IWG International Workplace : Annual Financial Report Announcement

March 06, 2019 at 02:22 am EST

6 March 2019

IWG plc - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2018

2018: strong growth trends

IWG plc, the global operator of leading co-work and workspace brands, today announces its annual results for the year ended
31 December 2018.

Key Highlights:

Strong growth trends, reflecting management initiatives

• Open centre revenue up 13.3%⁽ⁱ⁾ to £2,483.1m

• Group revenue up 9.7%⁽ⁱ⁾ to a record £2,535.4m, with the rate of revenue growth accelerating throughout the year

• Mature revenue increased 4.6%⁽ⁱ⁾ to £2,237.8m, ending the year strongly with 8.2%⁽ⁱ⁾ growth in Q4

Profitability in-line with management's expectations

• Pre-18 EBITDA up 19% to £447.4m

• Group EBITDA increased 4%⁽ⁱ⁾ to £389.9m

• Operating profit of £154.1m, in line with management's expectations

• Overheads as percentage of revenue down 10bp to 10.0% despite additional investment to support growth

Strong cash generation and distributions to shareholders

• Cash flow pre-growth⁽ⁱⁱ⁾ up 20% to £259.2m, 28.6p per share

• £93.9m returned to shareholders via dividends and share repurchases, with 11% increase in full year dividend to 6.30p (2017: 5.70p)

Significant capital investment in network and multi-brand strategy

• Net growth capital investment of £332.0m, including significant investment in locations which will open in 2019

• 299 new locations (290 organic) and 6.8m sq. ft. added in 2018. Now in 3,306 locations worldwide (up 6% from December 2017), with 57.3m sq. ft. of space (up 10% from December 2017)

• Strong growth in our large co-working format, Spaces, with 103 new locations, taking the total to 182 and run-rate revenues have passed £281m; exciting plans for our other portfolio brands, including No. 18

• Approximately 33% of 2018 network growth delivered through partnering

• Current pipeline visibility on 2019 net growth capital expenditure at the end of February 2019 of approximately £200m, representing 190 locations and 5.2m sq. ft. of additional space (c.9% growth in space)

Continuing strong returns

• Attractive post-tax cash returns. Increased return on pre-2014 investment of 20.6%, up 130bp⁽ⁱⁱⁱ⁾; 2017 and 2018 investments developing well

Balance sheet strength maintained

• Net debt of £460.8m and net debt to EBITDA ratio of 1.2x

• RCF increased to £950m from £750m and maturity improved to 2024, demonstrating continued strong support from lending banks

£m	2018	2017	% change constant currency	% change actual currency
Revenue	2,535.4	2,352.3	9.7%	7.8%
Gross profit	409.2	401.6	3%	2%
Overheads	(253.7)	(237.6)	10%	7%
Operating profit (Inc. JV)	154.1	163.2	(8)%	(6)%
Profit before tax	138.7	149.4		(7)%
Earnings per share (p)	11.7	12.4		(6)%
Dividend per share (p)	6.30	5.70		11%
EBITDA	389.9	376.2	4%	4%
Post-tax cash return on Investment⁽ⁱⁱⁱ⁾	20.6%	19.3%		Up 130bp
Cash flow before net growth capex, buybacks and dividends	259.2	215.5		20%
Net debt	460.8	296.4
Net debt : EBITDA (x)	1.2	0.8

(i) At constant currency

(ii) Cash generation before net growth capital expenditure, share repurchases and dividends

(iii) Calculated as: EBITDA less amortisation of partner contributions, less tax based on EBIT, less net maintenance capital expenditure / growth capital less partner contribution. Returns based on those locations open on or before 31 December 2013. Prepared on the 12 months ended 31 December 2018 and for 2017 on the
12 months ended 31 December 2017

Mark Dixon,
Chief Executive of IWG plc, said:

'We have done much to position our business to meet the growing needs of our customers in the rapidly developing market of co-working and flexible working and to be well positioned to benefit from clear structural growth drivers. We delivered record organic growth in 2018 and invested in the building blocks for 2019 and through our actions we continue to deliver an ever more streamlined and scalable business model. We will continue to invest in our business model and, in a disciplined manner, further invest in our network scale and our multi-brand strategy in the years ahead. Our investment in developing our partnering capabilities will be a key enabler of the way that we want to deliver this growth. As well as having a strong pipeline of IWG-owned locations for 2019, we are seeing increasing momentum in our partnering approach with counterparties wanting to operate our brands across a wide geographic spectrum.

We remain focused on profitable growth, delivering attractive returns and monetising our leading global network. To achieve this, we will have a strong focus on margin improvement and a continuation of our drive for greater efficiency, from good cost discipline and the scale benefits deriving from our global platform.

With the continued investment in the building blocks of our business and with the momentum generated through the year, we have had a strong start to 2019. The positive trends in global sales activity have strengthened the order book. The new locations we added during 2017 and 2018, across our range of formats, are developing strongly. In markets where we have faced challenges, we have taken decisive action to bring our performance back on track with selective closures, refurbishing locations we wish to retain, adding exciting new locations to the network and investing in the customer service skills of our people. We are starting to see the benefits of these initiatives. There are however global macro-economic and geo-political uncertainties in various parts of the world, which makes it sensible to develop the business with some caution. We continue to invest in and develop our partnering activities which will allow us to deliver more growth with less capital intensity on our balance sheet.

We remain very confident in our industry and its structural growth drivers and the strength of our position in the industry with a growing, profitable and cash generative proven business model. The Board remains confident in our prospects for the year ahead and the trading outlook for 2019 remains in line with management's expectations.'

Details of results presentation

Mark Dixon, Chief Executive Officer, and Eric Hageman, Chief Financial Officer, are hosting a presentation today for analysts and investors at 11.00am at J.P.Morgan, 60 Victoria Embankment, London EC4Y 0JP.

For those unable to attend the presentation, please contact Jessica Ayres to obtain details for the webcast or conference call: jayres@brunswickgroup.com or +44 (0) 20 7396 7466

For further information, please contact:

IWG plc Tel: +41 (0) 41 723 2353

Mark Dixon, Chief Executive Officer	Brunswick Tel: +44(0) 20 7404 5959
Eric Hageman, Chief Financial Officer	Nick Cosgrove
Wayne Gerry, Group Investor Relations Director	Simone Selzer
Matt Young, Group Corporate Affairs Director

For more information, please visit www.iwgplc.com

Chairman's Statement

Profitable growth and long-term value for our stakeholders

I am pleased to report that after a challenging start to the year our business responded in a strong and positive manner, to deliver a continuous improvement in performance, particularly during the second half of the year. Finishing the year in such a way provides a very encouraging platform for 2019.

During the year, the attractiveness of our business was highlighted by the significant levels of interest expressed by several organisations in potential offers for the Group. In the event, our Board unanimously determined that shareholder value would be maximised by executing upon our strategy as an independent public company. This is driven by our confidence in the long-term value of the business and our unique position in a high-growth industry. We believe we are at the most exciting point in a 30-year journey that has seen us become the outright global leader in the co-working and flexible workspace sector. This industry is fast becoming mainstream and benefiting from powerful global trends that drive long-term demand from every area of the market, from freelancers to global enterprises.

Looking at our results for 2018, Group revenue increased from £2,352.3m to £2,535.4m, an increase of 9.7% at constant currency. Revenues from all our open centres increased 13.3% at constant currency to £2,483.1m from £2,229.9m. The improvement in the growth rate of these revenues as we moved through the year was particularly pleasing. The 8% constant currency decline in operating profit to £154.1m (2017: £163.2m) was in line with our expectations, reflecting a strong year of investment in both our network, marketing and our people to support growth and improve our customer experience and drive greater scale benefits from our business model. We also incurred significant costs related to the potential offers for the Group.

Reflecting the attractive structural growth dynamics of our industry and the capability of our proven business model to deliver profitable growth, we continued to build our global and national networks with the addition of over 6.8m sq. ft. of new space and 299 new locations, taking the total for the Group to 3,306 locations as at 31 December 2018. In improving the breadth of our offering, we have strengthened our position to meet the growing demand from our customers globally.

We remain encouraged by the strong development of our newer centres which validates the Group's strong focus on capital allocation discipline. This discipline has allowed the Group to maintain a robust financial position, which was further strengthened post the year-end with an increase in our Revolving Credit Facility from £750m to £950m and an improvement in the maturity profile with strong support from our lending banks. Based on the strong cash generation of our business we returned £93.9m during the year to our shareholders through a continuation of our progressive dividend policy and the repurchase of shares.

Strategy

We offer a variety of attractive workspaces through a range of brands that respond to different customer needs and are continuing to rapidly expand our national networks to provide an even broader choice of convenient working locations. We are confident that the approach of offering this uniquely broad choice in type and location of workspace combined with our efforts to continuously improve the customer experience and enhance our digital platform are the right actions to maintain our strong leadership position in the rapidly growing co-working and flexible workspace sector.

Our focus in 2019 and for the foreseeable future remains on achieving and sustaining the profitable growth that will allow us to continue investing in the customer experience, our digital platform, and the development of our employees while delivering strong returns to our shareholders. To achieve this, we are focusing more closely on partnering deals with property owners and investors. We are also strongly promoting opportunities for partners to share in the growing success of our network across the world, and we have an excellent pipeline in developing and developed markets alike. We see this as a very important growth tool for IWG, and we will be placing even more emphasis upon it during 2019 and beyond.

Our approach during 2018 was highly successful in markets around the world. Total revenue growth in the US, which is our largest market with 1,014 locations, was over 10% at constant currency and profit growth was even stronger. Total revenue growth in EMEA was particularly good with a 17.1% increase at constant currency. We were also delighted by our progress in the Asia Pacific region, with double-digit revenue growth across our Mature businesses in Japan, Hong Kong and the Philippines.

As previously highlighted, our business in the UK has faced challenges in recent times. We took corrective actions to address these challenges which negatively affected our financial performance during 2018. We are focused on completing the revitalising of our UK operations through further selective closures, refurbishing sites where we wish to remain and investing more in customer service. Although this will continue to have a short-term financial impact, these are the right actions to stimulate long-term profitable growth in the UK. This is supported by the highly encouraging performance of our new locations in 2017 and 2018, particularly that of our new Spaces sites in London. Overall, even taking the potential impact of Brexit into account, we remain positive about the medium to long-term future of the UK market.

Our Board

The Board was very active during 2018 and performed strongly throughout what was a very eventful period for the Group. I would like to thank all my Board colleagues for their significant time commitments and valuable contributions in addressing the challenges the Group faced and efforts towards creating an exciting future for the Group.

I would like to welcome Eric Hageman as our new Chief Financial Officer. Eric brings us highly relevant expertise and experience gained in Chief Financial Officer roles at Telecity Group and Royal KPN. Eric performed strongly as our interim Chief Financial Officer and will be an excellent long-term addition to the management team.

A new role has been established with responsibility for Board engagement with employees and I am delighted that Nina Henderson has agreed to take this role as well as taking over Board oversight for the Group's corporate responsibility activities. Nina's knowledge, experience and passion for these areas makes her well suited for these roles.

After nine years on the Board, Elmar Heggen will resign as a Non-Executive Director with effect from our annual general meeting on 14 May 2019. I would like to thank Elmar for his good counsel, meaningful insights and recommendations over this period. We are pleased to announce that Laurie Harris will join IWG as a Non-Executive Director of the Company and succeed Elmar as Chair of the Audit Committee. The appointment will take effect from 14 May 2019 and is subject to applicable law including shareholder approval at the Company's forthcoming annual general meeting. Laurie has significant executive leadership and boardroom experience. She currently serves as an Independent Director and Audit Committee Chair of the board of directors of QBE North America, an integrated specialist insurer. Previously, Laurie was with PricewaterhouseCoopers LLP as a Global Engagement Audit Partner where she helped PricewaterhouseCoopers LLP's larger clients address and act upon complex business challenges and opportunities in the United States and internationally. Laurie advised over 20 Audit Committees of large public companies and private equity backed entities, including Fortune 100 financial services companies.

I would also like to thank our former Chief Financial Officer and Chief Operating Officer, Dominik de Daniel, for his contributions during his time at IWG.

Our People

In a year that offered plenty of opportunity for distraction, the focus of our very talented workforce on the key drivers of our business delivered the performance improvement demonstrated in the second half of the year. Their energy and commitment are at the core of our ability to improve the performance of our existing business while continuing to deliver strong growth. Their tireless work and creativity are key to our efforts to ensure that our over 2.5 million members in over 110 countries have 'a great day at work'.

At our senior leadership conference in Rome during January 2019 there was a new and more intense level of enthusiasm for the future plans of the Group and a sense of pride in being on the team of the market leader in our exciting and rapidly growing industry. I see the effects of this enthusiasm and efforts reflected every day at every level of the Group and on behalf of the Board would like to personally thank everybody involved for their continued contributions and commitment to succeed.

Dividend

We continue with a sustainable and progressive dividend policy that reflects both our confidence in the long-term prospects of the business and our desire to reward shareholders for their loyalty.

We are therefore recommending a 10% increase in the final dividend to 4.35p. Subject to the approval of shareholders at the 2019 AGM, this will be paid on 24 May 2019 to shareholders on the register at the close of business on 26 April 2019. This represents an increase in the full year dividend of 11% to 6.30p (2017: 5.70p).

DOUGLAS SUTHERLAND

CHAIRMAN

6 March 2019

Chief executive officer's review

2018: consistent sequential quarterly improvement

For IWG, 2018 was in many ways a year of significant change and consistent improvement. Responding to a tough start to the year, the actions we took during 2018 ensured our performance improved continuously as the months passed, enabling us to end the year with record sales and enhanced like-for-like results.

Attractive investment returns

The improvement in our performance throughout the year has helped to deliver a strong post-tax cash return on net investment that exceeds the Group's cost of capital. The post-tax cash return on net growth investment from locations opened on or before 31 December 2013 was 20.6% (2017: 19.3%). Moving the maturity profile of the estate forward one year to all those locations opened on or before 31 December 2014, the post-tax cash return was 19.8% (2017: 18.3%). Our post-tax returns are calculated after deducting all net maintenance capital expenditure incurred in the year. During 2018, as expected, we invested more in net maintenance capital expenditure to take the opportunity to refresh some of our existing locations, particularly in the UK.

Sequentially improving financial performance

Group revenue increased 9.7% at constant currency to £2,535.4m. This performance has been achieved through a consistent improvement through the course of the year. First quarter constant currency year-on-year revenue growth was 6.7%, rising to 7.1% for the half year and to 8.1% for the nine months to 30 September. Year-on-year revenue growth achieved in the fourth quarter was 14.3%. These Group numbers also include the impact from closures, which has been significant in 2018, with 118 closures, as we continued to actively manage our estate. Consequently, a better indication of the performance of the ongoing business is provided by the revenues generated by our open centres. On this basis, revenue increased 13.3%, at constant currency, to £2,483.1m (2017: £2,229.9m). Encouragingly, we witnessed the same trend of improving growth, rising steadily through the year from 9.0% in the first quarter to 18.5% constant currency growth in the fourth quarter with all regions contributing.

Group income statement

£m	2018	2017	% Change (constant currency)	% Change (actual currency)
Revenue	2,535.4	2,352.3	9.7%	7.8%
Gross profit (centre contribution)	409.2	401.6	3%	2%
Overheads	(253.7)	(237.6)	10%	7%
Operating profit⁽¹⁾	154.1	163.2	(8)%	(6)%
Profit before tax	138.7	149.4		(7)%
Taxation	(33.0)	(35.4)
Profit after tax	105.7	114.0		(7)%
EBITDA	389.9	376.2	4%	4%

1. Including joint ventures

The Group generated a gross profit of £409.2m (2017: £401.6m), an increase of 3% at constant currency. This performance is after a significant investment in the new 2018 openings and the impact of closures. Excluding these factors, the gross profit on the pre-2018 business increased by 17% from £394.6m to £460.0m.

Gross margin

		Revenue £m		Gross margin %
	2018	2017	% Change (constant currency)	2018	2017
2015 Aggregation	2,107.7	2,072.2	3.6%	21.6%	20.6%
New 16	130.1	106.5	24.0%	5.4%	(12.1)%
New 17	179.9	51.2	354.9%	(1.1)%	(36.3)%
Pre-18	2,417.7	2,229.9	10.4%	19.0%	17.7%
New 18⁽²⁾	65.4	-	-	(48.2)%	-
Open centre revenue	2,483.1	2,229.9	13.3%	17.2%	17.7%
Closures	52.3	122.4	(55.7)%	(36.1)%	5.7%
Group	2,535.4	2,352.3	9.7%	16.1%	17.1%

2. New 18 also includes any costs incurred in 2018 for centres which will open in 2019

Investing in our global platform

To support the ongoing development of the business and strengthen our global operating platform we selectively invested in overheads, particularly in our partnering and enterprise account activities. This investment was made within the strong cost control framework maintained by the Group. We also incurred significant costs in respect of the various approaches for the Group. Overall, overheads increased 10% at constant currency from £237.6m to £253.7m. Notwithstanding the increase in overheads, we maintained our industry leading overhead efficiency with overheads as a percentage of revenue down 10bp to 10.0% (2017: 10.1%). After the investment in overheads, together with the start-up costs from new centres added during the year and the closure of 118 locations, operating profit declined 8% at constant currency to £154.1m (2017: £163.2m). An outcome in line with management's expectations.

Our growth programme accelerated in 2018 with net growth capital expenditure of £332.0m. This investment reflects a record level of organic growth and a significant investment in locations due to open in 2019 resulting from a strong growth pipeline, especially in our Spaces format. In total we added 299 locations, only nine of which were acquired, and 6.8m sq. ft. of space.

We generated £447.4m of EBITDA from the pre-2018 estate, up 19%. Group EBITDA increased 4% at constant currency to £389.9m (2017: £376.2m). These metrics are a good indication of the cash generation capability of our business model. With a positive working capital inflow of £166.4m and after the overhead investment noted above, we generated cash of £564.0m (2017: £425.8m).

We generated cash flow of £259.2m (2017: £215.5m) after increased maintenance capital expenditure, taxation and finance costs, but before investment in growth capital expenditure, dividends of £53.7m and £40.2m on buying back shares. After the significant investment in these items, Group net debt increased from an opening position of £296.4m to £460.8m at 31 December 2018. This represents a net debt to EBITDA leverage ratio of 1.2x, thereby continuing our prudent approach to the Group's capital structure. At 31 December 2018, we had approximately £140m of freehold property on the balance sheet.

The market in 2018

Much of this success was due to the strengthened management team we built during the year, which played a vital role in helping us drive our improved performance. I would like to record my thanks to everybody involved for their invaluable contribution.

Overall, this was a year of responding positively to challenging conditions. I am particularly pleased with the way in which the business successfully addressed some powerful economic headwinds in many of the countries where IWG operates.

One of the most telling examples was that of Brazil, where recessionary forces continued to impact the country during the year. We completely restructured our business there, increasing its size significantly. Tangible improvements in performance were already visible by the end of 2018, and our Brazilian business appears set for a profitable 2019. We carried out similarly successful actions in other countries, continuously aiming to make decisions that improve our profitability across the Group as we move forward.

The forces accelerating our development

I am particularly struck that a number of forces that might normally be regarded as barriers to business success have counter-intuitively acted as growth accelerators for IWG, resulting in the addition of almost 300 locations to our network in 2018.

First and foremost, our performance during 2018 demonstrates how the uncertainty brought about by economic challenges can be a positive force for the Group. It causes individuals and businesses alike to value even more highly the benefits of flexible workspace allowing companies of all sizes to respond rapidly and decisively to fast-changing conditions.

In a similar vein, the new lease accounting standard, IFRS 16, which came into force on 1 January 2019 is already driving significant increases in demand for our services from enterprises. IFRS 16's requirement for organisations to recognise assets and liabilities for all leases does not extend to those with a duration of 12 months or less. We believe that this will focus organisations' attention on the commitment of material capital investment in long-term leases when property is not their core competence.

In addition, as global market leader, we are even finding that competitor activity is helping our business. In particular, we continue to benefit from the marketing and communications activities of our smaller rivals as they further raise awareness of the benefits of co-working and taking a flexible approach to corporate property. This helped interest in and demand for co-working rise during the year, and we received record levels of enquiries as a direct result.

This is far from the only benefit of a competitive market environment. Competition also forces us to continuously improve, constantly sharpening our performance across many aspects of what we have to offer. This is how we ensure our industry-leading position in areas such as app development, digital interaction with our customers, improving reporting and other tools for enterprise accounts, as we continue to deliver an ever more flexible and easier-to-use customer experience.

Developing the network

We reaccelerated the growth of our network and 2018 was a record year for organic growth. Increasing the depth and breadth of our geographic scope, and addressing different styles of working and price points, is a major differentiator for IWG by providing a competitive advantage as well as building further resilience into the business. We continued to maintain a sharp focus on our investment decision-making process during 2018 and we are seeing the tangible benefit of this discipline in recent years in the development profile of our newer year-group cohorts.

We opened 299 new locations during 2018, 290 of which were organic openings. These locations added approximately 6.8m sq. ft., taking the Group's total space globally to 57.3m sq. ft. as at 31 December 2018. Another important focus area was the roll-out of our Spaces format. During 2018 we accelerated our roll-out of the Spaces format with the addition of 103 locations, which represented approximately 56% of the space added. The investment in our Spaces format during 2018 represented approximately two-thirds of the Group net growth capital expenditure.

During 2018, we invested £332.0m of net growth capital expenditure. This investment included expenditure on locations opened before 2018 and to be opened in 2019 of £91.6m, higher than previous years, primarily reflecting the strong pipeline with which we have entered 2019, most notably in our Spaces brand.

We finished 2018 strongly, with 95 additions in the fourth quarter. This momentum has continued, and we have a good pipeline of new openings already for 2019. At the end of February 2019, we had visibility on 2019 net growth capital expenditure of approximately £200m, representing approximately 190 locations and 5.2m sq. ft. of additional space.

A continuing growth story

During 2018, we increased our emphasis on partnering. Being able to clearly demonstrate the benefits of customer loyalty has contributed to the number of parties signing up to partner with us, which increased significantly during 2018 to create a very strong forward pipeline.

Much of this success was also due to the efforts of our growing franchise team, which is set to accelerate our growth further during 2019 as franchising becomes an increasingly important element of our growth strategy. In 2018 we signed agreements covering the development of 49 locations, taking the total for the Group as at 31 December 2018 to 135 committed locations. We also saw a strong increase in the number of co-owned locations across the world as we received unprecedented levels of interest and commitment from property owners. During the year, some 33% of our growth was through partnering.

Our 2018 focus was not just about opening new centres. We also developed our multi-brand strategy which offers a portfolio of brands to suit every work style and price point. Our multi-brand portfolio provides unparalleled choice and delivers a global consistency to provide quality customer experience across all our brands.

To support our goal of providing our customers with a quality experience to ensure they have 'a great day at work', we have continued to innovate our platform. We strengthened our industry-leading and highly scalable digital platform to give customers an even better experience and access to higher levels of service which they can self-serve. We launched an account help desk and provided more centralised call handling. We continued to train and develop our people, simultaneously providing our customer-facing employees with the 24/7 global support they need to drive customer retention by focusing exclusively on meeting customer needs.

Improving performance at centre level

I am very confident that our centres will continue to perform well throughout 2019, as we continue to grow and improve. With more than three decades' experience under our belt of running centres profitably, our focus will be on improving the performance of all those centres in our network, regardless of their age. Where necessary, we will continue to rationalise our network as a means of optimising its performance. In particular, we are focused on enhancing the profitability of our UK business through important investments in both talent and network performance.

One of the most powerful ways of achieving this is through investing in our people. As the world in which we operate becomes more competitive, they will be an increasingly important source of advantage by further engaging our clients. During 2018, we therefore made significant investments in training and reviewed compensation across the organisation. I am delighted by their performance during the year and believe there is even more to come in 2019 and beyond. I am also very proud of their great work to meet the needs of our clients and their commitment to supporting the communities where we operate.

Enterprise accounts

We grew our enterprise accounts team during the year, along with upgrading our national networks and product offering to meet the growing demand from enterprises. This is enabling us to build strategic relationships both nationally and globally.

The opportunity is huge. As we reported in our 2018 interim results, our largest strategic corporate client uses 100 centres in 32 countries. Many others are using 10 or more centres, both nationally and in multiple countries. We believe there are many opportunities to develop other relationships of similar scale across the world.

Building our brands

Our brand strategy is an important element of our commitment to profitable growth. We recognise that not all our customers want exactly the same flexible workspace solutions. This is even true of different departments within the same organisation. Our multi-brand offer addresses this issue, and during the year we expanded brands, including No18 and HQ. We also saw strong growth in our Regus brand, with 175 new centres, and 103 new locations for our extremely popular Spaces co-working format.

Solid operating platform

Critically, all our brands are based on the same solid and highly efficient operating platform across more than 110 countries, ensuring that our full range of services is available around the clock. Indeed, our highly trained and skilled people working in tandem with ever-improving digital capabilities are driving faster and more accurate response to client needs.

This is the bedrock of our business and the primary focus for our strategy of continuous improvement across all our sites. It is also at the heart of our highly efficient operating model and tight focus on capital discipline, which enables us to centralise processes from across our network, drive new efficiencies from our scale and ensure that our future growth is increasingly profitable.

This is what is making our ambition to be the most efficient operator become a reality, enabling our customers to find with us the best possible quality at the best possible price.

Expanding service portfolio

Increasingly, our operating platform is also supporting the fast-growing universe of ancillary services we offer alongside office space, which now represents approximately 29% of Group revenues. I believe that this proportion will continue to rise as we form increasingly close relationships with enterprise clients seeking a partner capable of delivering an ever-wider range of services.

One area of particular growth during 2018 was our industry-leading workplace-recovery service, available in more than 1,000 towns and cities worldwide, which grew by almost 50% during the year.

During 2019, we aim to continue introducing further new services to meet the needs of the 2.5m-plus users and members of our virtual and physical spaces and services across the world.

Performance by region

Looking to our financial performance in more detail, mature revenue increased by 4.6% during the year at constant currency, with sequential improvements in each quarter through the year, culminating in an 8.2% year-on-year improvement in the fourth quarter. This sustained improvement throughout the period was primarily driven by improvements in the Americas and EMEA, which had a particularly strong second half.

On a regional basis, mature⁽¹⁾ revenue and contribution can be analysed as follows:

	Revenue			Contribution			Mature gross margin (%)
£m	2018	2017	% Change (constant currency)	2018	2017	% Change (constant currency)	2018	2017
Americas	961.7	930.3	6.6%	207.6	162.3	31%	21.6%	17.4%
EMEA	527.1	493.7	7.2%	128.0	105.9	21%	24.3%	21.5%
Asia Pacific	368.0	361.1	4.5%	76.2	71.4	9%	20.7%	19.8%
UK	376.5	390.3	(3.5)%	49.3	75.2	(34)%	13.1%	19.3%
Other	4.5	3.3		(0.2)	(1.2)
Total	2,237.8	2,178.7	4.6%	460.9	413.6	13%	20.6%	19.0%

1. Centres open on or before 31 December 2016

Americas

Revenue from open centres increased 12.8% at constant currency to breach the billion-mark with £1,030.1m. Total revenue (including closed centres) in the Americas increased 9.8% at constant currency to £1,048.5m (up 6.5% at actual rates). Mature revenue in the region increased 6.6% at constant currency to £961.7m (up 3.4% at actual rates), with good sequential improvements during the year. This resulted in a strong finish to the year with 8.4% growth in mature revenue at constant currency in the fourth quarter.

Average mature occupancy for the region was 75.7% (2017: 74.3%) and there was a good recovery in the gross margin which increased significantly from 17.4% to 21.6%.

The US, our largest market, continued to build on the first half performance, with further sequential quarterly improvements to finish the year strongly with double-digit constant currency revenue growth to generate £883.7m of total revenue and a record level of profitability. This overall performance in the US was underpinned by an improving high single digit mature revenue growth. Our Canadian business started the year where it finished 2017 with strong double-digit growth in its mature revenue, ending the year with approximately 17% year-on-year mature revenue growth in Q4. For the total business growth exceeded 20% in Q4 and profitability more than doubled. Our business in Latin America continued to face challenges, particularly in the larger markets of Brazil and Mexico. In Brazil, our largest market, we restructured our business by repositioning our estate and re-energised our in-country colleagues. We are now starting to see early tangible signs of these actions in our Brazilian performance.

We added 59 new locations during the year, taking the total to 1,284 at 31 December 2018. This includes 37 Spaces. Almost a quarter of these new locations were through partnering deals of various types. The focus of growth continued to be the US with the opening of 34 new locations, which increased the total to 1,014.

EMEA

Our EMEA business has had a strong year overall. Revenue from all open centres increased 20.7% at constant currency to £617.9m. Total revenue increased 17.1% at constant currency to £630.8m (up 16.7% at actual rates). Mature revenue in the region increased 7.2% at constant currency to £527.1m (up 6.8% at actual rates) for the year. These growth rates reflect a very strong second half performance with growth accelerating in Q4. With the improvement in revenue performance, the mature gross margin increased from 21.5% to 24.3%. Mature occupancy increased from 76.6% to 77.0%.

Reflective of such a diverse region, individual country performances varied but, overall, the better performance was driven by continental Europe. France had a very strong second half as it benefited from, and grew into, the new inventory added in prior periods. Italy and Germany both had better second half performances and Switzerland improved its performance as we moved through the year. Russia is now responding to the actions taken and this helped its second half performance. There were, however, some more challenging markets amongst some of the Nordic countries and in parts of the Middle East and Africa.

We added 148 new locations in EMEA, including 28 Spaces. 29% of these locations were achieved via various partnering deals. At 31 December 2018 we had 1,013 locations across EMEA.

Asia Pacific

Overall, our Asia Pacific region reported a solid performance. Revenue from all the open centres increased 13.3% at constant currency to £404.6m. Total revenue in the region increased 10.3% at constant currency to £412.2m (up 7.6% at actual rates) and revenue performance was stronger in the second half of the year. In the Mature business, revenue increased 4.5% at constant currency (up 1.9% at actual rates), with a good Q4 performance of 5.8% growth to finish the year.

There were good performances from several of the larger countries across the region. Japan had a very strong year with double-digit growth across the year in mature revenues. Hong Kong came back strongly in 2018 and also delivered double-digit growth. The Philippines too reported good revenue growth, especially in the first half. China, after a better start, saw growth slow in the second half and the same occurred in Australia, while India and Singapore both remained challenged.

Mature occupancy increased from 71.3% to 72.8% and the gross margin improved from 19.8% to 20.7%.

We added 65 new centres into Asia Pacific, over 46% of these through partnering. There were 23 Spaces among the new locations, as we roll out this format globally. As at 31 December 2018 we had 683 centres in the region.

Our UK business has faced challenges which has affected its financial performance. We are focused on reversing this situation. We are taking actions to stimulate long-term profitable growth through a programme of significant repositioning and investment, both in terms of estate and personnel. We remain optimistic about the UK market, a view reinforced by the performance of the centres that we have added during 2017 and 2018. We are now seeing initial evidence that these actions are now manifesting themselves in improved performance.

Revenue from all the open centres increased 5.2% to £425.6m. Total revenue (including closed centres) was broadly unchanged at £439.0m (2017: £440.0m). Revenue from the Mature business in the UK declined 3.5% to £376.5m. This reflects an improvement in the second half, with revenue increasing 2.8% in Q4.

In addition to adding new inventory into the UK market, refurbishing those where we want to retain a presence and selective closures in order to move back to the desired performance levels, we have taken the opportunity to invest in our people and their training. In the near term this investment has increased our cost base in the UK ahead of the initial revenue recovery. The resultant increased reduction in gross profit has reduced the mature margin from 19.3% to 13.1%. These were, however, the right actions to have taken. Mature occupancy reduced from 71.6% to 68.8%.

We added 27 new locations in the UK, including 15 new Spaces locations. Over 40% of the new locations were via partnering agreements. In addition to adding high quality new centres into our UK business we have been actively repositioning the existing estate by increased selective investment and, where appropriate, closing locations. We had 326 locations in the UK at 31 December 2018.

Outlook

We have done much to position our business to meet the growing needs of our customers in the rapidly developing market of co-working and flexible working and to be well positioned to benefit from clear structural growth drivers. We delivered record organic growth in 2018 and invested in the building blocks for 2019 and through our actions we continue to deliver an ever more streamlined and scalable business model. We will continue to invest in our business model and, in a disciplined manner, further invest in our network scale and our multi-brand strategy in the years ahead. Our investment in developing our partnering capabilities will be a key enabler of the way that we want to deliver this growth. As well as having a strong pipeline of IWG-owned locations for 2019, we are seeing increasing momentum in our partnering approach with counterparties wanting to operate our brands across a wide geographic spectrum.

Mark Dixon

Chief Executive Officer

6 March 2018

Chief Financial Officer's review

Encouraging improvement in performance through the year

2018 can be characterised as a year of consistent improvement after a more difficult start to the year. This sequential improvement in our performance not only delivered the stronger second half result we had anticipated but provides a solid basis for 2019. This is an encouraging position to be in, with prevailing macro-economic and geo-political uncertainties in various parts of the world.

Revenue

Reported Group revenue increased 9.7% at constant currency to £2,535.4m (2017: £2,352.3m). Reflecting the uplift in sales activity experienced since October 2017, revenue growth improved consecutively in each quarter. After 6.7% year-on-year constant currency Group revenue growth in the first quarter, this improved to 7.1% for the half year, 8.1% year-to-date to September 2018 and closed the year with a strong fourth quarter performance to deliver the 9.7% growth reported for the whole of 2018. All four regions contributed to this development. There were good double-digit improvements in EMEA and Asia Pacific and near double-digit growth from the Americas. The UK, although marginally down year-on-year, moved into a positive position in the fourth quarter, a quarter which also witnessed stronger growth in the other three regions.

This performance trend was also reflected in open centre revenue growth which is not impacted by the effect of closures in the same way as Group revenue. For 2018 constant currency open centre revenue growth was 13.3% with all regions contributing positively. Again, the trend in growth improved throughout the year from 9.0% in the first quarter to 18.5% in the fourth quarter. Key drivers to this performance have been the conversion of the improved sales activity into better occupancy in the Mature business and strong development of the newer locations. The latter is a reflection of our capital discipline and strong investment processes.

The improved sales activity and the maturation of the 2016-year group additions delivered the anticipated improvement in mature revenue. Growth in mature revenues for the year, at constant currency, was 4.6%. This is a significant improvement on the 2.4% for the first half of 2018 and was delivered by improvements in all regions, most significantly from EMEA, with a strong second half increase, and the Americas. Mature occupancy moved up 50bp to 74.2% (2017: 73.7%), with the expected decline in occupancy in the UK more than offset by improvements in the other regions, most notably the Americas and EMEA.

Financial performance

Group income statement

£m	2018	2017	% Change (constant currency)	% Change (actual currency)
Revenue	2,535.4	2,352.3	9.7%	7.8%
Gross profit (centre contribution)	409.2	401.6	3%	2%
Overheads	(253.7)	(237.6)	10%	7%
Joint ventures	(1.4)	(0.8)
Operating profit	154.1	163.2	(8)%	(6)%
Net finance costs	(15.4)	(13.8)
Profit before tax	138.7	149.4		(7)%
Taxation	(33.0)	(35.4)
Effective tax rate	23.8%	23.7%
Profit after tax	105.7	114.0		(7)%
Basic EPS (p)	11.7	12.4		(6)%
Depreciation & amortisation	235.8	213.0
EBITDA	389.9	376.2	4%	4%

Gross profit

Group gross profit was £409.2m (2017: £401.6m), up 3% at constant currency, reflecting a stronger second half performance after reporting a 5% decline for the first half. There were strong increases in the Americas and EMEA which more than compensated for the declines in the UK and Asia Pacific. This continuing improvement reflects an increase in the gross profit from the Mature business of £47.3m, a higher level of initial losses from the new centre additions of £14.4m and an adverse variance of £25.3m on closed locations. The 160bp improvement in the mature margin to 20.6% reflects the encouraging development seen through 2018 and provides a good basis for 2019. At the Group level, the improvement in the mature margin has been negated by the dilutive impact from closures and new openings, with the associated investment in pre-recruiting and training additional centre team members. This has resulted in a reduction in the Group gross margin from 17.1% to 16.1%.

Gross margin

£m	Mature centres	New centres	Closed centres	Total 2018
Revenue	2,237.8	245.3	52.3	2,535.4
Cost of sales	(1,776.9)	(278.7)	(70.6)	(2,126.2)
Gross profit (centre contribution)	460.9	(33.4)	(18.3)	409.2
Gross margin	20.6%	(13.6)%	(35.0)%	16.1%

£m	Mature centres	New centres	Closed centres	Total 2017
Revenue	2,178.7	51.2	122.4	2,352.3
Cost of sales	(1,765.1)	(70.2)	(115.4)	(1,950.7)
Gross profit (centre contribution)	413.6	(19.0)	7.0	401.6
Gross margin	19.0%	(37.1)%	5.7%	17.1%

EBITDA

Group EBITDA increased £13.7m to £389.9m. With the continued investment in the building blocks of our business, the increase in our depreciation and amortisation of £22.8m more than offset the £9.1m reduction in operating profit. This higher level of depreciation reflects the significant investment made in recent years to grow the business globally. Consequently, a better indication of the performance of our business is provided by our pre-18 estate EBITDA. We generated £447.4m of EBITDA from our pre-18 estate, an increase of 19% on the £376.2m generated in 2017.

Overhead investment

Measured as a percentage of revenue, overhead reduced 10bp to 10.0% in 2018. Further simplification and centralisation of more activities is expected to unlock more scale benefits which should reflect positively on this ratio over the coming years.

As planned, the second half saw a similar investment in overheads as in the first half with a resultant 10% constant currency increase for the year to £253.7m (2017: £237.6m). This investment is important to build a strong foundation for the anticipated future growth of the business and the way it will be delivered. Accordingly, additional headcount investment has gone into building our partnering and enterprise account teams, as well as investment into the various activities to support the network development, including incremental marketing.

Further planned investment in these areas in the current year is anticipated to be mitigated by improved efficiencies elsewhere in the business as we continue to benefit from our scale and well invested operational platform.

Operating profit

Group operating profit reduced £9.1m to £154.1m from £163.2m. This reflects the combination of a lower gross profit margin, for reasons previously discussed, and the absolute increase in overheads as noted above.

It was negatively impacted by closure related provisions of £16.0m, as we continued to actively manage our estate, as well as costs incurred as part of the interest expressed by several organisations in potential offers for the Group in 2018. This impact was offset by the release of inactive customer deposits of £17.6m identified as part of our ongoing active management of working capital, together with a £6.2m beneficial impact from the recognition of negative goodwill as reported in the interim results.

On a regional basis, there were very strong operating profit improvements in both the Americas and EMEA. Conversely, both Asia Pacific and the UK reported reduced operating profits.

Net finance costs

The Group's net finance costs increased to £15.4m (2017: £13.8m). This reflects the higher level of borrowing through 2018 compared to 2017, and the cost of increasing the Revolving Credit Facility from £550m to £750m in May 2018. These higher costs were partially offset by a small positive benefit from foreign exchange movements.

Tax

The effective tax rate for 2018 of 23.8% is broadly unchanged (2017: 23.7%). This is marginally higher than anticipated due to profit mix and some one-off items that can occur in a global business of this scale. Looking forward at the factors that can influence the effective tax rate would suggest a similar rate based on pre IFRS 16 GAAP. However, under IFRS 16 the Group's effective tax rate may potentially be higher as the profit before tax is reduced, reflecting the additional finance costs associated with the lease liability. The extent of this will depend on how local tax rules treat the IFRS 16 deductions where implemented as well as the deferred tax impact in respect of countries not adopting the new standard.

Earnings per share

Group earnings per share for 2018 were 11.7p (2017: 12.4p). This lower level of earnings per share primarily reflects the lower profitability, as we continue to build out our network, being partially offset by the 1% reduction in the weighted average number of shares outstanding for the year through share repurchases.

The weighted average number of shares for the year was 907,077,048 (2017: 915,676,309). The weighted average number of shares for diluted earnings per share was 914,206,379 (2017: 926,237,704). As at 31 December 2018 the total number of shares in issue was 894,620,484.

For the year to 31 December 2018, IWG plc purchased 17,489,685 shares designated to be held in treasury at a cost of £40.2m and 1,739,476 treasury shares were used to satisfy the exercise of share awards by employees. As at 31 December 2018 the Group held 28,736,954 shares in treasury.

Cash flow and funding

A key characteristic of our business model is its cash generation capability through strong profit conversion. Cash generated before net investment in growth capital expenditure, dividends and share repurchases increased by £43.7m to £259.2m from £215.5m, up 20%. Cash flow per share increased 22% to 28.6p from 23.5p. This increase arises from the positive impact from the growth in the Group's EBITDA and the strong working capital inflow, which is partly offset by the anticipated increase in investment in maintenance capital expenditure and higher cash outflows in respect of taxation and finance costs. The greater usage of our Revolving Credit Facility is the main driver behind the increase in the cash outflow for finance costs. The strength of the Group's EBITDA performance, particularly the pre-18 estate, in a year when operating profit declined, provides a good indication of the scale of cash generated in the year.

Capital investment

Whilst our strategic focus remains on continuing to target less capital-intensive growth, our net growth capital investment of £332.0m in 2018 is higher than our previous guidance on pipeline visibility of c.£230m and c.275 locations offering approximately 6.7m sq. ft. of flexible space. There are several contributing factors to this outcome. Firstly, we opened 299 locations, with a strong end to the year with 95 locations opened in the fourth quarter. This momentum at the year-end also resulted in a stronger pipeline of openings scheduled for 2019 on which a higher level of capital expenditure was incurred in 2018 than had been assumed in the pipeline guidance. As these locations were in development and not opened, there is also a timing difference in relation to the receipt of partner contributions.

As planned, with our refurbishment programme stepped up during 2018, our investment in maintenance capital expenditure increased by £16.4m to £112.0m (2017: £95.6m). After partner contributions received in the year, net maintenance capital expenditure was £88.5m, a £15.0m increase on the net investment in 2017 of £73.5m. On a gross and a net basis, the investment in 2018 represented 4.4% and 3.5% of Group revenues. Both percentages are c.40bp higher than in 2017, which is in line with management's expectations.

Net debt

Consequently, net debt increased from £296.4m at 31 December 2017 to £460.8m at 31 December 2018. This increase also comes after paying dividends of £53.7m and spending £40.2m on buying our own shares. Whilst our debt is higher, this still represents a Group net debt to EBITDA leverage ratio of 1.2 times. Although our approach to our borrowing continues to be prudent, we continue to recognise the long-term benefit of also operating with an efficient balance sheet. As at 31 December 2018 we had approximately £140m of freehold property investment on the balance sheet.

Increased funding support

We continue to enjoy strong support from our banking partners and in January 2019 we further increased our Revolving Credit Facility from £750m to £950m. This facility provides adequate headroom to continue to execute our growth strategy. We simultaneously improved the debt maturity profile of this facility by extending it to 2024 (previously 2023). There are further options to extend until 2026. The financial covenants on the increased facility are unchanged and will not be affected by the implementation of IFRS 16. The facility is still predominantly denominated in sterling but can be drawn in several major currencies.

Cash flow

The table below reflects the Group's cash flow:

£m	2018	2017
Group EBITDA	389.9	376.2
Working capital	166.4	44.2
Less: growth-related partner contributions	(144.8)	(80.6)
Maintenance capital expenditure	(112.0)	(95.6)
Taxation	(37.1)	(22.4)
Finance costs	(15.7)	(11.9)
Other items	12.5	5.6
Cash flow before growth capital expenditure, share repurchases and dividends	259.2	215.5
Gross growth capital expenditure	(476.8)	(353.1)
Less: growth-related partner contributions	144.8	80.6
Net growth capital expenditure⁽¹⁾	(332.0)	(272.5)

Total net cash flow from operations	(72.8)	(57.0)
Purchase of shares	(40.2)	(51.1)
Dividend	(53.7)	(48.5)
Corporate financing activities	1.9	4.2

Opening net debt	(296.4)	(151.3)
Exchange movement	0.4	7.3
Closing net debt	(460.8)	(296.4)

1. Net growth capital expenditure of £332.0m relates to the cash outflow in 2018. Accordingly, it includes capital expenditure related to locations opened before 2018 and to be opened in 2019 of £91.6m

Return on investment

Our strong focus on capital discipline is a fundamental part of our strategy, which is focused on generating attractive returns from our investments. For the 12 months ended 31 December 2018, the Group delivered a strong post-tax cash return on net growth investment of 20.6% in respect of locations opened on or before 31 December 2013 (19.3% on the same estate for the 12 months ended 31 December 2017). This estate encompasses a broad range of centre vintages, including the very first centre opened 30 years ago, and some acquired locations going back even further, which are continuing to contribute strongly to this post-tax cash return. Moving the aggregated estate forward and incorporating the centres opened during 2014, the Group delivered a post-tax cash return on net growth investment of 19.8% (the equivalent return for the 12 months ended 31 December 2017 on the same estate was 18.3%). These post-tax cash returns are calculated after deducting all the maintenance capital expenditure invested during 2018. This investment extends the cash returns we achieve on our centres including the longer established ones.

The table below shows the status of our centre openings by year of opening as they continue to progress towards full maturity.

2018 Post-tax cash return⁽¹⁾ on net investment by year group - 12 months to 31 December 2018

Year of opening	'10 and earlier	'11	'12	'13	'14	'15	'16	'17	'18
Post-tax cash return	23.2%	15.8%	17.4%	17.5%	14.7%	7.4%	0.6%	0.0%	(13.0)%
Net growth investment on locations opened in year⁽²⁾ £m	576.7	74.3	133.5	225.9	154.1	252.7	142.3	299.6	252.9

2017 Post-tax cash return on net investment by year group - 12 months to 31 December 2017

Year of opening	'10 and earlier	'11	'12	'13	'14	'15	'16	'17	'18
Post-tax cash return	22.2%	16.7%	17.1%	14.0%	11.3%	7.3%	(9.6)%	(6.9)%	-
Net growth investment on locations opened in year⁽²⁾ £m	600.0	75.6	137.7	235.1	157.6	262.7	139.7	268.8	-

1. These returns are based on the post-tax cash return divided by the net growth capital investment. The post-tax return is calculated as the EBITDA achieved, less the amortisation of any partner capital contribution, less tax based on the EBIT and after deducting maintenance capital expenditure. Net growth capital expenditure is the growth capital after any partner contributions.

2. These returns relate to the net investment based on the year of opening of the centre. Depending on the timing of opening, some capital expenditure can be incurred in the calendar year before or after opening

Foreign exchange

The Group's results are exposed to translation risk from the movement in currencies. During 2018 key individual currency exchange rates have moved, as shown in the table below. Overall, the impact of the movements in key exchange rates was mixed. Reported revenue and gross profit was lower by £45.9m and £3.2m respectively. Operating profit increased by £2.6m as the reported increase in overheads was lower in actual currency terms.

Foreign exchange rates

	At 31 December			Annual average
Per £ sterling	2018	2017	%	2018	2017	%
US dollar	1.28	1.35	(5)%	1.33	1.30	2%
Euro	1.12	1.13	(1)%	1.13	1.14	(1)%
Japanese yen	141	152	(7)%	147	145	1%

Risk management

The principal risks and uncertainties affecting the Group remain broadly unchanged. A detailed assessment of the principal risks and uncertainties and the risk management structure in place can be found on pages 34 to 41 and 59 to 62 of the Annual Report and Accounts.

Related parties

There have been no changes to the type of related party transactions entered by the Group that had a material effect on the financial statements for the period ended 31 December 2018. Details of related party transactions that have taken place in the period can be found in note 30 to the 2018 Annual Report and Accounts.

Dividends

We continue our commitment to a sustainable and progressive dividend policy and, subject to shareholder approval, we will increase the final dividend for 2018 by 10% to 4.35p (2017: 3.95p). This will be paid on Friday, 24 May 2019, to shareholders on the register at the close of business on Friday, 26 April 2018. This represents an increase in the full-year dividend of 11%, taking it from 5.70p for 2017 to 6.30p for 2018.

IFRS 16 Leases

IFRS 16 Leases replaces existing lease guidance, including IAS 17 Leases, from 1 January 2019. It introduces a single, on-balance sheet lease accounting model for lessees while the lessor accounting remains similar to the current treatment. The Group has completed its initial assessment of the potential impact of IFRS 16 on its consolidated financial statements and expects to adopt a right-of-use asset of approximately £5.6bn and a related lease liability of approximately £6.2bn as of 1 January 2019.

The recognition of these balances will not impact the overall cash flows of the Group or cash generation per share. The overall impact on the income statement of adopting IFRS 16 will be neutral over the life of a lease but will result in a higher charge in the earlier years following implementation and a lower charge in later years. IFRS 16 will have no impact on the Group's strategy, commercial lease negotiations, growth or banking arrangements.

Further details of this initial assessment, together with the approach and assumptions adopted by the Group, can be found on the IFRS 16 pro forma statements later in this release.

IWG plans to manage the business and have internal and supplemental external reporting on the pre IFRS 16 basis.

The majority of IWG's leases fall within scope of IFRS 16; this does not impact the flexibility of our leases. 97% of IWG's leases remain 'flexible', meaning that they are either terminable at our option within six months and/or located in or assignable to a stand-alone legal entity, which is not fully cross-guaranteed.

Eric Hageman

Chief Financial Officer

6 March 2019

CONSOLIDATED INCOME STATEMENT

Continuing operations	Notes	Year ended 31 Dec 2018 £m	Year ended 31 Dec 2017 £m
Revenue	3	2,535.4	2,352.3
Cost of sales		(2,126.2)	(1,950.7)
Gross profit (centre contribution)		409.2	401.6
Selling, general and administration expenses		(253.7)	(237.6)
Share of loss of equity-accounted investees, net of tax	20	(1.4)	(0.8)
Operating profit	5	154.1	163.2
Finance expense	7	(15.9)	(14.1)
Finance income	7	0.5	0.3
Net finance expense		(15.4)	(13.8)
Profit before tax for the year		138.7	149.4
Income tax expense	8	(33.0)	(35.4)
Profit after tax for the year		105.7	114.0


Earnings per ordinary share (EPS):
Basic (p)	9	11.7	12.4
Diluted (p)	9	11.6	12.3

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Notes	Year ended 31 Dec 2018 £m	Year ended 31 Dec 2017 £m
Profit for the year		105.7	114.0

Other comprehensive income that is or may be reclassified to profit or loss in subsequent periods:
Cash flow hedges - effective portion of changes in fair value		0.1	0.5
Foreign currency translation differences for foreign operations		9.2	(34.4)
Items that are or may be reclassified to profit or loss in subsequent periods		9.3	(33.9)

Other comprehensive income that will never be reclassified to profit or loss in subsequent periods:
Re-measurement of defined benefit liability, net of income tax	25	-	(0.7)
Items that will never be reclassified to profit or loss in subsequent periods		-	(0.7)

Other comprehensive income/(loss) for the period, net of income tax		9.3	(34.6)

Total comprehensive income for the year		115.0	79.4

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Issued share capital £m	Treasury shares £m	Foreign currency translation reserve £m	Hedging reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
Balance at 1 January 2017	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:
Re-measurement of the defined benefit liability, net of tax (note 25)	-	-	-	-	-	(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 10)	-	-	-	-	-	(48.5)	(48.5)
Purchase of shares (note 21)	-	(51.1)	-	-	-	-	(51.1)
Proceeds from exercise of share awards	-	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
Total comprehensive income for the year:
Profit for the year	-	-	-	-	-	105.7	105.7
Other comprehensive income:
Cash flow hedges - effective portion of changes in fair value	-	-	-	0.1	-	-	0.1
Foreign currency translation differences for foreign operations	-	-	9.2	-	-	-	9.2
Other comprehensive income, net of tax	-	-	9.2	0.1	-	-	9.3
Total comprehensive income for the year	-	-	9.2	0.1	-	105.7	115.0
Share-based payments	-	-	-	-	-	0.5	0.5
Ordinary dividend paid (note 10)	-	-	-	-	-	(53.7)	(53.7)
Purchase of shares (note 21)	-	(40.2)	-	-	-	-	(40.2)
Proceeds from exercise of share awards	-	5.7	-	-	-	(3.8)	1.9
Balance at 31 December 2018	9.2	(74.1)	72.4	0.3	25.8	717.6	751.2

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.

CONSOLIDATED BALANCE SHEET

	Notes	As at 31 Dec 2018 £m	As at 31 Dec 2017 £m
Non-current assets
Goodwill	11	679.2	666.7
Other intangible assets	12	42.5	45.4
Property, plant and equipment	13	1,751.2	1,367.2
Deferred tax assets	8	30.6	23.0
Non-current derivative financial assets	23	0.3	0.2
Other long-term receivables	14	86.0	80.7
Investments in joint ventures	20	12.2	12.4
Total non-current assets		2,602.0	2,195.6

Current assets
Trade and other receivables	15	717.5	581.8
Corporation tax receivable	8	32.7	27.6
Cash and cash equivalents	22	69.0	55.0
Total current assets		819.2	664.4
Total assets		3,421.2	2,860.0

Current liabilities
Trade and other payables (incl. customer deposits)	16	1,058.9	904.8
Deferred income		320.0	285.3
Corporation tax payable	8	31.0	21.6
Bank and other loans	18	9.9	8.5
Provisions	19	9.7	4.5
Total current liabilities		1,429.5	1,224.7

Non-current liabilities
Other long-term payables	17	704.2	553.2
Bank and other loans	18	519.9	342.9
Deferred tax liability	8	-	1.3
Provisions	19	9.4	4.9
Provision for deficit in joint ventures	20	5.5	3.8
Retirement benefit obligations	25	1.5	1.5
Total non-current liabilities		1,240.5	907.6
Total liabilities		2,670.0	2,132.3

Total equity
Issued share capital	21	9.2	9.2
Treasury shares	21	(74.1)	(39.6)
Foreign currency translation reserve		72.4	63.2
Hedging reserve		0.3	0.2
Other reserves		25.8	25.8
Retained earnings		717.6	668.9
Total equity		751.2	727.7
Total equity and liabilities		3,421.2	2,860.0

Approved by the Board on 6 March 2019

Mark Dixon ERIC HAGEMAN

Chief Executive Officer Chief Financial Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

	Notes	Year ended 31 Dec 2018 £m	Year ended 31 Dec 2017 £m
Operating activities
Profit before tax for the year		138.7	149.4
Adjustments for:
Net finance expense	7	15.4	13.8
Share of loss of equity-accounted investees, net of tax	20	1.4	0.8
Depreciation charge	5, 13	225.4	202.1
Loss on impairment of goodwill	11	1.0	-
Loss on disposal of property, plant and equipment	5	13.6	4.3
Loss on disposal of intangible assets	5	0.1	1.6
(Reversal of impairment)/impairment of property, plant and equipment	5, 13	(0.1)	0.1
Amortisation of intangible assets	5, 12	10.4	10.9
Gain on disposal of other investments		(4.3)	-
Amortisation of acquired lease fair value adjustments	5	(2.0)	(3.6)
Negative goodwill arising on an acquisition	11, 26	(6.2)	-
Increase in provisions	19	9.7	-
Share-based payments		0.5	1.7
Other non-cash movements		(6.0)	0.5
Operating cash flows before movements in working capital		397.6	381.6
Increase in trade and other receivables		(133.4)	(72.1)
Increase in trade and other payables		299.8	116.3
Cash generated from operations		564.0	425.8
Interest paid		(16.2)	(12.2)
Tax paid		(37.1)	(22.4)
Net cash inflow from operating activities		510.7	391.2

Investing activities
Purchase of property, plant and equipment	13	(579.6)	(344.9)
Purchase of subsidiary undertakings (net of cash acquired)	26	(2.3)	(40.1)
Disposal of other investments		4.4	-
Purchase of intangible assets	12	(6.9)	(3.6)
Purchase of joint ventures	20	-	(0.3)
Proceeds on sale of property, plant and equipment		0.4	0.5
Interest received	7	0.5	0.3
Net cash outflow from investing activities		(583.5)	(388.1)

Financing activities
Net proceeds from issue of loans		644.3	651.6
Repayment of loans		(467.4)	(558.8)
Purchase of treasury shares	21	(40.2)	(51.1)
Proceeds from exercise of share awards		1.9	4.2
Payment of ordinary dividend	10	(53.7)	(48.5)
Net cash inflow/(outflow) from financing activities		84.9	(2.6)

Net increase in cash and cash equivalents		12.1	0.5
Cash and cash equivalents at the beginning of the year		55.0	50.1
Effect of exchange rate fluctuations on cash held		1.9	4.4
Cash and cash equivalents at the end of the year	22	69.0	55.0

NOTES TO THE ACCOUNTS

1. Authorisation of financial statements

The Group and Company financial statements for the year ended 31 December 2018 were authorised for issue by the Board of Directors on 6 March 2019 and the balance sheets were signed on the Board's behalf by Mark Dixon and Eric Hageman. IWG plc is a public limited company incorporated in Jersey and registered and domiciled in Switzerland. The Company's ordinary shares are traded on the London Stock Exchange.

IWG plc owns a network of business centres which are utilised by a variety of business customers. Information on the Group's structure
is provided in note 31, and information on other related party relationships of the Group is provided in note 30.

The Group financial statements have been prepared and approved by the Directors in accordance with Companies (Jersey) Law 1991
and International Financial Reporting Standards as adopted by the European Union ('Adopted IFRSs'). The Company prepares its parent company annual accounts in accordance with accounting policies based on the Swiss Code of Obligations; extracts from these are presented on page 131.

2. Accounting policies

Basis of preparation

The Group financial statements consolidate those of the parent company and its subsidiaries (together referred to as the 'Group') and equity account the Group's interest in joint ventures. The extract from the parent company annual accounts presents information about
the Company as a separate entity and not about its Group.

The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements. Amendments to adopted IFRSs issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) with an effective date from 1 January 2018 did not have a material effect on the Group financial statements, unless otherwise indicated.

The following standards, interpretations and amendments to standards were adopted by the Group for periods commencing on or after
1 January 2018:

IFRS 9	Financial Instruments
IFRS 15	Revenue from Contracts with Customers

Judgements made by the Directors in the application of these accounting policies that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 32.

The consolidated financial statements are prepared on a historical cost basis, with the exception of certain financial assets and liabilities that are measured at fair value as described in note 23.

The Directors, having made appropriate enquiries, have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the consolidated financial statements on pages 85 to 130.

In adopting the going concern basis for preparing the consolidated financial statements, the Directors have considered the further information included in the business activities commentary as set out on pages 22 to 27 as well as the Group's principal risks and uncertainties as set out on pages 35 to 41.

Further details on the going concern basis of preparation can be found in note 23 to the notes to the consolidated financial statements.

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

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

Joint ventures are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The consolidated financial statements include the Group's share of the total recognised gains and losses of joint ventures on an equity accounted basis, from the date that joint control commences until the date that joint control ceases or the joint venture qualifies as a disposal group, at which point the investment is carried at the lower of fair value less costs to sell and carrying value. When the Group's share of losses exceeds its interest in a joint venture, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of a joint venture.

Impact of the adoption of IFRS 9

The Group adopted IFRS 9 Financial Instruments from 1 January 2018. 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 replaced 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.

The new classification requirements didn't have a material impact on any of its accounting balances. Furthermore, at 31 December 2018, 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 adoption of IFRS 9 did not result in any change in the classification of financial liabilities at 1 January 2018. Consequently, there were 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 financial instruments, either on a 12-month or lifetime basis. The Group appliedthe simplified approach to trade receivables and recorded the lifetime expected losses. The Group determined that due to the nature of its receivables, taking into account the customer deposits obtained, the impact of applying IFRS 9 did notsignificantly impact the provision for bad debts.

Hedge accounting

IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group's risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. IFRS 9 also introduces new requirements on rebalancing hedge relationships and prohibiting voluntary discontinuation of hedge accounting. Under the new model, it is possible that more risk management strategies, particularly those involving hedging a risk component (other than foreign currency risk) of non-financial items, will be likely to qualify for hedge accounting.

The Group is exposed to foreign currency exchange rate movements. The majority of day-to-day transactions of overseas subsidiaries are carried out in local currency and the underlying foreign exchange exposure is small. Transactional exposures do arise in some countries where it is local market practice for a proportion of the payables or receivables to be in other than the functional currency of the affiliate. Intercompany charging, funding and cash management activity may also lead to foreign exchange exposures. It is the policy of the Group to seek to minimise such transactional exposures through careful management of non-local currency assets and liabilities, thereby minimising the potential volatility in the income statement. Net investments in IWG affiliates with a functional currency other than sterling are of a long-term nature and the Group does not normally hedge such foreign currency translation exposures.

From time to time the Group uses short-term derivative financial instruments to manage its transactional foreign exchange exposures where these exposures cannot be eliminated through balancing the underlying risks. The Group designates these derivatives as fair
value hedges.

The Group determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue
to qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 9 does not impact the Group's financial statements.

Impact of the adoption of IFRS 15

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

The Group is involved in the provision of flexible workspace, as well as performing related services. Revenue from the provision of these services to customers is measured at the fair value of consideration received or receivable (excluding sales taxes). Where rent-free periods are granted to customers, rental income is spread on a straight-line basis over the length of the customer contract. The services performed are based on the list price at which the Group provides the contracted services.

Based on the Group's assessment, the fair value of the service performed under IAS 18 and the timing of revenue recognised are consistent with IFRS 15. Therefore, the application of IFRS 15 did not result in any differences in the timing of the performance and the recognition of the revenue, for these services.

IFRSs not yet effective

The following new or amended standards and interpretations that are mandatory for 2019 annual periods (and future years) are not expected to have a material impact on the Group financial statements, unless otherwise stated.

IFRS 16	Leases	1 January 2019
IFRIC 23	Uncertainty over Income Tax Treatments	1 January 2019
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)		1 January 2019
Plan Amendments, Curtailment or Settlement (Amendments to IAS 19)		1 January 2019
Annual Improvements to IFRSs 2015 - 2017 Cycle		1 January 2019
Prepayment features with Negative Compensation (Amendments to IFRS 9)		1 January 2019
Amendments to References to Conceptual Framework in IFRS Standards		1 January 2019
IFRS 17 Insurance Contracts		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:

IFRS 16 Leases

IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement Contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16.

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard (i.e. lessors continue to classify leases as finance or operating leases).

The Group has completed its initial assessment of the potential impact on its consolidated financial statements. The actual impact of applying IFRS 16 on the financial statements in the period of initial application depends on future economic conditions, including the Group's borrowing rate and credit rating, external interest rates, country risk factors, the composition of the Group's lease portfolio, the Group's assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions. Taking these considerations into account, on transition:

• The Group will adopt the modified approach, choosing to measure the right-of-use asset at the retrospective amount as if IFRS 16 had been applied from lease commencement date. The difference between the right-of use asset and the related lease liability is recognised directly in retained earnings.

• In determining the right-of-use asset and lease liability to be recognised, the Group will adopt an incremental borrowing rate for each lease. This rate has been determined by taking currency specific interest rates based on 10-year external market rates (where available, which reflect the average centre lease duration) and then considering adjustments to reflect subsidiary/country specific credit ratings and adjustments to reflect the level of collateral. This incremental borrowing rate will be updated annually and applied to leases completed in the subsequent year.

• The right-of-use asset recognised will be depreciated over the life of the lease, adjusted for any period between the lease commencement date and the date the related centre opens, reflecting the lease related costs directly incurred in preparing the business centre for trading. The life of the lease reflects the contracted lease term and any renewal periods that are at IWG's option to extend.

The most significant impact identified is the right-of-use asset and related lease liability the Group recognises for its leases in respect of its global network, which will be recognised based on the modified retrospective approach. Based on the lease portfolio at 31 December 2018, the Group expects to report a right-of-use asset of approximately £4,417m to £4,882m and a related lease liability of approximately £5,075m to £5,609m at 31 December 2019. These balances exclude the impact of any lease terminations, lease renewals and expected growth in the lease portfolio in 2019. The recognition of these balances will not impact the overall cash flows of the Group or cash generation per share. The pro forma impact from the adoption of IFRS 16 as at 1 January 2019 is disclosed on pages 136 and 137.

In addition, the nature of expenses related to leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and an interest expense on the lease liabilities.

The Group has also considered the impact of lessor accounting, which is not considered to be material.

The Group will adopt the exemptions permitted in respect of short-term and low value leases, which are not material due to the relatively low number of these leases.

The Group does not expect the adoption of IFRS 16 to impact its ability to comply with the covenant requirements on its revolving credit facility described in note 23.

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 2018. 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. Negative goodwill is recognised directly in profit or loss.

Intangible assets

Intangible assets acquired separately from the business are capitalised at cost. Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if their fair value can be identified and measured reliably on initial recognition.

Intangible assets are amortised on a straight-line basis over the estimated useful life of the assets as follows:

Brand - Regus brand	Indefinite life
Brand - Other acquired brands	20 years
Computer software	Up to 5 years
Customer lists	2 years
Management agreements	Minimum duration of the contract

Amortisation of intangible assets is expensed through administration expenses in the income statement.

Acquisitions of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary.

Assets held for sale

Assets held for sale are measured at the lower of the carrying value of the identified asset and its fair value less cost to sell.

Leases

Plant and equipment leases for which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases, including all of the Group's property leases, are categorised as operating leases.

Operating leases

Minimum lease payments under operating leases are recognised in the income statement on a straight-line basis over the lease term. Lease incentives, including partner contributions and rent-free periods, are included in the calculation of minimum lease payments. The commencement of the lease term is the date from which the Group is entitled to use the leased asset. The lease term is the non-cancellable period of the lease, together with any further periods for which the Group has the option to continue to lease the asset and when at the inception of the lease it is reasonably certain that the Group will exercise that option.

Contingent rentals include rent increases based on future inflation indices or non-guaranteed rental payments based on centre turnover or profitability and are excluded from the calculation of minimum lease payments. Contingent rentals are recognised in the income statement as they are incurred.

Onerous lease provisions are an estimate of the net amounts payable under the terms of the lease to the first break point, at the Group's option, discounted at an appropriate pre-tax rate that reflects the time value of money and the risks specific to the liability.

Partner contributions

Partner contributions are contributions from our business partners (property owners and landlords) towards the initial costs of opening a business centre, including the fit-out of the property and the losses that we incur early in the centre life. The partner contribution is treated as a lease incentive and is amortised over the period of the lease.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on
a straight-line basis over the estimated useful life of the assets as follows:

Buildings	50 years
Leasehold improvements	10 years
Furniture	10 years
Office equipment and telephones	5 years
Computer hardware	3 - 5 years

Revenue

The Group's primary activity and only business segment is the provision of global workplace solutions.

Revenue from the provision of services to customers is measured at the fair value of consideration received or receivable (excluding sales taxes). Where rent-free periods are granted to customers, rental income is spread on a straight-line basis over the length of the customer contract.

• Workstations

Workstation revenue is recognised when the provision of the service is rendered. Amounts invoiced in advance are accounted for as deferred income (contract liability) and recognised as revenue upon provision of the service.

• Customer service income

Service income (including the rental of meeting rooms) is recognised as services are rendered. In circumstances where IWG acts as an agent for the sale and purchase of goods to customers, only the commission fee earned is recognised as revenue.

• Management and franchise fees

Fees received for the provision of initial and subsequent services are recognised as revenue as the services are rendered. Fees charged for the use of continuing rights granted by the agreement, or for other services provided during the period of the agreement, are recognised as revenue as the services are provided or the rights used.

• Membership card income

Revenue from the sale of membership cards is deferred and recognised over the period that the benefits of the membership card are expected to be provided.

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

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 and awards granted under the Group's share-based payment plans outlined in note 24 is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the
Black-Scholes valuation model or the Monte Carlo method, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest in respect of non-market conditions except where forfeiture is due to the expiry of the option.

Taxation

Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. 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 and closure costs 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.

Equity

Equity instruments issued by the Group are recorded at the value of proceeds received, net of direct issue costs.

When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net
of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within retained earnings.

Net finance expenses

Interest charges and income are accounted for in the income statement on an accruals basis. Financing transaction costs that relate to financial liabilities are charged to interest expense using the effective interest rate method and are recognised within the carrying value
of the related financial liability on the balance sheet. Fees paid for the arrangement of credit facilities are recognised as a prepayment and recognised through the finance expense over the term of the facility.

Where assets or liabilities on the Group balance sheet are carried at net present value, the increase in the amount due to unwinding the discount is recognised as a finance expense or finance income as appropriate.

Costs arising on bank guarantees and letters of credit and foreign exchange gains or losses are included in other finance costs (note 7).

Interest bearing borrowings and other financial liabilities

Financial liabilities, including interest bearing borrowings, are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, financial liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest rate method.

The Group derecognises financial liabilities when the Group's obligations are discharged, cancelled or expired.

Financial liabilities are classified as financial liabilities at fair value through profit or loss where the liability is either held for trading or is designated as held at fair value through profit or loss on initial recognition. Financial liabilities at fair value through profit or loss are stated at fair value with any resultant gain or loss recognised in the income statement.

Financial assets

Financial assets are classified as subsequently measured at amortised cost, fair value through the profit or loss or fair value through
other comprehensive income (OCI). The classification depends on the nature and purpose of the financial assets and is determined on initial recognition.

Financial assets (including trade and other receivables) are measured at amortised cost if both of the following conditions are met:

• The financial asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income, are recognised in profit or loss.

Financial assets (including trade and other receivables) are measured at fair value through OCI if both of the following conditions are met:

• The financial asset is held within a business model whose objective is achieved by both collecting cash flows and selling financial assets; and

• Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.

Customer deposits

Deposits received from customers against non-performance of the contract are held on the balance sheet as a current liability until they are returned to the customer at the end of their relationship with the Group.

Foreign currency transactions and foreign operations

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the closing rate of exchange at the balance sheet date and the gains or losses on translation are taken to the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The results and cash flows of foreign operations are translated using the average rate for the period. Assets and liabilities, including goodwill and fair value adjustments, of foreign operations are translated using the closing rate, with all exchange differences arising on consolidation being recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. Exchange differences are released to the income statement on disposal.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and are subject to an insignificant risk of changes in value.

Derivative financial instruments

The Group's policy on the use of derivative financial instruments can be found in note 23. Derivative financial instruments are measured initially at fair value and changes in the fair value are recognised through profit or loss unless the derivative financial instrument has been designated as a cash flow hedge whereby the effective portion of changes in the fair value are deferred in equity.

Foreign currency translation rates

	At 31 December		Annual average
	2018	2017	2018	2017
US dollar	1.28	1.35	1.33	1.30
Euro	1.12	1.13	1.13	1.14
Japanese yen	141	152	147	145

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): the Americas; EMEA (Europe, Middle East and Africa); Asia Pacific; and the United Kingdom. These geographical segments exclude the Group's non-trading, holding and corporate management companies. 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 2017.

	Americas		EMEA		Asia Pacific		United Kingdom		Other		Total
	2018 £m	2017 £m	2018 £m	2017 £m	2018 £m	2017 £m	2018 £m	2017 £m	2018 £m	2017 £m	2018 £m	2017 £m
Revenue from external customers	1,048.5	984.8	630.8	540.5	412.2	383.2	439.0	440.0	4.9	3.8	2,535.4	2,352.3
Mature⁽¹⁾	961.7	930.3	527.1	493.7	368.0	361.1	376.5	390.3	4.5	3.3	2,237.8	2,178.7
2017 Expansions⁽¹⁾	48.6	10.9	70.0	20.2	25.1	5.2	35.8	14.4	0.4	0.5	179.9	51.2
2018 Expansions⁽¹⁾	19.8	-	20.8	-	11.5	-	13.3	-	-	-	65.4	-
Closures⁽¹⁾	18.4	43.6	12.9	26.6	7.6	16.9	13.4	35.3	-	-	52.3	122.4
Gross profit (centre contribution)	173.8	153.2	119.0	97.1	60.8	65.9	55.3	83.6	0.3	1.8	409.2	401.6
Share of loss of equity-accounted investees	-	-	(1.3)	(0.8)	(0.1)	-	-	-	-	-	(1.4)	(0.8)
Operating profit/(loss)	122.6	96.5	57.2	47.7	26.9	34.6	36.1	60.3	(88.7)	(75.9)	154.1	163.2
Finance expense											(15.9)	(14.1)
Finance income											0.5	0.3
Profit before tax for the year											138.7	149.4

Depreciation and amortisation	118.3	112.2	40.2	32.8	32.3	29.4	35.0	29.9	10.0	8.7	235.8	213.0

Assets	1,417.4	1,213.2	751.7	573.5	472.5	378.1	672.0	571.1	107.6	124.1	3,421.2	2,860.0
Liabilities	(1,042.5)	(861.5)	(502.9)	(386.0)	(316.4)	(244.1)	(310.7)	(266.1)	(497.5)	(374.6)	(2,670.0)	(2,132.3)
Net assets/(liabilities)	374.9	351.7	248.8	187.5	156.1	134.0	361.3	305.0	(389.9)	(250.5)	751.2	727.7

Non-current asset additions(2)	228.7	148.6	141.5	83.4	84.1	36.3	112.8	64.6	19.4	15.6	586.5	348.5

1. Revenue has been disaggregated to reflect the basis on which it is reported to the chief operating decision maker. Further information can be found in the unaudited 'Segmental analysis -- Management basis' on pages 132 and 133.

2. 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.

4. Segmental analysis - entity-wide disclosures

The Group's primary activity and only business segment is the provision of global workplace solutions, therefore all revenue is attributed to a single group of similar products and services. It is not meaningful to separate this group into further categories of products. Revenue is recognised where the service is provided.

The Group has a diversified customer base and no single customer contributes a material percentage of the Group's revenue.

The Group's revenue from external customers and non-current assets analysed by foreign country is as follows:

	2018		2017
£m	External revenue	Non-current assets(1)	External revenue	Non-current assets(1)
Country of tax domicile - Switzerland	32.1	27.0	26.6	22.5
United States of America	883.7	1,022.1	819.6	878.5
United Kingdom	439.0	508.8	440.0	440.1
All other countries	1,180.6	1,013.5	1,066.1	831.5
	2,535.4	2,571.4	2,352.3	2,172.6

1. Excluding deferred tax assets

5. Operating profit

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

	Notes	2018 £m	2017 £m
Revenue		2,535.4	2,352.3

Depreciation on property, plant and equipment	13	225.4	202.1
Amortisation of intangibles	12	10.4	10.9
Amortisation of partner contributions		(67.5)	(60.6)
Property rents payable in respect of operating leases:		1,072.1	1,003.2
Property		1,035.4	966.8
Contingent rents paid		36.7	36.4
Equipment rents payable in respect of operating leases		3.5	3.4
Staff costs	6	380.9	331.5
Facility and other property costs		383.5	348.7
Expected credit losses of trade receivables	23	17.7	16.2
Loss on disposal of property, plant and equipment		13.6	4.3
Impairment of goodwill	11	1.0	-
Loss on disposal of intangible assets	12	0.1	1.6
(Reversal of impairment)/Impairment of property, plant and equipment	13	(0.1)	0.1
Amortisation of acquired lease fair value adjustments		(2.0)	(3.6)
Negative goodwill arising on acquisition	11	(6.2)	-
Other costs		347.5	330.5
		155.5	164.0
Share of loss of equity-accounted investees, net of tax		(1.4)	(0.8)
Operating profit		154.1	163.2

	2018 £m	2017 £m
Fees payable to the Group's auditor and its associates for the audit of the Group accounts	1.0	0.9
Fees payable to the Group's auditor and its associates for other services:
The audit of the Company's subsidiaries pursuant to legislation	2.2	1.7
Other services pursuant to legislation:
Tax services	-	-
Other services	-	0.1

Change in estimate

During 2018 the Group conducted a review of its customer deposits for inactive customer accounts. Based on this review, the Group has released £17.6m of such deposits in 2018. This has resulted in an increase in both revenue and operating profit.

6. Staff costs

	2018 £m	2017 £m
The aggregate payroll costs were as follows:
Wages and salaries	324.8	278.6
Social security	50.3	45.9
Pension costs	5.3	5.3
Share-based payments	0.5	1.7
	380.9	331.5

	2018 Average full time equivalents	2017 Average full time equivalents
The average number of persons employed by the Group (including Executive Directors), analysed by category and geography, was as follows:
Centre staff	7,424	6,786
Sales and marketing staff	493	497
Finance staff	791	739
Other staff	907	766
	9,615	8,788

Americas	3,001	2,860
EMEA	2,425	2,161
Asia Pacific	1,670	1,641
United Kingdom	926	848
Corporate functions	1,593	1,278
	9,615	8,788

Details of Directors' emoluments and interests are given on pages 63 to 77 in the Remuneration Report, with audited schedules identified where relevant.

7. Net finance expense

	2018 £m	2017 £m
Interest payable and similar charges on bank loans and corporate borrowings	(12.4)	(7.5)
Total interest expense	(12.4)	(7.5)
Other finance costs (including foreign exchange)	(3.3)	(5.7)
Unwinding of discount rates	(0.2)	(0.9)
Total finance expense	(15.9)	(14.1)

Total interest income	0.5	0.3
Total finance income	0.5	0.3

Net finance expense	(15.4)	(13.8)

8. Taxation

(a) Analysis of charge in the year

	2018 £m	2017 £m
Current taxation
Corporate income tax	(40.3)	(26.8)
Previously unrecognised tax losses and other differences	4.0	1.3
Under provision in respect of prior years	(5.3)	(5.2)
Total current taxation	(41.6)	(30.7)
Deferred taxation
Origination and reversal of temporary differences	(0.7)	(5.2)
Previously unrecognised tax losses and other differences	9.7	1.0
Under provision in respect of prior years	(0.4)	(0.5)
Total deferred taxation	8.6	(4.7)
Tax charge on profit	(33.0)	(35.4)

(b) Reconciliation of taxation charge

	2018		2017
	£m	%	£m	%
Profit before tax	138.7		149.4
Tax on profit at 14.6% (2017: 14.6%)	(20.3)	(14.6)	(21.8)	(14.6)
Tax effects of:
Expenses not deductible for tax purposes	(26.2)	(18.9)	(19.2)	(12.8)
Items not chargeable for tax purposes	24.9	18.0	23.4	15.7
Recognition of previously unrecognised deferred tax assets	13.7	9.9	2.3	1.5
Movements in temporary differences in the year not recognised in deferred tax	(104.1)	(75.2)	(91.1)	(61.0)
Adjustment to tax charge in respect of previous years	(5.7)	(4.1)	(5.7)	(3.8)
Differences in tax rates on overseas earnings	84.7	61.1	76.7	51.3
	(33.0)	(23.8)	(35.4)	(23.7)

The applicable tax rate is determined based on the tax rate in the canton of Zug in Switzerland which is the country of domicile of the parent company of the Group for the financial year.

Unrecognised tax losses to carry forward against certain future overseas corporation tax liabilities have the following expiration dates:

	2018 £m	2017 £m
2018	-	4.9
2019	5.6	8.1
2020	20.5	54.7
2021	31.7	37.4
2022	40.5	43.4
2023	54.2	22.9
2024	31.5	29.9
2025	37.6	13.4
2026 and later	432.0	222.1
	653.6	436.8
Available indefinitely	671.8	642.4
Tax losses available to carry forward	1,325.4	1,079.2
Amount of tax losses recognised in deferred tax assets	207.8	117.0
Total tax losses available to carry forward	1,533.2	1,196.2

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

	2018 £m	2017 £m
Intangibles	17.0	16.9
Accelerated capital allowances	39.3	32.1
Tax losses	336.8	271.5
Rent	7.9	8.7
Short-term temporary differences	9.8	5.5
	410.8	334.7

Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each
reporting period.

(d) Corporation tax

	2018 £m	2017 £m
Corporation tax payable	(31.0)	(21.6)
Corporation tax receivable	32.7	27.6

(e) Deferred taxation

The movement in deferred tax is analysed below:

	Intangibles £m	Property, plant and equipment £m	Tax losses £m	Rent £m	Short-term temporary differences £m	Total £m
Deferred tax asset
At 1 January 2017	(54.8)	(20.5)	34.3	69.8	0.5	29.3
Current year movement	19.9	1.3	(5.5)	(17.2)	(3.1)	(4.6)
Prior year movement	-	(1.6)	0.3	0.4	-	(0.9)
Transfers	-	2.2	(1.3)	(0.5)	(0.6)	(0.2)
Exchange rate movements	5.5	1.1	(0.9)	(5.4)	(0.9)	(0.6)
At 31 December 2017	(29.4)	(17.5)	26.9	47.1	(4.1)	23.0
Current year movement	(1.6)	(6.2)	19.2	2.7	(6.5)	7.6
Prior year movement	0.1	-	(0.3)	-	(0.2)	(0.4)
Transfers	(0.1)	-	-	0.1	0.1	0.1
Exchange rate movements	(2.5)	(1.1)	-	2.5	1.4	0.3
At 31 December 2018	(33.5)	(24.8)	45.8	52.4	(9.3)	30.6

Deferred tax liability
At 1 January 2017	(0.4)	(3.2)	2.4	(0.2)	(1.0)	(2.4)
Current year movement	(0.1)	0.3	(0.2)	0.6	(0.2)	0.4
Prior year movement	-	-	(0.3)	-	0.7	0.4
Transfers	-	(2.2)	1.3	0.5	0.6	0.2
Exchange rate movements	-	-	-	-	0.1	0.1
At 31 December 2017	(0.5)	(5.1)	3.2	0.9	0.2	(1.3)
Current year movement	(0.1)	0.4	1.8	(0.4)	(0.3)	1.4
Prior year movement	0.3	-	(0.4)	0.1	-	-
Transfers	0.1	-	-	(0.1)	(0.1)	(0.1)
Exchange rate movements	-	-	-	-	-	-
At 31 December 2018	(0.2)	(4.7)	4.6	0.5	(0.2)	-

The movements in deferred taxes included above are after the offset of deferred tax assets and deferred tax liabilities where there is a legally enforceable right to set off and they relate to income taxes levied by the same taxation authority.

At the balance sheet date, the temporary difference arising from unremitted earnings of overseas subsidiaries was £23.2m (2017: £19.8m). The only tax that would arise on these reserves would be non-recoverable withholding tax.

9. Earnings per ordinary share (basic and diluted)

	2018	2017
Basic and diluted profit for the year attributable to shareholders (£m)	105.7	114.0
Basic earnings per share (p)	11.7	12.4
Diluted earnings per share (p)	11.6	12.3
Weighted average number of shares for basic EPS	907,077,048	915,676,309
Weighted average number of shares under option	13,715,757	20,223,265
Weighted average number of shares that would have been issued at average market price	(8,736,525)	(11,750,214)
Weighted average number of share awards under the CIP, PSP, DSBP and One-off Award	2,150,099	2,088,344
Weighted average number of shares for diluted EPS	914,206,379	926,237,704

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 253.22p (2017: 285.56p).

10. Dividends

	2018	2017
Dividends per ordinary share proposed	4.35p	3.95p
Interim dividends per ordinary share declared and paid during the year	1.95p	1.75p

Dividends of £53.7m were paid during the year (2017: £48.5m). The Company has proposed to shareholders that a final dividend of 4.35p per share will be paid (2017: 3.95p). Subject to shareholder approval, it is expected that the dividend will be paid on 24 May 2019.

11. Goodwill

	£m
Cost
At 1 January 2017	685.3
Recognised on acquisition of subsidiaries	3.3
Exchange rate movements	(21.9)
At 31 December 2017	666.7
Recognised on acquisition of subsidiaries (1)	(7.5)
Negative goodwill	6.2
Goodwill impairment	(1.0)
Exchange rate movements	14.8
At 31 December 2018	679.2

Net book value
At 31 December 2017	666.7
At 31 December 2018	679.2

1. Net of £8.5m derecognised on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis

Cash-generating units (CGUs), defined as individual business centres, are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed. Goodwill acquired through business combinations is held at a country level and is subject to impairment reviews based on the cash flows of the CGUs within that country.

The goodwill attributable to the reportable business segments is as follows:

Carrying amount of goodwill included within:	2018 £m	2017 £m
Americas	299.7	285.8
EMEA	125.4	125.1
Asia	35.2	34.7
United Kingdom	218.9	221.1
	679.2	666.7

The carrying value of goodwill and indefinite life intangibles allocated to two countries, the USA and the UK, is material relative to the total carrying value, comprising 73% of the total. The remaining 27% of the carrying value is allocated to a further 43 countries. The goodwill and indefinite life intangibles allocated to the USA and the UK are set out below:

	Goodwill £m	Intangible assets £m	2018 £m	2017 £m
USA	277.1	-	277.1	262.4
United Kingdom	218.9	11.2	230.1	232.3
Other countries	183.2	-	183.2	183.2
	679.2	11.2	690.4	677.9

The indefinite life intangible asset relates to the brand value arising from the acquisition of the remaining 58% of the UK business in the year ended 31 December 2006 (see note 12).

The value in use for each country has been determined using a model which derives the individual value in use for each country from the value in use of the Group as a whole. Although the model includes budgets and forecasts prepared by management it also reflects external factors, such as capital market risk pricing as reflected in the market capitalisation of the Group and prevailing tax rates, which have been used to determine the risk adjusted discount rate for the Group. Management believes that the projected cash flows are a reasonable reflection of the likely outcomes over the medium to long term. In the event that trading conditions deteriorate beyond the assumptions used in the projected cash flows, it is also possible that impairment charges could arise in future periods.

The following key assumptions have been used in calculating the value in use for each country:

• Future cash flows are based on forecasts prepared by management. The model excludes cost savings and restructurings that are anticipated but had not been committed to at the date of the determination of the value in use. Thereafter, forecasts have been prepared by management for a further four years from 2019 that reflect an average annual growth rate of the three-year average inflation rate of the country (2017: 3%);

• These forecasts exclude the impact of acquisitive growth expected to take place in future periods;

• Management considers these projections to be a reasonable projection of margins expected at the mid-cycle position. Cash flows beyond 2022 have been extrapolated using the same three-year average inflation growth rate which management believes is a reasonable long-term growth rate for any of the markets in which the relevant countries operate. A terminal value is included in the assessment, reflecting the Group's expectation that it will continue to operate in these markets and the long-term nature of the businesses; and

• The Group applies a country specific pre-tax discount rate to the pre-tax cash flows for each country. The country specific discount rate is based on the underlying weighted average cost of capital (WACC) for the Group. The Group WACC is then adjusted for each country to reflect the assessed market risk specific to that country. The Group pre-tax WACC increased from 9.9% in 2017 to 10.4% in 2018 (post-tax WACC: 8.3%). The country specific pre-tax WACC reflecting the respective market risk adjustment has been set between 9.7% and 14.1% (2017: 9.3% to 12.8%).

The amounts by which the values in use exceed the carrying amounts of goodwill are sufficiently large to enable the Directors to conclude that a reasonably possible change in the key assumptions would not result in an impairment charge in any of the countries. Foreseeable events are unlikely to result in a change in the projections of such a significant nature as to result in the goodwill carrying amount exceeding their recoverable amount. The forecast models used in assessing the impairment of goodwill are based on the related business centre structure at the end of the year.

The US model assumes an average centre contribution of 17% over the next five years. Revenue and costs grow at 1.2% per annum from 2019. A terminal value centre gross margin of 17% is adopted from 2023, with a 1.2% long-term growth rate assumed on revenue and costs into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 14% (2017: 10%).

The UK model assumes an average centre contribution of 11% over the next five years. Revenue and costs grow at 2.4% per annum from 2019. A terminal value centre gross margin of 13% is adopted from 2023, with a 2.4% long-term growth rate assumed on revenue and costs into perpetuity. The cash flows have been discounted using a pre-tax discount rate of 10% (2017: 10%).

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 20% (2017: 12%) for the US and 12% (2017: 16%) for the UK.

Occupancy - Management has considered the impact of a variance in occupancy. The value in use calculation shows that for the recoverable amount to be less than its carrying value, occupancy would have to decrease by 4% (2017: 6%) for the US and 2%
(2017: 6%) for the UK.

12. Other intangible assets

	Brand £m	Customer lists £m	Software £m	Total £m
Cost
At 1 January 2017	65.3	32.6	66.6	164.5
Additions at cost	-	-	3.6	3.6
Acquisition of subsidiaries	-	1.6	-	1.6
Disposals	-	-	(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
Additions at cost	-	-	6.9	6.9
Acquisition of subsidiaries (1)	-	0.1	-	0.1
Disposals	-	-	(1.8)	(1.8)
Exchange rate movements	2.7	0.2	0.5	3.4
At 31 December 2018	63.6	32.5	66.1	162.2

Amortisation
At 1 January 2017	33.3	31.4	47.0	111.7
Charge for year	2.6	1.4	6.9	10.9
Disposals	-	-	(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
Charge for year	2.5	0.8	7.1	10.4
Disposals	-	-	(1.7)	(1.7)
Exchange rate movements	1.9	0.6	0.3	2.8
At 31 December 2018	37.4	32.3	50.0	119.7

Net book value
At 1 January 2017	32.0	1.2	19.6	52.8
At 31 December 2017	27.9	1.3	16.2	45.4
At 31 December 2018	26.2	0.2	16.1	42.5

1. Includes £0.1m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis

Included within the brand value is £11.2m relating to the acquisition of the remaining 58% of the UK business in the year ended 31 December 2006. The Regus brand acquired in this transaction is assumed to have an indefinite useful life due to the fact that the value of the brand is intrinsically linked to the continuing operation of the Group.

As a result of the Regus brand acquired with the UK business having an indefinite useful life no amortisation is charged but the carrying value is assessed for impairment on an annual basis. The brand was tested at the balance sheet date against the recoverable amount of the UK business segment at the same time as the goodwill arising on the acquisition of the UK business (see note 11).

The remaining amortisation life for definite life brands is six years.

13. Property, plant and equipment

	Land and buildings £m	Leasehold improvements £m	Furniture and equipment £m	Computer hardware £m	Total £m
Cost
At 1 January 2017	26.3	1,533.2	628.2	122.7	2,310.4
Additions	9.5	253.0	71.2	11.2	344.9
Acquisition of subsidiaries	95.5	1.5	2.0	0.2	99.2
Disposals	-	(16.5)	(8.5)	(1.4)	(26.4)
Exchange rate movements	0.1	(82.9)	(32.4)	(4.7)	(119.9)
At 31 December 2017	131.4	1,688.3	660.5	128.0	2,608.2
Additions	6.4	474.1	84.6	14.5	579.6
Acquisition of subsidiaries (1)	8.6	0.2	0.3	-	9.1
Disposals	-	(125.8)	(56.2)	(7.0)	(189.0)
Exchange rate movements	(0.1)	49.0	19.9	1.4	70.2
At 31 December 2018	146.3	2,085.8	709.1	136.9	3,078.1

Accumulated depreciation At 1 January 2017	0.4	652.4	378.9	84.3	1,116.0
Charge for the year	2.0	132.6	51.1	16.4	202.1
Disposals	-	(12.8)	(7.5)	(1.3)	(21.6)
Impairment	-	0.1	-	-	0.1
Exchange rate movements	-	(32.7)	(19.8)	(3.1)	(55.6)
At 31 December 2017	2.4	739.6	402.7	96.3	1,241.0
Charge for the year	2.8	155.6	52.3	14.7	225.4
Disposals	-	(114.4)	(53.6)	(7.0)	(175.0)
Reversal of impairment	-	(0.1)	-	-	(0.1)
Exchange rate movements	0.1	22.2	11.8	1.5	35.6
At 31 December 2018	5.3	802.9	413.2	105.5	1,326.9

Net book value
At 1 January 2017	25.9	880.8	249.3	38.4	1,194.4
At 31 December 2017	129.0	948.7	257.8	31.7	1,367.2
At 31 December 2018	141.0	1,282.9	295.9	31.4	1,751.2

1. Includes £8.5m on the finalisation of the accounting for prior year acquisitions previously reported on a provisional basis

Additions include £nil in respect of assets acquired under finance leases (2017: £nil).

14. Other long-term receivables

	2018 £m	2017 £m
Deposits held by landlords against rent obligations	82.4	76.3
Acquired lease fair value asset	3.6	4.4
	86.0	80.7

15. TRADE AND OTHER RECEIVABLES

	2018 £m	2017 £m
Trade receivables, net	229.8	199.3
Prepayments and accrued income	213.3	167.3
Other receivables	164.3	108.7
VAT recoverable	103.1	98.1
Deposits held by landlords against rent obligations	6.0	7.2
Acquired lease fair value asset	1.0	1.2
	717.5	581.8

16. Trade and other payables (including customer deposits)

	2018 £m	2017 £m
Customer deposits	483.2	429.8
Deferred rents	147.6	121.3
Other accruals	132.3	108.5
Trade payables	110.0	74.0
VAT payable	79.2	90.2
Deferred partner contributions	78.7	59.2
Other payables	21.4	13.7
Other tax and social security	4.8	5.1
Acquired lease fair value liability	1.7	3.0
Total current	1,058.9	904.8

17. Other long-term payables

	2018 £m	2017 £m
Deferred partner contributions	389.6	293.8
Deferred rents	305.9	244.6
Acquired lease fair value liability	2.3	3.7
Other payables	6.4	11.1
Total non-current	704.2	553.2

18. Borrowings

The Group's total loan and borrowing position at 31 December 2018 and at 31 December 2017 had the following maturity profiles:

Bank and other loans

	2018 £m	2017 £m
Repayments falling due as follows:
In more than one year but not more than two years	8.7	8.9
In more than two years but not more than five years	506.3	329.2
In more than five years	4.9	4.8
Total non-current	519.9	342.9
Total current	9.9	8.5
Total bank and other loans	529.8	351.4

19. Provisions

	2018			2017
	Onerous leases and closures £m	Other £m	Total £m	Onerous leases and closures £m	Other £m	Total £m
At 1 January	3.6	5.8	9.4	3.5	5.9	9.4
Provided in the period	16.0	1.3	17.3	3.2	2.1	5.3
Utilised in the period	(1.6)	(3.8)	(5.4)	(0.3)	(1.0)	(1.3)
Provisions released	(1.9)	(0.3)	(2.2)	(2.8)	(1.2)	(4.0)
Exchange rate movements	-	-	-	-	-	-
At 31 December	16.1	3.0	19.1	3.6	5.8	9.4
Analysed between:
Current	8.3	1.4	9.7	0.4	4.1	4.5
Non-current	7.8	1.6	9.4	3.2	1.7	4.9
At 31 December	16.1	3.0	19.1	3.6	5.8	9.4

Onerous leases and closures

Provisions for onerous leases and closure costs relate to the estimated future costs of centre closures and onerous property leases. The maximum period over which the provisions are expected to be utilised expires by 31 December 2026.

Other

Other provisions include the estimated costs of claims against the Group outstanding at the year end, of which, due to their nature, the maximum period over which they are expected to be utilised is uncertain.

20. Investments in joint ventures

	Investments in joint ventures £m	Provision for deficit in joint ventures £m	Total £m
At 1 January 2017	13.6	(3.4)	10.2
Additions	0.3	-	0.3
Share of loss	(0.4)	(0.4)	(0.8)
Exchange rate movements	(1.1)	-	(1.1)
At 31 December 2017	12.4	(3.8)	8.6
Share of profit/(loss)	0.3	(1.7)	(1.4)
Exchange rate movements	(0.5)	-	(0.5)
At 31 December 2018	12.2	(5.5)	6.7

The Group has 52 joint ventures (2017: 49) 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:

	2018 £m	2017 £m
Income statement
Revenue	27.6	29.9
Expenses	(31.1)	(31.5)
Loss before tax for the year	(3.5)	(1.6)
Tax charge	(0.3)	(0.3)
Loss after tax for the year	(3.8)	(1.9)
Balance sheet
Non-current assets	15.7	15.0
Current assets	43.5	35.7
Current liabilities	(57.0)	(46.6)
Non-current liabilities	(2.7)	(1.5)
Net (liabilities)/assets	(0.5)	2.6

21. Share capital

Ordinary equity share capital

	2018		2017
	Number	Nominal value £m	Number	Nominal value £m
Authorised
Ordinary 1p shares in IWG plc at 1 January	8,000,000,000	80.0	8,000,000,000	80.0
Ordinary 1p shares in IWG plc at 31 December	8,000,000,000	80.0	8,000,000,000	80.0
Issued and fully paid up
Ordinary 1p shares in IWG plc at 1 January	923,357,438	9.2	923,357,438	9.2
Ordinary 1p shares in IWG plc at 31 December	923,357,438	9.2	923,357,438	9.2

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.

Treasury share transactions involving IWG plc shares between 1 January 2018 and 31 December 2018

During the year, 17,489,685 shares were purchased in the open market and 1,739,476 treasury shares held by the Group were utilised
to satisfy the exercise of share awards by employees. As at 6 March 2019, 28,736,954 treasury shares were held. The holders of ordinary shares in IWG plc are entitled to receive such dividends as are declared by the Company and are entitled to one vote per share at
meetings of the Company. Treasury shares do not carry such rights until reissued.

	2018		2017
	Number of shares	£m	Number of shares	£m
1 January	12,986,745	39.6	1,170,699	2.9
Purchase of treasury shares in IWG plc	17,489,685	40.2	16,830,000	51.1
Treasury shares in IWG plc utilised	(1,739,476)	(5.7)	(5,013,954)	(14.4)
31 December	28,736,954	74.1	12,986,745	39.6

22. Analysis of financial assets/(liabilities)

	At 1 Jan 2018 £m	Cash flow £m	Exchange rate movements £m	At 31 Dec 2018 £m
Cash and cash equivalents	55.0	12.1	1.9	69.0
Gross cash	55.0	12.1	1.9	69.0
Debt due within one year	(8.5)	(1.4)	-	(9.9)
Debt due after one year	(342.9)	(175.5)	(1.5)	(519.9)
	(351.4)	(176.9)	(1.5)	(529.8)
Net financial assets/(liabilities)	(296.4)	(164.8)	0.4	(460.8)

Cash and cash equivalent balances held by the Group that are not available for use amounted to £4.2m at 31 December 2018 (2017: £9.3m). Of this balance, £1.9m (2017: £7.1m) is pledged as security against outstanding bank guarantees and a further £2.3m (2017: £2.2m) is pledged against various other commitments of the Group.

23. Financial instruments and financial risk management

The objectives, policies and strategies applied by the Group with respect to financial instruments and the management of capital are determined at Group level. The Group's Board maintains responsibility for the risk management strategy of the Group and the Chief Financial Officer is responsible for policy on a day-to-day basis. The Chief Financial Officer and Group Treasurer review the Group's risk management strategy and policies on an ongoing basis. The Board has delegated to the Group Audit Committee the responsibility for applying an effective system of internal control and compliance with the Group's risk management policies.

Exposure to credit, interest rate and currency risks arise in the normal course of business.

Going concern

The Strategic Report on pages 1 to 44 of the Annual Report and Accounts sets out the Group's strategy and the factors that are likely to affect the future performance and position of the business. The financial review on pages 30 to 33 within the Strategic Report reviews
the trading performance, financial position and cash flows of the Group. During the year ended 31 December 2018, the Group made a significant investment in growth and the Group's net debt position increased by £164.4m to a net debt position of £460.8m as at
31 December 2018. The investment in growth is funded by a combination of cash flow generated from the Group's mature business centres and debt. The Group had a £750.0m revolving credit facility provided by a group of relationship banks with a final maturity in 2023. As at 31 December 2018, £125.4m was available and undrawn. The revolving credit facility was increased from £750.0m to £950.0m in January 2019 and the final maturity extended to 2024 with an option to extend until 2026.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Credit risk

Credit risk could occur where a customer or counterparty defaults under the contractual terms of a financial instrument and arises principally in relation to customer contracts and the Group's cash deposits.

A diversified customer base, requirement for customer deposits, and payments in advance on workstation contracts minimise the Group's exposure to customer credit risk. No single customer contributes a material percentage of the Group's revenue. The Group's policy is to provide against trade receivables when specific debts are judged to be irrecoverable or where formal recovery procedures have commenced. A provision taking into account the customer deposit held is created where debts are more than three months overdue, which reflects the Group's experience of the likelihood of recoverability of these trade receivables based on both historical and forward looking information. These provisions are reviewed on an ongoing basis to assess changes in the likelihood of recoverability.

The 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.

	2018 £m	2017 £m
Americas	33.3	27.8
EMEA	94.8	75.0
Asia Pacific	51.7	41.6
United Kingdom	50.0	54.9
	229.8	199.3

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 2018 £m	Provision 2018 £m	Gross 2017 £m	Provision 2017 £m
Not overdue	175.6	-	132.4	-
Past due 0 - 30 days	38.2	-	43.3	-
Past due 31 - 60 days	11.6	-	13.8	-
More than 60 days	26.6	(22.2)	31.6	(21.8)
	252.0	(22.2)	221.1	(21.8)

At 31 December 2018, the Group maintained a provision of £22.2m for expected credit losses (2017: £21.8m) arising from trade receivables. The Group had provided £17.7m (2017: £16.2m) in the year and utilised £17.3m (2017: £13.5m). Customer deposits of £483.2m (2017: £429.8m) are held by the Group, mitigating the risk of default.

IFRS 9 requires the Group to record expected credit losses on all of its receivables, either on a 12-month or lifetime basis. The Group has applied the simplified approach to all trade receivables, which requires the recognition of the expected credit loss based on the lifetime expected losses. The expected credit loss is mitigated through the invoicing of contracted services in advance and customer deposits of £483.2m (2017: £429.8m) held at the end of the year. The Group believes no provision is generally required for trade receivables that are not overdue as they are not considered credit impaired.

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 £64.8m (2017: £45.7m). In addition to cash and liquid investments, the Group had £125.4m 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. In May, the amount of the facility was increased from £550.0m to £750.0m with the final maturity extended to May 2023. As at 31 December, £125.4m was available and undrawn under this facility. The revolving credit facility was increased from £750.0m to £950.0m in January 2019 and the final maturity extended to 2024 with an option to extend until 2026.

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, maturing in 2019 with an average fixed rate of respectively 0.7% and 1.8% (excluding funding margin). A further £30.0m maturing in 2021 was added in 2018 with a fixed rate of 1.2%.

Although the Group has net current liabilities of £610.3m (2017: £560.3m), 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 £483.2m (2017: £429.8m) which are spread across a large number of customers and no deposit held for an individual customer is material. Therefore, the Group does not believe the balance represents a liquidity risk. The net current liabilities, excluding deferred income, were £290.3m at 31 December 2018 (2017: £275.0m).

Market risk

The Group is exposed to market risk primarily related to foreign currency exchange rates, interest rates and the market value of our investments in financial assets. These exposures are actively managed by the Group treasury department in accordance with a written policy approved by the Board of Directors. The Group does not use financial derivatives for trading or speculative reasons.

Interest rate risk

The Group manages its exposure to interest rate risk through the relative proportions of fixed rate debt and floating rate debt. Any surplus cash balances are invested short-term, and at the end of 2018 no cash was invested for a period exceeding three months.

Foreign currency risk

From time to time the Group uses short-term derivative financial instruments to manage its transactional foreign exchange exposures where these exposures cannot be eliminated through balancing the underlying risks. No transactions of a speculative nature are undertaken.

The foreign currency exposure arising from open third-party transactions held in a currency other than the functional currency of the related entity is summarised as follows:

	2018
£m		GBP	EUR	USD
Trade and other receivables		1.1	20.8	2.3
Trade and other payables		(0.8)	(3.9)	(8.6)
Net statement of financial position exposure		0.3	16.9	(6.3)
	2017
£m		GBP	EUR	USD
Trade and other receivables		0.1	0.6	16.7
Trade and other payables		(6.7)	(8.7)	(10.4)
Net statement of financial position exposure		(6.6)	(8.1)	6.3

Other market risks

The Group does not hold any available-for-sale equity securities and is therefore not subject to risks of changes in equity prices in the income statement.

Sensitivity analysis

For the year ended 31 December 2018, it is estimated that a general increase of one percentage point in interest rates would have decreased the Group's profit before tax by approximately £4.0m (2017: decrease of £2.6m) with a corresponding decrease in total equity.

It is estimated that a five-percentage point weakening in the value of the US dollar against sterling would have decreased the Group's profit before tax by approximately £13.4m for the year ended 31 December 2018 (2017: decrease of £8.6m). It is estimated that a five-percentage point weakening in the value of the euro against sterling would have decreased the Group's profit before tax by approximately £0.8m for the year ended 31 December 2018 (2017: decrease of £1.7m).

It is estimated that a five-percentage point weakening in the value of the US dollar against sterling would have decreased the Group's total equity by approximately £11.6m for the year ended 31 December 2018 (2017: £11.1m). It is estimated that a five-percentage point weakening in the value of the euro against sterling would have decreased the Group's total equity by approximately £3.0m for the year ended 31 December 2018 (2017: decrease of £1.1m).

Capital management

The Group's parent company is listed on the UK stock exchange and the Board's policy is to maintain a strong capital base. The Chief Financial Officer monitors the diversity of the Group's major shareholders and further details of the Group's communication with key investors can be found in the Corporate Governance Report on page 52. In 2006, the Board approved the commencement of a progressive dividend policy to enhance the total return to shareholders.

The Group's Chief Executive Officer, Mark Dixon, is the major shareholder of the Company. Details of the Directors' shareholdings can be found in the report of the Remuneration Committee on pages 63 to 77. In addition, the Group operates various share option plans for key management and other senior employees.

Treasury share transactions involving IWG plc shares between 1 January 2018 and 31 December 2018

The Company declared and paid an interim dividend of 1.95p per share (2017: 1.75p) during the year ended 31 December 2018 and proposed a final dividend of 4.35p per share (2017: 3.95p per share), a 10% increase on the 2017 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 £460.8m at the end of 2018 (2017: £296.4m) and £125.4m (2017: £131.8m) of committed undrawn borrowings on the £750.0m revolving credit facility as at the end of the year.

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 2018

	Effective interest rate %	Carrying value £m	Contractual cash flow £m	Less than 1 year £m	1-2 years £m	2-5 years £m	More than 5 years £m
Cash and cash equivalents	-	69.0	69.0	69.0	-	-	-
Trade and other receivables(1)	-	503.2	525.4	525.4	-	-	-
Other long-term receivables(2)	-	82.4	82.4	-	41.2	41.2	-
Derivative financial assets:
Interest rate swaps
• Outflow	-	-	-	-	-	-	-
• Inflow	-	0.3	0.3	0.3	-	-	-
Financial assets(3)		654.9	677.1	594.7	41.2	41.2	-

Non-derivative financial liabilities(4):
Bank loans and corporate borrowings	2.9%	(505.4)	(505.4)	(0.1)	(2.0)	(503.3)	_
Other loans	1.4%	(24.4)	(24.4)	(9.8)	(6.7)	(3.0)	(4.9)
Trade and other payables(5)	-	(830.9)	(830.9)	(830.9)	-	-	-
Other long-term payables(5)	-	(6.4)	(6.4)	-	(6.4)	-	-
Financial liabilities		(1,367.1)	(1,367.1)	(840.8)	(15.1)	(506.3)	(4.9)

As at 31 December 2017

	Effective interest rate %	Carrying value £m	Contractual cash flow £m	Less than 1 year £m	1-2 years £m	2-5 years £m	More than 5 years £m
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)

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

Fair value disclosures

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

31 December 2018	Carrying amount				Fair value
£m	Cash, loans and receivables	Other financial liabilities	Cash flow - hedging instruments	Total	Level 1	Level 2	Level 3	Total
Cash and cash equivalents	69.0	-	-	69.0	-	-	-	-
Trade and other receivables	503.2	-	-	503.2	-	-	-	-
Other long-term receivables	82.4	-	-	82.4	-	-	-	-
Derivative financial asset	-	-	0.3	0.3	-	0.3	-	0.3
Bank loans and corporate borrowings	-	(505.4)	-	(505.4)	-	-	-	-
Other loans	-	(24.4)	-	(24.4)	-	-	-	-
Trade and other payables	-	(830.9)	-	(830.9)	-	-	-	-
Other long-term payables	-	(6.4)	-	(6.4)	-	-	-	-
	654.6	(1,367.1)	0.3	(712.2)	-	0.3	-	0.3
Unrecognised gain								-

31 December 2017	Carrying amount				Fair value
£m	Cash, loans and receivables	Other financial liabilities	Cash flow - hedging instruments	Total	Level 1	Level 2	Level 3	Total
Cash and cash equivalents	55.0	-	-	55.0	-	-	-	-
Trade and other receivables	413.3	-	-	413.3	-	-	-	-
Other long-term receivables	76.3	-	-	76.3	-	-	-	-
Derivative financial asset	-	-	0.2	0.2	-	0.2	-	0.2
Bank loans and corporate borrowings	-	(330.5)	-	(330.5)	-	-	-	-
Other loans	-	(20.9)	-	(20.9)	-	-	-	-
Trade and other payables	-	(721.3)	-	(721.3)	-	-	-	-
Other long-term payables	-	(11.1)	-	(11.1)	-	-	-	-
	544.6	(1,083.8)	0.2	(539.0)	-	0.2	-	0.2
Unrecognised gain								-

During the years ended 31 December 2017 and 31 December 2018, 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 receivables/payables and customer deposits	For cash and cash equivalents, receivables/payables with a remaining life of less than one year and customer deposits, the book value approximates the fair value because of their short-term nature.
Loans 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:

	2018 GBP m	2017 GBP m
Derivatives used for cash flow hedging	100.0	70.0
	2018 USD m	2017 USD m
Derivatives used for cash flow hedging	30.0	30.0

Committed borrowings

	2018 Facility £m	2018 Available £m	2017 Facility £m	2017 Available £m
Revolving credit facility	750.0	125.4	550.0	131.8

The Group maintains a revolving credit facility provided by a group of international banks. During the year, the amount of the facility was increased from £550.0m to £750.0m with the final maturity extended to May 2023. As at 31 December, £125.4m was available and undrawn under this facility. The revolving credit facility was increased from £750.0m to £950.0m in January 2019 and the final maturity extended to 2024 with an option to extend until 2026.

The £750.0m 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.

24. Share-based payments

There are four share-based payment plans, details of which are outlined below:

Plan 1: IWG Group Share Option Plan

During 2004 the Group established the IWG Group Share Option Plan that entitles Executive Directors and certain employees to purchase shares in IWG plc. In accordance with this programme, holders of vested options are entitled to purchase shares at the market price of the shares at the day before the date of grant.

The IWG Group also operates the IWG Group Share Option Plan (France) which is included within the numbers for the IWG Share Option Plan disclosed above. The terms of the IWG Share Option Plan (France) are materially the same as the IWG Group Share Option Plan with the exception that they are only exercisable from the fourth anniversary of the date of grant, assuming the performance conditions have been met.

Reconciliation of outstanding share options

	2018		2017
	Number of share options	Weighted average exercise price per share	Number of share options	Weighted average exercise price per share
At 1 January	18,259,790	179.79	24,519,624	169.62
Granted during the year	14,785,127	200.95	2,200,507	244.28
Lapsed during the year	(2,159,407)	182.91	(4,475,884)	189.71
Exercised during the year	(1,544,288)	129.27	(3,984,457)	107.80
Outstanding at 31 December	29,341,222	191.87	18,259,790	179.79
Exercisable at 31 December	5,999,946	136.24	5,622,041	118.81

Date of grant	Numbers granted	Weighted average exercise price per share	Lapsed	Exercised	At 31 Dec 2018		Exercisable from	Expiry date
23/03/2010	3,986,000	100.50	(3,473,779)	(425,258)	86,963	(1)	23/03/2013	23/03/2020
28/06/2010	617,961	75.00	(541,798)	(57,086)	19,077	(1)	28/06/2013	28/06/2020
01/09/2010	160,646	69.10	(146,728)	(13,918)	-	(1)	01/09/2013	01/09/2020
01/04/2011	2,400,000	114.90	(954,402)	(481,866)	963,732	(1)	01/04/2014	01/04/2021
30/06/2011	9,867,539	109.50	(4,905,047)	(4,301,951)	660,541	(1)	30/06/2014	30/06/2021
13/06/2012	11,189,000	84.95	(3,805,914)	(5,830,003)	1,553,083	(1)	13/06/2015	13/06/2022
12/06/2013	7,741,000	155.60	(4,290,683)	(2,185,921)	1,264,396		12/06/2016	12/06/2023
18/11/2013	600,000	191.90	(575,000)	-	25,000	(1)	18/11/2016	17/11/2023
18/12/2013	1,000,000	195.00	(750,000)	(83,333)	166,667	(1)	18/12/2016	17/12/2023
20/05/2014	1,845,500	187.20	(1,658,500)	(106,866)	80,134		20/05/2017	19/05/2024
05/11/2014	12,875,796	186.00	(6,390,041)	(48,385)	6,437,370		05/11/2017	04/11/2024
19/05/2015	1,906,565	250.80	(1,829,565)	-	77,000		19/05/2018	18/05/2025
22/12/2015	1,154,646	322.20	(320,186)	-	834,460		22/12/2018	22/12/2025
29/06/2016	444,196	272.50	(175,000)	-	269,196		29/06/2019	29/06/2026
28/09/2016	249,589	258.00	(181,367)	-	68,222		28/09/2019	28/09/2026
01/03/2017	1,200,000	283.70	-	-	1,200,000		01/03/2020	01/03/2027
14/12/2017	1,000,507	197.00	(150,253)	-	850,254		14/12/2020	14/12/2027
10/10/2018	685,127	223.20	-	-	685,127		10/10/2021	10/10/2028
21/12/2018 (Grant 1)	300,000	203.10	-	-	300,000		21/12/2021	21/12/2028
28/12/2018 (Grant 2)	13,800,000	199.80	-	-	13,800,000		28/12/2021	28/12/2028
Total	73,024,072	158.36	(30,148,263)	(13,534,587)	29,341,222

1. All options have vested as of 31 December 2018

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

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

May 2015 share option plan

The options awarded in May 2015 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
May 2018	1/5
May 2019	1/5
May 2020	1/5
May 2021	1/5
May 2022	1/5

December 2015 share option plan

The Group performance targets for the options awarded in December 2015, based on Group operating profit for the year ending
31 December 2016, were met. Those options that are eligible to vest will vest as follows:

	Proportion to vest
December 2018	1/5
December 2019	1/5
December 2020	1/5
December 2021	1/5
December 2022	1/5

June 2016 share option plan

The Group performance targets for the options awarded in June 2016, based on Group operating profit for the year ending 31 December 2016, were met. Those options that are eligible to vest will vest as follows:

	Proportion to vest
June 2019	1/5
June 2020	1/5
June 2021	1/5
June 2022	1/5
June 2023	1/5

September 2016 share option plan

The options awarded in September 2016 are conditional on the ongoing employment of the related employee 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
September 2019	1/5
September 2020	1/5
September 2021	1/5
September 2022	1/5
September 2023	1/5

March 2017 share option plan

The total number of shares awarded is subject to three different performance conditions. These conditions are measured over three financial years commencing on 1 January 2017. Thus, conditional on meeting these performance targets, these shares will vest in March 2020. One third is subject to defined earnings per share (EPS) conditions, one third is subject to relative total shareholder return (TSR) conditions and one third is subject to return on investment (ROI) conditions.

The EPS condition is based on the compound annual growth in EPS over the performance period measured from EPS in the financial year ending 31 December 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

October 2018 share option plan

The options awarded in October 2018 are conditional on the ongoing employment of the related employees for a specified period of time and are also subject to Group performance targets based on Group operating profit. Once performance conditions are satisfied those options that are eligible to vest will vest as follows:

	Proportion to vest
October 2021	1/3
October 2022	1/3
October 2023	1/3

December 2018 (Grant 1) share option plan

The options awarded in December 2018 are conditional on the ongoing employment of the related employee for a specified period of time and are also subject to the achievement of a TSR performance condition.

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%

Once performance conditions are satisfied those options that are eligible to vest will vest as follows:

	Proportion to vest
December 2021	1/3
December 2022	1/3
December 2023	1/3

December 2018 (Grant 2) share option plan

The options awarded in December 2018 are conditional on the ongoing employment of the related employee for a specified period of time and are also subject to various non-market performance targets. Once performance conditions are satisfied, those options that are eligible to vest will vest as follows:

	Proportion to vest
December 2021	1/3
December 2022	1/3
December 2023	1/3

Measurement of fair values

The fair value of the rights granted through the employee share purchase plan was measured based on the Monte Carlo simulation or the Black-Scholes formula. The expected volatility is based on the historic volatility adjusted for any abnormal movement in share prices.

The inputs to the model are as follows:

	December 2018 (Grant 2)	December 2018 (Grant 1)	October 2018	December 2017	March 2017	September 2016
Share price on grant date	199.80p	203.10p	223.20p	197.00p	283.70p	258.00p
Exercise price	199.80p	203.10p	223.20p	197.00p	283.70p	258.00p
Expected volatility	37.66% - 44.35%	37.63% - 44.25%	37.15% - 43.32%	33.31% - 35.93%	27.42% - 29.87%	27.45% - 32.35%
Option life	3-5 years	3-5 years	3-5 years	3-5 years	3-5 years	3-7 years
Expected dividend	2.95%	2.90%	2.64%	2.69%	1.80%	1.80%
Fair value of option at time of grant	58.77p - 69.33p	39.36p - 46.42p	67.69p - 78.56p	40.06p - 44.20p	44.51p - 76.88p	40.96p - 67.89p
Risk-free interest rate	0.87% - 1.01%	0.73% - 0.88%	0.70% - 0.91%	0.54% - 0.75%	0.23% - 0.56%	0.09% - 0.38%

	June 2016	December 2015	May 2015	November 2014	May 2014	June 2013
Share price on grant date	272.50p	322.20p	250.80p	188.40p	191.00p	158.00p
Exercise price	272.50p	322.20p	250.80p	186.00p	187.20p	155.60p
Expected volatility	27.71% - 34.81%	24.80% - 37.08%	27.23% - 30.12%	24.67% - 33.53%	27.30% - 41.91%	40.31% -48.98%
Option life	3-7 years	3-7 years	3-7 years	3-7 years	3-5 years	3-5 years
Expected dividend	1.71%	1.40%	1.59%	2.02%	2.00%	2.03%
Fair value of option at time of grant	44.28p - 78.68p	29.76p -90.61p	42.35p - 69.12p	27.24p - 54.58p	30.80p - 59.63p	39.21p - 58.39p
Risk-free interest rate	0.14% - 0.39%	0.14% - 0.21%	0.81% - 1.53%	0.90% - 1.81%	0.99% - 1.47%	0.67% - 1.20%

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

	2018	2017
	Number of awards	Number of awards
At 1 January	3,321,464	3,292,656
PSP awards granted during the year	1,278,350	1,095,406
Lapsed during the year	(2,413,376)	(37,099)
Exercised during the year	(195,188)	(1,029,499)
Outstanding at 31 December	1,991,250	3,321,464
Exercisable at 31 December	-	-

The weighted average share price at the date of exercise for share awards exercised during the year ended 31 December 2018 was 234.00p (2017: 289.66p).

Plan	Date of grant	Numbers granted	Lapsed	Exercised	At 31 Dec 2018	Release date
PSP	03/03/2016	1,038,179	(485,600)	-	552,579	03/03/2021
PSP	01/03/2017	1,095,406	(512,367)	-	583,039	01/03/2022
PSP	07/03/2018	1,278,350	(597,938)	-	680,412	07/03/2023
		3,411,935	(1,595,905)	-	1,816,030

Plan	Date of grant	Numbers granted	Lapsed	Exercised	At 31 Dec 2018	Release date⁽¹⁾
CIP: Matching shares	06/03/2013	1,217,176	(506,272)	(710,904)	-	06/03/2018
CIP: Matching shares	05/03/2014	647,688	(409,984)	(100,303)	137,401	05/03/2019
CIP: Investment shares	04/03/2015	207,952	-	(207,952)	-	04/03/2018
CIP: Matching shares	04/03/2015	831,808	(793,989)	-	37,819	04/03/2020
		2,904,624	(1,710,245)	(1,019,159)	175,220

1. Based on the outstanding shares as at 31 December 2018

Measurement of fair values

The fair value of the rights granted through the employee share purchase plan was measured based on the Monte Carlo simulation.

The inputs to the model are as follows:

	07/03/2018	01/03/2017	03/03/2016	04/03/2015	05/03/2014	06/03/2013
	PSP	PSP	PSP	CIP	CIP	CIP
Share price on grant date	240.90p	283.70p	300.00p	225.00p	253.30p	143.50p
Exercise price	Nil	Nil	Nil	Nil	Nil	Nil
Number of simulations	250,000	250,000	250,000	250,000	250,000	250,000
Number of companies	32	32	32	32	32	32
Award life	5 years	5 years	5 years	3 years	3 years	3 years
Expected dividend	2.37%	1.80%	1.50%	1.78%	1.66%	2.23%
Fair value of award at time of grant	124.92p- 189.26p	155.83p- 236.08p	183.08p- 277.36p	75.67p- 114.6p	83.11p- 214.33p	83.11p-134.21p
Risk-free interest rate	1.21%	0.56%	0.86%	1.01%	0.99%- 1.47%	0.35%

It is recognised by the Remuneration Committee that the additional EPS targets represent a highly challenging goal and consequently, in determining whether they have been met, the Committee will exercise its discretion. The overall aim is that the relevant EPS targets must have been met on a run-rate or underlying basis. As such, an adjusted measure of EPS will be calculated to assess the underlying performance of the business.

2014 CIP Investment and matching grants

The total number of matching awards made in 2014 to each participant was divided into three separate equal amounts and is subject
to future performance periods of three, four and five years respectively. 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.

% of awards eligible for vesting	IWG TSR % achieved relative to 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:

% of awards eligible for vesting	Compound annual growth in adjusted EPS 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.

% of awards eligible for vesting	IWG TSR % achieved relative to FTSE 350 Index (excluding financial services and mining companies)
Below index	0%
Median	25%
Upper quartile or above	100%

2016 PSP Investment grant

The total number of shares awarded is subject to three different performance conditions. These conditions are measured over three financial years commencing on 1 January 2016. Thus, conditional on meeting these performance targets, these shares will vest in March 2021. One third is subject to defined earnings per share (EPS) conditions, one third is subject to relative total shareholder return (TSR) conditions and one third is subject to return on investment (ROI) conditions.

The EPS condition is based on the compound annual growth in EPS over the performance period measured from EPS in the financial year ending 31 December 2015 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 2015 as follows:

Vesting scale	% of one third of the award that vest
Exceeds 2015 ROI plus 300 basis points	100%
Exceeds 2015 ROI by less than 300 basis points	On a straight-line basis between 0% and 100%
Equal to or less than the 2015 ROI	0%

2017 PSP Investment grant

The total number of shares awarded is subject to three different performance conditions. These conditions are measured over three financial years commencing on 1 January 2017. Thus, conditional on meeting these performance targets, these shares will vest in March 2022. One third is subject to defined earnings per share (EPS) conditions, one third is subject to relative total shareholder return (TSR) conditions and one third is subject to return on investment (ROI) conditions.

The EPS condition is based on the compound annual growth in EPS over the performance period measured from EPS in the financial year ending 31 December 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%

2018 PSP Investment grant

The total number of shares awarded is subject to three different performance conditions. These conditions are measured over three financial years commencing on 1 January 2018. Thus, conditional on meeting these performance targets, these shares will vest in March 2023. One third is subject to defined earnings per share (EPS) conditions, one third is subject to relative total shareholder return (TSR) conditions and one third is subject to return on investment (ROI) conditions.

The EPS condition is based on the compound annual growth in EPS over the performance period measured from EPS in the financial year ending 31 December 2017 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 2017 as follows:

Vesting scale	% of one third of the award that vest
Exceeds 2017 ROI plus 300 basis points	100%
Exceeds 2017 ROI by less than 300 basis points	On a straight-line basis between 0% and 100%
Equal to or less than the 2017 ROI	0%

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 then 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). This award lapsed in 2018.

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 then 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 that are eligible will vest in March 2020.

Reconciliation of outstanding share options

	2018	2017
	Number of awards	Number of awards
At 1 January	383,664	-
DSBP award granted during the year	-	383,664
Outstanding at 31 December	383,664	383,664
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:

	March 2017
	DBSP
Share price on grant date	283.70p
Exercise price	Nil
Number of simulations	-
Number of companies	-
Award life	3 years
Expected dividend	1.80%
Fair value of award at time of grant	236.04p
Risk-free interest rate	0.23%

25. Retirement benefit obligations

The Group accounts for the Swiss and Philippines pension plans as defined benefit plans under IAS 19 - Employee Benefits.

The reconciliation of the net defined benefit liability and its components are as follows:

	2018 £m	2017 £m
Fair value of plan assets	9.9	8.5
Present value of obligations	(11.4)	(10.0)
Net funded obligations	(1.5)	(1.5)

26. Acquisitions

Current period acquisitions

During the year ended 31 December 2018 the Group made various individually immaterial acquisitions for a total consideration of £1.5m.

£m	Book value	Provisional fair value adjustments	Provisional fair value
Net assets acquired
Intangible assets	-	-	-
Property, plant and equipment	0.6	-	0.6
Cash	0.7	-	0.7
Other current and non-current assets	1.0	-	1.0
Current liabilities	(1.7)	-	(1.7)
Non-current liabilities	(0.1)	-	(0.1)
	0.5	-	0.5
Goodwill arising on acquisition			1.0
Total consideration			1.5
Less: Contingent consideration			0.3
			1.2
Cash flow on acquisition
Cash paid			1.2
Net cash outflow			1.2

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. £0.3m of the above goodwill is expected to be deductible for tax purposes.

If the above acquisitions had occurred on 1 January 2018, the revenue and net retained profit arising from these acquisitions would have been £4.6m and £0.1m respectively. In the year, the equity acquisitions contributed revenue of £1.7m and net retained profit of £0.6m.

There was £0.3m contingent consideration arising on the 2018 acquisitions. Contingent consideration of £1.8m (2017: £2.1m) was also paid during the current year with respect to milestones achieved on prior year acquisitions.

The acquisition costs associated with these transactions were £0.2m, recorded within administration expenses within the consolidated income statement.

For a number of the acquisitions in 2018, the fair value of assets acquired has only been provisionally assessed, pending completion
of a fair value assessment which has not yet been completed due to the limited time available between the date of acquisitions and the year-end date. The main changes in the provisional fair values expected are 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.

Prior period acquisitions

During the year ended 31 December 2017 the Group made various individually immaterial acquisitions for a total consideration of £43.5m.

£m	Book value	Provisional fair value adjustments	Provisional fair value	Final fair value adjustments	Final fair value
Net assets acquired
Intangible assets	-	1.5	1.5	0.1	1.6
Property, plant and equipment	98.4	0.6	99.0	8.5	107.5
Cash	5.5	-	5.5	-	5.5
Other current and non-current assets	0.4	0.4	0.8	-	0.8
Current liabilities	(6.6)	-	(6.6)	(0.1)	(6.7)
Non-current liabilities	(60.2)	-	(60.2)	-	(60.2)
	37.5	2.5	40.0	8.5	48.5
Goodwill arising on acquisition			3.5	(8.5)	(5.0)
Total consideration			43.5	-	43.5
			43.5		43.5
Cash flow on acquisition
Cash paid			43.5		43.5
Net cash outflow			43.5		43.5

Goodwill arising on acquisitions includes negative goodwill of £6.2m recognised as part of the selling, general and administration expenses line item in the consolidated income statement. The negative goodwill recognised is primarily due to the fair value uplift on the acquired properties based on the valuation provided by external valuation experts.

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. £0.4m of the above goodwill is expected to be deductible for tax purposes.

If the above acquisitions had occurred on 1 January 2017, the revenue and net retained profit arising from these acquisitions would have been £19.6m and £3.2m respectively. In the year, the equity acquisitions contributed revenue of £11.6m and net retained profit of £3.3m.

There was £nil contingent consideration arising on the above acquisitions. Contingent consideration of £2.1m was also paid during the prior year with respect to milestones achieved on previous acquisitions.

The acquisition costs associated with these transactions were £1.0m, 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 2018.

27. Capital commitments

	2018 £m	2017 £m
Contracts placed for future capital expenditure not provided for in the financial statements	79.9	60.9

These commitments are principally in respect of fit-out obligations on new centres opening in 2019. There are no capital commitments in respect of joint ventures at 31 December 2018 (2017: nil).

28. Non-cancellable operating lease commitments

As at the reporting date the Group was committed to making the following payments in respect of operating leases:

	2018			2017
	Property £m	Other £m	Total £m	Property £m	Other £m	Total £m
Lease obligations falling due:
Within one year	1,047.8	0.1	1,047.9	914.8	0.5	915.3
Between one and five years	3,119.0	-	3,119.0	2,630.5	0.4	2,630.9
After five years	2,474.7	-	2,474.7	1,511.3	-	1,511.3
	6,641.5	0.1	6,641.6	5,056.6	0.9	5,057.5

Non-cancellable operating lease commitments exclude future contingent rental amounts such as the variable amounts payable under performance based leases, where the rents vary in line with a centre's performance.

The Group's non-cancellable operating lease commitments do not generally include purchase options, nor do they impose restrictions on the Group regarding dividends, debt or further leasing.

29. Contingent assets and liabilities

The Group has bank guarantees and letters of credit held with certain banks, substantially in support of leasehold contracts with a variety of landlords, amounting to £152.7m (2017: £142.7m). There are no material lawsuits pending against the Group.

30. Related parties

Parent and subsidiary entities

The consolidated financial statements include the results of the Group and its subsidiaries listed in note 31.

Joint ventures

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

£m	Management fees received from related parties	Amounts owed by related party	Amounts owed to related party
2018
Joint ventures	2.8	12.8	3.4
2017
Joint ventures	3.0	9.0	2.2

As at 31 December 2018, none of the amounts due to the Group have been provided for as the expected credit losses arising on the balances are considered immaterial (2017: £nil). All outstanding balances with these related parties are priced on an arm's length basis. None of the balances are secured.

Key management personnel

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

Compensation of key management personnel (including Directors)

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

	2018 £m	2017 £m
Short-term employee benefits	7.9	6.7
Retirement benefit obligations	0.4	0.5
Share-based payments	1.0	1.4
	9.3	8.6

Share-based payments included in the table above reflect the accounting charge in the year. The full fair value of awards granted in the year was £2.1m (2017: £3.9m). These awards are subject to performance conditions and vest over three, four and five years from the award date.

Transactions with related parties

During the year ended 31 December 2018 the Group acquired goods and services from a company indirectly controlled by a Director
of the Company amounting to £43,288 (2017: £91,120). There was a £53,630 balance outstanding at the year-end (2017: £9,506).

All transactions with these related parties are priced on an arm's length basis and are to be settled in cash. None of the balances
are secured.

31. Principal Group companies

The Group's principal subsidiary undertakings at 31 December 2018, their principal activities and countries of incorporation are set
out below:

Name of undertaking	Country of incorporation	% of ordinary shares and votes held	Name of undertaking	Country of incorporation	% of ordinary shares and votes held
Trading companies			Management companies
Regus Australia Management Pty Ltd	Australia	100	RGN Management Limited Partnership	Canada	100
Regus Belgium SA	Belgium	100	Pathway IP Sarl	Luxembourg	100
Regus do Brasil Ltda	Brazil	100	Franchise International Sarl	Luxembourg	100
Regus Business Service (Shenzen) Ltd	China	100	RBW Global Sarl	Luxembourg	100
Regus Management ApS	Denmark	100	Regus Service Centre Philippines B.V.	Philippines	100
Regus Management (Finland) Oy	Finland	100	Regus Global Management Centre SA	Switzerland	100
Regus HK Management Ltd	Hong Kong	100	Regus Group Services Ltd	United Kingdom	100
Regus CME Ireland Limited	Ireland	100	IW Group Services (UK) Ltd	United Kingdom	100
Regus Business Centres Limited	Israel	100	Regus Management Group LLC	United States	100
Regus Business Centres Italia Srl	Italy	100
Regus Japan K.K.	Japan	100	Holding and finance companies
Regus Management Malaysia Sdn Bhd	Malaysia	100
Regus Management de Mexico, SA de CV	Mexico	100	Umbrella Group Sarl	Luxembourg	100
Regus New Zealand Management Ltd	New Zealand	100	IWG Global Investments Sarl	Luxembourg	100
Regus Business Centre Norge AS	Norway	100	Regus Plc SA	Luxembourg	100
IWG Management Sp. z o.o.	Poland	100	IWG Group Holdings Sarl	Luxembourg	100
Regus Management Singapore Pte Ltd	Singapore	100	Pathway Finance Sarl	Switzerland	100
Regus Management (Sweden) AB	Sweden	100	Pathway Finance EUR 2 Sarl	Switzerland	100
Avanta Managed Offices Ltd	United Kingdom	100	Pathway Finance USD 2 Sarl	Switzerland	100
Basepoint Centres Limited	United Kingdom	100	Regus Group Limited	United Kingdom	100
HQ Global Workplaces LLC	United States	100	Regus Corporation	United States	100
RGN-BSuites Holdings, LLC	United States	100
RGN National Business Centre LLC	United States	100
Office Suites Plus Properties LLC	United States	100
Regus Business Centres LLC	United States	100

32. Key judgemental and estimates areas adopted in preparing these accounts

The preparation of consolidated financial statements in accordance with IFRS requires management to make certain judgements and assumptions that affect reported amounts and related disclosures.

Fair value accounting for business combinations

For each business combination, we assess the fair values of assets and liabilities acquired. Where there is not an active market in the category of the non-current assets typically acquired with a business centre or where the books and records of the acquired company
do not provide sufficient information to derive an accurate valuation, management calculates an estimated fair value based on available information and experience.

The main categories of acquired non-current assets where management's judgement has an impact on the amounts recorded include tangible fixed assets, customer list intangibles and the fair market value of leasehold assets and liabilities. For significant business combinations management also obtains third-party valuations to provide additional guidance as to the appropriate valuation to be included in the financial statements.

Valuation of intangibles and goodwill

We evaluate the fair value of goodwill and other indefinite life intangible assets to assess potential impairments on an annual basis, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. We evaluate the carrying value of goodwill based on our CGUs aggregated at a country level and make that determination based upon future cash flow projections which assume certain growth projections which may or may not occur. We record an impairment loss for goodwill when the carrying value of the asset is less than its estimated recoverable amount. Further details of the methodology and assumptions applied to the impairment review in the year ended 31 December 2018, including the sensitivity to changes in those assumptions, can be found in note 11.

Impairment of property, plant and equipment

We evaluate the potential impairment of property, plant and equipment at a centre (CGU) level where there are indicators of impairment at the balance sheet date. In the assessment of value-in-use, key judgemental areas in determining future cash flow projections include: an assessment of the location of the centre; the local economic situation; competition; local environmental factors; the management of the centre; and future changes in occupancy, revenue and costs of the centre.

Tax assets and liabilities

We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing laws and rates, and their related interpretations, and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents management's best estimate of future events that can be appropriately reflected in the accounting estimates. It is current Group policy to recognise a deferred tax asset when it is probable that future taxable profits will be available against which the assets can be used. The Group considers it probable if the entity has made a taxable profit in the previous year, current year and is forecast to continue to make a profit in the foreseeable future. Where appropriate, the Group assesses the potential risk of future tax liabilities arising from the operation of its business in multiple tax jurisdictions and includes provisions within tax liabilities for those risks that can be estimated reliably. Changes in existing tax laws can affect large international groups such as IWG and could result in significant additional tax liabilities over and above those already provided for.

Onerous lease provisions

We evaluate the performance of centres to determine whether any leases are considered onerous, i.e. the Group does not expect to recover the unavoidable lease costs up to the first break point at the Group's option. A provision for our estimate of the net amounts payable under the terms of the lease to the first break point, discounted at an appropriate discount rate, is recognised where appropriate.

Dilapidations

Certain of our leases with landlords include a clause obliging the Group to hand the property back in the condition as at the date of signing the lease. The costs to bring the property back to that condition are not known until the Group exits the property so the Group estimates the costs at each balance sheet date. However, given that landlords often regard the nature of changes made to properties as improvements, the Group estimates that it is unlikely that any material dilapidation payments will be necessary. A provision is recognised for those potential dilapidation payments when it is probable that an outflow will occur and can be reliably estimated.

PARENT COMPANY ACCOUNTS

Summarised extract of Company balance sheet
(ACCOUNTING POLICIES ARE BASED ON the Swiss Code of Obligations)

	As at 31 Dec 2018 £m	As at 31 Dec 2017 £m

Trade and other receivables	9.4	9.8
Prepayments	0.2	1.1
Total current assets	9.6	10.9
Investments	2,295.4	2,295.4
Total non-current assets	2,295.4	2,295.4

Total assets	2,305.0	2,306.3

Trade and other payables	4.3	1.6
Accrued expenses	2.3	1.4
Total short-term liabilities	6.6	3.0
Long-term interest bearing liabilities	207.7	106.8
Total long-term liabilities	207.7	106.8

Total liabilities	214.3	109.8

Issued share capital	9.2	9.2
Legal capital reserves	-	-
Reserves from capital contributions	2,185.0	2,238.7
Retained earnings	(15.1)	(3.0)
Loss for the year	(14.3)	(8.8)
Treasury shares	(74.1)	(39.6)
Total shareholders' equity	2,090.7	2,196.5

Total liabilities and shareholders' equity	2,305.0	2,306.3

Approved by the Board on 6 March 2019

Mark Dixon ERIC HAGEMAN

Chief Executive Officer Chief Financial Officer

Accounting policies

Basis of preparation

These financial statements were prepared in accordance with accounting policies based on the Swiss Code of Obligations.

The Company is included in the consolidated financial statements of IWG plc.

The balance sheet has been extracted from the non-statutory accounts of IWG plc for the year ended 31 December 2018, which are available from the Company's registered office, Dammstrasse 19, CH-6300, Zug, Switzerland.

SEGMENTAL ANALYSIS

Segmental analysis - management basis (unaudited)

	Americas 2018	EMEA 2018	Asia Pacific 2018	United Kingdom 2018	Other 2018	Total 2018
Mature(1)
Workstations(4)	174,629	96,850	92,879	74,106	-	438,464
Occupancy (%)	75.7%	77.0%	72.8%	68.8%	-	74.2%
Revenue (£m)	961.7	527.1	368.0	376.5	4.5	2,237.8
Contribution (£m)	207.6	128.0	76.2	49.3	(0.2)	460.9
REVPOW (£)	7,278	7,072	5,440	7,387	-	6,880

2017 Expansions(2)
Workstations(4)	15,703	20,211	9,467	13,721	-	59,102
Occupancy (%)	55.1%	62.4%	52.0%	76.6%	-	62.1%
Revenue (£m)	48.6	70.0	25.1	35.8	0.4	179.9
Contribution (£m)	(13.0)	3.1	(3.9)	12.4	0.5	(0.9)

2018 Expansions(2)
Workstations(4)	9,421	15,264	7,989	6,036	-	38,710
Occupancy (%)	37.4%	31.9%	29.4%	30.0%	-	32.4%
Revenue (£m)	19.8	20.8	11.5	13.3	-	65.4
Contribution (£m)(5)	(12.3)	(8.1)	(7.2)	(4.9)	-	(32.4)

Closures(6)
Workstations(4)	3,625	2,828	2,269	2,346	-	11,068
Occupancy (%)	60.5%	61.2%	54.0%	63.4%	-	60.0%
Revenue (£m)	18.4	12.9	7.6	13.4	-	52.3
Contribution (£m)	(8.5)	(4.0)	(4.3)	(1.5)	-	(18.3)

Total
Workstations(4)	203,378	135,153	112,604	96,209	-	547,344
Occupancy (%)	72.0%	69.4%	67.6%	67.3%	-	69.6%
Revenue (£m)	1,048.5	630.8	412.2	439.0	4.9	2,535.4
Contribution (£m)	173.8	119.0	60.8	55.3	0.3	409.2
REVPAW (£)	5,155	4,667	3,661	4,563	-	4,632

Period end workstations(7)
Mature	175,582	99,795	93,805	76,371	-	445,553
2017 Expansions	14,626	19,963	9,694	15,260	-	59,543
2018 Expansions	19,015	35,424	17,565	13,383	-	85,387
Total	209,223	155,182	121,064	105,014	-	590,483

Segmental analysis - management basis (unaudited)

	Americas 2017	EMEA 2017	Asia Pacific 2017	United Kingdom 2017	Other 2017	Total 2017
Mature(1)
Workstations(4)	174,309	92,301	92,587	69,713	-	428,910
Occupancy (%)	74.3%	76.6%	71.3%	71.6%	-	73.7%
Revenue (£m)	930.3	493.7	361.1	390.3	3.3	2,178.7
Contribution (£m)	162.3	105.9	71.4	75.2	(1.2)	413.6
REVPOW (£)	7,183	6,983	5,470	7,819	-	6,892

2017 Expansions(2)
Workstations(4)	7,309	7,626	3,694	6,641	-	25,270
Occupancy (%)	27.0%	38.4%	25.2%	73.1%	-	42.3%
Revenue (£m)	10.9	20.2	5.2	14.4	0.5	51.2
Contribution (£m)	(14.1)	(5.5)	(5.0)	2.6	3.0	(19.0)

Closures(3)
Workstations(4)	7,060	5,977	4,709	5,164	-	22,910
Occupancy (%)	70.6%	60.3%	67.1%	68.7%	-	66.8%
Revenue (£m)	43.6	26.6	16.9	35.3	-	122.4
Contribution (£m)	5.0	(3.3)	(0.5)	5.8	-	7.0

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

Notes:

1. The mature business comprises centres not opened in the current or previous financial year

2. Expansions include new centres opened and acquired businesses

3. A closure for the 2017 comparative data is defined as a centre closed during the period from 1 January 2017 to 31 December 2018

4. Workstation numbers are calculated as the weighted average for the year

5. 2018 expansions includes any costs incurred in 2018 for centres which will open in 2019

6. A closure for the 2018 date is defined as a centre closed during the period from 1 January 2018 to 31 December 2018

7. Workstations available at period end

POST-TAX CASH RETURN ON NET INVESTMENT

The purpose of this unaudited page is to reconcile some of the key numbers used in the returns calculation 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.

Description	Reference	2015 Aggregation	2016 Expansions	2017 Expansions	2018 Expansions	2019 Expansions	Closures	Total
Post-tax cash return on net investment (unaudited)		17.6%	0.6%	-	-	-	-	9.9%

Revenue	Income statement, p85	2,107.7	130.1	179.9	65.4	-	52.3	2,535.4
Centre contribution	Income statement, p85	454.0	6.8	(0.9)	(31.4)	(1.0)	(18.3)	409.2
Loss on disposal of assets	EBIT reconciliation (analysed below)	0.4	-	-	-	-	13.2	13.6
Underlying centre contribution		454.4	6.8	(0.9)	(31.4)	(1.0)	(5.1)	422.8
Selling, general and administration expenses(1)	Income statement, p85	(179.4)	(20.1)	(28.3)	(20.9)	(0.8)	(4.2)	(253.7)
EBIT	EBIT reconciliation (analysed below)	275.0	(13.3)	(29.2)	(52.3)	(1.8)	(9.3)	169.1
Depreciation and amortisation	Note 5, p98	166.0	19.6	31.1	13.6	-	5.5	235.8
Amortisation of partner contributions	Note 5, p98	(48.3)	(6.2)	(7.9)	(4.7)	-	(0.4)	(67.5)
Amortisation of acquired lease fair value adjustments	Note 5, p98	(2.2)	0.1	0.1	0.1	-	(0.1)	(2.0)
Non-cash items		115.5	13.5	23.3	9.0	-	5.0	166.3
Taxation(2)		(54.9)	2.7	5.8	10.5	0.4	1.9	(33.6)
Adjusted net cash profit		336.6	2.9	(0.1)	(32.8)	(1.4)	(2.4)	301.8
Maintenance capital expenditure	Capital expenditure (analysed below)	109.3	2.7	-	-	-	-	112.0
Partner contributions	Partner contributions (analysed below)	(22.8)	(0.7)	-	-	-	-	(23.5)
Net maintenance capital expenditure		86.5	2.0	-	-	-	-	88.5
Post-tax cash return		249.1	0.9	(0.1)	(32.8)	(1.4)	(2.4)	213.3


Growth capital expenditure	Capital expenditure (analysed below)	1,695.7	200.3	384.4	381.1	57.8	-	2,719.3
Partner contributions	Partner contributions (analysed below)	(278.6)	(58.0)	(84.8)	(128.2)	(4.5)	-	(554.1)
Net investment (unaudited)		1,417.1	142.3	299.6	252.9	53.3	-	2,165.2

1. Including research and development expenses

2. Based on EBIT at the Group's long-term effective tax rate of 20%

2018

Movement in capital expenditure (unaudited)	2015 Aggregation	2016 Expansions	2017 Expansions	2018 Expansions	2019 Expansions	Closures	Total
December 2017	1,754.5	197.9	343.7	14.0	-	-	2,310.1
2018 Capital expenditure(3)	8.0	3.2	40.5	361.7	57.1	-	470.5
Properties acquired	-	-	-	5.6	0.7	-	6.3
Centre closures(4)	(66.8)	(0.8)	0.2	(0.2)	-	-	(67.6)
December 2018	1,695.7	200.3	384.4	381.1	57.8	-	2,719.3

3. 2019 expansions relate to costs and investments incurred in 2018 for centres which will open in 2019

4. The growth capital expenditure for an estate is reduced by the investment in centres closed during the year, but only where that investment has been fully recovered

2018

Movement in partner contributions (unaudited)	2015 Aggregation	2016 Expansions	2017 Expansions	2018 Expansions	2019 Expansions		Closures	Total
December 2017	285.8	58.2	74.9	0.6	-	-		419.5
2018 Partner contributions	2.8	-	9.9	127.6	4.5	-		144.8
Centre closures(5)	(10.0)	(0.2)	-	-	-	-		(10.2)
December 2018	278.6	58.0	84.8	128.2	4.5	-		554.1

5. The partner contributions for an estate are reduced by the partner contributions for centres closed during the year

2018

EBIT reconciliation (unaudited)	Reference	£m
EBIT		169.1
Loss on disposal of assets	Note 5, p98	(13.6)
Share of profit in joint ventures	Income statement, p85	(1.4)
Operating profit	Income statement, p85	154.1

2018

Partner contributions (unaudited)	Reference	£m
Opening partner contributions		353.0
• Current	Note 16, p107	59.2
• Non-current	Note 17, p107	293.8
Acquired in the period		-
Received in the period		168.3
• Maintenance partner contributions		23.5
• Growth partner contributions		144.8
Utilised in the period	Note 5, p98	(67.5)
Exchange differences		14.5
Closing partner contributions		468.3
• Current	Note 16, p107	78.7
• Non-current	Note 17, p107	389.6

2018

Capital expenditure (unaudited)	Reference	£m
Maintenance capital expenditure	CFO review, p32	112.0
Growth capital expenditure	CFO review, p32	476.8
• 2018 Capital expenditure		470.5
• Properties acquired		6.3
Total capital expenditure		588.8
Analysed as
• Purchase of subsidiary undertakings	Cash flow, p89	2.3
• Purchase of property, plant and equipment	Cash flow, p89 Note 13, p106	579.6
• Purchase of intangible assets	Cash flow, p89 Note 12, p105	6.9

IFRS 16 PRO FORMA STATEMENTS

consolidated income statement (unaudited)

The purpose of these unaudited pages is to provide a reconciliation from the 2018 reported financial results to the pro forma statements in accordance with IFRS 16, and thereby, give the reader greater insight into the expected impact of IFRS 16 on the performance of
the Group.

Continuing operations	Notes	Year ended 31 Dec 2018 As reported £m	Rent & finance costs £m	Depreciation £m	Other adjustments £m	Taxation £m	Year ended 31 Dec 2018 per IFRS 16 £m
Revenue	3	2,535.4	-	-	(7.0)	-	2,528.4
Cost of sales		(2,126.2)	1,022.5	(866.1)	32.8	-	(1,937.0)
Gross profit (centre contribution)		409.2	1,022.5	(866.1)	25.8	-	591.4
Selling, general and administration expenses		(253.7)	-	-	-	-	(253.7)
Share of loss of equity-accounted investees, net of tax	20	(1.4)	-	-	-	-	(1.4)
Operating profit	5	154.1	1,022.5	(866.1)	25.8	-	336.3
Finance expense	7	(15.9)	(225.6)	-	-	-	(241.5)
Finance income	7	0.5	-	-	0.6	-	1.1
Net finance expense		(15.4)	(225.6)	-	0.6	-	(240.4)
Profit before tax for the year		138.7	796.9	(866.1)	26.4	-	95.9
Income tax expense	8	(33.0)	-	-	-	0.7	(32.3)
Profit after tax for the year		105.7	796.9	(866.1)	26.4	0.7	63.6

Earnings per ordinary share (EPS):
Basic (p)	9	11.7					7.0
Diluted (p)	9	11.6					7.0

Pro forma adjustments recognised

The performance of the Group is impacted by the following significant adjustments in adopting IFRS 16. The recognition of these balances will not impact the overall cash flows of the Group or the cash generation per share.

1. Right-of-use asset & related lease liability

These adjustments reflect the right-of-use asset recognised on transition, together with the related lease liability. The initial lease liability is equal to the present value of the lease payments during the lease term that have not yet been paid. The cost of the right-of-use asset comprises the amount of the initial measurement of the lease liability, plus any additional direct costs associated with setting up the lease. Rent prepayments at the date of transition have been offset against the value of the liability recognised.

2. Rent & finance costs

Conventional rent charges recognised in the profit or loss under IAS 17 are de-recognised on adoption of IFRS 16. The payments associated with these charges instead form part of the lease payments used in calculating the right-of-use asset and related lease liability noted above. The lease liability is measured in subsequent periods using the effective interest rate method, based on the applicable interest rate determined at the date of transition. The related finance costs arising on subsequent measurement are recognised directly through profit or loss.

3. Depreciation & lease payments

Depreciation on the right-of-use asset recognised is depreciated over the life of the lease on a straight-line basis, adjusted for any period between the lease commencement date and the date the related centre opens, reflecting the lease related costs directly incurred in preparing the business centre for trading. Lease payments reduce the lease liability recognised in the balance sheet.

4. Other adjustments

On transition, the remaining net book value of rent costs previously capitalised, as costs directly incurred in preparing the business centre for trading (i.e. as part of property, plant and equipment), are de-recognised and eliminated directly against retrained earnings.

Parking related costs previously expensed under IAS 17, but explicitly detailed within lease agreements, are de-recognised from profit or loss and included as part of the right-of-use asset and related lease liability recognised on transition.

IWG acts as a lessor in a handful of instances. On transition, the difference between the right-of-use asset costs arising on the head-lease and the related finance lease receivable on the sub-lease is recognised directly in retained earnings. The income statement is only impacted by the finance expenses from the head-lease offset by the finance income from the sub-lease.

5. Taxation

The underlying tax charge is not impacted by IFRS 16 over the life of the leases but there is expected to be an upward impact on the expected tax rate (ETR) in the short term. On transition however, the adoption of IFRS 16 impacts the profitability of various countries across the Group, resulting in a decrease in the deferred tax asset recognised in respect of those countries. As this impact arises on the adoption of IFRS 16, the corresponding tax adjustment is recognised directly in retained earnings.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

	Notes	As at 31 Dec 2018 £m	Right-of-use asset & related lease liability £m	Rent & finance costs £m	Depreciation & lease payments £m	Other adjustments £m	Taxation £m	Year ended 31 Dec 2018 per IFRS 16 £m
Non-current assets
Goodwill	11	679.2	-	-	-	-	-	679.2
Other intangible assets	12	42.5	-	-	-	-	-	42.5
Property, plant and equipment	13	1,751.2	6,530.8	-	(892.0)	(135.9)	-	7,254.1
Deferred tax assets	8	30.6	-	-	-	-	(4.2)	26.4
Non-current derivative financial assets	23	0.3	-	-	-	-	-	0.3
Other long-term receivables	14	86.0	-	-	-	-	-	86.0
Investments in joint ventures	20	12.2	-	-	-	-	-	12.2
Total non-current assets		2,602.0	6,530.8	-	(892.0)	(135.9)	(4.2)	8,100.7

Current assets
Trade and other receivables	15	717.5	(131.4)	(0.8)	-	5.5	-	590.8
Corporation tax receivable	8	32.7	-	-	-	-	0.7	33.4
Cash and cash equivalents	22	69.0	-	-	-	-	-	69.0
Total current assets		819.2	(131.4)	(0.8)	-	5.5	0.7	693.2
Total assets		3,421.2	6,399.4	(0.8)	(892.0)	(130.4)	(3.5)	8,793.9

Current liabilities
Trade and other payables (incl. customer deposits)	16	1,058.9	-	(163.2)	-	-	-	895.7
Deferred income		320.0	-	-	-	-	-	320.0
Corporation tax payable	8	31.0	-	-	-	-	-	31.0
Bank and other loans	18	9.9	905.8	-	-	12.8	-	928.5
Provisions	19	9.7	-	-	-	-	-	9.7
Total current liabilities		1,429.5	905.8	(163.2)	-	12.8	-	2,184.9

Non-current liabilities
Other long-term payables	17	704.2	-	(305.9)	-	-	-	398.3
Bank and other loans	18	519.9	6,002.3	231.2	(1,000.9)	-	-	5,752.5
Deferred tax liability	8	-	-	-	-	-	-	-
Provisions	19	9.4	-	-	-	-	-	9.4
Provision for deficit in joint ventures	20	5.5	-	-	-	-	-	5.5
Retirement benefit obligations	25	1.5	-	-	-	-	-	1.5
Total non-current liabilities		1,240.5	6,002.3	(74.7)	(1,000.9)	-	-	6,167.2
Total liabilities		2,670.0	6,908.1	(237.9)	(1,000.9)	12.8	-	8,352.1

Total equity
Issued share capital	21	9.2	-	-	-	-	-	9.2
Treasury shares	21	(74.1)	-	-	-	-	-	(74.1)
Foreign currency translation reserve		72.4	-	(5.6)	(25.9)	-	-	40.9
Hedging reserve		0.3	-	-	-	-	-	0.3
Other reserves		25.8	-	-	-	-	-	25.8
Retained earnings		717.6	(508.7)	242.7	134.8	(143.2)	(3.5)	439.7
Reported balance / profit for the year		717.6	-	796.9	(866.1)	26.4	0.7	675.5
Directly in reserves - on adoption of IFRS 16		-	(508.7)	(554.2)	1,000.9	(169.6)	(4.2)	(235.8)
Total equity		751.2	(508.7)	237.1	108.9	(143.2)	(3.5)	441.8
Total equity and liabilities		3,421.2	6,399.4	(0.8)	(892.0)	(130.4)	(3.5)	8,793.9

FIVE-YEAR SUMMARY

	31 Dec 2018 £m	31 Dec 2017 £m	31 Dec 2016 £m	31 Dec 2015 £m	31 Dec 2014 £m
Income statement (full year ended)
Revenue	2,535.4	2,352.3	2,233.4	1,927.0	1,676.1
Cost of sales	(2,126.2)	(1,950.7)	(1,784.6)	(1,498.6)	(1,293.0)
Gross profit (centre contribution)	409.2	401.6	448.8	428.4	383.1
Administration expenses	(253.7)	(237.6)	(262.8)	(268.6)	(279.6)
Share of post-tax (loss)/profit of joint ventures	(1.4)	(0.8)	(0.8)	0.3	0.8
Operating profit	154.1	163.2	185.2	160.1	104.3
Finance expense	(15.9)	(14.1)	(11.6)	(15.0)	(17.3)
Finance income	0.5	0.3	0.1	0.6	0.1
Profit before tax for the year	138.7	149.4	173.7	145.7	87.1
Income tax expense	(33.0)	(35.4)	(34.9)	(25.8)	(17.2)
Profit after tax for the year	105.7	114.0	138.8	119.9	69.9

Earnings per ordinary share (EPS):
Basic (p)	11.7p	12.4p	14.9p	12.8p	7.4p
Diluted (p)	11.6p	12.3p	14.7p	12.6p	7.2p
Weighted average number of shares outstanding ('000s)	907,077	915,676	929,830	933,458	944,082

Balance sheet data (as at)
Intangible assets	721.7	712.1	738.1	666.0	549.9
Property, plant and equipment	1,751.2	1,367.2	1,194.4	917.0	718.8
Deferred tax assets	30.6	23.0	29.3	36.4	40.0
Other assets	848.7	702.7	649.2	644.3	565.2
Cash and cash equivalents	69.0	55.0	50.1	63.9	72.8
Total assets	3,421.2	2,860.0	2,661.1	2,327.6	1,946.7
Current liabilities	1,429.5	1,224.7	1,183.1	1,085.7	891.9
Non-current liabilities	1,240.5	907.6	736.0	658.2	517.4
Equity	751.2	727.7	742.0	583.7	537.4
Total equity and liabilities	3,421.2	2,860.0	2,661.1	2,327.6	1,946.7

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IWG plc published this content on 06 March 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 06 March 2019 07:19:30 UTC

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