidity. The key risks to the that KPMG be re-appointed as the auditor Group and the steps taken to manage and for the financial year ending 31 December mitigate them which were reviewed and 2018. approved by the Board are detailed on pages 37 to 43. 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; 54 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 55 the following: Provision E.1.1 – the Senior Independent Independent Senior the – E.1.1 Provision Pauly, François Director, Non-Executive does nothavewith regular meetings shareholders. external major The Board considers itappropriate for the Chairman tobe themain conduit toinvestors, rather than the Senior Director. Non-Executive Independent The Chairmanparticipates in investor meetingsmakes and himself available for questions, in person, at the time of major as well as upon request. announcements Theregularly Chairman 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 able is and concerns of major shareholders. Notwithstanding this policy, all Directors have a standing invitation to participate investors. with meetings in INSURANCE is programme insurance Group’s The reviewed annually and appropriate protect to obtained is cover insurance the Directorsand seniormanagement in against being brought of a claim event the any of them in their capacity as Directors and Officers of the Company. Compliance statement statement Compliance Company has The with the complied provisionsof the Code throughout the with 2017, December ended 31 year the exception of • 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 meeting year each meeting general annual The and will in May in Switzerland is held be attended, other than in exceptional of the by all members circumstances, Board. In addition to theformal business a trading is normally there meeting, of the to invited are shareholders and update the given also are and ask questions Directors meet the to opportunity informally afterwards. Noticeof theannual general meeting is documents related with any 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 by means of is a poll conducted vote. The level of proxy votes cast and the each resolution, for and against balance of level abstentions, with the together following voting announced are if any, considers Board the on a poll. Where that of votes proportion a significant have been cast against a resolution, the actions which the Boardintends to take to understand the reasons behind the vote result will also be explained. is information made and other Financial website: Company’s on the available www.iwgplc.com Operational audit and tools self-certification require which individual centre managers to confirm their adherence to and policies Group and procedures; Policies and manuals procedure and guidelines that accessible readily are Group’s through the site; intranet Dialogue with shareholders The Company reports formally to the with a year, twice shareholders announced half-year results typically in August and the final results in March. Chief the for programmes are There Financial Chief the and Officer Executive Officer to give presentations of these institutional Company’s to the results and media in London analysts investors, locations. key and other the and Officer Executive Chief The a close maintain Officer Financial Chief dialogue with institutional investors on governance, performance, Company’s the objectives.plansand These meetings also serve to develop anongoingunderstanding of the any concerns views of and the shareholders. major Company’s regular given are Directors Non-Executive of institutional views the to as updates attends the Chairman The shareholders. and main of presentations half-year the to available is also and results full-year meet with shareholders on request. The principal communication with the is through shareholders private Annual Report, the half-year results meeting. general annual and the the engage to continues Company The services of Brunswick as its investor relations advisor. RELATIONS WITH RELATIONS SHAREHOLDERS Nomination Committee report Dear shareholder Succession planning I am pleased to present to you my report We ensure that succession plans are on the Nomination Committee (the in place for the orderly succession for “Committee“) further to my appointment in appointments to the Board and senior 2017 to Nomination Committee Chairman. management positions, so that there is an appropriate balance of skills During 2017, the composition of the Board and experience within the Company changed as Lance Browne stepped down. and on the Board. I am delighted to take on his particular responsibility as Senior Independent Non- Succession planning discussions continue Executive Director in addition to the role of to be an integral priority of the Group’s Chairman of the Nomination Committee. business planning and review process, as is the continued development of both Our Board composition management capacity and capabilities As at the date of this report, the Board within the business. comprises seven members, being: Terms of reference • the Chairman (Douglas Sutherland); Below is a summary of the terms of • two Executive Directors; and reference of the Nomination Committee: • four Non-Executive Directors. • Board appointment and composition – 7KHGLYHUVLW\RIWKH%RDUG IWG maintains a Board whose breadth and to regularly review the structure, size PLUURUVWKHZLGHJHRJUDSKLFDO scope in terms of expertise, gender and and composition of the Board and nationality reflect the size and geographical make recommendations on the role and UHDFKRIRXUEXVLQHVVDQGZH reach of the business. We believe the Board nomination of Directors for appointment FRQWLQXHWRSODFHVWURQJ is the right size to meet the requirements of and reappointment to the Board for the HPSKDVLVRQWKHVDPH the business and any changes to the Board’s purpose of ensuring a balanced and composition and to its Committees can be diverse Board in respect of skills, managed without undue disruption. knowledge and experience. FRANÇOIS PAULY • Board Committees – to make CHAIRMAN Board appointments recommendations to the Board in Our regular internal Board review process relation to the suitability of candidates monitors effectiveness, performance, for membership of the Audit and balance, independence, leadership and Remuneration Committees. The succession planning, enabling us to identify appointment and removal of Directors the capabilities and roles required for a are matters reserved for the full Board. Members of the Committee particular Board appointment. In view of Committee membership during the the future development of the Group • Board effectiveness – to review annually year and attendance at the meetings and our objective to continue to place strong and make appropriate recommendations are set out below. emphasis on the diversity of the Board, the to the Board. Nomination Committee maintains an ongoing Attendance programme of engagement with highly (out of possible maximum number qualified female and male Non-Executive Members of meetings) Director candidates of varied education, backgrounds and business experience. François Pauly, Chairman 4/4 We maintain a policy of diversity, as is Lance Browne(1) 1/1 reflected in our current Board of two Elmar Heggen 3/4 women and five men, representing five nationalities and six countries of residence. Nina Henderson 4/4 Along with their international operational Florence Pierre 4/4 experience, they also bring in-depth Douglas Sutherland 4/4 working knowledge of multiple industries, Length of tenure of Non-Executive 1. Lance Browne left the Nomination Committee business and organisational models, Directors within the Committee on 16 May 2017 corporate cultures, functional areas and All members of the Committee are independent. business issues. We continue to monitor the broader discussion on diversity which we take into consideration whilst 0-3 years 1 maintaining a merit based approach to 3-6 years 2 recommendations for Board appointments. 6 years+ 2 56 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 57 52% 48% Female: Male: Gender split of Group employees 75% 25% Female: Male: operate. of the Directorsof the in which we serving as at 31 December 2017 and 2017 December as at 31 serving out are set details biographical their on pages 48 and 49. All Directors servedthroughout Browne Lance review. under year the stepped down from the Board following AGM. 2017 the IWG’saim is to appointa Board with varied backgrounds and gender to society reflect the As at the dateof report,this the Board comprises sevenmembers: the Chairman (DouglasSutherland), two and Directors Non-Executive four considers Board The Directors. Executive be to Directors Non-Executive the all independent. The names Our Board composition Gender split of business centre employees 29% 71% Female: Male: Leadershipto – informed remain fully issues and commercial about strategic to and Company the affecting matters keep under review the leadership needs of the organisation to enable it to effectively. compete Board performance – to assist the the – assist to performance Board performance annual with the Chairman evaluation toassess theperformance and effectiveness of overall the Board and individual Directors. Gender split of board Complete details of the above are available available are above of the details Complete website: Company’s on the www.iwgplc.com • FRANÇOIS PAULY FRANÇOIS PAULY COMMITTEE CHAIRMAN, NOMINATION • 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 shows how the Committee applied the Company’s website www.iwgplc.com): principles of the UK Corporate Governance • Financial reporting – to provide Code during 2017. support to the Board by monitoring Key objective the integrity of financial reporting and Acting on behalf of the Board, the ensuring that the published financial Committee’s key objective is to provide statements of the Group and any effective governance over the Company’s formal announcements relating to financial reporting; this is achieved by the Company’s financial performance monitoring, reviewing and making comply fully with the relevant statutes recommendations to the Board in and accounting 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 management systems. • the Company’s system of internal control and compliance; and • Internal audit – to monitor and The application of the review the annual internal audit corporate reporting, risk • the Company’s external auditors. programme ensuring that the internal management and internal Membership and meetings audit function is adequately resourced and free from management restrictions, control principles are the Five Committee meetings were held during 2017. At the request of the Committee and to review and monitor responses focus of the Committee. Chairman, the external auditors, the to the findings and recommendations Executive Directors, the Company Secretary of the internal auditor. ELMAR HEGGEN (acting as secretary to the Committee), • External audit – to advise the Board CHAIRMAN the General Counsel and the Business on the appointment, reappointment, Assurance Director may attend each remuneration and removal of the meeting. The Committee also when external auditor. required, and at least annually, meets • Employee concerns – to review the independently, without the presence Company’s arrangements under which of management, with the Company’s employees may in confidence raise any external auditors and with the Business concerns regarding possible wrongdoing Assurance Director to discuss matters of Members of the Committee in financial reporting or other matters. interest. Committee membership during the The Audit Committee ensures that these year and attendance at the meetings arrangements allow proportionate and are set out below. independent investigation and appropriate follow-up action. Attendance (out of possible The Chairman of the Audit Committee maximum number routinely reports to the Board on Members of meetings) how the Committee has discharged its Elmar Heggen, responsibilities, as well as highlighting Chairman 4/5 any concerns that have been raised as Lance Browne(1) 2/2 and when they arise. Nina Henderson 5/5 François Pauly 5/5 Florence Pierre 5/5 Length of tenure of Non-Executive Directors within the Committee 1. Lance Browne left the Audit Committee on 16 May 2017 All members of the Committee are independent. 0 1 2 1 58 IWG PLC ANNUAL REPORT AND ACCOUNTS 2017 58 IWG PLC ANNUAL REPORT AND ACCOUNTS 2017 Strategic report Governance Financial statements 59 imitations that are that imitations a numberof Group-wide procedures, policies and standards havebeen established; a framework for reporting and escalating matters of significance maintained; has been reviews of the effectiveness of management actions in addressing key GroupBoard risks identified by the and undertaken; been have a system of regular reports from management setting out key performance and risk indicators has been developed. The Group’s principal risks, together with with together risks, principal Group’s The manages Group of the how an explanation 37 on pages presented are risks, these Report. Annual of this 43 to Internal control control Internal The Committee has a delegated responsibility from theBoard for the and control of internal system Company’s managementrisk reviewing for and the Such a system of this system. effectiveness and control evaluate to identify, is designed the with associated risks significant the Group’s achievement of its business with a view toobjectives safeguarding Group’s and the investments shareholders’ l to the assets. Due inherent in anyof system internal control, this system is designedmeet the to risks the and particular needs Company’s to is designed and it is exposed, to which managerather than eliminate risk. Accordingly, such a systemprovide can reasonable, but absolute,not assurance against material or misstatement loss. In accordancewith the FRC Revised Guidance, the Committee confirms that identifying, for process is an ongoing there significant the managing and evaluating Group. by the risks faced During the year under review, the Committee continuedto revisit its risk identification and assessment processes, members and seniorinviting Board the discuss and convene to management Group’s risks key andmitigating controls. in approach been adopted A has risk-based establishing the Group’s system of internal its effectiveness.control and in reviewing To identify and manage key risks: • • • • view of this Annual of this Annual view cost, benefit, materiality Valuation of intangibles and goodwill: and intangibles of Valuation the has considered Committee The impairmentundertaken testing and disclosures made in relation to the and goodwill Company’s of the value intangibles and has challenged the management by made key assumptions in their valuation methodology. The Committee considersan that appropriately cautiousapproach has been used by management and is satisfied that no impairment of intangibles and goodwill is required. See fornotes further 12 and 13 information. Principal risks risks Principal and risks of a number are There uncertainties which could have an impact on the Group’s long-term performance. structure management risk has a Group The and manage identify, to designed place in mitigatebusiness risks. Riskassessment of part the an is integral and evaluation as well as the process, planning annual Group’smonthly review cycle. Risk management 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 turnensures thatthe Boardmade is of appropriateness of The them. aware controls is consideredexecutives, by the having regard to and the likelihood of risks crystallising. Key risks and actions to mitigate those were consideredrisks by both the Audit Committee and thein Board the yearunder review, and were formally reviewed and has Company The Board. by the approved compliance enable to place in put systems Market EU of the requirements the with Abuse Regulation since it came intoeffect in July 2016. • Following its in-depth re Following its in-depth Report, the Committee has advised the the advised Committee has Report, the Board that itconsiders the Annual Report, to as a whole, and be fair, balanced taken understandable, providing the information 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 the considered The Committee critical accounting policiesandpractices thereto; and changes changes in the control environment; environment; control in the changes control observations identified by auditor; the decisions delegated to and requiring and to decisions delegated judgementsmanagement; by adjustments resulting from the audit; clarity of the disclosures made and compliance with accounting standards andrelevant financial governance and reporting requirements; and the process surrounding compilation of the Annual Reportand Accounts are fair, balanced they to ensure and reasonable. Taxation: from the Group’s risks arising taxation assessing the accounting operations when and applied balances related for taxation the analysis to determine sensitivity of key judgements. appropriateness recoverability was the Also assessed and whether of deferred tax assets deferred of additional the recognition be appropriate. tax assets would and disclosure (in The presentation accordance with IAS 1 and IAS 12) in balances of taxation related respect the as was whether were considered the risks reflected Group’s disclosures for the taxation inherent in the accounting is satisfied that balances. The Committee been made. have judgements appropriate Financial reporting focusTheof main was Committee the 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 Committee the areas of focus 2017: in undertaken work of the results Activities of theActivities Audit Committee of during the year • • • • • • The Committee formally considers and minutes their consideration of the key audit matters before recommending the Board. the to statements financial and reviewed discussed Committee The with KPMG issues the following significant andmanagement inrelation to thefinancial for statements 2017: • Audit Committee report continued The above process is designed to • The delegation of authority limits with The Committee and the Board regard provide assurance by way of cumulative regard to the approval of transactions; responsible corporate behaviour as an integral part of the overall governance assessment and is embedded in operational • The generation of targeted, action- framework and believe that it should management and governance processes. oriented reports from the Group’s sales be fully integrated into management Key elements of the Group’s system and operating systems on a daily, weekly structures and systems. Therefore, the of internal control which have operated and monthly basis, which provide risk management policies, procedures and throughout the year under review are management at all levels with monitoring methods described above apply as follows: performance data for their area equally to the identification, evaluation and • The risk assessments of all significant of responsibility, and which help control of the Company’s safety, ethical and business decisions at the individual them to focus on key issues and environmental risks and opportunities. This transaction level, and as part of the manage them more effectively; and approach ensures that the Company has annual business planning process. A • The delivery of a centrally co-ordinated the necessary and adequate information Group-wide risk register is maintained assurance programme by the business to identify and assess risks and and updated at least annually whereby assurance department that includes opportunities affecting the Company’s all Company-inherent risks are identified key business risk areas. The findings long-term value arising from its handling and assessed, and appropriate action and recommendations of each review of corporate responsibility and corporate plans developed to manage the risk are reported to both management and governance matters. per the Company’s risk appetite. The the Committee. Board reviews the Group’s principal The Committee has completed its annual risks register at least annually and The maintenance of high standards of review of the effectiveness of the system management periodically reports behaviour which are demanded from staff of internal control for the year to on the progress against agreed actions at all levels in the Group. The following 31 December 2017 and is satisfied that to keep a close watch on how key risks procedures are in place to support this: it is in accordance with the FRC Revised are managed; • a clearly defined organisation structure Guidance and the Code. The assessment with established responsibilities; included consideration of the effectiveness • The annual strategic planning process, of the Board’s ongoing process for which is designed to ensure consistency • an induction process to educate new identifying, evaluating and managing with the Company’s strategic objectives. team members on the standards required the risks facing the Group. The final budget is reviewed and from them in their role, including approved by the Board. Performance business ethics and compliance, Whistle-blowing policy is reviewed against objectives at regulation and internal policies; The Company has an externally hosted whistle-blowing channel (‘EthicsPoint’), each Board meeting; • the availability of the ‘Team Member which is available to all employees via • Comprehensive monthly business Handbook’, via the Group’s intranet, email, and on the Company’s intranet. review processes under which business which contains the Company’s Code performance is reviewed at business of Business Conduct, detailed guidance The aim of the policy is to encourage all centre, area, country, regional and on employee policies and the standards employees, regardless of seniority, to bring functional levels. Actual results of behaviour required of staff; matters that cause them concern to the attention of the Audit Committee. are reviewed against targets, • policies, procedure manuals and explanations are received for guidelines are readily accessible The Business Assurance Director, where all material movements, and recovery through the Group’s intranet site; appropriate and in consultation with the plans are agreed where appropriate; senior management team, decides on the • operational audit and self-certification appropriate method and level of • The documentation of key policies and tools which require individual managers control procedures (including finance, investigation. The Audit Committee is to confirm their adherence to Group notified of all material discourses made operations, and health and safety) policies and procedures; and having Group-wide application. These and receives reports on the results of are available to all staff via the Group’s • a Group-wide policy to recruit and investigations and actions taken on a intranet system; develop appropriately skilled regular basis. The Audit Committee has management and staff of high calibre and the power to request further information, • Formal procedures for the review and integrity and with appropriate disciplines. conduct its own inquiries or order approval of all investment and additional action as it sees fit. acquisition projects. The Group Investment Committee reviews and approves all investments. Additionally, the form and content of routine investment proposals are standardised to facilitate the review process; 60 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 61 the audit process as a whole and and a whole as audit process the facing challenges the for its suitability Group; the the strength and independence independence and strength the of the external audit team; the audit team’s understanding understanding audit team’s the environment; control of the the culture of the external auditor auditor external the of culture the improvement continuous in seeking quality; and increased the quality and timeliness timeliness and quality the of reports communications and received; and the quality of interaction with with of interaction quality the management. ELMAR HEGGEN HEGGEN ELMAR COMMITTEE CHAIRMAN, AUDIT In assessing the effectiveness of effectiveness the In assessing for 2017 audit process external the considered: has Committee the • • • • • • Following the Committee’s assessment assessment Committee’s Following the audit external of the effectiveness of the process for 2017 andof KPMG’scontinuing has Committee the independence, recommended to the Boarda that resolution toreappoint KPMG as the Company’sauditor in respectof the 2018 December 31 ending year financial be proposed at the annual general meeting. Committee’s Audit the Notwithstanding continued satisfactionwith the performance of KPMG, as previously noted, the Committee has recommended for process a tendering that Board the to be launched should audit external the during 2018. other accounting the Company’s policy to use the external external the use to policy Company’s the auditor for non-audit-related services external of the use the where only auditor will deliverdemonstrable a benefit to theas Company compared to the use of other potential providers of impair not will it where and services the their independence or objectivity; all proposals for permitted defined non- audit services touse theexternal auditor must be submitted to, and authorised by, the Chief FinancialOfficer; permitted on advice include services non-audit regulatory and accounting financial internalmatters, reviews ofreporting 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 services,actuarial valuation services, recruitment services in relation to key positionsmanagement and transaction dispositions) and mergers (acquisitions, banking investment includes that work services, preparation of forecasts or execution and deal proposals investment and services; KPMG are required toadhere to a rotation policy lead rotation of audit requiring the new A years. at least every five partner for took responsibility partner lead audit year financial of the respect in the audit 2017. 31 December ended 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 of the breakdown The external auditortheduring year to 31 can be found in note 5 December 2017 of the notes to the financial statements on page 93. External audit audit External in were appointed (‘KPMG’) KPMG Ireland IWG Whilst plc. auditors of 2016 as IWG the plc is a Jersey company, after consultation that determined Committee the with KPMG, Dublin KPMG registered a Jersey appointing audit partner would best serve the needs of is Committee Audit The Group. the external of the oversight for responsible auditor, including an annual assessment of their and objectivity independenceand this. safeguard to place in measures the theDuring KPMG year, audited the of the statements financial consolidated Group and provided an overview of the half-yearof theCompany. results The value of non-audit services provided by KPMG in 2017 amounted to £0.1m related services Non-audit £0.4m). (2016: toassurance services in relation toreports other and UK, in the landlords to provided relation to statutory in services non-audit The and India. Africa South in declarations by the considered are provided services Committee tobe necessary in the interests these nature, by their and, business of the services could not easily be provided by During firm. auditing professional another circumstances were no there year the provide to engaged were KPMG where services which might have led to a conflict of interests. Directors’ Remuneration report Dear shareholder The Company achieved an operating I am pleased to present this Directors’ profit over the course of 2017 of Remuneration report. £163.2m. Revenue has increased by 5.3% to £2,352.3m and EPS was 12.4p. The focus of the Remuneration Committee (the “Committee”) is to ensure that Towards the end of the year, the Group remuneration is designed to promote the received an indicative offer proposal long-term success of the Company. A key from Brookfield Asset Management, Inc. driver of the Company’s growth has been and Onex Corporation. The discussions and will continue to be its people and regarding this unsolicited approach their talents. We seek to set a policy that ended on 1 February 2018. enables us to motivate our people, to Annual bonus reward performance and to recruit the The 2017 annual bonus plan was measured calibre of talent that will lead the against particularly stretching profit targets. Company in sustaining its record of Despite revenue increasing by 5.3%, profitable growth. The Company’s annual performance failed to meet the human resource continues to evolve, threshold required for any bonus pay-out. simultaneously adding new, whilst retaining existing, capabilities and skills. Co-Investment Plan Our Directors’ Remuneration Policy, set The CIP awards are subject to 75% EPS and out on pages 64 to 68, was approved in 25% TSR performance metrics. Following the year end Matching Shares under the The Committee aims to set a binding vote on 16 May 2016. The policy will continue to apply in 2018 as it has third tranche of the 2013 award (measured a policy to motivate our since it became effective. The Annual over five years), the second tranche of the people, reward Report on Remuneration (set out on 2014 award (measured over four years) and the 2015 award (measured over three years) performance and recruit pages 68 to 73) describes how this policy will be implemented in 2018, together are due to vest based on the performance talented individuals to with details of remuneration paid in the measured to 31 December 2017. EPS for grow our business. 2017 financial year. 2017 of 12.4p was below the threshold target for all of these awards. As a result, all 2017 of the shares subject to an EPS performance NINA HENDERSON 2017 was a year in which we reinforced condition will lapse. With regard to the TSR CHAIRMAN our platform for growth; however, there elements, performance over three and five were some challenges. years resulted in partial vesting and full vesting of the 2015 and 2013 awards The previously anticipated sales respectively. Four year TSR was slightly improvement in the third quarter of 2017 below the median of the comparator group from the increase experienced in sales and resulted in no vesting of the TSR activity was weaker than expected and this Members of the Committee element for the 2014 award. As first resulted in a pause in the recovery of the Committee membership during the reported in 2015, the CIP has been replaced Company’s Mature business. This led to year and attendance at the meetings by the Performance Share Plan and no new the Company lowering its profit outlook are set out below. awards have been granted since March for 2017. 2015. The final 2015 CIP award will be Attendance However, in the following quarter, we were subject to a holding period ending in 2020. (out of possible pleased to see our Mature business return maximum number The Committee believes the above to growth with sustained improvements Members of meetings) outcomes demonstrate strong pay throughout the period. Nina Henderson, for performance alignment. Chairman 4/4 Lance Browne(1) 2/2 Florence Pierre 4/4 Length of tenure of Non-Executive François Pauly 4/4 Directors within the Committee Elmar Heggen 3/4 1. Lance Browne left the Remuneration Committee on 16 May 2017 All members of the Committee are independent. 0-3 years 1 3-6 years 2 6 years+ 1 62 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 63 NINA HENDERSON NINA HENDERSON COMMITTEE CHAIRMAN, REMUNERATION 6 MARCH 2018 reflection of Company performance and the return delivered toshareholders. The Committee is satisfiedour that variable pay modelensures alignmentand between pay performancethrough robust setting. target Historically, variablehas rewarded pay performance,sound however, as demonstratedthis year through thelack of bonus pay-out, award outcomes are when back in years scaled significantly performance is less strong. Such effective alignment ensures that our Remuneration Policy supports the future success of the Company. commend I Committee, the of behalf On this report tolookyouforward and toyour support for the resolution at the annual general meeting. Executive Directors will receive no no receive will Directors Executive This 2018. in salary base to increase been has there that year second is the no salary increase; The maximum annual bonus will remain ofunchanged base at 150% salary for of any with half Directors Executive bonus paid deferred in shares which vestafter three years. Performance will continue tobemeasured against stretchingoperating profit targets;and Awards of 200% of base salary will be Share Performance the under granted Plan in line with the approved policy. The awards will vestsubject toperformance measures over three financial years, EPS, TSR and against relative 2018-2020, Returnon Investment award targets. Any that vestswillbe subjectto an additional two-year holding period. The year ahead The Remuneration Committee has made decisionsthe for following 2018: • • • The Committeeconsiders theremuneration fair is a Directors Executive by the earned Directors’ Remuneration report continued REMUNERATION POLICY The full Directors’ Remuneration Policy, approved for three years from the Regus plc AGM held on 17 May 2016 and adopted by IWG plc as part of the Scheme of Arrangement, is shown on pages 64 to 68 for ease of reference. Please note that the information shown has been updated to take account of the fact that the policy is now approved and enacted rather than proposed. Overview of Remuneration Policy The revised policy, which was developed as part of a remuneration review carried out during 2016, has the following objectives: • To enable the Group to recruit and retain individuals with the capability to lead the Company on its ambitious future growth path. • To ensure that our structures are transparent and capable of straightforward explanation externally and to employees. • To align the targets for variable pay with the strategic objectives of the Group. • To reflect the global operating model of the Group whilst taking account of governance best practice. Policy Table for Executive Directors Component Purpose / link to strategy Operation Maximum Performance framework Base salary To provide a Salaries are set by the Committee. The There is no prescribed While there are no performance competitive component Committee reviews all relevant factors such maximum salary. Salary targets attached to the payment of fixed remuneration as: the scope and responsibilities of the role, increases will normally of salary, performance is a factor to attract and retain the skills, experience and circumstances be broadly in line with considered in the annual salary people of the highest of the individual, sustained performance increases awarded to review process. calibre and experience in role, the level of increase for other roles other employees in the needed to shape and within the business, and appropriate market business, although the execute the Company’s data. Salaries are reviewed annually and Committee retains strategy. any changes normally made effective from discretion to award 1 January. larger increases if it The base salaries effective 1 January 2018 considers it appropriate are set out on page 68 of the Annual (e.g. to reflect a change Remuneration Report. in role, development and performance in role, or to align to market data). Benefits To provide a Incorporates various cash / non-cash benefits Benefit provision is set N/A competitive which may include: a company car (or at an appropriate benefits package. allowance) and fuel allowance, private health competitive market rate insurance, life assurance, and, where for the nature and necessary, other benefits to reflect specific location of the role. individual circumstances, such as housing or There is no prescribed relocation allowances, representation maximum as some allowances, reimbursement of school fees, costs may change in travel allowances, or other expatriate benefits. accordance with market conditions. Pension To provide retirement Provided through participation in the 7% of base salary. The N/A benefits in line with the Company’s money purchase (personal Committee may set a overall Group policy. pension) scheme, under which the Company higher level to reflect matches individual contributions up to a local practice and maximum of base salary. regulation, if relevant. The Company may amend the form of an Executive Director’s pension arrangements in response to changes in legislation or similar developments. Annual bonus To incentivise and Provides an opportunity for additional reward 150% of base salary Performance metrics are selected reward annual (up to a maximum specified as a % of salary) per annum. annually based on the current performance and create based on annual performance against targets business objectives. The majority further alignment with set and assessed by the Committee. of the bonus will be linked to key shareholders via the Half of any annual bonus paid will be in financial metrics, of which there delivery and retention deferred shares which will vest after three will typically be a significant profit of deferred equity. years, subject to continued employment but based element (see note 3 below). no further performance targets. The other half Performance below threshold is paid in cash following the relevant year end. results in zero payment with A dividend equivalent provision allows the no more than three-fifths of Committee to pay dividends, at the the bonus available at target. Committee’s discretion, on vested shares (in Payments rise from 0% to cash or shares) at the time of vesting and may 100% of the maximum assume the reinvestment of dividends on a opportunity levels for cumulative basis. performance between the threshold and maximum targets. Recovery and withholding provisions apply to bonus awards (see note 1 below). 64 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 65 nsultation as appropriate. as appropriate. nsultation ittee satisfying awards of awards satisfying ittee d into withd current or former scretions available to it in ice. However, employee as EPS), capital return (such as EVA EVA as (such return capital EPS), as in previous Directors’ Remuneration the operation of certain elements erformance targets, the final CIP rd at any time within three years of years three rd at time within any resand receive a performancebased ayment were agreed (i) before before (i) agreed were ayment nt of a change in legislation) without without in legislation) nt of a change The majoritywill be basedclearon ement of results, according to role, performance. Awards subsequent to Awards have a performance Awards have a performance years financial period of three starting at the beginning of the financial year in which the award conditions is made. Performance will measure the long-term (see success of the Company note 4 below). performance In respect of each the below performance measure, threshold target results in zero vesting. The starting point for vesting of each performance element will be no higher than 25% and rises on a straight line basis to for attainment 100% of between levels of performance the threshold and maximum opportunity targets. There is no to re-test. reation for shareholders through iority, incentive schemes are not not are schemes incentive iority, granted. The Committee may make evious Remuneration Policy included the included Policy Remuneration evious n of the Committee, the payment se. Should any such discretions be be discretions such any Should se. be reflective of the wider performance performance wider the of reflective be The normal plan limit is 250% of base salary. N/A N/A ny to any honour commitments entere ee years) which are ee years) re expected to build re expected to years grant,following subject thority has been giventhority to the Compa set and communicated at the time of grant. Recovery and withholding provisions apply to PSP awards (see note 1 below). A dividend equivalent provision allows the Committee to pay dividends, at the Committee’s discretion, on vested shares (in cash or shares) at the time of vesting and may assume the reinvestment of dividends on a cumulative basis. Executive Directors a Awards will normally annually be made under nil- form of either the PSP, and will take the cost options or conditional share awards. Participation and individual award levels discretion of will be determined at the the Committee within the policy. Awards vest five pre-determined to performance against after thr targets (measured a holding in the Company’s shares to a minimum value of two times their base salary. This must be built via the retention of the net- of-tax shares vesting under the Company’s equity based share plans. doubt, by approval of the policy, au policy, the of doubt, by approval To align Executive Directors’ interests with those of our long- and term shareholders other stakeholders. Motivates and rewards the creation of long- value. term shareholder Aligns Executives’ interests with those of the shareholders. 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 inevent 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 exercised, an explanation would be provided in the following Annual Report on Remuneration and may be subject to shareholder co to shareholder be subject may and Remuneration on Report Annual following in the be provided would an explanation exercised, Recoverywithholding and provisions may be appliedaas result misconduct, of material misstatement orerror incalculation of For the avoidance of the avoidance For the grant, but before the expiry of the holding period, may be reduced or an Executive Director may be required to repay an awa to repay required be may Director an Executive or reduced be may period, holding of the the expiry before but grant, the the date on which the awardvests. 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 Comm the includes “payments” purposes these For Company. the of a Director becoming individual the for in consideration not was variable remuneration and, in relationtoan award over shares, the termstheof payment are “agreed”at the time the awardis to take accou or purposes tax or administrative control, exchange regulatory, (for above set out to policy the amendments minor obtaining shareholder approval for that amendment. The Committeereserves the rightto make anyremuneration payments and payments for loss of office (includingexercising any di Annual bonus performance measures are determined at the start of each year, based on the key business priorities for the year. year. the for priorities business key the on based year, each of start at the determined are measures performance bonus Annual PSP performancemetrics are determinedat thetime ofgrant. Performance measuresinclude may measure a of profitability(such As IWG operates in a number of geographies, employee remuneration practices vary across the Group to reflect local market pract over discretion retains Committee Remuneration the aims, intended its achieves Policy Remuneration the that to ensure In order 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 Directorswill beset out inthe AnnualReport on Remuneration as they arise. Thepr sha into bonus of their a proportion defer could Directors Executive CIP, the Under PSP. new by the replaced been has CIP which p relevant the of to satisfaction Subject 2015. March in made were awards CIP final The share. deferred each for award matching 2025. 4 March until 2020 4 from March exercisable and vested fully will be awards financial targets, including a significant weighting on profit, as this is the primary indicator of our sustainable growth. or ROI) and other measures of long-term success (such as relative TSR). These measures align with our long-term goal of value c underlying financial growth and above-market returns. remuneration policies are based on the same broad principles. Our primary objective in awarding variable pay is to drive achiev andto recognise and reward excellent performance. Accordingly,to account forvariances in responsibilities, influence and sen uniform in approach. to considered not if it is outcome and PSP bonus annual the to adjust 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: • • • • • • • Notes to the policy table: 1. Shareholding guidelines 2. Component Component to strategy / link Purpose Performance Operation Share Plan (“PSP”) Maximum framework Performance 7. 3. 4. 5. 6. Directors’ Remuneration report continued Policy Table for the Chairman and Non-Executive Directors Component Operation Maximum Performance framework Chairman fees Reviewed, but not necessarily increased, annually There is no prescribed Neither the Chairman and as determined by the Remuneration Committee. maximum although fees nor the Non-Executive The Committee will consider, where appropriate, pay and fee increases will Directors are eligible data at companies of a similar scale. be considered in line for any performance A single fee which reflects all Board and Committee duties. with the increases of related remuneration. Set at a level sufficient to attract and retain individuals the wider workforce and market rates. with the required skills, experience and knowledge to allow the Board to effectively carry out its duties. Non-Executive Director fees Reviewed, but not necessarily increased, annually and as determined by the Chairman and the Executive Directors. The Committee will consider, where appropriate, pay data at companies of a similar scale. A base fee is payable with additional fees for chairing key Board Committees and for being the Senior Independent Director. Set at a level sufficient to attract and retain individuals with the required skills, experience and knowledge to allow the Board to effectively carry out its duties. Consideration of conditions elsewhere in the Group When setting the policy for the remuneration of the Executive Directors, the Committee has regard to the pay and employment conditions of employees within the Group. The Committee does not consult directly with employees when formulating the Remuneration Policy for Executive Directors. Consideration of shareholder views The Committee is dedicated to ensuring that shareholders understand and support our remuneration structures. Accordingly, where changes are being made to the Remuneration Policy, or in the event of a significant exercise of discretion, we will consult with shareholders, as appropriate, to explain our approach and rationale fully. Such an approach was followed in relation to the changes to policy in 2016. Additionally, the Committee considers shareholder feedback received in relation to each annual general meeting alongside any views expressed during the year. We actively engage with our largest shareholders and consider the range of views expressed. Except in exceptional circumstances, the members of the Committee, including the Committee Chairman, attend the Company’s annual general meeting and are available to listen to views and to answer shareholders’ questions about Directors’ remuneration. The Committee also reviews the executive remuneration framework in the context of published shareholder guidelines. 66 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 67 licy the ffer d ttee ttee tion ally onths’ onths’ the the they they its account ured ther ther ll not months’ he tances, such ment of t by t by giving needed mpany mpany nual ecessarily) ecessarily) certain cy and death. death. and cy te the contrac more generous than the approved RemunerationPo nt may continue, provided that , he may termina d and in the caseof the PSP, achieve award will be no ls of the highest calibre and experience and calibre highest of the ls Listing Rules, and in line with the approach with the line in Rules, and Listing than is warranted. Payments in lieu of notice wi ng their appointment. rm, which is renewable, with six months’ notice on ei months’ with six is renewable, rm, which accordancewith the terms of yments or awards could include cash as well as performance an gations prior to theirappointme , the Committee would seek to pay no more than necessary. necessary. no more pay than to seek would Committee , the ted as far as possible under the Company’s existing share plans. share existing Company’s the under as far as possible ted meeting followi meeting vides on that, a change of control ed value and structure of the a payment in lieu of notice wouldwhich not exceed 12 months’ salary. bject to stretching performance conditions. to performance stretching bject to facilitate the recruitment of individua recruitment the to facilitate aries would reflect the skills and experience of the individual, and may (but n not may and (but individual, of the and experience reflect skills the would aries igations and seeking toigations and morepay no ise for reasons including, amongst others, injury, disability, retirement, redundan retirement, disability, injury, others, amongst ise including, for reasons tside of these plans as permitted of under tside these the ors are appointed for a three-year te a three-year for are appointed ors to contractual paymentsfor theone-month notice period, receivepayment a equal to 12 y appointed Non-Executive appointed Directory wouldline out in t normally structure set in be with the e Director’s award normally vests based onvests based e Director’s award normally time the serve approval at the first annual general first annual approval at the be set at a level to allow future salary progression to reflect performance in role. The Committee’s objective is to find an outcome which is in the best interests of the Company and its shareholders, taking into taking its shareholders, and Company of the interests best in the is which outcome an find to is objective Committee’s The the specific circumstances, contractual obl to shape and execute the Company’s strategy. At the time same At the strategy. Company’s the execute and to shape Sal appointment. of the time the at force in The package must be sufficiently competitive competitive sufficiently be must package The exceed 12 months’ salary and benefits. best interests of the best interests of the Company and, therefore, shareholders. Per the Remuneration Policy, the maximum level of variable remunera The Committee may offer additional cash and/or share-based payments in the year of appointment when it considers these to to in be these it considers when of appointment year in payments the share-based and/or cash may offer additional Committee The The remuneration package for a new Executive Director would be set in Treatment of annual bonus: bonus: of annual Treatment applying to other Directors, which would be would which su other Directors, applying to which may be awarded is 400% of salary (of which 250% is permitted under the PSP under the exceptional circumstances limit and and limit circumstances exceptional the under PSP the under is permitted 250% which of (of salary is 400% awarded may be which 150% under the annualplan). bonus Performance conditionsfor variable inpay the of year appointment be may different tothose Treatment of share plans: plans: of share Treatment compensatory payments or awards to facilitate recruitment. Such pa non-performance-related share awards, and would be in such form as the Committee considers appropriate taking into account all relevantfactorssuch as theform, expected value,anticipated vestingtheof and timing forfeited remuneration. The aimof any Where an individualremuneration forfeits previous at aemployer asresult a appointmentof to the Company, the Committeeo may award would be to ensure that, so far as possible, the far as possible, award would so expect the be that, to ensure amount forfeited. If necessary, awards may be grantedou awards may If necessary, Any share-based awards referred to in this section will be gran be will section in this to referred awards Any share-based and the limits set out above. limits set and the In the caseof an internal appointment, variableawarded payof theincumbent’s in respect prioroutpayrolemay according to are put to shareholders for are put to shareholders terms of grant. In addition, any other ongoing remuneration obli side, no contractual termination payments being due and subject to retirement pursuant to the Articles of Association at the an general meeting. salary, and remain eligible for a discretionary bonus. Direct Non-Executive and Chairman The notice. This applies to current Executive Directors and would normally be applied as the policy for future appointments. The Co may terminate employment of the Chief Executive by making one month’s notice and will, in addition onbe based following the principles: • Where an Executive Director leaves employment, the Committee’s approach to determining any payment for loss of office will norm Policy on payment for loss of office of for loss office on payment Policy Executive Directors have service contracts with the Group which can be terminated by the Company or the Director by giving 12 m by giving Director or the Company by the be can terminated which Group the with contracts service have Directors Executive Service contracts Service contracts pro contract Mark Dixon’s agreements, service current the Under Approach to recruitment remuneration the to apply seek would Committee the Director, Executive appointed a newly for package remuneration the determining When principles: following • • • • There is no contractual right to receive an annual bonus in the year of termination. However, the Committee has discretion for leavers tomakeundera payment the annualbonus.will Thisreflect the periodof service during theyear performance and (meas at the same time as performance for other plan participants, if feasible). Should the Committee make a payment in these circums the rationale would be set out in the following Annual Report on Remuneration. on Remuneration. Report following Annual the in out be set would rationale the • • performance criteria. In such circumstances an Executiv In such circumstances an in its absolute discretion determines otherw If an Executive Directorleaves employment with the Company, unvesteddeferredbonus PSPshareswill and lapse unless theCommi • • The remunerationnewl packagefor a Policy Table for Non-Executive Directors on page 66. 66. on page Directors Non-Executive for Table Policy Directors’ Remuneration report continued 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. The terms of any other unvested share awards on termination will be as set out in the prior policy. Awards will vest on the normal vesting date unless the Committee determines, in its discretion, that awards will vest at the date of cessation. • The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a Director’s office or employment. Policy in respect of external Board appointments for Executive Directors It is recognised that external non-executive directorships may be beneficial for both the Company and Executive. At the discretion of the Board, Executive Directors are permitted to retain fees received in respect of any such non-executive directorship. Illustration of Remuneration Policy The charts below illustrate the application of the Remuneration Policy set out in the Policy Table for Executive Directors. This assumes the level of fixed remuneration (salary, benefits and pension) as at 1 January 2018 and the following in respect of each scenario: • “Fixed” represents fixed remuneration only (i.e. current salary, benefits and pension); • “Target” represents fixed remuneration plus an annual at target bonus of 90% of salary and 50% of salary (25% of maximum) vesting of the maximum PSP award; • “Maximum” represents the maximum annual bonus of 150% of salary and full vesting of the normal PSP grant of 200% of base salary. £3,778 44% £3,313 44% £2,046 £1,791 20% 33% 20% 33% 36% 37% £891 £776 100% 44% 23% 100% 43% 23% Fixed 7DUJHW Maximum Fixed 7DUJHW Maximum &KLHI([HFXWLYH2ʒFHU &KLHI)LQDQFLDO2ʒFHUDQG&KLHI2SHUDWLQJ2ʒFHU Fixed Pay Annual Bonus PSP * All figures in £’000s and rounded to the nearest thousand ANNUAL REPORT ON REMUNERATION Members of the Committee All members of the Committee are independent. Committee membership during the year and attendance at the meetings is set out on page 62. Terms of reference The Committee’s terms of reference are available on the Company’s website (www.iwgplc.com). Implementation of the Remuneration Policy for 2018 The Annual Report on Remuneration set out below (and the Chairman’s Annual Statement) will be put to a single advisory shareholder vote at the 2018 AGM. The information below includes how we intend to operate our policy in 2018 and the pay outcomes in respect of the 2017 financial year. Base salaries for the Executive Directors The Executive Directors’ salaries were reviewed, however, no salary increases have been awarded. The current salaries as at 1 January 2018 (and compared to 2017) are as follows: Percentage 2018 2017 change Mark Dixon £825,000 £825,000 0% Dominik de Daniel £725,000 £725,000 0% For context, the average base salary increase received by the workforce is 3%. 68 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 69 0% change Percentage Percentage being being oyment. oyment. et of tax upplement included (1) 571212 0% 0% 0% 250 0% 12 2017 (£’000) 2.5 to 7.5 0% ive a salary s wo fees has not increased. increased. not has wo fees 57 57 12 12 12 above median above median Maximum performance Maximum performance above 2017 performance above 2017 performance 250 250 2018 (£’000) 2.5 to 7.5 2.5 to 7.5 ld to stretch. The targetis not rectors will rece rectors metrics as summarised below: Maximum vesting 100% basis points 300 Return to be years. Thisrequires the Executive Directorsto holdon to the n rectors is 150% of salary. is 150% rectors The on-target90% of bonus salary.is pproved policy. Both Executive Di Executive policy. Both pproved operating profit ranging from threshoprofit ranging operating the DSBP, which will vest after three years subject to continued empl continued to subject years three after vest will which DSBP, the independently operated performance Threshold performance performance Threshold performance (2) Threshold Threshold vesting 25% Median 100% annual growth 10% compound will operate will operate in a line with the t Director combined with Chair of Nomination Committee Nomination Committee of combined with Chair t Director Executive Director Director Executive 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 for allowance Variable dislocation Additional fees: fees: Additional Chair of Audit Committee Committee Chair of Remuneration Senior Independen 1. Basic for Non- fee in lieu of pension of 7% of base salary. ofnumber vestedperiod a of shares for two years following vesting. Chairman Non-Executive 2. Chairman and Non-Executive fees 2018: for proposed are increases fee No Return on investment (33.3% weighting) weighting) (33.3% Return on investment 0% Awards will be subject to a post-vesting holding period of two equal to 2017 Return to be EPS (33.3% weighting) weighting) (33.3% EPS excluding FTSE 350 TSR versus Relative weighting) investment trusts (33.3% 0% 5% annual growth Compound of 100% 25% Compound annual growth of Performance conditions conditions Performance Performance Share Plan (PSP) (PSP) Plan Share Performance ending period a three-year over measured performance with Directors Executive to of salary 200% at made be will awards PSP 31 Decemberbewill to subject awards 2020. The three Annual bonus For 2018, the maximum bonus potential for Executive both Di Benefitspension and provisions pension and Benefits under shares into be will deferred paid Half of any bonus The 2018 annual bonus will include a measurement against a measurement bonus willannual 2018 The include disclosed prospectively as it is commercially sensitive; however, a description of the performance against targets set will be in nextyear’s Annual Report. Directors’ Remuneration report continued REMUNERATION OUTCOMES FOR 2017 Single total figure of remuneration table (audited) The following table shows the total remuneration in respect of the year ending 31 December 2017, together with the prior year comparative. £’000 Salary / Fees Benefits Pension Annual bonus CIP Total 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Mark Dixon 825.0 825.0 7.8 5.4 57.8 57.8 – 1,155.8 230.3 990.5 1,120.9 3,034.5 Dominik de Daniel 725.0 725.0 – – 50.8 50.8 – 1,015.7 – – 775.8 1,791.5 Non-Executive Directors Douglas Sutherland 241.7 200.0 – – – – – – – – 241.7 200.0 Lance Browne 27.7 69.5 – – – – – – – – 27.7 69.5 Elmar Heggen 69.6 60.0 – – – – – – – – 69.6 60.0 Nina Henderson 75.0 67.5 – – – – – – – – 75.0 67.5 Florence Pierre 58.3 52.5 – – – – – – – – 58.3 52.5 François Pauly 65.4 50.0 65.4 50.0 Benefits – Include private health insurance and life insurance. Pension – Includes 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. Annual bonus – The bonus shown is the full awarded in respect of the relevant financial year. Half of the bonus awarded is deferred into shares for three years. CIP awards – Includes the value of Matching Share awards made to Mark Dixon under the CIP in previous years which vested in respect of a performance period ending in the relevant financial year. The vesting of the second tranche of the 2013 award (251,447 shares vested out of the maximum of 251,447) and the first tranche of the 2014 award (100,303 shares out of 137,402) are included in the 2016 column. The figure reflects the actual share price on the date of vesting of 281.6p. The third tranche of the 2013 award (62,862 shares will vest out of a maximum of 251,447) and the 2015 CIP (37,819 shares shall vest out of a maximum 529,304) shall vest in March 2018 based on performance until 31 December 2017, the value of which is shown in 2017 and reflects a three-month average share price ending 31 December 2017 of 228.8p. The second tranche of the 2014 award will not vest. Lance Browne stepped down as Senior Independent Director and Chairman of the Nomination Committee on 16 May 2017. Remuneration detailed above reflects time served. François Pauly was appointed as Senior Independent Director and Chairman of the Nomination Committee on 16 May 2017. Remuneration detailed above reflects time served. Determination of 2017 annual bonus (audited) The 2017 annual bonus plan was on performance against the following: Performance required Actual performance Bonus payable Measure Weighting Target Maximum achieved (% of maximum) Operating profit 100% £220.0m £242.0m £163.2m 0% The performance of the Group during 2017 resulted in the Group failing to reach the threshold target and hence no bonus was awarded to either of the Directors. Operating profit Bonus Bonus maximum (% achievement awarded Cash bonus Deferred Director of base salary) (% of award) (£’000) (£’000) bonus (£’000) Mark Dixon 150% – – – – Dominik de Daniel 150% – – – – 70 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 71 (1) are and nt that nt that d under d under set in % of shares % of shares vesting % of shares % of shares vesting al value will Estimated value value Estimated (£’000) ibution the 2014 award above median above median 2016 performance 2016 performance employment regulations. nd tranche of into defined contr lated to growth, and its contelatedgrowth, and to Average share price price share Average 2017) – 31 December (1 October Maximum Maximum vesting IWG TSR % achieved relative relative TSR % achieved IWG Index Return Total to FSTE All Share 3) performance (2013 award tranche – 31.12.2017 period 01.01.2013 Adjusted EPS targets for year ending 2017 Adjusted EPS targets for year ending 2017 period 3) performance (2013 award tranche 01.01.2013 – 31.12.2017 ns of 7% of salary ns are set out in single of the Pension column the andard local practiceandard or TSR vesting: 25% 25% TSR vesting: of award (% of maximum) the 2013 award and the seco the 2013 award and the 2016 performance 100% basis points above 300 Return to be tcomes, including adjustments re the threshold target. Performance against the TSR and EPS targets EPS targets TSR and the against Performance target. threshold the ce (audited) EPS vesting: 75% 75% EPS vesting: of award (% of maximum) IWG TSR % relative to FTSE 350 (excluding to FTSE 350 (excluding TSR % relative IWG companies) mining and services financial period 2) performance (2014 award tranche 01.01.2014 – 31.12.2017 Adjusted EPS targets for year ending 2017 Adjusted EPS targets for year ending 2017 period 2) performance (2014 award tranche 01.01.2014 – 31.12.2017 uary 2014. The third tranche of 25% Median 100% 10% compound growth Threshold Threshold Threshold vesting 2017 performan 2017 ibutions received in the year in the received under review ibutions ecutive Directors Directors received pensionecutive contributio Number of Number of vesting shares valent) plus any contributions in accordance with st in contributions any plus valent) Based on a face value grant of 200% of salary and using a share priceof 283.0p. figure of remuneration table. Upper quartile above or Upper quartile or above Upper quartile Equal to index +15% p.a. 100% Details of the value of pension value of Details of contr pension the they are a fair reflection of underlying performance over the period. 2013, 2014 and 2015 was such that 25.0% of the 2013 award and 7.15% of the 2015 award will vest, however, the second tranche of tranche second the however, vest, award will 2015 of the 7.15% award and 2013 the of 25.0% that was such 2015 and 2014 2013, ou these reviewed Committee has The vest. willnot award 2014 the Return on investment (33.3% weighting) weighting) (33.3% Return on investment 0% equal to Return Total pension benefits Ex review, the under year During the Relative TSR versus FTSE 350 (excluding (excluding FTSE 350 TSR versus Relative weighting) (33.3% trusts) investment Metric Metric weighting) (33.3% EPS 0% 5% Compound annual growth of 100% 25% Compound annual growth of Dominik de Daniel Dominik de Daniel 1. metrics: performance operated independently three to subject are awards The 512,367 £1,449,999 Executive Executive Mark Dixon of PSP awards Number 583,039 date grant at of awards value Face/maximum £1,650,000 PSP awards granted in the year (audited) 2019 December 31 ending performance to three-year subject vest on which Directors 1 March 2017 Executive to PSP awards granted were asfollows: 2015 award 2015 award actu The year. financial of the quarter last the over price share average the on based is award of the value estimated the Note Mark Dixon Matching: 37,819 – 28.6 228.8p 86.5 Award Director Award Director 3 tranche 2013 award Mark Dixon 62,862 Matching: 2 tranche 2014 award Mark Dixon Matching: 0 – – of vesting. date at the value be the 100.0 – 228.8p 228.8p 143.8 – 32% 20.2p 18.0p 100% 100% 18.0p 20.2p 32% below No vesting points. these between vesting Straight-line 24% 16.1p 16.0p 25% 25% 16.0p 16.1p 24% EPS target (75% of tranche) (audited) (audited) tranche) of (75% target EPS growth in EPS Compound annual three year period (2015 CIP) over the 01.01.2015 – 31.12.2017 Below median Median Below median Median Below index Equal to index 0% 25% TSR target (25% of tranche) (audited) (audited) tranche) of (25% TSR target to FTSE 350 (excluding TSR % relative IWG companies) mining and services financial period (2015 CIP) performance 01.01.2015 – 31.12.2017 CIP awardsvesting in respectof four three, over performance to subject tranches equal separate three into awards are divided Share Matching and 2013 The 2014 Jan 2013 and 1 January1 from five years arrangements (or cash equi due to vest in March 2018 based on performance until 31st December 2017. In addition, the 2015 CIP, the last award to be grante award to last the CIP, 2015 the addition, In 2017. December 31st until performance on based in March 2018 vest to due the plan, was assessed against EPS and TSR targets, and shall vest in March 2018 subject to a holding period ending March 2020. ending period a holding to subject in March 2018 vest shall and targets, EPS and TSR against assessed was plan, the Directors’ Remuneration report continued Statement of share scheme interests and shareholdings (audited) Executive Directors are required to build up and maintain a shareholding. The following table sets out, for Directors who served during the year, the total number of shares held (including the interests of connected persons) as at 31 December 2017 alongside the interests in share schemes for the Executive Directors. Shareholding guidelines Interests in share/option awards CIP Deferred % of salary Guideline % of salary Share Bonus Performance Investment Matching One-off Shares held required met? attained(1) Plan(2) Share Plan(3) Shares(4) Shares(5) award(6) Executive Directors Mark Dixon 230,856,675 200% Yes 64,024% 204,208 1,135,618 132,326 1,055,553 – Dominik de Daniel 595,589 200% No 188% 179,456 997,967 – – 328,751 Non-Executive Directors Douglas Sutherland 400,000 Lance Browne 14,994(7) Elmar Heggen – Nina Henderson 30,800 François Pauly 100,000 Florence Pierre – 1. Percentage based on a share price of 228.8p 2. Half of any bonus awarded is deferred in shares which vest after three years, subject to continued employment but no further performance targets 3. The Performance Share Plan is in the form of unvested conditional shares which will become exercisable on the fifth anniversary of the date of grant and remain exercisable until the day before the tenth anniversary of the date of grant 4. The CIP Investment Shares are in the form of unvested conditional shares granted 4 March 2015, and which vest subject to continued employment at the end of a three-year holding period 5. The CIP Matching Shares are in the form of unvested conditional shares which will vest subject to the achievement of EPS and TSR performance targets. The number of share interests includes awards which were unvested as at 31 December 2017. For Mark Dixon, the number includes 251,447 Matching Shares granted on 6 March 2013, 274,802 Matching Shares granted on 5 March 2014, and 529,304 Matching Shares granted on 4 March 2015 6. Dominik de Daniel joined IWG and was appointed to the Board on 2 November 2015. Upon appointment Dominik de Daniel was granted a conditional award, details of which were disclosed in the 2015 Remuneration Report. The one-off award is in the form of unvested conditional shares awarded to Dominik de Daniel as a one-off award arrangement established under Listing Rule 9.4.2(2) 7. Number of shares held as at 16 May 2017 With the exception of the Directors’ interests disclosed in the table above, no Director had any additional interest in the share capital of the Company during the year SUPPORTING DISCLOSURES AND ADDITIONAL CONTEXT Percentage change in remuneration of the Chief Executive Officer The table below shows the percentage change in remuneration of the Chief Executive Officer and Group support employees (on a like-for- like basis) between the year ending 31 December 2016 and the year ending 31 December 2017. Given the significant scale and diversity of the overall global employee population, the Committee considers the Group support employees a more relevant comparison. Chief Group support Executive employees Salary 0% 3% Benefits 44% (3%) Annual bonus (100%)(1) (100%)(1) 1. No annual bonus was paid in relation to 2017 Relative importance of spend on pay The table below shows total employee remuneration and distributions to shareholders in respect of the years ending 31 December 2017 and 2016 and the percentage changes between years: Change 2016 2017 2016 to 2017 Total employee remuneration £331.5m £335.6m (1.2)% Distributions to shareholders £48.5m £43.3m 12.0% 72 IWG PLC ANNUAL REPORT AND ACCOUNTS 2017 72 IWG PLC ANNUAL REPORT AND ACCOUNTS 2017 Strategic report Governance Financial statements (2) 73 0% n. y 2017 Votes he withheld 11.0% l meeting l meeting ee £1,120.9k th lent period. (1) cast Total votes Total votes 15% of the 2015 Matching Matching 2015 the of 15% website: www.iwgplc.com. www.iwgplc.com. website: the FTSE 350 (excluding n advice, the Committee is mpany’s annual general meeting meeting general annual mpany’s ssions concerning their own remuneratio their concerning ssions nst the TSR of ed over the relevant period. The Committ The period. relevant over the ed nt during discu nt during available on the Company’s the on available of the Committee attend the Co the attend Committee of the es charged by Aon for the provision of independent t advice to by Aon of independent provision for es charged the 49,000). With regard to49,000). With regard remuneratio ne were prese were ne Votes for Votes for Votes against this context, is committed to an open and transparent dialogue wi dialogue an open and transparent to is committed context, this 694,124,616 94.74% 38,562,156 5.26% 732,686,772 732,686,772 0% 694,124,616 94.74% 5.26% 38,562,156 and assumesand dividendsare reinvest -year period to-year 2017 agai 31 December 2009 2010 2011 2012 2013 2014 2015 2016 ittee’s terms of reference are freely are of reference ittee’s terms FTSE 350 Index (excl. investment trusts) investment (excl. 350 Index FTSE the TSR of IWG in the nine in the of IWG the TSR muneration Report Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 International Workplace Group International Workplace Shares vesting Based on 25% of tranche three of the 2013 Matching Shares vesting, 0% of tranche two of the 2014 Matching Shares vesting and 7. and vesting Shares Matching 2014 the of two tranche of 0% vesting, Shares Matching the 2013 of three tranche of 25% on Based Based on 100% of tranche two of the 2013 Matching Shares vesting and 73% of tranche one of the 2014 Matching Shares vesting vesting Shares Matching of the 2014 one tranche of 73% and vesting Shares Matching 2013 the of two of tranche 100% on Based 800 700 600 500 400 300 200 100 The tablebelow provides remuneration data for theChief Executive Officerof foreach the ninefinancial years over the equiva andare available toanswer shareholders’questions about Directors’ remuneration. Votesbyproxyandcast at theannual genera NINA HENDERSON NINA HENDERSON REMUNERATION COMMITTEE CHAIRMAN OF THE 6 MARCH 2018 for yearending 31 December 2016 For and on behalf of Board the Approval of Annual Re Statement of voting at general meeting meeting general at voting of Statement in and, shareholders to accountable directly is Committee The Details of the composition of the Remuneration Committee and attendance at Committee meetings are set out on page 62 of the 62 of out on page the are set meetings at Committee and attendance Committee Remuneration of the composition Details of the Comm Report.Governance The Corporate 2. Committee Remuneration the Advisors to members The remuneration. of executive issue on the shareholders Bonus (% of maximum) Bonus (% of maximum) 1. 0% 19% 50% 100% 79% 100% 100% 93% Single total figure of remuneration figure of remuneration Single total £628k £759k £1,130k £1,773k £1,854k £2,770k £1,968k £3,034.5k Performance graphPerformance and table The graphbelow shows In addition to the designated members of the Remuneration Committee, the Chairman, Chief Executive Officer and Company Secretar Company and Officer Executive Chief Chairman, the Committee, Remuneration the of members designated the to In addition no although year the during meetings Committee attended also investment trusts). refersTSR to share price growth considers the FTSE 350 (excluding investment trusts) relevant since it is an index of companies of similar size to IWG. IWG. to size of similar of companies it is an index since relevant trusts) investment (excluding 350 FTSE the considers held on 16 May 2017 in respect of remunerated related resolutions are shown in the table below: below: table in are the shown resolutions of related held on remunerated 16 May 2017 in respect Aon provided independent advice to the Committee during the year. Aon was appointed by the Committee during 2016 following a following 2016 during Committee by the was appointed Aon year. the during Committee the to advice independent provided Aon fe The Committee. by the undertaken process selection competitive Committee during 2017 were £41,500 (exclusiveVAT)of (2016: £ comfortablethat Aon’s engagement partnerand team areobjective independent. and Resolution Resolution # % # % Long-term incentive vesting (% of maximum) (% of vesting Long-term incentive 0% 0% 0% 11% 35% 86% 97% 90.5% Directors’ report The Directors of IWG plc (the ‘Company’) The Corporate Responsibility Report, on All employees are encouraged to become present their Annual Report and the audited pages 44 to 47, includes the sections involved in the Company’s performance. financial statements of the Company and of the Strategic Report in respect of: Regular staff surveys are sent to staff asking its subsidiaries (together the ‘Group’) for • environmental matters; and for their feedback. the year ended 31 December 2017. • social and community issues. Political and charitable donations It is the Group’s policy not to make political Directors The People Report on pages 30 to 31 of donations either in the UK or overseas. The Directors of the Company who the Strategic Report addresses employee held office during the financial year development and performance. The Group made charitable donations under review were: of £302,066 during the year (2016: £237,479). The Nomination Committee Report on Executive Directors pages 56 and 57 covers our diversity. Capital structure Mark Dixon The Directors’ statements on page 75 The Company’s share capital comprises Dominik de Daniel include the statutory statement in 923,357,438 issued and fully paid up Non-Executive Directors respect of disclosure to the auditor. ordinary shares of 1p nominal value in IWG plc (2016: 923,357,438). All ordinary Douglas Sutherland The Directors do not consider any shares have the same rights to vote at François Pauly contractual or other relationships general meetings of the Company and to Elmar Heggen with external parties to be essential participate in distributions. There are no Florence Pierre to the business of the Group. securities in issue that carry special rights Nina Henderson Results and dividends in relation to the control of the Company. Biographical details for the Directors Profit before taxation for the year The Company’s shares are traded on the are shown on pages 48 and 49. was £149.4m (2016: £173.7m). London Stock Exchange. Details of the Directors’ interests The Directors are pleased to recommend Details of the role of the Board of Directors and shareholdings are given in the a final dividend of £36.0m (2016: paid (the ‘Board’) and the process for the Remuneration Report on page 72. £32.5m), being 3.95p per share (2016: appointment of Directors can be found The Corporate Responsibility Report, 3.55p per share). The total dividend for the on pages 48 to 49, and 56 to 57. People Report, Corporate Governance year will therefore be 5.70p per share, made Substantial interests Report, Nomination Committee Report, up of the interim dividend of 1.75p per At 6 March 2018, the Company has been Audit Committee Report, Remuneration share paid in October 2017 (2016: 1.55p notified of the following substantial interests Report and Directors’ Statements on pages per share) and, assuming the final dividend held in the issued share capital of the Company. 44 to 47 and 50 to 75 all form part is approved by shareholders at the % of issued of this report. forthcoming annual general meeting, share capital Principal activity an additional 3.95p per share (2016: 3.55p Number of (excluding per share) which is expected to be paid on ordinary treasury The Company is the world’s shares shares) 25 May 2018 to shareholders on the register leading provider of global office (1) at the close of business on 27 April 2018. Estorn Limited 230,856,675 25.4% outsourcing services. Policy and practice on payment Toscafund Asset Business review Management LLP 81,624,557 9.0% of creditors The Directors have presented a Strategic M&G Investment Report as follows: The Group does not follow a universal Management 63,438,365 7.0% code dealing specifically with payments The Chief Executive Officer’s review Standard Life to suppliers but, where appropriate, and Chief Financial Officer’s review Aberdeen 45,915,218 5.0% our practice is to: on pages 24 to 27 and 32 to 36 Harris Associates L.P. 45,621,617 5.0% • agree the terms of payment upfront with respectively address: 1. Mark Dixon indirectly owns 100% of Estorn Limited the supplier; • review of the Company’s business Subsequent events (pages 24 to 27); • ensure that suppliers are made aware of these terms of payment; and There have been no significant subsequent • trends and factors likely to affect the events that require adjustments or • pay in accordance with contractual future development, performance and disclosure in this Annual Report. and other legal obligations. position of the business (page 24); Auditors Employees • development and performance during In accordance with Jersey law, a resolution the financial year (pages 32 to 36); and The Group treats applicants for for the reappointment of KPMG Ireland as • position of the business at the end of employment with disabilities with full auditors of the Company is to be proposed the year (pages 33 to 36). and fair consideration according to their at the forthcoming annual general meeting. skills and capabilities. The Risk Management report, on pages Approval Should an employee become disabled 37 to 43, includes a description of the This report was approved by the Board during their employment, efforts are made principal risks and uncertainties facing on 27 February 2018. the Company. to retain them in their current employment or to explore opportunities for their On behalf of the Board retraining or redeployment elsewhere TIMOTHY REGAN within the Group. COMPANY SECRETARY 6 March 2018 74 IWG PLC ANNUAL REPORT AND ACCOUNTS 2017 74 IWG PLC ANNUAL REPORT AND ACCOUNTS 2016 Strategic report Governance Financial statements 75 the financialprepared statements in applicable with the of set accordance fair and a true give standards, accounting view of the assets, liabilities, financial Group; of the or loss profit and position the Directors’ Report, including content content including Report, Directors’ the contained by reference, includes a fair review of the development and and business of the performance as a taken Group position of the the whole, togethera descriptionwith of the they that uncertainties risks and principal and face; the Annualand Reportfinancial is fair, a whole, as taken statements, and and understandable balanced provides theinformation necessary Group’s the assess to for shareholders position and performance, business model and strategy. MARK DIXON OFFICER CHIEF EXECUTIVE DANIEL DOMINIK DE OFFICER CHIEF FINANCIAL OFFICER OPERATING AND CHIEF 6 March 2018 Statement of responsibility best of our to the that We confirm knowledge: • • • By orderof the Board so far as they are each aware, there is no the of which information audit relevant auditorGroup’s is unaware;and each Director has taken all the steps that that steps all the has taken Director each in as a he ought have Director taken to order tomake himself awareof any relevant audit information and to is auditor Group’s the that establish information. of that aware Statutorystatement as to auditor to disclosure The Directorswho held officeat thedateof approvalof these Directors’ statements confirm that: • • These financial statements have been been have statements financial These approved by the Directors of the Company. The Directors confirmthat thefinancial in prepared been have statements accordance with applicable law and regulations. Under applicable law and regulations, the Directorsare alsoresponsible for preparing a Report, Strategic a Report, a Directors’ Remuneration Reportand a Corporate with comply that Statement Governance that law and thoseregulations. The Directors are responsible for the maintenanceand integrityof the corporate financial informationand included on the Company’s websites. governing Jersey and UK in the Legislation of and dissemination preparation the from may differ statements financial legislation in other jurisdictions. and applicable law. select suitableaccounting policies and then apply them consistently; make judgements andestimates that are reasonable and prudent; prudent; and reasonable are for the Group financial statements, state state statements, financial Group the for in prepared been have they whether by with IFRSs as adopted accordance and EU; the prepare the financial statements on statements financial the prepare it is unless basis concern going the the that presume to inappropriate Group and the parent company will in business. continue Under company law, the Directors must unless statements financial the not approve and a true give they that satisfied are they Group of the of affairs state of the view fair or lossits profit forand the period. In preparing each of the Group financial to: required are Directors the statements, • The Directors are responsiblepreparing for financial Group the and Report Annual the statements in accordance with applicable regulations. and law lawCompanyrequires the Directors to statements financial Group the prepare for each financial year. Under that law, they financial Group the prepare to required are with International in accordance statements Financial Reporting Standards (‘IFRSs’)as EU adopted by the Statement of Directors’ of the respect in responsibilities financial and Report Annual statements Directors’ statements statements Directors’ • • • • The Directors are responsiblekeeping for adequaterecords accounting that are sufficienttheexplain to Group’s show and with disclose and which transactions the time at any accuracy reasonable financialposition of the Group and to enable them toensurefinancial that its with Companies the comply statements (Jersey)Law 1991 and Articleof 4 the IAS Regulation. They have general responsibility for takingsuch steps asare the safeguard to to them open reasonably and prevent Group and to of the assets detectfraud and otherirregularities. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF IWG PLC OPINIONS AND CONCLUSIONS ARISING FROM The key audit matter OUR AUDIT There is a risk that the carrying amounts of the Group’s goodwill 1. Our opinion is unmodified and intangible assets will be more than the estimated recoverable amount, if future cash flows are not sufficient to recover the We have audited the consolidated financial statements of IWG plc Group’s investment. This could occur if forecasted cash flows for the year ended 31 December 2017 which comprise the decline in certain markets or where revenue and costs are subject consolidated income statement, the consolidated statement to significant fluctuations. The recoverability of goodwill is spread of comprehensive income, the consolidated balance sheet, the across multiple geographies and economies, and is dependent on consolidated statement of changes in equity, the consolidated individual businesses acquired achieving or sustaining sufficient cash flow statement and the related accounting policies and notes. profitability in the future. The financial reporting framework that has been applied in their preparation is Jersey Law and International Financial Reporting We focus on this area due to the inherent uncertainty involved Standards (IFRS) as adopted by the European Union. in forecasting and discounting future cash flows, particularly in projected revenue growth, which forms the basis of the assessment In our opinion: of recoverability. • the consolidated financial statements give a true and fair view of the assets, liabilities and financial position of the Group as at 31 How the matter was addressed in our audit December 2017 and of its profit for the year then ended; Our audit procedures in this area included, among others, assessing the Group’s impairment model for each group of CGU’s and • the consolidated financial statements have been properly evaluating the assumptions used by the Group in the model, prepared in accordance with International Financial Reporting specifically the cash flow projections, perpetuity rates and Standards (IFRS) as adopted by the European Union; and discount rates. We considered the historical accuracy of • the consolidated financial statements have been properly the Group’s forecasts. We obtained and documented our prepared in accordance with the requirements of the Companies understanding of the impairment testing process and tested (Jersey) Law 1991. the design and implementation of the relevant controls therein. Basis for opinion We used valuation specialists to assist us in evaluating the We conducted our audit in accordance with International Standards judgements and methodologies used by the Group, in particular on Auditing (“ISAs”). Our responsibilities under those standards are those relating to the discount rate used to determine the present further described in the Auditor’s Responsibilities section of our value of the cash flow projections. report. We are independent of the Group in accordance with the We compared the Group’s assumptions, where possible, to ethical requirements that are relevant to our audit of the financial externally derived data and performed our own assessment in statements in Jersey, together with the International Ethics relation to key model inputs. We checked the mathematical Standards Board for Accountants' Code of Ethics for Professional accuracy of the model. We examined the sensitivity analysis Accountants (“IESBA Code”) and we have fulfilled our other ethical performed by Group management and performed our own responsibilities in accordance with these requirements. sensitivity analysis in relation to the key assumptions. We also We believe that the audit evidence we have obtained is sufficient compared the sum of projected discounted cash flows to the and appropriate to provide a basis for our opinion. market capitalization of the Group to assess whether the projected cash flows appear reasonable. We also assessed whether the 2. Key audit matters: our assessment of risks of disclosures as set out in Note 12 were appropriate and in material misstatement compliance with IAS 36. Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial As a result of our work, noting that no impairments were identified statements and include the most significant assessed risks of by the Group, we found that these judgements were supported by material misstatement (whether or not due to fraud) identified reasonable assumptions. We found the disclosures to be adequate. by us, including those which had the greatest effect on: the overall Taxation (current tax liabilities of £21.6m (2016: £17.7m); audit strategy; the allocation of resources in the audit; and directing deferred tax assets of £23.0m (2016: £29.3m) and the efforts of the engagement team. deferred tax liabilities of £1.3m (2016: £2.4m)) These matters were addressed, and our results are based on Refer to page 59 (Report of the Audit Committee), page 90 procedures undertaken, in the context of, and solely for the (accounting policy) and Note 9 to the Group Financial Statements. purpose of, our audit of the financial statements as a whole, and The key audit matter in forming our opinion thereon, and consequently are incidental The Group operates in numerous tax jurisdictions around the world. to that opinion, and we do not provide a separate opinion on As a result, the tax charge on profits is determined according to a these matters. variety of complex tax laws and regulations. The Group encounters In arriving at our audit opinion above, the key audit matters, challenges by tax authorities on a range of tax matters during the in decreasing order of significance, were as follows: normal course of business and recognises liabilities for anticipated Goodwill and intangible assets of £712.1m tax audit issues based on estimates of whether additional taxes will be due. The calculation of these liabilities is underpinned by (2016: £738.1m) judgemental assumptions as the ultimate tax determination is Refer to page 59 (Report of the Audit Committee), page 88 uncertain. The related deferred tax assets and liabilities require (accounting policy) and Notes 12 and 13 to the Group judgement in determining the amounts to be recognized with Financial Statements. consideration to the timing and level of future taxable income. 76 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 77 er to assess the key audit audit key er the assess to e auditors in all of these e auditors in all of these rance conclusion thereon. conclusion rance cover the other information other information the cover priate during various stages various stages priate during cast significant doubt overcast significant doubt the reported back. Planning meetings meetings Planning back. reported unted operating for at Group and unted we haveanything material toadd or drawattention to inrelation statements financial 2 in the to note statement directors’ to the no with of accounting basis concern going of the use the on material uncertainties that may ofa periodbasis foruseofGroup’s at least twelve that months from the date or of approval statements; of financial the if the related statement under the Listing Rules set out on page page on out Rules set Listing the under statement related the if ourinconsistent54 is materially audit knowledge.with those in relation to the significant risks above, on in significant to the those relation those acco and balances transactions which to Group in the components those In determining level. unit performwe audit procedures,consideredwe the relevantand size components. of the profile risk In relation tooperating the Group’s units,audits for Group reporting purposeswere performed at identified keyreporting components, were which procedures audit by risk focused augmented performed forother certain components. Theseaudits covered 80% of total Group revenue, 80% of Group total assets and ofprofit Group83% before taxation. as to the auditors component team audit instructed Group The the relevant risks detailed including areas to be covered, significant to be information and the above ord in auditors with component were held risks, auditstrategy work and be toundertaken. The Groupaudit team approved the materiality of each of the components, which ranged from £3m to £8m, having regardto themixof size risk and components. the across Group of the profile were to sent th instructions Detailed audit audit significant the covered instructions These locations. identified relevant the included (which audits by these areas to covered be out set and the above) detailed misstatement risks of material information required to be reported to the Group audit team. Senior members of the Group audit team, including the lead engagementpartner,closing attended audit each component results the at which facilities, conferencing telephone via meeting of component audits were discussedwith divisionalGroup and management. At these meetings, the findings reported to the Group audit team were discussed in more detail, and any further work required by theperformed by audit Group teamwas then the component auditor.The Group audit team interacted with appro where teams component the ofreviewedaudit, the key working were papers responsible and together This, process. audit of the direction and scope the for with the additionalprocedures performed at Grouplevel, gave us appropriate evidence for our opinion on the Group statements. financial 5. We have nothingto report on the other information in the Annual Report in presented information other the for responsible are The directors opinion Our statements. financial the Annual Report together with the not statements does on the financial as or, except not express an audit opinion we do and, accordingly, of assu below, any form stated explicitly 4. We have nothing to report on going concern going concern on to report nothing 4. We have if: you to to report required We are • • We have nothing to report in these respects. respects. report in these to nothing We have ns used in determiningns the sensitivity to changes thereon ts to be appropriate and that the bets to appropriate ved assessing theassumptions in ding goodwill, intangibleassets, the financial statements relevant Group’s current and deferred taxand Group’s current qualitative grounds. financial statements as a whole could The materiality for the consolidated financial statements as a whole whole a as statements financial consolidated the for materiality The of 6.7% and revenue of total which is 0.4% million, at £10 was set profit before tax from continuing operations. We have determined, of two are benchmarks these that judgement, professional our in the principal benchmarkswithin 3. Our application of materiality and an overview of ourthe scopeof audit to members of the company in assessing financial performance. For certain account balances inclu bank loans, share based payments, related party transactions party transactions related payments, based share bank loans, and taxation, we applied materiality of £7.5 million, or 5% of less of amounts a misstatement profit, as we believe pre-tax than materiality for the be reasonably expected to influence a members’ assessment of the financial performance of the Group. We agreedwith the Committee to Audit report correctedand uncorrectedmisstatementsweidentified through our audit with excessa valuemillion. ofin We £0.5 also otherreport agreed to we believe that threshold below that misstatements audit on warranted reporting certain that such is function finance Group’s of the structure The Group for by central accounted are and balances transactions operating the in for accounted remainder the with teams, finance units. We performed comprehensive audit procedures, including disclosures provide an adequate description of the assumptions assumptions of the description an adequate provide disclosures and estimates made by the Group, appropriate liabilitiesassets. and How the matter was addressed in our audit Our approach tothe audit of taxationisunderpinned by the inclusionof KPMG international and domestic taxation specialistsin assumptions the evaluate specialists These team. audit Group the and methodologies used by the and Group its taxation advisors, in calculating the taxation provisions for the period. Particularfocus is placed on assumptions relating to provisions for uncertain tax positionsand therecognition and recoverabilityof deferred tax the of our understanding and We obtained documented assets. of and implementation design the and tested process taxation the relevant controls therein. We specifically considered the taxation risks arising from the operationsGroup’s whenassessing theaccounting for taxation the determine to analysis applied sensitivity and balances related recoverability the assessed We judgements. of key appropriateness of deferred tax assets, which invol relation to the utilisation of losses carried forward against projected taxable profits. We also considered whether the recognition of additional deferred tax assetsbe would appropriate.We assessed the presentation disclosureand (in accordance respectwith and IAS 12) in IAS 1 Group’s the whether considered and balances related of taxation disclosuresreflected the risks inherentin the accountingfor the balances. taxation as recognised amounts the of estimates Group’s the found that We liabilitiesand deferredtax tax asse andthe current statusofmaterial, uncertain taxpositions. Separately, the Group has incurred historic trading losses in certain in certain losses trading historic has incurred Group the Separately, jurisdictionsacquisitions and made may include complex tax a consequence, the As aspects. balances are sensitiveto assumptio Independent auditor’s report to the members of IWG plc continued Our responsibility is to read the other information and, in doing • The financial statements are not in agreement with the so, consider whether, based on our financial statements audit work, accounting records; or the information therein is materially misstated or inconsistent with • We have not received all the information and explanations the financial statements or our audit knowledge. Based solely on we require for our audit. that work we have not identified material misstatements in the other information. 7. Respective responsibilities Directors’ responsibilities Disclosures of principal risks and longer-term viability As explained more fully in their statement set out on page 75, Based on the knowledge we acquired during our financial the directors are responsible for: the preparation of the financial statements audit, we have nothing material to add or draw statements including being satisfied that they give a true and fair attention to in relation to: view; such internal control as they determine is necessary to enable • the Principal Risks disclosures describing these risks and the preparation of financial statements that are free from material explaining how they are being managed and mitigated; misstatement, whether due to fraud or error; assessing the Group’s • the directors’ confirmation within the viability statement ability to continue as a going concern, disclosing, as applicable, that they have carried out a robust assessment of the principal matters related to going concern; and using the going concern basis risks facing the Group, including those that would threaten its of accounting unless they either intend to liquidate the Group or business model, future performance, solvency and liquidity; and to cease operations, or have no realistic alternative but to do so. • the directors’ explanation in the viability statement of how Auditor’s responsibilities they have assessed the prospects of the Group, over what period Our objectives are to obtain reasonable assurance about whether the they have done so and why they considered that period to be financial statements as a whole are free from material misstatement, appropriate, and their statement as to whether they have a whether due to fraud, other irregularities, or error, and to issue our reasonable expectation that the Group will be able to continue in opinion in an auditor’s report. Reasonable assurance is a high level of operation and meet its liabilities as they fall due over the period assurance, but does not guarantee that an audit conducted in of their assessment, including any related disclosures drawing accordance with ISAs will always detect a material misstatement attention to any necessary qualifications or assumptions. when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, Other Corporate governance disclosures they could reasonably be expected to influence the economic We are required to address the following items and report to you decisions of users taken on the basis of the financial statements. in the following circumstances: Further details relating to our work as auditor is set out in the Scope • Fair, balanced and understandable: if we have identified material of Responsibilities Statement contained in the appendix to this inconsistencies between the knowledge we acquired during our report, which is to be read as an integral part of our report. financial statements audit and the directors’ statement that they consider that the annual report and financial statements taken as 8. The purpose of our audit and to whom we owe our a whole is fair, balanced and understandable and provides the responsibilities information necessary for shareholders to assess the Group’s Our report is made solely to the Company’s members, as a body, in position and performance, business model and strategy; or accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the • Report of the Audit Committee: if the section of the annual Company’s members those matters we are required to state to them report describing the work of the Audit Committee does not in an auditor’s report and for no other purpose. To the fullest extent appropriately address matters communicated by us to the permitted by law, we do not accept or assume responsibility to Audit Committee; or anyone other than the Group and the Group’s members as a body, for • Statement of compliance with UK Corporate Governance Code: if our audit work, for this report, or for the opinions we have formed. the directors’ statement does not properly disclose a departure from provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in these respects. CLIONA MULLEN, for and on behalf of 6. We have nothing to report on the other matters on which we are required to report by the Companies KPMG (Jersey) Law 1991 by exception Chartered Accountants, Statutory Audit Firm We have nothing to report in respect of the following matters 1 Stokes Place, St Stephen’s Green, Dublin 2, Ireland where the Companies (Jersey) Law 1991 requires us to report to 6 March 2018 you if, in our opinion: • Adequate accounting records have not been kept by the parent company; • Returns adequate for our audit have not been received from branches not visited by us; 78 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 79 ed financial higher than for one resulting the consolidat nal control relevant to the audit th ISAs, we exercise professional Identify and assess the risks of material misstatement of the of the misstatement risks of material the Identify and assess and or error, design fraud to due whether statements, financial obtain and risks, those to responsive procedures audit perform audit evidence that is sufficient and appropriate to provide a a material of risk not The detecting for our opinion. basis misstatement resulting from fraud is from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of inter of Obtain an understanding in order to design audit procedures that are appropriate in the opinion an of expressing purpose but for not the circumstances, on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and related estimates of accounting reasonableness and the disclosures made by management. Conclude on the appropriateness of management’s use of use of management’s appropriateness on the Conclude on the of and, based accounting basis concern going the audit evidence obtained, whether a material uncertainty exists related toevents or conditionsmay thatsignificant cast on doubt the Group’s ability to continue as aconcern. going If weconclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statementsor, if such disclosures areinadequate, to on audit the based are Our conclusions opinion. our modify evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to as concern. a going to continue cease Evaluate the overall presentation, structure and content of the of the content and structure presentation, overall the Evaluate the whether and disclosures, the including statements, financial and transactions underlying the represent statements financial achievesevents in a manner that fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on statements. We are responsible for the direction, supervision and and supervision direction, the for responsible are We statements. performance of the group audit. We remain solely responsible opinion. audit our for judgment and maintain professional scepticism throughout the audit. the audit. throughout professional scepticism judgment and maintain We also: • As part of an audit in accordance wi Appendix to the Independent Auditor’s Report Further information regarding thescopeourof responsibilities auditor as • • • • • We communicate with those charged with governance regarding, regarding, charged with governance with those We communicate of the audit and timing scope the planned matters, other among deficiencies including any significant findings, audit and significant audit. our during that we identify control in internal CONSOLIDATED INCOME STATEMENT Year ended Year ended 31 Dec 2017 31 Dec 2016 Continuing operations Notes £m £m Revenue 3 2,352.3 2,233.4 Cost of sales (1,950.7) (1,784.6) Gross profit (centre contribution) 401.6 448.8 Selling, general and administration expenses (237.6) (262.8) Share of loss of equity-accounted investees, net of tax 21 (0.8) (0.8) Operating profit 5 163.2 185.2 Finance expense 8 (14.1) (11.6) Finance income 8 0.3 0.1 Net finance expense (13.8) (11.5) Profit before tax for the year 149.4 173.7 Income tax expense 9 (35.4) (34.9) Profit after tax for the year 114.0 138.8 Earnings per ordinary share (EPS): Basic (p) 10 12.4 14.9 Diluted (p) 10 12.3 14.7 80 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements – – 81 £m 2.1 (0.3) 90.2 92.0 92.0 138.8 230.8 Year ended Year ended 31 Dec 2016 – £m 0.5 (0.7) (0.7) 79.4 (34.4) (33.9) (34.6) 114.0 Year ended Year ended 31 Dec 2017 Notes Notes to profit or loss in or loss to profit income statement, net of income tax tax income net of statement, income ability, net of income tax tax ability, net of income 26 of value changes in fair or may be reclassified or may be reclassified Foreign currency translation differences for foreign operations foreign for operations translation differences Foreign currency Cash flow hedges – effective portion – effective Cash flow hedges Total comprehensive income for the year year for the income Total comprehensive tax income net of period, for the (loss)/income Other comprehensive subsequent periods: or loss in to profit reclassified will never be income that Other comprehensive li benefit of defined Re-measurement Other comprehensive income that is Other comprehensive the through – reclassified Cash flow hedges Profit for the year year the for Profit CONSOLIDATED STATEMENT OF OF STATEMENT CONSOLIDATED INCOME COMPREHENSIVE Items that are or may be reclassified to profit or loss in subsequent periods in subsequent or loss profit may be reclassified to Items that are or Items that will never be reclassified to profit or loss in subsequent periods never be reclassified to Items that will subsequent in profit or loss subsequent periods: CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Foreign currency Issued share Treasury translation Hedging Other Retained Total capital shares reserve reserve reserves earnings equity £m £m £m £m £m £m £m Balance at 1 January 2016 9.5 (42.9) 7.4 (2.1) 25.8 586.0 583.7 Total comprehensive income for the year: Profit for the year ––––– 138.8 138.8 Other comprehensive income: Cash flow hedges – reclassified through the income statement –––2.1– –2.1 Cash flow hedges – effective portion of changes in fair value –––(0.3)– –(0.3) Foreign currency translation differences for foreign operations – – 90.2 – – – 90.2 Other comprehensive income, net of tax – – 90.2 1.8 – – 92.0 Total comprehensive income for the year – – 90.2 1.8 – 138.8 230.8 Share-based payments ––––– 2.42.4 Ordinary dividend paid (note 11) ––––– (43.3)(43.3) Purchase of shares (note 22) – (34.2) – – – (1.3) (35.5) Proceeds from exercise of share awards (note 22) – 8.5 – – – (4.6) 3.9 Cancellation of treasury shares (note 22) (0.3) 65.7 – – – (65.4) – Balance at 31 December 2016 9.2 (2.9) 97.6 (0.3) 25.8 612.6 742.0 Total comprehensive income for the year: Profit for the year – – – – – 114.0 114.0 Other comprehensive income: Remeasurement of the defined benefit liability, net of tax (note 26) – – – – – (0.7) (0.7) Cash flow hedges – effective portion of changes in fair value – – – 0.5 – – 0.5 Foreign currency translation differences for foreign operations – – (34.4) – – – (34.4) Other comprehensive (loss)/income, net of tax – – (34.4) 0.5 – (0.7) (34.6) Total comprehensive income for the year – – (34.4) 0.5 – 113.3 79.4 Share-based payments – – – – – 1.7 1.7 Ordinary dividend paid (note 11) – – – – – (48.5) (48.5) Purchase of shares (note 22) – (51.1) – – – – (51.1) Proceeds from exercise of share awards (note 22) – 14.4 – – – (10.2) 4.2 Balance at 31 December 2017 9.2 (39.6) 63.2 0.2 25.8 668.9 727.7 Other reserves include £10.5m for the restatement of the assets and liabilities of the UK associate from historic to fair value at the time of the acquisition of the outstanding 58% interest on 19 April 2006, £37.9m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5m relating to merger reserves and £0.1m to the redemption of preference shares partly offset by £29.2m arising from the Scheme of Arrangement undertaken in 2003. 82 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements – 83 £m 7.8 6.0 2.4 3.4 3.4 0.8 9.2 0.3 (0.3) (2.9) As at 17.7 97.6 25.8 52.8 29.3 83.7 13.6 34.8 50.1 532.1 685.3 517.1 602.0 875.2 276.4 193.6 736.0 612.6 742.0 2,661.1 1,183.1 1,919.1 1,194.4 2,059.1 2,661.1 31 Dec 2016 – £m 8.5 4.5 1.3 4.9 3.8 1.5 9.2 0.2 0.2 As at 21.6 63.2 25.8 45.4 23.0 80.7 12.4 27.6 55.0 (39.6) 904.8 285.3 342.9 907.6 668.9 727.7 666.7 581.8 664.4 553.2 1,224.7 2,132.3 1,367.2 2,195.6 2,860.0 2,860.0 2,860.0 31 Dec 2017 9 9 9 9 20 20 20 21 26 22 19 19 22 22 18 18 12 12 16 15 15 13 13 19 19 14 14 24 21 23 Notes Notes Other reserves reserves Other Provisions Total current liabilities Provisions in joint ventures deficit Provision for obligations Retirement benefit Total non-current liabilities shares Treasury Foreign currency translation reserve reserve translation currency Foreign Bank and other loans Bank and other loans Approvedon by the BoardMarch 2018 6 MARK DIXON OFFICER CHIEF EXECUTIVE OFFICER OPERATING CHIEF OFFICER AND CHIEF FINANCIAL DANIEL DOMINIK DE Total equity and liabilities Total equity and liabilities Total equity Total equity capital Issued share Total liabilities Total liabilities Non-current liabilities Non-current liabilities Other long-term payables Current liabilities Current liabilities customer deposits) payables (incl. other and Trade 17 Total assets Current assets Trade and other receivables Non-current assets Goodwill CONSOLIDATED BALANCE SHEET SHEET BALANCE CONSOLIDATED Non-current derivative financial liabilities liabilities Non-current derivative financial 24 Other long-term receivables receivables Other long-term Other intangible assets Other intangible assets Corporation tax receivable Deferred income Corporation tax payable Deferredliability tax Total equity Bank and other loans Bank and other loans Hedging reserve earnings Retained Property, plant and equipment equipment Property, plant and asset financial Non-current derivative ventures in joint Investments Total non-current assets Cash and cash equivalents Total current assets Deferred tax assets CONSOLIDATED STATEMENT OF CASH FLOWS Year ended Year ended 31 Dec 2017 31 Dec 2016 Notes £m £m Operating activities Profit before tax for the year 149.4 173.7 Adjustments for: Net finance expense 8 13.8 11.5 Share of loss of equity-accounted investees, net of tax 21 0.8 0.8 Depreciation charge 5, 14 202.1 181.8 Loss on disposal of property, plant and equipment 5 4.3 1.0 Loss on disposal of assets held for sale 6 – 2.2 Impairment of intangible assets 5 1.6 – Impairment of property, plant and equipment 5, 14 0.1 – Amortisation of intangible assets 5, 13 10.9 12.7 Amortisation of acquired lease fair value adjustments 5 (3.6) (3.1) Decrease in provisions 20 – (3.2) Share-based payments 1.7 2.4 Other non-cash movements 0.5 (3.4) Operating cash flows before movements in working capital 381.6 376.4 (Increase)/decrease in trade and other receivables (72.1) 81.0 Increase in trade and other payables 116.3 23.2 Cash generated from operations 425.8 480.6 Interest paid (12.2) (16.2) Tax paid (22.4) (31.5) Net cash inflow from operating activities 391.2 432.9 Investing activities Purchase of property, plant and equipment 14 (344.9) (313.8) Purchase of subsidiary undertakings (net of cash acquired) 27 (40.1) (8.9) Purchase of intangible assets 13 (3.6) (5.5) Purchase of joint ventures 21 (0.3) (1.3) Dividends received from joint ventures 21 – 0.9 Proceeds on sale of property, plant and equipment 0.5 16.1 Proceeds on the sale of assets held for sale 6 – 3.3 Interest received 8 0.3 0.1 Net cash outflow from investing activities (388.1) (309.1) Financing activities Net proceeds from issue of loans 651.6 599.8 Repayment of loans (558.8) (670.0) Settlement of financial derivatives – (7.0) Purchase of shares 22 (51.1) (35.5) Proceeds from exercise of share awards 4.2 3.9 Payment of ordinary dividend 11 (48.5) (43.3) Net cash outflow from financing activities (2.6) (152.1) Net increase/(decrease) in cash and cash equivalents 0.5 (28.3) Cash and cash equivalents at the beginning of the year 50.1 63.9 Effect of exchange rate fluctuations on cash held 4.4 14.5 Cash and cash equivalents at the end of the year 23 55.0 50.1 84 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 85 ors er ic ting ting the rent about ts. ts. ructure ial ial ’) and all values ed financial ed financial her cern and and atements. urred legal sets of the commences nd liabilities ture, the Group’s arried at the e the Group’s Group’s e the l. IWG plc is a publ a l. IWG plc is ents includ e International Financial Repor ’). The Company prepares its pa ’). Company The ors have considered the furt the considered ors have ncial statem ncial to the consolidatedfinancial st and Dominik de Danie the Group and the Company have adequate Company the Group and the which is IWG plc’s functional currency, and currency, which is IWG plc’s functional are included for the periods of ownership. of ownership. periods for the are included ies that have significant effect on the consolidat on the effect significant have ies that dards Board th and (IASB) es. The consolidated fina The consolidated es. halfby Mark Dixon were adopted by the Group for periods commencing on or aft the Directors inaccordance with Companies (Jersey)Law 1991 nancial statements, the Direct the statements, nancial found in note 24 to the notes the European Union (‘Adopted IFRSs (‘Adopted Union European the ssesis discontinuedexcept to theextent that the Groupinc has alifies as a disposal group, at which point the investment is c investment point the group, at which as a disposal alifies for Unrealised losses – Amendments to IAS 12 to IAS 12 – Amendments losses for Unrealised ies, have a reasonable expectation that ies, have that expectation a reasonable ose of the parent ose ofits subsidiaries the (togetherand company referredto as the ‘Group e InternationalStan Accounting s acquired or disposed of during the year year the of during disposed or s acquired prepared on a historical cost basis, with the exception of certain financial assets a assets financial of certain exception the with basis, cost on a prepared historical e application of these accounting polic accounting of these e application ements are presented in pounds sterling (£), (£), sterling in pounds are presented ements in joint ventures. Theextractfrom the parentannual companyaccounts presents information ghts and obligations forto its its assets liabiliti statements consolidate th Interpretations Committee (IFRIC) with an effective date from 1 January 2017 did not have a material effect on the Group financ a on the effect from material date did not January 1 with an effective have 2017 Committee (IFRIC) Interpretations indicated. otherwise unless statements, The following standards, interpretations and amendments to standards the Company as a separate entity and not about its Group. and not Group. about its entity as a separate Company the statemen financial Group in these presented all periods to consistently applied been have out below set policies accounting The Amendments toadopted issued th by IFRSs 1 January 2017: 2017: 1 January resources to continue in operational existence going con the adopt to for the they continue reason foreseeable future. this For 125. 80 to pages on statements financial consolidated the basis in preparing fi consolidated the for preparing basis concern going the In adopting information included in the business activities commentary as set out on pages 24 to 27 as well as the Group’s principal risks 38 as set out on pages to 43. uncertainties Further details on the going concern basis of preparation can be equity account theGroup’s interest Various in th made by Directors the Judgements Cycle) – 2014 (2012 Annual Improvements described in notemeasuredthat are value as 24. fair at enquir appropriate made having Directors, The IAS 7 IAS 7 IAS 12 to IAS 7 – Amendments Initiative Disclosure Tax Assets Recognition of Deferred 2. ACCOUNTING POLICIES 2. ACCOUNTING POLICIES preparation of Basis The Group financial 1. AUTHORISATION OF FINANCIAL STATEMENTS 1. AUTHORISATION of Direct Board by the issue for authorised were 2017 December 31 ended year the for statements financial Company and Group The wereBoard’s on the be signed sheets balance on 6 the and March 2018 risk of material estimates with a significant statements and adjustment in the next year are discussed in note 33. are statements financial consolidated The NOTES TO THE ACCOUNTS ACCOUNTS TO THE NOTES These Group consolidated financial stat financial Group consolidated These limited company incorporated in Jersey and registered and domiciled in Switzerland. The Company’s ordinary shares are traded on Exchange. Stock London businessofnetwork plcowns a centresIWG which area varietyof utilised by business customers.on Information the Group’s st 31. in note is provided Group of the relationships party related on other information 32, and note in is provided The Group financialstatements havebeenprepared and approved by are in million pounds, rounded to one decimal place, except where indicated otherwise. otherwise. indicated where except place, decimal one to rounded pounds, in million are companie of those results attributable The as net the to rights has Group the whereby control, joint has Group the activities whose over entities those are ventures Joint rather than ri arrangement, and International Financial Reporting Standards as adopted by as adopted Standards Reporting Financial and International company annual accounts in accordance with accounting policies based on the Swiss Code of Obligations; extracts from these are are from these extracts of Obligations; Code Swiss on the based policies accounting with in accordance accounts annual company 126. on page presented lower of fair value less costs to sell and carrying value. When the Group’s share of losses exceeds its interest in a joint ven in a joint interest its exceeds losses of Group’s share the costslessfair value to When value. sellof lower and carrying carrying amount is reduced to nil and recognition of further lo or constructive obligations or made on payments behalf of a joint venture. share of the total recognised gains and losses of joint ventures on an equity accounted basis, from the date that joint control joint that date the from basis, accounted equity on an ventures of joint losses and gains recognised total of the share qu venture joint or the ceases control joint that date the until Notes to the accounts continued 2. ACCOUNTING POLICIES (CONTINUED) 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 The following new or amended standards and interpretations that are mandatory for 2018 annual periods (and future years) will be applicable to the Company: IFRS 9 Financial Instruments 1 January 2018 IFRS 15 Revenue from Contracts with Customers 1 January 2018 IFRS 16 Leases 1 January 2019 There are no other IFRS standards or interpretations that are not yet effective that would be expected to have a material impact on the Group. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. The impact of these new or amended standards and interpretations has been considered as follows: Estimated impact of the adoption of IFRS 9 The Group is required to adopt IFRS 9 Financial Instruments from 1 January 2018. The Group has assessed the estimated impact that initial application of IFRS 9 will have on the consolidated financial statements. IFRS 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. Classification – financial assets IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. It contains three principal classification categories for financial assets: measured at amortised costs, fair value through other comprehensive income (OCI) and fair value through the profit or loss. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Based on its assessment, the Group concludes that the new classification requirements will not have a material impact on any of its accounting balances. Furthermore, at 31 December 2017, the Group did not have any balances classified as available-for-sale. Consequently, there are no adjustments to be recognised in either the income statement or other comprehensive income. Classification – financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, under IAS 39 all fair value changes of liabilities designated as at fair value through the profit or loss are recognised in profit or loss, whereas under IFRS 9 these fair value changes are generally presented as follows: • The amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in other comprehensive income; and • The remaining amount of change in the fair value is presented in profit or loss. The Group has not designated any financial liabilities at fair value through the profit or loss and it has no current intention to do so. The Group’s assessment did not indicate any change in the classification of financial liabilities at 1 January 2018. Consequently, there are no adjustments to be recognised in either the income statement or other comprehensive income. Impairment – financial assets IFRS 9 requires the Group to record expected credit losses on all of its trade receivables, either on a 12-month or lifetime basis. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables. The Group has determined that due to the nature of its receivables, taking into account the customer deposits obtained, the impact of applying IFRS 9 will not significantly impact the provision for bad debts. 86 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 87 87 sting del, ies , ir and tfolio ures e Group new by ng credit ng credit completed ooses to not impact he Group n of these esenting esenting l continue me countries lessors lessors -free periods the revenue, revenue, the than t apply es performed xpense with will depend f the affiliate. affiliate. f the tion easesin respect ional exposures do arise in so arise exposures do ional , the composition of the Group’s lease por lease Group’s of the composition , the ability the Group will recognise for its l her, how much and when revenue is recognised. replacesIt exi The majority of day-to-day transactions of overseas subsidiar not toretrospectively apply IFRSon 9 transition. As IFRS 9 does not nstructionContracts and IFRIC13 CustomerLoyalty Programmes. ge exposure is small. Transact pact on its consolidated financial statements but has not yet voluntary discontinuationof hedgeaccounting. Under themo new the financial statements in the period of initial application are currently designated in effective hedging relationships wil Lessor accounting remains similar to the current (i.e. standard l instruments to manage its transactional foreign exchange expos t investments in affiliatesIWG with a functional currency other ation ation received or receivable (excluding sales taxes). Where rent es ores receivables to be in other than the functional currency o ly those involving hedging a risk component (other risk) than foreign currency fferences in the timing of the performance and the recognition of normally hedge such foreigncurrency translationexposures. ment activity may also lead to foreign exchange exposures. It is the policy of th through balancing the underlying risks. The Group designates these derivatives as fa derivatives these designates Group The risks. underlying the balancing through dependant on the transition method adopted. adopted. method transition on the dependant the Group’s at borrowing rate Group’s 2019 1 January the the right-of-use asset and related lease li lease and related asset right-of-use the initial application of IFRS 16. . use practical measures and recognition exemptions. exemptions. recognition and measures practical use The most significantidentifiedimpact is of its global network, which will be further e lease operating straight-line the replaces 16 IFRS as change will leases those to related expenses of nature the addition, In liabilities. lease on the expense an interest and assets right-of-use for charge a depreciation revolvi its on requirements covenant the with comply to ability its impact to 16 IFRS of adoption the expect not does Group The facility described innote 24. on future economic conditions, including conditions, economic on future at thatdate, theGroup’s assessment of whether it willexercise any lease renewaloptions and theextent towhich the Group ch its detailed assessment. The actual impact of applying IFRS 16 on itispossible that moremanagement risk strategies, particular of non-financial items,will belikely toqualify for hedge accounting. The Group isexposed toforeign currencyexchange rate movements. SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. Lease. of a Form Legal the Involving of Transactions Substance the Evaluating SIC-27 and – Incentives Leases Operating SIC-15 The standard is effective for annual on periods beginning or teraf 1 January 2019. Early adoption is permitted for entities tha IFRSbefore 15 at or thedateof repr asset right-of-use a recognises A lessee lessees. for model accounting lease sheet on-balance a single, introduces IFRS 16 recogni are There payments. lease make to its obligation representing liability lease and asset underlying the use to its right exemptions for short-term leases and leases of low-value items. leases). or operating as leases finance to classify continue The Group has completed an initial assessment of the potential im IFRS 16 Leases Leases 16 IFRS a Lease Contains an Arrangement whether Determining 4 IFRIC Leases, IAS 17 including guidance, leases existing replaces IFRS 16 Estimated impactthe adoption of of IFRS 15 IFRS 15 establishes a comprehensive framework for determining whet Hedge accounting objectives management risk Group’s the with aligned are relationships accounting hedge that ensure to Group the 9 requires IFRS 11 Co IAS IAS 18 Revenue, including guidance, recognition revenue servic The contract. customer of the length the over basis -line on a straight is spread income rental customers, to granted are oach to assessing hedge effectiveness. IFRS 9 also introduces introduces 9 also strategyIFRS and to apply a more effectiveness. qualitative hedge and forward-looking appr to assessing oach requirements on rebalancing hedge relationships and prohibiting are carried out in local currency and the underlying foreign exchan where it is localmarket practice forproportion a of thepayabl and manage cash funding charging, Intercompany to seek to minimise such transactional exposures through careful management of non-local currency assets and liabilities, there Ne statement. income in the volatility potential the minimising sterling are of a long-term nature and the Group does not not does Group and the nature of a long-term are sterling From time to time the Group uses short-term derivativefinancia where these exposures cannot be eliminated value hedges. hedges. value The Group determinedthat allexisting hedge relationships that toqualify for hedge accountingunder 9.IFRS The Group has chosen 9 will IFRS of requirements hedging the applying hedges, effective for accounts an entity of how principles general the change statements. financial Group’s the The Group is involved in the provision of flexible workspace, as well as performing related services. Revenue from the provisio the from Revenue services. related performing as well as workspace, flexible of provision the in involved is Group The of consider value fair at the is measured to customers services services. contracted the provides Group the which at price list the on based are t Therefore, 15. IFRS with consistent 18 are IAS under performed service the of value fair the assessment, Group’s on the Based does not expect the application of IFRS 15 to result in any di services these for Notes to the accounts continued 2. ACCOUNTING POLICIES (CONTINUED) Basis of consolidation Subsidiaries are entities controlled by the Group. Control exists when the Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences. The results are consolidated until the date control ceases or the subsidiary qualifies as a disposal group, at which point the assets and liabilities are carried at the lower of fair value less costs to sell and carrying value. Impairment of non-financial assets For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount was estimated at 30 September 2017. At each reporting date, the Group reviews the carrying amount of these assets to determine whether there is an indicator of impairment. If any indicator is identified then the assets’ recoverable amount is re-evaluated. The carrying 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. Calculation of recoverable amount The recoverable amount of relevant assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Goodwill All business combinations are accounted for using the purchase method. Goodwill is initially measured at fair value, being the excess of the aggregate of the fair value of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. Positive goodwill is stated at cost less any provision for impairment in value. An impairment test is carried out annually and, in addition, whenever indicators exist that the carrying amount may not be recoverable. Intangible assets Intangible assets acquired separately from the business are capitalised at cost. Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if their fair value can be identified and measured reliably on initial recognition. Intangible assets are amortised on a straight-line basis over the estimated useful life of the assets as follows: Brand – Regus brand Indefinite life Brand – Other acquired brands 20 years Computer software Up to 5 years Customer lists 2 years Management agreements Minimum duration of the contract Amortisation of intangible assets is expensed through administration expenses in the income statement. 88 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 89 re as rm. charged charged re urnover nts. nts. me ulated on s uding uding re no opening a opening he Group’s h of the h of the loss of . ibution is treated ll. umstances where IWG acts ne basis over the lengt 50 years 50 years 10 years 10 years 3 – 5 years towards the initial costs of lculation of minimum lease payme any impairment in value. Depreciation is calc ices are rendered. In circ owners and landlords) ome is spread on a straight-li s, are included the in ca cognised over the period that the benefits of the membership card a benefits the period that over the cognised sses that we early incur in the centre life. The partner contr ntrolling interests arising from transactions that do not involve the the involve not that do from transactions arising interests ntrolling accounted for as transactions with owners in their capacity as owners and therefo stments to non-co stments ship cards is deferred and re e, together with anyfurther periods forwhich the Group has theoption tocontinue tolease stated at cost less accumulated depreciation and depreciation and accumulated less at cost stated ntributions from our business partners (property ng partner contributions and rent-free period Workstations Workstations 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. Customer service income income service Customer Service income (including the rental of meeting rooms) as serv is recognised an agent for the sale and purchase of goods to customers, only the commission fee earned is recognised as revenue. as revenue. is recognised earned fee commission the only of to goods customers, purchase and sale the for an agent for the use of continuing rights granted by the agreement, or for other services provided during the period of the agreement, a agreement, of the period the during provided services other or for agreement, the by granted rights of continuing use the for Management and franchise fees fees franchise and Management Fees rendered. are services the as revenue as recognised are services subsequent and of initial provision the for Fees received recognised as revenue as the services are provided or the rights used. used. rights or the provided are services the as revenue as recognised Membership card income Revenue from the sale of member expected to be provided. a straight-line basis over the estimated useful life of the assets as follows: as follows: assets of the life useful estimated the over basis a straight-line goodwill is recognised Adju as a result. is recognised goodwill control are based on a proportionate amount of the net assetsof the subsidiary. Revenue Revenue from the provision of services to customers is measured at the fair value of consideration received or receivable (excl Buildings improvements Leasehold finance leases. All other leases, including all of the Group’s property leases, are categorised as operating leases. leases. operating as categorised are leases, property Group’s of the all including leases, other All leases. finance Lease incentives, includi is the term lease The asset. leased the use to entitled is Group the which from date the is term lease of the commencement The non-cancellable period of the leas lo the and property fit-out of centre, including the the business Property,plant and equipment Property, plant and equipment is Furniture and telephones equipment Office Computer hardware sales taxes). rental inc Where to customers, rent-free are periods granted 5 years Partner contributionsare co Partner contributions Partner contributions Operating leases leases Operating te lease over the 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 of the lower at the measured are sale for Assets held Leases a classified are of ownership rewards risks and all of the substantially assumes Group the for which leases and equipment Plant Assets held for sale Assets Acquisitionsof non-controlling interests are interests of non-controlling Acquisitions lease. of the period the over amortised is and incentive a lease as customer contract. • the asset and when at the inception of the lease it is reasonably certain that the Group will exercise that option. option. that exercise will Group the that certain reasonably is it lease of the inception at the when and asset the Contingentrentals include rent increasesbased on future inflation indicesor non-guaranteed rental payments based on centre t or profitability and are excluded from the calculation of minimum lease payments. Contingent rentals are recognised inco in the recognised are rentals Contingent payments. lease of minimum calculation the from excluded are and or profitability statementas they are incurred. at t point, break first to lease the of the terms the under payable amounts net of the an estimate are provisions lease Onerous liability the to specific risks the and money of value time the reflects that rate pre-tax appropriate an at discounted option, • • • These categories represent all material sources of revenue earned from the provision of global workplace solutions. Notes to the accounts continued 2. ACCOUNTING POLICIES (CONTINUED) Employee benefits The majority of the Group’s pension plans are of the defined contribution type. For these plans the Group’s contribution and other paid and unpaid benefits earned by the employees are charged to the income statement as incurred. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Re-measurements, comprising actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets, excluding net interest, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods. Service costs are recognised in profit or loss, and include current and past service costs as well as gains and losses on curtailments. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under ‘cost of sales’ and ‘selling, general and administration expenses’ in the consolidated income statement: service costs comprising current service costs; past service costs; and gains and losses on curtailments and non-routine settlements. Settlements of defined benefit schemes are recognised in the period in which the settlement occurs. Share-based payments The share awards programme entitles certain employees and Directors to acquire shares of the ultimate parent company; these awards are granted by the ultimate parent and are equity settled. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes valuation model or the Monte Carlo method, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest in respect of non-market conditions except where forfeiture is due to the expiry of the option. Share awards are granted by the Company to certain employees and are equity settled. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at grant date and spread over the period during which the employees become unconditionally entitled to payment. The fair value of the share awards is measured based on the Monte Carlo valuation model, taking into account the terms and conditions upon which the instruments were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards that vest in respect of non-market conditions. Taxation Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets and liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised for all unused tax losses only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Restructuring provisions are made for direct expenditures of a business reorganisation where the plans are sufficiently detailed and well advanced and where the appropriate communication to those affected has been undertaken at the reporting date. Provision is made for onerous contracts to the extent that the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be delivered, discounted using an appropriate weighted average cost of capital. 90 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 91 erial. sts, net net sts, . Interest . Interest on debt on debt crease ntil they late to oss oss loans and nding nding orical cost (note 8). 8). (note ts and ented in in ented her he gains or gains or he rrying value mption ign operations operations ign dividend foreign prepayment equent to initial initial to equent inancial inancial bsequent to initial initial to bsequent ion costs. profit or loss are r held for trading or or trading for r held where the liability is eithe is liability the where the balance sheet as a current liability u e date of the transaction. Monetary asse e Monetary date transaction. of the lue, the increasein theamount due tounwi ansaction. Theresultsflowsof fore cash and e subject to an insignificant risk of changes in value. in value. of changes risk an insignificant to subject e reserve. When these assets are derecognised, the gain or l ement on an accruals basis. Financing transaction costs that re that costs transaction Financing on an accruals basis. ement netary assets and liabilities that are measured in terms of in hist terms measured are that liabilities and assets netary liabilities, including goodwill and fair value adjustments, of adjustments, value fair and goodwill including liabilities, lue through profit or loss for the for arrangement of creditfacilities are recognisedasa the date of the tr value plus any directly attributable transaction costs. Subs costs. transaction attributable directly plus any value ed at fair value and changes therein, including any interest or interest any including therein, changes and value fair at ed value of proceeds received, net of direct issue costs. costs. issue of direct net received, value of proceeds the rate of exchange ruling at th ugh profit orugh profit loss, held-to-maturityinvestments, available-for-salef transaction is presented within retained earnings. earnings. retained within is presented transaction over the period of the onborrowings an effective interest rate method. changes therein, otherthan impairmentlosses and foreign currency differences financial liabilities non-performance of the contract are held on profit or loss on initial recognition. Financial liabilities at fair value through value through at fair liabilities Financial recognition. profit or loss on initial penseor finance income as appropriate. balance sheet are carriedat net present va ncial liabilities at liabilities ncial fair va assification depends on the nature and purpose of the financial assets and is determined and assets financial of nature depends on and purpose the the assification e income statement sified either at fair value thro measured at fair value and measured instruments, are recognised in OCI and accumulated in the fair value accumulated in equity is reclassified to profit or loss. as classified are market in an active quoted not are that payments or fixed determinable have that receivables and other Trade receivables.receivablesLoans and are measured atamortised cost using theeffective interest ratemethod, less any impairment income is recognised by applying the effective interest rate, except for short-term receivables when recognition would be immat in a rateforeign currency are translated using exchange at the and period. Assets for the rate average the using are translated on initial recognition. measur are or loss profit through value fair at assets Financial in profit or loss. recognised income, are at fair recognised are initially assets financial Held-to-maturity method. rate interest effective the using cost amortised at measured are they recognition, Su costs. transaction attributable plus any directly at fair value recognised are initially assets financial Available-for-sale recognition, they are is designated as held value at fair through is designated liabilities denominated in foreign currencies are translated using the closing rate of exchange at the balance sheet date and t Non-mo statement. income the to taken are on translation losses ot in recognised being on consolidation arising differences exchange all with rate, closing the using translated are operations comprehensive income, and presented in the foreign currency reservetranslation in equity. Exchange differences are released on disposal. statement income the to and in at bank and cash ar hand comprise Cash and cash equivalents Cash and cash equivalents Foreign currency transactions and foreign operations Transactions in foreign currencies are recordedusing Customer deposits Customer deposits Deposits received from customers against Subsequent to initial recognition, financial liabilities are stated at amortised cost with any difference between cost and and rede cost between any difference with cost at amortised stated are liabilities financial recognition, initial to Subsequent value being recognised in th expired. or cancelled discharged, are obligations Group’s the when liabilities financial derecognises Group The fina as are classified liabilities Financial Financial assets assets Financial Financial assets are clas Interest bearing and other borrowings transact less attributable value fair at initially recognised are borrowings, bearing interest including liabilities, Financial Net finance expenses Net finance Interest charges and income are accounted for in the income stat Equity Equity at the Group are recorded by the issued instruments Equity co attributable directly includes which paid, consideration of the amount the repurchased, are as equity recognised shares When ca the within recognised are and method rate interest effective the using expense interest to charged are liabilities financial of therelated financial liability on the balance sheet. Feespaid facility. of the term the over expense finance the through and recognised Where assets or liabilities on the Group cl The and receivables. or loans assets of any taxeffects, is recognised as a deductionequity.from Repurchased sharesare classified as treasury sharesand arepres in an as recognised is received amount the subsequently, re-issued or sold are shares treasury When reserve. share treasury the the on surplus or deficit resulting and the equity in the discount is recognised as a finance ex costs finance other in included are or losses gains exchange foreign and of credit and letters on bank guarantees arising Costs stated at fair value with any resultant gain or loss recognised in the income statement. statement. income in the recognised or loss gain resultant with any value at fair stated arereturned toof thecustomer their at theend relationship thewith Group. Notes to the accounts continued 2. ACCOUNTING POLICIES (CONTINUED) Derivative financial instruments The Group’s policy on the use of derivative financial instruments can be found in note 24. Derivative financial instruments are measured initially at fair value and changes in the fair value are recognised through profit or loss unless the derivative financial instrument has been designated as a cash flow hedge whereby the effective portion of changes in the fair value are deferred in equity. Foreign currency translation rates At 31 December Annual average 2017 2016 2017 2016 US dollar 1.35 1.24 1.30 1.35 Euro 1.13 1.17 1.14 1.22 Japanese yen 152 145 145 147 3. SEGMENTAL ANALYSIS – STATUTORY BASIS An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses. An operating segment’s results are reviewed regularly by the chief operating decision maker (the Board of Directors of the Group) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The business is run on a worldwide basis but managed through four principal geographical segments (the Group’s operating segments): Americas; EMEA (Europe, Middle East and Africa); Asia Pacific; and the United Kingdom. These geographical segments exclude the Group’s non-trading, holding and corporate management companies. The results of business centres in each of these regions form the basis for reporting geographical results to the chief operating decision maker. All reportable segments are involved in the provision of global workplace solutions. The Group’s reportable segments operate in different markets and are managed separately because of the different economic characteristics that exist in each of those markets. Each reportable segment has its own discrete senior management team responsible for the performance of the segment. The accounting policies of the operating segments are the same as those described in the Annual Report and Accounts for the Group for the year ended 31 December 2016. Americas EMEA Asia Pacific United Kingdom Other Total 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 £m £m £m £m £m £m £m £m £m £m £m £m Revenue from external customers 984.8 923.0 540.5 476.8 383.2 363.2 440.0 462.1 3.8 8.3 2,352.3 2,233.4 Gross profit (centre contribution) 153.2 161.0 97.1 101.6 65.9 67.5 83.6 110.4 1.8 8.3 401.6 448.8 Share of loss of equity- accounted investees – – (0.8) (0.7) – – – (0.1) – – (0.8) (0.8) Operating profit 96.5 102.0 47.7 49.3 34.6 33.6 60.3 84.5 (75.9) (84.2) 163.2 185.2 Finance expense (14.1) (11.6) Finance income 0.3 0.1 Profit before tax for the year 149.4 173.7 Depreciation and amortisation 112.2 101.9 32.8 28.6 29.4 26.3 29.9 29.3 8.7 8.4 213.0 194.5 Assets 1,213.2 1,179.1 573.5 481.5 378.1 378.9 571.1 496.8 124.1 124.8 2,860.0 2,661.1 Liabilities (861.5) (852.1) (386.0) (323.5) (244.1) (251.9) (266.1) (279.8) (374.6) (211.8) (2,132.3) (1,919.1) Net assets/(liabilities) 351.7 327.0 187.5 158.0 134.0 127.0 305.0 217.0 (250.5) (87.0) 727.7 742.0 Non-current asset additions(1) 148.6 163.4 83.4 47.6 36.3 38.5 64.6 37.9 15.6 31.9 348.5 319.3 1. Excluding deferred taxation Operating profit in the “Other” category is generated from services related to the provision of workspace solutions, including fees from franchise agreements, offset by corporate overheads. 92 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements – – – 4 4 (1) 93 £m £m 1.4 0.4 3. 1.0 0.9 2.2 (3.1) (0.8) 12.7 10.3 36.7 2016 2016 (50.2) 181.8 335.6 319.0 325.5 186.0 185.2 909.2 872.5 assets 2,233. Non-current attributed attributed – – ucts. Revenue is is Revenue ucts. 2016 £m £m 1.7 0.1 3.4 4.3 1.6 0.1 0.9 (3.6) (0.8) 25.1 14.5 10.9 36.4 16.2 2017 2017 (60.6) 766.6462.1979.6 930.0 347.1 738.2 202.1 966.8 331.5 348.7 330.5 164.0 163.2 External External revenue 2,233.4 2,029.8 2,352.3 1,003.2 6 7 (1) 13 13 13 13 24 22.5 22.5 Notes Notes 878.5 878.5 440.1 831.5 assets 2,172.6 2,172.6 Non-current Non-current 2017 26.6 819.6 440.0 revenue External External 1,066.1 2,352.3 al percentage of the Group’s revenue. this group intofurther categoriesof prod er contributes a materi es for the audit of the Group accounts Group the audit of es for the leases leases g rvices. It is meaningfulnot to separate eratin p d its associates for other services: services: for other d its associates ect of o ect p plant and equipment plant and equipment 14 able in res able y a p able to the Group’s auditor Group’s able to the its associat and y y ment rents ert p p ui Other services services Other Excluding deferredtax assets The audit of the Company’s subsidiaries pursuant to legislation subsidiaries pursuant to legislation the Company’s The audit of Tax services q Pro Contingent rents paid Contingent rents Other services pursuant to legislation: pursuant to legislation: Other services Loss on disposal of assets held for sale for Loss on disposal of assets held Property rents payable in respect of operating leases: leases: operating of in respect rents payable Property Other costs Other costs Operating profit Impairment of intangible assets assets intangible Impairment of £m Fees pa auditor an Group’s payable to the Fees Share of loss of equity-accounted investees, net of tax of tax net equity-accounted investees, loss of Share of E Staff costs Depreciation on property, plant and equipment 14 Revenue 1. PROFIT 5. OPERATING Operating profit has been arrived at after charging/(crediting): Country of tax domicile – Switzerland – Switzerland Country of tax domicile America of United States 4. SEGMENTAL ANALYSIS – ENTITY-WIDE DISCLOSURES DISCLOSURES ANALYSIS – ENTITY-WIDE 4. SEGMENTAL is revenue all therefore solutions, workplace of global provision is the segment business only and activity primary Group’s The to a single group of similar products and se Impairment of property, plant and equipment equipment plant and property, Impairment of adjustments fair value Amortisation of acquired lease United Kingdom All other countries Amortisation of intangibles Amortisation of intangibles costs property Facility and other debts bad Provision for Amortisation of partner contributions contributions Amortisation of partner Loss on disposal of property, recognised where the service is provided. provided. is service the where recognised custom single no and diversified customer base Group has a The The Group’s revenue from external customers and non-current assets analysed by foreign country is as follows: Notes to the accounts continued 6. DISPOSAL OF ASSETS HELD FOR SALE The following major classes of assets and liabilities were disposed of in 2016 as part of the assets held for sale: 2016 £m Assets Goodwill (note 12) 4.5 Property, plant and equipment 1.4 Trade and other receivables 0.5 Assets held for sale 6.4 Liabilities Trade and other payables (0.9) Liabilities held for sale (0.9) Net assets held for sale 5.5 Disposal related costs – Proceeds on disposal 3.3 Loss on disposal (2.2) There were no disposals of assets held for sale in the current year. 7. STAFF COSTS 2017 2016 £m £m The aggregate payroll costs were as follows: Wages and salaries 278.6 282.2 Social security 45.9 45.6 Pension costs 5.3 5.4 Share-based payments 1.7 2.4 331.5 335.6 2017 2016 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 6,786 6,551 Sales and marketing staff 497 425 Finance staff 739 768 Other staff 766 864 8,788 8,608 Americas 2,860 2,802 EMEA 2,161 2,044 Asia Pacific 1,641 1,746 United Kingdom 848 907 Corporate functions 1,278 1,109 8,788 8,608 Details of Directors’ emoluments and interests are given on pages 62 to 73 in the Remuneration Report, with audited schedules identified where relevant. 94 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 95 £m £m 0.1 0.1 1.5 1.4 4.4 0.4 (7.4) (7.4) (3.3) (0.9) 2016 2016 (11.6) (11.5) (30.4) (24.5) (34.9) (12.2) (10.4) e of the the e of 2016 £m % £m £m 2.9 1.7 4.8 2.7 1.3 1.0 0.3 0.3 (5.2) (5.2) (0.5) (4.7) (7.5) (7.5) (5.7) (0.9) 33.8 19.5 61.0 35.1 2017 2017 (25.4)(26.5) (14.6) (15.3) (85.5) (49.2) (34.9) (20.1) (30.7) (35.4) (14.1) (13.8) (26.8) 173.7 % 1.5 (3.8) 15.7 15.7 51.3 (14.6) (12.8) (61.0) (23.7) 2017 £m 2.3 (5.7) 23.4 76.7 (21.8) (19.2) (91.1) (35.4) 149.4 spect of previous years of previous years spect Movements in temporary differencesrecogniseddeferred in the year not in tax Total finance income income Total finance (Under)/over in respect prior provision of years (Under)/over in respect prior provision of years Previously unrecognised tax losses and other differences and other differences tax losses Previously unrecognised Differences in tax rates on overseas earnings earnings tax rates on overseas in Differences Previously unrecognised tax losses and other differences and other differences tax losses Previously unrecognised Items not chargeable for tax purposes tax purposes for Items not chargeable re charge in Adjustment to tax Recognition unrecognised of deferred assets previously tax Total current taxation Total deferred taxation Unwinding of discount rates rates Unwinding of discount expense Total finance parent company of the Group for the financial year. The applicable tax rate is determined based on the tax rate in the canton of Zug in Switzerland which is the country of domicil country is the which Switzerland in of Zug canton the in rate tax on the based is determined rate tax applicable The Tax on profit at 14.6% (2016: 14.6%) 14.6%) (2016: 14.6% Tax on profit at Tax effects of: Profit before tax Profit before Tax charge on profit Tax charge on profit charge taxation of (b) Reconciliation Deferred taxation Origination and reversal temporary of differences Current taxation Current taxation tax Corporate income (a) Analysisof charge the in year expense Net finance 9. TAXATION income Total interest Other finance costs (including foreign exchange) exchange) foreign costs (including Other finance Interest payable and similar charges on bank loans and corporate borrowings borrowings on bank loans and corporate similar charges Interest payable and expense Total interest 8. NET FINANCE EXPENSE 8. NET FINANCE Expenses not deductible for tax purposes Notes to the accounts continued 9. TAXATION (CONTINUED) (c) Factors that may affect the future tax charge Unrecognised tax losses to carry forward against certain future overseas corporation tax liabilities have the following expiration dates: 2017 2016 £m £m 2017 – 7.3 2018 4.9 8.2 2019 8.1 15.6 2020 54.7 57.2 2021 37.4 37.8 2022 43.4 18.8 2023 22.9 21.7 2024 29.9 13.3 2025 and later 235.5 79.1 436.8 259.0 Available indefinitely 642.4 453.9 Tax losses available to carry forward 1,079.2 712.9 Amount of tax losses recognised in deferred tax assets 117.0 131.2 Total tax losses available to carry forward 1,196.2 844.1 The following deferred tax assets have not been recognised due to uncertainties over recoverability. 2017 2016 £m £m Intangibles 16.9 22.0 Accelerated capital allowances 32.1 24.5 Tax losses 271.5 187.7 Rent 8.7 11.3 Short-term temporary differences 5.5 8.2 334.7 253.7 Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each reporting period. (d) Corporation tax 2017 2016 £m £m Corporation tax payable (21.6) (17.7) Corporation tax receivable 27.6 34.8 96 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 97 £m 0.4 0.4 0.2 0.1 (4.6) (0.9) (0.2) (0.6) (2.4) (1.3) Total 29.3 23.0 £94.1m). £94.1m). here fits – £m 0.7 0.6 0.1 0.2 0.5 (1.0) (0.2) (3.1) (0.6) (0.9) (4.1) temporary temporary Short-term differences differences – – £m 0.6 0.5 0.9 0.4 (0.2) (0.5) (5.4) Rent Rent 69.8 69.8 47.1 (17.2) – £m 2.4 1.3 3.2 0.3 (0.2) (0.3) (5.5) (1.3) (0.9) 34.3 26.9 that there are forecast taxable pro are forecast there that Tax losses Tax losses – – £m 0.3 1.3 2.2 1.1 (3.2) (2.2) (5.1) (1.6) (20.5) (17.5) Property, Property, plant and plant equipment equipment – – – – – £m 5.5 (0.4) (0.1) (0.5) 19.9 (54.8) (29.4) Intangibles Intangibles deferred tax liabilities on the basis on the liabilities deferred tax to income taxes levied by the same taxation authority. been recognised in excess of been recognised Transfers (0.3) 0.2 0.2 0.2 (0.5) (0.2) Transfers(0.3) movements Exchange rate At 1 January 2017 0.2 0.2 0.2 – (0.1) 0.3 – 0.1 0.3 Transfers movements Exchange rate 2017 At 31 December The movementsin deferred taxes included aboveareafter theoffset of deferred taxassets and deferred taxliabilities where t At 1 January 2016 movement Current year year movement Prior movement Current year year movement Prior (0.1) – – (1.9) (1.5) 0.1 1.3 0.7 (0.1) (0.4) – 0.2 – (0.8) (0.9) – (1.6) – Deferred tax liability Current year movement movement Current year year movement Prior Exchange rate movements movements Exchange rate At 1 January 2017 (11.5) (0.7) 1.9 9.9 2.6 2.2 Deferred tax asset At 1 January 2016 movement Current year year movement Prior (4.0) (39.6) – (14.0) (4.4) (3.2) (1.3) 32.0 9.6 3.9 50.5 (2.1) 1.7 – 36.4 (9.9) (2.2) 0.4 (e) Deferred taxation (e) Deferred The movement in deferred tax is analysed below: in theentities concerned. (2016: was £19.8m subsidiaries of overseas earnings arising from unremitted difference temporary date, the sheet balance At the tax. withholding non-recoverable be would reserves these on arise would that tax only The Transfers movements Exchange rate 2017 At 31 December Transfers 0.3 (0.1) (0.3) (0.2) 0.5 0.2 Transfers 0.3 (0.1) (0.3) (0.2) isa legallyenforceable right to setoff and they relate Deferred tax assets recognised on short-term temporary differences consist predominantly of provisions deductible when paid. Deferred tax assets have Notes to the accounts continued 10. EARNINGS PER ORDINARY SHARE (BASIC AND DILUTED) 2017 2016 Basic and diluted profit for the year attributable to shareholders (£m) 114.0 138.8 Basic earnings per share (p) 12.4 14.9 Diluted earnings per share (p) 12.3 14.7 Weighted average number of shares for basic EPS 915,676,309 929,830,458 Weighted average number of shares under option 20,223,265 26,744,249 Weighted average number of shares that would have been issued at average market price (11,750,214) (14,295,963) Weighted average number of share awards under the CIP and LTIP 2,088,344 1,736,399 Weighted average number of shares for diluted EPS 926,237,704 944,015,143 Options are considered dilutive when they would result in the issue of ordinary shares for less than the market price of ordinary shares in the period. The amount of the dilution is taken to be the average market price of shares during the period minus the exercise price. There were no material awards considered anti-dilutive at the reporting date. The average market price of one share during the year was 285.56p (2016: 283.67p). 11. DIVIDENDS 2017 2016 Dividends per ordinary share proposed 3.95p 3.55p Interim dividends per ordinary share declared and paid during the year 1.75p 1.55p Dividends of £48.5m were paid during the year (2016: £43.3m). The Company has proposed to shareholders that a final dividend of 3.95p per share will be paid (2016: 3.55p). Subject to shareholder approval, it is expected that the dividend will be paid on 25 May 2018. 12. GOODWILL £m Cost At 1 January 2016 612.2 Recognised on acquisition of subsidiaries 6.8 Disposals (1.3) Transferred to assets held for sale (4.5) Exchange rate movements 72.1 At 31 December 2016 685.3 Recognised on acquisition of subsidiaries (1) 3.3 Exchange rate movements (21.9) At 31 December 2017 666.7 Net book value At 31 December 2016 685.3 At 31 December 2017 666.7 1. Net of £0.2m derecognised on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis Cash-generating units (CGUs), defined as individual business centres, are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed. Goodwill acquired through business combinations is held at a country level and is subject to impairment reviews based on the cash flows of the CGUs within that country. 98 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 99 £m £m m 35.4 2016 2016 try 17 286.3 230.6 696.5 179.6 311.1 119.4 219.4 685.3 external able able from the seeable o conclude count rate umptions Group’s ntries. ntries. iness in the in the iness tive to hich havebeen £m amount £m 34.7 2017 2017 262.4 232.3 183.2 677.9 285.8 125.1 221.1 666.7 % in 2016 to 9.9% in% in 2016 to 20 9.9% £m iling tax rates, w assets assets Intangible Intangible the goodwill carrying use. Thereafter, forecasts have beenhaveuse. Thereafter, forecasts £m 262.4221.1 – 11.2 666.7 11.2 183.2 – Goodwill as to result in market risk adjustment has been set betweenbeen set has market risk adjustment the Group and preva age annual growth rate of 3% (2017: 3%); 3%); of 3% rate (2017: annual growth age flows forflows each country. The country specific dis at trading conditions deteriorate beyond the ass beyond the deteriorate conditions trading at e-tax WACC decreased from 11.3 the next five years. Revenue and costs grow at 3% per annum annum per 3% at grow costs and Revenue five years. next the a significant nature et capitalisation of flectingrespective the allocated to two countries, the USA and the UK, is materialrela the determinationof the valuein calculating the value in use for each country: for each country: value in use the calculating prepared by management.model Theexcludes cost are savings restructurings that and mediumth event long to term. the In four years from 2018 that reflect an aver pre-tax discount rate tothepre-tax cash committed todateof at the in a change in the projections of such projections in the in a change prepared by management for a further Future cash flows areonforecasts based anticipated butanticipated had not been These forecasts exclude the impact of acquisitive growth expected to take place in future periods; periods; future in place to take expected growth of acquisitive impact the exclude forecasts These Management considers these projections to be a reasonable projection of margins expected at the mid-cycle position. Cash flows flows Cash position. mid-cycle at the expected margins of projection reasonable a be to projections these considers Management rate growth a reasonable long-term is believes management which rate growth 2% a using extrapolated been have 2021 beyond the reflecting assessment, in the is included value A terminal operate. countries relevant the in which markets of the any for expectation that it will continue to operate in these markets and the long-term nature of the businesses; and and businesses; of the nature long-term and the markets in these operate to continue it will that expectation (post-tax 7.9%). WACC: The country specific pre-tax re WACC 14.2%). to 10.7% (2016: 12.8% and 9.3% The Group appliesa country specific is based on the underlying weighted average cost of capital (WACC) for the Group. The Group WACC is then adjusted for each coun each for is adjusted then WACC Group The Group. the for (WACC) of cost capital average weighted underlying on the is based toreflect the assessedmarket risk specificcountry. tothat The pr Group 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 factors, such as capital market risk pricing as reflected in the mark year ended 31 December 2006 (see note 13). 13). note (see 2006 December 31 ended year each country 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 of the 58% remaining of the acquisition the from arising value brand the to relates asset intangible life indefinite The USA United Kingdom The carrying valueof goodwill and indefinitelife intangibles Carrying amount of goodwill included within: within: included goodwill of Carrying amount Americas EMEA The goodwillattributable to the reportablebusiness segmentsisas follows: the total carrying value, comprisingof 73% the total. Theremaining 27%of thecarrying value isallocated toa further 41cou below: out set are UK USA and the the to life intangibles allocated The indefinite goodwilland used to determinethe risk adjusted discountrate for the Group.Management believes thattheprojected cash flows arereasona reflection of the likely outcomes over the used in theprojected cash flows, it isalso possible that impairment charges couldarise infuture periods. in used been have assumptions following key The • Other countries Other countries Asia United Kingdom • • • 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 result to events are unlikely 2018. A terminal value centre gross margin of 17% is adopted from 2021, with a 2% long-term growth rate assumed on revenue and and on revenue assumed rate growth long-term a 2% with from 2021, adopted is of 17% margin gross value centre A terminal 2018. 11%). (2016: 10% of rate discount a pre-tax using discounted been flows have cash The perpetuity. into costs exceeding their recoverable amount. The forecast models used in assessing the impairment of goodwill are based on the related related on the based are of goodwill impairment the in assessing used models forecast The amount. recoverable their exceeding year. end of the structure at the centre business over of 17% contribution centre average an assumes model US The from2018. A terminal value centre grossmarginisof 17% adopted awithfrom 2% long-term 2021, rate growthon revenue assumed 14%). (2016: of 10% rate discount pre-tax a using been discounted flows have cash The perpetuity. into costs and fro annum per 3% at grow costs and Revenue years. five next the over of 17% contribution centre average an assumes model UK The Notes to the accounts continued 12. GOODWILL (CONTINUED) Management has considered the following sensitivities: Market growth and WIPOW – Management has considered the impact of a variance in market growth and WIPOW. The value in use calculation shows that if the long-term growth rate was reduced to nil, the recoverable amount of the US and UK would still be greater than their carrying value. Discount rate – Management has considered the impact of an increase in the discount rate applied to the calculation. The value in use calculation shows that for the recoverable amount to be less than its carrying value, the pre-tax discount rate would have to be increased to 12% (2016: 24%) for the US and 16% (2016: 38%) for the UK. 13. OTHER INTANGIBLE ASSETS Customer Brand lists Software Total £m £m £m £m Cost At 1 January 2016 56.3 28.8 58.7 143.8 Additions at cost 0.2 – 5.3 5.5 Acquisition of subsidiaries – 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 Additions at cost – – 3.6 3.6 Acquisition of subsidiaries (1) – 1.6 – 1.6 Impairment – – (6.6) (6.6) Exchange rate movements (4.4) (2.0) (3.1) (9.5) At 31 December 2017 60.9 32.2 60.5 153.6 Amortisation At 1 January 2016 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 Charge for year 2.6 1.4 6.9 10.9 Impairment – – (5.0) (5.0) Exchange rate movements (2.9) (1.9) (4.6) (9.4) At 31 December 2017 33.0 30.9 44.3 108.2 Net book value At 1 January 2016 30.7 2.3 20.8 53.8 At 31 December 2016 32.0 1.2 19.6 52.8 At 31 December 2017 27.9 1.3 16.2 45.4 1. Includes £0.1m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis Included within the brand value is £11.2m relating to the acquisition of the remaining 58% of the UK business in the year ended 31 December 2006. The Regus brand acquired in this transaction is assumed to have an indefinite useful life due to the fact that the value of the brand is intrinsically linked to the continuing operation of the Group. As a result of the Regus brand acquired with the UK business having an indefinite useful life no amortisation is charged but the carrying value is assessed for impairment on an annual basis. The brand was tested at the balance sheet date against the recoverable amount of the UK business segment at the same time as the goodwill arising on the acquisition of the UK business (see note 12). The remaining amortisation life for definite life brands is seven years. 100 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements £m £m 0.1 5.3 0.2 101 99.2 78.2 83.7 Total 2016 (26.4) (21.6) (55.6) 344.9 202.1 (119.9) 1,367.2 2,608.2 1,241.0 – – £m £m 0.2 4.4 (1.3) (3.1) (1.4) (4.7) 16.4 11.2 96.3 31.7 76.3 80.7 2017 128.0 hardware Computer – £m 2.0 2.0 (7.5) (7.5) (8.5) (8.5) 51.1 51.1 71.2 71.2 (19.8) (19.8) (32.4) (32.4) 402.7 402.7 257.8 660.5 660.5 equipment equipment Furniture and Furniture £m 0.1 1.5 (12.8) (32.7) (16.5) (82.9) 132.6 253.0 739.6 948.7 1,688.3 Leasehold improvements – – – – £m 2.0 9.5 0.1 2.4 95.5 129.0 131.4 Land and buildings buildings (1) Includes £0.2m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis Other Disposals Deposits held by landlords against rent obligations by landlords against Deposits held value asset fair lease Acquired 15. OTHER LONG-TERM RECEIVABLES RECEIVABLES LONG-TERM 15. OTHER 1. £nil). (2016: leases finance under acquired of assets respect in £nil include Additions At 31 December 2017 2017 At 31 December Net book value Disposals At 1 January 2016 2016 At 31 December 25.9 11.4 880.8 666.1 249.3 206.5 38.4 33.0 1,194.4 917.0 Charge for the year year for the Charge Disposals – (14.9) (8.9) (3.0) (26.8) Accumulated depreciation At 1 January 2016 year for the Charge –Disposals movements Exchange rate January 2017 At 1 (14.9) (8.9) – 0.4 – 469.9 116.4 0.4 81.0 290.6 49.4 652.4 47.8 61.9 378.9 15.6 9.8 822.4 181.8 84.3 138.6 1,116.0 Acquisition of subsidiaries Additions Additions Additions 26.3 215.7 57.9 13.9313.8(2.9) (45.0) At 1 January 2016 26.3 Additions Acquisition of subsidiaries (11.4)Disposals 215.7 movements Exchange rate January 2017 At 1 (20.0) 57.9 (10.7) 11.4 – 1,136.0 – 2.6 497.1 26.3 198.9 1,533.2 0.6 94.9 83.3 628.2 1,739.4 0.7 16.1 122.7 298.3 2,310.4 3.9 Cost 14. PROPERTY, PLANT AND EQUIPMENT EQUIPMENT AND 14. PROPERTY, PLANT Exchange rate movements movements Exchange rate Exchange rate movements movements Exchange rate Impairment 2017 At 31 December At 31 December 2017 2017 At 31 December Notes to the accounts continued 16. TRADE AND OTHER RECEIVABLES 2017 2016 £m £m Trade receivables, net 199.3 200.9 Prepayments and accrued income 167.3 171.8 Other receivables 108.7 85.6 VAT recoverable 98.1 49.5 Deposits held by landlords against rent obligations 7.2 7.6 Acquired lease fair value asset 1.2 1.7 581.8 517.1 17. TRADE AND OTHER PAYABLES (INCLUDING CUSTOMER DEPOSITS) 2017 2016 £m £m Customer deposits 429.8 421.0 Deferred rents 121.3 113.2 Other accruals 108.5 134.4 Deferred partner contributions 59.2 68.5 Trade payables 74.0 60.3 VAT payable 90.2 53.1 Other payables 13.7 12.5 Other tax and social security 5.1 9.0 Acquired lease fair value liability 3.0 3.2 Total current 904.8 875.2 18. OTHER LONG-TERM PAYABLES 2017 2016 £m £m Deferred partner contributions 293.8 265.4 Deferred rents 244.6 244.1 Acquired lease fair value liability 3.7 8.3 Other payables 11.1 14.3 Total non-current 553.2 532.1 19. BORROWINGS The Group’s total loan and borrowing position at 31 December 2017 and at 31 December 2016 had the following maturity profiles: Bank and other loans 2017 2016 £m £m Repayments falling due as follows: In more than one year but not more than two years 8.9 6.9 In more than two years but not more than five years 329.2 186.7 In more than five years 4.8 – Total non-current 342.9 193.6 Total current 8.5 7.8 Total bank and other loans 351.4 201.4 102 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements £m £m 0.3 8.6 103 (0.8) (1.1) Total Total ases. ases. ture, – – £m £m (0.4) (3.8) Other deficit in 2016 Provision for Provision joint ventures joint ventures – (0.3)– (0.3) £m £m 7.7 5.27.7 2.3 3.0 12.9 5.3 3.5 5.90.3 5.73.2 0.2 9.4 3.5 5.9 6.0 3.4 9.4 5.6 (4.1)6.8 – 1.5 3.0 – 6.8 0.6 – 3.0 0.6 0.3 (1.4) (1.6)(1.4) (0.4)(5.1) (3.0) (5.5) (0.9) –(0.9) 0.7(1.5) (0.9) (0.8) (0.4) (1.1) 13.6 (3.4)13.6 10.2 12.4 12.4 closures Onerous leases and leases joint ventures joint ventures Investments in Investments – closures and onerous property le closures onerous and £m 9.4 5.3 9.4 4.5 4.9 9.4 (1.3) (4.0) Total sts of centre – £m 5.9 2.1 5.8 4.1 1.7 5.8 (1.0) (1.2) Other 2017 – £m 3.5 3.2 3.6 0.4 3.2 3.6 (0.3) (2.8) closures closures Onerous leases and and leases the estimated future co future estimated the Utilised in the period period Utilised in the Non-current At 31 December Provisions released Provisions released movements Exchange rate At 31 December At 31 December Additions Additions loss Share of Additions Additions the maximum period over which they are expected to be utilised is uncertain. At 1 January 2016 Dividends received loss Share of Disposal of investment movements Exchange rate 2016 At 31 December 21. INVESTMENTS IN JOINT VENTURES VENTURES 21. INVESTMENTS IN JOINT Other na their to due which, of end, year the at outstanding Group the against of claims costs estimated the include provisions Other Onerous leases and closures relate to costs and closure leases for onerous Provisions Analysed between: Analysed between: Current At 1 January At 1 January period Provided in the 20. PROVISIONS 20. PROVISIONS The maximumoverperiodwhich the provisionsexpected are tobeutilised expires by 31 December 2025. Exchange rate movements movements Exchange rate 2017 At 31 December Notes to the accounts continued 21. INVESTMENTS IN JOINT VENTURES (CONTINUED) The Group has 49 joint ventures (2016: 41) at the reporting date, all of which are individually immaterial. The Group has a legal obligation in respect of its share of any deficits recognised by these operations. The results of the joint ventures below are the full results of the joint ventures and do not represent the effective share: 2017 2016 £m £m Income statement Revenue 29.9 23.5 Expenses (31.5) (22.5) (Loss)/profit before tax for the year (1.6) 1.0 Tax charge (0.3) (0.7) (Loss)/profit after tax for the year (1.9) 0.3 Net assets/(liabilities) Non-current assets 15.0 12.2 Current assets 35.7 28.0 Current liabilities (46.6) (30.3) Non-current liabilities (1.5) (2.1) Net assets 2.6 7.8 22. SHARE CAPITAL Ordinary equity share capital 2017 2016 Nominal value Nominal value Number £m Number £m Authorised Ordinary 1p shares in IWG plc (2016: Regus plc) at 1 January 8,000,000,000 80.0 8,000,000,000 80.0 Ordinary 1p shares in IWG plc at 31 December 8,000,000,000 80.0 8,000,000,000 80.0 Issued and fully paid up Ordinary 1p shares in IWG plc (2016: Regus plc) at 1 January 923,357,438 9.2 950,969,822 9.5 Cancellation of 1p shares in Regus plc held in treasury (1) – – (27,612,384) (0.3) Ordinary shares in IWG plc issued on formation of the company (1) – – 923,357,438 9.2 Ordinary shares in Regus plc exchanged for ordinary shares in IWG plc (1) – – (923,357,438) (9.2) Ordinary 1p shares in IWG plc at 31 December 923,357,438 9.2 923,357,438 9.2 1. As part of the Scheme of Arrangement completed on 19 December 2016 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. As a result, IWG plc acquired all of the issued share capital of Regus plc in exchange for the issue of shares in IWG plc in the ratio of one IWG plc share for one Regus plc share. Treasury share transactions involving Regus plc shares between 1 January 2016 and 19 December 2016 In the period ending 19 December 2016, 11,834,627 shares were purchased in the open market by Regus plc and 4,712,856 treasury shares held by Regus plc were utilised to satisfy the exercise of share awards by employees. At 19 December 2016, 27,612,384 shares were held as treasury shares. These shares were cancelled as part of the Group reorganisation and Scheme of Arrangement. Treasury share transactions involving IWG plc shares between 19 December 2016 and 31 December 2016 In the period from 19 December 2016 to 31 December 2016, 1,280,032 shares were purchased in the open market by IWG plc and 109,333 treasury shares held by IWG plc were utilised to satisfy the exercise of share awards by employees. At 31 December 2016, 1,170,699 shares were held as treasury shares. 104 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements At £m 105 (8.5) 55.0 55.0 (342.9) (351.4) (296.4) sed ity ef at ordinary l are l are at meetings rity in 31 Dec 2017 rt reviews likely £nil (2016: (2016: £nil roup’s business £m 2016 movements movements (109,333) (0.2) Exchange rate 1,280,032 3.1 1,280,032 2.9 1,170,699 (4,712,856) (8.3) 11,834,627 31.1 11,834,627 20,490,613 42.9 20,490,613 (27,612,384) (65.7) roup’s mature £m Number of shares Number of shares £m December 2017 e management of capita changes – – – Non-cash £m 2.9 51.1 51.1 39.6 (14.4) nship banks with a nship final matu nts and th ng bank guarantees and a furtherng bank guarantees and a ated from the G £m 2017 and 31 Cash flow – – – 2017 t the going concern basis in preparing the the in preparing basis concern going t the At ew on pages 32 to 36 within the ew on pages Strategic the 32 toRepo within 36 £m 50.150.1 0.5 0.5 4.4 – 4.4 – financial instrume 1,170,699 (201.4) (92.8)2.9 (60.1) (151.3) (92.3) 7.3 (60.1) (5,013,954) 16,830,000 12,986,745 ty against outstandi 1 Jan 2017 Number of shares of Number ty for themanagement risk strategy of the Group and the Chi y provided by a group of relatio ion that the Group has adequate resources to continue in in continue to resources adequate has Group the that ion e Group. During the year ended 31 December 2017, the Group made Group the 2017, December ended 31 year the e Group. During funded by a funded combination of cash flow gener g IWG plc shares between 1 January sharesbetween 1 g IWG plc future and, accordingly, continue adop to continue future and, accordingly, 2016: £9.6m) is pledged as securi and position of the business. financial revi The rategies applied by the Group with respect to system of internal control and with the Group’s risk management policies. compliance is balance, £7.1m ( ansactions involvin ansactions Treasury shares in IWG plc utilised IWG plc utilised in shares Treasury Going concern are that factors and the strategy Group’s out the sets Accounts of1 tothe and pagesonReport 43 Annual Report The Strategic The objectives, policies and st 24. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 24. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Cash and cash equivalent balances held by the Group that are not available for use amounted to £9.3m at 31 December 2017 2017 December at 31 £9.3m to amounted use for available not are that Group the by held balances equivalent cash and Cash Of th (2016: £11.3m). Debt due after one year year one after due Debt Net financial assets/(liabilities) determinedlevel. at Group The Group’smaintains Board responsibili (193.6) (91.4) (60.1) 2.2 Cash and cash equivalents Cash and cash equivalents Gross cash year Debt due within one (7.8) (1.4) – 0.7 23. ANALYSIS OF FINANCIAL ASSETS/(LIABILITIES) 23. ANALYSIS OF FINANCIAL ASSETS/(LIABILITIES) In addition to the treasury share transactions, the Group purchased nil (2016: 467,291) shares on the open market at a cost of a cost at market open on the shares 467,291) nil (2016: purchased Group the transactions, share treasury the to In addition 1 January plc Regus shares in of treasury Purchase Treasury share tr utili were Group by held shares the open markettreasury in the and 5,013,954 shares were purchased 16,830,000 year, During the Treasury shares in Regus plc utilised Regus plc utilised in shares Treasury plc treasury shares in Regus Cancellation of plc IWG shares in of treasury Purchase Financial Officer is responsible for policy on a day-to-day basis. The Chief Financial Officer and Group Treasurer review the G the review Treasurer Group and Officer Financial Chief The basis. on a day-to-day policy for is responsible Officer Financial responsibil Committee the Group to has Audit the delegated Board basis. The policies on an ongoing and strategy risk management £2.2m (2016: £1.7m) is pledged against variousother is pledged against commitments of £1.7m) the£2.2m (2016: Group. The Group acquired debt of £60.1m as part of an acquisition during the current period. 31 December 31 December £1.3 m) to directly settle the exercise of share awards by employees. toaffect the futureperformance shares in IWG plc are entitled to receive such dividends as are declared by the Company and are entitled to one vote per share per share vote one entitled to and are Company by the declared as are dividends such to receive entitled plc in shares are IWG ofTreasury theCompany. sharesdo not carry suchuntil rights reissued. to satisfy the exercise of share awards by employees. As at 6 March 2018, 12,883,481 treasury shares were held. The holders of holders The were held. shares treasury 12,883,481 2018, March As at 6 employees. by awards of share exercise the satisfy to for applying an effective Exposure to credit, interest rate and currency risks arise in the normal course of business. business. of course normal in the arise risks Exposure toand currency interest rate credit, the trading performance, financial position and cash flows of and cash th position financial performance, trading the as £296.4m of debt position net a to by £145.1m increased position net debt Group’s the and in growth investment a significant 31 December 2017. The investment in growth is growth in investment The 2017. 31 December centres and debt. The Group has a £550.0m revolving credit facilit credit revolving a £550.0m Group has The debt. and centres undrawn. and was available £131.8m 2017, December at 31 As 2023. to extend to option further a with 2022, expectat a reasonable have Directors the enquiries, making After operationalexistence for the foreseeable Annualand Accounts. Report Notes to the accounts continued 24. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) Credit risk Credit risk could occur where a customer or counterparty defaults under the contractual terms of a financial instrument and arises principally in relation to customer contracts and the Group’s cash deposits. A diversified customer base, requirement for customer deposits, and payments in advance on workstation contracts minimise the Group’s exposure to customer credit risk. No single customer contributes a material percentage of the Group’s revenue. The Group’s policy is to provide against trade receivables when specific debts are judged to be irrecoverable or where formal recovery procedures have commenced. A provision taking into account the customer deposit held is created where debts are more than three months overdue, which reflects the Group’s historical experience of the likelihood of recoverability of these trade receivables. These provisions are reviewed on an ongoing basis to assess changes in the likelihood of recoverability. The maximum exposure to credit risk for trade receivables at the reporting date, not taking into account customer deposits held, analysed by geographic region, is summarised below. 2017 2016 £m £m Americas 27.8 36.9 EMEA 75.0 71.0 Asia Pacific 41.6 41.8 United Kingdom 54.9 51.2 199.3 200.9 All of the Group’s trade receivables relate to customers purchasing workplace solutions and associated services and no individual customer has a material balance owing as a trade receivable. The ageing of trade receivables at 31 December was: Gross Provision Gross Provision 2017 2017 2016 2016 £m £m £m £m Not overdue 132.4 – 128.5 – Past due 0 – 30 days 43.3 – 43.9 (0.1) Past due 31 – 60 days 13.8 – 12.0 – More than 60 days 31.6 (21.8) 35.6 (19.0) 221.1 (21.8) 220.0 (19.1) At 31 December 2017, the Group maintained a provision of £21.8m against potential bad debts (2016: £19.1m) arising from trade receivables. The Group had provided £16.2m (2016: £10.3m) in the year and utilised £13.5m (2016: £4.5m). Customer deposits of £429.8m (2016: £421.0m) are held by the Group, mitigating the risk of default. The Group believes no provision is generally required for trade receivables that are not overdue as the Group collects the majority of its revenue in advance of the provision of office services and requires deposits from its customers. Cash investments and derivative financial instruments are only transacted with counterparties of sound credit ratings, and management does not expect any of these counterparties to fail to meet their obligations. Liquidity risk The Group manages liquidity risk by closely monitoring the global cash position, the available and undrawn credit facilities, and forecast capital expenditure and expects to have sufficient liquidity to meet its financial obligations as they fall due. The Group has free cash and liquid investments (excluding blocked cash) of £45.7m (2016: £38.8m). In addition to cash and liquid investments, the Group had £131.8m available and undrawn under its committed borrowings. The Directors consider the Group has adequate liquidity to meet day-to-day requirements. The Group maintains a revolving credit facility provided by a group of international banks. During the year, the maturity was extended until 2022, with a further option to extend to 2023. The debt provided under the bank facility is floating rate, however, as part of the Group’s balance sheet management and to protect against a future increase in interest rates, £70.0m and $30.0m were swapped into a fixed rate liability for a three-year period with an average fixed rate of respectively 0.7% and 1.8% (excluding funding margin). Although the Group has net current liabilities of £560.3m (2016: £581.1m), the Group does not consider that this gives rise to a liquidity risk. A large proportion of the net current liabilities comprise non-cash liabilities such as deferred income which will be recognised in future periods through the income statement. The Group holds customer deposits of £429.8m (2016: £421.0m) which are spread across a large number of customers and no deposit held for an individual customer is material. Therefore, the Group does not believe the balance represents a liquidity risk. The net current liabilities, excluding deferred income, were £275.0m at 31 December 2017 (2016: £304.7m). 106 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 6.3 107 USD USD 107 16.7 (10.4) sed point ies equity. five e year e year . oximately e ve h Chief Chief f me countries Group’s Group’s cy asons. asons. . Any ces in the f the affiliate. affiliate. f the 0.6 EUR (8.7) (8.1) – – 15.1 19.1 – – – 2016 2017 JPY EUR JPY int in interest rates would ha rates int in interest currency assets and liabilities, ional exposures do arise in so arise exposures do ional and 31 December 2017 2017 December 31 and – 0.1 erling would have decreased the erling would have decreased the (0.5) (0.1) (26.5) (18.7) (0.5) (0.1) (11.4) 0.4 GBP GBP (6.7) (6.6) the Board approved the commencement of of commencement the approved Board the £1.9m) with a corresponding decrease in total decrease with a corresponding £1.9m) et and 5,013,954 treasury shares held by the Group were utili were Group by the held shares treasury 5,013,954 and et The majority of day-to-day transactions of overseas subsidiar plans for keymanagement and other senior employees. l increase of one percentage po percentage of one l increase ge exposure is small. Transact ctions held in a currency other than the functional currency careful management of non-local relative proportions of fixed rate debtand floating rate debt 2017 no cash was invested for a period exceeding three months. three for a period exceeding was 2017 no cash invested ent. Net investments in IWG affiliates with a functional curren functional a with in IWG affiliates Net investments ent. lue of the US dollar against st against US dollar of lue the lue of the US dollar against st against US dollar of lue the areholdersfurther and detailsof Group’s the communicationwit n currency exchange rates, interest rates and the market value o ial instruments to manage its transactional foreign exchange es ores receivables to be in other than the functional currency o es between 1 January 2017 2017 es between January 1 at 31 December 2017, 12,986,745 treasury shares were held. were held. shares treasury 12,986,745 2017, December at 31 ment activity may also lead to foreign exchange exposures. It is the policy of th r the year ended 31 December 2017 (2016: decrease of £8.8m). It is estimated that a that estimated It is of £8.8m). decrease (2016: 2017 31 December ended year r the e Governance Report on page 55. on page In 2006, 55. Report e Governance re tax by approximately £2.6m (2016: decrease of decrease (2016: £2.6m by approximately re tax 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. ely £11.1m for the year ended 31 December 2017 (2016: £11.3m). It is estimated that a five percentage a five that estimated It is £11.3m). (2016: 2017 December 31 ended year the for ely £11.1m £1.7m for the year ended 31 December 2017 (2016: decrease of £2.7m). £2.7m). of decrease (2016: 2017 31 December ended year for the £1.7m va in the point weakening a percentage five that It is estimated by approximat total equity Corporat in the found be can key investors a progressive dividend policy to enhance the total 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 pages62 to addition, the 73. In Group operatesvarious share option It is estimated that a five percentage point weakening va in the point weakening a percentage five that It is estimated appr by tax before profit Group’s the decreased have would sterling against euro the of value the in weakening point percentage on Committee Remuneration the of report the in found be can shareholdings Directors’ the of Details Company. the in shares hold profit before tax by approximately £8.6m fo Net position exposurefinancial of statement Financial Officer monitors the diversity of the Group’s major sh major Group’s of the diversity the monitors Officer Financial shar plc IWG involving transactions share Treasury mark open the in purchased were shares 16,830,000 year, the During Capital management 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 For the year ended 31 December 2017, it is estimated that a genera that it is estimated 2017, 31 December ended year For the a written policy approved by the Board of Directors. The Group does not use financial derivatives for trading or speculative re or speculative trading for derivatives financial use not does Group The of Directors. Board by the approved policy a written pri equity in of changes risks to subject not therefore is and securities equity available-for-sale any not hold does Group The Sensitivity analysis Trade and other payables payables and other Trade risks Other market our investments in financial asse in financial our investments and of short-term, at end the surplus balances are invested cash £m Trade receivables and other Net position exposurefinancial of statement income statement. Trade receivablesother and payables other and Trade The Group isexposed toforeign currencyexchange rate movements. The Groupexposure manages its tointerestrate risk throughthe Foreign currency risk Interest rate risk Market risk risk Market The Group isexposed tomarket risk primarilyrelated to foreig befo profit Group’s the decreased th for £1.1m approximately by equity total Group’s the decreased have would sterling against euro the of value in the weakening ended 31 December 2017 (2016: decrease of £0.4m). of £0.4m). decrease (2016: 2017 December 31 ended From time to time the Group uses short-term derivativefinanc follows: as summarised is entity related the of 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. The foreign currency exposure arising from open third party transa thereby minimising the potential volatility in the income statem income in the volatility potential the minimising thereby otherthan sterling areof along-term natureand theGroup does notnormally hedge such foreign currencytranslation exposures £m to satisfy the exercise of share awards by employees. As are carried out in local currency and the underlying foreign exchan where it is localmarket practice forproportion a of thepayabl manage and cash funding charging, Intercompany Group toseek to minimisesuch transactionalexposures through Notes to the accounts continued 24. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) The Company declared an interim dividend of 1.75p per share (2016: 1.55p) during the year ended 31 December 2017 and proposed a final dividend of 3.95p per share (2016: 3.55p per share), a 11% increase on the 2016 dividend. The Group’s objective when managing capital (equity and borrowings) is to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The Group has a net debt position of £296.4m at the end of 2017 (2016: £151.3m) and £131.8m (2016: £299.4m) of committed undrawn borrowings. Effective interest rates In respect of financial assets and financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they mature. Interest payments are excluded from the table. The undiscounted cash flow and fair values of these instruments is not materially different from the carrying value. As at 31 December 2017 Effective Carrying Contractual Less than More than interest rate value cash flow 1 year 1-2 years 2-5 years 5 years % £m £m £m £m £m £m Cash and cash equivalents 0.1% 55.0 55.0 55.0 – – – Trade and other receivables(1) – 413.3 435.1 435.1 – – – Other long-term receivables(2) – 76.3 76.3 – 38.1 38.2 – Derivative financial assets: Interest rate swaps • Outflow – – – – – – – • Inflow – 0.2 0.2 0.2 – – – Financial assets(3) 544.8 566.6 490.3 38.1 38.2 – Non-derivative financial liabilities(4): Bank loans and corporate borrowings 2.5% (330.5) (330.5) – (6.2) (324.3) _ Other loans 1.9% (20.9) (20.9) (8.5) (2.7) (4.9) (4.8) Trade and other payables(5) – (721.3) (721.3) (721.3) – – – Other long-term payables(5) – (11.1) (11.1) – (11.1) – – Financial liabilities (1,083.8) (1,083.8) (729.8) (20.0) (329.2) (4.8) As at 31 December 2016 Effective Carrying Contractual Less than More than interest rate value cash flow 1 year 1-2 years 2-5 years 5 years % £m £m £m £m £m £m Cash and cash equivalents 0.0% 50.1 50.1 50.1 – – – Trade and other receivables(1) – 343.6 362.7 362.7 – – – Other long-term receivables(2) – 78.4 78.4 – 39.3 39.1 – Financial assets(3) 472.1491.2 412.8 39.3 39.1 – Non-derivative financial liabilities(4): Bank loans and corporate borrowings 2.9% (193.6) (193.6) – (6.9) (186.7) – Other loans 4.6% (7.8) (7.8) (7.8) – – – Trade and other payables(5) – (690.3) (690.3) (690.3) – – – Other long-term payables(5) – (14.3) (14.3) – (14.3) – – Derivative financial liabilities: Interest rate swaps • Outflow – (0.3) (0.3) – – (0.3) – • Inflow – – – – – – – Financial liabilities (906.3) (906.3) (698.1) (21.2) (187.0) – 1. Excluding prepayments and accrued income and acquired lease fair value asset 2. Excluding acquired lease fair value asset 3. Financial assets are all held at amortised cost 4. All financial instruments are classified as variable rate instruments 5. Excluding deferred rents, deferred partner contributions and acquired lease fair value liability 108 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements – – – – – – – – 0.2 0.2 109 Total – – – – – – – – – Level 3 Level – – – – – – – 0.2 0.2 Fair value Fair value Level 2 2 Level – – – – – – – – – Level 1 1 Level 0.2 Total 1 Level 2 Level 3 Level Total 55.0 76.3 Total (20.9) (11.1) 413.3 (330.5) (721.3) (539.0) – – – – – – – 0.2 0.2 hedging hedging hedging hedging Cash flow – Cash flow Cash flow – Cash flow instruments instruments – – – – Other Other (20.9) (11.1) (330.5) (721.3) Carrying amount Carrying amount financial financial financial liabilities (1,083.8) liabilities – – – – – 55.0 55.0 76.3 544.6 544.6 413.3 413.3 receivables receivables Cash, loans and Cash, loans and 472.1 (906.0) (0.3) (434.2) – (0.3) –(0.3) (0.3) (906.0) (0.3) (434.2) borrowings Bank loans and corporate Other loans – payables and other Trade Other long-term payables Derivative liabilities financial – 472.1 (193.6) – – – – (690.3) – (193.6) (14.3) – (7.8) – – – (0.3) (690.3) – – (14.3) (0.3) – – (7.8) – – – – – – (0.3) – – – – – (0.3) – – – £m Bank loans and corporate borrowings borrowings Bank loans and corporate Unrecognised gain – Cash and cash equivalents receivables other and Trade receivables Other long-term 50.1 343.6 78.4 – – – – – – 343.6 50.1 78.4 – – – – – – – – – – – – Unrecognised gain 31 December 2016 Carrying amount Fair value Cash and cash equivalents Cash and cash equivalents Trade and other receivables 31 December 2017 2017 31 December Fair value disclosures as follows: are sheet balance in the shown amounts carrying with the together values fair The £m Other long-term receivables receivables Other long-term asset financial Derivative Other loans payables and other Trade Other long-term payables Notes to the accounts continued 24. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) During the years ended 31 December 2016 and 31 December 2017, there were no transfers between levels for fair value measured instruments, and no financial instruments requiring level 3 fair value measurements were held. Valuation techniques When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly; and • Level 3: inputs for the asset or liability that are not based on observable market data. The following tables show the valuation techniques used in measuring level 2 fair values and methods used for financial assets and liabilities not measured at fair value: Type Valuation technique Cash and cash equivalents, trade and other For cash and cash equivalents, receivables/payables with a remaining life of less receivables/payables and customer deposits than one year and customer deposits, the book value approximates the fair value because of their short-term nature. Loans and overdrafts The fair value of bank loans, overdrafts and other loans approximates the carrying value because interest rates are at floating rates where payments are reset to market rates at intervals of less than one year. Foreign exchange contracts and interest rate swaps The fair values are based on a combination of broker quotes, forward pricing and swap models. There was no significant unobservable input used in our valuation techniques. Derivative financial instruments The following table summarises the notional amount of the open contracts as at the reporting date: 2017 2016 GBP m GBP m Derivatives used for cash flow hedging 70.0 70.0 2017 2016 USD m USD m Derivatives used for cash flow hedging 30.0 30.0 Committed borrowings 2017 2017 2016 2016 Facility Available Facility Available £m £m £m £m Revolving credit facility 550.0 131.8 550.0 299.4 The Group maintains a revolving credit facility provided by a group of international banks. During the year, the maturity was extended until 2022, with a further option to extend to 2023. As at 31 December, £131.8m was available and undrawn under this facility. The debt provided under the credit facility is floating rate, however, as part of the Group’s balance sheet management and to protect against a future increase in interest rates, £70.0m and $30.0m were swapped into a fixed rate liability for a three-year period with an average fixed rate of respectively 0.7% and 1.8% (excluding funding margin). The £550.0m revolving credit facility is subject to financial covenants relating to net debt to EBITDA, and EBITDA plus rent to interest plus rent. The Group is in compliance with all covenant requirements. 110 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 111 ion rchase average average per share n with Weighted Weighted shares at ons have exercise price price exercise 2016 Number of 6,357,981 119.87 1,848,431 301.59 (2,972,532)(3,850,899) 190.48 101.69 23/03/2013 23/03/2020 28/06/2013 28/06/2020 01/09/2013 01/09/2020 01/04/2014 01/04/2021 30/06/2014 30/06/2021 13/06/2015 13/06/2022 29,494,624 155.35 24,519,624 169.62 share options Exercisable fromExercisable date Expiry (1) (1) (1) (1) (1) (1) (1) areentitled topurchase 179.79 179.79 118.81 169.62 169.62 244.28 189.71 107.80 average average per share per share Weighted Weighted exercise price price exercise 2017 of grant, assuming the performance performance conditi the of assuming grant, Number of Number 5,622,041 2,200,507 (4,475,884) (3,984,457) 18,259,790 24,519,624 share options share mme, holdersof vestedoptions an that entitles Executive Directors and certain employees to to employees and certain pu Directors Executive an entitles that average average per share Lapsed Exercised At 31 Dec 2017 Weighted Weighted exercise price price exercise from the fourth anniversary of the date date of the anniversary fourth from the granted granted Numbers tanding share options All options have vested as of 31 December 2016 12/06/2013 7,741,000 155.60 (4,280,910) (1,553,703) 1,906,387 12/06/2016 12/06/2023 963,732 69.10(146,728) 114.90109.50 (954,402) (4,900,647) (9,856)84.95(3,833,070) (481,866) (4,089,695)155.60 (4,280,910) 160,646 01/09/2010 (5,315,855) (1,553,703) 877,197 2,400,000 01/04/2011 4,062 2,040,075 9,867,539 30/06/2011 1,906,387 11,189,000 13/06/2012 7,741,000 12/06/2013 18/11/2013 600,000 191.90 (575,000) – 25,000 18/11/2016 17/11/2023 1. 28/06/2010 617,961 75.00(546,198) (50,956) 617,961 28/06/2010 20,807 23/03/2010 3,986,000 100.50 (3,463,777) (425,258)Date of grant 96,965 3,986,000 23/03/2010 Exercisable Decemberat 31 At 1 January At 1 January year the during Granted Reconciliation of outs Plan 1: IWG Group Share Option Plan Pl Group Share Option IWG the During 2004 Group established the 25. SHARE-BASED PAYMENTS 25. SHARE-BASED below: outlined are of which details plans, payment share-based four are There the year Lapsed during year the during Exercised Outstanding at 31 December shares in IWG plc (previously Regus plc). In accordance with this progra accordance with this plc). In plc (previously Regus in IWG shares the market price of the shares at the day before the date of grant. of grant. date the before day the at shares of the 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 exercisable only are they that exception the been met. Plan disclosed above. The terms of the IWG Share Option Plan (France) are materially the same as the IWG Group Share Option Pla Option Share Group IWG the as same the materially are (France) Plan Option Share IWG of the terms The above. disclosed Plan 18/12/2013 1,000,000 195.00 (750,000) – 250,000 18/12/2016 17/12/2023 195.00 (750,000) – 1,000,000 18/12/2013 250,000 20/05/2014 1,845,500 187.20 (1,658,500) (53,433) 133,567 20/05/2017 19/05/2024 05/11/2017 04/11/2024 19/05/2018 18/05/2025 22/12/2018 22/12/2025 187.20 (1,658,500)186.00250.80 (4,606,142) (53,433)322.20 (1,794,565) (9,677) (270,528) 133,567 1,845,500 20/05/2014 8,259,977 12,875,796 05/11/2014 – 1,906,565 19/05/2015 – 1,154,646 22/12/2015 112,000 884,118 29/06/2016 444,196 272.50 (175,000) – 269,196 29/06/2019 29/06/2026 28/09/2019 28/09/2026 01/03/2020 01/03/2027 14/12/2020272.50 14/12/2027 258.00 (175,000)283.70151.73 (33,389)197.00 (27,988,856) (11,990,299) 18,259,790 – 444,196 29/06/2016 – – 249,589 28/09/2016 – 269,196 1,200,000 01/03/2017 1,000,507 14/12/2017 216,200 Total 58,238,945 – – 1,200,000 1,000,507 Notes to the accounts continued 25. SHARE-BASED PAYMENTS (CONTINUED) Performance conditions for share options 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 1/5 112 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements n 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 1/5 113 to vest to vest to vest to vest mber ee Proportion Proportion Proportion Proportion Proportion Proportion rliest lder d employeesd and the achievementmargiof going employment of the related employee for a specified period nal onongoing the employment ofrelate the eligibleto vest isas follows: 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 of options percentage and dates The targets. dates on which the options are June 2021 June 2022 June 2023 2021 September 2022 September 2023 September in vest will shares these targets, performance these meeting on conditional Thus, 2017. January on 1 commencing years financial March 2017 share option plan plan option share 2017 March The total number of shares awarded is subject to three different performance conditions. These conditions are measured over thr September 2020 2020 September 2019 September September 2016 share option plan option plan share 2016 September The optionsawarded in September 2016areconditional on on the June 2020 June 2019 of time.Once this condition is satisfied, thoseoptions thatare eligible towill vest vest asfollows: shareho total relative to subject is third one conditions, (EPS) per share earnings defined to subject is third One March 2020. conditions. (ROI) investment on return to is subject third one and conditions (TSR) return June 2016 share option plan plan option share 2016 June 31 Dece ending year on Group operating profit for the based 2016, in June awarded options for the performance targets Group The December 2018 2018 December 2019 December December 2015 share option plan plan option share 2015 December The Groupperformance targets for theoptions awardedin Decemberbasedoperating on Group2015, profit for theending year toeligibleare vest will vest that as follows: options met. Those were 2016, 31 December May 2018 May 2018 May 2019 May 2015 share option plan plan option share 2015 May The optionsawarded in May2015 are conditio May 2020 May 2021 May 2022 2020 December 2021 December 2022 December to willvest are eligible follows: as vest that options were met. 2016, Those Notes to the accounts continued 25. SHARE-BASED PAYMENTS (CONTINUED) The EPS condition is based on the compound annual growth in EPS over the performance period measured from EPS in the financial year ending 31 December 2016 as follows: Vesting scale % of one third of the award that vest 25% 100% Between 5% and 25% On a straight-line basis between 0% and 100% 5% 0% The TSR condition is based on the performance of the Group’s TSR growth against the median TSR growth of the comparator group as follows: Vesting scale % of one third of the award that vest Exceeds the median by 10% or more 100% Exceeds the median by less than 10% On a straight-line basis between 25% and 100% Ranked at median 25% Ranked below the median 0% The ROI condition is based on the ROI improvement over the performance period relative to ROI for the financial year ending 31 December 2016 as follows: Vesting scale % of one third of the award that vest Exceeds 2016 ROI plus 300 basis points 100% Exceeds 2016 ROI by less than 300 basis points On a straight-line basis between 0% and 100% Equal to or less than the 2016 ROI 0% Once this condition is satisfied, those options that are eligible to vest will vest as follows: Proportion to vest September 2020 1/3 September 2021 1/3 September 2022 1/3 December 2017 share option plan The options awarded in December 2017 are conditional on the ongoing employment of the related employee for a specified period of time and are also subject to Group performance targets based on Group operating profit and employee’s key performance indicators. Once performance conditions are satisfied those options that are eligible to vest will vest as follows: Proportion to vest December 2020 1/3 December 2021 1/3 December 2022 1/3 114 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 115 May June 2013 2015 1.20% 1.53% 58.39p 69.12p or the 48.98% 30.12% 0.81% – 42.35p – 27.23% – 27.23% prices. 2013 2015 1.22% 0.67% – 0.21% 45.73p 39.21p – 90.61p 37.08% 0.14% – 29.76p – December December November November 24.80% – 24.80% June 2013 2016 the Monte Carlo simulation Carlo simulation Monte the 2.30% 0.39% 0.39% 65.95p 65.95p 78.68p 78.68p 32.91% 32.69% 40.31% – 32.91% 32.69% 40.31% 34.81% 34.81% 1.57% – 0.14% – 52.41p – 44.28p – December December 27.71% – 27.71% –– –– –– –– –– May 2014 2016 1.47% 1.80% 1.71% 1.40% 1.59% 0.38% 59.63p 67.89p 41.91% 32.35% 258.00p258.00p 322.20p 272.50p 322.20p 272.50p 250.80p 250.80p 0.99% – 0.09% – 30.80p – 40.96p – 3–7 years 3–7 years 3–7 years 3–7 years 27.30% – 27.30% 27.45% – 27.45% September September – – 2014 2017 March March 1.81% 1.80% 0.56% 54.58p 76.88p plan was measured based on based plan was measured 33.53% 29.87% 0.23% – 283.70p 283.70p 44.51p – 44.51p November November 3–5 years 27.42% – – – 2017 2.69% 0.75% 44.20p 35.93% 0.54% – 197.00p 197.00p 40.06p – 40.06p December December 3–5 years 33.31% – ugh the employee share purchase purchase share employee ugh the Expected volatility volatility Expected Risk-free interest rate rate interest Risk-free Number of simulations Number of Expected dividend dividend Expected Fair value of option at time of grant option at time of grant Fair value of Number of simulations Number of companies Number of Option life dividend Expected grant option at time of Fair value of 27.24p – – – 2.02% 3–7 years – 3–5 years 2.00% – 5–8 years 1.46% 3–5 years – 3–5 years – 1.46% 2.03% – – 30,000 – Exercise price price Exercise volatility Expected – 24.67% 186.00p 187.20p 195.00p 191.90p 155.60p date on grant Share price 188.40p 191.00p 195.00p 191.90p 158.00p Share price on grant date date on grant Share price Exercise price Measurement of fair values values fair of Measurement thro granted rights of the fair value The Black-Scholesformula. Theexpected volatility is basedon the historic volatilityfor any adjusted abnormalmovement in share The inputs to the modelare asfollows: Number of companies companies Number of Option life Risk-free interest rate rate interest Risk-free 0.90% – Notes to the accounts continued 25. SHARE-BASED PAYMENTS (CONTINUED) Plan 2: IWG plc Co-Investment Plan (CIP) and Performance Share Plan (PSP) The CIP operates in conjunction with the annual bonus whereby a gross bonus of up to 50% of basic annual salary will be taken as a deferred amount of shares (Investment Shares) to be released at the end of a defined period of not less than three years, with the balance of the bonus paid in cash. Awards of Matching Shares are linked to the number of Investment Shares awarded and will vest depending on the Company’s future performance. The maximum number of Matching Shares which can be awarded to a participant in any calendar year under the CIP is 200% of salary. As such, the maximum number of Matching Shares which can be awarded, based on Investment Shares awarded, is in the ratio of 4:1. The PSP provides for the Remuneration Committee to make stand-alone awards, based on normal plan limits, up to a maximum of 250% of base salary. Reconciliation of outstanding share awards 2017 2016 Number of Number of awards awards At 1 January 3,292,656 3,673,686 PSP awards granted during the year 1,095,406 1,038,179 Lapsed during the year (37,099) (9,129) Exercised during the year (1,029,499) (1,410,080) Outstanding at 31 December 3,321,464 3,292,656 Exercisable at 31 December – – The weighted average share price at the date of exercise for share awards exercised during the year ended 31 December 2017 was 289.66p (2016: 302.63p). Numbers At 31 Dec Plan Date of grant granted Lapsed Exercised 2017 Release date PSP 03/03/2016 1,038,179 – – 1,038,179 03/03/2021 PSP 01/03/2017 1,095,406 – – 1,095,406 01/03/2022 2,133,585 – – 2,133,585 Numbers At 31 Dec Plan Date of grant granted Lapsed Exercised 2017 Release date(1) CIP: Matching shares 06/03/2013 1,217,176 (317,687) (648,042) 251,447 06/03/2018 CIP: Investment shares 05/03/2014 161,922 – (161,922) – 05/03/2017 CIP: Matching shares 05/03/2014 647,688 (272,583) (100,303) 274,802 See below(2) CIP: Investment shares 04/03/2015 207,952 – (75,626) 132,326 04/03/2018 CIP: Matching shares 04/03/2015 831,808 (302,504) – 529,304 04/03/2020 3,066,546 (892,774) (985,893) 1,187,879 1. Based on the outstanding shares as at 31 December 2017 2. The release dates for the remaining two tranches of the March 2014 CIP Matching Shares are 5 March 2018 and 5 March 2019 respectively 116 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements (1) 117 0% 25% 100% 0.35% ct 83.11p– 134.21p ntly, ntly, relative rlying ned elate to the first the targets 1.47% 83.11p– 214.33p IWG TSR % achieved relative to relative TSR % achieved IWG FTSE All Share Total Return index Total Return FTSE All Share 2015 2016 2017 12.0p 14.0p 12.0p 14.6p 12.6p 15.3p 13.3p 16.0p 16.0p 14.0p 16.6p 17.3p 18.0p the Monte Carlo simulation. Monte the 114.6p 114.6p 75.67p– lculatedunde assess to the 04/03/2015 05/03/2014 06/03/2013 l aim is that the relevant EPS relevant the l aim is that Adjustedtargets EPS forfinancial the yearsending 32 32 32 32 Nil Nil Nil Nil PSP CIP CIP CIP 1.50% 1.78% 1.66%0.86% 2.23% 1.01% 0.99%– 5 years 3 years 3 years 3 years 277.36p 277.36p 300.00p 253.30p 225.00p 143.50p 250,000 250,000 250,000 250,000 183.08p– 183.08p– 03/03/2016 32 Nil PSP 1.80% 0.56% 5 years plan was measured based on based plan was measured 283.70p 250,000 236.08p ed measure of EPS will be ca 155.83p– 155.83p– 01/03/2017 ce targets. 75% of each of the three amounts is subject defi to is subject amounts of 75% of each three the ce targets. exercise its discretion. The overal The its discretion. exercise periods. The targets are as follows: are as follows: targets The periods. ugh the employee share purchase purchase share employee ugh the nditions are as follows: rn (TSR) targets over the respective respective the over rn (TSR) targets Over the three-, four- or five-year performance period Fair value of award at time of grant award at time of grant Fair value of Risk-free interest rate rate interest Risk-free Number of companies companies Number of performance of the business. business. of the performance p.a. + 15% Equal to index Equal to index Equal to index 1. % of awards eligible for vesting for vesting % of awards eligible Below index No shareswillvest in each respective year unless theminimum adjustedEPS for target that year is achieved. 25% 25% 50% to future performance periods of three, four and five years respectively. Thus, conditional on meeting the performance targets, awards of these vesting The respectively. 2017 31 December and 2016 December 31 2015, December 31 ending years financial the performan corporate of challenging achievement to the is subject 75% 100% 2013 CIP Investment and matching grants grants matching and CIP Investment 2013 The total number of matching awards made in 2013 to each participant was divided into three separate equal amounts and is subje The performance co It is recognised by the Remuneration Committee that the additional EPS targets represent a highly challenging goal and conseque and goal challenging a highly represent EPS targets additional the that Committee Remuneration the by It is recognised Share price on grant date date on grant Share price Exercise price Measurement of fair values thro granted rights of the fair value The The inputs to the modelare asfollows: will Committee the met, been have they whether in determining run-rateoronmethavea must underlying been basis. As such, an adjust Award life Award life adjusted earnings per share (EPS) targets over the respective performance periods. The remaining 25% of each will be subject to be subject will of each 25% remaining The periods. performance respective the over targets (EPS) share per earnings adjusted retu total shareholder Number of simulations Number of % of awards eligible for vesting for vesting % of awards eligible Expected dividend dividend Expected 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 These in March 2018. will will vest third the and in March 2017 vest second the in March amount will vest 2016, Notes to the accounts continued 25. 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 financial 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% 118 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 119 0% 0% 0% 0% 0% 0% 25% 25% year 100% 100% 100% 100% 100% 100% ee ee March March eturn (TSR) (TSR) eturn (TSR) eturn % of one third of the award that vest % of one third of the award that vest % of one third of the award that vest % 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 mpound annual growth in EPS over the performance period measured from EPS in the financial mpound annual growth in EPS over the performance period measured from EPS in the financial ending 31 December 2015 as follows: as follows: 2015 December 31 ending conditions and one third is subject tothird is subject one and conditions on investmentreturn conditions. (ROI) The EPS condition isbased the co on tothird is subject one and conditions on investmentreturn conditions. (ROI) The EPS condition isbased on the co year ending 31 December 2016 as follows: as follows: 31 December 2016 year ending Ranked below the median median the Ranked below plus 300 basis points ROI 2016 Exceeds basis points by less than 300 ROI 2016 Exceeds ROI the 2016 than Equal to or less and 100% 0% basis between On a straight-line The ROI condition isbasedon the ROIoverimprovement theperformanceperiod relative to ROIfor the financialending year scale Vesting Vesting scale scale Vesting by 10% or more median the Exceeds by less than 10% median Exceeds the median Ranked at and 100% 25% basis between On a straight-line The TSR condition is based on the performance of the Group’s TSR growth against the median TSR growth of performancecomparator thegrowth the on theof median TSR against thegrowth based group Group’sThe TSR condition is TSR as follows: 25% 25% 25% 5% and Between 5% and 100% 0% basis between On a straight-line Vesting scale scale Vesting 2021. One third is subject to defined earnings per share (EPS) conditions, one third is subject to relative total shareholder r shareholder total relative to is subject third one conditions, per share (EPS) earnings defined to subject is third One 2021. basis points by less than 300 ROI 2015 Exceeds ROI the 2015 than Equal to or less grant PSP Investment 2017 The total number of shares awarded is subject to three different performance conditions. These conditions are measured over thr r shareholder total relative to is subject third one conditions, per share (EPS) earnings defined to is subject third One 2022. and 100% 0% basis between On a straight-line Vesting scale scale Vesting plus 300 basis points ROI 2015 Exceeds The ROI condition isbasedon the ROIoverimprovement theperformanceperiod relative to ROIfor the financialending year Exceeds the median by 10% or more by 10% or more median the Exceeds by less than 10% median Exceeds the median Ranked at and 100% 25% basis between On a straight-line The TSR condition is based on the performance of the Group’s TSR growth against the median TSR growth of performancecomparator the growth on the the of median TSR growth against thebased group Group’sThe TSR condition is TSR as follows: scale Vesting 25% 25% 25% 5% and Between 5% and 100% 0% basis between On a straight-line Vesting scale scale Vesting 2016 PSP Investment grant grant PSP Investment 2016 The total number of shares awarded is subject to three different performance conditions. These conditions are measured over thr in vest will shares these targets, performance these meeting on conditional Thus, 2016. January on 1 commencing years financial median the Ranked below in vest will shares these targets, performance these meeting on conditional Thus, 2017. January on 1 commencing years financial 31 December 2016 as follows: 31 December 2016 31 December 2015 as follows: 31 December 2015 Notes to the accounts continued 25. SHARE-BASED PAYMENTS (CONTINUED) Plan 3: One-Off Award In November 2015, an award of 328,751 ordinary shares of 1p each in the Company was granted to the Company’s Chief Financial Officer and Chief Operating Officer, Dominik de Daniel. The award was structured as a conditional award and was granted under a one-off award arrangement established under Listing Rule 9.4.2(2). In the normal course of events the award will vest over five years, if and to the extent to which performance conditions are achieved. The applicable performance target is set out below: Performance metric Target Vesting at target Compound annual growth in EPS over the performance period 5% 100% Reconciliation of outstanding share options 2017 2016 Number of Number of awards awards At 1 January 328,751 328,751 Outstanding at 31 December 328,751 328,751 Exercisable at 31 December – – Measurement of fair values The fair value of the rights granted through the employee share purchase plan was measured based on the Black-Scholes formula. The expected volatility is based on the historic volatility adjusted for any abnormal movement in share prices. The inputs to the model are as follows: November 2015 Share price on grant date 334.70p Exercise price Nil Award life 5 years Expected dividend 1.24% Fair value of award at time of grant 313.65p Risk-free interest rate 1.37% Plan 4: Deferred Shared Bonus Plan In March 2017, an award of 383,664 ordinary shares of 1p each in the Company was granted to the Chief Executive Officer, Mark Dixon and to the Company’s Chief Financial Officer and Chief Operating Officer, Dominik de Daniel. The awards are conditional on the ongoing employment of the related employees for a specified period of time. Once this condition is satisfied, those awards are eligible to vest in March 2020. Reconciliation of outstanding share options 2017 Number of awards At 1 January – DSBP award granted during the year 383,664 Outstanding at 31 December 383,664 Exercisable at 31 December – 120 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements – – Nil £m 5.8 (6.6) (0.8) 121 2016 DBSP 1.80% 0.23% 3 years . fair value 283.70p 236.04p 236.04p of £3.3m. of £3.3m. Provisional Provisional goodwill March 2017 ould have esses more £m 8.5 (1.5) 2017 (10.0) the busin fair value fair value Provisional Provisional adjustments 3.5 43.5 43.5 43.5 – 43.5 – 1.5 1.5 5.5 – 0.40.4 5.5 0.8 (6.6) –(6.6) (6.6) he selling, general and administration 37.5 2.537.5 40.0 98.4 0.698.4 99.0 (60.2) –(60.2) (60.2) the Black-Scholes formula. Black-Scholes the Book value Book value in from operating in from nefits IWG can obta nefits IWG can plan was measured based on based plan was measured lue-adding products and services. £0.4m of the above of the £0.4m services. and products lue-adding isitions contributed revenue of £11.6m and net retained profit profit retained net and of £11.6m revenue contributed isitions ousindividually immaterial acquisitions fora total considerationof anticipated future be future anticipated stment in acquired joint venture acquired joint venture in stment – itions reflects the the reflects itions ugh the employee share purchase purchase share employee ugh the (1) imarily through increasing occupancy and the addition of va addition the and occupancy increasing imarily through expenses line item in the consolidated income statement statement income consolidated the in item line expenses The goodwill arising on acquisition includes negative goodwill of £0.4m. The negative goodwill has been recognised as part of t Current liabilities Current liabilities Non-current liabilities Property, plant and equipment equipment Property, plant and Cash non-current assets Other current and Net funded Net funded obligations Total consideration Fair value of award at time of grant award at time of grant Fair value of Number of simulations Number of Number of companies companies Number of Award life Cash paid Net cash outflow above on acquis the arising goodwill The 1. Cash flow on acquisition Cash flow on acquisition Less: Fair value adjustment of historical inve value adjustment of historical Less: Fair Goodwill arising on acquisition Goodwill arising on £m Net assets acquired Intangible assets 27. ACQUISITIONS acquisitions period Current Duringthe year ended 31 December2017 theGroupmade vari £43.5m. Fair value of plan assets assets plan Fair value of value of obligations Present 26. RETIREMENT BENEFIT OBLIGATIONS BENEFIT 26. RETIREMENT – Employee Benefits 19 (2011) IAS plans under defined plans as benefit pension and Philippines Swiss for the accounts Group The Share price on grant date date on grant Share price Exercise price Measurement of fair values thro granted rights of the fair value The prices. in share movement abnormal any for adjusted volatility historic on the based is volatility expected The The inputs to the modelare asfollows: The reconciliation of the net defined benefitliabilityand its components are asfollows: is expected to be deductible for tax purposes. w acquisitions these from arising profit retained net and revenue the 2017, on 1 January occurred had acquisitions above If the acqu equity the year, In the respectively. £3.2m and £19.6m been efficiently, pr efficiently, Risk-free interest rate rate interest Risk-free Expected dividend dividend Expected Less: Contingent consideration consideration Less: Contingent Notes to the accounts continued 27. ACQUISITIONS (CONTINUED) There was £nil contingent consideration arising on the 2017 acquisitions. Contingent consideration of £2.1m (2016: £2.7m) was also paid during the current year with respect to milestones achieved on prior year acquisitions. The acquisition costs associated with these transactions were £1.0m, recorded within administration expenses within the consolidated income statement. For a number of the acquisitions in 2017, the fair value of assets acquired has only been provisionally assessed at the reporting date. The main changes in the provisional fair values expected are for the fair value of the leases (asset or liability), customer relationships and 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 2017, which will be accounted for in accordance with IFRS 3. Due to the timing of these transactions, it is not practical to disclose the information associated with the initial accounting for these acquisitions. Prior period acquisitions During the year ended 31 December 2016 the Group made various individually immaterial acquisitions for a total consideration of £10.8m. Provisional Final fair value Provisional fair value Final £m Book value adjustments fair value adjustments fair value Net assets acquired Intangible assets – 0.1 0.1 0.1 0.2 Property, plant and equipment 2.4 – 2.4 0.2 2.6 Cash 1.2 – 1.2 – 1.2 Other current and non-current assets 2.6 – 2.6 0.3 2.9 Current liabilities (5.4) – (5.4) (0.4) (5.8) Non-current liabilities (0.1) – (0.1) – (0.1) 0.7 0.1 0.8 0.2 1.0 Goodwill arising on acquisition 10.0 (0.2) 9.8 Total consideration 10.8 – 10.8 Less: Fair value adjustment of historical investment in acquired joint venture (2.5) (2.5) Less: Contingent consideration (0.9) (0.9) 7.4 7.4 Cash flow on acquisition Cash paid 7.4 7.4 Net cash outflow 7.4 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. £0.1m of the above goodwill is expected to be deductible for tax purposes. If the above acquisitions had occurred on 1 January 2016, the revenue and net retained profit arising from these acquisitions would have been £10.1m and £0.2m respectively. In the year, the equity acquisitions contributed revenue of £3.7m and net retained loss of £0.5m. There was £0.9m contingent consideration arising on the above acquisitions. The acquisition costs associated with these transactions were £0.5m, recorded within administration expenses within the consolidated income statement. The prior year comparative information has not been restated due to the immaterial nature of the final fair value adjustments recognised in 2017. 28. CAPITAL COMMITMENTS 2017 2016 £m £m Contracts placed for future capital expenditure not provided for in the financial statements 60.9 42.6 These commitments are principally in respect of fit-out obligations on new centres opening in 2018. In addition, our share of the capital commitments of joint ventures amounted to £nil at 31 December 2017 (2016: £nil). 122 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements £m £m 9.8 0.5 0.5 2.2 123 10.8 Total 2016 ns owed to Amounts these the the ecting and related party related ed in the th a variety ng the year year ng the financial year. £m £m 8.6 9.0 6.7 0.5 1.4 2017 Other owed by Amounts 2016 related party related £m 2.9 8.62.9 8.0 3.0 882.4 1.3 882.4 883.7 parties parties 2,386.9 1.02,386.9 –1,170.4 2.3 4,439.7 2,387.9 1,170.4 4,442.0 Property Property from related from related Management Management fees received fees received ainst theGroup. £m sibilityandauthority for planning, dir Total 915.3 2,630.9 1,511.3 5,057.5 – £m 0.5 0.4 0.9 lawsuits pending ag pending lawsuits Other 2017 rs of the Companyat the end of the yearorarose duri rallyinclude purchase options nor do they imposerestrictio £m ccounting chargein the year.full The fairvalueof awards grant 914.8 2,630.5 1,511.3 5,056.6 Property king the following payments in respect of operating leases: el (including Directors) that haverespon .7m). areThere no material rsonnel (including Directors) .7m (2016: £151 .7m (2016: idiary entities Between one and five years five years and Between one Share-based payments Share-based payments 2016 2016 award date. award date. Share-basedpayments included in the tableabovereflect thea Retirement benefit obligations Retirement benefit Short-term employee benefits benefits employee Short-term Compensation of key management pe Key management personnel include those personn Key managementpersonnel No loans or credit transactions were outstanding with Directors or office Joint ventures Joint ventures with balances All outstanding £nil). for (2016: provided been have Group to the due amounts of the £nil As 2017, at 31 December 2017 2017 Joint ventures performance-based leases, where the rents vary in line a with centre’s performance. The Group’s non-cancellableoperatinglease commitments dogene not on the Group regarding dividends, debt or further leasing. to £142 amounting landlords, of £m are secured. balances of None the basis. on an arm’s length priced are parties related from years five four and three, over vest and conditions performance to awards are subject These £2.9m). (2016: £3.9m was year The consolidated financial statements include the results of the Group and its subsidiaries listed in note 32. 32. note in listed subsidiaries its and Group of the results the include statements financial consolidated The Joint ventures relevant for the parties related with into entered been have that of transactions amount total the provides table The following 31. RELATED PARTIES Parent and subs 30. CONTINGENT ASSETS AND LIABILITIES ASSETS AND LIABILITIES 30. CONTINGENT Theguarantees Groupwith heldofand lettersin has bank credit support of substantially wi leaseholdcertain banks, contracts Non-cancellable operating lease commitments exclude future contingent rental amounts such as the variable amounts payable under Lease obligations falling due: falling due: Lease obligations Within one year 29. NON-CANCELLABLE OPERATING29. NON-CANCELLABLE COMMITMENTS LEASE As at the reporting date the Groupwas committed to ma controlling the activities of the Group: Group: of the activities the controlling After five years five After years that arerequired tobe disclosed. Notes to the accounts continued 31. RELATED PARTIES (CONTINUED) Transactions with related parties During the year ended 31 December 2017 the Group acquired goods and services from a company indirectly controlled by a Director of the Company amounting to £91,120 (2016: £30,228). There was a £9,506 balance outstanding at the year-end (2016: £27,720). All transactions with these related parties are priced on an arm’s length basis and are to be settled in cash. None of the balances are secured. 32. PRINCIPAL GROUP COMPANIES The Group’s principal subsidiary undertakings at 31 December 2017, their principal activities and countries of incorporation are set out below: % of % of ordinary ordinary shares shares Country of and votes Country of and votes Name of undertaking incorporation held Name of undertaking incorporation held Trading companies Management companies Regus Australia Management Pty Australia 100 RGN Management Limited Partnership Canada 100 Regus Belgium SA Belgium 100 Regus Paris SAS France 100 Regus do Brasil Ltda Brazil 100 Franchise International Sarl Luxembourg 100 HQ Do Brazil Administracao de bens e Brazil 100 RBW Global Sarl Luxembourg 100 servicos Ltda Regus Service Centre Philippines BV Philippines 100 Regus GmbH & Co. KG Germany 100 Regus Global Management Centre SA Switzerland 100 Regus HK Management Ltd Hong Kong 100 Regus Business Services Limited United Kingdom 100 Regus CME Ireland Limited Ireland 100 Regus Group Services Ltd United Kingdom 100 Regus Business Centres Limited Israel 100 Regus Management (UK) Ltd United Kingdom 100 Regus Business Centres Italia Srl Italy 100 Regus Management Group LLC United States 100 Open Office K.K. Japan 100 Regus Management de Mexico,SA de CV Mexico 100 Holding and finance companies Regus Amsterdam BV Netherlands 100 Regus Management Singapore Pte Ltd Singapore 100 Umbrella Group Luxembourg 100 Regus Management Group (Pty) Ltd South Africa 100 Umbrella Global Holdings Luxembourg 100 Regus Management (Sweden) AB Sweden 100 Regus Plc Luxembourg 100 Regus Business Centers AG Switzerland 100 Umbrella Holdings Sarl Luxembourg 100 KBC Holdings Limited United Kingdom 100 Umbrella International Holdings AG Switzerland 100 Avanta Managed Offices Ltd United Kingdom 100 Pathway Finance Sarl Switzerland 100 Stonemartin Corporate Centre Limited United Kingdom 100 Pathway Finance EUR 2 Sarl Switzerland 100 HQ Global Workplaces LLC United States 100 Pathway Finance USD 2 Sarl Switzerland 100 RGN-BSuites Holdings, LLC United States 100 Regus Group Limited United Kingdom 100 RGN National Business Centre LLC United States 100 Regus Corporation LLC United States 100 Office Suites Plus Properties LLC United States 100 Regus Business Centres LLC United States 100 124 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 125 will will ates. ates. future can o e ties as airment pany pany vailable include: mptions ment of set. We results basis, recognised t in the t in the ate of appropriate. t to continue continue t to he Group d tax d tax and other other and amounts onal tax tax onal arising from the against which the the which against business be estimated in the accounting estim accounting in the anges made toproper make judgements certain and nt rate, is recognised where where is recognised nt rate, s of the methodology and assu impactamounts on the recorded include ts and liabilities. For significant For ts and liabilities. gard theof naturech h may or may notoccur. We record an impairment loss for good ents that ents that can be appropriately reflected groups such as and couldIWG result in significant additi ce with IFRS requiresmanagement to overable amount. Further detail intangible assetsto assess potential impairmentson anannual des provisions within tax liabilities for those risks that can that risks for those liabilities tax within provisions des thatwemay notbe able to recover the carryingofamount the as discounted at an discou appropriate discounted fair market asse value of fair market leasehold ets wheremanagement’s judgement has an te. However, given that landlords often re isunlikely material that any dilapidation payments will be necessary.provision is A set is less than its estimated rec its estimated less than set is ose already provided for. or during the year if an event or other circumstance indicates manage the factors; environmental local competition; situation; economic local the centre; of the location of the an assessment the centre; future and in occupancy, changes revenue and costs of the centre. Dilapidations Dilapidations Certainouroflandlords include leaseswith a clause obliging the Group tothe propertyback hand in the condition as at thed Onerous lease provisions provisions lease Onerous expect t not does Group the i.e. onerous, considered are leases any whether determine to of centres performance the evaluate We evaluate the carrying value of goodwill based on our CGUs aggregated at a country level and make that determination based upon based determination that make and level a country at aggregated our CGUs on based goodwill of value carrying the evaluate projectionsassumecash flow certain which growth projectionswhic at the balance sheetdate. In the assessmentof value-in-use, key judgemental areas in determining future cashflowprojections Tax assets and liabilities Webase estimateour of deferred tax assetsliabilities and on current taxandrateslaws and, in certain cases, business plans expectationsfuture about outcomes. Changesinexisting and laws rates, and their related interpretations,future and business affectmay of theamount deferredtaxliabilities orof thevaluation deferred tax assetsovertime. Our accounting for deferre consequences represents management’s best estimate of future 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, the Group assesses the potential risk of future tax liabilities inclu and jurisdictions tax multiple in business its of operation affect large tax laws international in existing can reliably. Changes liabilitiesover and above th net of the estimate our for A provision option. Group’s at the point break first up to the costs lease unavoidable the recover first break point, to lease of the the terms the under payable t so property the exits Group the until known not are condition that to back property the bring to costs The lease. the signing da sheet costs at each balance the estimates Impairment of property, plant and equipment of imp indicators are there level where (CGU) at a centre equipment and plant of property, impairment potential the evaluate We Valuation of intangibles goodwill and We evaluate the fair value of goodwill and other indefinite life Fair value accounting for business combinations business combinations value accounting for Fair For each business combination, we assess the fair values of assets and liabilities acquired. Where there is not an active marke 33. KEY JUDGEMENTAL AREAS ADOPTED IN PREPARING THESE ACCOUNTS ACCOUNTS THESE IN PREPARING AREAS ADOPTED 33. KEY JUDGEMENTAL in accordan statements financial of preparation The consolidated com acquired of the records and books the where or centre business a with acquired typically assets non-current of the category donotprovide sufficient informationto deriveaccurate an valuation, management calculatesanestimated fair value basedona information and experience. The main categories of acquired non-current ass list intangibles and the customer fixed assets, tangible as of the value carrying the when assumptions that affect reported amounts and related disclosures. included in the financial statements. financial statements. included in the combinations management also obtains third-party valuations to provide additional guidance as to the appropriate valuation to b to valuation appropriate the as to guidance additional provide to valuations third-party obtains also management combinations improvements, the Group estimates that it for those potential dilapidation payments when it is probable that an outflow will occur and can be reliably estimated. be found in note 12. be found applied to the impairment review in the year ended 31 December 2017, including the sensitivity to changes in those assumptions, in changes those to sensitivity the including 2017, 31 December ended year impairment review in applied to the the PARENT COMPANY ACCOUNTS SUMMARISED EXTRACT OF COMPANY BALANCE SHEET (ACCOUNTING POLICIES ARE BASED ON THE SWISS CODE OF OBLIGATIONS) As at As at 31 Dec 2017 31 Dec 2016 £m £m Trade and other receivables 9.8 8.5 Prepayments 1.1 – Total current assets 10.9 8.5 Investments 2,295.4 2,296.4 Total non-current assets 2,295.4 2,296.4 Total assets 2,306.3 2,304.9 Trade and other payables 1.6 0.7 Accrued expenses 1.4 2.6 Total short-term liabilities 3.0 3.3 Long-term interest bearing liabilities 106.8 2.6 Total long-term liabilities 106.8 2.6 Total liabilities 109.8 5.9 Issued share capital 9.2 9.2 Legal capital reserves – – Reserves from capital contributions 2,238.7 2,295.4 Retained earnings (3.0) – Loss for the year (8.8) (2.7) Treasury shares (39.6) (2.9) Total shareholders’ equity 2,196.5 2,299.0 Total liabilities and shareholders’ equity 2,306.3 2,304.9 Approved by the Board on 6 March 2018 MARK DIXON DOMINIK DE DANIEL CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER ACCOUNTING POLICIES Basis of preparation These financial statements were prepared in accordance with accounting policies based on the Swiss Code of Obligations. The Company is included in the consolidated financial statements of IWG plc. The balance sheet has been extracted from the non-statutory accounts of IWG plc for the year ended 31 December 2017, which are available from the Company’s registered office, Dammstrasse 19, CH-6300, Zug, Switzerland. 126 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements £m 127 31 Dec 2013 £m 31 Dec 2014 £m 31 Dec 2015 £m 0.1 0.6 0.1 1.2 (0.8)0.8 0.3 0.1 29.350.1 40.0 36.4 72.8 63.9 33.4 84.7 (11.6) (17.3) (15.0) (34.9) (10.5) (17.2) (25.8) (14.6) 14.9p14.7p 7.4p 12.8p 7.2p 12.6p 7.1p 7.0p 738.1 549.9 666.0 649.2 491.7 565.2 644.3 736.0742.0 423.8 517.4 658.2 537.4 583.7 369.3 514.2 448.8383.1 428.4 185.2 373.8 104.3 160.1 173.7138.8 90.8 87.1 145.7 69.9 119.9 81.5 66.9 (262.8) (268.6)(279.6) (283.1) 1,194.4 718.8 917.0 2,661.11,183.1 608.7 1,946.7 2,327.6 891.9 1,085.7 2,661.1 1,642.3 758.8 1,946.7 2,327.6 1,642.3 2,233.4 1,676.1 1,927.0 1,533.5 (1,784.6) (1,293.0) (1,498.6) (1,159.7) 929,830 944,082 933,458 943,775 31 Dec 2016 £m 0.3 (0.8) 23.0 55.0 (14.1) (35.4) 12.4p 12.3p 712.1 702.7 907.6 727.7 401.6 163.2 149.4 114.0 (237.6) 1,367.2 2,860.0 1,224.7 2,860.0 2,352.3 915,676 (1,950.7) 31 Dec 2017 shares outstanding (‘000s) shares outstanding (‘000s) Intangible assets Intangible assets Basic (p) Finance income Finance income the year tax for after Profit Current liabilities Current liabilities Non-current liabilities Balance sheet data (as at) Balance sheet data Earnings per ordinary share (EPS): Income tax expense expense Income tax Finance expense Finance expense Administration expenses Administration expenses Income statement (full year ended) (full year ended) Income statement Revenue FIVE-YEAR SUMMARY SUMMARY FIVE-YEAR Property, plant and equipment equipment Property, plant and Cash and cash equivalents Equity Total equity and liabilities Other assets Other assets Total assets Deferred tax assets Cost of sales Cost of sales Share of post-tax (loss)/profit of joint ventures ventures joint of (loss)/profit post-tax Share of Gross profit (centre contribution) contribution) Gross profit (centre Diluted (p) number of Weighted average Profit before tax for the year Profit before Operating profit profit Operating SEGMENTAL ANALYSIS SEGMENTAL ANALYSIS – MANAGEMENT BASIS (UNAUDITED) United Americas EMEA Asia Pacific Kingdom Other Total 2017 2017 2017 2017 2017 2017 Mature(1) Workstations(4) 165,329 87,102 87,414 69,233 – 409,078 Occupancy (%) 75.8% 77.3% 73.0% 72.1% – 74.9% Revenue (£m) 926.4 486.1 351.1 398.2 2.9 2,164.7 Contribution (£m) 177.6 105.6 74.3 79.2 (0.2) 436.5 REVPOW (£) 7,392 7,220 5,504 7,977 – 7,065 2016 Expansions(2) Workstations(4) 14,593 9,870 8,850 3,929 – 37,242 Occupancy (%) 55.8% 64.6% 52.9% 62.9% – 58.2% Revenue (£m) 40.8 29.1 23.0 13.2 0.4 106.5 Contribution (£m) (9.6) (1.4) (1.4) (0.4) 0.2 (12.6) 2017 Expansions(2) Workstations(4) 7,306 7,380 3,694 6,640 – 25,020 Occupancy (%) 27.0% 39.0% 25.2% 73.1% – 42.5% Revenue (£m) 10.9 20.2 5.2 14.4 0.5 51.2 Contribution (£m)(5) (14.3) (5.5) (5.1) 2.6 1.8 (20.5) Closures Workstations(4) 1,450 1,552 1,032 1,716 – 5,750 Occupancy (%) 66.8% 51.7% 64.9% 63.1% – 61.3% Revenue (£m) 6.7 5.1 3.9 14.2 – 29.9 Contribution (£m) (0.5) (1.6) (1.9) 2.2 – (1.8) Total Workstations(4) 188,678 105,904 100,990 81,518 – 477,090 Occupancy (%) 72.3% 73.1% 69.4% 71.5% – 71.7% Revenue (£m) 984.8 540.5 383.2 440.0 3.8 2,352.3 Contribution (£m) 153.2 97.1 65.9 83.6 1.8 401.6 REVPAW (£) 5,219 5,104 3,794 5,398 – 4,931 Period end workstations(6) Mature 166,755 89,656 87,987 70,254 – 414,652 2016 Expansions 14,328 9,684 9,043 4,019 – 37,074 2017 Expansions 12,948 16,162 7,497 12,700 – 49,307 Total 194,031 115,502 104,527 86,973 – 501,033 128 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 129 Total 2016 2016 Other 2016 United Kingdom 2016 Asia Pacific 2016 EMEA 2016 923.0161.05,307 476.8 101.6 5,183 363.2 67.5 3,818 8.3 462.1 8.3 110.4 – 6,374 2,233.4 448.8 5,152 7,298 7,092 5,441 – 8,454 7,072 73.4% 73.8% 70.1% 75.0% – 73.0% Americas 173,928 91,986 95,130 – 72,496 433,540 (2) 3,330 2,290 3,236 5,279 –14,135 3,330 2,290 3,236 5,279 7,723 3,903 4,325 3,080 –19,031 7,723 3,903 4,325 3,080 162,875 85,793 87,569 64,137 –400,374 162,875 85,793 87,569 64,137 (4) (4) (4) (4) (3) (1) Workstations available at period end 2017 expansions includes any costs incurred in 2017 for centres which will open in 2018 2018 in open will which centres for 2017 in incurred costs any includes expansions 2017 Workstation numbers are calculated as the weighted average for the year year the for average weighted as the calculated are numbers Workstation A closure for the 2016 comparative data is defined as a centre closed during the period from 1 January 2016 to 31 December 2017 December 31 to 2016 1 January from period the during closed a centre as defined is data comparative 2016 the for A closure Expansionsinclude new centres opened and acquired businesses 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 6. 5. 4. REVPAW (£) Workstations Occupancy (%) Revenue (£m) Contribution (£m) Mature 3. 2. Notes: 1. SEGMENTAL ANALYSIS – MANAGEMENT BASIS (UNAUDITED) – MANAGEMENT BASIS (UNAUDITED) SEGMENTAL ANALYSIS Total REVPOW (£) 2016 Expansions Closures Revenue (£m) Revenue (£m) Contribution 13.5 – 8.8 0.1 13.5 0.9 42.8 14.6 – – 78.6 15.6 Revenue (£m) Revenue 12.1 6.2 7.6 9.4 1.5 36.8 Workstations Workstations Workstations Occupancy (%) (%) Occupancy 70.8% 62.5% 75.8% 77.4% – 73.0% Contribution (£m) Contribution (12.8) (5.1) (3.3) (0.1) 1.5 (19.8) Occupancy (%) Occupancy 30.4% 35.0% 31.0% 57.2% – 35.8% (%) Occupancy (£m) Revenue (£m) Contribution 75.5 % 173.8 897.4 75.9% 106.6 461.8 71.8% 342.1 75.6% 69.9 409.9 95.9 – 6.8 74.8% 6.8 2,118.0 453.0 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 32 of this Annual Report. 2014 2015 2016 2017 2018 Description Reference Aggregation Expansions Expansions Expansions Expansions Closures Total Post-tax cash return on net investment 18.3% 7.3% (9.6%) (6.9%) – – 11.2% Revenue Income statement, p80 1,857.6 307.1 106.5 51.2 – 29.92,352.3 Centre contribution Income statement, p80 400.2 36.3 (12.6) (20.2) (0.3) (1.8) 401.6 Loss on disposal of assets EBIT reconciliation (analysed below) 0.5 – – – – 3.8 4.3 Impairment of assets EBIT reconciliation (analysed below) – – – – – 1.7 1.7 Underlying centre contribution 400.7 36.3 (12.6) (20.2) (0.3) 3.7 407.6 Selling, general and administration Income statement, p80 expenses(1) (161.6) (39.9) (20.5) (13.2) (0.1) (2.3) (237.6) EBIT EBIT reconciliation (analysed below) 239.1 (3.6) (33.1) (33.4) (0.4) 1.4 170.0 Depreciation and amortisation Note 5, p93 142.0 36.6 19.4 11.6 – 3.4 213.0 Amortisation of partner contributions Note 5, p93 (42.0) (8.6) (6.4) (3.4) – (0.2) (60.6) Amortisation of acquired lease fair value Note 5, p93 adjustments (4.3) 0.7 0.1 – – (0.1) (3.6) Non-cash items 95.7 28.7 13.1 8.2 – 3.1148.8 (2) Taxation (47.9) 0.7 6.6 6.7 0.1 (0.3) (34.1) Adjusted net cash profit 286.9 25.8 (13.4) (18.5) (0.3) 4.2 284.7 Maintenance capital expenditure Capital expenditure (analysed below) 87.0 8.6 – – – – 95.6 Partner contributions Partner contributions (analysed below) (20.2) (1.9) – – – – (22.1) Net maintenance capital expenditure 66.8 6.7 – – – – 73.5 Post-tax cash return 220.1 19.1 (13.4) (18.5) (0.3) 4.2 211.2 Growth capital expenditure Capital expenditure 1,425.9 328.6 197.9 343.7 14.0 – 2,310.1 (analysed below) Partner contributions Partner contributions (analysed below) (219.9) (65.9) (58.2) (74.9) (0.6) – (419.5) Net investment 1,206.0 262.7 139.7 268.8 13.4 – 1,890.6 1. Including research and development expenses 2. Based on EBIT at the Group’s long-term effective tax rate of 20% 130 ,:*3/&$118$/5(3257$1'$&&28176 Strategic report Governance Financial statements 3.6 9.5 131 60.1 95.6 40.1 344.9 353.1 343.6 448.7 Closures Total Note 14, p101 Note 14, p101 Note 13, p100 Cash flow, p84 p84 Cash flow, p84 Cash flow, p84 Cash flow, CFO review, p36 p36 CFO review, p36 CFO review, 2018 2018 y , y ible Expansions Expansions ClosuresExpansions Total g t investment has been fullyrecovered 2017 2017 Expansions Expansions Expansions (6) Purchase of intan Purchase 2017 Capital expenditure Settlement of acquired of acquired Settlement debt Purchase of propert Purchase undertakings undertakings Properties acquired acquired Properties Purchase of subsidiar The acquired debt of £60.1m is included in the the in included is £60.1m of debt acquired The Statement Flow Cash Group the in loans of repayment on page 84 plant and equipment plant and equipment assets assets 2016 2016 • • • • 2017 2017 expenditure Capital Maintenance capital expenditure Reference Growth capital expenditure £m • Total capital expenditure Analysed as • 6. Expansions Expansions – 68.5 22.1 80.6 59.2 (60.6) (23.0) 333.9 102.7 265.4 293.8 353.0 2015 2015 Expansions Expansions p102 p102 p102 p102 2014 2014 Note 17, Note 18, Note 17, Note 18, Note 5, p93 Note 5, p93 which will open which in 2018 Aggregation Aggregation Maintenance partner contributions Current Current Non-current Non-current Non-current Growth partner Current Current contributions • • • • Acquired in the period Receivedthe in period • period Utilised in the Exchange differences 2017 2017 contributions Partner Reference Opening partner contributions £m • Closing partner contributions ts incurred in 2017 for centres for 2017 incurred in ts (0.8) (0.8) (4.3) (4.3) (1.7) 163.2 163.2 and investmen p80 p80 3.7 6.7 15.0 304.2 14.0 –343.6 14.0 3.7 6.7 15.0 304.2 Income Income Income Income (3) statement, statement, statement, statement, Note 5, p93 Note 5, p93 Note 5, p93 (4.4) (0.6) (0.2) – – –(5.2) – (4.4) (0.6) (0.2) – (32.2) (3.1) (0.8) – – –(36.1) – (32.2) (3.1) (0.8) – (5) (4) The partner contributions for an estate are reduced by the partner contributions for centres closed during the year 2018 relateexpansions to costs The growth capital expenditure for an estate is reduced by the investment in centres closed during the year, but only where tha where only but year, the during closed centres in investment the by reduced is estate an for expenditure capital growth The Movement in capital expenditure expenditure capital in Movement contributions partner in Movement Properties acquired acquired Properties closures Centre – – – 9.5 – – 9.5 EBIT Loss on disposal of assets 170.0 5. 2017 EBIT reconciliation Reference £m 2017 Partner contributions closures Centre 2.4 0.5 5.5 71.6 0.6 – 80.6 December 2016 2016 December 221.9 66.0 52.9 3.3 – – 344.1 3. 2017 December 2016 2016 December expenditure 2017 Capital 1,454.4 325.0 183.7 30.0 – – 1,993.1 2017 2017 4. Operating profit profit Operating Impairment of assets assets Impairment of in joint profit Share of ventures December 2017 2017 December 219.9 65.9 58.2 74.9 0.6 – 419.5 December 2017 2017 December 1,425.9 328.6 197.9 343.7 14.0 – 2,310.1 GLOSSARY Available workstations Occupancy The total number of workstations in the Group (also termed Occupied workstations divided by available workstations Inventory). During the year, this is expressed as a weighted expressed as a percentage average. At period ends the absolute number is used Occupied workstations Centre contribution Workstations which are in use by clients. This is expressed Gross profit comprising centre revenue less direct operating as a weighted average for the year expenses but before administrative expenses Post-tax cash return EBIT EBITDA achieved, less the amortisation of any partner capital Earnings before interest and tax contribution, less tax based on the EBIT and after deducting EBITDA maintenance capital expenditure Earnings before interest, tax, depreciation and amortisation REVPAW EPS Total revenue per available workstation (revenue/available workstations) Earnings per share REVPOW Expansions Total revenue per occupied workstation A general term which includes new business centres established by IWG and acquired centres in the year ROI Like-for-like Return on investment The financial performance from centres owned and operated for TSR a full 12 month period prior to the start of the financial year, which Total shareholder return therefore have a full-year comparative WIPOW Mature business Workstation income per occupied workstation Operations owned for a full 12 month period prior to the start of the financial year and operated throughout the current financial year, which therefore have a full-year comparative 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 JE4 8PX Zug St Helier Switzerland Jersey JE4 8PX Registered Number Legal advisors to the Company as to Swiss law Jersey Bär & Karrer Ltd 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 132 ,:*3/&$118$/5(3257$1'$&&28176 THE WORLD IS CHANGING Join us at iwgplc.com 7KH)RUHVW6WHZDUGVKLS&RXQFLOp )6& LVDQLQWHUQDWLRQDO QHWZRUNZKLFKSURPRWHVUHVSRQVLEOHPDQDJHPHQWRIWKHZRUOGşV IRUHVWV)RUHVWFHUWLILFDWLRQLVFRPELQHGZLWKDbV\VWHPRISURGXFW ODEHOOLQJWKDWDOORZVFRQVXPHUVWRUHDGLO\LGHQWLI\WLPEHUEDVHG SURGXFWVIURPFHUWLILHGIRUHVWV 'HVLJQHGDQGSURGXFHGE\%ODFN6XQ3OF_ZZZEODFNVXQSOFFRP 3ULQWHGLQ(QJODQGE\WKH3XUHSULQW*URXS THE REVOLUTION ADVANCES Join us at iwgplc.com