IWG Regulatory News (IWG)

7 March 2023

PRELIMINARY RESULTS ANNOUNCEMENT

IWG plc, the largest provider of hybrid workspace globally including its Regus and Spaces brands and an unrivalled network of 3,345 buildings across 120 countries, issues its preliminary results for the twelve months ended31 December 2022.

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

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

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

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

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

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

Delivering both growth and cash in 2022

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

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

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

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

Clear progress on expansion priorities

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

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

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

Worka

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

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

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

SUMMARY FINANCIALS

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

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

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

3.  Basic EPS (p) from continuing operations

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

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

Mark Dixon, Chief Executive of IWG plc, said:

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

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

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

Outlook and guidance

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

Financial calendar

Details of results presentation

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

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

UK & International +44 (0) 33 0551 0200

UK Toll Free 0808 109 0700

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

UK & International +44 (0) 203451 9993

UK Toll Free 0800 633 8453

Replay PIN: 1247003#

Chairman's statement

Hybrid working is driving flexible workspace mainstream

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

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

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

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

Our people

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

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

Our strategy

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

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

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

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

Our Board

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

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

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

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

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

Our environmental journey

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

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

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

Looking ahead

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

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

Douglas Sutherland

Chairman

Chief Executive Officer's Review

Leading the global shift to hybrid

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

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

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

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

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

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

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

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

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

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

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

A bright future

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

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

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

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

1.  IWG Research, 2022

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

3.  BBC STORYWORKS

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

Only expanding as a green business

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

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

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

Driving growth at IWG

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

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

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

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

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

Our financial performance in 2022

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

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

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

Looking to the year ahead

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

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

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

Mark Dixon

Founder and CEO, IWG plc

Chief Financial Officer's review

In 2022 IWG showed the ability to grow rapidly and profitably

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

Financial performance

The Group reports results in accordance with IFRS. Under IFRS 16, while total lease-related charges over the life of a lease remain unchanged, the lease charges are characterised as depreciation and financing expenses with higher total expense in the early periods of a lease and lower total expense in the later periods of the lease.

Changes to segmental reporting

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

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

Revenue

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

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

Gross Profit

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

Overheads

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

Operating Profit/(Loss) adjusted - continuing operations

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

EBITDA

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

The Group reports results in accordance with IFRS. Under IFRS 16, while total lease-related charges over the life of a lease remain unchanged, the lease charges are characterised as depreciation and financing expenses with higher total expense in the early periods of a lease and lower total expense in the later periods of the lease. Results are additionally presented before the application of IFRS 16 (in accordance with IAS 17 accounting standards) as it provides useful information to stakeholders on how the Group is managed, and reporting for bank covenants and certain lease agreements. The primary difference between the two standards is the treatment of operating lease liabilities. There is no difference between underlying cash flow.

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

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

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

Adjusting items

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

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

Foreign exchange

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

Foreign exchange rates

Network growth

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

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

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

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

* Price per square foot, Q1 2020 = 100

Finance costs and taxation

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

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

Earnings per share

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

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

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

Cash flow - continuing operations

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

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

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

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

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

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

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

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

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

Risk management

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

·  ESG is firmly on the agenda for the Board;

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

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

Related parties

There have been no changes to the type of related party transactions entered into by the Group that had a material effect on the financial statements for the twelve months ended 31 December 2022. Details of related party transactions that have taken place in the period can be found in note 31.

Dividends and share repurchase

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

Financing

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

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

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

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

Going Concern

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

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

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

3. The Group maintains a 12-month rolling forecast and a three-year strategic outlook. It also monitors the covenants in its facilities to manage the risk of potential breach. The Group expects to remain within covenants throughout the forecast period. In reaching this conclusion, the Directors have assessed:

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

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

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

On the basis of their assessment, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these Group consolidated financial statements and consider it appropriate to continue to adopt the going concern basis in preparing the financial statements of the Group.

Charlie Steel

Chief Financial Officer

Consolidated income statement

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

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

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

Consolidated statement of comprehensive income

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

Consolidated statement of changes in equity

1.  Other reserves include £11m for the restatement of the assets and liabilities of the UK associate, from historic to fair value at the time of the acquisition of the outstanding 58% interest on 19 April 2006, £38m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6m relating to merger reserves and £nil to the redemption of preference shares, partly offset by £29m arising from the Scheme of Arrangement undertaken in 2003.

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

Consolidated balance sheet

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

Consolidated statement of cash flows

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

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

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

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

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

Notes to the accounts

1. Authorisation of financial statements

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

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

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

The Group financial statements have been prepared and approved by the Directors in accordance with Companies (Jersey) Law 1991 and International Financial Reporting Standards as adopted by the European Union ('Adopted IFRSs').

2. Accounting policies

Basis of preparation

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

The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements. Amendments to adopted IFRSs issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) with an effective date from 1 January 2022 did not have a material effect on the Group financial statements, unless otherwise indicated.

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

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

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

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

Judgements made by the Directors in the application of these accounting policies that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 33.

Climate change

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

Going concern

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

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

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

3. The Group maintains a 12-month rolling forecast and a three-year strategic outlook. It also monitors the covenants in its facilities to manage the risk of potential breach. The Group expects to remain within covenants throughout the forecast period. In reaching this conclusion, the Directors have assessed:

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

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

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

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

On the basis of their assessment, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these Group consolidated financial statements and consider it appropriate to continue to adopt the going concern basis in preparing the financial statements of the Group.

IFRS not yet effective

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

There are no other IFRS standards or interpretations that are not yet effective that would be expected to have a material impact on the Group.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Basis of consolidation

Subsidiaries are entities controlled by the Group. Control exists when the Group controls an entity, when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences. The results are consolidated until the date control ceases or the subsidiary qualifies as a disposal group, at which point the assets and liabilities are carried at the lower of fair value less costs to sell and carrying value.

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

Leases

The nature of the Group's leases relates primarily to the rental of commercial office real estate premises globally.

1. Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised and initial direct costs incurred. The recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

Right-of-use assets are subject to impairment review on an annual basis.

2. Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments and variable lease payments that depend on an index or a rate. The variable lease payments that do not depend on an index or a rate are recognised as a rent expense in the period in which they are incurred.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date as the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term or a change in the fixed lease payments.

3. Lease modifications

The carrying amount of lease liabilities is re-measured where there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The impact of the modification is recognised against the carrying amount of the right-of-use assets or is recorded in profit or loss if the carrying amount of the right-of-use assets has been reduced to zero.

4. Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to short-term leases (i.e. those leases that have a lease term of 12 months or less from commencement). It also applies the lease of low-value assets recognition exemption under IFRS 16 to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as a rent expense on a straight-line basis over the lease term.

5. Partner contributions

Partner contributions are contributions from our business partners (property owners and landlords) towards the initial costs of opening a business centre, including the fit-out of the property. Partner contributions representing a reimbursement to the lessee (IWG) are accounted for as agency arrangements, and form part of the lessor's (landlord's) assets.

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

6. Lease term

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

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

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

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

7. Lease break penalties

Lease break penalties, where the lease term has been determined as the period from inception up to a break clause and when there are break payments or penalties, have been appropriately included in the measurement of the lease liability.

8. Net investment in finance leases

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

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

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

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

Dilapidations

A provision is recognised for those potential dilapidation payments when it is probable that an outflow will occur and can be reliably estimated.

Impairment of non-financial assets

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount was estimated at 30 September 2022. At each reporting date, the Group reviews the carrying amount of these assets to determine whether there is an indicator of impairment. If any indicator is identified, then the assets' recoverable amount is re-evaluated.

The carrying amount of the Group's other non-financial assets (other than deferred tax assets and inventory), including right-of-use assets, is reviewed at the reporting date to determine whether there is an indicator of impairment. If any such indication exists, the assets' recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount. Impairment losses are recognised in the income statement.

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

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

The potential impairment of immovable property, plant and equipment and right-of-use assets at the centre (CGU) level are evaluated where there are indicators of impairment.

Centres (CGUs) are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed.

Individual fittings and equipment in centres or elsewhere in the business that become obsolete or are damaged are assessed and impaired where appropriate.

The recoverable amount of relevant assets is the greater of their fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Goodwill

All business combinations are accounted for using the purchase method. Goodwill is initially measured at fair value, being the excess of the aggregate of the fair value of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred (negative goodwill), then the gain is recognised in profit or loss.

Positive goodwill is stated at cost less any provision for impairment in value. An impairment test is carried out annually and, in addition, whenever indicators exist that the carrying amount may not be recoverable. Negative goodwill is recognised directly in profit or loss.

Intangible assets

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

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

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

Acquisitions of non-controlling interests

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

Property, plant and equipment

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

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

Revenue

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

1. Workstations

The Group recognises workstation revenue when it transfers services to a customer. It is measured based on the consideration specified in a contract with a customer. Services transfer to the customer equally over the contract period based on the time elapsed. Where discounted periods are granted to customers, service income is spread on a straight-line basis over the duration of the customer contract. Invoices are generally issued in advance, on a monthly basis with normal credit terms of 15 days, and initially recognised as deferred revenue.

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

2. Management and franchise fees

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

3. Customer service income

Service income (including the provision of workspace bookings, meeting rooms and inventory management) is recognised over time as the services are delivered or at a point in time depending on contractual obligations. Invoices are generally issued when the service is provided and subject to immediate settlement. In circumstances where the Group acts as an agent for the sale and purchase of goods to customers, only the commission fee earned is recognised as revenue.

4. Membership card income

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

5. Customer deposits

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

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

Deferred revenue

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

Adjusting items

Significant infrequent transactions not indicative of the underlying performance of the consolidated Group are reported separately as non-recurring/adjusting items.

Adjusting items are separately disclosed by the Group to provide readers with helpful, additional information on the performance of the business across periods. Items arising specifically from the impact of the COVID-19 pandemic, geopolitical circumstances in the Ukraine and related sanctions against Russia, have been deemed to meet the definition of adjusting items. Each of these items is considered to be significant in nature and/or size and are also consistent with items treated as adjusting in prior periods in which significant non-recurring transactions occurred. The exclusion of these items is consistent with how the business performance is planned by, and reported to, the Board. The profit before tax and adjusting items measure is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies.

The classification of adjusting items requires significant management judgement after considering the nature and intentions of a transaction. Adjusting items recognised are based on the actual costs incurred and/or calculated on a basis consistent with the key judgements and estimates disclosed in note 33. The classification of adjusting items requires management judgement after considering the nature and intentions of a transaction. Where necessary, this judgement applied is based on a formal methodology, including the comparison of current centre performance against pre-COVID-19 performance, to determine whether or not some, or all, of the associated costs are arising in the ordinary course of business.

Employee benefits

The majority of the Group's pension plans are of the defined contribution type. For these plans the Group's contribution and other paid and unpaid benefits earned by the employees are charged to the income statement as incurred.

The cost of providing benefits under the defined benefit plans is determined using the projected unit credit method.

Re-measurements, comprising actuarial gains and losses, the effect of the asset ceiling and the return on plan assets, excluding net interest, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Service costs are recognised in profit or loss, and include current and past service costs as well as gains and losses on curtailments.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under 'cost of sales' and 'selling, general and administration expenses' in the consolidated income statement: service costs comprising current service costs; past service costs; and gains and losses on curtailments and non-routine settlements.

Settlements of defined benefit schemes are recognised in the period in which the settlement occurs.

Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the periods in which the expenses are recognised.

Share-based payments

The share awards programme entitles certain directors and employees to acquire shares of the ultimate parent company (IWG plc); these awards are granted by the ultimate parent company (IWG plc) and are equity-settled.

The fair value of options and awards granted under the Group's share-based payment plans outlined in note 26 is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes valuation model or the Monte Carlo method, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest in respect of non-market conditions except where forfeiture is due to the expiry of the option.

Taxation

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

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

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are not subject to discounting. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets and liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised for unused tax losses only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

The carrying amount of a deferred tax asset or liability may change for reasons other than a change in the temporary difference itself. Such changes might arise as a result of a change in tax rates or laws, a reassessment of the recoverability of a deferred tax asset or a change in the expected manner of recovery of an asset or the expected manner of a settlement of a liability. The impact of these changes is recognised in the income statement or in other comprehensive income depending on where the original deferred tax balance was recognised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Upon adoption of IFRIC Interpretation 23, the Group considered whether it has any uncertain tax positions, particularly those relating to transfer pricing. The Company's and the subsidiaries' tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Group determined, based on its tax compliance and transfer pricing studies, that in most jurisdictions it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Group has, where considered appropriate, provided for the potential impact of uncertain tax positions where the likelihood of tax authority adjustment is considered to be more likely than not. The adoption of the interpretation did not have an impact on the consolidated financial statements of the Group.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Restructuring provisions are made for direct expenditures of a business reorganisation where the plans are sufficiently detailed and well-advanced and where the appropriate communication to those affected has been undertaken at the reporting date.

Provision is made for closure costs to the extent that the unavoidable costs of meeting the obligations exceed the economic benefits expected to be delivered.

Equity

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

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

Inventory

Inventories relate to consumable items which are measured at the lower of cost or net realisable value. The cost of inventories is based on the first-in, first-out principle.

Net finance expense

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

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

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

Interest-bearing borrowings and other financial liabilities

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

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

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

Compound financial instruments issued by the Group comprise convertible bonds denominated in pounds sterling that can be converted to ordinary shares at the option of the holder.

The debt component of compound financial instruments is initially recognised at the fair value of a similar liability that does not have an equity conversion option. The conversion option represents a derivative financial liability and is initially recognised as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the debt host.

Subsequent to initial recognition, the debt component of a compound financial instrument is measured at amortised cost using the effective interest rate method. The derivative component of a compound financial instrument is re-measured at fair value through profit or loss. Interest related to the debt is recognised as a finance expense in profit or loss.

Derivative financial instruments

The Group's policy on the use of derivative financial instruments can be found in note 25. Derivative financial instruments are measured initially at fair value and changes in the fair value are recognised through profit or loss unless the derivative financial instrument has been designated as a cash flow hedge whereby the effective portion of changes in the fair value are deferred in equity.

Financial assets

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

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

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

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

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

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

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

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

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

IFRS 9 requires the Group to record expected credit losses on all of its financial assets held at amortised cost, on either a 12-month or a lifetime basis. The Group applies the simplified approach to trade receivables and recognises expected credit losses based on the lifetime expected losses. Provisions for receivables are established based on both expected credit losses and information available that the Group will not be able to collect all amounts due according to the original terms of the receivables.

Cash and cash equivalents

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

Non-controlling interests

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

Discontinued operations

A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

·  represents a separate major line of business or geographic area of operations;

·  is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or

·  is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.

Foreign currency transactions and foreign operations

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

Foreign currency translation rates

3. Segmental analysis

An operating segment is a component of the Group that engages in business activities from which it may earn revenue and incur expenses. An operating segment's results are reviewed regularly by the chief operating decision-maker (the Board of Directors of the Group) on a pre-IFRS 16 basis to make decisions about resources to be allocated to the segment and assess its performance, and for which distinct financial information is available. The segmental information is presented on the same basis on which the chief operating decision-maker received reporting during the year. Segmental assets and liabilities continue to be presented in accordance with IFRS.

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

The Group's reportable segments operate in different markets and are managed separately because of the different economic characteristics that exist in each of those markets. Each reportable segment has its own distinct senior management team responsible for the performance of the segment.