RGU.L Regulatory News (RGU)

5 March 2013

REGUS plc - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2012

"Strong results: investing for sustained growth"

Regus, the world's largest provider of flexible workplaces, today announces its annual results for the year ended 31 December 2012.

*Centres opened on or before 31 December 2010 **Before accounting changes as announced on 19 July 2012

Strong financial performance at Group level

·; Revenue grew 9.2% at constant currency to £1,244.1m (2011: £1,162.6m)

·; Operating profit rose by 66% to £90.2m (2011: £54.5m)

·; Total overheads up only 4.1% at constant currency (up 2.5% at actual rates to £230.2m). With an 11% increase in average consolidated workstations to 204,459 average cost per available workstation reduced by 8%

·; EPS up to 7.5p, representing a 74% increase from last year (2011: 4.3p)

·; Proposed 10% increase in full year dividend to 3.2p (2011: 2.9p)

·; £175.3m invested into growth and quality assets during 2012

·; Strong year end net cash position of £120m which, together with credit facility of £200m, provides additional scope for growth

·; 37% increase in membership to over 1.3m members with access to the network (2011: 983k)

·; Increase in period end consolidated workstations of 18% to 229,615

Mature Centre performance continued to improve

·; Mature revenue growth of 2.9% at constant currency to £1,124.1m (2011: £1,114.3m)

·; Gross margin improves to 29.0% (2011: 25.9%) with progress made in all regions. Underpinned by:

o Strong occupancy of 85.8% (2011: 85.6%)

o REVPOW increase to £7,565, an improvement of 2.4% or £183 at constant currency

o Strong returns from addition of centres opened in 2010 into Mature business

·; Adjusted mature operating profit up 51% to £158.5m. Economies of scale and overhead efficiencies driving an increase in adjusted mature margin to 14.1% (2011: 9.4%)

·; 67% increase in notional mature EPS to 14.0p (2011: 8.4p)

·; Mature centres characterised by strong cash generation - free cash flow up 7% to £144.3m (2011: £135.1m), representing 15.3p per share or 12.8% of revenue

Continued investment in strengthening and growing the network

·; 243 new centres and five new countries which expands network to 1,411 and 99 respectively

·; New 2011 and 2012 centres performing well; 2011s close to operating profit breakeven in Q4

·; Third place partnerships in place with seven organisations across five countries - including Staples, Extra Motorway Services and SBB (Swiss Railways) signed in the period

·; Offer for MWB Business Exchange became unconditional post-period end on 21 February 2012

·; Expect to open at least 350 centres (including MWB Business Exchange); anticipate ending year with a modest net cash position

Mark Dixon, Chief Executive of Regus plc, said:

"Regus has delivered another strong set of results in 2012; revenue up 9%*, operating profit up 66% to over £90m and EPS increased by 74% to 7.5p.

Our strategy of pursuing targeted revenue and margin growth to achieve mature profitability, strong cash generation and long-term earnings per share growth has again delivered. We continue to see a strong and accelerating momentum towards flexible working and our results today reflect this global shift.

We continue to focus on improving margins in our Mature business and investing in new locations. We remain on track to achieve a global network of at least 2,000 locations by the end of 2014, and our recent acquisition of a majority interest in MWB Business Exchange further supports this goal.

Current trading since the year end has been good and in line with our expectations. As such, we look to the year ahead with confidence."

*at constant currency

For further information, please contact:

Chairman's statement

We are pleased to report another year of strong results for Regus, building on our performance of the last few years. Group revenues grew 9.2% at constant currency rates to £1,244.1m (2011: £1,162.6m), operating profits, benefiting in part from disciplined cost management, improved by 66% to £90.2m (2011: £54.5m), and earnings per share increased from 4.3p to 7.5p.

On a like-for-like basis, revenues in our Mature business improved by 2.9% at constant currency to £1,124.1m (2011: £1,114.3m), while operating profit increased by 65% to £170.5m (2011: £103.6m) as gross margins increased to 29.0% (2011: 25.9%). Additionally, our Mature Centres continued to be highly cash generative, with free cash flow (after tax, finance costs and maintenance capital expenditure) of £144.3m, representing a mature free cash flow yield of 12.8% or 15.3p per share.

Alongside our focus on Mature Centre performance, we continued with our strategy to expand Regus' global network, in order to serve the growing demand for our products and services. Our strategic expansion includes both targeted organic growth and carefully selected acquisitions. During 2012 we added 243 centres, taking us to a year-end total of 1,411.

Strategy

Regus' strategy is to serve and profit from the structural shift towards flexible work by being the platform of choice from which business operates. The structural shift towards flexible work is taking place on a global scale and across all business sectors. The step-up of investment in our network in response to growing demand for our services will, together with continued innovations in product offerings and customer service, enable us to maintain our market leading position. We continue to build our management capabilities in line with our growth objectives through the development of our people, processes and systems, supplemented by the strategic hiring of experienced professionals. Consistent with management's priorities, execution of our strategy includes continuing to improve the profitability of our mature centres, investing for attractive returns and growing long-term earnings per share.

Growth of our Mature business is achieved primarily through the maturing of our new centres. Our mature centres are highly cash generative and this allows us to continue to expand through organic growth and carefully selected acquisitions, enabling us to better serve our existing customers as well as attract new customers in new markets. Based on Regus' strong financial performance, we are confident these investments will translate into future profits.

Overall, this set of results again reflects our resilient business model and the continued success of our growth strategy. The Group has again proved itself capable of delivering strong and sustainable growth and returns.

Our people

As a growth orientated company, the Board is only too aware of how important a committed and motivated workforce is to us achieving our aspirations. As such, we remain focused on maintaining high levels of employee engagement, training and development. I would like to place on record my thanks to all our team members around the world for their continued hard work and dedication. The strong results we present are a testament to their endeavours.

Board composition and performance

With a view to the future development of the Group as well as a desire to continue to enhance diversity and succession planning for Board roles, we plan to increase the size of the Board over time. The Nomination Committee has implemented an ongoing programme of engagement with highly qualified potential Non-Executive Directors of varied backgrounds and gender to support this process. A formal external evaluation of the performance of the Board was carried out during the year by an independent leadership consultancy with experience in conducting such reviews. The external evaluation results were reviewed by the Board and are being addressed in our efforts to continuously improve the processes and effectiveness of the Board. No reportable matters were noted by the evaluation and we continue to have full confidence in the Board's members and processes.

Dividend

Given the strong performance of the business, the Board is recommending a final dividend of 2.2p. Subject to the approval of shareholders at the 2013 AGM, this will be paid on 31 May 2013 to shareholders on the register at the close of business on 3 May 2013. This represents an increase in the full year dividend of 10% to 3.2p (2011: 2.9p).

Douglas Sutherland

Chairman

5 March 2013

Chief Executive's review

I am delighted to be yet again reporting another set of excellent results, made all the more satisfying given the challenging macro economy. We have increased revenue, improved profit margins and delivered strong cash generation. As demand has continued to grow, we undertook a significant acceleration of new centre expansion, with 243 new centres added. This contributed to a 17% growth in our network, on top of 11% in the prior year. As the structural shift to flexible work accelerates, we see significant additional opportunities to invest in expanding and improving our offer to customers and are confident this will deliver excellent returns for shareholders. This confidence is underpinned by the encouraging performance of our new centres and the strong results from our growing mature estate.

Over the period Group revenues increased by 7.0% to £1,244.1m (2011: £1,162.6m), operating profit increased to £90.2m (2011: £54.5m), EPS increased by 74% to 7.5p and, subject to shareholder approval, we will increase the final dividend by 10% to 2.2p, making a total of 3.2p for the year (2011: 2.9p). Our balance sheet remains strong with net cash of £120.0m and during the year we secured a £200m revolving credit facility, providing us with further funding flexibility.

As previously announced the reported results have benefited from the accounting changes we implemented with effect from 1 January 2012. Accordingly, we set out in the table below the impact of these changes to highlight the strong adjusted performance.

In our Mature Centres business, operating profits rose by 65% to £170.5m, with free cashflow (after tax, finance costs and maintenance capital expenditure) at £144.3m (15.3p per share), on the back of revenues up 2.9% at constant currency rates to £1,124.1m. Customer numbers were up 37%; our network increased by 17%; and we opened in four new countries. In total we invested £175.3m in our New Centres business during 2012 compared with £103.4m last year. Our New Centres continue to perform as expected, as they progress towards financial maturity. This, combined with the performance of our mature centres, demonstrates the underlying strength of our business.

The market opportunity - a structural shift towards flexible work

Regus' business model is firmly focused on serving and profiting from the structural shift towards flexible work by being the platform of choice from which businesses operate. The way in which people work is changing at an accelerating rate, driven by a wide variety of factors including technological change, globalisation and changing workforce dynamics, with growing recognition from large organisations that these changes can underpin substantial productivity, capital expenditure and cost improvements.

As this trend develops the demand for high quality, short-term, drop-in space and the services which go with them, continues. This plays perfectly to our business model. Our step-up in investment reflects the growth in demand, with customers seeking work locations ranging from traditional business centres, railway stations, motorway service stations, to airports and retail outlets.

Our business

We look at our business as three discrete but interlinked segments, all of which made strong progress over the course of the year.

Mature Centre business (centres open on or before 31 December 2010)

The performance of our Mature Centres business remains fundamental to the Group. In 2012 the business continued to move forward. We remain pleased with the levels of occupancy we are achieving (which averaged 85.8% through the year) and the improvement to REVPOW, which increased to £7,565, an improvement of 2.4% (up £183) at constant currency rates and 0.4% (up £32) at actual rates, a continued sign of robust yield management. This healthy occupancy and increased REVPOW were the principal drivers of the improvement in adjusted mature gross profit margin to 27.9% (2011: 26.0%). The 2010 new centres, which joined the mature estate in 2012, generated strong margins in line with the rest of the mature estate after being open less than two years on average. Moreover, for the year in question the 2010 centres achieved a post-tax return on the gross investment in excess of 27%.

We continue with our active management of the mature network to deliver high occupancy and usage. This, when coupled with lower relative overheads, generates improved operating profit margins.

To achieve this, we focus on the following:

·; Improving portfolio balance and diversification

·; Widening the reach of our network into new countries

·; Deepening the network within countries

·; Diversifying the customer base

·; Assisting large Enterprise organisations in transitioning to more flexible work models. Over the year agreements were signed with Telefonica, Aviva and ABN Amro amongst others

·; Developing new channels - for example we signed a deal with BMW in the UK whereby MINI fleet drivers will be provided with a Businessworld membership allowing them on-demand access to the Regus network

·; Expanding the product offering

·; Major improvements to our technology infrastructure to meet customer demands for improved performance, reliability and self-service. Key projects included: upgrading internet performance tenfold; the development and launch of CallStream VoIP platform; and an innovative mobile cloud printing service called DocumentStation

·; Yield management

·; Providing the right space to the customer to maximise the revenue generated

·; Network optimisation

·; Ensuring that locations remain viable and taking action where they are not performing

·; Lease management

·; Ensuring we have sufficient flexibility within our portfolio. Currently over 82% of leases associated with our Mature business are either flexible or variable

New Centres (open on or after 1 January 2011)

We closely manage new locations. Our goal is for them to generate cash and profits in line with the rest of the mature estate as soon as possible.

Specifically:

·; Our 2011 centres financial profile is in line with expectations. Totalling 139 new openings, these generated £74.0m of revenue and made a positive centre contribution of £3.8m. In the months following opening a significant amount of sales and marketing effort is required to support occupancy growth. Consequently, after application of overhead, the drag on operating profit of these centres in 2012 was £16.6m, although this figure in H2 2012 was only £3.6m as they were maturing. As in previous years we expect these centres to contribute to operating profit as they enter the mature estate.

·; The 243 centres that we added during 2012 generated revenues of £39.0m and made a negative centre contribution of £8.7m, in line with our expectations. These additions contributed to a 17% increase in our overall network. The heavy overhead investment required to open and support these new centres, as well as the negative gross profit as they open, resulted in a drag of £62.5m on the Group's operating profit.

The current economic climate and weakness in the commercial property market continue to present us with excellent opportunities to grow our network on preferred terms and with a lower risk profile. As well as enabling us to respond to the strong demand we are experiencing across almost all markets, growth builds our network effect, filling in portfolio gaps and allowing us to benefit from economies of scale - whilst our network grew by 17% over the period in question, our total Group overhead costs increased by 4.1% at constant currency (2.4% at actual rates).

We remain focused on opportunities, both organic and through acquisition, that are prudent and capable of delivering sustainable returns. Acquisitions must meet the same exacting investment criteria that we apply to organic openings. Our management team has significant experience of integrating acquisitions, making rapid operational and financial improvements and then taking those acquired businesses to the next stage of their development, thereby further enhancing returns.

Third Place

Our move into Third Place is a direct result of strong customer demand and from partner organisations inviting us to develop service offerings within their networks. These spaces, such as motorway service stations and railway stations, are ones from which people are increasingly likely to work when on the move; enabled primarily by mobile technology. We continue to respond proactively to and be led by end-user demand in this exciting new field.

Achievements of note during 2012 include the expansion of our locations on the Dutch rail network with NS Trains; a new deal signed in the third quarter with SBB Railways in Switzerland; the opening of the first business centre locations on the UK motorway service network at three Extra locations; and facilities within four Staples stores in the UK. Since year end we have extended our relationship with Shell to cover 69 locations (ranging from drop-in business lounges to wifi hotspots) across the Berlin Metropolitan area and signed an agreement to add additional locations to the UK motorway network with Welcome Break. It should be noted that the capital expenditure involved in third place locations is significantly lower than for our core Mature and New Centre businesses.

While the potential of our Third Place business is exciting - wherever people may find themselves working, there is an opportunity for Regus to improve that experience - it is important to stress that it remains small and embryonic at this stage and is currently immaterial in the context of our core centre operations.

Improving our management team

As the network grows so our ability to deliver at the local level becomes far more dependent on the strength of our local, in-country management teams. In 2012 we continued to see the benefits of our approach to recruiting ahead of our growth curve. The process is ongoing and we are making significant hires at a country management level to ensure that the improvement in our results continues. At the same time we appointed several highly experienced professionals to occupy strategic roles within the Group.

Operational review

Over the year the Group opened 243 new centres (2011: 139) with the total number as of 31 December 2012 standing at 1,411 (2011: 1,203). This growth resulted in an increase in total workstation capacity (including non-consolidated workstations) of 17.7% to 240,131 and the number of consolidated workstations as at 31 December 2012 by 18.4% to 229,615. Over the period customer numbers increased by 37% to approximately 1.35 million.

To review our business more meaningfully, we will concentrate on our mature business performance development, which represents like-for-like business:

Americas

Our Americas business posted another strong performance. Mature revenues were up 4.1% at constant currency to £480.0m (up 3.6% at actual rates), with average mature occupancy of 88.6% during the period (2011: 87.7%). On an adjusted basis mature gross margins improved to 31.1% (2011: 28.7%). During the year, we added 126 centres, including our first in Halifax, Canada; Vitoria, Brazil; and Pasadena, USA, as well as entering Ecuador. This growth contributed to a 13% increase in the average number of consolidated workstations from 80,064 in 2011 to 90,617 in 2012.

EMEA

The region delivered mature revenues of £275.2m, an increase of 1.6% at constant currency, and achieved an average mature occupancy of 82.4% (2011: 83.8%). Mature gross margin, adjusted to remove the impact of the accounting changes, improved over the period to 27.8% (2011: 26.1%). During the year, we added 33 centres which contributed to a 7% increase in the average number of consolidated workstations from 38,473 in 2011 to 41,531 in 2012. We opened our first centres in Port Elizabeth, South Africa; Stavanger, Norway; and Antananarivo, Madagascar, as well as opening in Zambia.

Asia Pacific

This business delivered mature revenues of £163.4m, up 3.1% on constant currency (up 2.3% at actual rates) and achieved an average mature occupancy of 86.0% (2011: 84.3%). Adjusted mature gross margins improved to 30.6% (2011: 28.5%). During the year we added 79 new centres including Wellington, New Zealand; Sapporo, Japan; and Tianjin, China, as well as opening in Cambodia and Sri Lanka. This contributed to a 25% increase in the average number of consolidated workstations from 27,757 in 2011 to 34,557 in 2012.

UK

Our UK business delivered mature revenues of £204.2m, up 1.7% on 2011. Adjusted mature gross margins improved to 17.9% (2011: 16.1%), and average mature occupancy remained robust at 83.0% (2011 84.1%). Over the period there was a modest reduction of 1.5% in the average number of consolidated workstations to 37,754 (2011: 38,346) following a small net closure of centres.

On a regional basis, mature revenues and contribution can be analysed as follows:

* The mature business comprises centres owned and operated on or before 31 December 2010

** The adjusted mature margin is before the impact of accounting changes implemented from 1 January 2012

Outlook

Mature profitability and building long-term earnings per share and shareholder value through targeted growth remain our core focus areas. Accordingly, we will continue to focus on improving margins in our Mature business and investing in new centres which will deliver incremental returns over the medium term.

It remains our intention to achieve a global network of at least 2,000 centres by the end of 2014. We expect to add at least 350 centres, including 64 from the acquisition of MWB Business Exchange, in 2013. This number may increase if we find additional compelling opportunities or, alternatively, decrease if we cannot find enough opportunities that meet our strict financial returns criteria.

Current trading since the year end has been good and in line with our expectations. As such, we look to the year ahead with confidence.

Mark Dixon

Chief Executive Officer

5 March 2013

Chief Financial Officer's review

The Group has delivered strong, profitable growth, in line with expectations, despite prevailing currency headwinds and an uncertain economic environment throughout 2012.

We improved the performance of our Mature Centres business, increasing like-for-like revenues by 2.9% at constant currency rates. At actual rates this was an increase of 0.9%, from £1,114.3m to £1,124.1m. Similarly as the table below shows, margin performance advanced with the mature adjusted gross margin increasing from 26.0% to 27.9% and, with a strong focus on controlling absolute overheads and improving efficiency, adjusted operating margin improved still further from 9.4% to 14.1%. This delivered a 51% growth in mature adjusted operating profit from £104.8m to £158.5m. Average mature occupancy was up to 85.8% from 85.6% in 2011 and REVPOW grew by 2.4% over 2011 at constant currency rates.

Cash conversion remains a strong feature of the Mature Centres business. Over the course of the year £144.3m of free cash flow was generated, equivalent to a free cash flow margin of 12.8%, or 15.3p per share. This has allowed the Group to accelerate investment into attractive growth opportunities in order to meet the growing demand for the products and services that the Group supplies. Overall we invested £175.3m in our New Centres business and during 2012 we added 243 new centres. As expected, the fourth quarter was a particularly active period with 122 centres added to the network. Many of these came via bolt-on acquisitions.

Notwithstanding this significant investment in our business, we ended the year in a strong financial position. Net cash at 31 December 2012 stood at £120.0m (2011: £188.3m). To increase the Group's flexibility for further growth a four-year, £200m revolving credit facility was signed on 6 August 2012.

Reflecting the financial and operational progress the Group has made, we are recommending a 10% increase in the full year dividend from 2.9p to 3.2p.

Segmental presentation

To fully understand the fundamental underlying performance of the business it is necessary to look at our mature and new centres separately. This highlights the changing financial characteristics of the centres over time, with new ones negatively impacting profitability, particularly in their opening year.

Accounting changes

As announced during the year and following a review of our accounting policies on asset capitalisation and depreciation, we implemented two changes (effective from 1 January 2012) to better reflect the underlying economic reality of the business in the financial statements. As expected these changes have materially benefited reported profitability for 2012. We have, where appropriate, highlighted the net impact of these changes on the Group's performance. These changes had no impact on Group cash flow. Given that year-on-year comparisons will again be like-for-like at the level of reported figures, it is not the Board's intention to carry this additional disclosure into 2013.

Mature Centres business (centres open on or before 31 December 2010)

The table below shows the strong development of the mature performance.

Mature Centre performance

At the end of December 2012 there were 1,029 centres in the mature estate, which represented approximately 73% of our global portfolio. Our focus here has remained resolutely on driving the margin forward at the centre level (gross profit), by providing the right space to the customer to maximise the revenue generated, and delivering additional overhead efficiency to generate growth in operating margins.

Our Mature Centres made good progress against both goals during the year, which is pleasing given the near absence of favourable macro trends. Revenue from these centres was £1,124.1m, an increase of 2.9% at constant currency (up 0.9% at actual exchange rates). This performance reflects average occupancy, at 85.8%, being consistently maintained at the high levels achieved in 2011, as well as growth in REVPOW. Mature REVPOW for the year improved to £7,565, an increase of 2.4% (up £183) at constant currency rates and up 0.4% (up £32) at actual rates. Not only does this like-for-like revenue growth build on the strong performance experienced since the second half of 2011 but we ended the year strongly, with REVPOW increasing 2.6% year-on-year in the fourth quarter on a constant currency basis.

Reported gross profit (centre contribution) increased 13% to £325.7m from £288.4m. Excluding the impact of the accounting changes, there was an underlying improvement of 11% at constant currency (up 8% at actual rates), reflecting the operational leverage benefit of higher revenue and strong discipline over managing centre costs. Accordingly, the adjusted gross margin has increased from 26.0% to 27.9%.

Overheads allocated to the mature estate reduced from £184.9m in the corresponding period to £154.9m which was a very pleasing result. This continues the sequential half yearly decline seen over the last few years as the Group continues to benefit from strong cost discipline across the entire business and the ability to leverage this overhead base over a significantly larger number of centres. Accordingly, overheads as a percentage of revenues have continued to decline from 16.6% of mature revenues in 2011 to 13.8% for 2012.

As a result, our reported mature operating profit increased 65% from £103.6m to £170.5m, improving the operating margin from 9.3% to 15.2%. Excluding the impact of the accounting changes, adjusted operating profits increased 51% from £104.8m to £158.5m. Reported mature EBITDA increased from £173.1m to £223.1m with the margin improving from 15.5% to 19.8%.

The table below sets out a notional EPS calculation for our mature business on both a reported and on an adjusted basis. The increase in notional adjusted mature EPS provides a more representative picture of the development in operating performance of the business, given the accounting changes outlined above.

Notional Mature earnings per share

Commensurate with the strong advance in operating profit, notional adjusted mature EPS has improved by 67% with the reported mature EPS reaching 14.0p.

Mature Centres cash flow

Another attractive characteristic of the Mature business is its cash generation and, once again, the conversion of mature profitability into cash has been strong, continuing to make a significant contribution to the funding of our new centre growth.

Mature Centre cash flow

* Tax at 20% of profit before tax

Maintenance capital expenditure for the year was little changed at £48.1m (2011: £46.9m), representing 4.3% of annual mature revenues, in line with our guidance of 4-5%.

As anticipated, after a working capital outflow in the first half of £7.8m we saw this reverse and finished with a full year inflow. Mature free cash flow generation for 2012 represents a very creditable 15.3p per share.

New Centres (open on or after 1 January 2011)

Responding to strong and growing customer demand, we continue to invest in growing our network. In line with the updated guidance we issued in October 2012, the business opened 243 new centres. At the end of December 2012 we had 382 new centres, comprising 27% of the total number of centres.

We are realising the benefit of the substantial investment made to support our growth strategy. During the first half of the year we opened 76 centres, a significant increase compared to the 48 that were opened in the corresponding period of 2011. During the second half this rate of expansion accelerated with the addition of 167 centres (H2 2011: 91 centres).

The profit and cash flow profile of new centres can vary considerably in the early months influenced by factors such as their location and whether they are acquired or organic openings. Their impact on the reported results also depends on the timing of the opening within the year.

Overall, these new centres have represented a material investment and, with the increase in the pace of openings, represent a material drag on the Group's income statement. This arises from the significant investment into central overheads and the initial negative gross margin while occupancy builds. The performance of our new centres continues to be in line with management expectations.

We view new centres as our future mature estate. For example, consistent with our maturity classification, on 1 January 2012 the centres opened during 2010 joined the Mature business. In line with our expectations, the 2010 openings continued to mature over the course of 2012 and narrow the performance gap with the longer established Mature 2009 business (centres opened on or before 31 December 2009). In 2012, the 2010 openings achieved a gross margin before depreciation and amortisation (CBITDA) of 30.2%, compared to 33.4% on the 2009 Mature Centres business. Using the measure of CBITDA eliminates the higher level of depreciation incurred by the 2010 openings compared to older centres in the Mature 2009 business and provides a more meaningful comparison of operational performance. At the same time, the 2010 centres achieved a post-tax cash return of over 27% on gross investment during 2012. We over anticipate that, in due course, the new 2011 and 2012 openings will deliver a similarly strong performance.

The table below illustrates the impact on the income statement of these new openings as well as the impact of the accounting changes implemented.

New Centre performance

The 2011 openings continued to progress to maturity in line with management's expectations. As described above, the initial financial profile of a new centre can be influenced by a number of factors. In the case of our 2011 openings, these were weighted towards the end of the year. As the anticipated build in occupancy occurred, so the expected financial performance materialised. The 2011 openings contributed a positive gross profit by the second quarter of 2012. This momentum continued and generated a gross profit for the year of £3.8m. By the fourth quarter these centres were close to operating profit break even.

Also, as anticipated, the openings in 2012 delivered a negative gross profit of £8.7m and, as is normal, attracted a significant level of overhead costs, resulting in an overall drag of £62.5m on Group operating profit.

We set out below the cash flow impact of the investment in new centres:

Investment in new centres

During 2012 the Group significantly increased its investment into growing the business from £103.4m to £175.3m. New centres continue to have a positive impact on working capital. Every potential new centre location is rigorously evaluated by the investment committee and has to meet stringent financial hurdles before being approved. This is a process we continue to focus on.

Closures

In addition to the normal expiry of lease commitments we constantly review our portfolio of centres against strong performance criteria. Accordingly, during 2012 we closed or relocated 26 centres (2011: 20). These centres contributed an operating loss of £1.2m in 2012, against a loss of £4.6m in the corresponding period.

Third Place

Our Third Place business has gained momentum during 2012 and the pipeline of potential opportunities is strong. While we are encouraged with progress made to date, it still remains too early to evaluate the full financial potential, both in terms of investment and returns. As such, we have continued to report the results within our 'New Centre' segment. When the business becomes more meaningful, we will separate out the results. As previously stated, there is no relaxation of our investment criteria in appraising these opportunities.

Overheads

In a year when we have significantly increased our network, we have maintained a strong focus on cost management. Total overhead costs increased just 4.1% at constant currency (2.5% at actual rates) to £230.2m (2011: £224.7m). Our network increased by 17% in the same period and our overhead per available workstation was back below the level in 2010. As a result, total Group overheads as a percentage of revenue have fallen to 18.5% (2011: 19.3%).

This has been achieved whilst increasing investment in areas which differentiate us from other market participants: in the product development team to drive innovation; and in our property team to drive accelerated growth, which in itself drives additional overhead costs as new centres require a higher investment in sales and marketing than Mature Centres. Other costs continue to be rigorously controlled which, along with efficiency and productivity improvement, ensures that we continue to realise the benefits of economies of scale.

The methodology by which we have allocated overheads to the various elements of our business is consistent with that used in presenting the results for 2011. There are four elements to the allocation:

·; It is estimated that 90% of property team costs are spent on supporting our growth programme;

·; On average, each additional centre costs £130,000. This reflects the cost of management time, sales and marketing set-up costs (which are deducted before the allocation of sales and marketing costs as outlined below), human resources, recruitment and training costs, administrative and finance set-up costs and professional costs associated with acquisitions;

·; For the remainder of the sales and marketing costs, the principle is that the allocation is made on the basis of new workstation sales as the nature of the spend is to generate new enquiries and to convert these into new sales; and,

·; For all other overhead costs we follow the principle of allocating the costs pro-rata by reference to time-apportioned available workstation numbers.

Group operating profit reconciliation

The tables below reconcile the elements of our business by maturity to the Group consolidated income statement down to operating profit and including EBITDA.

Overall, Group revenues increased 7.0% from £1,162.6m to £1,244.1m (a 9.2% increase at constant currency rates). Reported gross profit increased 15% from £279.1m to £320.7m and, with the operational leverage enjoyed by the business, operating profit advanced 66% from £54.5m to £90.2m.

Group operating profit reconciliation

Net finance costs

Although the Group remains in a strong net cash position despite the significant investment into New Centre growth, a net finance charge of £5.1m was incurred (2011: £5.1m). As expected, the net charge was impacted in the second half by £2.2m of costs related to the new four-year, £200m revolving credit facility and the renewal of our £85m guarantee facility for a further four years. The Group also incurred a notional interest charge of £1.4m (2011: £2.0m) relating to the accounting treatment of a fair value adjustment on an acquisition in 2006.

Tax

The tax charge for the year was 16.7% (2011: 18.2%). As previously highlighted, this is low as a result of the accounting changes outlined above, which had a material positive impact on reported profitability but limited implications for taxation.

The Board continues to believe that 20% remains the long-term underlying effective tax rate for the Group.

Earnings per share

The Group earnings per share increased to 7.5p (2011: 4.3p). 2012 saw a significant increase in the centre network and, as previously highlighted, our new centres create a significant drag on profits, which impacts the statutory earnings per share for the Group.

The weighted average number of shares in issue remained broadly unchanged at 941,921,816 (2011: 941,898,916). No shares were purchased by the Group during the period.

Cash flow and funding

The table below reflects the Group's cash flow.

Group cash flow

Underlying cash generation from the Mature business remains strong with a mature free cash flow of £144.3m. Again, the mature cash flow has largely funded the uplift in investment in new centre openings. During 2012, £175.3m was invested in new centres compared to £103.4m in the corresponding period.

Notwithstanding this growth investment, the Group remained in a healthy financial position. At 31 December 2012 the Group had net cash of £120.0m (2011: £188.3m).

To provide additional flexibility, on 6 August 2012 the Group signed a four-year, £200m revolving credit facility with a consortium of six banks.

As our business grows (we have opened 382 centres over the last two years to stand at 1,411 centres at 31 December 2012), the underlying operational cash generation increases further, as does our ability to fund growth from internal cash generation.

We estimate that, all other things being equal, we would be able to fund approximately 250 new centres in 2013 from internally generated funds. Currently, however, we expect to add at least 350 centres during 2013 (including 64 through the acquisition of MWB Business Exchange). If we achieve this level of new centre openings, we would anticipate ending 2013 with a modest, positive net cash position.

We believe that the combination of our strong net cash position, increased operational cash generation and access to the revolving credit facility, provide the Group with the appropriate financial headroom to execute our strategy and remain focused on maintaining a robust capital structure.

The Group is driven by risk-adjusted returns and will only continue to invest if the environment and centre performance meet our stringent returns criteria. Accordingly, we have always indicated that we can shut off growth very quickly in the event that we determine a need to do so.

Risk management

The principal risks and uncertainties affecting the Group remain unchanged. 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 in the corporate governance section in the 2012 Annual Report and Accounts.

We continue to monitor the attempts by the International Accounting Standards Board to find a solution to the perennial debate on lease accounting. Until the second Exposure Draft is published it remains unclear how this debate will conclude. Regardless, it will have no impact on the underlying commercial dynamics of our business. Timing around the publication of the second Exposure Draft remains fluid.

Related parties

Details of related party transactions that have taken place in the period can be found in note 30 to the 2012 Annual Report and Accounts. There have been no changes to the type of related transaction entered into by the Group that had a material effect on the financial statements for the period ended 31 December 2012.

Dividends

Subject to shareholder approval, we will increase the final dividend for 2012 by 10% to 2.2p (2011: 2.0p). This will be paid on Friday 31 May 2013, to shareholders on the register at the close of business on Friday 3 May 2013. This represents an increase in the full year dividend of 10%, taking it from 2.9p for 2011 to 3.2p for 2012.

Dominique Yates

Chief Financial Officer

5 March 2013

Consolidated income statement

* Restatement described in note 2

Consolidated statement of comprehensive income

* Restatement described in note 2

Consolidated statement of changes in equity

* Restatement described in note 2

** Net of foreign exchange impact

(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.

·; At 31 December 2012 Treasury shares represent 8,982,139 (2011: 9,070,906) ordinary shares of the Group that were acquired for the purposes of the Group's employee share option plans and the share buy-back programme. During the period, nil shares were purchased in the open market and 88,767 Treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 5 March 2013, 8,982,139 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 to fair value at the time of the acquisition of the outstanding 58% interest on 19 April 2006.

·; Other reserves include £37.9m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5m relating to merger reserves and £0.1m to the redemption of preference shares partly offset by £29.2m arising from the Scheme of Arrangement undertaken in 2003.

Consolidated balance sheet

* Restatement described in note 2

Approved by the Board on 5 March 2013

Mark Dixon Dominique Yates

Chief Executive Officer Chief Financial Officer

Consolidated statement of cash flows

* Restatement described in note 2

Notes to the accounts

1. Authorisation of financial statements

The Group and Company financial statements for the year ended 31 December 2012 were authorised for issue by the Board of Directors on 5 March 2013 and the balance sheets were signed on the Board's behalf by Mark Dixon and Dominique Yates. Regus plc S.A. is a public limited company incorporated in Jersey and registered and domiciled in Luxembourg. The Company's ordinary shares are traded on the London Stock Exchange.

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union ('Adopted IFRSs'). The Company prepares its parent Company annual accounts in accordance with Luxembourg GAAP; extracts from these are presented on page 90 of the Annual Report and Accounts.

2. Accounting policies

Basis of preparation

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

The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements. Amendments to adopted IFRSs issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) with an effective date from 1 January 2012 did not have a material effect on the Group financial statements.

IAS 12 Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets introduces a rebuttable assumption that deferred tax on investment properties measured at fair value will be recognised on a sale basis, unless an entity has a business model that would indicate the investment property will be consumed in business. The adoption of this amendment has no impact on the financial position or performance of the Group.

IFRS 1 First-time Adoption of International Financial Reporting Standards (Amendment) - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters provides guidance on how an entity should resume presenting IFRS financial statements when its functional currency ceases to be subject to severe hyperinflation. The amendment also removes the legacy fixed dates in IFRS 1 relating to derecognition and day one gain or loss transactions. In the amended standard these dates coincide with the date of transition to IFRS. The adoption of this amendment has no impact on the financial position or performance of the Group.

IFRS 7 Financial instruments Disclosures (Amendment) requires additional quantitative and qualitative disclosures relating to the transfer of assets, when financial assets are derecognised in their entirety, but the entity has a continuing involvement in them, and when financial assets are not derecognised in their entirety. The adoption of this amendment has no impact on the financial position or performance of the Group.

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

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

The Directors, having made appropriate enquiries, have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the consolidated financial statements on pages 43 to 89 of the Annual Report and Accounts.

In adopting the going concern basis for preparing the consolidated financial statements, the Directors have considered the further information included in the business activities commentary as set out on pages 10 to 13 of the Annual Report and Accounts as well as the Group's principal risks and uncertainties as set out on pages 26 and 27.

Further details on the going concern basis of preparation can be found in note 23 to the notes to the accounts on page 71 of the Annual Report and Accounts.

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

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

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised income and expense of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases or the associate qualifies as a disposal group at which point the investment is carried at the lower of fair value less costs to sell and carrying value.

Joint ventures include jointly controlled entities that are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group's share of the total recognised gains and losses of jointly controlled entities on an equity accounted basis, from the date that joint control commences until the date that joint control ceases or the jointly controlled entity qualifies as a disposal group at which point the investment is carried at the lower of fair value less costs to sell and carrying value.

When the Group's share of losses exceeds its interest in a joint venture, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of a joint venture.

On 19 April 2006 the Group acquired the remaining 58% of the shares of the UK business that were not already owned by the Group. As a result the Group fully consolidated the UK business from that date. The acquisition was accounted for through the purchase method and as a consequence the entire assets and liabilities of the UK business were revalued to fair value. The effect of these adjustments on the 42% of the UK business already owned was reflected in the revaluation reserve.

On 14 October 2008, Regus plc acquired the entire share capital of Regus Group plc in exchange for the issue of new shares of Regus plc on the basis of one share in Regus plc for one share held previously 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.

IFRSs not yet effective

The following IFRSs have been issued but have not been applied by the Group in these consolidated financial statements as they are effective for years beginning on or after 1 January 2013 or have not yet been endorsed by the European Union. Their adoption is not expected to have a material effect on the consolidated financial statements unless otherwise indicated:

IAS 1 Financial Statement Presentation introduces amendments to improve the presentation of the components of other comprehensive income. This statement is effective for years beginning on or after 1 July 2012.

IAS 19 Employee Benefits (Amendment) requires significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. The adoption of this amendment is not expected to have an impact on the financial position or performance of the Group. This statement is effective for years beginning on or after 1 January 2013.

IAS 28 Investments in Associates and Joint Ventures (Revised) - As a consequence of the New IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates, has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The revised standard becomes effective for annual periods beginning on or after 1 January 2014.

IAS 32 Financial Instruments: Presentation - The amendments do not change the current offsetting model in IAS 32. The amendments clarify that the right of set-off must be available today - that is, it is not contingent on a future event. This statement is effective for years beginning on or after 1 January 2014.

IFRS 1 First-time Adoption of International Financial Reporting Standards (Amendment) aligns IFRS 1 with the IAS 20 requirements (after its revision in 2008) to prospectively fair value government loans with a below-market rate of interest. The statement has added an exception that allows a first-time adopter to use its previous GAAP carrying amount for such loans on transition to IFRS. The exception applies to recognition and measurement only. Management should use the requirements of IAS 32, 'Financial instruments: Presentation', to determine whether government loans are classified as equity or as a financial liability. This statement is effective for years beginning on or after 1 January 2013.

IFRS 7 Financial Instruments Disclosure - The amendment requires an entity to disclose information about rights of set-off and related arrangements. This statement is effective for years beginning on or after 1 January 2013.

IFRS 9 Financial Instruments - Classification and Measurement addresses the classification and measurement of financial assets and liabilities as defined in IAS 39. This statement will be effective for years beginning on or after 1 January 2015.

IFRS 10 Consolidated Financial Statements replaces IAS 27 Consolidated and Separate Financial Statements by changing whether an entity is consolidated by revising the definition of control. It also addresses the issues raised in SIC-12 Consolidation - Special Purposes Entities. The statement also provided a number of clarifications on applying this new definition of control. This statement will be effective for years beginning on or after 1 January 2014.

IFRS 11 Joint Arrangements established principles for the financial reporting by parties to a joint arrangement. Joint control is defined as the contractually agreed sharing on control of an arrangement, which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. This statement will be effective for years beginning on or after 1 January 2014.

IFRS 12 Disclosure of Interests in Other Entities combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associated and unconsolidated structured entities. This statement will be effective for years beginning on or after 1 January 2014.

IFRS 13 Fair Value Measurement establishes a single source of guidance for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This statement will be effective for years beginning on or after 1 January 2013.

The Group did not adopt any standards, interpretations and amendments to standards which were available for optional early adoptionand relevant to the Group. The Group will adopt the above standards or amendments in the year in which they become effective and/or endorsed by the European Union, whichever is later.

Change in accounting policy

On 1 January 2012 the Group changed its accounting policy with respect to the treatment of new centre costs. The Group believes that the capitalisation of these costs more accurately reflects the cost of bringing its assets to their usable condition. Certain related costs previously expensed will be capitalised as part of property, plant and equipment.

This change in accounting policy was applied retrospectively. The effects on the consolidated balance sheet were as follows:

The effects on the consolidated statement of comprehensive income were as follows:

The effects on the earnings per share were as follows:

Basis of consolidation

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences. The results are consolidated until the date control ceases or the subsidiary qualifies as a disposal group at which point the assets and liabilities are carried at the lower of fair value less costs to sell and carrying value.

Impairment of non-financial assets

The carrying amounts of the Group's assets other than deferred tax assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.

For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount was estimated at 31 October 2012 and updated at 31 December 2012.

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

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Calculation of recoverable amount

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

Goodwill

All business combinations are accounted for using the purchase method. Goodwill represents the difference between the cost of acquisition over the share of the fair value of identifiable assets (including intangible assets), liabilities and contingent liabilities of a subsidiary, associate, asset deal acquisition or jointly controlled entity at the date of acquisition.

Positive goodwill is stated at cost less any provision for impairment in value. An impairment test is carried out annually and, in addition, whenever indicators exist that the carrying amount may not be recoverable. Positive goodwill is allocated to cash-generating units for the purpose of impairment testing.

Business combinations that took place prior to the Group's transition date to IFRS on 1 January 2004 have not been restated under the requirements of IFRS.

Intangible assets

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

The Group conducted a review of the estimated useful life for other intangible assets. During 2012, the expected useful life for certain asset categories were adjusted prospectively to more accurately reflect the period in which the intangible assets are expected to be available for the Group. Intangible assets are amortised on a straight-line basis over the estimated useful life of the assets as follows:

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

Acquisitions of non-controlling interests

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

Leases

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

Finance leases

Plant and equipment acquired by way of a finance lease is capitalised at the commencement of the lease at the lower of its fair value and the present value of the minimum lease payments at inception. Future payments under finance leases are included in creditors, net of any future finance charges. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. Finance charges are recognised in the income statement over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Operating leases

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

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

Onerous lease provisions are an estimate of the net amounts payable under the terms of the lease to the first break point, discounted at an appropriate weighted average cost of capital.

Exceptional Items

Exceptional items are those items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. Such items are included within the income statement caption to which they relate, and are separately disclosed either in the notes to the consolidated financial statements or on the face of the consolidated income statement.

Property, plant and equipment

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

The useful life of certain plant, property and equipment were revised in 2012 (refer to note 14).

Revenue

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

Workstations

Workstation revenue is recognised when the provision of the service is rendered. Amounts invoiced in advance are deferred and recognised as revenue upon provision of the service.

Customer service income

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

Management and franchise fees

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

Membership card income

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

These categories represent all material sources of revenue earned from the provision of global workplace solutions.

Employee benefits

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

For the defined benefit obligation plans, the employer's portion of past and current services cost is charged to operating profit, with the interest cost net of expected return on assets in the plans reported within other finance costs. Actuarial gains or losses are recognised in full, directly in other comprehensive income such that the balance sheet reflects the plan's deficits as at the balance sheet date.

The defined benefit obligation is calculated annually by external actuaries using the projected unit credit method. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using an appropriate discount rate. In determining this discount rate, management considers the interest rates of corporate bonds in the respective currency with at least AA rating, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the respective country.

Further details about the assumptions used are given in note 25.

Share-based payments

The share option programme entitles certain employees and Directors to acquire shares of the ultimate parent company; these awards are granted by the ultimate parent.

The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes valuation model or the Monte Carlo method, taking into accounts the terms and conditions upon which the options were granted.

The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.

Share appreciation rights (CIP) are also granted by the Company to certain employees. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at grant date and spread over the period during which the employees become unconditionally entitled to payment. The fair value of the share appreciation rights is measured based on the Monte Carlo valuation model, taking into account the terms and conditions upon which the instruments were granted.

The Group also operates a Value Creation Plan which awards entitlements to certain employees and Directors of the Group. These entitlements are convertible into options over ordinary shares subject to the Group's share price reaching certain targets.

The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at the date of the award of the entitlements and spread over the period during which the entitlements are convertible into ordinary shares.

The fair value of the entitlements is based on the Monte Carlo valuation model, taking into account the terms and conditions upon which the instruments were granted.

Taxation

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

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

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

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

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

Provisions

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

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

Provision is made for onerous contracts to the extent that the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be delivered, discounted using an appropriate weighted average cost of capital.

Net finance expenses

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

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

Costs arising on bank guarantees and letters of credit and foreign exchange gains or losses have been classified as other finance costs.

Interest bearing borrowings and other financial liabilities

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

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

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

Financial assets

Financial assets are classified as either at fair value through profit or loss, held to maturity investments, available for sale financial assets or loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined on initial recognition.

Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest rate method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when recognition would be immaterial.

Liquid investments consist of held to maturity bonds and deposits.

Foreign currencies

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the closing rate of exchange at the balance sheet date and the gains or losses on translation are taken to the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The results and cash flows of overseas operations are translated using the average rate for the period. Assets and liabilities, including goodwill and fair value adjustments, of foreign operations are translated using the closing rate with all exchange differences arising on consolidation being recognised other comprehensive income, and presented in the foreign currency translation reserve in equity. Exchange differences are released to the income statement on disposal. Under the transition requirements of IFRS, cumulative translation differences for all foreign operations have been set to zero at 1 January 2004.

Cash and cash equivalents

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

Derivative financial instruments

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

Foreign currency translation rates

3. Segmental analysis - statutory basis

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including those that relate to transactions with other operating segments. An operating segment's results are reviewed regularly by the chief operating decision maker (the Board of Directors of the Group) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

The business is run on a worldwide basis but managed through four principal geographical segments: Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; and the United Kingdom. The United Kingdom segment does not include the Group's non-trading holding and corporate management companies that are based in the UK and the EMEA segment does not include the Group's non-trading head office and holding companies that are based in Luxembourg and Switzerland. The results of business centres in each of these regions form the basis for reporting geographical results to the chief operating decision maker. All reportable segments are involved in the provision of global workplace solutions.

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

The accounting policies of the operating segments are the same as those described in the Annual Report and Accounts for Regus plcfor the year ended 31 December 2011. The performance of each segment is assessed on the basis of the segment operating profitwhich excludes certain non-recurring items (including provisions for onerous contracts and asset write-downs), exceptional gains and losses, internal management charges and foreign exchange gains and losses arising on transactions with other operating segments.

* Restatement described in note 2

Revenue in the other segmental category is generated from services related to the provision of workplace solutions including fees earned from franchise agreements and commissions earned from the sale of outsourced workplace solution products. Revenue from internal customers is determined by reference to current market prices.

* Restatement described in note 2

* Restatement described in note 2

4. Segmental analysis - entity-wide disclosures

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

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

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

(a) Excluding deferred tax assets

* Restatement described in note 2

5. Operating profit

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

* Restatement described in note 2

6. Exceptional items

No exceptional items were incurred during the year ended 31 December 2012.

During the year ended 31 December 2011 the Group completed the restructuring of specific entities within the Group at a net cost of £2.5m. This balance consists of expenditure arising on the following categories: asset write-down, reorganisation costs and other costs. There is no provision recognised at year end.

7. Staff costs