IWG Regulatory News (IWG)

9 August 2022

IWG plc - INTERIM RESULTS ANNOUNCEMENT - SIX MONTHS ENDED 30 JUNE 2022

IWG plc, the leading global operator of workspace brands, today announces its interim results for the six months ended 30 June 2022

Delivering on strategic objectives drives strong revenue and EBITDA improvement

Strong financial and operational performance in H1(1)

•  System-wide revenue growth of 22.3% year-on-year driven by strong demand for hybrid working

•  Strong growth in adjusted EBITDA to £122.9m (H1 2021: £5.4m) with cost growth materially lower than revenue growth

•  Centre-level margin(2) performance recovering steadily towards historic levels and on track to reach 30%

•  Capital-light growth to deliver franchise and partnered deals of c50% of the estate by year end

•  Strong centre cashflow generation and fast reducing capital investment

•  On track to build the world's largest digital workspace platform following acquisition of The Instant Group ("Instant")

Leadership position in an exciting growth industry

•  Unrivalled global and national network coverage benefiting from increased adoption of hybrid working

•  Some impact seen from lockdowns in certain markets alongside ongoing inflationary pressures

•  Cautiously optimistic on outlook for full year

(1) Results presented in accordance with pre-IFRS 16 accounting standards (as defined in Alternative performance measures section)

(2) Centre Contribution before interest, tax, depreciation, amortisation and adjusting items

(3) System-wide revenue - Total reported revenue generated, including revenue from franchise, managed centre and joint-venture partners, excluding fee income

Mark Dixon, Chief Executive of IWG plc, said:

"With hybrid working becoming the preferred operational model for a rapidly growing number of companies, we remain confident about the continuing structural growth drivers at play in our industry. Our strategy is focused on meeting this demand by increasing the growth and coverage of our network and we have excellent momentum in delivering capital light growth, enabled by an expanding base of franchise and property partners. We anticipate building our partnered network strongly in the second half of 2022 and beyond.

Whilst it is early days, the Instant management team is making very good progress, and tracking to plan, in creating the world's leading independent digital workspace platform. The integration of the former IWG digital assets is going well. Other leading brands, such as Davinci and Coworker, have been added to the digital platform and further consolidation opportunities are anticipated. Digitally connecting demand with supply in our fast-growing industry will help further unlock the significant market potential of flexible working and, we believe, create significant value.

We have delivered strong revenue performance with record visibility of the forward order book with occupancy and pricing improvements. We continue to build resilience and cost efficiency into our business, and we have repeatedly demonstrated our ability to address new challenges. These attributes will be important as we continue to navigate the headwinds created by increased geopolitical tensions in Europe, general inflationary pressures, and the ebb and flow of COVID-related restrictions in some markets.

Overall therefore, we look forward with cautious optimism to the remainder of 2022."

Details of results presentation

Mark Dixon, Chief Executive Officer, and Glyn Hughes, Chief Financial Officer, are hosting a conference call today for analysts and investors at 9.00am BST. If not already registered, please contact Tam Kaur to obtain details for the webcast or conference call: tkaur@brunswickgroup.com.

For further information, please contact:

Chief Executive Officer's review

Our industry of flexible and hybrid working continues to enjoy strong structural tailwinds and to grow its share of the commercial real estate market. Albeit currently a small percentage of the overall market, it is estimated to grow to 30% of the commercial real estate market by 2030 (Source: JLL, The Impact of COVID-19 on Flexible Space). Therefore, more property owners are wanting to partner with us to participate in this growth opportunity. More segments of the property market are looking to offer hybrid working. 

Our industry is experiencing many tailwinds. Hybrid working lowers costs significantly, in a time of growing economic and inflationary concerns. Crucially, hybrid working is now what employees want and it helps companies overcome resourcing issues in a very competitive market. Hybrid working also helps to reduce carbon footprint at a time when there is a growing focus on sustainability. As a result of these and other benefits, more companies are seeking flexible and distributed workplaces. With the unrivalled coverage across cities and suburbs, and the choice our network offers, IWG is uniquely placed to meet these growing needs. Demand from clients for both fixed office and membership subscription deals continues at unprecedented levels. We added over 2,400 enterprise accounts in the period.

During the first half we also had to contend with some headwinds, including increased geopolitical tensions in Europe, inflationary cost pressures and the emergence of more COVID variants and the reimposition of lockdowns in some geographies, particularly in Asia. 

We remain confident that our strategy is the right one. We will continue to build on the scale and inherent resilience of our business and our determination to move to a partner model and build an independent industry-leading services platform. We made good progress in the six months to 30 June 2022 in achieving our strategic objectives.

The targeted improvement in our pre-21 locations is coming through to plan despite the headwinds noted above. The improvements we achieved underpins our confidence in steadily recovering towards our historic 30% contribution margin. The improvement has been driven by a very strong performance on price, new and embedded, which now exceeds Q1/2020, and sequential improvements in occupancy. The move to hybrid working continues to deliver stronger regional suburban performance. Service revenues also continue to recover strongly.

We have delivered a strong performance on cost control despite rising inflationary pressures. Costs were broadly held flat compared to Q4 2021. Without the inflationary pressures on employment costs and utilities and the accelerated investment we are making in our growth teams, costs would have been sequentially lower.

We are making great progress in our strategy of delivering capital-light growth. Of the 70 centres opened in the first half, 53 involved partnering either through management agreements, franchising and JVs or variable leases. As a result, the required net capital investment for the 70 centres opened in the period was £16.0m compared to £28.7m for 84 centres opened in the corresponding period last year. Interest in partnering with IWG from property owners continues to grow.

Momentum in partnering activities is strengthening significantly. We signed 38 partnership and franchise deals in the first half with a combined commitment to open 63 centres. We also signed 43 leases with variable rents.

Cash outflow before growth capital expenditure and share repurchases was £3.0m (H1 2021: £(230.0)m). On a pre-IFRS 16 basis, the Group generated good underlying cash flow before growth and non-recurring items. Our pre-2021 centres generated £261.3m of cash in the half year. After net maintenance capital expenditure of £32.3m (Group total £47.4m), £126.8m of overhead supporting these centres and a small inflow of £1.2m from centres sold, the net cash flow from the pre-2021 centres was £103.3m. With the capital investment in new growth and the earnings drag associated with the 2021 and 2022 centres openings moderating rapidly, we generated £61.8m of cash from our open centres.

Following the merger of IWG's digital assets with Instant on 9 March 2022, the Instant management team has made very good progress in developing its strategic objective of creating the largest independent marketplace for flexible workspace. The financial performance of the combined business is tracking in line with plan. Since the announced merger, the management team has merged Davinci Virtual Office Solutions into its online marketplace for flexible workspace, making the platform the leading aggregator globally for virtual offices. Following this, the team added the world's largest coworking aggregator, Coworker.com, to its platform to provide more choice for companies and individuals as part of their future workspace strategy.

Financial performance

We have delivered good underlying revenue growth and benefitted from the initial contribution from Instant from March 2022. System-wide revenue increased 20.4% at constant currency to £1,447.9m (H1 2021: £1,173.8m). On a pre-IFRS 16 basis, system-wide revenue increased 22.3% to £1,470.4m (H1 2021: £1,173.8m). On a pre-IFRS 16 basis open centre revenue increased 27.8% at constant currency to £1,300.9m compared to £998.1m in the same period in 2021. There was good sequential quarter-on-quarter growth across the regions. Total Group revenue for the six months to 30 June 2022 increased by 22.9% at constant currency to £1,309.5m (H1 2021: £1,044.4m). Pre-2021 revenue increased 17.5% at constant currency to £1,188.2m (H1 2021: £990.6m), with improvements achieved in all regions.

Pre-2021 occupancy continued its quarterly sequential improvement which started in Q2 2021, increasing to 75.2% in the second quarter. Year-on-year occupancy in the half year increased 740 bps to 74.9% (H1 2021: 67.5%).

The stronger Group revenue performance resulted in an adjusted centre contribution of £175.8m (H1 2021: £97.4m). Under pre-IFRS 16 reporting, adjusted centre contribution improved significantly to £141.7m from a negative contribution of £16.1m for the corresponding period in 2021.

Adjusted operating loss was £2.2m compared to a loss of £31.8m in the same period 2021. Reported operating profit was £36.5m (H1 2021: £81.4m loss). Under pre-IFRS 16 reporting, the adjusted operating loss reduced materially to £36.0m from a loss of £147.8m in the corresponding period in 2021. Reported loss on a pre-IFRS 16 basis was £31.4m (H1 2021: £187.0m loss).

Our adjusted EBITDA of £565.6m compares to £528.6m in the corresponding period in 2021. On a pre-IFRS 16 reporting basis, adjusted EBITDA improved significantly to £122.9m compared to £5.4m in H1 2021, reflecting the lower operating loss noted above.

Open centre revenue performance by region

On a regional basis, open centre revenue performance can be analysed as follows:

Americas

The Americas, our largest region, strongly recovered year-on-year with total revenue increasing 19.2% at constant rate, mainly driven by Brazil, Canada, and the US.

Major Central Business Districts (CBDs) continued to face some challenges but have shown progress. Regional districts achieved a higher level of occupancy and customer activity. The removal of promotions and a tightening of discounts has resulted in improved pricing in 2022.

Meeting Room and Day Office revenues in the Americas continued to improve strongly. Meeting Room revenue more than doubled and Day Office revenue improved by 56.1%, year-on-year in constant currency.

There were 11 new locations added in the region in the first half of 2022 and 13 locations were rationalised. After these movements, the total number of locations in the region was 1,255 offering 24.4m sq. ft. of gross space at 30 June 2022.

EMEA

EMEA performed well with revenue improving 20.0% year-on-year at constant rate, with improved performance driven by both major markets like France, Italy, Spain and smaller markets like Denmark, Ireland, Israel, Portugal, and Luxembourg.

Meeting Room and Day Office revenues in EMEA improved strongly. Meeting Room revenue more than doubled and Day Office revenue improved by 44.6%, year-on-year in constant currency.

A total of 39 new locations were added across this region in the first half of 2022. After these additions and the rationalisation of 18 locations, the total locations in the region were 1,149 at 30 June 2022, offering 23.3m sq. ft. of space.

Asia Pacific

Our business in Asia Pacific continued to deliver a mixed performance with some markets improving nicely, such as India, Singapore and Bangladesh. Other markets were more challenged, such as Australia, China and Malaysia, still partly negatively impacted by COVID-related lockdowns.

In Asia Pacific we experienced strong demand for our Meeting Room products. Meeting Room revenue increased by 27.5% year-on-year in constant currency.

A total of 14 new locations were added and 11 closed in the region in the first half of 2022. At 30 June 2022 we had a total of 647 centres in the region, offering 9.7m sq. ft. of space.

UK

Revenue increased by 11.6% to £186.0m. Retention continued to grow and we improved new sales and renewal pricing. While we started to see some inflationary cost headwinds in H1 2022 we continued to improve our estate portfolio and restructured leases where necessary.

Meeting Room and Day Office revenues in the UK improved strongly, with Meeting Room revenue more than quadrupling and Day Office revenue more than doubling.

Six new locations were added and seven rationalised in the UK in the first half of 2022. At 30 June 2022 we had a total of 284 centres in the region, offering 7.2m sq. ft. of space.

Instant

The plan to create the largest digital workspace platform is on track. Revenue from Instant since the acquisition date was £39.7m (£62.2m on a pre-IFRS 16 basis).

Outlook

With hybrid working becoming the preferred operational model for a rapidly growing number of companies, we remain confident about the continuing structural growth drivers at play in our industry. Our strategy is focused on meeting this demand by increasing the growth and coverage of our network and we have excellent momentum in delivering capital light growth, enabled by an expanding base of franchise and property partners. We anticipate building our partnered network strongly in the second half of 2022 and beyond.

Whilst it is early days, the Instant management team is making very good progress, and tracking to plan, in creating the world's leading independent digital workspace platform. The integration of the former IWG digital assets is going well. Other leading brands, such as Davinci and Coworker, have been added to the digital platform and further consolidation opportunities are anticipated. Digitally connecting demand with supply in our fast-growing industry will help further unlock the significant market potential of flexible working and, we believe, create significant value.

We have delivered strong revenue performance with record visibility of the forward order book with occupancy and pricing continuing to improve. We continue to build resilience and cost efficiency into our business, and we have repeatedly demonstrated our ability to address new challenges. These attributes will be important as we continue to navigate the headwinds created by increased geopolitical tensions in Europe, general inflationary pressures, and the ebb and flow of COVID-related restrictions in some markets.

Overall therefore, we look forward with cautious optimism to the remainder of 2022.

Mark Dixon

Chief Executive Officer

9 August 2022

Chief Financial Officer's review

Financial performance

The review below highlights the reported results in accordance with IFRS 16. 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.

The Group also presents the results in accordance with pre-IFRS 16 accounting standards as it provides useful information to shareholders on how the Group is managed, operating performance targets are measured, and reporting for bank covenants and certain lease agreements are prepared.

Group income statement

(1) Adjusting items relate to income and costs arising from the impact of COVID-19 and geopolitical tensions

(2) Overheads for H1 2022 include adjusting items of £1.8m (H1 2021: £17.8m)

(3) The comparative information has been restated to reflect the impact of discontinued operations

Adjusting items

Continued uncertainty in some of our markets due to COVID-19 related factors and geopolitical tensions has led to further measures being taken to maintain the Group's capability to fully benefit from the long-term structural growth opportunity. These actions have resulted in further adjusting items totalling a net credit of £38.7m (H1 2021: £49.6m charge), £40.5m of which are non-cash items.

On a pre-IFRS 16 basis, these adjusting items totalled to a net credit of £4.6m (H1 2021: charge of £39.2m), of which £6.4m are non-cash items. These adjusting items primarily reflect network rationalisation and the impairment of business activities impacted by geopolitical tensions.

Network rationalisation

The COVID-19 related rationalisation of the network is nearing the final stages. During the first half, further marginal centres were eliminated from the network. This led to a charge of £20.0m (H1 2021: £66.3m) which was offset by a £69.7m reversal of impairment of property, plant, and equipment. Under pre-IFRS 16 reporting, COVID-19 related rationalisation of the network led to a charge of £17.1m, which was fully mitigated by utilising £42.3m of the previously established provision. 

Impairment of business activities

With the ongoing geopolitical tensions in the Ukraine, we reviewed the impact on our businesses in Ukraine and in Russia. This has resulted in an impairment charge of £9.3m. On a pre-IFRS 16 basis the impairment charge was £18.8m.

Other adjusting items

A charge of £1.5m is included within adjusting items relating to restructuring costs (H1 2021: £17.4m). In addition there is a small charge of £0.3m for transaction costs (H1 2021: £0.4m).

Revenue

System-wide revenue increased 20.4% at constant currency to £1,447.9m (H1 2021: £1,173.8m). Reported Group revenue increased 20.8% to £1,287.0m (H1 2021: £1,044.4m) and open centre revenue increased 25.4% to £1,278.4m (H1 2021: £988.1m). Revenue numbers for the six months to 30 June 2022 are lower than those on a pre-IFRS 16 basis as rental income in the Instant business is accounted for differently.

This half year our revenue has benefited from the initial contribution from Instant from 9 March. 

On a pre-IFRS 16 basis system-wide revenue increased 22.3% to £1,470.4m (H1 2021: £1173.8m). Excluding Instant, system-wide revenue increased 17.0% at constant currency.

Total Group revenue increased 22.9% at constant currency from £1,044.4m to £1,309.5m. Excluding Instant, revenue increased 17.0%. All four regions reported good year-on-year revenue growth, particularly in the Americas and EMEA. Encouraging is the 4.9% constant currency improvement in Q2 revenue compared to Q1 revenue for the Group (ex-Instant), again with all regions contributing to this performance.

Open centre revenue increased 27.8% to £1,300.9m (H1 2021: £998.1m). Excluding Instant, open centre revenue increased 21.6% with good double-digit growth recorded in all regions. On the same basis, revenue in Q2 was 5.6% higher at constant currency than the revenue in Q1.

Pre-2021 revenue, a like-for-like barometer of our business, increased 17.5% at constant currency for the six months to 30 June 2022 to £1,188.2m (H1 2021: £990.6m). Second quarter revenues were 4.7% higher than those in the first quarter. Overall, pre-2021 occupancy was 74.9% (H1 2021: 67.5%). Second quarter occupancy improved 60bps over the first quarter, with all four regions recording improved occupancy.

Gross profit / (loss)

The adjusted gross profit reported for the period was £175.8m, which compares to £97.4m in the first half of 2021.

Under pre-IFRS 16 reporting, the adjusted gross profit for the period was £141.7m compared to a loss of £16.1m in the corresponding period in 2021. This loss reflects the reduction in the contribution from the pre-2021 centres and a greater drag from the new centres.

(1) Results presented in accordance with pre-IFRS 16 accounting standards and before adjusting items

EBITDA

Adjusted EBITDA increased from £528.6m to £565.6m for the six months to 30 June 2022. EBITDA including the adjusting items was £604.2m (H1 2021: £479.0m).

Under pre-IFRS 16 reporting there has been a significant recovery in adjusted EBITDA to £122.9m (H1 2021: £5.4m), reflecting the strong improvement in revenue in the period. Adjusted EBITDA includes the drag from investment in growth of £18.0m (H1 2021: £0.3m), and a further drag of £11.6m (H1 2021: £38.7m) from centres closed in the period. Pre-2021 adjusted EBITDA, which eliminates both of these negative factors and therefore provides a better indication of underlying performance, was £152.3m (H1 2021: £41.7m).

Pre-IFRS 16 EBITDA including adjusting items was a profit of £127.5m (H1 2021: loss of £33.8m).

Overhead investment

A strong focus was maintained on controlling overheads in the first half at broadly the same level we exited Q4 2021, notwithstanding the planned but accelerated investment in the growth personnel. As a percentage of revenue, overheads in Q2 2022 were 70 bps lower than in Q4 2021.

Reported Group overheads, excluding adjusting items of £1.8m, increased 35.7% at constant currency to £177.3m (H1 2021: £128.6m). Under pre-IFRS 16 reporting, overheads before the £1.8m of adjusting items, increased by 32.9% at constant currency to £177.0m (H1 2021: £131.1m). Personnel costs relating to the growth team have been a significant contributor to this overhead increase. As a percentage of revenue, overheads are 13.5%, which is 90 bps higher than in the corresponding period for 2021.

Operating loss - continuing operations

The adjusted operating loss reported was £2.2m (H1 2021: loss of £31.8m). Including the adjusting items, there is an operating profit of £36.5m compared to a loss of £81.4m in the first half of 2021.

Under pre-IFRS-16 reporting, the adjusted operating loss for the six months to 30 June 2022 was £36.0m (H1 2021: £147.8m loss). The interim operating loss continues to reflect the drag from new centres of £30.8m (H1 2021: £9.8m) as well as losses of £14.1m (H1 2021: £45.6m) from centres closed in the six months to 30 June 2022. Including the adjusting items of £4.6m, the operating loss was £31.4m (H1 2021: £187.0m).

Net finance income

The Group has reported a net finance cost under IFRS 16 for the six months to 30 June 2022 of £106.7m (H1 2021: £81.9m).

Under pre-IFRS 16 reporting, the Group has reported a net finance income for the six months to 30 June 2021 of £6.7m (H1 2021: income of £3.2m). The primary reason for this is the mark-to-market of the option element of the convertible bond. Due to the lower share price during the period this has resulted in a gain of £26.9m.

Excluding the mark-to-market of the convertible bond and a small foreign exchange gain, the total net financial expense was £20.2m (H1 2021: £11.1m), on a pre-IFRS 16 basis.

Taxation

The reported effective interim tax rate for the six months to 30 June 2022 is (15.8)% (H1 2021: (5.9)% on continuing operations). The effective tax rate on continuing operations under pre-IFRS 16 reporting is 110.9% (H1 2021: (4.5)%).

Earnings per share

Reported basic earnings per share for the first half was a loss of 7.6p (H1 2021: (16.9)p). The adjusted loss per share from continuing operations was 11.6p (H1 2021: (11.7)p).

Under pre-IFRS 16 reporting, earnings per share improved to 0.6p (H1 2021: (18.9)p loss). Adjusted earnings per share from continuing operations improved to 0.1p (H1 2021: (15.0)p loss).

Diluted earnings per share under pre-IFRS 16 reporting for the first half was 0.6p (H1 2021: (18.9)p loss). Adjusted diluted earnings per share on a continuing basis for H1 2022 was 0.1p (H1 2021: (15.0)p loss).

The weighted average number of shares in issue for the first six months of the year was 1,007,572,244 (H1 2021: 1,007,043,055). The weighted average number of shares for diluted earnings per share was 1,097,148,667 (H1 2021: 1,104,176,078). 2,092,752 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 1,308,120 shares from treasury to satisfy such exercises during the first half. At 30 June 2022 50,699,339 shares were held as treasury shares.

Cash flow and funding

In the first six months to 30 June 2022, the Group experienced a small cash outflow of £3.0m before net investment in growth capital expenditure compared to a cash outflow of £230.0m for the same period in 2021.

Overall, the Group cash outflow for the period was £677.5m including the net growth capital expenditure and the acquisition of Instant, of £358.5m (H1 2021: £61.9m). Net debt at 30 June 2022 increased to £7,195.7m from £6,518.2m at 31 December 2021.

On a pre-IFRS reporting basis, in the six months to 30 June 2021 the Group experienced a significantly reduced cash outflow of £34.7m before net investment in growth capital expenditure compared to a cash outflow of £303.0m for the corresponding period in 2021 for the reasons noted above.

On a pre-IFRS reporting basis, the overall Group cash outflow for the period was £344.0m which primarily reflects the acquisition of Instant. Net debt at 30 June 2022 on a pre-IFRS 16 basis therefore increased to £741.0m from £397.0m at 31 December 2021.

Cash flow

The table below reflects the Group's cash flow:

(1) Consists of proceeds from partner contributions of £6.4m (2020:£4.1m), an increase in trade and other receivables of £93.1m (2020: decrease of £15.6m) and an increase in trade and other payables of £133.3m (2020: decrease of £237.4m).

(2) 2022 gross growth capital expenditure includes £295.7m related to The Instant Group acquisition.

Capital-light development of the network

We made significant progress in furthering our capital-light growth strategy in the first half. Excluding the Instant acquisition, net growth capital expenditure was £57.3m. Under pre-IFRS 16, net growth capital expenditure excluding the Instant acquisition was £59.7m (H1 2021: £46.9m) which includes £41.3m relating to prior year openings and upfront furniture investment. We opened 70 locations, adding 1.5m sq. ft. of gross space, for a net capital investment of £16.0m. Of the 70 openings, 35 were franchise, management agreements or JVs. Of the 35 fully owned openings, 18 involved some element of partnership arrangement.

In the six months to 30 June 2022, we rationalised 49 centres, representing approximately 0.9m sq. ft. of gross space.

At 30 June 2022, the Group's physical network comprised 3,335 locations and 64.6m sq. ft. of gross space. With the addition of 18 new towns and cities, the Group's unrivalled network coverage stood at 1,150 towns and cities.

The investment in net maintenance capital expenditure was maintained at a similar level to the investment in the corresponding period in 2021. Gross maintenance capital expenditure in the first half was £52.5m (H1 2021: £52.1m). After partner contributions received, net maintenance capital expenditure was £47.4m (H1 2021: £45.8m).

Strong financial position

Net debt at 30 June 2022 was £7,195.7m (H1 2021: £6,785.8m). On a pre-IFRS basis, the Group had net debt at 30 June 2022 of £741.0m (31 December 2021: £397.0m). The 30 June 2022 net debt position reflects the previously highlighted acquisition of Instant in March 2022.

During the first half the Group agreed a reduction in its revolving credit facility from £950m to £750m and agreed a £330m bridge facility for the Instant acquisition.

Foreign exchange

The Group's results are exposed to translation risk from the movement in currencies. During the first half of 2022 key exchange rates moved, as shown in the table below. 

On pre-IFRS 16 reporting, the overall impact of these exchange rate movements over the course of the first six months of the year increased revenue by £25.3m. Gross profit and operating profit decreased by £7.6m and £10.2m respectively due to regional mix.

Foreign exchange rates

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 for the remaining six months of the year are unchanged from those noted in the Annual Report.

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 six months ended 30 June 2022. Details of related party transactions that have taken place in the period can be found in note 14.

Dividends and share repurchase

Given continuing macroeconomic uncertainties and geopolitical tensions the Group has 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 first half 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 £5.5m.

Going Concern

Inflationary pressures and geopolitical tensions continue to create a climate of considerable uncertainty. The ultimate impact of these factors remains uncertain at the date of signing these financial statements.

The Directors have assessed the potential cash generation of the Group against a range of projected scenarios, the liquidity of the Group, existing funding available to the Group and mitigating actions to reduce discretionary and other operating cash outflows. The Group continues to have options to further reduce operating costs and overheads to optimise cash flows and liquidity during the current environment. The directors are currently in the process of reviewing a number of options to replace the existing bridge financing facility and are comfortable that this process will be concluded in advance of the expiration of this facility in September 2023.

Based on the strength of the Group's balance sheet and its available liquidity, the Group will continue to consider taking advantage of growth opportunities and strengthening the Group's global leadership position where and when appropriate. These include:

· Enhanced organic expansion possibilities arising from increased future demand from enterprise customers;

· Rescue situations, adding attractive centres and brands to our existing portfolio and realising efficiencies when integrating onto the Group's operating platform; and

· M&A opportunities.

On the basis of these actions and assessments, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements for the six months ended 30 June 2022.

Glyn Hughes

Chief Financial Officer

9 August 2022

Condensed Consolidated Financial Information

Interim consolidated income statement (unaudited) 

(1) The comparative information has been restated to reflect the impact of discontinued operations (note 4).

(2) The net reversal of adjusting items of £40.4m (2021: charge of £31.8m) comprises the following items included in the balances referenced (note 5):

A reversal of the impairment of property, plant and equipment and right-of-use assets of £69.7m (2021: £34.0), the adjusting items to costs of sales of £29.3m (2021: £53.2m) and £nil (2021: £12.6m) of the expected credit losses on trade receivables balances reported.

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

Interim consolidated statement of comprehensive income (unaudited)

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

Interim consolidated statement of changes in equity (unaudited)

(1) 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.

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

Interim consolidated balance sheet

(1) Based on the audited financial statements for the year ended 31 December 2021.

The above interim consolidated balance sheet should be read in conjunction with the accompanying notes.Interim consolidated statement of cash flows (unaudited)

(1) The comparative information has been restated to reflect the impact of discontinued operations (note 4).

(2) The net finance expense includes mark-to-market adjustments of £26.9m (2021: £14.4m)

(3) Included in other receivables at 31 December 2020 was mezzanine and senior debt recognised at amortised cost of £276.2m. This receivable balance was fully repaid to the Group in February 2021, in addition to associated costs reimbursements, resulting in an additional £1.4m gain on settlement.

(4) The total proceeds from partner contributions relating to the reimbursement of costs and lease incentives of £23.8m are allocated between maintenance partner contribution of £5.1m and growth partner contributions of £18.7m.

The above interim consolidated statement of cash flows should be read in conjunction with the accompanying notes.Notes to the Condensed Interim Consolidated Financial Information (unaudited)

Note 1: Basis of preparation and accounting policies

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.

The unaudited condensed interim consolidated financial information as at and for the six months ended 30 June 2022 included within the half yearly report:

· was prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" ("IAS 34") as adopted by the European Union ("adopted IFRS"), and therefore does not include all disclosures that would otherwise be required in a complete set of financial statements. Selected explanatory notes are included to understand events and transactions that are significant to understand the changes in the Group's financial position and performance since the last IWG plc Annual Report and Accounts for the year ended 31 December 2021;

· was prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority;

· comprises the Company and its subsidiaries (the "Group") and the Group's interests in jointly controlled entities;

· does not constitute statutory accounts as defined in Companies (Jersey) Law 1991. A copy of the statutory accounts for the year ended 31 December 2021 has been filed with the Jersey Companies Registry. Those accounts have been reported on by the Company's auditors and the report of the auditors was (i) unqualified, and (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report. These accounts are available from the Company's website - www.iwgplc.com; and

· was approved by the Board of Directors on 9 August 2022.

The basis of preparation and accounting policies set out in the Report and Accounts for the year ended 31 December 2021 have been applied in the preparation of this half yearly report, except for the adoption of new accounting policies and new standards and interpretations effective as of 1 January 2022, which did not have a material effect on the Group's financial statements, unless otherwise indicated.

New standards and interpretations

The following standards, interpretations and amendments to standards were applicable to the Group for periods commencing on or after 1 January 2022:

The above has not had a significant impact on the Group.

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 Company:

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.

Group as a lessor

The recognition of acquired sublessees as part of the Instant acquisition (note 15) had a material effect on the Group's financial statements and has been accounted for in accordance with IFRS 16 as follows.

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).

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

Seasonality

The majority of the Group's revenue is contracted and is therefore not subject to significant seasonal fluctuations. Demand based revenue (from products such as Meeting Rooms and Customer Services) is impacted by seasonal factors within the period, particularly around summer and winter vacation periods. This fluctuation leads to a small seasonal profit bias to the second half year compared to the first half. However, this seasonal bias is often hidden by other factors, which drive changes in the pattern of profit delivery such as the addition of new centres or changes in demand or prices.

Judgements and estimates

In preparing this condensed consolidated interim financial information, the significant judgments made by management and the key sources of estimation of uncertainty were the same as those that applied to the Report and Accounts for the year ended 31 December 2021.

Principal risks

As part of the half year risk assessment, the Board has considered the impact of geopolitical factors on the principal risks of the Group. Following this risk assessment, the Board are satisfied that the principal risks impacting the group over the next 6 months are unchanged from those noted on pages 66 to 74 of the 2021 Annual Report.

Going concern

The Group reported a loss after tax of £81.3m (2021: £173.0m) from continuing operations for the year, while net cash of £508.8m (2021: £202.2m) was generated from operations during the year. Although the Group's balance sheet at 30 June 2022 reports a net current liability position of £1,489.1m (31 December 2021: £1,439.4m) which could give rise to a potential liquidity risk, the Directors concluded after a comprehensive review that no liquidity risk exists as:

(1) The Group had funding available under the Group's £750.0m revolving credit facility (2021: £950.0m). £161.6m (31 December 2021: £530.1m) was available and undrawn at 30 June 2022. This facility was committed until March 2025 with an option to extend until 2026;

(2) The directors are currently in the process of reviewing a number of options to replace the existing bridge financing facility and are comfortable that this process will be concluded in advance of the expiration of this facility in September 2023; and

(3) The Group maintained a 12-month rolling forecast and a three-year strategic outlook. It also monitored 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.

The Directors consider that the Group is well placed to successfully manage the actual and potential risks faced by the organisation including risks related to inflationary pressures and geopolitical tensions.

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 interim results announcement and consider it appropriate to continue to adopt the going concern basis in preparing the financial statements of the Group.Note 2: 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 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, which are included in the "Other" segment. The results of business centres in each of these regions form the basis for reporting geographical results to the chief operating decision-maker. These reportable segments are involved in the provision of global workplace solutions. The impact from the Instant acquisition (note 15) has been disclosed as a separate operating segment.

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 2021.