TIDMIWG TIDMTTM
RNS Number : 5695I
IWG PLC
08 August 2023
8 August 2023
H1 RESULTS ANNOUNCEMENT
IWG plc, the largest provider of hybrid workspace globally
including its Regus and Spaces brands with an unrivalled network of
3,398 locations across 120 countries, issues its results for the
six months ended 30(th) June 2023
RECORD REVENUE DELIVERY COMBINED WITH STRONG CASH FLOW
PRODUCTION
-- Record six-month system-wide revenue of GBP1,679m, constant
currency growth of 14% year-on-year, and group revenue of
GBP1,484m
-- EBITDA(1) increase of 48% to GBP198m (H1 2022: GBP131m)
driven by revenue momentum and cost discipline
-- Cash flow from business activities(2) of GBP162m (H1 2022: GBP(4)m)
-- Net financial debt reduced by GBP54m over the last 6 months to GBP658m
Capital light growth continues, centre growth capex falls
-- Additional 400 new locations signed in H1 2023 - of which only 5% are company-owned(3)
-- Net growth capex has fallen to GBP34m H1 2023 vs GBP57m H1
2022, in line with management expectations
-- Fee income from capital light strategy up 40% to GBP21m (H1
2022: GBP15m) and will grow meaningfully as signings progress to
openings over an average 18-month timeframe
Worka progression
-- Worka, the industry platform enabling hybrid working, saw
revenues increase 32% to GBP153m (H1 2022: GBP115m) and
35% EBITDA growth to GBP62m (H1 2022: GBP43m)
-- Continued investment in the platform for further Q4 product
launches expected to be a catalyst for revenue and EBITDA
generation
Balance sheet continues to strengthen from cash flow
generation
-- Successfully refinanced debt facilities until Q4 2025 as previously announced
-- Strong cash generation - GBP68m cash generation used directly to reduce gross debt
Scale and network sets us apart from competition
-- Our scale and network of market-leading brands makes us a
partner of choice for corporates and building owners exploring and
changing their global real estate strategy
-- Accelerated network growth will continue to strengthen the
many benefits of scale, including purchasing efficiencies to better
manage costs
-- As the clear market-leader in the structurally growing hybrid
working industry we are exceptionally well positioned for the long
term
SUMMARY FINANCIALS
The Group reports in accordance with IFRS. Some results are
additionally presented before the application of IFRS 16
(in accordance with IAS 17 accounting standards)(1) as it
provides useful information to stakeholders on how the Group is
managed, and reporting for bank covenants. The primary difference
between the two standards is the treatment of operating lease
liabilities. There is no difference between underlying cash flow. A
reconciliation between EBITDA before the application of IFRS 16 and
the IFRS 16 EBITDA is provided in the CFO review.
Continuing operations (GBPm) Constant Actual
H1 2023 H1 2022 currency currency
------------------------------------------ -------- -------- ---------- ----------
System revenue(4) 1,679 1,448 +14% +16%
Group revenue 1,484 1,287 +14% +15%
EBITDA 687 604 +12% +14%
Operating profit 94 37 +154% +154%
Adjusted EBITDA, before application
of IFRS 16(1) 198 131 +48% +51%
Earnings per share (p) - from continuing
operations (6.0) (3.6) n.m n.m
Cash flow from business activities(2) 162 (4) n.m n.m
------------------------------------------ -------- -------- ---------- ----------
1. Adjusted EBITDA before the application of IFRS 16 as defined
in the Alternative performance measures section
2. Cash flow from operations less tax, interest and payment of
lease liabilities (see p. 8)
3. Company-owned comprises of owned buildings and fully
conventional leases
4. System-wide revenue represents the total of all revenue made
by both non-consolidated and consolidated locations globally
Mark Dixon, Chief Executive of IWG plc, said:
"We continue to grow as expected, producing a record period for
IWG with our highest ever revenue in our over
30-year history, up 14% from the first half of 2022.
Importantly, we have achieved this alongside increasing EBITDA and
cashflow generation, which is reducing net debt. We have done this
through a combination of higher demand for flexible work products,
improved pricing and cost discipline and I am looking forward to
continuing this momentum into the second half of 2023 and into
2024.
During the first half of the year, we have accelerated our
capital light growth strategy allowing us to capitalise on the
growing pipeline of property investors seeking to maximise their
returns by partnering with IWG - in fact we have signed almost as
many agreements in the first half of 2023 as we did in the whole of
2022. We continue to be well placed to deliver further revenue,
profitable growth and reducing leverage as more companies
permanently embrace hybrid working as their preferred model with
IWG set to be the biggest beneficiary.
I would like to thank the entire IWG team for their hard work
and our customers and building owner partners for their continued
support."
Outlook and guidance
Our outlook for the full year remains cautiously optimistic
given the growing demand for hybrid working solutions tempered by
FX headwinds and a challenging economic and competitive
environment. We exit H1 with improved margins and improving monthly
EBITDA. As such, management has not changed its expectations for
adjusted full year EBITDA and the expectation that net debt
continues to fall through the year.
With revenues denominated in or linked to US dollars
representing the majority of our revenues and expected to grow,
along with recent volatility in Sterling, the Board has initiated a
review of IWG's reporting currency as well as the potential
implications of reporting under US GAAP rather than IFRS,
irrespective of listing venue.
Details of results presentation
Mark Dixon, Chief Executive Officer, and Charlie Steel, Chief
Financial Officer, will be hosting a presentation of the results
today for analysts and investors at 9.00am BST (SPACES, New Broad
Street House, 35 New Broad St, London,
EC2M 1NH).
The presentation will be available via live webcast. This will
be available to view at the following link:
https://broadcaster-audience.mediaplatform.com/#/event/64abc6a9b40d8852b29095e2
Further information
IWG plc Brunswick Tel: + 44 (0) 20 7404
Mark Dixon, Chief Executive Officer 5959
Charlie Steel, Chief Financial Nick Cosgrove
Officer Greg Dawson
Richard Manning, Head of Investor
Relations
Chief Executive Officer's review
When I look back at the first half of 2023, I see it clearly as
a period of strong evolution and progress, with organisations
everywhere accelerating their investment in the new way of working
that is set to transform millions of working lives this year and
beyond.
In short, it was a continuation of the 'Big Bang' we started
seeing in 2022, when the continuing impact of the Covid-19 pandemic
finally led to the lift-off of the hybrid model that some of us
have been anticipating for many years.
Now we are seeing fast-growing numbers of businesses across the
world adopt and reap the benefits of a model that involves
employees working from home for a day or two each week, alongside
collaborative time spent at a nearby flexible workspace and the
occasional visit to corporate HQ.
If it was the pandemic that initially lit the fuse, technology
is the fuel that's now propelling the uptake of hybrid working to
levels that very few predicted just two or three years ago.
Technology frees people from the burden of having to attend the
same single far-off workplace five days a week, month after month,
year after year, also confers multiple other freedoms - for
employees and employers alike.
For workers, it takes away the drudgery, the cost, the stress
and lost time of commuting, while gifting more time spent with
family and friends in their communities and indulging their
interests. And for businesses, it eradicates the tyranny and
expense of the long-term, city-centre lease while improving
employee engagement and productivity.
We have achieved this whilst at the same time being a great
driver of reducing emissions for the planet: we achieved Carbon
neutrality at the start of 2023, and strive to go even further -
both ourselves and as an agent supporting our clients in cutting
their emissions.
Unique strengths to benefit from hybrid working
Despite the challenges facing the wider Real Estate industry,
our story and business is one to be optimistic about. Demand for
our products is accelerating - both by corporates trying to reduce
their real estate costs and create a more flexible real estate
footprint and their employees alike. We are uniquely positioned to
service this structural demand shift. No one else boasts such a
fantastic global network of buildings and locations, supported by a
unique technology platform and apps. Whilst the attraction for
customers is clear - it is also one of the main reasons we are
increasingly the partner of choice for building owners to sign
longer-term, capital-light agreements.
To meet this demand, we are accelerating our supply-side growth
to build a fee business. In the first half of 2023, we signed
contracts on 400 locations with 95% of those a variation of capital
light - so despite this acceleration, our net capex spent on growth
fell from GBP57m in H1 2022 to GBP34m in H1 2023.
All of this is translating into growing revenues from pricing
and services, and our scale and size enables us to manage costs, so
a large percentage of the revenue increase is dropping through to
EBITDA and this EBITDA is converting to cashflow.
Given that the contribution of the fee business will accelerate
markedly as signings turn into openings - this cashflow will grow
as we will not need to invest as much to grow as we have
historically.
Looking forward
We enter the second half of the year with good momentum. The
future for IWG and all our stakeholders remains bright as we
continue to grow our customer base, our global network and our
best-in-class portfolio of locations and brands.
Customers, and building owners alike see our unique proposition.
In contrast to the tough real estate market, it has meant we are
able to accelerate growth through our capital light model which,
with its significantly lower capex requirements, has demonstrated
our ability to deliver both strong growth and a strong balance
sheet.
With the right business model, the right strategy, and the right
people, we are superbly placed to benefit from the fundamental
changes occurring in the workplace market.
Mark Dixon
Chief Executive Officer
8 August 2023
Chief Financial Officer's review
The first half of 2023 has demonstrated the ability of the Group
to continue to deliver: highest ever, half-year, system-wide
revenue of nearly GBP1.7bn whilst simultaneously increasing
operating profit and cash generation before corporate activities.
Combining the Group's unique brand strategy and unrivalled global
network with historic investment in new centre capacity, positions
the business well for the second half of 2023 and beyond.
Financial performance
The Group reports results in accordance with IFRS. Under IFRS
16, while total lease-related charges over the life of a lease
remain unchanged, the lease charges are characterised as
depreciation and financing expenses with higher total expense in
the early periods of a lease and lower total expense in the later
periods of the lease.
Group income statement (GBPm) Constant Actual
H1 2023 H1 2022 currency Currency
-------------------------------------------- -------- -------- ---------- ----------
System-wide revenue 1,679 1,448 +14% +16%
Group revenue 1,484 1,287 +14% +15%
-------------------------------------------- -------- -------- ---------- ----------
Gross profit 297 217 +37% +37%
-------------------------------------------- -------- -------- ---------- ----------
Overheads (203) (179) +12% +13%
Joint ventures - (1)
-------------------------------------------- -------- -------- ---------- ----------
Operating profit/(loss) 94 37 +154% +154%
-------------------------------------------- -------- -------- ---------- ----------
Net finance cost (164) (107) +53%
-------------------------------------------- -------- -------- ---------- ----------
Loss before tax from continuing operations (70) (70) -%
-------------------------------------------- -------- -------- ---------- ----------
Taxation 9 31
Effective tax rate 13% 44%
-------------------------------------------- -------- -------- ---------- ----------
Loss after tax from continuing operations (61) (39)
-------------------------------------------- -------- -------- ---------- ----------
Profit after tax from discontinued
operations - 1
Loss for the period (61) (38)
-------------------------------------------- -------- -------- ---------- ----------
Basic EPS (p)
From continuing operations (6.0) (3.6)
Attributable to shareholders (6.0) (3.5)
-------------------------------------------- -------- -------- ---------- ----------
Depreciation & amortisation 593 567 +2% +5%
-------------------------------------------- -------- -------- ---------- ----------
EBITDA 687 604 +12% +14%
-------------------------------------------- -------- -------- ---------- ----------
Segmental Reporting
System-wide revenue increased by 16%, or 14% at constant
currency, to GBP1,679m. Group revenue also increased by 15%, or 14%
at constant currency, to GBP1,484m. All three regions reported good
year-on-year revenue growth. In particular, our largest region of
EMEA had strong revenue growth to GBP655m (+15% at constant
currency) and the Americas and Asia both grew at 9%. Alongside
this, Worka grew at 32%.
Revenue (GBPm) Constant
H1 2023 H1 2022 currency
----------------- -------- -------- ----------
EMEA 655 565 +15%
Americas 536 475 +9%
Asia 135 125 +9%
Other 5 7 -21%
------------------ -------- -------- ----------
Group pre-Worka 1,331 1,172 +12%
------------------ -------- -------- ----------
Worka 153 115 +32%
------------------ -------- -------- ----------
Group 1,484 1,287 +14%
------------------ -------- -------- ----------
Gross Profit
Revenue improvement coupled with cost control resulted in a 37%
improvement in gross profit to GBP297m
(H1 2022: GBP217m)
Gross Profit (GBPm) Constant
H1 2023 H1 2022 currency
--------------------- -------- ---------- ----------
EMEA 122 79 +55%
Americas 74 51 +42%
Asia 22 22 +2%
Other 4 6 -19%
---------------------- -------- ---------- ----------
Group pre-Worka 222 158 +41%
---------------------- -------- ---------- ----------
Worka 75 59 +26%
---------------------- -------- ---------- ----------
Group 297 217 +37%
---------------------- -------- ---------- ----------
Overheads
We are pleased that investment in our in-country sales teams and
our marketing to support our pivot to capital-light growth is
yielding results with 400 new deals signed in the first half of
2023 alone. This investment to grow our network, coupled with the
investment to fill our centres and the impact of The Instant Group
investment, resulted in Group increased overheads of GBP(203)m (H1
2022: GBP(179)m).
EBITDA
The Group's reported EBITDA, on an IFRS basis, increased by 12%
at constant currency to GBP687m from GBP604m in
H1 2022.
The Group reports results in accordance with IFRS. Under IFRS
16, while total lease-related charges over the life of a lease
remain unchanged, the lease charges are rationalised as
depreciation and financing expenses with higher total expense in
the early periods of a lease and lower total expense in the later
periods of the lease. Results are additionally presented before the
application of IFRS 16 (in accordance with IAS 17 accounting
standards) as it provides useful information to stakeholders on how
the Group is managed and reporting for bank covenants. The primary
difference between the two standards is the treatment of operating
lease liabilities. There is no difference between underlying cash
flow.
EBITDA bridge
--------------------------------------- ------------------
(GBPm) H1 2023 H1 2022
--------------------------------------- -------- --------
EBITDA 687 604
Rent income 29 23
Rent expense (543) (508)
Centre closure & other cost 3 8
---------------------------------------- -------- --------
EBITDA before application of IFRS 16 176 127
---------------------------------------- -------- --------
Network rationalisation charge 3 (44)
Closure costs 24 20
Restructuring costs 2 2
Asset impairment of Russia & Ukraine (1) 19
Other one-off items (6) 7
---------------------------------------- -------- --------
Total adjusting items 22 4
---------------------------------------- -------- --------
Adjusted EBITDA before application of
IFRS 16 198 131
---------------------------------------- -------- --------
Before the application of IFRS 16 the Group's adjusted EBITDA
increased by 48% at constant currency to GBP198m from GBP131m in H1
2022. This is as a result of both revenue increases but also
disciplined cost control, including with respect to centre
costs.
To bridge the Group's EBITDA of GBP687m under the IFRS 16
standard to the adjusted EBITDA of GBP198m under IAS 17, we need to
rationalise rental income on subleases which are rationalised as
lease receivables under IFRS 16, rental costs on our lease
portfolio reflected as lease liabilities under IFRS 16 and centre
closure and other costs which are reflected as impairments under
IFRS 16.
EBITDA by segment (GBPm) Constant
H1 2023 H1 2022 currency
-------------------------- -------- -------- ----------
EMEA 311 283 +9%
Americas 299 258 +12%
Asia 69 68 +1%
Other (54) (48) +5%
--------------------------- -------- -------- ----------
Group pre-Worka 625 561 +10%
--------------------------- -------- -------- ----------
Worka 62 43 +35%
--------------------------- -------- -------- ----------
Continuing operations 687 604 +12%
--------------------------- -------- -------- ----------
Discontinued operations - -
-------------------------- -------- -------- ----------
Group 687 604 +12%
--------------------------- -------- -------- ----------
Adjusting Items
EBITDA before the application of IFRS 16 is shown on an adjusted
basis in order to improve the year-on-year comparability. The Group
identified net adjusting items on operating profit of GBP22m
compared to GBP4m in H1 2022, of which GBP19m are non-cash items
(H1 2022: release of GBP(5)m).
Adjusting items before the application of IFRS 16 in H1 2023
reflect network rationalisation charges (the expected impairment
cost arising from centre closures) of GBP3m (H1 2022: release of
GBP(44)m), closure costs (the actual costs of closing centres,
including non-cash write-downs) of GBP24m (H1 2022: GBP20m) and
other one-off items including restructuring, exceptional
acquisition, legal and transaction cost as well as asset impairment
reversal of GBP(5)m
(H1 2022: charge of GBP28m).
Foreign Exchange Rates
At 30 Jun Average
------------------ ------------------ ------------------------
Per GBP sterling 2023 2022 % H1 2023 H1 2022 %
------------------ ----- ----- ---- -------- -------- ----
US dollar 1.27 1.22 -4% 1.24 1.29 +4%
Euro 1.16 1.17 0% 1.15 1.19 +3%
------------------ ----- ----- ---- -------- -------- ----
The USD and Euro in H1 2023 were on average stronger compared to
Pound Sterling. However, as previously articulated, we expect to
see FX headwinds in H2 2023.
Network growth
Our focus has been and will continue to be on expansion through
partnerships. Less than 15% of deals we have signed this year are
company-owned (comprises of owned buildings, fully conventional
and/or variable leases). As a result, we are continuing to improve
the quality of our portfolio as we grow our global network.
We are well positioned to continue to grow given that we still
have 26.3% of centre capacity remaining which we can use to grow
revenues at low marginal cost with minimal further investment.
YoY
H1 2023 H1 2022 change
------------------------------- -------- -------- --------
Number of centres 3,398 3,335 +2%
Centre openings 133 70
Centre rationalisations (80) (49)
-------------------------------- -------- -------- --------
Number of SQFT 66.1m 64.6m +2%
-------------------------------- -------- -------- --------
Total new centre deals signed 400 123 +225%
Of which capital light 382 104 +267%
-------------------------------- -------- -------- --------
Average total occupancy 73.7% 73.4% +30 bps
-------------------------------- -------- -------- --------
Embedded price, indexed* 103 94 +9%
-------------------------------- -------- -------- --------
* Price per square foot, Q1 2020 = 100
Finance costs and taxation
The Group reported a net finance expense for the six months to
30 June 2023 of GBP(164)m (H1 2022: GBP(107)m).
The net finance expense includes interest on the Group's lease
liabilities of GBP(136)m (H1 2022: GBP(112)m) and borrowing
facilities of GBP(28)m (H1 2022: GBP(15)m). The increase in the
finance expense related to the borrowing facilities is mainly
driven by increased interest rates. Net finance expense in H1 2022
included a GBP27m gain on the mark-to-market of the option element
of the convertible bond.
The effective tax rate is 13% (H1 2022: 44%). The Group has
adopted the amendment to IAS 12 from 1 January 2023 that also
impacted the previously accounted deferred tax asset on leases.
Following the amendments, the Group has recognised a separate
deferred tax asset in relation to its lease liabilities and a
deferred tax liability in relation to its right-of-use assets. As a
result, retained earnings for the six months ended 30 June 2022 was
restated by GBP71m, including the income tax restatement of GBP42m.
The change also rolls forwards to be applied in the Group's H1 2023
consolidated financial statements.
Earnings per share
Earnings per share from continuing operations in the first six
months to 30 June 2023 was a loss of (6.0)p
(H1 2022: (3.6)p). Earnings per share attributable to ordinary
shareholders for the first half of 2023 was a loss of (6.0)p (H1
2022: (3.5)p).
The weighted average number of shares in issue during the first
six months of 2023 was 1,006,682,105
(H1 2022: 1,007,572,244). The weighted average number of shares
for diluted earnings per share was 1,090,178,139
(H1 2022: 1,097,148,667). 399,158 shares were acquired in the
period to be held in treasury to satisfy future exercises under
various Group long-term incentive schemes. The Group reissued
403,879 shares from treasury to satisfy such exercises during the
year. At 30 June 2023 the Group held 50,560,132 treasury shares (30
June 2022: 50,699,339).
Cash flow - continuing operations
We continued to manage our costs tightly, restructure centres
where necessary and improve revenue. This resulted in strong cash
inflow from business activities in H1 2023 of GBP162m compared to a
cash outflow of GBP(4)m in H1 2022.
Tax paid was GBP(23)m in H1 2023 (H1 2022: GBP(11)m). The higher
cash tax paid was mainly driven by a GBP(10)m payment of 2022 US
taxes based on the estimated US tax liability as reported at year
end 2022.
Cash inflow before growth capex and corporate activities was
GBP109m (H1 2022: outflow of GBP(27)m).
Net growth capital expenditure was significantly lower at
GBP(34)m (H1 2022: GBP(57)m) and demonstrates the benefit of our
capital-light growth strategy. In the first six months of 2023 we
already signed 400 new centre deals which is already almost as much
as we signed during the full-year in 2022 (FY 2022: 462 deals).
Net cash before FX movements in H1 2023 decreased by GBP(30)m
primarily due to the repayment of loans of GBP(97)m compared to
cash inflows before corporate activities of GBP68m.
Cashflow (GBPm) H1 2023 H1 2022
--------------------------------------------------------- -------- --------
Operating profit/(loss) 94 37
Depreciation & amortisation 593 567
---------------------------------------------------------- -------- --------
EBITDA 687 604
---------------------------------------------------------- -------- --------
Rent income 29 23
Rent expense (543) (508)
Centre closure & other costs 3 8
Adjusting items 22 4
---------------------------------------------------------- -------- --------
Adjusted EBITDA before application of IFRS
16 198 131
---------------------------------------------------------- -------- --------
Working capital (excl. amortisation of partner
contributions) 61 (13)
Working capital related to the amortisation
of partner contributions (48) (50)
Maintenance capital expenditure (net) (42) (48)
Other items(1) (7) (24)
---------------------------------------------------------- -------- --------
Cash inflow/(outflow) from business activities(2) 162 (4)
---------------------------------------------------------- -------- --------
Tax paid (23) (11)
Finance costs on bank & other facilities (30) (12)
---------------------------------------------------------- -------- --------
Cash inflow/(outflow) before growth capex and corporate
activities 109 (27)
---------------------------------------------------------- -------- --------
Gross growth capital expenditure (56) (76)
Growth-related partner contributions 22 19
Net growth capital expenditure (34) (57)
Purchase of subsidiary undertakings (net of
cash) (7) (304)
---------------------------------------------------------- -------- --------
Cash inflow/(outflow) before corporate activities 68 (388)
---------------------------------------------------------- -------- --------
Purchase of shares (1) (6)
Investment-related loan receivable - -
Net proceeds on transactions - 53
Other corporate items - -
Net (repayments)/proceeds from loans (97) 466
---------------------------------------------------------- -------- --------
Net cash (outflow)/inflow for the year (30) 125
---------------------------------------------------------- -------- --------
Opening net cash 161 78
FX movements (7) 3
---------------------------------------------------------- -------- --------
Closing cash 124 206
---------------------------------------------------------- -------- --------
1. Includes capitalised rent related to centre openings (gross
growth capital expenditure) of GBP(2)m (H1 2022: GBP(3)m)
2. Cash flow before growth capex, corporate activities, tax and
finance cost on bank & other facilities
Cash as at 30 June 2023 was GBP124m (30 June 2022: GBP206m). In
the first six months of 2023 we decreased our loan balance by
GBP97m to GBP(782)m and were impacted by GBP(6)m non-cash movements
and FX impacts on loans. This resulted in net debt before
application of IFRS 16 of GBP(658)m (30 June 2022: GBP(742)m).
Under IFRS, we are obliged to report net debt including the
lease liabilities which comprise c.90% of our net debt balance.
During H1 2023 we paid principal and interest on finance leases of
GBP616m and recognised new principal and interest on net lease
investments of GBP(31)m. Non-cash movements and currency impact on
lease liabilities and investments increased the liability by
GBP(133)m. Hence, total IFRS 16 related net lease liabilities at 30
June 2023 were GBP(5,440)m (30 June 2022: GBP(6,287)m).
As a result, net debt at the end of June 2023 was at GBP(6,098)m
compared with GBP(7,029)m at the end of June 2022.
Net debt (GBPm) H1 2023 H1 2022
------------------------------------------------- -------- --------
Closing cash 124 206
Opening loans (873) (475)
Net proceeds from issue & repayment of loans 97 (466)
Non-cash movements & FX impact on loans (6) (7)
-------------------------------------------------- -------- --------
Net financial debt (658) (742)
-------------------------------------------------- -------- --------
Opening lease liabilities (net) (5,892) (6,121)
Principal & interest payments on finance leases 616 615
Non-cash movements (net) (349) (399)
Principal & interest received on net lease
investment (31) (17)
FX impact on lease liabilities & investments
(net) 216 (365)
-------------------------------------------------- -------- --------
Net debt (6,098) (7,029)
-------------------------------------------------- -------- --------
Risk Management
Effective management of risk is an everyday activity for the
Group, and crucially, integral to our growth planning. 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 risk can
be found on pages 44-53 of the 2022 Annual Report and Accounts. The
principal risks and uncertainties are unchanged.
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 six months ended 30 June 2023.
Details of related party transactions that have taken place in the
period can be found in note 13.
Dividends and share repurchase
The Group continues to focus on cash flow production to reduce
net debt and as such there is currently not an intention to pay a
dividend.
Financing
In June 2023 the Group successfully repaid the non-recourse
bridge facility, with a gross balance of GBP(270)m at 31 December
2022, by increasing the Revolving Credit Facility ("RCF") from
GBP(750)m to GBP(875)m, secured against the Group. Additionally,
the final maturity date of the RCF is in November 2025, previously
in March 2025, and no material terms, such as pricing, have
changed.
As a result, the Group has a combination of debt financing
instruments, including:
-- Convertible bond of GBP(323)m (face value GBP(350)m, 31
December 2022: GBP(318)m) at 30 June 2023 with an interest rate of
0.5%, due for repayment or conversion at GBP4.5807 per share in
December 2027 with an option for the bondholders to put the
instrument back to the Group in December 2025 at par; and
-- Net financial debt of GBP(658)m at 30 June 2023 (31 December 2022: GBP(712)m)
As at half-year 2023 the Group complied with all facility
covenants. The financial instruments are discussed in relation to
the going concern assessment below.
Going concern
The Group reported a loss after tax of GBP(61)m (H1 2022:
GBP(39)m) from continuing operations in the first six months of
2023, while net cash of GBP607m (H1 2022: GBP512m) was generated
from operations during the same period. Although the Group's
balance sheet at 30 June 2023 reports a net current liability
position of GBP(1,649)m
(31 December 2022: GBP(1,868)m) which could give rise to a
potential liquidity risk, the Directors concluded after a
comprehensive review that no liquidity risk exists as:
(1) The Group had funding available under the Group's GBP(875)m
revolving credit facility. GBP145m
(31 December 2022: GBP173m) was available and undrawn at 30 June
2023. The facility's final maturity date is November 2025;
(2) The Group maintained a 12-month rolling forecast and a
three-year strategic outlook. It also monitored the covenants in
its facility to manage the risk of potential breach. The Group
expects to remain within covenants throughout the forecast period.
In reaching this conclusion, the Directors have assessed:
-- the potential cash generation of the Group against a range of
illustrative scenarios (including a severe but plausible outcome);
and
-- mitigating actions to reduce operating costs and optimise
cash flows during any ongoing global uncertainty.
The Directors consider that the Group is well placed to
successfully manage the actual and potential risks faced by the
organisation including risks related to inflationary pressures and
geopolitical tensions.
On the basis of their assessment, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of at least 12
months from the date of approval of interim results announcement
and consider it appropriate to continue to adopt the going concern
basis in preparing the financial statements of the Group.
Charlie Steel
Chief Financial Officer
8(th) August 2023
Condensed Consolidated Financial Information
Interim consolidated income statement (unaudited)
Six months
ended
Six months 30 June
ended 2022
30 June Restated
GBPm Notes 2023 (1)
--------------------------------------------------------- ---- ------ ------------- -------------
Revenue (2) 1,484 1,287
Costs of sales(3) (1,177) (1,080)
Expected credit (losses)/reversal on trade
receivables (10) 10
--------------------------------------------------------- ---- ------ ------------- -------------
Gross profit (centre contribution) 297 217
Selling, general and administration expenses(4) (203) (179)
Share of loss of equity-accounted investees,
net of tax - (1)
--------------------------------------------------------- ---- ------ ------------- -------------
Operating profit 94 37
Finance expense 3 (168) (137)
Finance income 3 4 30
--------------------------------------------------------- ---- ------ ------------- -------------
Net finance expense (164) (107)
--------------------------------------------------------- ---- ------ ------------- -------------
Loss before tax for the period from continuing
operations (70) (70)
Income tax credit 9 31
--------------------------------------------------------- ---- ------ ------------- -------------
Loss for the period from continuing operations (61) (39)
--------------------------------------------------------- ---- ------ ------------- -------------
Profit after tax for the period from discontinued
operations 4 - 1
Loss for the period (61) (38)
--------------------------------------------------------- ---- ------ ------------- -------------
Attributable to equity shareholders of
the Group (60) (35)
Attributable to non-controlling interests (1) (3)
--------------------------------------------------------- ---- ------ ------------- -------------
Loss per ordinary share (EPS)
:
Attributable to ordinary shareholders
Basic (p) (6.0) (3.5)
Diluted (p) (6.0) (3.5)
From continuing operations
Basic (p) (6.0) (3.6)
Diluted (p) (6.0) (3.6)
--------------------------------------------------------------- ------ ------------- -------------
(1) These balances have been restated as the Group changed its
accounting policy on deferred tax related to assets and liabilities
arising from a single transaction due to amendments to IAS 12 (note
1).
(2) Includes a net settlement fee of GBP2m recognised
(comprising the settlement fee of GBP18m, offset by various
non-cash items of GBP16m), for TKP Corporation's sale of the
Japanese master franchise agreement to Mitsubishi Estate Co.
(3) Includes the net charge of GBP20m (2022: net reversal of
GBP41m), consisting of the net reversal of the impairment of
property, plant and equipment and right-of-use assets of GBP1m
(2022: GBP70m), offset by network rationalisation costs of GBP18m
(2022: GBP20m) and the impairment of Ukraine and Russia of GBP3m
(2022: GBP9m) which were previously presented as adjusting items
(note 1).
(4) Includes a reversal of GBP9m (2022: charge of GBP2m),
consisting primarily of closure related legal provisions which were
previously presented as adjusting items (note 1).
The above interim consolidated income statement should be read
in conjunction with the accompanying notes.
Interim consolidated statement of comprehensive income
(unaudited)
Six months
ended
Six months 30 June
ended 2022
30 June Restated
GBPm 2023 (1)
------------------------------------------------------------ ----------- -----------
Loss for the period (61) (38)
Other comprehensive (loss)/income that is or may
be reclassified to profit or loss in subsequent
periods:
Foreign currency translation differences for foreign
operations (19) 22
------------------------------------------------------------ ----------- -----------
Items that are or may be reclassified to profit
or loss in subsequent periods (19) 22
------------------------------------------------------------ ----------- -----------
Other comprehensive income that will never be reclassified
to profit or loss in subsequent periods:
Items that will never be reclassified to profit - -
or loss in subsequent periods
------------------------------------------------------------ ----------- -----------
Other comprehensive (loss)/income for the period,
net of tax (19) 22
------------------------------------------------------------ ----------- -----------
Total comprehensive loss for the period, net of
tax (80) (16)
------------------------------------------------------------ ----------- -----------
Attributable to shareholders of the Group (79) (15)
Attributable to non-controlling interests (1) (1)
------------------------------------------------------------ ----------- -----------
(1) These balances have been restated as the Group changed its
accounting policy on deferred tax related to assets and liabilities
arising from a single transaction due to amendments to IAS 12 (note
1).
The above interim consolidated statement of comprehensive income
should be read in conjunction with the accompanying notes.
Interim consolidated statement of changes in equity
(unaudited)
Total
Foreign Equity
Issued currency attributable
share Share Treasury translation Other Retained to equity Non-controlling Total
GBPm capital premium shares reserve reserves(1) earnings shareholders interests Equity
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Balance at 1
January
2022 10 313 (151) 16 26 82 296 9 305
Change in
accounting
policy (note 1) - - - - - 29 29 - 29
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Restated balance
at 1 January
2022 10 313 (151) 16 - 111 325 9 334
Restated loss
for
the period - - - - - (35) (35) (3) (38)
Other
comprehensive
income:
Foreign currency
translation
differences
for foreign
operations - - - 20 - - 20 2 22
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Other
comprehensive
income, net of
tax - - - 20 - - 20 2 22
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Total
comprehensive
income/(loss)
for
the period - - - 20 - (35) (15) (1) (16)
Transactions
with
owners of the
Company
Share-based
payments - - - - - 1 1 - 1
Purchase of
shares - - (6) - - - (6) - (6)
Proceeds from
exercise
of share awards - - 4 - - (4) - - -
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Total
transactions
with owners of
the
Company - - (2) - - (3) (5) - (5)
Acquisition of
subsidiary
with
non-controlling
interest - - - - - - - 53 53
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Restated balance
at 30 June 2022 10 313 (153) 36 26 73 305 61 366
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Balance at 1
January
2023 10 313 (152) 21 26 (35) 183 52 235
Change in
accounting
policy (note 1) - - - - - 77 77 - 77
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Restated balance
at 1 January
2023 10 313 (152) 21 26 42 260 52 312
Loss for the
period - - - - - (60) (60) (1) (61)
Other
comprehensive
loss:
Foreign currency
translation
differences
for foreign
operations - - - (19) - - (19) - (19)
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Other
comprehensive
loss, net of
tax - - - (19) - - (19) - (19)
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Total
comprehensive
loss for the
period - - - (19) - (60) (79) (1) (80)
Transactions
with
owners of the
Company
Share-based
payments - - - - - 2 2 - 2
Purchase of
shares - - (1) - - - (1) - (1)
Proceeds from
exercise
of share awards - - 1 - - (1) - - -
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Total
transactions
with owners of
the
Company - - - - - 1 1 - 1
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
Balance at 30
June
2023 10 313 (152) 2 26 (17) 182 51 233
----------------- -------- -------- --------- ------------ ------------ --------- ------------- ---------------- -------
(1) (Other reserves include GBP11m for 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, GBP38m arising from the Scheme of
Arrangement undertaken on 14 October 2008, GBP6m relating to merger
reserves and GBPnil to the redemption of preference shares partly
offset by GBP29m arising from the Scheme of Arrangement undertaken
in 2003.)
The above interim consolidated statement of changes in equity
should be read in conjunction with the accompanying notes.
Interim consolidated balance sheet
As at 30 As at 31
June 2023 December
2022
(unaudited) Restated
GBPm Notes (1)
--------------------------------------- --- ------ -------------- ----------
Non-current assets
Goodwill 6 911 934
Other intangible assets 207 214
Property, plant and equipment 7 5,682 6,234
-------------------------------------------- ------ -------------- ----------
Right-of-use assets 7 4,559 5,009
Other property, plant and equipment 7 1,123 1,225
-------------------------------------------- ------ -------------- ----------
Non-current net investment in finance
leases 9 69 95
Deferred tax assets 8 504 457
Other long-term receivables 53 57
Investments in joint ventures 45 45
Other investments - -
--------------------------------------- --- ------ -------------- ----------
Total non-current assets 7,471 8,036
-------------------------------------------- ------ -------------- ----------
Current assets
Inventory 1 1
Trade and other receivables 1,108 919
Current net investment in finance
leases 9 46 52
Corporation tax receivable 21 19
Cash and cash equivalents 9 124 161
-------------------------------------------- ------ -------------- ----------
Total current assets 1,300 1,152
Total assets 8,771 9,188
-------------------------------------------- ------ -------------- ----------
Current liabilities
Trade and other payables 1,006 755
Customer deposits 461 447
Deferred revenue 436 455
Corporation tax payable 65 45
Bank and other loans 9 19 285
Lease liabilities 9 935 1,002
Provisions 27 31
-------------------------------------------- ------ -------------- ----------
Total current liabilities 2,949 3,020
-------------------------------------------- ------ -------------- ----------
Non-current liabilities
Other long-term payables 8 11
Deferred tax liabilities 8 175 175
Bank and other loans 9 763 588
Lease liabilities 9 4,620 5,037
Provisions 15 37
Provision for deficit on joint
ventures 6 6
Retirement benefit obligations 2 2
-------------------------------------------- ------ -------------- ----------
Total non-current liabilities 5,589 5,856
Total liabilities 8,538 8,876
-------------------------------------------- ------ -------------- ----------
Total equity
Issued share capital 10 10
Issued share premium 313 313
Treasury shares (152) (152)
Foreign currency translation reserve 2 21
Other reserves 26 26
Retained earnings (17) 42
-------------------------------------------- ------ -------------- ----------
Total shareholders' equity 182 260
Non-controlling interests 51 52
-------------------------------------------- ------ -------------- ----------
Total equity 233 312
-------------------------------------------- ------ -------------- ----------
Total equity and liabilities 8,771 9,188
-------------------------------------------- ------ -------------- ----------
(1) Based on the audited financial statements for the year ended
31 December 2022. These balances have been restated as the Group
changed its accounting policy on deferred tax related to assets and
liabilities arising from a single transaction due to amendments to
IAS 12 (note 1).
The above interim consolidated balance sheet should be read in
conjunction with the accompanying notes.
Interim consolidated statement of cash flows (unaudited)
Six months
Six months ended
ended 30 June
30 June 2022
2023 Restated
GBPm Notes (1)
---------------------------------------------------- ------ ------------- -----------
Operating activities
Loss for the period from continuing operations (61) (39)
Adjustments for:
Profit from discontinued operations 4 - -
Net finance expense (2) 3 164 107
Share of loss on equity-accounted investees,
net of income tax - 1
Depreciation charge - Other property, plant
and equipment 7 101 83
Depreciation charge - Right-of-use assets 7 466 476
Loss on disposal of property, plant and
equipment 11 9
Profit on disposal of right-of-use assets
and related leases liabilities 9 (10) (11)
Loss/(reversal) on impairment of property,
plant and equipment 7 10 (7)
Loss/(reversal) on impairment of right-of-use
assets 7 17 (8)
Amortisation of intangible assets 26 8
Income tax credit (9) (31)
Expected credit losses/(reversal) on trade
receivables 10 (10)
(Decrease)/increase in provisions (24) 19
Share-based payments 11 2 1
Other non-cash movements 14 -
---------------------------------------------------- ------ ------------- -----------
Operating cash flows before movements in
working capital 717 598
---------------------------------------------------- ------ ------------- -----------
Proceeds from partner contributions (reimbursement
of costs) (3) 7 6 6
Increase in trade and other receivables (239) (93)
Increase in trade and other payables 312 136
---------------------------------------------------- ------ ------------- -----------
Cash generated from operations 796 647
---------------------------------------------------- ------ ------------- -----------
Interest paid and similar charges on bank
loans and corporate borrowings (30) (12)
Interest paid on lease liabilities 9 (136) (112)
Tax paid (23) (11)
Net cash inflows from operating activities 607 512
---------------------------------------------------- ------ ------------- -----------
Investing activities
Purchase of property, plant and equipment 7 (79) (109)
Payment of initial direct costs related (1) -
to right-of-use assets
Interest received on net lease investment 3 4 3
Payment received from net lease investment 9 27 14
Purchase of subsidiary undertakings (net
of cash acquired) 14 (7) (304)
Purchase of intangible assets (19) (20)
Proceeds on the sale of discontinued operations,
net of cash disposed of 4 - 1
Net cash outflows from investing activities (75) (415)
---------------------------------------------------- ------ ------------- -----------
Financing activities
Proceeds from issue of loans 9 308 898
Repayment of loans 9 (405) (432)
Payment of lease liabilities 9 (480) (503)
Proceeds from partners contributions (lease
incentives) (3) 16 18
Proceeds received from non-controlling interests - 53
Purchase of treasury shares (1) (6)
Net cash (outflows)/inflows from financing
activities (562) 28
---------------------------------------------------- ------ ------------- -----------
Net (decrease)/increase in cash and cash
equivalents (30) 125
Cash and cash equivalents at beginning of
the period 161 78
Effect of exchange rate fluctuations on
cash held (7) 3
Cash and cash equivalents at end of the
period 9 124 206
---------------------------------------------------- ------ ------------- -----------
(1) These balances have been restated as the Group changed its
accounting policy on deferred tax related to assets and liabilities
arising from a single transaction due to amendments to IAS 12 (note
1).
(2) The net finance expense includes mark-to-market adjustments
of GBPnil (2022: GBP27m)
(3) The total proceeds from partner contributions relating to
the reimbursement of costs and lease incentives of GBP22m (2022:
GBP24m) are allocated between maintenance partner contribution of
GBPnil (2022: GBP5m) and growth partner contributions of GBP22m
(2022: GBP19m).
The above interim consolidated statement of cash flows should be
read in conjunction with the accompanying notes.
Notes to the Condensed Interim Consolidated Financial
Information (unaudited)
Note 1: Basis of preparation and accounting policies
IWG plc is a public limited company incorporated in Jersey and
registered and domiciled in Switzerland. The Company's ordinary
shares are traded on the London Stock Exchange. IWG plc owns a
network of business centres which are utilised by a variety of
business customers.
The unaudited condensed interim consolidated financial
information as at and for the six months ended 30 June 2023
included within the half yearly report:
-- was prepared in accordance with International Accounting
Standard 34 "Interim Financial Reporting" ("IAS 34") as adopted for
use in the UK ("adopted IFRS"), and therefore does not include all
disclosures that would otherwise be required in a complete set of
financial statements. Selected explanatory notes are included to
understand events and transactions that are significant to
understand the changes in the Group's financial position and
performance since the last IWG plc Annual Report and Accounts for
the year ended 31 December 2022;
-- was prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority;
-- comprises the Company and its subsidiaries (the "Group") and
the Group's interests in jointly controlled entities;
-- does not constitute statutory accounts as defined in
Companies (Jersey) Law 1991. A copy of the statutory accounts for
the year ended 31 December 2022 has been filed with the Jersey
Companies Registry. Those accounts have been reported on by the
Company's auditors and the report of the auditors was (i)
unqualified, and (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report. These accounts are available from the
Company's website - www.iwgplc.com ; and
-- was approved by the Board of Directors on 8 August 2023 .
The basis of preparation and accounting policies set out in the
Report and Accounts for the year ended
31 December 2022 have been applied in the preparation of this
half yearly report, except for the adoption of new accounting
policies and new standards and interpretations effective as of 1
January 2023. With the exception of the adoption of the amendments
to IAS 12 as noted below, there was no material effect on the
Group's financial statements, unless otherwise indicated.
New standards and interpretations
The following standards, interpretations and amendments to
standards were applicable to the Group for periods commencing on or
after 1 January 2023:
Deferred Tax related to Assets and Liabilities arising from
a Single Transaction - Amendments to IAS 12
IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance
Contracts
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates
and Errors: Definition of Accounting Estimates
Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2)
------------------------------------------------------------------------
The following new or amended standards and interpretations that
are mandatory for 2024 annual periods (and future years) are not
expected to have a material impact on the Company:
Non-current Liabilities with Covenants - Amendments 1 January 2024
to IAS 1
Classification of Liabilities as Current or Non-Current 1 January 2024
- Amendments to IAS 1
Lease Liability in a Sale and Leaseback - Amendments 1 January 2024
to IFRS 16
------------------------------------------------------- --------------
There are no other IFRS standards or interpretations that are
not yet effective that would be expected to have a material impact
on the Group. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet
effective.
Change in accounting policy - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction (Amendments to IAS
12)
The Group has adopted the amendment to IAS 12 from 1 January
2023. The amendments narrow the scope of the initial recognition
exemption on leases, to exclude transactions that give rise to
equal and offsetting temporary differences. Following this
reassessment, the deferred tax asset and liabilities recognised
relating to the Group's leases has resulted in a GBP77m impact on
the opening retained earnings as at 1 January 2023 (1 January 2022:
GBP29m). The retained earnings for the six months ended 30 June
2022, required a GBP42m income tax credit restatement of the losses
for the period. The adjustment to retained earnings relates to
leases which were originally dealt with using the initial
recognition exemption. This change in accounting policy will also
be reflected in the Group's consolidated financial statements for
the year ending 31 December 2023.
The following table summarises the opening balance impact, on
transition to the IAS 12 amendment:
Deferred Deferred Retained
GBPm tax asset tax liability Earnings
----------------------------------- ---------- -------------- ---------
Balance reported at 1 January 2022 327 141 82
Adjustment 59 30 29
----------------------------------- ---------- -------------- ---------
Restated balance at 1 January 2022 386 171 111
----------------------------------- ---------- -------------- ---------
Balance reported at 1 January 2023 350 145 (35)
Adjustment 107 30 77
----------------------------------- --- --- ----
Restated balance at 1 January 2023 457 175 42
----------------------------------- --- --- ----
Seasonality
The majority of the Group's revenue is not subject to
significant seasonal fluctuations. Demand based revenue (from
products such as Meeting Rooms and Customer Services) is impacted
by seasonal factors within the period, particularly around summer
and winter vacation periods. This fluctuation leads to a small
seasonal profit bias to the second half year compared to the first
half. However, this seasonal bias is often hidden by other factors,
which drive changes in the pattern of profit delivery such as the
addition of new centres or changes in demand or prices.
Judgements and estimates
In preparing this condensed consolidated interim financial
information, the significant judgments made by management and the
key sources of estimation of uncertainty were the same as those
that applied to the Report and Accounts for the year ended 31
December 2022.
Adjusting items
Adjusting items were previously presented as a separate line
item on the consolidated income statement. As of
1 January 2023 the Group no longer discloses these items
separately on the face of the consolidated income statement but
refers to them within the notes to the interim financial statements
and alternative performance measures. Notwithstanding the change in
the presentation on the consolidated income statement, the
accounting policy of adjusting items are unchanged from those noted
on page 139 of the 2022 Annual Report.
Principal risks
As part of the half year risk assessment, the Board has
considered the impact of geopolitical factors on the principal
risks of the Group. Following this risk assessment, the Board are
satisfied that the principal risks impacting the group over the
next six months are unchanged from those noted on pages 44 to 53 of
the 2022 Annual Report.
Financing
In June 2023 the Group successfully repaid the non-recourse
bridge facility, with a gross balance of GBP270m at
31 December 2022, by increasing the Revolving Credit Facility
("RCF") from GBP750m to GBP875m, secured against the Group.
Additionally, the final maturity date of the RCF is in November
2025, previously in March 2025, and no material terms, such as
pricing, have changed.
As a result, the Group has a combination of debt financing
instruments, including:
-- Convertible bond of GBP323m (face value GBP350m, 31 December
2022: GBP318m) at 30 June 2023 with an interest rate of 0.5%, due
for repayment in 2027 with an option for the bondholders to put the
instrument back to the Group in 2025 at par; and
-- Net financial debt of GBP335m (excluding the convertible
bond) at 30 June 2023 (31 December 2022: GBP394m).
As at half-year 2023 the Group complied with all facility
covenants. The financial instruments are discussed in relation to
the going concern assessment below.
Going concern
The Group reported a loss after tax of GBP61m (2022 restated:
GBP39m) from continuing operations in the first six months of 2023,
while net cash of GBP607m (2022: GBP512m) was generated from
operations during the same period. Although the Group's balance
sheet at 30 June 2023 reports a net current liability position of
GBP1,649m (31 December 2022: GBP1,868m) which could give rise to a
potential liquidity risk, the Directors concluded after a
comprehensive review that no liquidity risk exists as:
1) The Group had funding available under the Group's GBP875m
revolving credit facility. GBP145m (31 December 2022: GBP173m) was
available and undrawn at 30 June 2023. The facility's final
maturity date is November 2025;
2) The Group maintained a 12-month rolling forecast and a
three-year strategic outlook. It also monitored the covenants in
its facility to manage the risk of potential breach. The Group
expects to remain within covenants throughout the forecast period.
In reaching this conclusion, the Directors have assessed:
-- the potential cash generation of the Group against a range of
illustrative scenarios (including a severe but plausible outcome);
and
-- mitigating actions to reduce operating costs and optimise
cash flows during any ongoing global uncertainty.
The Directors consider that the Group is well placed to
successfully manage the actual and potential risks faced by the
organisation including risks related to inflationary pressures and
geopolitical tensions.
On the basis of their assessment, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of at least 12
months from the date of approval of interim results announcement
and consider it appropriate to continue to adopt the going concern
basis in preparing the financial statements of the Group.
Note 2: Segmental analysis
An operating segment is a component of the Group that engages in
business activities from which it may earn revenue and incur
expenses. An operating segment's results are reviewed regularly by
the chief operating decision-maker (the Board of Directors of the
Group) on a pre-IFRS 16 basis to make decisions about resources to
be allocated to the segment and assess its performance, and for
which distinct financial information is available. The segmental
information is presented on the same basis on which the chief
operating decision-maker received reporting during the year.
Segmental assets and liabilities continue to be presented in
accordance with IFRS.
The business is run on a worldwide basis but managed through two
operating segments. The Group's primary operating segment is
managed through three principal geographical segments: the
Americas; EMEA (Continental Europe including UK, Middle East and
Africa); and Asia Pacific. The results of business centres in each
of these regions, based on time zones; economic relationships;
market characteristics; cultural similarities; and language
clusters, form the basis for reporting geographical results to the
chief operating decision-maker. These geographical segments exclude
the Group's non-trading, holding and corporate management
companies, which are included in the Other segment. The Instant
Group investment has been incorporated into Worka, which is
disclosed as a separate operating segment. The combined digital
assets in Worka, represents the world's leading fully integrated
workspace platform. 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 distinct 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 the Group
for the year ended 31 December 2022.
Six months ended
30 June
GBPm Americas EMEA Asia Pacific Other Pre-Worka Worka Total
2022 2022 2022 2022 2022 2022 2022
Continuing operations 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1)
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
Reported
revenue (2) 536 475 655 565 135 125 5 7 1,331 1,172 153 115 1,484 1,287
Rent income - - - - - - - - - - 29 23 29 23
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
Revenue on
pre-IFRS 16 basis 536 475 655 565 135 125 5 7 1,331 1,172 182 138 1,513 1,310
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
Workstation revenue(3) 363 332 490 425 102 97 - - 955 854 - - 955 854
Fee income 7 1 12 9 5 4 1 1 25 15 - - 25 15
Customer Service
income(4)(5) 166 142 153 131 28 24 4 6 351 303 182 138 533 441
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
Gross profit/(loss)
(centre contribution) 46 25 57 42 9 12 4 5 116 84 78 64 194 148
Share of loss of
equity-accounted
investees - - - (1) - - - - - (1) - - - (1)
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
Operating
profit/(loss) 16 (19) (1) (2) (3) 1 (65) (59) (53) (79) 44 47 (9) (32)
Finance expense - - - - - - - - (29) (17) (9) (4) (38) (21)
Finance income - - - - - - - - - 28 - - - 28
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
(Loss)/profit before
tax for
the period - - - - - - - - (82) (68) 35 43 (47) (25)
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
Depreciation and
amortisation 80 82 62 55 13 13 11 8 166 158 19 1 185 159
Impairment of assets - - - - - - - - - - - - - -
Assets(6) 3,290 3,676 3,711 4,022 579 578 599 607 8,179 8,883 592 761 8,771 9,644
Liabilities(6) (3,178) (3,542) (3,581) (3,757) (584) (575) (968) (796) (8,311) (8,670) (227) (609) (8,538) (9,279)
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
Net assets /
(liabilities) 112 134 130 265 (5) 3 (369) (189) (132) 213 365 152 233 365
Non-current assets
additions (6)(7) 72 65 122 144 47 26 22 20 263 255 7 12 270 267
----------------------- -------- ------------ -------- ------------ ------ ------------ ------ ------------ -------- ------------ ------ ------------ -------- ------------
(1) Restated for the separate disclosure of the Worka segment
and for the change in the Group's accounting policy on deferred tax
related to assets and liabilities arising from a single transaction
due to amendments to IAS 12 (note 1).
(2) (Excludes revenue from discontinued operations.)
(3) (Includes customer deposits.)
(4) (Includes membership card income.)
(5) Other includes a net settlement fee of GBP2m recognised
(comprising the settlement fees of GBP18m, offset by various
non-cash items of GBP16m), for TKP Corporation's sale of the
Japanese master franchise agreement to Mitsubishi Estate Co.
(6) (Presented on a basis consistent with IFRS 16.)
(7) (Excluding deferred taxation.)
Operating profit in the "Other" category is generated from
services related to the provision of workspace solutions offset by
corporate overheads.
The operating segments results presented on a pre-IFRS 16 basis
reconcile to the financial statements as follows:
GBPm Americas EMEA Asia Pacific Other Pre-Worka Worka Total
Continuing 2022 2022 2022 2022 2022 2022
operations 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 2022
---------------------- ----- ----------- ----- ----------- ---- ----------- ---- ----------- ----- ----------- ---- ----------- ----- -----
Gross profit
(centre contribution)
- pre-IFRS
16 46 25 57 42 9 12 4 5 116 84 78 64 194 148
Rent income - - - - - - - - - - (29) (23) (29) (23)
Rent 221 204 237 224 57 59 - 3 515 490 28 18 543 508
Depreciation
of property,
plant and equipment
including
right-of-use
assets (176) (169) (185) (194) (46) (43) - (2) (407) (408) (1) - (408) (408)
Other (17) (9) 13 7 2 (6) - - (2) (8) (1) - (3) (8)
---------------------- ----- ----------- ----- ----------- ---- ----------- ---- ----------- ----- ----------- ---- ----------- ----- -----
Gross profit
(centre contribution) 74 51 122 79 22 22 4 6 222 158 75 59 297 217
---------------------- ----- ----------- ----- ----------- ---- ----------- ---- ----------- ----- ----------- ---- ----------- ----- -----
(1) Restated for the separate disclosure of the Worka
segment.
GBPm Americas EMEA Asia Pacific Other Pre-Worka Worka Total
Continuing 2022 2022 2022 2022 2022 2022
operations 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 2022
-------------- ----- ----------- ----- ----------- ---- ----------- ---- ----------- ----- ----------- ---- ----------- ----- -----
Operating
profit/(loss)
- pre-IFRS
16 16 (19) (1) (2) (3) 1 (65) (59) (53) (79) 44 47 (9) (32)
Rent income - - - - - - - - - - (29) (23) (29) (23)
Rent 221 204 237 224 57 59 - 3 515 490 28 18 543 508
Depreciation
of property,
plant and
equipment
including
right-of-use
assets (176) (169) (185) (194) (46) (43) - (2) (407) (408) (1) - (408) (408)
Other (18) (9) 13 6 2 (5) - - (3) (8) - - (3) (8)
-------------- ----- ----------- ----- ----------- ---- ----------- ---- ----------- ----- ----------- ---- ----------- ----- -----
Operating
profit/(loss) 43 7 64 34 10 12 (65) (58) 52 (5) 42 42 94 37
-------------- ----- ----------- ----- ----------- ---- ----------- ---- ----------- ----- ----------- ---- ----------- ----- -----
(1) Restated for the separate disclosure of the Worka
segment.
GBPm Americas EMEA Asia Pacific Other Pre-Worka Worka Total
Continuing 2022 2022 2022 2022 2022 2022
operations 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 2022
------------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----
Depreciation
and
amortisation
- pre-IFRS
16 80 82 62 55 13 13 11 8 166 158 19 1 185 159
Depreciation
of property,
plant and
equipment
including
right-of-use
assets 176 169 185 194 46 43 - 2 407 408 1 - 408 408
------------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----
Depreciation
and
amortisation 256 251 247 249 59 56 11 10 573 566 20 1 593 567
------------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----
(1) Restated for the separate disclosure of the Worka
segment.
GBPm Americas EMEA Asia Pacific Other Pre-Worka Worka Total
Continuing 2022 2022 2022 2022 2022 2022
operations 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 Restated(1) 2023 2022
---------------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----
Impairment - - - - - - - - - - - - - -
of assets
- pre-IFRS
16
Impairment/(net
reversal) of
property, plant
and equipment
including
right-of-use
assets 11 (16) 10 1 6 - - - 27 (15) - - 27 (15)
---------------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----
Impairment/(net
reversal) of
assets 11 (16) 10 1 6 - - - 27 (15) - - 27 (15)
---------------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----------- ---- ----
(1) Restated for the separate disclosure of the Worka
segment.
Note 3: Net finance expense
Six months Six months
ended ended
30 June 30 June
GBPm 2023 2022
----------------------------------------------------------------- ---------- ----------
Interest payable and similar charges on bank loans and corporate
borrowings (28) (15)
Interest payable on finance lease liabilities (136) (112)
----------------------------------------------------------------- ---------- ----------
Total interest expense (164) (127)
Other finance costs (including foreign exchange) (4) (10)
----------------------------------------------------------------- ---------- ----------
Total finance expense (168) (137)
----------------------------------------------------------------- ---------- ----------
Interest received on net lease investment 4 3
Financial liabilities measured at FVTPL - 27
----------------------------------------------------------------- ---------- ----------
Total finance income 4 30
----------------------------------------------------------------- ---------- ----------
Net finance expense (164) (107)
----------------------------------------------------------------- ---------- ----------
Note 4: Discontinued operations
During the period, the Group had no discontinued operations
(2022: consideration of GBP1m and a gain on sale of GBP1m).
Note 5: Dividends
Given continuing macroeconomic uncertainties and geopolitical
tensions, the Group's capital allocation policy remains unchanged,
prioritising investment in the long-term growth of our
business.
In order to protect our liquidity in the short term, no dividend
was declared in 2023 (2022: GBPnil) and future dividend payments
continue to be placed on hold, with the intention to review the
return to our progressive dividend policy when appropriate.
Note 6: Goodwill and indefinite life intangible assets
As at 30 June 2023, the carrying value of the Group's goodwill
and indefinite life intangible assets was GBP911m and GBP11m
respectively (31 December 2022: GBP934m and GBP11m respectively).
With a GBPnil impact from acquisitions in the year to date, this
decrease is due to foreign exchange movements.
In accordance with IAS 36, the Group reviewed goodwill for
indicators of impairment. Detailed impairment indicator reviews
were performed on the US, UK and Worka businesses, which represent
78% of the Group's goodwill balance, with consideration given to
key drivers of performance and actions taken by management. These
key drivers included on-going business performance, cost mitigation
actions, review of sales key performance indicators and market
specific economic trends. There were no long-term indicators of
impairment identified for the US, UK and Worka. There was no
impairment recognised in the current period in respect of
individually immaterial countries (2022: GBP3m).
Note 7: Property, plant and equipment
Right-of-use Land and Leasehold Furniture Computer
GBPm assets (1) buildings improvements and equipment hardware Total
---------------------------- ------------ ---------- ------------- -------------- --------- ------
Cost
Balance at 1 January
2023 9,654 160 1,705 923 138 12,580
Additions 178 - 49 23 1 251
Modifications (2) 80 - - - - 80
Acquisition of subsidiaries
(Note 14) 9 - 5 - - 14
Disposals (345) - (28) (17) (4) (394)
Exchange rate movements (371) - (90) (38) (6) (505)
---------------------------- ------------ ---------- ------------- -------------- --------- ------
Balance at 30 June
2023 9,205 160 1,641 891 129 12,026
---------------------------- ------------ ---------- ------------- -------------- --------- ------
Accumulated depreciation
Balance at 1 January
2023 4,645 14 1,041 533 113 6,346
Charge for the period 466 1 62 35 3 567
Disposals (290) - (20) (15) (3) (328)
Impairment (3) 17 - 10 - - 27
Exchange rate movements (192) - (47) (24) (5) (268)
---------------------------- ------------ ---------- ------------- -------------- --------- ------
Balance at 30 June
2023 4,646 15 1,046 529 108 6,344
---------------------------- ------------ ---------- ------------- -------------- --------- ------
Net book value
Balance at 1 January
2023 5,009 146 664 390 25 6,234
---------------------------- ------------ ---------- ------------- -------------- --------- ------
Balance at 30 June
2023 4,559 145 595 362 21 5,682
---------------------------- ------------ ---------- ------------- -------------- --------- ------
(1) (Right-of-use assets consist of property related
leases.)
(2) (Modifications includes lease modifications and
extensions.)
(3) Includes a COVID related net reversal of impairment of GBP1m
(2022: GBP70m) previously provided for (note 1).
The key assumptions and methodology in calculating right-of-use
assets and the corresponding lease liability remain consistent with
those noted in note 33 of the Group's 2022 Annual Report and
Accounts.
Capital expenditure authorised and contracted for but not
provided for in the accounts amounted to GBP29m
(30 June 2022: GBP68m).
Impairment tests for property, plant and equipment (including
right-of-use assets) are performed on a cash-generating unit basis
when impairment triggers arise. Cash-generating units (CGUs) are
defined as individual business centres, being the smallest
identifiable group of assets that generate cash flows that are
largely independent of other groups of assets. The Group assesses
whether there is an indication that a CGU may be impaired,
including persistent operating losses, net cash outflows and poor
performance against forecasts. During the period, and as a direct
result of the challenging economic circumstances arising from the
current geopolitical environment, this gave rise to impairment
tests in relation to various centres where impairment indicators
were identified.
The recoverable amounts of property, plant and equipment are
based on the higher of fair value less costs to sell and value in
use. The Group considered both fair value less costs to dispose and
value in use in the impairment testing on a centre by centre level.
Impairment charges are recognised within cost of sales in the
consolidated income statement. In 2023, the Group recorded
impairment charges of GBP17m (2022: net reversal of GBP8m) in
respect of right-of-use assets and GBP10m (2022: net reversal of
GBP7m) in respect of leasehold improvements.
Note 8: Deferred tax assets
The Group's net deferred tax assets arising on IFRS 16 have
increased to GBP329m (31 December 2022 restated: GBP282m).
The Group has changed its accounting policy and adopted the
amendment to IAS 12 from 1 January 2023. The amendment relates to
the recognition of separate deferred tax assets and liabilities
arising from a single transaction (note 1).
The Directors have assessed the recoverability of all deferred
tax balances in response to the continuing impact of the current
geopolitical environment on the Group's performance and concluded
that it is more likely than not that the Group will earn sufficient
taxable profits on order to recover these balances. The period over
which these balances are expected to be recovered is not
significantly different at 30 June 2023 than it was at 31 December
2022.
Note 9: Net debt analysis
Six months Six months
ended ended
30 June 30 June
GBPm 2023 2022
---------------------------------------------- ----------- -----------
Cash and cash equivalents 124 206
Current net investment in finance leases 46 54
Non-current net investment in finance leases 69 113
------------------------------------------------ ----------- -----------
Gross cash and lease receivables 239 373
------------------------------------------------ ----------- -----------
Debt due within one year (19) (14)
Debt due after one year(1) (763) (934)
Lease due within one year(2) (935) (1,021)
Lease due after one year(2) (4,620) (5,433)
------------------------------------------------ ----------- -----------
Gross debt (6,337) (7,402)
------------------------------------------------ ----------- -----------
Net debt (6,098) (7,029)
------------------------------------------------ ----------- -----------
(1) Includes GBP323m (2022: GBP318m) convertible bond
liability.
(2) (There are no significant lease commitments for leases not
commenced at 30 June 2023.)
The following table shows a reconciliation of net cash flow to
movements in net debt:
Six months Six months
ended ended
30 June 30 June
GBPm 2023 2022
------------------------------------------------------ ----------- -----------
Net debt at 1 January (6,604) (6,518)
Net (decrease)/increase in cash and cash equivalents (30) 125
Interest received on net lease investment (4) (3)
Payment received from net lease investment (27) (14)
Proceeds from issue of loans (308) (898)
Repayment of loans 405 432
Interest paid on lease liabilities 136 112
Payment of lease liability 480 503
Non-cash movements(1) (356) (402)
Exchange rate movements 210 (366)
-------------------------------------------------------- ----------- -----------
Net debt at 30 June (6,098) (7,029)
-------------------------------------------------------- ----------- -----------
(1) Includes interests accrued on borrowings and the convertible
bond liability of GBP6m (2022: GBP6m) and movements on leases in
relation to new leases, lease modifications/re-measurements and
lease cessations of GBP415m (2022: GBP459m). Early termination of
lease liabilities represent GBP65m (2022: GBP63m) of the non-cash
movements, including GBPnil (2022: GBP1m) related to discontinued
operations.
Cash, cash equivalents and liquid investment balances held by
the Group that are not available for use ("Blocked Cash") amounted
to GBP8m at 30 June 2023 (31 December 2022: GBP7m). Of this
balance, GBP1m (31 December 2022: GBP1m) is pledged as security
against outstanding bank guarantees and a further GBP7m (31
December 2022: GBP6m) is pledged against various other commitments
of the Group.
Cash flows on debt relate to movements in the revolving credit
facility and other borrowings. These net movements align with the
activities reported in the cash flow statement.
The following amounts are included in the Group's consolidated
financial statements in respect of its leases:
Six months Six months
ended ended
30 June 30 June
GBPm 2023 2022
--------------------------------------------------- ----------- -----------
Depreciation charge for right-of-use assets (466) (476)
Principal lease liability repayments (480) (503)
Interest expense on lease liabilities (136) (112)
Expense relating to short-term leases 1 -
Expense relating to leases of low-value assets
that are not shown above as short-term leases - 2
Expenses relating to variable lease payments
not included in lease liabilities(1) 38 31
Total cash outflow for leases comprising interest
and capital payments(1) (616) (615)
Additions to right-of-use assets 178 179
Acquired right-of-use assets 9 2
Interest income on net lease investment 4 3
Principal payments received from net lease
investment 27 14
----------------------------------------------------- ----------- -----------
(1) Total cash outflows of GBP654m (2022: GBP646m) for leases,
including variable payments of GBP38m (2022: GBP31m), were incurred
in the period.
Note 10: Financial instruments
The fair values of financial assets and financial liabilities,
together with the carrying amounts included in the consolidated
statement of financial position, are as follows:
As at 30 June 2023 As at 31 December 2022
GBPm Amortised cost Fair value Amortised cost Fair value
------------------------------------------- -------------- ---------- -------------- ----------
Cash and cash equivalents 124 - 161 -
Trade and other receivables(1) 962 - 767 -
Other long-term receivables 53 - 57 -
Derivative financial liabilities - - - -
Convertible bond (323) - (318) -
Bank loans and corporate borrowings (440) - (266) -
Other loans (19) - (289) -
Contingent consideration on acquisitions - (1) - (2)
Deferred consideration on acquisitions (4) - (6) -
Trade and other payables (1,465) - (1,198) -
Other long-term payables (5) - (7) -
-------------------------------------------- -------------- ---------- -------------- ----------
(1,117) (1) (1,099) (2)
------------------------------------------- -------------- ---------- -------------- ----------
(1) (Excluding prepayments.)
The undiscounted cash flow and fair values of these instruments
is not materially different from the carrying value.
There has been no change in the classification of financial
assets and liabilities, the methods and assumptions used in
determining fair value and the categorisation of financial assets
and liabilities within the fair value hierarchy from those
disclosed in the annual report for the year ended 31 December
2022.
While the Group continues to monitor liquidity risk on a basis
consistent to the approach set out on page 163 of the 2022 Annual
Report and Accounts. The Group also assessed the recoverability of
trade receivables, with an increase in expected credit losses of
GBP10m recorded during the period (as at 30 June 2022: a decrease
of GBP10m).
Although the Group has net current liabilities of GBP1,649m (31
December 2022: GBP1,868m), the Group does not consider that this
gives rise to a liquidity risk. A large proportion of the net
current liabilities comprise non-cash liabilities such as deferred
revenue which will be recognised in future periods through the
income statement. The Group holds customer deposits of GBP461m
(December 2022: GBP447m) which are spread across a large number of
customers and no deposit held for an individual customer is
material. Therefore, the Group does not believe the balance
represents a liquidity risk.
The Group maintains a revolving credit facility provided by a
group of international banks. The amount of the facility is GBP875m
(2022: GBP750m) with a final maturity in November 2025 with an
automatic extension until March 2026 given certain conditions are
met. As at 30 June 2023, GBP145m was available and undrawn under
this facility
(as at 30 June 2022: GBP162m).
The GBP875m revolving credit facility is subject to financial
covenants which include interest cover and net debt to EBITDA
ratio. The Group continued to operate in compliance with the
covenants agreed with the lenders. It is concluded that the
amendment to the facility represents a non-substantial debt
modification in accordance with
IFRS 9.
A GBP330m bridge facility for the Instant acquisition was repaid
in full in June 2023.
In December 2020 the Group issued a GBP350m convertible bond,
which is due for repayment in 2027 if not previously converted into
shares. If the conversion option is exercised by the holder of the
option, the issuer has the choice to settle by cash or equity
shares in the Group. The holders of the bond have the right to put
the bonds back to the Group in 2025 at par. The bond carries a
fixed coupon of 0.5% per annum. In accordance with IFRS, the bond
liability is split between corporate borrowings (debt) and a
derivative financial liability. At the date of issue, the GBP350m
was bifurcated at GBP298m and GBP52m between corporate borrowings
(debt) and a derivative financial liability respectively. As at 30
June 2023, the debt was valued at its amortised cost, GBP323m (31
December 2022: GBP318m) and the derivative liability at its fair
value is GBPnil (31 December 2022: GBPnil). A mark-to-market gain
of GBPnil (2022: GBP27m), on the derivative liability, was
recognised through finance income.
The fair value of the derivative element of the convertible bond
has been calculated with reference to unobservable credit spreads
and is considered to be a level 3 instrument. To calculate the fair
value of the derivative element of the convertible bond, a
convertible bond model has been applied. The convertible bond model
provides a price for the option as well as a price for the bond
component. An external valuation is obtained, where judgement is
applied in determining the fair credit spread and volatility
assumptions to use in the valuation. The model then provides a fair
value output for the embedded option which accurately reflects the
trading dynamics of the convertible in which it is embedded.
Note 11: Share-based payment
During the period, the Group awarded 1,069,669 options (2022:
1,687,450) under the Share Option Plan, 1,711,795 share awards
(2022: 1,289,217) under the Performance Share Plan and 180,752
share awards (2022: 171,415) under the Deferred Share Bonus Plan.
During the period, a charge of GBP2m was recognized (2022:
GBP1m).
Note 12: Bank guarantees and contingent liabilities
The Group has bank guarantees and letters of credit held with
certain banks, predominantly in support of leasehold contracts with
a variety of landlords, amounting to GBP320m (31 December 2022:
GBP337m). There are no material lawsuits pending against the
Group.
Note 13: Related parties
The nature of related parties as disclosed in the consolidated
financial statements for the Group for the year ended
31 December 2022 has not changed.
As at 31
As at 30 December
GBPm June 2023 2022
---------------------------------------------- ---------- ---------
Management fees received from related parties 2 6
---------------------------------------------- ---------- ---------
Amounts owed by related party 77 51
Amounts owed to related party (71) (49)
---------------------------------------------- ---------- ---------
As at 30 June 2023, no amounts due to the Group have been
provided for (31 December 2022: GBPnil).
During the period the Group acquired goods and services from a
company indirectly controlled by a director of the Group amounting
to GBPnil (31 December 2022: GBP19,015). There was a GBP4,203
balance outstanding at the end of the period (31 December 2022:
GBP5,217).
Compensation paid to the key management personnel of the Group
will be disclosed in the Group's Annual Report and Accounts for the
year ending 31 December 2023.
Note 14: Acquisitions of subsidiaries and non-controlling
interest
Current period acquisition
During the six months ended 30 June 2023, the Group made
individually immaterial acquisitions for a total consideration of
GBP8m.
Provisional
GBPm Book value fair value
------------------------------------- ---------- -----------
Net assets acquired
Right-of-use assets 9 9
Other property, plant and equipment 5 5
Cash 2 2
Other current and non-current assets 7 7
Lease liabilities (9) (9)
Current liabilities (6) (6)
8 8
Goodwill arising on acquisition -
------------------------------------- ---------- -----------
Total consideration -
Less deferred consideration -
Cash flow on acquisition
Cash paid 8
------------------------------------- ---------- -----------
Less: cash acquired (2)
------------------------------------- ---------- -----------
Net cash outflow 6
------------------------------------- ---------- -----------
The provisional goodwill arising on this 2023 acquisition
reflects the anticipated future benefits IWG can obtain from
operating the businesses more efficiently, primarily through
increasing occupancy and the addition of value-adding products and
services.
If the above acquisition had occurred on 1 January 2023, the
revenue and net retained profit arising from this acquisition would
have been GBP5m and GBPnil respectively. In the period, the equity
acquisition contributed revenue of GBP4m and a net retained profit
of GBPnil.
The acquisition costs associated with this transaction were
GBPnil, recorded within administration expenses in the consolidated
income statement.
There was no contingent consideration recognised on the
acquisition and no contingent consideration was paid in the current
period. Deferred consideration of GBP1m was paid during the current
period with respect to previous period acquisitions. There are
deferred considerations of GBP4m and contingent considerations of
GBP1m held on the Group's balance sheet as at 30 June 2023.
Prior period acquisition
During the six months ended 30 June 2022, the Group completed
the acquisition of The Instant Group for a total consideration of
GBP324m.
The Instant Group
Provisional
fair Final fair
value recognised value recognised
GBPm Book value on acquisition on acquisition
------------------------------------- ---------- ----------------- -----------------
Net assets/(liabilities) acquired
Intangible assets 2 82 141
Right-of-use assets 2 2 3
Other property, plant and equipment 15 15 15
Net investment in finance leases 177 177 177
Cash 25 25 25
Other current and non-current assets 64 64 64
Lease liabilities (171) (171) (172)
Provisions due within one year (7) (7) (7)
Current liabilities (111) (107) (105)
(4) 80 141
Goodwill arising on acquisition 241 183
------------------------------------- ---------- ----------------- -----------------
Total consideration 321 324
Less deferred consideration - -
Cash flow on acquisition
Cash paid 321 324
------------------------------------- ---------- ----------------- -----------------
Less: cash acquired (25) (25)
------------------------------------- ---------- ----------------- -----------------
Net cash outflow 296 299
------------------------------------- ---------- ----------------- -----------------
The goodwill arising on this reflects the future benefits
anticipated by the IWG Group.
If the above acquisition had occurred on 1 January 2022, the
revenue and net retained loss arising from this acquisition would
have been GBP57m and GBP6m respectively in the period to 30 June
2022. In the period to 30 June 2022, the equity acquisition
contributed revenue of GBP40m and a net retained loss of GBP4m.
The acquisition costs associated with this transaction were
GBP11m, recorded within administration expenses in the consolidated
income statement.
There was no contingent consideration arising on the
acquisition. Contingent consideration of GBP5m was paid during the
prior period with respect to milestones achieved on previous period
acquisitions. There are deferred considerations of GBP4m and
contingent considerations of GBP3m held on the Group's balance
sheet as at 30 June 2022. No adjustments have been made to the fair
values ascribed to this acquisition in the six months ended 30 June
2023.
Non-controlling interests
In a separate transaction on 8 March 2022, the Group sold a
13.4% non-controlling equity interest in a subsidiary of the Worka
structure for a consideration of GBP53m.
Note 15: Events after the balance sheet date
There were no significant events occurring after 30 June 2023
affecting the condensed interim financial information of the
Group.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
For the half year ended 30 June 2023
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct
Authority ("the UK FCA").
In preparing the condensed set of financial statements included
within the half-yearly financial report, the Directors are required
to:
-- prepare and present the condensed set of financial statements
in accordance with IAS 34 Interim Financial Reporting as adopted
for use in the UK and the DTR of the UK FCA;
-- ensure the condensed set of financial statements has adequate disclosures;
-- select and apply appropriate accounting policies; and
-- make accounting estimates that are reasonable in the circumstances.
The Directors are responsible for designing, implementing and
maintaining such internal controls as they determine is necessary
to enable the preparation of the condensed set of financial
statements that is free from material misstatement whether due to
fraud or error.
We confirm that to the best of our knowledge:
1. the condensed set of consolidated financial statements
included within the half-yearly financial report of IWG plc for the
six months ended 30 June 2023 ("the interim financial information")
which comprises which comprises the Interim Consolidated Income
Statement, the Interim Consolidated Statement of Comprehensive
Income, the Interim Consolidated Balance Sheet, the Interim
Consolidated Statement of Changes in Equity, the Interim
Consolidated Statement of Cash Flows and the related explanatory
notes, have been presented and prepared in accordance with IAS 34,
Interim Financial Reporting, as adopted for use in the UK, and the
DTR of the UK FCA.
2. The interim financial information presented, as required by the DTR of the UK FCA, includes:
-- an indication of important events that have occurred during
the first 6 months of the financial year, and their impact on the
condensed set of financial statements;
-- a description of the principal risks and uncertainties for
the remaining 6 months of the financial year;
-- related parties' transactions that have taken place in the
first 6 months of the current financial year and that have
materially affected the financial position or the performance of
the enterprise during that period; and
-- any changes in the related parties' transactions described in
the last annual report that could have a material effect on the
financial position or performance of the enterprise in the first 6
months of the current financial year.
On behalf of the board
Mark Dixon Charlie Steel
Chief Executive Officer Chief Financial Officer
8 August 2023
This half yearly announcement contains certain forward-looking
statements with respect to the operations of IWG plc. These
statements and forecasts involve risk and uncertainty because they
relate to events and depend upon circumstances that may or may not
occur in the future. There are a number of factors that could cause
actual results or developments to differ materially from those
expressed or implied by these forward-looking statements and
forecasts. Nothing in this announcement should be construed as a
profit forecast.
KPMG Telephone +353 1 410 1000
Audit Fax +353 1 412 1122
1 Stokes place Internet www.kpmg.ie
St. Stephen's Green
Dublin 2
D02 DE03
Ireland
Independent Review Report to IWG plc ('the Entity')
Conclusion
We have been engaged by the Entity to review the Entity's
condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 June 2023
which comprises the Interim Consolidated Income Statement, the
Interim Consolidated Statement of Comprehensive Income, the Interim
Consolidated Balance Sheet, the Interim Consolidated Statement of
Changes in Equity, the Interim Consolidated Statement of Cash Flows
and the related explanatory notes ('the condensed consolidated
interim financial information').
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial statements in the half-yearly financial report for the
six months ended 30 June 2023 is not prepared, in all material
respects in accordance with International Accounting Standard 34
Interim Financial Reporting ("IAS 34") as contained in the UK
adopted International Accounting Standards and the Disclosure
Guidance and Transparency Rules ("the DTR") of the UK's Financial
Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We read the other information contained in the half-yearly
financial report to identify material inconsistencies with the
information in the condensed set of consolidated financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the review. If
we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention that causes us to believe that the directors have
inappropriately adopted the going concern basis of accounting, or
that the directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the Entity to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
Entity will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The directors are responsible for preparing the condensed set of
consolidated financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted for use in
the UK.
The annual financial statements of the Entity for the year ended
31 December 2022 are prepared in accordance with UK-adopted
international accounting standards.
In preparing the condensed set of consolidated financial
statements, the directors are responsible for assessing the
Entity's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the Entity or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to the Entity a conclusion on
the condensed set of consolidated financial statements in the
half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Entity in accordance with the
terms of our engagement to assist the Entity in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Entity those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Entity for our
review work, for this report, or for the conclusions we have
reached.
For and on behalf of KPMG 8 August 2023
Chartered Accountants, Statutory Audit firm
1 Stokes Place
St. Stephen's Green
Dublin 2
D02 DE03
Ireland
Alternative performance measures
The Group reports certain alternative performance measures
('APMs') that are not required under International Financial
Reporting Standards ('IFRS') which represents the generally
accepted accounting principles ('GAAP') under which the Group
reports. The Group believes that the presentation of these APMs
provides useful supplemental information, when viewed in
conjunction with our IFRS financial information as follows:
-- to evaluate the historical and planned underlying results of our operations;
-- to set director and management remuneration; and
-- to discuss and explain the Group's performance with the investment analyst community.
None of the APMs should be considered as an alternative to
financial measures derived in accordance with GAAP. The APMs can
have limitations as analytical tools and should not be considered
in isolation or as a substitute for an analysis of our results as
reported under GAAP. These performance measures may not be
calculated uniformly by all companies and therefore may not be
directly comparable with similarly titled measures and disclosures
of other companies.
Please refer to page 188 of the IWG plc 2022 Annual Report and
Accounts for further details.
Additional information has been provided on the following pages
to bridge the statutory information reported within this half-year
announcement with the performance presented as part of the Chief
Executive Officer's and Chief Financial Officer's review.
Reconciliation of alternative performance measurement
adjustments recognised
The purpose of these unaudited pages is to provide a
reconciliation from the 2023 financial results to the alternative
performance measures in accordance with the previous pre-IFRS 16
policies adopted by the Group, and thereby give the reader greater
insight into the impact of IFRS 16 on the results of the Group. The
recognition of these adjustments will not impact the overall cash
flows of the Group or the cash generation per share.
1. Rent income and finance income
Under IFRS 16, where the sublease is assessed with reference to
the right-of-use assets arising from the head lease, conventional
rent income is not recognised in the profit or loss. The receipts
associated with this income instead are used to determine the net
investment in finance leases noted above. The net investment in
finance leases is measured in subsequent periods using the
effective interest rate method, based on the applicable interest
rate. The related finance income arising on subsequent measurement
is recognised directly through profit or loss.
2. Rent expense and finance costs
Under IFRS 16, conventional rent charges are not recognised in
the profit or loss. The payments associated with these charges
instead form part of the lease payments used in calculating the
right-of-use assets and related lease liabilities noted above. The
lease liabilities are measured in subsequent periods using the
effective interest rate method, based on the applicable interest
rate. The related finance costs arising on subsequent measurement
are recognised directly through profit or loss.
3. Depreciation, lease payments and lease receipts
Depreciation on the right-of-use assets recognised, is
depreciated over the life of the lease on a straight-line basis,
adjusted for any period between the lease commencement date and the
date the related centre opens, reflecting the lease-related costs
directly incurred in preparing the business centre for trading.
Lease payments on head leases reduce the lease liabilities
recognised in the balance sheet. Lease receipts on subleases reduce
the net investment in finance leases recognised in the balance
sheet.
4. Other adjustments
These adjustments primarily reflect the impairment of the
right-of-use assets and other property, plant and equipment as well
as the reversal of the closure cost provision on a pre-IFRS 16
basis. Certain parking, storage and brokerage costs are also
reversed, as they form part of the lease payments.
Consolidated EBITDA
Period ended 30 June 2023
Other Pre-IFRS
GBPm As reported Rent income Rent expense Depreciation adjustments 16
---------------------------- ----------- ----------- ------------ ------------ ------------ ----------
EBITDA 687 29 (543) - 3 176
Depreciation on property
plant and equipment (567) - - 408 - (159)
Amortisation of intangible
assets (26) - - - - (26)
----------------------------- ----------- ----------- ------------ ------------ ------------ ----------
Operating profit/(loss) 94 29 (543) 408 3 (9)
Operating profit from
discontinued operations - - - - - -
---------------------------- ----------- ----------- ------------ ------------ ------------ ----------
Operating profit/(loss)
from continuing operations 94 29 (543) 408 3 (9)
----------------------------- ----------- ----------- ------------ ------------ ------------ ----------
(1) (Includes GBP27m of net impairment of property, plant and
equipment including right-of-use assets.)
Period ended 30 June 2022
Other Pre-IFRS
GBPm As reported Rent income Rent expense Depreciation adjustments 16
---------------------------- ----------- ----------- ------------ ------------ ------------ ----------
EBITDA 604 23 (508) - 8 127
Depreciation on property
plant and equipment (559) - - 408 - (151)
Amortisation of intangible
assets (8) - - - - (8)
----------------------------- ----------- ----------- ------------ ------------ ------------ ----------
Operating profit/(loss) 37 23 (508) 408 8 (32)
Operating profit from
discontinued operations - - - - - -
Operating profit/(loss)
from continuing operations 37 23 (508) 408 8 (32)
----------------------------- ----------- ----------- ------------ ------------ ------------ ----------
(1) (Includes GBP15m of net reversals of impairment of property,
plant and equipment including right-of-use assets.)
Partner contributions receivables
Six months Six months
ended ended
30 June 30 June
GBPm References 2023 2022
------------------------------------- ------------------------- ---------- ----------
Opening partner contribution
receivables 23 30
Statement of cash flows,
Net partner contributions recognised p15 22 24
---------- ----------
Maintenance partner contributions CFO review, p8 - 5
Growth partner contributions CFO review, p8 22 19
---------- ----------
Settled in the period (18) (30)
Exchange differences (1) 2
---------------------------------------------------------------- ---------- ----------
Closing partner contribution
receivables 26 26
---------------------------------------------------------------- ---------- ----------
Working capital
Six months ended 30 June 2023
Rent income
& expense
and finance Depreciation
income and lease Other Pre-IFRS
GBPm References As reported & costs payments adjustments 16
--------------------------- ---------------- ----------- ------------ ------------ ------------ --------
Statement
Partner contributions of cash flows,
- reimbursement p15 6 - (6) - -
(Increase)/decrease Statement
in trade of cash flows,
and other receivables p15 (239) 1 - - (238)
Increase/(decrease) Statement
in trade of cash flows,
and other payables p15 312 382 (431) 10 273
--------------------------- ---------------- ----------- ------------ ------------ ------------ --------
Analysed as: 79 383 (437) 10 35
--------------------------------------------- ----------- ------------ ------------ ------------ --------
Working capital (excluding
amortisation of partner CFO review,
contributions) p8 61
Working capital related
to the amortisation CFO review,
of partner contributions p8 (48)
Growth-related partner CFO review,
contributions p8 22
--------------------------- ---------------- ----------- ------------ ------------ ------------ --------
Six months ended 30 June 2022
Rent income
& expense
and finance Depreciation
income and lease Pre-IFRS
GBPm References As reported & costs payments Other adjustments 16
--------------------------- ---------------- ----------- ------------ ------------ ----------------- --------
Statement
Partner contributions of cash flows,
- reimbursement p15 6 - (6) - -
Statement
Increase in trade and of cash flows,
other receivables p15 (93) (76) - - (169)
Increase/(decrease) Statement
in trade of cash flows,
and other payables p15 136 458 (466) (3) 125
--------------------------- ---------------- ----------- ------------ ------------ ----------------- --------
Analysed as: 49 382 (472) (3) (44)
--------------------------------------------- ----------- ------------ ------------ ----------------- --------
Working capital (excluding
amortisation of partner CFO review,
contributions) p8 (13)
Working capital related
to the amortisation CFO review,
of partner contributions p8 (50)
Growth-related partner CFO review,
contributions p8 19
--------------------------- ---------------- ----------- ------------ ------------ ----------------- --------
Capital expenditure
Six months ended 30 June 2023
Rent income
& expense
and finance
income Pre-IFRS
GBPm References As reported & costs 16
------------------------------- ------------------- ----------- ------------ ----------
Purchase of property, Statement of cash
plant and equipment flows, p15 (79) (2) (81)
Purchase of intangible Statement of cash
assets flows, p15 (19) - (19)
------------------------------- ----------------------- ----------- ------------ --------
Total capital expenditure (98) (2) (100)
-------------------------------------------------------- ----------- ------------ --------
Net capital Partner Gross capital
GBPm References expenditure contributions expenditure
----------------------------------- ------------------- ------------ -------------- -------------
Maintenance capital expenditure CFO review, p8 (42) - (42)
Growth capital expenditure CFO review, p8 (34) (22) (56)
Capitalised rent related
to centre openings CFO review, p8 (2) - (2)
----------------------------------- ----------------------- ------------ -------------- -------------
(78) (22) (100)
------------------------ --------------------------------- ------------ -------------- -------------
Six months ended 30 June 2022
Rent income
& expense
and finance
income Pre-IFRS
GBPm References As reported & costs 16
--------------------------------- ------------------- ----------- ------------ --------
Purchase of property, plant Statement of cash
and equipment flows, p15 (109) (3) (112)
Statement of cash
Purchase of intangible assets flows, p15 (20) - (20)
--------------------------------- ----------------------- ----------- ------------ --------
Total capital expenditure (129) (3) (132)
---------------------------------------------------------- ----------- ------------ --------
Net capital Partner Gross capital
GBPm References expenditure contributions expenditure
----------------------------------- ------------------- ------------ -------------- -------------
Maintenance capital expenditure CFO review, p8 (48) (5) (53)
Growth capital expenditure CFO review, p8 (57) (19) (76)
Capitalised rent related to
centre openings CFO review, p8 (3) - (3)
----------------------------------- ----------------------- ------------ -------------- -------------
(108) (24) (132)
------------------------ --------------------------------- ------------ -------------- -------------
Existing estate and openings
Existing estate by type
As at 30 As at 30
June 2023 June 2022
--------------------- ---------- ----------
Conventional 2,084 2,144
Variable rent 773 739
Managed partnerships 135 61
Franchise 326 310
Joint ventures 80 81
--------------------- ---------- ----------
Total 3,398 3,335
--------------------- ---------- ----------
New locations opened by type
As at 30 As at 30
June 2023 June 2022
--------------------- ---------- ----------
Conventional 17 18
Variable rent 38 17
Managed partnerships 56 9
Franchise 20 25
Joint ventures 2 1
--------------------- ---------- ----------
Total 133 70
--------------------- ---------- ----------
Glossary
Adjusted EBITDA
Pre-IFRS 16 EBITDA excluding adjusting items.
Adjusting items
Adjusting items reflects the impact of adjustments, both incomes
and costs not indicative of the underlying performance, which are
considered to be significant in nature and/or size.
EBIT
Earnings before interest and tax.
EBITDA
Earnings before interest, tax, depreciation and
amortisation.
EPS
Earnings per share.
Expansions
A general term which includes new business centres established
by IWG and acquired centres in the year.
Franchisee
The owners of business centres operating under a formal
franchise arrangement.
Growth capital expenditure
Capital expenditure in respect of centres which opened during
the current or prior financial period.
Growth estate
Comprises centres which opened during the current or prior
financial year.
Growth-related partner contributions
Partner contributions received in respect of centres which
opened during the current or prior financial period.
Like-for-like
The financial performance from centres owned and operated for a
full 12-month period prior to the start of the financial year,
which therefore have a full-year comparative.
Maintenance capital expenditure
Capital expenditure in respect of centres owned for a full
12-month period prior to the start of the financial year and
operated throughout the current financial year, which therefore
have a full-year comparative.
Maintenance-related partner contributions
Partner contributions received in respect of centres owned for a
full 12-month period prior to the start of the financial year and
operated throughout the current financial year, which therefore
have a full-year comparative.
Net debt
Operations cash and cash equivalents, adjusted for both short
and long--term borrowings, lease liabilities and net investments in
finance leases.
Net financial debt
Operations cash and cash equivalents, adjusted for both short
and long--term borrowings.
Net growth capital investment
Growth capital expenditure net of growth-related partner
contributions.
Network rationalisation
Network rationalisation for the current year is defined as a
centre that ceases operation during the period from 1 January to
December of the current year. Network rationalisation for the prior
year comparative is defined as a centre that ceases operation from
1 January of the prior year to December of the current year.
Occupancy
Occupied square feet divided by available square feet expressed
as a percentage.
Open centre revenue
Revenue for all centres excluding closures.
Operating profit/(loss) before growth
Reported operating profit/(loss) adjusted for the gross profit
impact arising from centres opening in the preceding and current
years, and centres to be opened in the subsequent year.
Partners
Owners or landlords of business centres, operating under a
management lease arrangement.
Pre-IFRS 16 basis
IFRS accounting standards effective as at the relevant reporting
date with the exception of IFRS 16.
Revenue development
Revenue programme on a continuing basis, for the last four
years.
System wide revenue
Total reported revenue generated, including revenue from
franchise, managed centre and joint-venture partners, but excluding
fee income.
TSR
Total shareholder return.
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END
IR PRMPTMTAMBFJ
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August 08, 2023 02:00 ET (06:00 GMT)
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