20 Mar 2009 07:00
20 March 2009
REGUS PLC - ANNUAL RESULTS ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2008
Regus, the world's largest provider of outsourced workplaces, announces today its annual results for the year ended 31 December 2008.
FINANCIAL HIGHLIGHTS
Revenues up by 24.9% to £1,077.2m (2007: £862.4m)
Gross profit (Centre contribution) up 21.4% to £305.7m (2007: £251.9m)
Operating profit up 20.2% to £147.4m (2007: £122.6m)
Profit before tax up by 25.0% to £149.2m (2007: £119.4m)
Basic EPS up 14.3% to 12.0p (2007: 10.5p)
Cash generated from operations up 18.2% to £249.6m (2007: £211.1m)
Net cash up 108% to £211.2m (2007: £101.4m)
Proposed final dividend of 1.2p, giving total Group dividends of 1.8p per share, an increase of 80% year on year (2007: 1.0p per share)
STRATEGIC AND OPERATIONAL HIGHLIGHTS
Total capacity, including workstations in non-consolidated businesses, increased 10.3% to 171,277 (2007: 155,270)
Average occupancy increased by 0.2 points to 82.9% (2007: 82.7%)
Opened a further 112 new centres in the year to 31 December 2008 (2007: 128 centres)
Regus launched "Get Started" campaign - real support for entrepreneurs.
Businessworld revenues rose by over 900% over prior year.
New recession-busting product revenues up 98% half on half.
Commenting on today's announcement Mark Dixon, Chief Executive of Regus plc, said:
"2008 was another successful year for Regus delivering a fifth consecutive year of record performance. With over £149 million of profits, and net cash exceeding £210 million for the first time, we have demonstrated the significant progress that has been made within the business in recent years.
The global economic background has undoubtedly become more difficult. As we progress through 2009, we will continue to focus on efficiencies and drive down costs, while continuing targeted investment for the longer term growth of the business.
Our newly introduced portfolio of recession busting products is attracting many new customers who are looking to reduce their office costs and gain flexibility in an increasingly challenging marketplace. This is providing new revenue opportunities for Regus.
Overall our number one market position, international spread, flexible business model and strong balance sheet give us confidence in these more challenging markets."
For further information, please contact:
| Regus plc Tel: +352 22 9999 5160 Mark Dixon, Chief Executive Officer Stephen Gleadle, Chief Financial Officer | Brunswick Tel: + 44 (0) 20 7404 5959 Simon Sporborg |
Chairman's statement
I am pleased to report that whilst the market has become tougher in the final quarter of 2008, it has been another year of record results for Regus. We have delivered post-tax earnings of £114.9 million and increased our net cash balance by over 100% from £101.4 million to £211.2 million, despite having returned £36.3 million to shareholders, £37.5m to the banks and invested £69.5 million in growing our workstation capacity.
Our business model remains strong, with our results clearly demonstrating the focused execution of our strategy for profitable growth and strong cash flow conversion in rapidly changing markets.
Financial performance
Group revenue has increased by 24.9% to £1,077.2 million and gross profit by 21.4% to £305.7 million. Excluding the impact of new centre growth the "like for like" improvement was 14.1% and 14.7% respectively.
This increase was the result of our continued, controlled blend of organic growth and targeted acquisition activity, coupled with the impact of currency translation, principally the strengthening of the dollar and euro, contributing 40% of the overall revenue increase.
Capacity growth
We have continued our measured approach to growth and in the year to 31 December 2008, we grew our average available workstations by 15.3%.
Our improved results were driven by average occupancy increasing to 82.9% from 82.7% in 2007 and revenue per available workstation ("REVPAW") increasing 8.4% to £7,029 from £6,487 in 2007. Earnings (profit after tax) grew by 10.9% to £114.9 million and basic earnings per share increased by 14.3% to 12.0p.
During the financial year, we opened 112 centres for a total investment of £69.5 million. Despite the ongoing challenges of the global economy, we anticipate continuing to make targeted investments to develop further our market presence.
Dividend
Given our strong performance the Board is recommending a 1.2p per share final dividend for the year. This will be in addition to the interim dividend of 0.6p per share paid by Regus Group Limited (then Regus Group plc) in October 2008. Subject to the approval of shareholders at the 2009 AGM, this final dividend will be paid on Friday 29 May 2009 to shareholders on the register at the close of business on Friday 1 May 2009.
Board
In order to achieve our objective of greater international diversity at board level, the appointment of three new non-executive directors - Douglas Sutherland, Ulrich Ogiermann and Lance Browne - took place from October 2008. Douglas replaces Stephen East as Chairman of the Audit Committee. I would like to thank Stephen and Roger Orf, who both departed Regus as non-executive directors at the end of 2008, for their longstanding service to the Company.
John Matthews
Chairman
20 March, 2009
Chief Executive's Review
Overview
Amidst a backdrop of deteriorating economic conditions, I am delighted to announce a 5th successive year of record results, with a 25% growth in revenues, a 20% growth in profitability and a doubling of our net cash balance at December 31, 2008.
These results, achieved under difficult circumstances, especially during the final quarter of the year, reflect the continued successful application of our business model of sustainable, measured growth on a global basis. We continue to demonstrate our ongoing ability to return shareholder value with an 80% increase in our dividend alongside £19.9 million of share repurchases made during 2008. I am also pleased to end the year with a balance sheet reflecting a record level of cash, after repayment of our outstanding debt, which will enable us to further invest for the future in our people, products and technology.
Operational Review
On a regional basis, revenues and centre contribution can be analysed as follows:
| (£ million) | Total Revenue | Total Contribution | Mature Margin | Mature Occupancy | ||||
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| Americas | 414.9 | 336.3 | 117.0 | 102.7 | 32% | 32% | 86% | 86% |
| EMEA | 319.2 | 240.3 | 111.2 | 80.3 | 37% | 36% | 89% | 87% |
| Asia Pacific | 121.0 | 77.7 | 37.5 | 27.5 | 38% | 38% | 82% | 80% |
| UK | 222.1 | 208.1 | 40.0 | 41.4 | 20% | 22% | 84% | 84% |
| 1,077.2 | 862.4 | 305.7 | 251.9 | 31% | 31% | 86% | 85% | |
OVERALL
Through the ongoing implementation of our core strategy of controlled, disciplined growth - via both organic expansion in existing and new markets and acquisitions - the Group has delivered substantial workstation growth in all regions during 2008. Average workstations grew 20,322 or 15.3% to 153,260 during 2008. The total number of available workstations at 31 December 2008 was 159,121. If non-consolidated workstations are also taken into account, the total number of workstations under management increases to 171,277.
We have seen the number of centres we operate increase by 60 net of closures. New locations include Karachi in Pakistan, Sharjah in the U.A.E., St Petersburg in Russia, and Fukuoka in Japan, and we opened our first centres in Malta, Monaco, and Taiwan.
AMERICAS
Our business in the Americas comprises Canada, USA and South America and has 495 centres across 14 countries, with our main business in the USA operating 411 centres. During the year we added 3,487 workstations from opening new centres, which contributed to the increase in the average number of workstations from 61,160 in 2007 to 70,173 in 2008. Acquisitions accounted for 14 of these new centres, with the balance coming from the opening of 25 fully owned centres. The region delivered revenues of £414.9 million - up 23.4% on 2007 - and achieved an average mature occupancy of 86% through the year (2007: 86%).
Looking ahead into 2009 we will continue our aim to maximise yield in our existing centres and look to grow our portfolio in key cities where we have minimal representation. The trends toward flexible working practices and strengthening environmental awareness both act to further increase the demand for our product.
EMEA
Our business in EMEA encompasses 240 centres across 43 countries. During the year we added 1,753 workstations from opening new centres, which contributed to the increase in the average number of workstations from 29,125 in 2007 to 32,352 in 2008. Acquisitions accounted for 6 of these new centres, with the balance of 29 coming from new centre growth - 20 fully owned centres, 1 joint venture and 8 managed centres. We opened centres in 2 new markets - Malta and Monaco. The region delivered revenues of £319.2 million - up 32.8% on 2007 and achieved an average mature occupancy of 89% through the year (2007: 87%).
Looking ahead into 2009, whilst continuing to focus on margins in our mature centres we will continue to look for low-risk opportunities to expand our network into new markets.
ASIA
Our business in Asia operates in 112 centres across 15 countries. During the year we added 2,047 workstations from opening new centres, which contributed to the increase in the average number of workstations from 14,748 in 2007 to 19,836 in 2008. Acquisitions accounted for 1 of these new centres, with the balance coming from the opening of 21 fully owned centres. During the year, we opened 1 centre in the new market of Taiwan. The region delivered revenues of £121.0 million - up 55.7% on 2007 - and achieved an average mature occupancy of 82% through the year (2007: 80%).
Looking ahead into 2009 we will continue to consolidate and develop our position as the largest provider of serviced offices across all Asia Pacific markets. To achieve this objective we plan to continue our measured growth plan while continuing to focus on the operational effectiveness of our current portfolio of centres. To facilitate this, we will be adding a new customer service centre in the Philippines to handle all customer administration in the region.
UK
Our business in the UK operates in 131 centres. During the year we added 2,477 workstations from opening new centres, which contributed to the increase in the average number of workstations from 27,905 in December 2007 to 30,899 in 2008. Acquisitions accounted for 7 of these new centres, with the balance of 9 coming from the opening of 7 fully owned centres and 2 managed centres. The region delivered revenues of £222.1 million - up 6.7% on 2007 - and achieved an average mature occupancy 84% through the year (2007: 84%).
Looking ahead into 2009, we are firmly focused on driving operational efficiencies in a challenging market alongside the introduction of new concepts and products to support new sales growth.
Strategy and objectives
In 2008, we have continued to adhere firmly to our strategy - to continue to grow profit and cash generation through measured, sustainable capacity growth.
Whilst we are acutely aware of the potential impact of the current downturn, and the unpredictability of its severity and duration, the core fundamentals of our strategy and current business model remain unaffected. We will continue to seek to take the business forward through disciplined growth, focused investment for the long term, and through keeping as nimble as possible in respect of cost control and operational flexibility. With a steady adherence to our fundamentals, we believe we are as well positioned as we could be to face the forthcoming challenges of 2009.
The delivery of our strategy will continue to come about through focus on our priorities;
Brand and product development
Systems and technology
People and processes
Brand and product development
Our brand and market presence is strong, enabling us to respond to a wide variety of customer needs through a centre footprint which allows us to be local, regional or global. In short, we have the adaptability and agility to be many things to many customers. However, we recognise the need to continue to respond to our customers needs and leverage further the core quality and flexibility of our products which differentiate us from our competitors.
The launch of our BusinessWorld program in early 2008 has been a significant success, with membership expanding rapidly throughout the year, now encompassing 200,000 card holders who have signed up for one of four unique BusinessWorld membership packages. With external market research predicting that the number of mobile workers worldwide will reach one billion by 2011, we feel that we are the only company delivering the right product in the right place at the right time to help them compete in the current economic climate.
We remain focused on highlighting the significant cost savings our clients can secure through our product offerings. Our solutions are immediate, easily implemented and generally require no capital expenditure - all critical, "recession busting" considerations, which will enable our customers to obtain significantly more value for money and flexibility than a conventional lease.
Systems and technology
The roll-out of our internally developed, inventory, reservation and billing system across our worldwide network has now been completed, with all of our centres utilising this technology in their day to day operations (2007: 495 centres). We are already seeing tangible benefits in terms of control of our business (notably in discount & exception management) and in driving new sales opportunities.
Looking ahead, we anticipate this system being a key enabler in our newly established Regional Service Centres, and the system is being onward developed to ensure full integration into operational improvements being made in our centres (i.e. integration to photocopiers, telephone billing systems, franking etc). Wherever possible, we are also seeking to integrate third-party vendors into this infrastructure, which should ensure we continue to capture, and bill for, all revenue generating opportunities.
We have also made improvements during the year to our data capture and management systems, which will form a stronger platform from which to develop better, more timely reporting. Some early-adopting centres are already receiving daily activity and planning reports to allow them to focus on daily, customer-focused priorities and enable quality planning for the next one to two weeks ahead.
Finally, we continue to see substantially increased use of our Video conferencing solutions throughout our network, as our customers seek to reduce operational costs, increase their productivity and respond to an enhanced awareness of the substantial environmental benefits of video conferencing.
People and processes
The strong results in 2008 have been driven largely by our 5,442 team members, and I would like to take this opportunity to thank all of them throughout the Group for their substantial efforts in the year. Our results are a testament to their hard work, diligence and commitment.
As we develop our business and invest for the future, we recognise the importance of enhancing skill sets through training and development programmes. Ultimately, the quality of our team members and their ability to deliver high quality customer service remains fundamental to the continued long term delivery of our business model.
Training during 2008 has resulted in;
over 2,500 team members participating in classroom training, at a cost of £1.4 million
the completion of over 17,000 hours of online training using the Brainshark learning management system
and over 400 team members trained as "experts" on our new internal inventory, reservations and billing system
We will continue to rely heavily on our people and their enthusiasm, talent and focus to further develop the success of our business, regardless of external economic factors. Ultimately, the quality of our team members and their ability to deliver high quality customer service remains fundamental to the continued long term delivery of our business model.
Corporate responsibility
Whilst mindful of the current economic environment, we do not believe that this should result in a diminution of our commitment to Corporate responsibility. Our employee, environmental, charitable and social actions in 2008, together with continued plans in these areas for 2009 bear this out, and we firmly believe that our obligations are ongoing - not only during more positive trading conditions. Fundamental to this is an ongoing commitment to our employees, whose engagement and commitment is vital to ensuring we continue to deliver successfully on our strategy.
An example of our action is the introduction, in January 2009, of the "Get Started" initiative. Get Started offers office space and practical support for start-up's who need help getting off the ground. Under the scheme, we are offering free use of business lounges and cafés - worth approximately £10 million - in over 1,000 locations worldwide by signing people up to our businessworld program. We anticipate that the campaign could help many entrepreneurs realise their business ambitions whilst mitigating some of the risk.
Change of residence and appointment of three new non-executive directors
In successfully implementing our strategy of diversification, both geographically and in our product offerings, we have developed a more balanced global revenue platform.
The creation of a new corporate structure and organisation for Regus, incorporated in Jersey and resident in Luxembourg, has therefore given us a chance to further internationalise our business in keeping with our ongoing strategy. Coupled with this, the appointment of three new, international non-executive directors, further enhances our global perspective.
Responding to Market conditions
While we have delivered a strong set of 2008 results, we anticipate that market conditions will be challenging during 2009. However, we have the potential to outperform our competition by maximising revenue and cash growth whilst keeping a tight control on costs, and maintaining focus on our core strategy.
With respect to our cost structure, we will continue to take early action to manage our cost base in line with future trading expectations. Our costs throughout 2008 have continued to become less fixed in nature as we increase the number of flexible leases in our portfolio and we reduce our exposure to longer, conventional leases. In addition, throughout 2008 we have continued to implement a number of cost saving programmes throughout our organisation, which we anticipate will continue to ensure we are able to act with maximum speed and efficiency.
As part of this process, we have accelerated plans to consolidate certain central and regional
administrative functions into a number of newly established Regional Service Centres. We expect that these will be fully operational in the next financial year, with a focus on reducing overall costs and ensuring better integrated finance, information technology and other support functions across the Group.
Outlook
We are not at all complacent about the outlook.
In the last two months of 2008, the increasing pressure that we were seeing on our revenues translated into a softening in our occupancy and price KPI's which has continued into 2009.
However, although many of the countries in which we operate are experiencing increasingly difficult
economic conditions, we believe that we are taking the necessary actions and expect to strengthen our current market leading position. Our global footprint, strong balance sheet and cash generation ensure that we are well positioned to take advantage of appropriate opportunities to increase shareholder value as they arise.
We recognize that we will have to continue to challenge ourselves to become more efficient and drive down costs, whilst at the same time, not lose sight of the need for continued long term investment in growing our business. With a strong, global brand driven by the stewardship of our customer-focused teams, a broad and flexible product range and a business model we have continued to adhere firmly to and deliver upon, I am confident of our position to meet the challenging market conditions ahead.
Mark Dixon
Chief Executive
20 March 2009
Financial Review
Introduction
The business model continued to work well.
In addition to seeing increased profits from the sites we opened and acquired in 2007 we have continued to see the profits in our older more mature sites improve. This has enabled us to both grow the strength of our balance sheet while at the same time continue our expansion programme which then forms the basis for future profitable growth.
Taking the business as a whole, we grew its capacity as measured by the weighted average number of workstations by 15.3% to 153,260. At the same time the average occupancy of these workstations increased from 82.7% to 82.9% and we sold each one on average for 8.1% more.
These factors have delivered a £24.8 million increase in operating profit rising from £122.6 million in 2007 to £147.4 million in 2008.
Revenue and Gross profit (Centre Contribution)
Revenue for the Group rose 24.9% to £1,077.2 million (2007: £862.4 million) and gross profit (centre contribution) increased 21.4% to £305.7 million (2007: £251.9 million).
This movement can be analysed as follows
| (£ million) | Revenue | Gross profit | % of Revenue |
| 31 December 2007 | 862.4 | 251.9 | 29.2% |
| Impact of exchange rates | 86.3 | 26.9 | |
| 31 December 2007 at constant exchange rates | 948.7 | 278.8 | 29.4% |
| Growth in mature business | 33.2 | 9.9 | |
| Growth in centres added in 2007 | 75.9 | 31.1 | |
| Growth in centres added in 2008 | 33.4 | (10.3) | |
| Centres closed | (14.0) | (3.8) | |
| 31 December 2008 | 1,077.2 | 305.7 | 28.4% |
Sterling weakened in value against the US dollar by an average of 8.1% and against the euro by an average of 14.2% in 2008 when compared to 2007. This increased our revenue by £86.3 million and contribution by £26.9 million.
Our mature or "like for like" business increased its revenues by £33.2 million and its contribution by £9.9 million driven by improvements in occupancy and price.
Centres that were added in 2007 contributed a further £75.9 million of revenue and £31.1 million of contribution.
New centres added in 2008, both organic and by acquisition, contributed a further £33.4 million of revenue but reduced contribution by £10.3 million due to the normal start up losses incurred in establishing new centres.
The year on year impact of centre closures was to reduce revenue by £14.0 million and contribution by £3.8 million.
Taking all this together contribution margins decreased from 29.2% to 28.4%.
Administrative expenses
Administrative expenses increased by £29.0 million in 2008 compared to 2007 (£18.5 million excluding the impact of exchange). However, as a proportion of revenue, they reduced from 15.0% in 2007 to 14.7% in 2008.
Included within administrative expenses were the £4.8 million costs incurred on the Group reorganisation and Scheme of Arrangement completed in October 2008. Excluding these one-off exceptional costs, overheads were 14.2% of revenues.
This falling percentage was achieved even though the Group continued to invest in its systems and processes.
Operating profit
Operating profit was £147.4 million (2007: £122.6 million), representing a margin of 13.7% (2007: 14.2%).
Share of profit in joint ventures and associates
In the twelve months ended 31 December 2008, the share of joint venture profits attributable to Regus increased to £2.3 million (2007: £0.8 million profit). This reflected the improving profitability in mature joint ventures in the Americas and EMEA regions as well as improved performance from more recently opened joint ventures in the Middle East.
Net financing costs
Net financing costs can be analysed as follows:
| (£ million) | 2008 | 2007 |
| Interest payable on bank loans and overdrafts | (3.5) | (4.4) |
| Interest receivable | 5.3 | 3.4 |
| Finance lease interest | (0.2) | (0.2) |
| Non-cash: Amortisation of deferred financing fees | (0.6) | (0.5) |
| Non-cash: UK acquisition related | (1.5) | (2.3) |
| Total net financing costs | (0.5) | (4.0) |
The lower interest payable reflects the reduction in the Group's average debt over the year and the impact of falling interest rates in the Group's primary markets. The average Libor rate for 2007 was 5.85% compared to 5.04% for 2008.
The substantial increase in interest receivable reflects a continued increase in the Group's average free cash balance to £150.3 million (£81.4 million in 2007). In addition, improvements in the management of the Group's cash partially offset the impact of falling global interest rates during the year.
The movement in the cash balance has been explained in the cash flow section below.
Underlying finance lease costs remained unchanged as maturing of older leases have been offset by new leases. The amortisation of deferred financing fees relates to loan arrangement costs incurred for the new credit facilities entered into during 2006 to fund the UK acquisition and includes a £0.1 million impact from accelerated amortisation resulting from the early repayment of the Group's debt under the credit facility. The unwinding of discounted fair value adjustments on the Regus UK acquisition resulted in a non cash net financing charge of £1.5 million in the period to 31 December 2008 compared to £2.3 million in 2007. The decrease was as a result of a one-off credit of £0.8 million arising from the accelerated unwinding of the discounting resulting from the partial waiver of a loan with a joint venture.
Following an internal review of our facility arrangements in March 2009 and given the strength of the Group's cash position, the Board has approved the early surrender of our £100 million revolving credit facility. On an annualised basis this will save £0.9 million of financing costs. Going forward we will utilise our cash resources to support the letters of credit which were previously covered by our facility.
Taxation
The continued improvements in the Group results have meant that there are less unrecognised losses available to be offset in the income statement against rising current tax charges. Consequently the Group has recognised a £34.3 million tax charge for the period (representing an accounting tax rate of 23% of profit before tax) compared to £15.8 million (or 13%) in the comparative period.
The current tax charge for the period was £57.3 million (2007: £22.3 million charge) - an increase from 19% to 38% of profit before tax. Deferred tax was a £23.0 million credit in the period (2007: £6.5 million credit). On a cash tax basis the Group paid £31.3 million in tax. This represents approximately 21.0% of profit before tax compared to 13.5% in the same period in 2007.
Earnings per share
Earnings per share for the year increased 14.3% from 10.5p to 12.0p. The average number of shares in issue during the year reflected the share buy back programme in 2008 and therefore reduced to 950,319,978 (2007: 980,961,569).
Currency Hedging
Given the continued volatility in exchange rates in January 2009 the Board approved a policy which allows the Group to hedge, subject to strict limits, the rates at which we translate our overseas earnings. This will enable the Group to have more certainty over the sterling value of these earnings.
Goodwill
Regus has £274.5 million of goodwill in the balance sheet largely arising from the purchase in August 2004 of HQ Global Holdings Inc and the purchase in April 2006 of the remaining 58% interest in the Regus UK business not already owned.
While impairment tests at the year end on the carrying value of goodwill indicated that no impairment was necessary, given the relatively high discount rates the market is currently applying to our future cash flows and the need for prudence in a recessionary environment, the headroom in these calculations was low.
It is therefore possible that a future, non-cash, impairment may be necessary arising from relatively small changes in assumptions. Full details of the approach taken and sensitivities will be provided in our annual report which will be distributed to shareholders at the end of April.
Cash flow
Strong operating cash flow remains a prime feature and continued objective of the Group. The improvement in operating profit and continued working capital inflows resulted in the operating cash flow increasing by £38.5 million to £249.6 million (2007: £211.1 million). The Group's cash flow statement has been summarised below.
| (£ million) | 2008 | 2007 |
| Cash generated from operations | 249.6 | 211.1 |
| Tax and net interest paid | (30.2) | (16.9) |
| Maintenance capex | (32.9) | (29.8) |
| Free cash flow | 186.5 | 164.4 |
| New centre openings | (57.4) | (50.9) |
| Other acquisitions and JV investments | (12.1) | (17.8) |
| Share buy back and dividend | (36.3) | (20.6) |
| Loan repayment | (37.5) | (17.0) |
| Exercises of share options, dividend income and disposal proceeds | 1.9 | 0.5 |
| Change in cash | 45.1 | 58.6 |
| Opening cash | 142.9 | 80.9 |
| Change in cash | 45.1 | 58.6 |
| Effect of exchange rates on cash held | 31.5 | 3.4 |
| Closing cash | 219.5 | 142.9 |
The strong cash performance has enabled the Group to invest in growth. Specifically, during the year, 84 new centres were opened at a cost of £57.4 million. A further 28 business centres were acquired for a net cash consideration of £12.1 million.
To highlight, during the year, the Group has:
repaid to our investors £36.3 million through both our share-buyback and dividend activity
reduced our debt by £37.5 million
invested £69.5 million in capacity growth
and still ended the year with an increased cash position. This can be can be analysed as follows:
| (£ million) | 2008 | 2007 |
| Cash and cash equivalents | 219.5 | 142.9 |
| Bank and other loans | (5.3) | (40.3) |
| Finance leases | (3.0) | (1.5) |
| Un-amortised financing fees | -- | 0.3 |
| Financial assets | 211.2 | 101.4 |
Overall the Group enters 2009 in a strong financial position to meet the challenges of a difficult economic climate and capitalise on opportunities as they arise.
Stephen Gleadle,
Chief Financial Officer
20 March 2009
Consolidated Income Statement
| £m | Note | Year ended 31 Dec 2008 | Year ended 31 Dec 2007 |
| Revenue | 2 | 1,077.2 | 862.4 |
| Cost of sales | (771.5) | (610.5) | |
| Gross profit (centre contribution) | 305.7 | 251.9 | |
| Administration expenses | (158.3) | (129.3) | |
| Operating profit | 147.4 | 122.6 | |
| Share of post-tax profit of joint ventures | 2.3 | 0.8 | |
| Profit before financing costs | 149.7 | 123.4 | |
| Finance expense | (6.8) | (8.1) | |
| Finance income | 6.3 | 4.1 | |
| Profit before tax for the year | 149.2 | 119.4 | |
| Tax charge | (34.3) | (15.8) | |
|
| |||
| Profit after tax for the year | 114.9 | 103.6 | |
| Attributable to: | |||
| Equity shareholders of the parent | 113.9 | 103.1 | |
| Minority interests | 1.0 | 0.5 | |
| 114.9 | 103.6 | ||
| Earnings per ordinary share (EPS): | |||
| Basic (p) | 12.0 | 10.5 | |
| Diluted (p) | 11.8 | 10.4 |
Consolidated Balance Sheet
| £m | As at 31 Dec 2008 | As at 31 Dec 2007 | |
| Non-current assets | |||
| Goodwill | 274.5 | 223.0 | |
| Other intangible assets | 55.8 | 46.9 | |
| Property, plant and equipment | 278.0 | 184.7 | |
| Deferred tax assets | 79.0 | 46.8 | |
| Other long term receivables | 38.3 | 24.1 | |
| Investments in joint ventures | 4.0 | 1.6 | |
| 729.6 | 527.1 | ||
| Current assets | |||
| Trade and other receivables | 231.8 | 186.4 | |
| Corporation tax receivable | 8.3 | 5.1 | |
| Cash and cash equivalents | 219.5 | 142.9 | |
| 459.6 | 334.4 | ||
| Total assets | 1,189.2 | 861.5 | |
| Current liabilities | |||
| Trade and other payables | (214.8) | (168.9) | |
| Customer deposits | (174.8) | (130.4) | |
| Deferred income | (132.6) | (96.0) | |
| Corporation tax payable | (61.7) | (33.2) | |
| Obligations under finance leases | (1.3) | (0.8) | |
| Bank and other loans | (5.1) | (15.5) | |
| Provisions | (2.0) | (3.4) | |
| (592.3) | (448.2) | ||
| Net current liabilities | (132.7) | (113.8) | |
| Total assets less current liabilities | 596.9 | 413.3 | |
| Non-current liabilities | |||
| Other payables | (99.8) | (62.4) | |
| Obligations under finance leases | (1.7) | (0.7) | |
| Bank and other loans | (0.2) | (24.5) | |
| Deferred tax liability | (5.4) | (6.4) | |
| Provisions | (8.5) | (7.4) | |
| Provision for deficit on joint ventures | (1.0) | (2.1) | |
| (116.6) | (103.5) | ||
| Total liabilities | (708.9) | (551.7) | |
| Total assets less liabilities | 480.3 | 309.8 | |
| Total equity | |||
| Issued share capital | 9.5 | 49.2 | |
| Treasury shares | (1.4) | (13.4) | |
| Foreign currency translation reserve | 67.0 | (20.1) | |
| Revaluation reserve | 10.0 | 10.0 | |
| Other reserves | 15.3 | (22.6) | |
| Retained earnings | 379.6 | 306.2 | |
| Total shareholders' equity | 480.0 | 309.3 | |
| Minority interests | 0.3 | 0.5 | |
| Total equity | 480.3 | 309.8 |
Approved by the Board on 20 March 2009
Mark Dixon Stephen Gleadle
Chief Executive Officer Chief Financial Officer
Consolidated Cash Flow Statement
| £m | Year ended 31 Dec 2008 | Year ended 31 Dec 2007 |
| Profit before tax for the year | 149.2 | 119.4 |
| Adjustments for: | ||
| Net finance costs | 0.5 | 4.0 |
| Net share of profit on joint ventures and associate | (2.3) | (0.8) |
| Depreciation charge | 56.2 | 39.2 |
| Loss on disposal of property, plant and equipment | 0.7 | 0.2 |
| Amortisation of intangible assets | 6.3 | 6.4 |
| Decrease in provisions | (1.5) | (4.2) |
| Other non-cash movements - share based payment | 4.8 | 4.5 |
| Operating cash flows before movements in working capital | 213.9 | 168.7 |
| Increase in trade and other receivables | (6.2) | (28.2) |
| Increase in trade and other payables | 41.9 | 70.6 |
| Cash generated from operations | 249.6 | 211.1 |
| Interest paid on finance leases | (0.2) | (0.2) |
| Interest paid on credit facilities | (4.0) | (4.0) |
| Tax paid | (31.3) | (16.1) |
| Net cash inflows from operating activities | 214.1 | 190.8 |
| Investing activities | ||
| Purchase of subsidiary undertakings (net of cash acquired) | (12.1) | (17.8) |
| Purchase of interest in joint venture | -- | (0.3) |
| Dividends received from joint ventures | 1.0 | -- |
| Sale of property, plant and equipment | 0.9 | 0.3 |
| Purchase of property, plant and equipment | (87.7) | (79.2) |
| Purchase of intangible assets | (2.6) | (1.5) |
| Interest received | 5.3 | 3.4 |
| Cash outflows from investing activities | (95.2) | (95.1) |
| Financing activities | ||
| Repayment of loans | (36.1) | (14.5) |
| Repayment of principal under finance leases | (1.4) | (2.5) |
| Purchase of treasury shares | (19.9) | (14.7) |
| Payment of ordinary dividend | (15.2) | (5.9) |
| Payment of dividend to minority shareholders | (1.2) | -- |
| Exercise of share options | -- | 0.5 |
| Cash outflow from financing activities | (73.8) | (37.1) |
| Net increase in cash and cash equivalents | 45.1 | 58.6 |
| Cash and cash equivalents at beginning of year | 142.9 | 80.9 |
| Effect of exchange rate fluctuations on cash held | 31.5 | 3.4 |
| Cash and cash equivalents at end of year | 219.5 | 142.9 |
Consolidated Statement of Changes in Equity
| | Attribute to equity holders of the parent (note a) | | | ||||||
| £m | Share capital | Treasury shares | | Foreign Currency translation reserve | Revaluation reserve | Other | Retained earnings | Minority interests | Total equity |
| Balance at 1 Jan 2007 | 49.2 | -- | | (17.5) | 10.0 | (22.6) | 205.4 | -- | 224.5 |
| Profit attributable to equity holders | -- | -- | | -- | -- | -- | 103.1 | -- | 103.1 |
| Profit attributable to minority interests | -- | -- | | -- | -- | -- | -- | 0.5 | 0.5 |
| Currency translation differences | -- | -- | | (2.6) | -- | -- | -- | -- | (2.6) |
| Deferred tax effect of share options | -- | -- | | -- | -- | -- | (0.1) | -- | (0.1) |
| Total recognised income and expense for the period | | | | (2.6) | -- | -- | 103.0 | 0.5 | 100.9 |
| Share based payments | -- | -- | | -- | - | -- | 4.5 | -- | 4.5 |
| Ordinary dividend paid | -- | -- | | -- | -- | -- | (5.9) | -- | (5.9) |
| Exercise of share options | -- | 1.3 | | -- | -- | -- | (0.8) | | 0.5 |
| Purchase of treasury shares | -- | (14.7) | | -- | -- | -- | -- | -- | (14.7) |
| Balance at 31 Dec 2007 | 49.2 | (13.4) | | (20.1) | 10.0 | (22.6) | 306.2 | 0.5 | 309.8 |
| Profit attributable to equity holders | -- | -- | | -- | -- | -- | 113.9 | -- | 113.9 |
| Profit attributable to minority interests | -- | -- | | -- | -- | -- | -- | 1.0 | 1.0 |
| Currency translation differences | -- | -- | | 87.1 | -- | -- | -- | -- | 87.1 |
| Total recognised income and expense for the period | | | | 87.1 | -- | -- | 113.9 | 1.0 | 202.0 |
| Share based payments | -- | -- | | -- | -- | -- | 4.8 | -- | 4.8 |
| Ordinary dividend paid | -- | -- | | -- | -- | -- | (15.2) | -- | (15.2) |
| Dividend paid to minority interest | -- | -- | | -- | -- | -- | -- | (1.2) | (1.2) |
| Scheme of Arrangement (b) | (37.9) | -- | | -- | -- | 37.9 | -- | | -- |
| Purchase of treasury shares in Regus Group plc | -- | (18.5) | | -- | -- | -- | -- | -- | (18.5) |
| Cancellation of treasury shares in Regus Group plc | (1.8) | 31.9 | | -- | -- | -- | (30.1) | -- | -- |
| Purchase of treasury shares in Regus plc | -- | (1.4) | | -- | -- | -- | -- | -- | (1.4) |
| Balance at 31 Dec 2008 | 9.5 | (1.4) | | 67.0 | 10.0 | 15.3 | 379.6 | 0.3 | 480.3 |
(a) Total reserves attributable to equity holders of the parent:
Share capital represents the net proceeds (the nominal value) on the issue of the Company's equity share capital (prior to 14 October 2008 the equity share capital of Regus Group plc).
Treasury shares represent 5,950,000 ordinary shares of the Group that were acquired for the purposes of the Group's employee share option plans and the share buyback programme. During 2008 prior to the Scheme of Arrangement on 14 October 2008, 24,624,000 shares in Regus Group plc were acquired and 36,571,702 shares were cancelled. Subsequent to the Scheme of Arrangement 2,750,000 foundation shares in Regus plc were acquired and a further 3,200,000 Regus plc shares were acquired in the market. At 20 March 2009, 5,950,000 treasury shares were held.
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and joint ventures.
The revaluation reserve arose on the restatement of the assets and liabilities of the UK associate from historic cost to fair value at the time of the acquisition of the outstanding 58% interest
Consolidated Statement of Changes in Equity (continued)
Other reserves include £37.9 million arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5 million relating to merger reserves and £0.1 million to the redemption of preference shares, partly offset by £29.2 million arising from the Scheme of Arrangement undertaken in 2003.
(b) On 14 October 2008 the Group entered into a Court approved Scheme of Arrangement. As a result of the Scheme of Arrangement shares in Regus Group plc were cancelled and shares in the new Group holding company, Regus plc, were issued on the basis of one Regus plc share (nominal value one pence) for one share previously held in Regus Group plc (nominal value five pence). As a result, the shareholders of Regus Group plc became the shareholders of Regus plc. The transaction was accounted for as a reverse acquisition and consequently the aggregate of the Group reserves have been attributed to Regus plc.
Notes to the Accounts
Note 1: Basis of preparation and accounting policies
Regus plc (SA) is a public limited company incorporated in Jersey and having its place of central administration (head office) in Luxembourg and accordingly being registered as a societe anonyme (SA). The Company's ordinary shares are traded on the London Stock Exchange.
The Group's financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").
The basis of preparation and accounting policies are set out in full in the Annual Report, and have been applied consistently to all periods presented in these financial statements. The accounting policies have been applied consistently by group entities.
On 14 October 2008, Regus plc acquired the entire share capital of Regus Group plc in exchange for the issue of new shares in Regus plc on the basis of one share in Regus plc for one share previously held in Regus Group plc. At the date of the transaction, Regus plc had nominal assets and liabilities and therefore the transaction was accounted for as a reverse acquisition of Regus plc by Regus Group plc. Consequently no fair value acquisition adjustments were required and the aggregate of the Group reserves have been attributed to Regus plc.
The financial statements were approved by the directors on 20 March 2009.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2008 or 2007 but is derived from those accounts. Statutory accounts for 2007 for Regus Group plc have been delivered to the registrar of companies in the United Kingdom, and those for 2008 will be filed in due course in both Jersey and Luxembourg. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports.
Annual Report
Copies of the annual report, which will be posted to shareholders at least 20 working days before the AGM on 19 May 2009, may be obtained from the head office of the Company at 26 Boulevard Royal, L-2449 Luxembourg and the registered office of the Company at 22 Grenville Street, St Helier, Jersey JE4 8PX. The report will also be available on the Company's website at www.regus.com.
Note 2: Segmental analysis - management basis (unaudited)
| Americas | EMEA | Asia | UK | Other | Total | |
| Year ended 31 Dec | 2008 | 2008 | 2008 | 2008 | 2008 | 2008 |
| Mature | ||||||
| Workstations | 56,579 | 27,603 | 11,288 | 25,833 | -- | 121,303 |
| Occupancy (%) | 86.2 | 88.7 | 82.1 | 84.4 | -- | 86.0 |
| Revenue (£m) | 363.1 | 276.9 | 81.0 | 197.1 | -- | 918.1 |
| Contribution (£m) | 115.3 | 102.8 | 30.4 | 40.3 | -- | 288.8 |
| 2007 Expansions | ||||||
| Workstations | 9,514 | 2,996 | 6,187 | 2,507 | -- | 21,204 |
| Occupancy (%) | 79.4 | 78.5 | 73.5 | 73.9 | -- | 76.9 |
| Revenue (£m) | 41.7 | 30.7 | 30.2 | 14.9 | -- | 117.5 |
| Contribution (£m) | 5.9 | 9.0 | 9.4 | 1.8 | -- | 26.1 |
| 2008 Expansions | ||||||
| Workstations | 3,487 | 1,753 | 2,047 | 2,477 | -- | 9,764 |
| Occupancy (%) | 59.0 | 55.9 | 48.1 | 61.0 | -- | 56.6 |
| Revenue (£m) | 7.2 | 10.2 | 6.8 | 9.2 | -- | 33.4 |
| Contribution (£m) | (4.1) | (1.4) | (2.6) | (2.2) | -- | (10.3) |
| 2008 Closures | ||||||
| Workstations | 593 | -- | 314 | 82 | -- | 989 |
| Occupancy (%) | 79.2 | -- | 94.6 | 90.3 | -- | 85.0 |
| Revenue (£m) | 2.9 | 1.4 | 3.0 | 0.9 | -- | 8.2 |
| Contribution (£m) | (0.1) | 0.8 | 0.3 | 0.1 | -- | 1.1 |
| Totals | ||||||
| Workstations | 70,173 | 32,352 | 19,836 | 30,899 | -- | 153,260 |
| Occupancy (%) | 83.9 | 86.0 | 76.1 | 81.7 | -- | 82.9 |
| Revenue (£m) | 414.9 | 319.2 | 121.0 | 222.1 | -- | 1,077.2 |
| Contribution (£m) | 117.0 | 111.2 | 37.5 | 40.0 | -- | 305.7 |
| Operating profit (£m) | 42.6 | 49.5 | 16.3 | 2.8 | 36.2 | 147.4 |
| REVPAW (£) | 5,912 | 9,871 | 6,095 | 7,188 | -- | 7,029 |
| Americas | EMEA | Asia | UK | Other | Total | |
| Year ended 31 Dec | 2007 | 2007 | 2007 | 2007 | 2007 | 2007 |
| Mature | ||||||
| Workstations | 55,779 | 27,225 | 11,027 | 25,746 | -- | 119,777 |
| Occupancy (%) | 85.8 | 87.1 | 80.1 | 83.5 | -- | 85.1 |
| Revenue (£m) | 315.9 | 225.8 | 67.7 | 195.3 | -- | 804.7 |
| Contribution (£m) | 101.9 | 81.1 | 25.8 | 42.9 | -- | 251.7 |
| 2007 Expansions | ||||||
| Workstations | 4,092 | 1,520 | 3,195 | 1,548 | -- | 10,355 |
| Occupancy (%) | 69.1 | 54.4 | 33.1 | 63.8 | -- | 55.0 |
| Revenue (£m) | 13.0 | 9.2 | 5.5 | 8.9 | -- | 36.6 |
| Contribution (£m) | (1.1) | (1.9) | (0.5) | (1.1) | -- | (4.6) |
| 2007 Closures | ||||||
| Workstations | 288 | 330 | -- | 443 | -- | 1,061 |
| Occupancy (%) | 76.5 | 86.2 | -- | 85.8 | -- | 83.4 |
| Revenue (£m) | 1.5 | 2.4 | -- | 2.4 | -- | 6.3 |
| Contribution (£m) | (0.1) | 0.5 | -- | (0.7) | -- | (0.3) |
| 2008 Closures | ||||||
| Workstations | 1,001 | 50 | 526 | 168 | -- | 1,745 |
| Occupancy (%) | 81.9 | 89.3 | 93.4 | 87.7 | -- | 86.2 |
| Revenue (£m) | 5.9 | 2.9 | 4.5 | 1.5 | -- | 14.8 |
| Contribution (£m) | 2.0 | 0.6 | 2.2 | 0.3 | -- | 5.1 |
| Totals | ||||||
| Workstations | 61,160 | 29,125 | 14,748 | 27,905 | -- | 132,938 |
| Occupancy (%) | 84.7 | 85.3 | 69.9 | 82.4 | -- | 82.7 |
| Revenue (£m) | 336.3 | 240.3 | 77.7 | 208.1 | -- | 862.4 |
| Contribution (£m) | 102.7 | 80.3 | 27.5 | 41.4 | -- | 251.9 |
| Operating profit (£m) | 48.2 | 43.3 | 12.5 | 8.3 | 10.3 | 122.6 |
| REVPAW (£) | 5,497 | 8,251 | 5,267 | 7,460 | -- | 6,487 |
Notes:
The mature business is defined as those centres owned and operated at least 12 months prior to 1 January 2007 and therefore have a full 12 month comparative.
Expansions include new centres opened and acquired businesses.
A 2008 closure is defined as a centre closed during the 12 month period to 31 December 2008. A 2007 closure is defined as a centre closed during the 12 month period to 31 December 2007.
Workstation numbers are calculated as the weighted average for the period.
EMEA represents Europe (excluding UK), Middle East and Africa.
Note 3: Reconciliation of operating profit to adjusted EBIT and EBITDA
| £m | Year ended 31 Dec 2008 | Year ended 31 Dec 2007 |
| Operating profit | 147.4 | 122.6 |
| EBIT | 147.4 | 122.6 |
| Depreciation | 56.2 | 39.2 |
| Amortisation of acquired intangibles | 6.3 | 6.4 |
| Adjusted EBITDA | 209.9 | 168.2 |
Note 4: Analysis of financial resources
| £m | At 1 Jan 2008 | Cash flow | Non-cash changes | Exchange movement | At 31 Dec 2008 |
| Cash and cash equivalents | 142.9 | 45.1 | -- | 31.5 | 219.5 |
| Debt due within one year | (15.5) | 11.6 | (0.3) | (0.9) | (5.1) |
| Debt due after one year | (24.5) | 24.5 | (0.1) | (0.1) | (0.2) |
| Finance leases due within one year | (0.8) | 0.6 | (0.7) | (0.4) | (1.3) |
| Finance leases due after one year | (0.7) | 0.8 | (1.2) | (0.6) | (1.7) |
| (41.5) | 37.5 | (2.3) | (2.0) | (8.3) | |
| Net financial assets | 101.4 | 82.6 | (2.3) | 29.5 | 211.2 |
Cash and cash equivalents balances held by the Group that are not available for use amounted to £14.1 million at 31 December 2008 (31 December 2007: £14.4 million). This cash serves as collateral against certain obligations of the Group.
Cash not available for use at 31 December 2008 includes cash held on deposit of which £2.6 million (December 2007: £2.1 million) relates to collateral against bank loans; £9.3 million (December 2007: £10.2 million) relates to deposits which are held by banks and landlords as security against lease commitments by Regus operating companies and £2.2 million (December 2007: £2.1 million) held by the ESOP Trust. These amounts are blocked and not available for use by the business.
Non-cash changes comprise the amortisation of debt issue costs, new finance leases entered into and movements in debt maturity.
Note 4: Related parties
During the year ended 31 December 2008 the Group received management fees of £3.1 million (2007: £2.4 million) from its joint venture entities. At 31 December 2008 £4.9 million (2007: £8.8 million) was due to the Group from joint ventures of which £nil of this debt has been provided for at 31 December 2008 (2007: £nil). During the year £2.0 million of a loan receivable owed from a joint venture was waived by the Group.
No loans or credit transactions were outstanding with directors or officers of the Company at the end of the year or arose during the year that need to be disclosed. During the year ended 31 December 2008 the Group acquired goods and services from a company indirectly controlled by a director of the Company amounting to £18,746 (2007: £5,600). The goods and services were acquired in arms length transactions.
Compensation paid to the key management personnel of the Group will be disclosed in the Group's Annual Report and Accounts for the year ending 31 December 2008.
Note 5: Principal risks and uncertainties
There are a number of risks and uncertainties which could have an impact on the Group's long-term performance. The Group has a risk management structure in place designed to identify, manage and mitigate business risks. Risk assessment and evaluation is an essential part of the annual planning, budgeting and forecasting cycle.
The directors have identified the following principal risks and uncertainties affecting the Group. These do not constitute all of the risks facing the Group.
Economic downturn in significant markets
The Group has a significant proportion of its centres in the Americas (predominantly the USA) and Europe. An economic downturn in these markets could adversely affect the Group's operating revenues thereby reducing operating performance or, in an extreme downturn, resulting in operating losses.
Generally, the terms on which the Group earns revenues from customers and pays its suppliers (principally landlords) are matched to reduce working capital needs. However, a reduction in revenues, with no immediate decline in the cost base, could result in significant funding shortfalls in the business. Any funding shortfall may require the Group to seek external funding or sell assets in the longer term.
In addition, competition may increase as a result of landlords offering surplus space at discounted prices and companies seek to reduce their costs by sub-letting space. These factors could result in reduced revenue for the Group as the prices it is able to charge customers would be reduced.
The Group has taken a number of actions to mitigate this risk:
The group has entered into performance based leases with landlords where rent costs vary with revenues earned by the centre.
Building lease contracts include break clauses at periodic intervals to allow the Group to exit leases should they become onerous. In cities with a number of centres this allows the Group to stagger leases such that an orderly reduction in exposure to the location may be facilitated.
The profile of clients in a centre is continually reviewed to avoid undue reliance on a particular client or clients in a particular industry group.
Additionally, in the event of a downturn, the Group has a number of options for mitigating losses, for example by closing centres at lease break points.
The Group's strategy also focuses its growth into emerging markets that will reduce the proportion of the Group's revenue generated from the USA and Europe over time and provide better protection to the Group from an economic downturn in a single market.
Exposure to movements in property markets
A number of the Group's lease contracts contain market rent review clauses. This means that the costs of these leases may vary as a result of external movements in the property market. In particular, in the UK, lease contracts typically contain 'upward only' rent reviews which means that should open market rents decrease, then Regus could be exposed to paying higher than market rent in these locations.
If the Group is unable to pass on increased rent costs to customers due to local property market conditions then this could result in reduced profitability or operating losses in these markets.
Equally, for Group lease contracts without market rent review clauses, the Group may benefit from paying below market rent in a market with increasing open market rents. This may allow the Group to improve profitability if the movements in open market rents are passed on to clients.
The length of the Group's leases (or the period after which the Group can exercise any break option in the leases) is usually significantly longer than the duration of the Group's contracts with its customers. If demand falls, the Group may be unable to increase or maintain occupancy or price levels and if revenue declines the Group may be unable to reduce the lease cost base. Additional costs could be incurred if the Group disposes of unprofitable centres.
Exposure to movements in exchange rates
The Group has significant overseas operations whose businesses are generally conducted in the currency of the country in which they operate. The principal exposures of the Group are to the US dollar and the euro with approximately 38% of the Group's revenues being attributable to the US dollar and 19% to the euro respectively.
Given that transactions generally take place in the functional currency of Group companies, the Group's exposure to transactional foreign exchange risk is limited. However, the translation into sterling of overseas profits and net assets will be affected by prevailing exchange rates. In the event that either the US dollar or euro were to significantly depreciate or appreciate against sterling, this would have an adverse or beneficial impact to the Group's reported performance and position respectively.
The financial risk management objectives and policies of the Group, together with an analysis of the exposure to such risks are set out in note 23 of the Report and Accounts. Wherever possible, the Group attempts to create natural hedges against currency exposures through matching income and expense and assets and liabilities in the same currency.
Given the continued volatility in exchange rates in January 2009 the Board approved a policy which allows the Group to hedge, subject to strict limits, the rates at which overseas earnings are translated. This will enable the Group to have more certainty over the sterling value of these earnings.
Group reorganisation and restructuring
In October 2008, the Group entered into a reorganisation to create a new Group structure. Reorganisations of international groups can lead to a risk of a significant tax liability. In addition, as a result of the scheme, it is expected that Regus plc will be regarded as tax resident solely in Luxembourg. If Regus plc were nonetheless to be treated as tax resident in any other jurisdiction, this could lead to an increase in the overall effective tax rate and tax compliance costs of the Group.
As a Jersey-incorporated company having its place of central administration (head office) in Luxembourg and being tax resident in Luxembourg, Regus plc is required to comply with both Jersey law and Luxembourg law, where applicable. In addition, Regus plc's ordinary shares are listed on the Official List of the UKLA and admitted to trading on the main market of the London Stock Exchange. It is possible that conflicts may arise between the obligations of Regus plc under the laws of each of these jurisdictions or between the applicable laws and the Listing Rules. If an irreconcilable conflict were to occur then Regus plc may not be able to maintain its status as a company tax resident in Luxembourg.
The Group manages the risk that a significant tax liability could arise by taking appropriate advice, both in carrying out the Group reorganisation and on an ongoing basis. In addition, the Group believes that under current laws and regulations the risk of irreconcilable conflicts between current laws and regulations impacting Regus plc is also low.
As part of the Group reorganisation, the Group announced plans to operate an income access share (IAS) arrangement for the payment of dividends. The Group expects that dividends will be paid to Regus plc shareholders who make (or are deemed to make) an IAS election through the IAS arrangements. However there can be no certainty that dividends will be paid in this way and the IAS arrangements may be suspended or terminated at any time and for any reason. If the IAS arrangements do not operate shareholders will be paid dividends by Regus plc which may be subject to Luxembourg withholding tax. In addition, there is a low risk that share buy-backs undertaken by Regus plc could also be subject to Luxembourg withholding tax.
Centrally managed applications and systems
The Group has moved to a centrally managed applications and systems environment with the resultant effect that all systems and applications are housed in a central data centre. Should the data centre be impacted as a result of circumstances outside of the Group's control there could be an adverse impact on the Group's operations and therefore its financial results. This risk is managed through a detailed service arrangement with our external data centre provider which incorporates appropriate back-up procedures and controls.
Note 6: Contingent assets and liabilities
The Group has bank guarantees and letters of credit held with certain banks amounting to £49.7 million (2007: £25.3 million). A number of lawsuits are pending against the Group, the outcome of which in aggregate is not expected to have a material effect on the Group.
The Group has been in dispute with a supplier over the performance under a contract and had entered into legal arbitration prior to 31 December 2008. At the balance sheet date the Group believes it is likely that a resolution will be reached in its favour.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the annual results and the Group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with Luxembourg Generally Accepted Accounting Practice and applicable law.
The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the Group.
In preparing each of the Group and parent company financial statements, the directors are required to:
Select suitable accounting policies and then apply them consistently;
Make judgments and estimates that are reasonable and prudent;
For the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the parent company and Group will continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the parent company and to enable them to ensure that its financial statements comply with applicable law and regulations. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The directors are also responsible for preparing a Directors' Report, a Remuneration Report and Corporate Governance Statement.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Luxembourg governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions and the Company's Articles of Association permit the Company to communicate with shareholders in a similar way to that permitted by UK company law.
The directors of Regus Plc (SA) are listed in the Group's Annual Report and Accounts for the year ended 31 December 2008.
The annual accounts have been approved by the directors of Regus plc. The directors confirm that the annual accounts have been prepared in accordance with applicable law and regulations and that they include a fair review of the development and performance of the business and the position of the parent company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Mark Dixon Stephen Gleadle
Chief Executive Officer Chief Financial Officer
20 March 2009
This annual results announcement contains certain forward looking statements with respect to the operations of Regus. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.
END