RGU.L Regulatory News (RGU)

3 March 2015

REGUS PLC - ANNUAL FINANCIAL REPORT ANNOUNCEMENT

YEAR ENDED 31 DECEMBER 2014

A transformational year:

 Good cash generation; strong growth; attractive returns

Regus, the global workplace provider, today announces its annual results for the year ended 31 December 2014.

Key highlights:

· Strong underlying performance, with operating profit up 27% at constant currency

· Good cash performance, with £176m (18.6p per share)of cash generated before net growth capital expenditure and dividends

· Grew the network by 24% at a significantly lower average net cost of investment

· Pro-forma net debt of £55m (0.3x net debt: EBITDA). Adjusting for £84m post year end property disposals, we self-funded growth in 2014

· Achieving attractive returns on investment - 20.9% 2014 post-tax cash return on all net investment made up to 2011

· 11% increase in dividend to 4.0p

* Calculated as: EBITDA less amortisation of partner contributions, less tax based on EBIT, less net maintenance

capital expenditure / growth capital less partner contribution.

** estate up to 31 Dec 2011

*** estate up to 31 Dec 2010

Financial highlights

· Group revenue increased by 15.8% at constant currency to £1,676.1m (2013: £1,533.5m), (9.3% at actual rates)

· Overheads increased only 4% at constant currency, with a 24% increase in network

· 10% increase in final dividend to 2.75p (2013: 2.5p), a full year increase of 11%

Strong growth will enhance long-term shareholder value creation

· 166 new towns and cities added in year, increasing depth and breadth of national networks

· Now in 850 towns and cities

· 452 new locations added

· Increased network to 2,269 locations

· Across 104 countries

· £207m of net capital invested in growth

· Achieving significantly lower average cost of investment per location due to geographic and size mix and new formats

Mark Dixon, Chief Executive of Regus, said:

"Regus is performing well. Our past investments are producing attractive returns that are well above our cost of capital. This performance gives us the confidence to continue to invest, thereby enhancing future shareholder value.

As of 28 February 2015 we had clear visibility over net investments of approximately £120m which will increase the size of our network by some 400 locations. We will provide regular updates on our pipeline visibility as the year progresses.

We expect to reduce costs further as a percentage of sales as we leverage our increased scale and drive new operational efficiencies. This will further enhance our earnings.

As the world of work continues to develop, and more organisations look to outsource their workplace needs, so the future remains positive for Regus. Current trading is in line with management's expectations and we remain confident in our business model and prospects for 2015."

Details of results presentation

Mark Dixon, Chief Executive Officer, and Dominique Yates, Chief Financial Officer, are hosting a presentation today for analysts and investors at 10.30am. The presentation will take place at CityPoint, 1 Ropemaker Street, EC2Y 9HT.

For those unable to attend the presentation, please contact Jessica Ayres to obtain details for the webcast or conference call:

jayres@brunswickgroup.com or

+44 (0) 20 7396 7466

For further information, please contact:

Chairman's statement

During 2014, Group revenues grew to £1,676.1m (2013: £1,533.5m), an increase of 15.8% at constant currency (9.3% at actual rates). Operating profit improved by 27% at constant currency to £104.3m (2013: £90.8m), up 15% at actual rates. This performance is all the more pleasing given the adverse impact of start-up costs associated with our higher investment in growth in recent years.

We evaluate the underlying performance of the business by looking at the returns we are able to generate from the investments we have made. During 2014 I am pleased to report that locations opened on or before 31 December 2011 (which for clarity are locations opened over the first 23 years of operation) achieved an annual post-tax cash return on investment of 20.9%1, well above our cost of capital. The specific calculation methodology for these returns is covered in detail in the CFO's review.

Given these strong returns, the board was encouraged by the ability of the business to fund additional attractive investment opportunities during the year, well ahead of its original estimate of at least 300 new locations. Adding 452 locations in 2014 further strengthens the foundations for enhanced long-term shareholder returns. Furthermore, we achieved this whilst maintaining a robust balance sheet and investing less of our own capital - indeed, we actually generated net cash of £23m in the second half of the year, a period in which we added 258 new locations. We have also taken the opportunity provided by good access to debt capital to increase and diversify our available facilities.

Strategy

Our strategic objectives include growing the underlying value of our business through disciplined investment in quality workplaces that expand our national networks while providing attractive returns to shareholders. Returns to shareholders are further enhanced through our focus on efficient and scalable operations at both the centre and Group level. Our efforts to improve the communication of our performance against our strategic objectives are reflected in this Annual Report.

We continue to benefit from the trend of businesses looking to outsource non-core activities, of which real estate is one, and the shift from fixed to flexible working. These changes occur even through variations in the macroeconomic climate and, as such, they continue to present the Group with significant opportunities for growth.

Staying close to our customers and providing them with the very best service is paramount to our success. We continuously look for ways to improve the customer's experience and this underlines the importance of our continued investment in innovation. Our ability to invest in R&D at a scale unmatched by our competitors helps define and reinforce our leadership position.

We understand the benefits of engaging with the local economies in which we operate and have expanded the support for projects of our team members in their communities. In addition, while flexible working helps our customers reduce their carbon emissions, we are working to minimise the inevitable environmental impact resulting from our significant growth through ongoing energy saving and sustainability initiatives.

Board

Key roles of the Board include: assuring a sound strategy is in place and adapted to changing conditions; ensuring we have the management and resources to deliver that strategy; overseeing management's progress in its execution; and ensuring the Company and attendant risks are well managed.

As the breadth and scope of the Group's operations expand, we have undertaken a number of initiatives to ensure that the strategy can be delivered successfully. Our ongoing efforts to focus on our strategic objectives and initiatives in both Board and management activities is paying off, evidenced in the numbers we are able to present today. We continue to review and monitor our remuneration policy to ensure that the execution of our strategy includes an alignment of interests and incentives between our shareholders and executives.

In May 2014 we welcomed Nina Henderson to the Board. She has already made a strong contribution and recently assumed chairmanship of the Remuneration Committee. We have a strong and well balanced team with skills and experience that complement each other well.

People

To achieve these results we rely on the commitment and skill of our talented and experienced people. It is because of their dedication, energy and total focus on the customer that the business is the success it is. To each and every one of them, thank you.

Dividend

Over the last five years we have doubled our dividend payment per share. We remain committed to the payment of a sustainable and progressive dividend. It underlines our confidence in the long-term performance of the business, the strength of our balance sheet and the quality of our assets.

I am therefore pleased to announce that the Board is recommending an increase in the final dividend of 10% to 2.75p. Subject to the approval of shareholders at the 2014 AGM, this will be paid on 29 May 2015 to shareholders on the register at the close of business on 1 May 2015.

Douglas Sutherland

Chairman

1 Post-tax cash returns on net invested = EBITDA less amortisation of partner contribution, less tax, less maintenance capex / Gross capital expenditure less partner contribution.

Chief Executive Officer's review

Group revenues increased by 15.8% at constant currency to £1,676.1m (2013: £1,533.5) (9.3% at actual rates). Operating profit increased to £104.3m, up 27% at constant currency (15% at actual rates).

We have improved the gross margin on the locations which were added during 2012 and 2013. These locations now represent a more significant part of our overall revenue generated, which increases their relative weighting on the overall Group result. We continue to achieve a strong level of gross margin on all our locations that were open on or before 31 December 2011. The initial margin achieved by our new 2014 locations is good and on track but these are very young and a long way from financial maturity.

I am also particularly pleased with the further substantial progress achieved in improving the operational effectiveness of the business. Total Group overheads, including increased investment in R&D, were up only 4% at constant currency, whilst the size of our network increased 24%. As a result, total overheads as a percentage of revenue reduced from 18.5% to 16.7%. As we continue to grow, I expect further improvements in this regard.

Consequently, the annual post-tax cash return on investment achieved this year from centres opened on or before 31 December 2011 was 20.9%, which is a good return.

Group income statement

*After contribution from joint ventures

Gross margin

Market

The way in which people work is changing rapidly, driven by a wide variety of factors including technological change, globalisation and changing workforce dynamics, with growing recognition from large organisations that effectively harnessing these changes can underpin substantial productivity gains, alongside lower capital and operating costs. Regus' business model is firmly focused on participating in this structural shift towards flexible work.

As this trend develops, the growth in demand for high quality, flexible and conveniently located workplaces, will also continue. Our investment programme reflects this continuing growth in demand, with customers seeking workplaces in locations including our core office based locations; railway stations; motorway service stations; airports and retail outlets among many others.

Performance against our strategic objectives

Delivering attractive, sustainable returns

Our investments consistently deliver strong returns well above our cost of capital. We are confident that those made in 2014 will, in due course, achieve similar strong returns. The increased diversity of our network and number of partners is a positive development of the last few years. We now have locations from the very busiest city centres to large villages, ranging in size from 150sqm to 15,000sqm. The wide variety of format and service diversity means there is no longer a typical, average centre for the Group. Following feedback from a number of stakeholders regarding the presentation of the Group's performance, the Board has decided that additional insight can be provided through the disclosure of post-tax cash return on net investment data by year. Accordingly, I am pleased to report that locations opened on or before 31 December 2011 achieved an annual post-tax cash return on investment of 20.9% (2013: 17.8% on locations opened on or before 31 December 2010), well above our cost of capital.

Develop national networks

This has been another strong period of growth for the Group. We opened in 166 new towns and cities, increasing our coverage from 684 to 850 cities. We added 452 new locations, increasing the size of our network by 24% to 2,269. To achieve this, we invested net growth capital of £206.6m (2013: £260.2m). The reason for the lower level of investment in 2014 is mainly due to the geographic mix and diversity in deal types. As of 28 February 2015, we have visibility on growth that will call for a net capital investment of approximately £120m on some 400 new locations. We will provide updates on this as we progress through 2015. As in previous years these new investments will be a mix of organic openings and acquisitions. We believe all will meet our stringent returns criteria and deliver long-term sustainable returns, well ahead of our cost of capital.

Industry leading innovation

We have continued to invest in R&D as we look to create new formats, improve existing ones and develop new products and services. Over the period we therefore increased spend on R&D by 21% to £8.7m (2013: £7.2m).

There is continued strong interest and demand globally, from a wide variety of infrastructure owners and operators, for us to engage with and help them better serve their customers. During the year we partnered with the Singapore Government to open facilities within their public libraries as well as expanding the Regus global airport network. We launched a new initiative aimed at universities, the first deal of which was signed with Helsinki University. We also partnered with Philips, taking responsibility for the management of their innovation centre Evoluon in Eindhoven.

Controlling costs

Against an increase in the network of 24%, total overheads increased by only 4% at constant currency (down 1% at actual rates), reflecting our continued focus on cost control. Management, both in the field and at Group level, remain focused on further improving efficiency and productivity, as well as delivering scale benefits as we grow. All functions underwent some restructuring in 2014 as we invested further in management, streamlined our processes and maximised the value of our shared service centres. We also increased our investment in R&D and in our network development function to support the future growth of the business. We expect to deliver further efficiencies and scale benefits in coming years.

Outstanding teamwork

It has been a year of good progress for the Group - strategically, operationally and financially. This was achieved only with the dedication, focus and commitment of our people. As a service-based business, the strength and capabilities of our increasingly geographically diverse team are critical to achieving our objectives and I thank all of our staff for their considerable efforts.

We continually review the structure of our organisation to get the most out of our assets and to optimise on project delivery. With the continued growth and development at a country level, a strong local management presence is required. We continue to believe that our current organisational model - strong local in-country units assisted by support functions focused on strategy and process optimisation - will deliver our strategic goals.

Our ability to recruit, train, promote and retain top quality talent with diverse backgrounds is a core strength of the business and important to our long-term success. For the Group as a whole our workforce is 75% female: 25% male (2013: 70% female: 30% male); at a Group operational level the breakdown is broadly equal (no change on last year), and at a senior management level 33% of positions are held by women (2013: 30%). We remain committed to a fair approach and equal opportunities in all areas of our business.

Outlook

The business is performing well. Our past investments are producing attractive returns that are well above our cost of capital. This performance gives us the confidence to continue to invest, thereby enhancing future shareholder value. As of 28 February 2015 we had clear visibility over net investments of approximately £120m which will increase the size of our network by some 400 locations. We will provide regular updates on our pipeline visibility as the year progresses.

We expect to reduce costs further as a percentage of sales as we leverage our increased scale and drive new operational efficiencies. This will further enhance earnings.

As the world of work continues to develop, and more organisations look to outsource their workplace needs, so the future remains positive for Regus. Current trading is in line with management's expectations and we remain confident in our business model and prospects for 2015.

Mark Dixon

Chief Executive Officer

3 March 2015

Chief Financial Officer's review

Return on investment

Our growth strategy is returns driven and focused on achieving our post-tax cash payback criteria, which typically is within four years. Therefore, as highlighted in our 2014 interim results statement, we believe it is more appropriate to report on value creation by referencing the net investments made and the associated returns generated.

For the 12 months to 31 December 2014 the Group delivered an annual post-tax cash return on investment of 20.9% in respect of locations opened on or before 31 December 2011, and which are therefore more established in respect of their financial performance (2013: 17.8% based on locations opened on or before 31 December 2010). This demonstrates returns ahead of the Group's cost of capital, thereby generating strong shareholder value. These returns are based on the post-tax cash return divided by the net growth capital investment. The post-tax return is calculated as the EBITDA achieved, less the amortisation of any partner capital contribution, less tax based on the EBIT and after deducting maintenance capital expenditure. Net growth capital investment is the growth capital after any partner contributions. This provides an appropriate and conservative measure of cash return.

The graph below shows the post-tax cash returns achieved in 2014 by individual year, back to 2007, and the performance of all those locations added on or before 31 December 2006. 

Returns vary between year groups for a number of reasons, notably variations in geographical performance, different investment levels from mix of deal types and movements in currency exchange rates from date of investment to current year.

2014 Post tax cash return on net investment by year group (%)

* Note these amounts relate to net investment based on the year of opening of the centre. Depending on the timing of opening, some capital expenditure can be incurred in the calendar year before or after opening.

Simplified overhead allocation

We have simplified the methodology by which Group overheads are allocated to specific investment years.

The allocation of Group overheads used in the returns calculations below is now based on two simple criteria. Sales and marketing related overheads continue to be allocated on the basis of actual new workstation sales made in the relevant financial reporting period. The remainder of the Group overhead base is then allocated on a time apportioned pro-rata basis by reference to the average number of available workstations, with no weighting for growth.

Developing the network

During 2014 we invested net growth capital of £206.6m, adding a further 452 locations to the network. In 2013 we invested net growth capital expenditure of £260.2m, adding 448 locations. This represents a reduction in the net capital cost per location, which we are pleased to have achieved. It reflects various factors including; geographic mix; different location formats and size; increased levels of partnering; balance between acquisition and organic growth; and a more rigorous approach to the design of new locations to reduce capital cost. We are confident that the returns from the investments made in 2014 will, in due course, be attractive and ahead of the Group's cost of capital.

We continue to have a good pipeline of new openings. As of 28 February 2015 we had visibility on growth that will cost in the region of £120m and represent some 400 new locations. We will provide updates on our pipeline visibility as we progress through 2015.

Financial performance

Revenue

As noted previously, every potential investment is rigorously evaluated by our internal Investment Committee and has to meet the 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 Group has produced another good set of results whilst delivering against our key strategic objectives, notwithstanding the negative impact from the strength of sterling on the translation of our significant international earnings. Group revenues increased 15.8% at constant currency to £1,676.1m (2013: £1,533.5m), an increase of 9.3% at actual rates.

Gross profit

Group gross profit improved 9% at constant currency rates to £383.1m (2013: £373.8m), up 2% at actual rates. As highlighted in the CEO review, the decline in the Group gross margin from 24.4% to 22.9% reflects the impact of dilution from a relatively higher number of immature locations as we have invested significantly in growing the network over the last couple of years, even though the margin performance of these newer year groups improved. The mature gross margin (from locations added on or before 31 December 2012), based on a like-for-like estate, improved from 26.8% to 27.7%, as highlighted in the table below.

Gross margin

Group income statement

Improved overhead efficiency

At a time of continued and significant growth the Group has made further good progress in relation to the total overheads. Management remain focused on improving efficiency and productivity, as well as delivering scale benefits as we grow. All of our functions underwent some restructuring this year as we invested in management and looked to further streamline our processes and maximise the value of our shared service centres. As a consequence, and in spite of significant growth, overheads grew only 4% at constant currency to £279.6m (down 1% at actual rates), against a 24% increase in our network of locations. We also continued to increase investment in R&D, up 21% to £8.7m, and in our network development function to support future growth. As a percentage of revenues, total overheads declined from 18.5% in 2013 to 16.7% in 2014. We continue to maintain a strong focus on overhead discipline and anticipate further scale benefits to be delivered.

Operating profit

As a result of this strong cost discipline and scale benefits, operating profit increased 27% at constant currency to £104.3m (2013: £90.8m), up 15% at actual rates. Consequently, the Group statutory operating profit margin increased from 5.9% to 6.2%.

Net finance costs

As anticipated, the Group's net finance costs have increased significantly from £9.3m to £17.2m. This increase reflects the following factors:

• Net debt has increased significantly, albeit by less than originally expected, from £57m to £138m as the Group has invested in growth.

• Available debt finance increased by £164m to £484m to ensure appropriate financing headroom. With the increased availability came the attendant carry costs.

• Taking advantage of the low interest rate environment and to provide the Group with certainty of financing costs and protection against higher interest rates, swaps were utilised during the period to convert a substantial portion of debt from floating to fixed rates.

Within the overall net finance costs, the Group also incurred a notional, non-cash, interest charge of £2.0m (2013: £2.1m) relating to the accounting treatment of fair value adjustments on various acquisitions in past years.

Tax

The tax charge for the year was 19.7% (2013: 17.9%). This tax rate is consistent with our anticipated long-term effective tax rate of 20%.

Earnings per share

Group earnings per share increased 17% at constant currency to 7.4p (2013: 7.1p), up 4% at actual rates. This reflects the increase in net income, after higher interest costs associated with growing the business, the increase in the effective tax rate noted above and the attendant initial losses associated with new locations.

The weighted average number of shares in issue for the year was 944,081,638 (2013: 943,775,413). During the year the Group purchased 9,484,516 shares designated to be held in treasury. The Group has also over the same period reissued 1,858,441 shares from treasury.

Cash flow

Group cash generation continues to be strong. Cash generated before the investment in growth capital expenditure and the payment of dividends increased to £176m, representing 18.6p per share. We are pleased that we have been able to continue to find attractive investment opportunities that meet our returns criteria and build further long-term shareholder value. Accordingly, the £176m of cash generated has been applied to fund a substantial proportion of the 24% growth in locations in 2014. In total, this involved a net capital outflow on growth of £206.6m after deducting £47m of cash capital contributions received in the period from partners. This represents a lower level of net growth capital investment than in the corresponding year for a similar number of locations added. Notwithstanding this, the growth in 2014 exceeded that which the Group could self-fund. So, together with the payment of the dividend, net debt increased by £81m.

As our business grows in scale so does its ability to fund future growth from internal cash generation. For example, in the second half of the year the business generated £23m of net cash from a first half net debt position of £161m, despite adding 258 new locations, albeit the Group experienced some positive working capital movements over the year-end.

Cash flow

2 Net growth capital expenditure of £206.6m relates to the cash outflow in 2014. Accordingly, it includes capital expenditure related to locations added in 2013 and 2015, as well as 2014. The total net investment in the 2014 additions amounts to £196.1m so far.

Balance sheet & gearing

We closed the year with a net debt position of £138m. This represents a Group EBITDA leverage ratio of 0.6 times, an improvement since the half year. It remains our intention to keep this ratio below c. 1.5 times in order to maintain our prudent approach to the Group's capital structure.

Balance sheet management is an important activity and the Group's capital structure is kept under regular review. The Group currently has £484m of debt funding facilities, which is made up of a £320m Revolving Credit Facility and £164m (€210m) "Schuldschein" debt securities issued during 2014. The proceeds of the latter, which was well supported by the market and consisted of €165m of three-year notes and €45m of five-year notes, was used to reduce the borrowing on the Revolving Credit Facility.

Taking advantage of the very low interest rate environment and to provide greater certainty over financing costs and cash flows over the medium term, the Group took out swaps to convert the floating rates on the £164m (€210m) debt securities into fixed rates. A currency swap was also used to maintain the currency profile of our debt.

During 2014 the Group was accorded a credit rating of A- for long-term debt and A1 for short-term debt by Egan-Jones. Egan-Jones is a Nationally Recognized Statistical Ratings Organization and is recognised by the National Association of Insurance Commissioners as a Credit Rating Provider.

Our growth programme is the single largest user of the cash the Group generates. Accordingly, our capital expenditure plans remain flexible and we have the ability to adjust future investment levels in a timely manner.

Post year-end disposal

Since the year-end we have completed the sale of various portfolios of property assets. These disposals raised £84m of cash and an exceptional profit of approximately £20m after expenses, which will be reported in our 2015 interim results.

Deducting these proceeds from our closing net debt provides a pro-forma closing position of £55m. This is almost identical to the £57m opening net debt level for the year, and is testament to the Group's attractive cash generation capability given the strong level of investment in growth through the year. This disposal would have reduced the Group's pro-forma net debt to EBITDA ratio to 0.3x at the end of 2014.

Foreign exchange

The Group's results are exposed to translation risk from movement in currencies. Our reporting currency is sterling; in the final quarter of 2013 sterling strengthened considerably and this trend continued for much of 2014. As a result the movement in exchange rates during the period had a negative impact on the translation of our financial results. Overall, the strength of sterling reduced our reported revenue, gross profit and operating profit by £99.7m, £24.4m and £11.4m respectively over the corresponding period last year.

In recent months we have witnessed the US dollar start to strengthen against sterling. Whilst this is encouraging, sterling has however continued to strengthen against both the yen and euro. Overall, however, based on current exchange rates and the relative weight of our US dollar earnings, there is currently a mild tailwind as we look forward to 2015, rather than the strong headwind experienced through 2014.

The table below sets out the principal exchange rates affecting the reporting of the Group's international profits and net assets.

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 20-23 and 36 and 37 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 2014. Details of related party transactions that have taken place in the period can be found in note 30 to the 2014 Annual Report and Accounts (page 87).

Dividends

In considering returns to equity shareholders, the Board aims to provide a progressive dividend, with consideration to both profitability and cash generation, at a level that is sustainable across the cycle. Consistent with this policy and subject to shareholder approval, we will increase the final dividend for 2014 by 10% to 2.75p (2013: 2.5p). This will be paid on Friday 29 May 2015, to shareholders on the register at the close of business on Friday 1 May 2015. This represents an increase in the full year dividend of 11%, taking it from 3.6p for 2013 to 4.0p for 2014.

Dominique Yates

Chief Financial Officer

3 March 2015

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 2014 treasury shares represent 12,883,455 (2013: 5,257,380) 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, 9,484,516 shares were purchased in the open market and 1,858,441 treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 3 March 2015, 12,883,455 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 3 March 2015

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 2014 were authorised for issue by the Board of Directors on 3 March 2015 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 31, and information on other related party relationships of the Group is provided in note 30.

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 90 and 91 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 2014 did not have a material effect on the Group financial statements, unless otherwise indicated.

The following standards, interpretations and amendments to standards were adopted by the Group for periods commencing on 1 January 2014:

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 as described in note 23.

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 50 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 11 to 13 of the Annual Report and Accounts as well as the Group's principal risks and uncertainties as set out on pages 20 to 23.

Further details on the going concern basis of preparation can be found in note 23 to the notes to the consolidated financial statements on page 73.

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, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The consolidated financial statements include the Group's share of the total recognised gains and losses of 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 2015 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:

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

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 2014. At each reporting date, the Group reviews the carrying amount of its non-financial assets to determine whether there is an indicator of impairment. If any indicator is identified, then the assets' recoverable amount is re-evaluated.

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 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.

Assets held for sale

Assets held for sale are measured at the lower of the carrying value of the identified assets and its fair value less cost to sell.

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:

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 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 the consolidated income statement: service costs comprising current service costs; past-service costs; and gains and losses on curtailments and non-routine settlements.

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

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.

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 are included in other finance costs (note 7).

Interest bearing borrowings and other financial liabilities

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

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

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

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 foreign operations are translated using the average rate for the period. Assets and liabilities, including goodwill and fair value adjustments, of foreign operations are translated using the closing rate with all exchange differences arising on consolidation being recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. Exchange differences are 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 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 plc for the year ended 31 December 2013. 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 38 to 45 in the Remuneration Report of the Annual Report and Accounts.

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: