RGU.L Regulatory News (RGU)

20 March 2012

REGUS PLC - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2011

Regus plc's Annual Report and Accounts for the year ended 31 December 2011 is now available for download at www.regus.com/investors

Strong performance as growth continues

[1] Before exceptional items; 2011 £nil, 2010 £15.8m [2] Centres opened prior to 1 January 2010

HIGHLIGHTS

·; Group revenues up 11.8% to £1,162.6m

·; Operating profit up 112% to £50.6m

·; Net cash at £188.3m

·; Solid returns to shareholders with final dividend up 14% to 2.0p, making a full year dividend of 2.9p

·; Strong mature performance - operating profit up 65.7% to £107.7m and significant free cash flow of £117.1m (free cash flow margin of 11.3%)

·; Mature occupancy increased to 86.1% (2010: 78.0%)

·; Mature financial performance strengthened in the second half

·; New centres progressing well - 2010 openings made a positive EBIT contribution in H2

·; Invested £86.4m in new, high quality assets and in supporting growth

·; Global footprint extends to more than 1,200 locations and 94 countries. Specifically:-

o 139 new locations opened (91 in H2) and nine new countries

o More than a million members

o Consolidated workstations at year end increased by 8.2% to 204,043

o New partner deals signed with SNCF and Shell, and since year end, NS Trains (Dutch rail operator)

Mark Dixon, Chief Executive of Regus plc said:

 "Regus has delivered a strong set of results with sales up more than 11% to £1,162.6m and operating profit up 112% to £50.6m. The continuing strength of our mature business is especially pleasing, with operating profit up 66% to £107.7m, and significant free cash flow generation of £117.1m, up 53%. I am also heartened with the positive EBIT contribution made by our 2010 openings in the second half of the year.

The Group continues to see significant opportunities in the structural move toward flexible work and as such we remain committed to building a network of 2,000 locations by 2014, of which we anticipate 200 will open in 2012. We entered into several new partnership arrangements as we established our Third Place business as a new avenue for growth and since year end signed up our one millionth member.

Whilst in the near term we foresee the general business environment remaining challenging at a macro level, we remain optimistic about the long term growth prospects and strategy of the business. As such, we are ready and capable to invest further to accelerate growth but if macro-economic conditions deteriorate scale back accordingly. Current trading remains in line with the Board's expectations."

For further information, please contact:

This is an abridged statement of the full Annual Report and Accounts which can be downloaded from the Regus website at www.regus.com/investor

A copy of the Annual Report and Accounts has been submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.hemscott.com/nsm.do

Copies of the Annual Report and Accounts will be posted to shareholders on or around Thursday 22 March 2012.

In accordance with paragraph 6.3.5 of the Disclosure and Transparency Rules we set out below the following information extracted from the Annual Report and Accounts in unedited full text. Accordingly, page references in the text below refer to page numbers in the Annual Report and Accounts.

Chairman's statement

I am pleased to report that Regus has produced a strong set of results in line with the Board's expectations.

Group sales grew 11.8% to £1,162.6m (2010: £1040.4m), operating profits more than doubled to £50.6m (2010: £23.9m) excluding exceptional items, and on the same basis earnings per share increased from 1.9p to 4.0p largely as a result of the increased EBIT in the year. It was also pleasing to witness our 2010 openings move into profitability in the second half of the year.

On a like-for-like basis our Mature business increasedits operating profit by 65.7% to £107.7m (2010: £65.0m); gross margins to 26.6% (2010: 22.3%); and sales increased by 3.8% to £1,035.1m (2010: £997m). Additionally, it remains highly cash generative, with a free cash flow (after notional tax, finance costs and maintenance capital expenditure) of £117.1m (2010: £76.5m).

Over the year we invested £86.4m in growth (2010: £79.0m), opening 139 new locations and entering nine new markets. This assured progress gives the Board the confidence to increase the final dividend by 14% to 2.0p making a total increase for the year of 12% to 2.9p (2010: 2.6p).

Our business

There are three parts to our business - Mature, New and Third Place. They are closely interlinked, contribute to each other's success and can be accessed by every one of our million strong members.

·; Mature - our first thousand locations

A well established and consistently high performing business. Cash generation is strong and continues to demonstrate robust year-on-year improvement. It is actively managed to deliver high occupancy and usage and support stronger pricing which, when coupled with lower overheads, results in improved margins.

·; New - the next thousand locations

The larger our network, globally and nationally, the more compelling a proposition we become to our customers - from the very largest corporates to lone entrepreneurs. We remain committed to achieving a global network of 2,000 locations by 2014 and by end of February 2012 had already opened a further 19 locations since the year end. Our new centres are performing well and achieving their target return-on-investment hurdles. We remain confident in our growth strategy, however we are mindful of the continued global economic uncertainty and the management team carefully monitors key metrics, remaining ready to adapt our growth plans accordingly.

·; Third Place - new avenues for growth

The business has been exploring a number of new growth opportunities, especially related to expanding our network into third places. These are locations from which people are increasingly likely to work when on the move. Railway stations and motorway service stations are examples, and the Group is also exploring a wide variety of other potential third place locations. Whilst early in its development, this is an exciting opportunity and has significant potential. We anticipate that the investment required and returns generated will be comparable with our existing businesses.

A strong management team focussed on delivery

Our management team is strong and many of our leaders have more than 20 years' industry experience including managing through challenging macro-economic conditions. They have directed our business during the current economic challenges with vigour, increasing returns from our mature business whilst executing controlled, yet aggressive growth and exploring exciting new opportunities. During 2011 strong progress was made in key business areas, including the strengthening of our management team both centrally and at the country level; business development and product innovation; improving our revenue mix and diversification; operational efficiencies; and people management.

Delivery in these areas contributed significantly to our improved performance.

Strategy

Following the execution of a range of strategic initiatives, Regus' strategy is clear: to serve and profit from the move toward flexible work by being the platform of choice from which business operates.

To deliver this, we will:

·; Continue to broaden our appeal through accelerated product and service innovation

·; Grow mature revenues through improved sophistication and diversity

·; Be in as many new and different locations as we can, expanding our footprint according to opportunity, risk and return

·; Maximise the strengths of our growing network,

·; brand position and awareness

·; Strengthen and decentralise management

·; Control overheads through operational excellence,

·; scale and innovation

Board changes

On 1 September 2011 Dominique Yates joined the Board as Chief Financial Officer. He replaced Stephen Gleadle who, in August 2011, announced that after six years with the business he was stepping down from his position. I would like to thank Stephen for the contribution he made to the establishment of our business as the clear leader in its field.

The Board notes the publication of the Davies Review on Women on Boards. The Board aims to be reflective of a broad range of skills, backgrounds and experience. While we follow a policy of ensuring that we appoint the best people for the relevant roles, we recognise the benefits of diversity, including gender, and will continue to take this into account when considering any new appointment.

Dividend

It remains the intention of the Board to pay dividends at a level which it believes is sustainable throughout the economic cycle and is in line with its progressive payment policy. Reflecting the Group's improved trading performance, strong cash generation, healthy cash position and optimism about the Group's long-term prospects, the Board is recommending a final dividend for 2011 of 2.0p (2010: 1.75p). This will be paid on Friday 25 May, 2012 to shareholders on the register at the close of business on Thursday 26 April, 2012. This represents an increase in the full year dividend of 12% to

2.9p (2010: 2.6p).

Douglas Sutherland

Chairman

20 March 2012

Chief Executive's review

The business has delivered a robust set of numbers and I am pleased with our performance.

At a time of great economic uncertainty and low growth, we have made excellent progress and grown both our Mature and New Centre businesses.

In our mature business operating profits rose by 66% to £107.7m, with free cash-flow (after notional tax, finance costs and maintenance capital expenditure) improving by 53% to £117.1m, on the back of revenues up 3.8% to £1,035.1m. We also had a very encouraging year of growth: customer numbers up 8.7%; new locations up 10.9%; and new countries on the network up by nine to 94. This is testimony to the strength of our business and attractiveness of our offer to companies of all sizes, in all sectors regardless of the economic cycle.

The year saw the Group make important progress across a number of key business areas, including, but not limited to, further strengthening and decentralisation of our senior management team; business development and product innovation; cost control; operational efficiencies; and people management and development. Delivery in these areas played a key role in our improved performance. The business also began to accelerate changes to its revenue mix, a process which began a number of years ago. As we continue to widen and deepen our network, develop new and innovative products and services and forge more strategic alliances, so this trend is expected to continue.

Whilst 2011 saw an extended period of macroeconomic uncertainty, particularly in the second half, we continued to extend our global reach and strengthen in-country networks on the back of the mega trend of flexible, mobile work. Partly as a result of the strong interest from other large organisations looking to Regus to help them develop their third place work locations for their customers, but also from the experience gained from Businessworld and our million strong membership, we have established a Third Place business. Blue chip organisations we are currently working with include Shell, SNCF and, since the year end, NS Trains (the Dutch railway operator). Interest has also come from areas as diverse as retailers and local government. Whilst still very early days, this fast growing opportunity, which has been thoroughly market tested, plays to our skills and unrivalled industry knowledge.

In a world of some one billion mobile workers and growing, the opportunity available to our business remains significant. The advances in mobile technology, worker demand to satisfy ever more complex work-life balance needs and organisations of all sizes looking to reduce cost and increase corporate flexibility mean that this target market will only increase. The larger our network, both globally and nationally within countries, and the more innovative our product offering so the more attractive and compelling we become. This is especially relevant as Regus is the only truly global company in this sector.

Our Mature Centres business

Our Mature Centres business is well established, with many locations in existence for more than 20 years. We have seen years of consistent performance and again in 2011 the same can be said; cash generation was strong and, despite the challenging macro economy, has shown robust year-on-year improvement. Our mature centres are well maintained, through a planned and rigorous series of maintenance capital expenditure improvements. This means we always look our best and provide customers with excellent facilities and services. There is also a degree of network modification as demand may change over time. This natural process ensures that our mature estate is always in an optimal condition, in optimal locations - city centre, suburban, transport interchanges amongst others. The absolute aim is to ensure that the business achieves its targeted returns regardless of the state of the global economy. We then endeavour to enhance these through a comprehensive programme of product and business development.

The four key facets of our Mature Centres business are decreasing cyclicality, maximising yield and diversifying revenue, reducing cost and network optimisation:

·; Decreasing cyclicality

We are constantly increasing the number of users across all sizes of companies in all sectors. This is driven by the general trend toward mobile work, especially as more companies look to outsource workplace provision and become more flexible but also by our offering a wider range of products and services. Over time we will steadily increase the revenue that we generate from our million plus members especially as we drive more global use, in part through increased use by large global corporates, but also into better serving those workers whose permanent base is the home.

·; Maximising yield and diversifying revenue

Our mature centres are constantly refreshed and reconfigured, changing to meet demand, be that in the short, medium or long term. This may lead to a short-term increase in mature maintenance capital expenditure (in 2011 we installed or refreshed some 500 lounges at a cost of approximately £4 million) but contributes to the generation of improved returns. Developing and diversifying new sources of revenue is also a key priority within the mature business; for example in the UK we provide a location package to Avis at more than 37 Regus locations. This enables them to cost effectively increase their reach with more drop-off and pick-up points. In return, we are able to offer our customers preferential rates and an Avis service on their doorstep.

·; Reducing cost

Just as we can reconfigure the physical layout so we can actively manage our leases. Paying the fair market rate for our leases is critical for the success of the business and over the year we continued to make great strides in increasing the flexibility of our lease portfolio and improving terms. Our aim is, where practicable, to have all leases either flexible (but with built in breaks or structural flexibility) or variable (where the rent is linked to the profitability of the centre). These combined equate to 80% of our mature group estate. Consequently, the business is able to ensure that over the economic cycle our rents track current market rates. The business also remains mindful of the need to control costs in the wider sense and that the current economic environment presents good opportunities to identify savings.

·; Network optimisation

Our mature network locations are broadly fixed but we maintain the flexibility to adapt where required. On rare occasions, centres become uneconomical: the rent becomes too high; the location is no longer as attractive as it once was; or, the building becomes tired and requires significant investment. Our response to these and other factors is usually one of the following:

- Consolidate the centre into another one nearby;

- Stay in the location and refurbish the centre working jointly with the building owner;

- Move to a better location in the immediate vicinity; or,

- Re-negotiate - either lower the rent or reduce the size of the centre.

The focus for our mature estate is, therefore, constant and active management to deliver continued high occupancy and usage. This will achieve stronger pricing which, coupled with lower relative overheads and input costs, will lead to margin improvement.

Continued improvements to the Mature Centres business model

We strive to improve the margins in our Mature Centres business through a continued focus on key strategic initiatives. Outlined below are some which played a key role in our strong 2011 performance:

Strengthened and decentralised management

I wrote last year that strengthening in-country management was of critical importance to the Group. The considerable progress that we have made during the year has come about as a direct result of the continual improvements we are making to our management team, especially at a country level. As our organisation continues to grow, day-to-day responsibility is being moved from our regional headquarters to the field; pushing decision making down into the countries and therefore nearer to the customer improves the speed with which we can respond to our customers and the quality and accuracy of outcomes. Whilst this has increased our overheads in the short term, our business has to have strong, experienced local leaders to manage growth and ensure the appropriate level of returns are generated, and we are already seeing the return on this investment coming through as we achieve the desired de-layering.

Innovation remains a core competitive differentiator

Our ability to attract new customers and increase spend from existing ones is highly dependent upon the strength of our new product and service offers, an approach we call "Only at Regus". Key highlights from this year include the launch of businessLink, a networking platform for Regus customers which aims to replicate in an online environment some of the physical benefits of being in a Regus location, such as serendipitous meetings in communal areas that lead to business opportunities. One of the main ways it is currently being used by our customers is to find new business and suppliers. MyRegus, our customer group purchasing portal, also underwent a major refresh, one element of which now allows customers to self-serve and transact with us 100% online. As such, online bookings are at an all-time high and we expect this to continue to increase in 2012.

Strong operational progress

Devolving responsibility and decision making to the operations and especially in-centre teams, moved apace over the year. Our approach to operations is also focussed on reducing centre workload through a process of back office consolidation and workflow simplification. By the end of the year we had automated online more than 90% of in-centre processes (up from 70% at the end of 2010). In doing so we freed up significant amounts of front-line team members' time to spend on customer facing and revenue generating activities.

A strong and dedicated global team

Our people are the most important part of our business. We are making significant improvements to the way that we develop and retain our people. In any growing organisation there is much opportunity and that remains one of the major attractions to working for our business.

As I have demonstrated above, we have gone to great lengths to find and empower management within key Group functions and at a country/local level. But to support our accelerated growth programme we need great people at all levels of the business. As a management team we are focussed on ensuring we are able to attract the best new talent but also retain key team members in the business. Over the year we have invested in our human resources team and created dedicated in-market resource. Training and team member career development remain central to our approach to retention. The business continues to invest heavily in training, especially of lower management and centre team members. We are also increasing the ease with which team members can move to new countries to help our growth. As such, we are confident that with the significant opportunities arising from growth, staff turnover will continue to reduce.

Our New Centres business - capacity expansion

The larger our network, both globally and nationally within countries, so the more attractive and compelling we become. As has been previously stated, the business is aiming for a network in the region of 2,000 locations by 2014. We opened 139 locations in 2011 and plan to open a further 200 by the end of 2012. We expect these to achieve similar levels of revenue and earnings as the mature estate in due course, and we tightly manage them to ensure that this happens. It is important to state that whilst we remain optimistic and confident in our growth strategy, the management team remain mindful of the continued global economic uncertainty in the near term. We carefully monitor key metrics and are able to temporarily slow down the growth if we determine that conditions have become too uncertain or challenging.

Looking at our 2010 and 2011 openings we find that:

·; Our 2010 centres have performed well. Totalling 116 locations, these generated £100.0m of revenue and made a centre contribution of £15.0m and an EBITDA of £3.8m.

·; Our 2011 centres, some of which are only a few months old and totalling 139 locations, generated revenues of £20.2m and, as expected, made a negative centre contribution of £13.4m.

In 2012 we plan to open somewhere in the region of 200 new locations and enter 6-8 new countries. We have already opened in Madagascar and others will include Iceland, Nepal and Fiji. It is crucial for us to continue to enter new countries. This is primarily in response to demand from global (but also medium and small) companies as they look to us and our expertise to help them expand and enter new markets. The classic example is how we helped Google expand in the early part of the last decade and continue to support them in some 32 countries.

To support our accelerated growth programme and leverage the benefits and efficiencies of scale, we have recently strengthened the development team. It is vital that we automate and simplify as much of this expansion activity as possible and also ensure that we achieve the optimal return from our investment capital. Additionally, the current state of the global economy could well present us with a good opportunity to acquire a significant number of excellent locations at competitive rates.

There is a clear programme of development to ensure that growth is sustainable, achievable and in the places where there will be strong demand. Specifically:

·; National networks - customers are today more likely to need access to complete national networks and not just individual centres. We believe there is significant latent demand as we open up more of these.

·; Neighbourhood locations - we are increasingly opening in suburban and residential areas.

·; Infrastructure locations - major motorway junctions, railway stations and other transport interchanges. Where people travel, they will increasingly work and will look to Regus for support.

·; Missing city locations - we refer to this as filling in the "gaps on the map".

·; Growth accelerating - in response to demand from end users but also as we react to requests from building owners and developers.

Third Place

In pursuing additional growth opportunities, the business has been exploring a number of new avenues especially in expanding our network into more third places. Indeed, a commercial offer is emerging which has the potential to be a major third leg of our business.

Third place is defined as not the office (first place) nor the home (second place) - see diagram below. So a third place could be the library or a cafe or railway station, it might be the park bench or a supplier's premises. Work in the third place is increasingly the norm as technological advances mean that anyone can work anywhere. Our Third Place business is creating better quality work locations where people are increasingly likely to work when on the move or when away from the home or office, railway stations and motorway service stations for example, but the Group is exploring a wide variety of other third place locations.

This new Third Place business is being built on the experience we have gained from Businessworld where we have created a base of more than a million members in a little over three years. Whilst third place remains at an early stage, progress has been rapid - in the second half of 2011 the Group signed a landmark deal with SNCF, the French national railway operator, and since the year end a similar deal with NS Trains, the Dutch national railway operator, has been agreed. Both will result in multiple Regus locations within these organisations' networks, serving a significant number of their mobile worker customers. The Group is also in discussions with a number of other similar transport infrastructure organisations from around the world, which includes a pilot with Shell at their motorway service stations in France and facilities set up and trading within airports (currently Schiphol (Netherlands) and Zaventem (Belgium)). Additionally we are soon to open a community based business centre which, in addition to the standard Regus offering, will house the local office of economic development and be put to a variety of different uses at evenings and weekends.

The potential of third place is significant and fast growing. It plays to our skill sets - our systems and process, business development expertise and long history of partnerships, our intuitive understanding of work and the needs of flexible workers. We expect to sign many more of these agreements in 2012 with increasingly diverse partners in many more locations.

Use of third spaces is different to traditional Regus centres and is more akin to how people interact with our business lounges. They are in effect drop-in locations for short-term, but frequent use. Convenience is key and that is why the experience has to be seamless, especially if using several locations over a week or even a day. They are ideally suited to the needs of the mobile worker: highly accessible; welcoming and comfortable; local and easy to use; professional with high quality wi-fi and refreshments; good value with other services available on a pay-as-you-need basis; and, where you are surrounded by other like-minded individuals. Membership is key - we have recently passed the million mark and expect strong and accelerating growth over the coming years; from large corporates such as Yell which take membership cards numbered in their thousands to entrepreneurs who will take just one, possibly purchased via a high street outlet.

With regards to the investment required and expected returns, we anticipate both to be comparable with our existing model. Our approach is global so we expect to benefit early from scale. The concept has been comprehensively demand tested, and being heavily underpinned by technology, is expected to develop rapidly. We intend to provide more information on key developments in this market in the future.

Operational Review

The momentum of growth achieved in Q4 2010 continued throughout 2011. Over the year the Group opened 139 new centres (2010: 125) with the total number as of 31 December 2011 standing at 1,203 (2010: 1,084). Over the period customer numbers increased by 8.7% to 983,360 and have since the year end passed the million mark. Taken together, this growth resulted in an increase in total workstation capacity of 8.2% to 204,043.

To properly review our business, I will concentrate on our mature business performance development, which represents like-for-like business:

Americas

Our Americas business posted a strong performance, especially in the USA and I offer my congratulations to them on a job well done. Mature revenues were up 2.3% on 2010 to £431.8 million with average mature occupancy of 88.6% during the period (2010: 82.8%). Mature gross margins improved strongly to 29.3% (2010: 24.0%). During the year, we added 62 centres, including our first in Omaha, Nebraska, which contributed to the increase in the average number of workstations from 74,265 in 2010 to 80,064 in 2011. The robust nature of our Mature Centres business is underpinned by the solidity of this business. Latin America has a number of exciting opportunities for us, not least in Mexico and Brazil where we see tremendous growth potential. We continue to experience healthy levels of demand across all geographies in the region and in H2 opened our first location in Uruguay.

EMEA

Contrary to what might have been expected, our EMEA business had a good year, especially in H2. The region delivered mature revenues of £274.3m, up 3.0% on 2010 and achieved an average mature occupancy of 85.3% (2010: 79.6%). Mature gross margins improved over the period to 26.7% (2010: 24.9%). During the year, we added 45 centres which contributed to the increase in the average number of workstations from 36,120 in 2010 to 38,473 in 2011. Eight countries were added to the network including Croatia, Uganda and Madagascar. Although the macro economy across much of this region is challenging, we continue to seek and find good growth opportunities in many markets. Additionally, much of the initial interest and subsequent development and implementation of our Third Place activity has originated here.

Asia Pacific

Our Asia Pacific business performed well. This dynamic region continues to present tremendous opportunities for growth, especially in India and China, but also in every market where we are present. Currently operating 108 mature centres across 16 countries, the region delivered mature revenues of £139.7m, up 5.4% on 2010 and achieved an average mature occupancy of 85.7% (2010: 81.4%). Mature gross margins stayed broadly flat at 30.0% (2010: 30.6%). During the year we added 29 centres which contributed to the increase in the average number of workstations from 23,437 in 2010 to 27,757 in 2011.

UK

The UK remains a tough market but nevertheless, the business, which numbers 135 mature centres, continued to improve and delivered mature revenues of £187.6m, up 7.3% on 2010. This was on the back of mature gross margins almost doubling to 15.8% (2010: 8.3%), a clear demonstration of the progress made in turning this business around during the year. We remain vigilant as the average mature occupancy has not moved much beyond 80% (2011: 80.5% vs 2010: 80.8%). Property and associated on-costs remain high - consequently only three centres were added. Over the period the average number of workstations increased from 34,851 in 2010 to 38,346 in 2011. We have also focussed on refreshing the management team to give the business renewed vigour and focus.

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

* The mature business is defined as the performance from centres owned and operated at 31 December 2009.

Outlook

Regus has delivered a strong set of results. After executing various strategic initiatives over the last two years, Regus is now a more resilient business and our strong growth reflects this. The current trend toward flexible working means that we anticipate continued strong momentum in 2012 and current trading reflects this. As such, despite an uncertain economic backdrop we are cautiously optimistic.

·; Our Mature Centres have significant and fundamental strengths; strong cash generation, solid like-for-like revenue growth and improving margins, performances which we are focussed on maintaining.

·; Our New Centres are performing well, and the locations we have opened are expected to reach our target return on investment hurdle in the expected timeframe. We anticipate margins in these locations will continue to improve.

·; Whilst the overall Group performance will always be impacted by the pace of openings within our New Centres business, the Board is comfortable with the progress being made and expects that the strong momentum in our Mature Centres business will continue into 2012.

·; Regus' unique, market leading position provides us with excellent potential to grow further through our Third Place business due to the burgeoning flexible work market and we look forward to this delivering additional returns over the medium to long term.

Whilst we foresee the general business environment remaining challenging at a macro level in the near term, we remain optimistic about the long-term growth prospects and strategy of the business. As such, we are ready and capable to invest further to accelerate growth but scale back if macro-economic conditions deteriorate.

Fundamentally, the achievement of our goals rests on our energetic, passionate and dedicated team members providing our rapidly growing number of customers and partners with absolutely the best possible service. It is a pleasure to lead such a team and it is only right that I end by thanking them for their efforts in 2011 and look forward to sharing further success with them in 2012.

Mark Dixon

Chief Executive Officer

20 March 2012

Improved profitability and strong underlying cash generation in spite of continued challenging market conditions.

It is only possible to understand properly Regus' financial statements by looking at mature business performance and new business performance separately. The reason for this is that, while our new centres (defined as centres that opened on or after 1 January 2010) develop rapidly and contribute in line with our mature centres (those opened on or before 31 December 2009) over time, the resources that we apply to opening and developing a new centre, as well as the relative underperformance before the centre has fully matured, create a drag on our overall income statement. The overall weight of this drag depends on the pace of our opening programme, as well as the mix of property deals across the centres. With the capital expenditure invested in our centres, new centre openings have, therefore, a significant impact on the Group's cash flow, with the majority of the free cash flow generated from the mature business being reinvested in growing the business. This will be covered in greater detail below.

Mature Centres business (centres open on or before 31 December, 2009)

At the end of 2011, we had 948 mature centres, constituting 79% of the total Group workstations. The table below shows the development of Mature Centres' financial performance from 2010 to 2011:

Our mature portfolio achieved like-for-like sales growth of 3.8% over the full year, accelerating from 2% in the first half to over 5% in the second half, reflecting the carry-over from improving performance in the first half. The historic high levels of occupancy achieved in the first half were carried forward into the second half and office pricing also advanced slightly from its low point in the first half of the year. In light of the negative global economic climate through the second half of 2011, this performance provides management with confidence that we are on the right strategic path.

The strong top-line performance converted into a 23% improvement in gross profit (27% in the second half), while the gross margin rose to 26.6% for the full year (27.8% in the second half), with the benefit of the leverage impact from higher turnover, tight control of centre costs, and relentless focus on our rental costs.

Overheads allocated to the mature estate increased by 5% on last year from £159.0m to £167.3m. This was driven by an increase in marketing spend from £26.9m to £30.2m, largely reflecting the increased effort in the first half to drive occupancy levels higher, as well as the investment made in strengthening the Group's operational management structure and some central functions. In the second half, overheads allocated to the mature business were up only marginally on 2010 overheads, at £77.0m compared with £76.5m, and significantly lower than the £90.3m cost in the first half, benefiting from economies of scale and some productivity gains. As a result, while overheads as a percentage of revenue increased marginally from 15.9% of revenue in 2010, to 16.2% of revenue in 2011, second half overheads as a percentage of revenues fell to 14.7%. We are confident, therefore, that we are making significant progress towards our target of 12% on the mature estate.

As a result, our mature operating profit increased 66%, taking our operating margin from 6.5% in 2010 to 10.4% in 2011 and our EBITDA margin increased from 13.4% to 16.3%. For the second half of 2011 the operating profit increase was even better, increasing by 79% from £38.5m in H2 2010 to £68.8m with an operating margin in H2 2011 of 13.2% (H1 2011: 7.6%).

We set out below a notional EPS calculation on our mature business, which, in management's view, provides a better insight into the operating performance of this business:

Accordingly, notional mature EPS has grown 58% from 5.5p in 2010 to 8.7p in 2011. In line with operating profit, the H2 2011 mature EPS was correspondingly stronger, increasing 65% from 3.4p in H2 2010 to 5.6p in H2 2011.

The mature EPS of 5.6p in H2 2011, which yields an annualised 11.2p per share, was achieved in spite of the negative macroeconomic backdrop of the second half of 2011. If the economy continues to improve through 2012, we would expect to gradually drive sales and margins further forward and improve on this EPS achievement.

The improved EPS result is also reflected in an increased cash flow from our mature business, which is set out below:

This mature free cash flow increased 53% to £117.1m, underlining the cash generative nature of our mature business. This is equivalent to 12.4p per share.

New centres (open on or after 1 January 2010)

At the year end, we had 255 new centres, comprising 21% of the total number of workstations.

As highlighted above, these centres represent a drag on the income statement, as they require heavy investment in central overheads to locate, negotiate, man, market and fill. On top of this, the centres make a negative gross margin during their fill phase before the revenues rise to a level where the centre starts to make a positive contribution.

The table below shows the impact on the income statement from these new centres:

Turnover from new openings has increased significantly as we have opened more centres throughout 2010 and 2011.

As heralded at the publication of our half year results, the pace of openings increased significantly in the second half of 2011, with 91 new centres opened during this 6-month period, bringing the total for the year to 139 new centres.

The 2010 openings continued their progression to maturity, achieving a 15.0% gross margin in 2011, with 19.0% being achieved in the second half.

As expected, there was a negative gross profit on 2011 openings, which cost £13.4m. So far, these new 2011 centres are performing to plan and we anticipate seeing the normal improving performance as we go through 2012.

The allocation of central overheads to support the new centres increased significantly in 2011 as the overall number of new centres increased and the pace of openings accelerated.

As a result, new centres created a drag of £54.7m on the income statement in 2011, up from £39.5m in 2010. The second half drag in 2011 accelerated to £31.5m as a result of the pace of openings during this period. However, it should be noted that, if when we apply the same overhead allocation methodology purely for the 2010 openings, these became contributors to operating profit during the second half of 2011, with a positive operating profit of £1.4m.

We set out below the cash flow impact of this investment in growth:

Accordingly, the Group invested £86.4m in growing the business, representing a continued commitment to growth, subject to the investment cases clearing the Group's stringent financial hurdles. As previously highlighted, we are confident that these new centres will contribute to the Group's cash flows as they mature and it is clear that new 2010 centres were already beginning to make a contribution to cash flow in the second half of 2011.

Closures

From time to time, as part of our everyday business we close centres, in most cases either because they are loss-making and the lease is not renewed by ourselves, or we wish to close and relocate to a better property or, occasionally, because the landlord does not wish to extend the lease.

Accordingly, we closed 20 centres during 2011, which contributed an operating loss of £2.4m in 2011, against a loss of £1.6m in the corresponding period.

Overheads

Total Group overheads increased 16% from £193.3m in 2010 to £224.7m in 2011. This increase reflected a significant increase in marketing costs (up from £33.3m to £41.3m) to support occupancy growth and the increased centre base, as well as increased investment in operational management, procurement, the property team and our dedicated product development function. In addition, some increases in other administrative functions' costs were required to support our growing business.

In finance, we continue to work toward simplifying and standardising where possible, and the elimination of duplication of effort. This has required investment in time and effort up front. We will begin to reap some of the benefits in 2012 and these will build over the next couple of years as we move towards our goal of a lean and cost-efficient finance function.

Total overheads as a percentage of sales rose from 18.6% in 2010 to 19.3% in 2011, while second half 2011 costs represented 18.3% of sales. This increase is largely a result of the accelerated pace of growth, because new centres are more overheads intensive than mature centres.

Overheads allocation methodology

The allocation of overheads to the various elements of our business is based on the activity drivers in each part of the business.

For sales & marketing costs, the principle is that allocation is made on the basis of new workstation sales (since the marketing effort is spent on driving enquiries and the sales effort is spent on converting these enquiries into sales). Renewals are excluded, as these are handled by the centre staff, who form part of our cost of sales.

For all other overheads (apart from the specific allocations for new centres outlined below), we follow the principle of allocating the costs pro rata by reference to workstation numbers.

There are two specific allocations made. Firstly, it is currently estimated that 90% of the property teams' costs are spent on supporting our growth programme - finding and negotiating new centre deals and managing the fit-out phase up to opening. Secondly, we estimate that each new centre costs £130,000 to get to the stage of opening, built up from management time, sales and marketing set-up costs (these costs are deducted before the allocation outlined above is made), human resources recruitment and training costs, and administrative and finance set-up costs.

Group operating profit reconciliation

The following tables reconcile the elements of our business to the Group consolidated income statement down to operating profit:

Net finance costs

Despite our healthy net cash position, the Group incurred a net finance charge of £5.1m in 2011. This mainly relates to two items. Firstly, the Group income statement is exposed to foreign exchange movements on some inter-company transactions and transaction exchange losses were £2.6m in 2011. Secondly, we incur a notional interest charge (£2.0m) relating to the accounting treatment of a fair value adjustment on an acquisition in 2006. This second item will disappear after 2013 when the fair value adjustment has unwound fully.

Tax

The tax charge for the year was 19.6%, in line with the long-term Group tax rate of 20%.

Earnings per Share

The Group earnings per share increased from 1.9p in 2010 (before exceptional items) to 4.0p per share in 2011. However, as previously highlighted, our new centres create a significant drag on profit, which impacts the earnings per share.

Cash Flow

The table below reflects the Group's cash flow:

The above table clearly highlights the underlying cash generation of our mature business, with mature free cash flow increasing from £76.5m in 2010 to £117.1m in 2011.

We have also increased our investment in growth, from £79.0m in 2010 to £86.4m in 2011, with 125 and 139 centres opened in 2010 and 2011 respectively.

The Group's balance sheet remains healthy, with net cash broadly stable on last year at £188.3m in spite of the growth investment and the healthy return to shareholders via dividend payments.

During the year, we strengthened our Treasury function and are in the process of rationalising and deepening our banking relationships. We are also in the process of upgrading our cash management to ensure the maximum level of available cash at the centre.

Risk management

The Group has a very diverse revenue base, given its global reach, extensive range of products, and increasing numbers of customers engaged in all manner of different industries. As such, its exposure to localised economic issues or the health of individual industries is manageable.

On top of this, the Group has done much over the years to manage its cost base, most obviously through risk mitigation of its lease obligations. In 2011, our rental costs were £414.9m and the minimum contractual lease commitments at 31 December 2011, totalled £1,779.7m, as disclosed in note 29 of our audited annual accounts. It should be noted however, that the Group's Forward Order Book gives us good visibility of our sales in the near term and covers almost two years of rental costs. On top of this, over 80% of the Group's leases are flexible or fully variable in nature. Taking into account these commercial realities and based on past experience, management does not believe that this outstanding obligation represents a significant risk to the business. We have consistently demonstrated our ability to renegotiate leases with landlords to ensure that we are not paying rent ahead of the market rate (albeit with a lag) and we know from experience that, where we have centres that are well managed, in the right location, and where we are paying market rent, we earn good returns. The evidence for this is demonstrated through the development of our mature profitability over the last few years. No one would deny that the period since 2008 has been difficult for the world economy in general and property markets in particular and yet, throughout this period, our mature business has maintained good profitability and very healthy cash flows.

Many readers will be aware of the ongoing attempts by the International Accounting Standards Board to find a solution to the perennial debate on lease accounting. This has resulted in the unusual decision to release a second Exposure Draft. There are likely to be significant changes in the second Exposure Draft and it remains unclear how this debate will conclude. In any event, it seems unlikely that any resulting Standard would be applicable to accounts before the year ended 31 December 2014 at the earliest. Whatever the outcome, it will have no impact on the underlying commercial dynamics of our business, described above.

Dividends

In line with Regus' progressive dividend policy, it is proposed, subject to shareholder approval, to increase the final dividend for 2011 to 2.0p (2010: 1.75p). This will be paid on Friday 25 May 2012, to shareholders on the register at the close of business on Thursday 26 April 2012.

This represents an increase in the full year dividend of 12%, taking it from 2.6p for 2010 to 2.9p for 2011.

Dominique Yates

Chief Financial Officer

20 March 2011

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 2011 Treasury shares represent 9,070,906 (2010: 9,070,906) ordinary shares of the Group that were acquired for the purposes of the Group's employee share option plans and the share buy back programme. During the period, nil shares were purchased in the open market and nil treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 20 March 2012, 9,070,906 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 £37.9 million arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5 million relating to merger reserves and £0.1 million to the redemption of preference shares partly offset by £29.2 million arising from the Scheme of Arrangement undertaken in 2003.

Consolidated balance sheet

Approved by the Board on 20 March 2012

Mark Dixon Dominique Yates

Chief Executive Officer Chief Financial Officer

Consolidated cash flow statement

Notes to the accounts

1. Authorisation of financial statements

The Group and Company financial statements for the year ended 31 December 2011 were authorised for issue by the Board of Directors on 20 March 2012 and the balance sheets were signed on the Board's behalf by Mark Dixon and Dominique Yates. Regus plc S.A. is a public limited company incorporated in Jersey and registered and domiciled in Luxembourg. The Company's ordinary shares are traded on the London Stock Exchange.

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'). The Company prepares its parent company financial statements in accordance with Luxembourg GAAP; extracts from these are presented on page 88.

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 financial statements 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 2011 did not have a material effect on the Group financial statements.

IAS 24 Related Party transactions (Amendment) clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships as well as clarifying in which circumstances persons and key management personnel affect related party relationships of an entity. The amendment also introduces an exemption from the general related party disclosure requirements for transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of this amendment has no impact on the financial position or performance of the Group.

IAS 32 Financial instruments: Presentation (Amendment) alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. The adoption of this amendment has no impact on the financial position or performance of the Group.

IFRIC 14 Prepayment of a Minimum Funding Requirement (Amendment) removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The amendment to the interpretation has no impact on the financial position or performance of the Group.

Improvements to IFRSs (issued in May 2010); the International Accounting Standards Board issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. The adoption of these amendments did not have any impact on the financial position or performance of the Group.

The following interpretation and amendments to interpretations did not have any impact on the financial position or performance of the Group:

·; IFRIC 13 Customer Loyalty Programmes

·; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 33.

The 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 financial statements on pages 40 to 87.

In adopting the going concern basis for preparing the financial statements, the Directors have considered the further information included in the business activities commentary as set out on pages 5 to 11 as well as the Group's principal risks and uncertainties as set out on pages 26 and 27.

Further details on the going concern basis of preparation can be found in note 24 to the notes to the accounts on page 68.

These Group 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 financial statements as they are effective for years beginning on or after 1 January 2012. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated:

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

IAS 12 Income Taxes (Amendment) introduces a rebuttable assumption that deferred tax on investment properties measured at fair value will be recognised on a sale basis, unless an entity has a business model that would indicate the investment property will be consumed in business. This statement is effective for years beginning on or after 1 July 2011.

IFRS 7 Financial instruments - Disclosures (Amendment) requires additional quantitative and qualitative disclosures relating to the transfer of assets, when financial assets are derecognised in their entirety, but the entity has a continuing involvement in them, and when financial assets are not derecognised in their entirety. These amendments are effective for years beginning on or after 1 July 2011.

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

IFRS 10 Consolidated Financial Statements replaces IAS 27 Consolidated and Separate Financial Statements by changing whether an entity is consolidated by revising the definition of control. The statement also provided a number of clarifications on applying this new definition of control. This statement will be effective for years beginning on or after 1 January 2013.

IFRS 11 Joint Arrangements established principles for the financial reporting by parties to a joint arrangement. Joint control is defined as the contractually agreed sharing on control of an arrangement, which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. This statement will be effective for years beginning on or after 1 January 2013.

IFRS 12 Disclosure of Interests in Other Entities combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associated and unconsolidated structured entities. This statement will be effective for years beginning on or after 1 January 2013.

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

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

The Group will adopt the above standards or amendments in the year in which they become effective.

Basis of consolidation

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

Impairment of non-financial assets

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

For goodwill, and 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 2011 and updated at 31 December 2011.

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

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

Calculation of recoverable amount

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

Goodwill

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

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

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

Intangible assets

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

Intangible assets are amortised on a straight-line basis over the estimated useful life of the assets as follows:

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

Acquisitions of non-controlling interests

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

Leases

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

Finance leases

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

Operating leases

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

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

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

Exceptional Items

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

Property, plant and equipment

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

Revenue

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

Workstations

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

Customer service income

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

Management and franchise fees

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

Membership card income

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

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

Employee benefits

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

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

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

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

Further details about the assumptions used are given in note 26.

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 account 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 & 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 basis.

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

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

Financial assets

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

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

Liquid investments consist of held to maturity bonds and deposits.

Foreign currencies

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

Cash and cash equivalents

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

Derivative financial instruments

The Group's policy on the use of derivative financial instruments can be found in note 24. 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 2010. The performance of each segment is assessed on the basis of the segment operating profit which excludes certain non-recurring items (including provisions for onerous contracts and asset write-downs), exceptional gains and losses, internal management charges and foreign exchange gains and losses arising on transactions with other operating segments.

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.

The 2010 exceptional charge of £15.8 million is split between the reportable segments and central costs. As set out in note 6, they constitute respectively part of a re-organisation plan and a formal restructuring plan and therefore, in the Group's view, are differentiated from other ongoing charges within the operations of the business.

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. Exceptional items

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

During the year ended 31 December 2010 the Group undertook a UK restructuring programme at a net cost of £15.8 million. This balance consists of expenditure arising on the following categories: asset write down, reorganisation costs, space reduction costs, centre closure costs and other costs. An onerous lease and other property related provisions, which were identified during the restructure as being no longer required, were released. £2.5m of the remaining provision was released during the year ended 31 December 2011.

The above items have been reported as exceptional items and are disclosed separately as they are relevant to the understanding of the Group's financial performance.

7. Staff costs

Details of Directors' emoluments and interests are given on pages 36 to 38 in the Remuneration Report.

8. Net finance expense

9. Other finance costs

Foreign exchange gains or losses were reclassified from administration expenses to other finance costs. There is no impact on profit before tax for the year.

10. 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.

The Group has benefitted from a credit in relation to the settlement of a number of tax audits in respect of previous years.

(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:

The following deferred tax assets have not been recognised due to uncertainties over recoverability.

Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each reporting period. In considering current facts and circumstances, the Group has amended the calculation of deferred tax assets relating to certain intangible assets. This has given rise to a total decrease in the unrecognised deferred tax assets of £273.9 million.

(d) Corporation tax

(e) Deferred taxation

The movement in deferred tax is analysed below: