RGU.L Regulatory News (RGU)

4 March 2014

REGUS PLC - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2013

Delivering our strategy: 30% growth in network, 34% increase in mature EPS

Regus, the global workplace provider, today announces its annual results for the year ended 31 December 2013.

*Centres opened on or before 31 December 2011

Strong financial performance at Group level with biggest ever investment - full year dividend up 13%

· Group revenue increased 23.3%to £1,533.5m

· Operating profit up 1% to £90.8m notwithstanding the impact of £301.1m investment in growth and £7.4m of MWB transaction and restructuring costs

· Firm control of cost base with overheads (ex. R&D) on a per available workstation basis reduced by 3.8%

· Net debt at 31 December 2013 of £57.2m reflecting significant investment in growth and its impact on operating profit

· 14% increase in final dividend to 2.5p (2012: 2.2p), a full year increase of 13% reflecting strong mature performance

Mature business continues excellent performance - strong increase in operating profit, margins and EPS

· Mature operating profit up 33% to £205.3m. Economies of scale and overhead efficiencies driving an increase in mature operating margin to 16.7% (2012: 13.1%)

· 34% increase in mature EPS to 17.0p (2012: 12.7p)

· Mature revenue growth of 3.7% to £1,226.3m driven by:

o Revenue per occupied workstation (REVPOW) increase to £7,750, an improvement of 4.3% or £321

o Continued strong occupancy of 83.8% (2012: 84.5%)

· Gross margin improves to 29.3% (2012: 27.8%).

· Strong cash generation, with free cash flow representing 16.6p per share or 12.8% of revenue

Record growth - continuing significant investment to increase national networks

· £301.1m invested in growth: 448 new centres added, network increased to 1,831 business centre locations

· New 2012 and 2013 centres performing in-line with expectations

· 17% annual increase in membership to 1.58 million

· MWB fully integrated and on track to add at least £15m to Group operating profit in 2014

· During 2014 we anticipate opening at least 300 centres as well as the addition of more third place locations

Mark Dixon, Chief Executive of Regus, said:

"It's been another record year of achievement for Regus, with strong progress made across all parts of the business. Group revenue was up 23%, following a 30% increase in the size of our global network to 1,831 business centre locations, an unprecedented rate of growth and investment, which included the successful integration of MWB.

Our Mature business remains the engine room of the Group and it delivered operating profits in excess of £205m, a 33% increase, alongside free cash flow of £157m. This strong performance from our mature business allowed us to reinvest in growth, so ensuring the incremental returns of the future.

At this early point in the year it is always somewhat difficult to predict precisely how many locations we will add, but we expect at least 300 new business centre locations as well as the addition of more third place locations.

Current trading is good, although the strengthening of sterling in recent months will affect the translation of our results. Notwithstanding this, we remain confident in our business model and our prospects for the year ahead."

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Chairman's statement

The Group had an active and successful year. We have again demonstrated our ability to deliver a strong financial performance while expanding our global network and deepening our local in-country networks.

For the period, Group revenues grew 23.3% to £1,533.5m (2012: £1,244.1m), while operating profits were marginally ahead at £90.8m (2012: £90.2m), a strong result in light of the increased drag from the accelerated pace of new centre additions.

We continue to position the business for the future, with over £300m invested in growing our high quality network. In total we increased our business centre network by 30% to 1,831 (2012: 1,411) and opened 76 third place locations.

The performance of our Mature business continues to be a strength. On a like-for-like basis, revenues in our Mature business improved by 3.7% to £1,226.3m (2012: £1,182.0m), while operating profit increased by 33% to £205.3m (2012: £154.6m) with the mature operating margin improving to 16.7% (2012: 13.1%). Our mature centres continue to be highly cash generative, with free cash flow (after tax, finance costs and maintenance capital expenditure) of £156.5m, representing a mature free cash flow margin of 12.8% or 16.6p per share.

Our New Centres business has also performed well, progressing in line with our expectations. Management remain focused on ensuring all new centres achieve the required financial returns.

Strategy

Over the last 25 years Regus has evolved to meet the changing work needs of business, providing our customers with superior space and support regardless of when, where or how they work. We believe that now is the right time to expand and lay the foundations for a much larger and more profitable business.

Our growth strategy is based upon increasing the profit generation and cash flows from our mature centres which enables us to invest in our network and thereby generate attractive returns and increased earnings per share over the long term.

While pursuing our strategy, we also strive to be good corporate citizens. We are committed to sustainable business practices and dedicated to promoting and enabling the shift to flexible working in the economy. By doing so, we strengthen our business and help our customers improve their productivity while reducing both costs and carbon emissions through more effective use of space and reducing the need for travel. We are also committed to reducing our own impact on the environment, implementing systems and processes to ensure we use resources in a suitable and responsible way. We also actively back our team members' initiatives to support the local communities in which we operate.

Board update

During the year Florence Pierre joined the Board as a Non-Executive Director, complementing its existing skills and diversity. Following an external evaluation in 2012, an internal Board review was conducted in 2013. The results of this evaluation were used to improve the processes and effectiveness of the Board.

No reportable matters were identified and we continue to have full confidence in the Board's members and processes.

Our people

Each of the Non-Executive Directors was able to attend a portion of the Group's annual planning conference in November in which more than 150 senior managers from around the world actively participated. It was clear from observation of the participants' plans that management's focus on the people in these key roles is paying off in terms of our ability to innovate and deliver results as we execute our strategy.

I would like to thank each and every one of our team members for their unrelenting passion and commitment. Building Regus is a challenging and rewarding endeavour which is only achieved through their hard work and dedication.

Dividend

Given the continued strong performance of the business the Board is recommending a final dividend of 2.5p. Subject to the approval of shareholders at the 2013 AGM this will be paid on 30 May 2014 to shareholders on the register at the close of business on 2 May 2014. This represents an increase in the full year dividend of 13% to 3.6p (2012: 3.2p).

Douglas Sutherland

Chairman

4 March 2014

Chief Executive Officer's review

It has been another year of significant achievement for Regus. These strong results underline the fundamental strengths of our business and its forward momentum in a growing market.

Following a record year of growth we have firmly established ourselves with an unrivalled global network. At the same time we also strengthened our presence at both a local and national level across the 100 countries in which we now operate. As we embed our business more deeply into local communities, we take seriously our commitment to support them. The endeavours of our team members, with the backing of the business, have helped thousands of individuals around the world and I thank them for their efforts.

Group revenues increased by 23.3% to £1,533.5m (2012: £1,244.1m) reflecting the significant expansion of our network. In total £301.1m was invested in growth (2012: £178.4m), the result of which was a 30% increase in business centre locations to 1,831 (2012: 1,411). At the same time operating profit was marginally up at £90.8m (2012: £90.2m). Given the scale, pace and costs of growth, this is a strong result.

Our Mature business remains the profit and cash engine of the Group. Operating profits rose by 33% to £205.3m, in part due to further improvements to yield management, with free cash flow (after tax, finance costs and maintenance capital expenditure) at £156.5m (16.6p per share), on the back of revenues up 3.7% to £1,226.3m. Mature EPS also increased by 34% to 17.0p (2012: 12.7p).

Group income statement

Costs remain firmly under control, notwithstanding the significant investment required to support growth. Improved efficiency and scale continued to deliver benefits, with overheads (excluding Research & Development) on a per-available-workstation basis down by 3.8%.

We have been able to deliver this performance in large part due to the fundamental improvements to our country management structure. These results clearly reflect the quality of our team and their skill in making the right, often tough, decisions to drive performance in what remained a challenging macro environment.

We continue to respond to the fundamental changes affecting how we all work, namely the shift from a fixed to a flexible mode of working. Our fortunes are inextricably linked to progress and developments in this high-growth market.

Among the core drivers of growth for Regus are the significant cost savings associated with moving to more flexible workplace arrangement and outsourcing this to specialist providers such as Regus, as well as continued technological advances, which allow us to work from anywhere. Other drivers include demographic changes, sustainability and the growing societal importance of work-life balance. As a result, flexible working has come to be viewed as a core element of the way organisations operate and conduct business.

Our business model has continually evolved to reflect the changing work needs of business and individuals.

Our over-arching aim has always been to provide our customers with the best possible help and support in deciding where and how they work. In doing so we have created a strong and vibrant business which generates significant long-term shareholder returns.

I will now review the performance of our business.

Performance against our strategic objectives

Improve profitability

The performance of our core Mature Centres business (centres opened on or before 31 December 2011) underpins all growth activity within the Group. We remain pleased with the levels of occupancy, averaging 83.8% through the year, and the improvement of REVPOW to £7,750, an increase of 4.3% (up £321), a sign of robust yield management. This healthy occupancy and increased REVPOW drove incremental revenue growth which, with operational gearing, is then reflected in the improvement in mature gross profit margin to 29.3% (2012: 27.8%).

The 2011 new centres, which joined the mature estate in 2013, significantly closed the gap with the existing mature estate and are now performing at a similar gross profit before depreciation and amortisation margin.

Our New Centres business (centres opened on or after 1 January 2012) has equally performed well and in line with expectations. Our primary objective is to ensure that all new centres perform in line with the rest of the mature estate as soon as possible.

- The financial maturity profile of our 2012 centres is in line with expectations. These generated £139.4m of revenue and made a positive centre contribution of £6.9m. This translated into a gross profit margin before depreciation and amortisation of 15.1%.

- The 448 centres that we added during 2013 generated revenues of £159.4m and made a centre contribution of £7.3m, in line with our expectations. Within this the acquisition of MWB has contributed strongly at the gross profit level.

- The heavy overhead investment required to open and support these new centres resulted in a drag of £114.0m on the Group's operating profit (2012: £62.6m).

Develop national networks

This has been a record period of growth for Regus. We have opened more than 500 locations - 448 business centres and 76 third place. In doing so we expanded our reach and enhanced our long-term earnings potential.

It is a testament to the fundamental strength of our business model, the robustness of our systems and processes and the skill and determination of our teams around the world that we have been able to execute this part of our strategy whilst also maintaining our day-to-day operational performance at such a consistently high level.

When a business looks to outsource its workplace requirements, location is typically the primary consideration. It is for this reason that we are investing in local and national networks, taking the products and services we provide closer to where business needs us to be.

Growth, therefore, both in our core business centre network and into third place locations such as airports, retail outlets and community centres, is a key objective for the Group.

This year we expect to add at least 300 new business centres, and many new third place locations. We continue to find plenty of opportunities, both organic and through acquisition, to grow our network on terms that meet our stringent investment criteria and which are capable of delivering long-term sustainable returns. The integration of MWB into our UK business, achieving all identified synergies, provides a clear demonstration of our ability to deliver value through incremental acquisitions.

As we grew we also continued to improve the composition of our business with 84% of leases now either flexible or variable (2012: 82%).

Our growing network is attractive to the increasing numbers of businesses looking to outsource their workplace needs and adopt more flexible working practices in general. As a consequence, end user demand for Regus products and services remains strong. Over the course of 2013 customer numbers increased by more than 200,000 to 1.58m.

Attracting more large corporate customers to our business remains a key priority. We believe our network scale and reach is an important and crucial differentiator as these organisations seek to rationalise their small-office networks, move towards more flexible work arrangements and reduce fixed costs. Notable new wins and contract extensions amongst many include: Twitter, whom we helped open in 12 new countries over the year; Toshiba, supporting 1,000 of their Retail Point-of-Sales team across 14 countries; and, Electronic Arts, supporting them in markets such as China and Russia as well as opening in new ones across Europe and Asia. We also extended our relationships with Apple, Accenture, EDF Energy and RBS amongst others.

Industry leading innovation

The quality and breadth of Regus locations and associated products and services are core to our differentiation and, are why customers choose to work with us. We recognise that innovation is at the core of maintaining our market-leading position - we invest in Research & Development to ensure we stay ahead of the curve and continue to develop the locations, products and services that attract customers to Regus. Over the period we invested £7.2m in Research & Development (2012: £4.5m). This ensures we are best placed to anticipate and respond to the needs of our customers. It also helps us define the workplace sector, thereby enhancing our leadership position.

During 2013 we continued development in a number of important areas, not least with regards to the IT and telephony services we provide to customers. One of the core attractions of Regus to mobile workers is the way that we can improve their productivity while they are on the move; our cloud printing solution DocStation has proved popular and continues to be rolled out globally. We also concluded market testing of the WorkBox concept. This is a self-contained, fully resourced private workspace with a footprint of four square metres, ideal for locations with high transient footfall such as airports and service stations. We intend to begin deployment in 2014.

Third place continues to make encouraging progress and is a fundamental part of our growth strategy. Over the last year we extended our relationship with Shell and signed agreements to add additional locations to the UK motorway network. Since year-end we signed our first deal outside Europe with the Singapore Government for the placing of facilities in public libraries. We have also signed agreements to open drop-in business lounges at Heathrow and Gatwick airports. Given the scale of the market opportunity we are encouraged by both end user adoption and interest from potential new partners. This is driving rapid growth; however, in the context of our significant business centre operation it remains small at this stage.

Cost control

One of the fundamental strengths of our business is its ability to grow and leverage the benefits of additional scale. Despite significant investment in growth, total overheads (excluding investment in Research & Development) as a percentage of revenue reduced marginally to 18.0%. Against an increase in the network of 30%, total overheads (excluding investment in Research & Development and MWB related transaction and restructuring costs) increased by 19.0%. In addition to the scale benefits mentioned earlier two other factors are driving this improvement, namely the delayering and strengthening of management and automation of our back-office processes. The standardisation of repeatable tasks in our back office allows us to concentrate activities within our single service centre in Manila and harmonise service levels, bringing significant productivity gains and freeing up centre teams for higher-value-add tasks.

A high performing team

No commentary on our business performance would be complete without reference to our dedicated workforce, without whose efforts we could not have achieved the progress we have made so far. Our ability to deliver at the local level becomes ever more dependent on the strength of our local, in-country management teams. In many respects this performance is a direct result of the management and structural improvements we have made at both a Group and a country level and the devolution of day-to-day operational decision making. This process continues and we are making significant hires within all country management teams as we expand.

As a service-based business the strength and capabilities of our increasingly geographically diverse team are critical to achieving our objectives. We recognise the importance of people development and the Regus Online Learning Academy together with a wide range of additional initiatives gives our team members the opportunity to learn and enhance the skills that will ensure they are capable of achieving their career ambitions. We are committed to a fair approach and equal opportunities in all areas of our business.

Culturally we employ more than 100 nationalities and, with regard to gender, we aim to achieve broadly equal outcomes for women and men. For the Group as a whole our workforce is 70% female: 30% male; at a Group operational level the breakdown is broadly equal, and at a senior management level 30% of positions are held by women. We successfully recruit, train, promote and retain skilled and motivated team members with very diverse backgrounds. This is a core strength and critical to the successful development of our business.

Operational Review

Over the year the Group added 448 new centres (2012: 243) with the total number as of 31 December 2013 standing at 1,831 (2012: 1,411). This growth resulted in an increase in total workstation capacity (including non-consolidated workstations) of 26.9% to 304,774 and the number of consolidated workstations as at 31 December 2013 by 27.5% to 292,655.

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

Mature Centres performance

Americas

This business posted another good performance. Mature revenues were up 4.2% at constant currency to £534.0m (up 4.8% at actual rates), with average mature occupancy of 85.5% during the period (2012: 87.2%). Mature gross margins improved to 31.6% (2012: 30.1%). During the year, we added 196 centres. This increased our network to 875 business centre locations and took us into 83 new cities and markets including: Beverly Hills, California; St Pauls, Minnesota; and Langley, Canada. This growth contributed to a 27% increase in the average number of consolidated workstations from 90,617 in 2012 to 114,984 in 2013.

EMEA

This geographically diverse business also delivered a strong performance in spite of challenges in some markets. Mature revenues were up 2.2% at constant currency to £298.3m (up 5.2% at actual rates), and achieved an average mature occupancy of 81.4% (2012: 80.9%). Mature gross margin remained stable at 27.7% (2012: 27.6%). During the year, we added 126 centres, increasing our network to 450 business centre locations, and opening in 23 new cities including: Pretoria, South Africa; Naples, Italy; and Dortmund, Germany. This contributed to a 13% increase in the average number of consolidated workstations from 41,531 in 2012 to 46,973 in 2013.

Asia Pacific

Our APAC business continued its robust performance delivering mature revenues of £181.6m, up 3.2% on constant currency (down 1.7% at actual rates) and achieved an average mature occupancy of 83.5% (2012: 83.3%). Mature gross margins improved to 32.3% (2012: 31.2%). During the year we added 58 new centre openings, increasing the network to 290 business centre locations, and opening in ten new cities, including: Ningbo, China; Penang, Malaysia; and Kathmandu, Nepal, our 100th country. This contributed to a 37% increase in the average number of consolidated workstations from 34,557 in 2012 to 47,188 in 2013.

UK

Our UK business made further strong progress delivering mature revenues of £210.7m, up 3.8% on 2012. Mature gross margins improved to 23.9% (2012: 18.5%) and average mature occupancy remained healthy at 82.8% (2012: 83.1%). Including the acquisition of MWB, 68 new business centre locations were added increasing the network to 216. This resulted in a 34% increase in the average number of consolidated workstations from 37,754 in 2012 to 50,630 in 2013. It is important to note that the integration of MWB went as planned and we remain on track to achieve the identified synergy savings.

Outlook

Our business is in a strong position. We are well positioned to continue to grow our networks, customer base and earnings in 2014.

Strengthening and expanding our network is core to ensuring we continue to generate incremental returns over the medium term. At this early point in the year it is difficult to predict precisely how many locations we will add, but we expect to grow by at least 300 new business centres during 2014 as well as the addition of more third place locations.

Growth, when coupled with increased investment in innovation, will create additional demand for Regus' products and services, especially from large corporates as they seek help in transitioning from fixed to flexible working. The overriding focus, therefore, remains on finding opportunities that meet our strict financial returns criteria and are consistent with our strategic objectives.

Current trading is good, although the strengthening of sterling in recent months will affect the translation of our results. Notwithstanding this, we remain confident in our business model and our prospects for the year ahead.

Mark Dixon

Chief Executive Officer

4 March 2014

Chief Financial Officer's review

The business has made strong progress during 2013 with significant investment in the network and further improvements in mature profit and cash generation.

We have added 448 new centres, slightly ahead of revised guidance in October, and delivered full year results in line with management expectations. It is also important to highlight that this was achieved as sterling strengthened significantly in the final quarter. It is testament to the strength of our core mature business that, while we grew the network by 30%, and incurred £7.4m of transaction and restructuring costs related to the acquisition of MWB Business Exchange and carried significant incremental overhead in MWB in the first half of the year, we nevertheless marginally increased Group statutory operating profit to £90.8m (2012: £90.2m).

To fully appreciate the underlying performance of the Group it is important to look at the Mature and New businesses separately. We have consistently highlighted mature profitability as being more representative of the performance of the business - mature, like-for-like operating profit increased 33% to £205.3m (2012: £154.6m).

A record investment of £301.1m in growing our business moved us from a net cash position of £120m at 31 December 2012 to a net debt position of £57.2m at 31 December 2013. This was a more favourable closing position than we originally anticipated due mainly to timing differences, particularly in relation to growth capital expenditure payments. We continue to monitor the appropriate level of financial capacity to grow our business and support our strategy whilst ensuring we maintain a prudent capital structure.

In recognition of the Group's continued financial and operational progress, the Board declared a 14% increase in the final dividend from 2.2p to 2.5p. This represents a 13% increase in the total dividend to 3.6p (2012: 3.2p).

Improving performance of our Mature Centres business (centres opened on or before 31 December 2011)

At the end of December 2013, we had 1,144 centres in the Mature business. Reflecting the recent scale of our new opening programme, the mature network represented approximately 62% of our global portfolio at the end of 2013. We remain clearly focused on enhancing the profit performance of our Mature Centres business at centre level (gross profit), whilst delivering further overhead efficiencies to generate a higher operating margin.

We are pleased with the performance of our Mature Centres business. Revenue grew 3.7% on a like-for-like basis to £1,226.3m and mature REVPOW improved to £7,750, an increase of 4.3% (£321). This is a strong performance and continues the trend of incremental yield improvement experienced since the second half of 2011. Average mature occupancy for 2013 remained strong at 83.8% (2012: 84.5%).

Gross profit (centre contribution) increased to £359.0m from £328.3m, an improvement of 9%. Accordingly the gross margin increased from 27.8% to 29.3% reflecting the operational leverage benefit of higher revenue (in part from the further maturation of the 2011 centre additions) and our strong discipline over managing centre costs.

Mature Centre business performance

Overheads allocated to the Mature Centres business reduced from £173.4m in the corresponding period to £153.8m as the Group continues to benefit from economies of scale, reducing overhead costs per available workstation. Correspondingly, overheads as a percentage of mature revenue declined from 14.7% in 2012 to 12.5% for 2013 as we make further progress towards our target of 12%.

As a result, our mature operating profit increased 33% from £154.6m to £205.3m, improving the operating margin from 13.1% to 16.7%. Mature EBITDA increased from £216.8m to £272.1m with the EBITDA margin improving from 18.3% to 22.2%.

The following table sets out the EPS calculation for our Mature business. In management's view, this provides a more representative picture of the underlying operating performance of the business.

Mature EPS calculation

Commensurate with the strong advance in operating profit, mature EPS improved by 34% to 17.0p.

Cash generation remains an attractive characteristic of the Mature business. Once more, the conversion of mature profitability into cash has been strong, thereby continuing to contribute to the funding of our new centre growth.

The Mature business experienced a £21.3m working capital outflow in 2013 which represents 1.6% of Group gross working capital balances and is mainly due to timing differences. Maintenance capital expenditure for the year was £53.2m (2012: £58.0m), representing 4.3% of mature revenues (2012: 4.9%); in line with our guidance of 4-5%.

Mature free cash flow

The resulting 4.5% increase in mature free cash flow to £156.5m represents 16.6p per share or a free cash flow margin of 12.8%.

Building the returns from our New Centres business (centres opened on or after 1 January 2012)

In total there were 687 new centres at the end of 2013. Overall, these represented a material investment and, with the notable increase in the pace of openings, provide a significant drag on the Group's income statement. This arises from the substantial investment in central overheads to support this growth and the initial negative gross margin while occupancy builds. More importantly, the performance of our new centres continues to be in line with management's expectations. However, it is important to remember that the way new centres develop financially is influenced by factors such as, but not limited to, geography, the timing of opening, and by deal type.

The table below illustrates the material impact on the income statement of these new additions.

New Centre performance

The 2012 openings are progressing to maturity in line with management's expectations. With the large number of openings in 2012 towards the end of the year, these centres weighed on profitability in the first half of 2013. As expected, however, they continued to fill rapidly and reversed the £1.6m negative contribution in the first half to a positive contribution for the year overall of £6.9m, achieving a gross profit margin before depreciation and amortisation of 15.1% for the year.

Inclusion of MWB in the results for the 2013 new centre additions, following its acquisition at the end of February, resulted in a positive gross profit contribution from this year group in 2013. Overall, these new centre additions remain on track to deliver the anticipated performance.

The allocation of central overheads to support the new 2012 and 2013 centres, together with the actual costs relating to the MWB centres for the six months to 30 June 2013, increased significantly to £128.2m (2012: £53.9m) as the overall number of new centres increased to 687 (2012: 243) and the pace of openings accelerated.

Consequently the negative contribution to Group operating profit in 2013 from the new centres increased to £114.0m (2012: £62.6m)

Developing the network through our New Centres business

We significantly expanded the network during 2013, adding a record 448 centres. This level of activity is slightly ahead of the 420-440 new additions guidance we provided in our Q3 Interim Management Statement. Growth on such a scale means it is challenging to gauge precisely when centres will open or an acquisition will complete. As we did in 2012, we had an active fourth quarter in 2013 when, in total, we added 156 centres, more than the total number of centres opened in the whole of 2011. At the end of December 2013 we had 687 net new centres, comprising 38% of the total number of centres. On 1 January 2014, 239 of the centres added in 2012 graduated into our Mature Centre business.

We continue to have a good pipeline of new openings. Customer demand for more convenient and flexible workplaces continues to be strong and, whilst attractive investment opportunities delivering above our hurdle rate of internal return are available, we will continue to grow our network. We expect to add at least 300 business centre locations this year. This will take us through our previously stated target of at least 2,000 centres by 2014, which served its purpose in demonstrating the scale of the Group's growth aspirations over the last three years.

We will complement this centre growth with a significant number of additional third place locations, further increasing the convenience of our network in a capital efficient manner. Our third place business continues to develop and while we are encouraged with progress made to date, it still remains too early to provide any meaningful representation of performance.

Every potential investment is rigorously evaluated by the Investment Committee and has to meet stringent financial hurdles before being approved. This is a process to which we apply maximum focus, given how critical the original investment decision is to our ultimate success. The integration of MWB into our UK business achieved all identified synergy benefits, providing a clear demonstration of our ability to deliver value through acquisitions.

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

During 2013 the amount invested in growth increased materially to £301.1m (2012: £178.4m) adding 448 centres which represented a 30% increase in the network. The new centres continue to have a significant positive impact on working capital.

Closures

During 2013 we closed, relocated or resized 28 centres (2012: 26). These centres contributed a modest operating loss of £0.5m, against a loss of £1.8m in the corresponding period.

Overheads

Increased R&D (including Third Place overheads) investment

We consistently invest in areas which improve our competitive advantage and help differentiate us from other market participants within a highly fragmented but competitive landscape. Expenditure on Research & Development for 2013 increased 60% to £7.2m (2012: £4.5m).

Maintained discipline on Selling General and Administrative expenses (SG&A)

2013 has been another period of significant expansion for Regus and we have continued to invest to support our growing business. We have done this whilst maintaining a resolute focus on cost discipline. Total Group SG&A costs (excluding Research & Development) as a percentage of revenues declined modestly to 18.0% compared with 18.1% in 2012. As well as investing to support the resource hungry new centre growth, 2013 also included £7.4m of transaction and restructuring costs related to the acquisition of MWB as well as a level of associated overheads during the integration phase well above the incremental overhead now required to support the combined UK business. Notwithstanding this, total SG&A (excluding Research & Development) costs per available workstation reduced by 3.8% reflecting further underlying improvement in overhead efficiency. Furthermore, investment in people, as well as increased automation, have improved efficiency and is reflected in the increase in number of workstations supported per full time equivalent overhead employee to 97.6 (2012: 76.9)

Group operating performance reconciliation

The following tables 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 23.0% and reported gross profit increased 17% to £373.8m.

Reported operating profit was marginally ahead of the corresponding period at £90.8m (2012: £90.2m) despite the significant initial drag on profitability from growth, the £7.4m of transaction and restructuring costs related to the acquisition of MWB and the heavy initial overhead cost profile that came with it.

Net finance costs

As anticipated, the significant investment in New Centre growth moved the Group into a net debt position. As a consequence the net finance charge increased to £9.3m (2012: £5.1m). Within this year's charge is £3.8m of fees relating to the loan and guarantee facilities, of which approximately £0.5m resulted from the extension and amendment in September of our loan facility by £120m to £320m.

Utilisation of this facility has resulted in additional interest payments of £1.6m.

The Group also incurred a notional, non-cash, interest charge of £2.1m (2012: £1.4m) relating to the accounting treatment of fair value adjustments on various acquisitions. The fair value adjustment relating to the acquisition of MWB during 2013 added approximately £0.9m to the notional charge for 2013.

Tax

The tax charge for the year was 17.9% (2012: 16.7%). This tax rate is consistent with our anticipated long-term effective tax rate of 20% as it continued to benefit in 2013 from the accounting changes implemented in 2012.

Earnings per share

Group earnings per share, after costs associated with the acquisition and integration of MWB, were 7.1p (2012: 7.5p), primarily reflecting the higher interest costs associated with growing the business.

The weighted average number of shares in issue for the year was 943,775,413 (2012: 941,921,816), as shares were issued to satisfy the exercise of a number of share grants by employees during the year.

Cash flow and funding

The table below reflects the Group's cash flow:

Underlying cash generation from the Mature business remains strong. Mature free cash flow increased 4.6% to £156.5m, representing mature free cash flow per share of 16.6p.

As planned, we materially increased our investment in growing the business. During 2013, we invested £301.1m in new centres compared to £178.4m in the corresponding period, with 448 and 243 centres added in 2013 and 2012 respectively. Although the free cash flow from the Mature Centre business continues to fund a sizeable proportion of this growth, the step up in expansion in 2013, together with the dividend distributions, has resulted in a significant net cash outflow for the business. We ended the year with a net debt position of £57.2m. This was slightly better than expected, mainly due to timing differences, particularly in relation to growth capital expenditure payments.

As our business grows in scale so does our ability to fund future growth from internal cash generation. We believe that, all other things being equal, we are able to support approximately 15% annual business centre growth from internally generated funds. Currently we anticipate adding at least 300 business centres and a significant number of third place locations in 2014. Accordingly, during 2014 we may further utilise our revolving credit facility which was amended and extended by £120m to £320m in September 2013. It has a final maturity date in September 2017 with conditions that are substantially unchanged from last year. The facility is provided by a consortium of nine banks including all six of our original banking partners. We continue to maintain a prudent approach to balance sheet funding while ensuring the Group has the appropriate financial headroom to execute its strategy.

The Group is driven by risk-adjusted returns and will only continue to invest if the macro environment is favourable and investment performance meets our exacting returns criteria. Accordingly, we have always indicated that we can quickly curtail growth in the event that we determine a need to do so.

Foreign exchange

The Group's results are exposed to translation risk from the movement in currencies. Overall for 2013 the movement in exchange rates during the period was marginally beneficial and increased reported revenue, gross profit and operating profit by £20.2m, £4.9m, and £1.2m respectively over the corresponding period last year, with the weakening of sterling against the US dollar having the greatest impact.

Whilst sterling remained weak for much of the year, it strengthened considerably in the final quarter against many of the currencies we operate in. Set out in the table below are some of the principal exchange rates affecting the Group's overseas profits and net assets.

The average rates for these three major currencies for the nine months to 30 September 2013 were 1.54, 1.17 and 149 respectively. By the end of the year sterling had strengthened against the US dollar by 7.1%, against the euro by 2.6% and 16.8% against the Japanese yen when compared to the nine month averages.

This appreciation of sterling has continued so far into the current financial year and will impact the financial results of our operations when translated into sterling.

Foreign exchange rates

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 on pages 24-27 of the Annual Report and Accounts.

Related parties

There have been no changes to the type of related party transactions entered into by the Group that had a material effect on the financial statements for the period ended 31 December 2013. Details of related party transactions that have taken place in the period can be found in note 29 to the 2013 Annual Report and Accounts (page 101).

Dividends

Consistent with Regus' progressive dividend policy and subject to shareholder approval, we will increase the final dividend for 2013 by approximately 14% to 2.5p (2112: 2.2p). This will be paid on Friday 30 May 2014, to shareholders on the register at the close of business on Friday 2 May 2014. This represents an increase in the full year dividend of 13%, taking it from 3.2p for 2012 to 3.6p for 2013.

Dominique Yates

Chief Financial Officer

4 March 2014

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

(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 2013 Treasury shares represent 5,257,380 (2012: 8,982,139) 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 3,724,759 treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 4 March 2014, 5,257,380 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

Approved by the Board on 4 March 2014

Consolidated statement of cash flows

Notes to the accounts

1. Authorisation of financial statements

The Group and Company financial statements for the year ended 31 December 2013 were authorised for issue by the Board of Directors on 4 March 2014 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.

Regus plc S.A. owns a network of business centres which are leased to a variety of business customers. Information on the Group's structure is provided in Note 30, and information on other related party relationships of the Group is provided in Note 29.

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 pages 104 and 105 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 2013 did not have a material effect on the Group financial statements, unless otherwise indicated.

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 31.

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 58 to 103 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 15 to 18 of the Annual Report and Accounts as well as the Group's principal risks and uncertainties as set out on pages 24 to 27.

Further details on the going concern basis of preparation can be found in note 22 to the notes to the accounts on page 84.

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 2014 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:

The Group did not adopt any standards, interpretations and amendments to standards which were available for optional early adoption and 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.

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 coststo 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 2013 and updated at 31 December 2013.

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 inuse, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Goodwill

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

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

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 pre-tax rate that reflects the time value of money and the risks specific to the liability.

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.

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.

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

Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets, excluding net interest, are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through Other Comprehensive Income (OCI) in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

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

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

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

Share-based payments

The share 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 separately as other finance costs in the income statement.

Interest bearing borrowings and other financial liabilities

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

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

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

Held-to-maturity financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised costs using the effective interest rate method.

Available for sale financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognised in OCI and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

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.

Foreign currency transactions and foreign operations

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the closing rate of exchange at the balance sheet date and the gains or losses on translation are taken to the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The results and cash flows of 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 in other comprehensive income, and presented in the foreign currency translation reserve in equity. Exchange differences are released to the income statement on disposal.

Cash and cash equivalents

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

Derivative financial instruments

The Group's policy on the use of derivative financial instruments can be found in note 22. 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 plc for the year ended 31 December 2012. The performance of each segment is assessed on the basis of the segment operating profit which excludes internal revenue, corporate overheads and foreign exchange gains and losses arising on transactions with other operating segments.

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.

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.

5. Operating profit

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

6. Staff costs

Details of Directors' emoluments and interests are given on pages 41 to 53 in the Remuneration Report.

7. Net finance expense

8. Taxation

(a) Analysis of charge in the year

(b) Reconciliation of taxation charge

The applicable tax rate is determined based on the tax rate in Luxembourg which was the statutory tax rate applicable in the country of domicile of the parent company of the Group for the financial year.

(c) Factors that may affect the future tax charge

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