Regus : Annual Financial Report Announcement

28 February 2017

IWG plc - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2016

A transformational year:

Improved efficiency, strong profitability and good cash generation, increased dividend and improved returns

IWG plc,the global leader in the fast-growing Workspace-as-a-Service (WaaS) sector,today announces its annual results for the year ended 31 December 2016.

Key highlights:

· Improved post-tax cash returns on pre-12 investments to 25.1%

· Group revenue up 5.5% to £2,233.4m and underlying operating profit up 14% to £186.2m

· Overheads reduced 13%; down 300bp as a percentage of revenue to 11.7%

· Generated £286.1m or 30.8p per share of cash in 2016 (before net growth capital expenditure, share buybacks, dividends and disposal proceeds), an increase of 33%.

· Underlying earnings per share up 34% to 15.0p

· Conservative balance sheet maintained with net debt of £151.3m (0.4x underlying net debt:EBITDA)

· Key banking facility increased to £550.0m and maturity extended to 2021, with option to extend to 2023

· 13% increase in full year dividend to 5.1p (2015 : 4.5p)

· Current trading in-line with management expectations

(i) Calculated as: EBITDA less amortisation of partner contributions, less tax based on EBIT, less net maintenance capital expenditure / growth capital less partner contribution. Returns based on those locations open on or before 31 December 2011.

(ii) At constant currency

(iii) See note 6 to the accounts

Operational highlights

· Returns on new investment benefiting from operational scale and efficiency

· 6% increase in the network. 231 new locations in 2016.

· Net growth capital expenditure of £162.3m

· Now in 2,926 locations, across 1,029 towns and cities in over 100 countries

· Continued investment in innovating new products and services and developing new location formats

· New city cluster field structure implemented in 2016

· Key focus on risk management

· IWG plc introduced as the new holding company of the Group

Mark Dixon, Chief Executive of IWG plc, said:

'Overall, our focus during 2016 - particularly in the first quarter - was on standardising our business to make it more easily scalable during 2017 and the years ahead. As such, 2016 was a transformative year that I am confident will underpin strong progress from the first half of 2017.

I am pleased with the progress we have made in the last year, and am confident that during 2017 and beyond we will continue to benefit from the significant structural growth opportunities that the WaaS sector offers. As we expand further through accumulating new sites, strengthening our commitment to partnering with the global property industry, we will further extend our existing competitive advantage. I am confident that our improved cost structure will continue to deliver higher productivity and enhanced efficiency and deliver further benefits as we scale.

Above all, I believe that our strengthening leadership position, our commitment to innovation and the flexibility we bring to fulfilling the needs of our customers means that we remain very well placed to deliver attractive returns for shareholders.

Looking ahead to 2017, we have started to see a pick-up in sales activity in some of our key markets, which is encouraging and, we believe, validates the significant actions we have taken during 2016. Although it is still early in the new financial year and sales activity levels take time to feed through, we anticipate an improvement in performance through the course of the year. Overall, the trading outlook for 2017 remains in line with management's expectations.'

Details of results presentation

Mark Dixon, Chief Executive Officer, and Dominik de Daniel, Chief Financial Officer and Chief Operating Officer, are hosting a presentation today for analysts and investors at 10.00am. The presentation will take place at CityPoint, 1 Ropemaker Street, EC2Y 9HT.

For those unable to attend the presentation, please contact Jessica Ayres to obtain details for the webcast or conference call: jayres@brunswickgroup.com or +44 (0) 20 7396 7466

For further information, please contact:

Chairman's Statement

A year of substantial development

Once again, we have delivered against our strategy as demonstrated by a strong set of financial results as well as the further growth of our business and our global network. It was particularly pleasing to see our concerted efforts to improve efficiency result in lower overheads whilst we also continued significant growth in the number of our locations.

Revenue for the 2016 financial year increased to £2,233.4m (2015: £1,927.0m), an increase of 5.5% at constant currency (up 15.9% at actual rates). With the improved operational efficiency, underlying operating profit grew 14% at constant currency to £186.2m (a 29% improvement at actual rates). Underlying profit before tax increased 34% to £174.7m. Our cash performance was again strong. Cash flow before growth capital expenditure, share repurchases and dividends increased 33% to £286.1m. This strong financial performance has driven a further increase in our post-tax cash returns on net growth investment.

These strong results were achieved alongside further strategic development of our business, growing our network with the addition of 231 new locations, refining our formats to benefit our customers, introducing innovative new solutions, driving operational efficiencies through initiatives including a new city clustered field structure and capital efficiencies by focusing on partnering with property owners. Throughout all these activities, our strong cash generation and disciplined investment approach have once more enabled us to maintain a robust capital structure.

New name

One highly visible change that took place during the year was the change in name to IWG plc (International Workplace Group) for the new holding company of the Group. There were several reasons for this move which supports our provision of flexible workplace solutions under multiple brands, including Regus, Spaces, Signature, OpenOffice, Kora and MOS. In the Board's view, while Regus will remain one of our flagship brands, we can better serve customers and optimise growth and returns by offering a segmented portfolio of workplace formats and solutions.

IWG is a Jersey-incorporated company with its head office in Switzerland. The choice of Switzerland reflects, among other factors, the increasing presence of senior management located in Switzerland as the Group continues to streamline its organisation in order to achieve synergies of scale while developing worldwide.

Strategy

Our strategy uniquely positions us to both drive and benefit from the exciting developments and growth in the flexible workspace market. We have continued our efforts to enhance our operating model with a focus on simplicity, scalability, people, cost control, risk management and great customer experience.

We are actively pursuing our partnering approach to investment, in which we will increasingly become the facilitator between the property investor and the end customer. We made good progress in this area during 2016, targeting property owners with a view to partnering with them in the expansion of our national networks across the world and entry into new markets. This will have the effect of improving returns and reducing risk across the business. Our approach to enhancing property returns will also allow us to invest on an opportunistic basis directly in properties where the return is attractive.

Our large global footprint gives us the ability to constantly review our investments in growth by region, by country and by city. Our agile approach means that we can rapidly adjust our investments based on evolving market conditions.

Board

I would like to thank my Board colleagues for their valuable contributions during the year, which helped the Group deliver another strong set of results for the benefit of our customers, our business partners, our employees and our shareholders.

On 17 February 2017 we announced that Lance Browne has resigned as a Non-Executive Director effective from the annual general meeting on 16 May 2017. I wish to thank Lance for his wisdom, insight and support in his role as Senior Independent Director as well as his many contributions to the Group's overall success. I look forward to working with François Pauly who will be proposed for the role of Senior Independent Director with effect from Lance's resignation.

People

Each year our success is driven by the commitment and skill of our talented and experienced people. An engaged and dedicated workforce is vital to us achieving our global growth aspirations. We recently concluded our annual senior leadership conference, with active participation of almost 200 colleagues from around the world. The capabilities and enthusiasm displayed there renewed my confidence in our ability to continue to execute our strategy. Our success is testament to our people in every market and at every level. I would like to thank them on behalf of the Board for their strong performance and implementation of significant initiatives in what has been a transformational year for the Group, solidly positioning IWG for future growth.

Dividend

We continue our commitment to a sustainable and progressive dividend in recognition of our confidence in the long-term performance of the business and the strength of the Group's financial position. The Board is recommending a 15% increase in the final dividend to 3.55p. Subject to the approval of shareholders at the 2016 AGM, this will be paid on 26 May 2017 to shareholders on the register at the close of business on 28 April 2017. This represents an increase in the full-year dividend of over 13% to 5.10p (2015: 4.50p).

Douglas Sutherland

Chairman

28 February 2017

Chief Executive Officer's review

Another year of high-quality growth

During 2016, we successfully expanded our business as the market leader in one of the fastest growing sectors of the global commercial property industry. This is the flexible workspace or 'Workspace-as-a-Service' (WaaS) sector, which we pioneered under our long-established Regus brand and will continue to lead under our new holding company, IWG plc (International Workplace Group).

A fast-evolving market sector

The WaaS sector is a vibrant, modernising force in workplace provision across the world. Technology increasingly frees organisations and individuals from the shackles of the fixed lease, allowing them to work in more productive and satisfying ways.

Quite simply, companies don't need their people to be in one place anymore and, as generations emerge that have only ever known the liberating effects of technology, the wide availability of flexible workspaces is enabling a way of working that is continuing to grow rapidly.

A 2016 research paper from J.P. Morgan states, 'we believe that the impact of the internet on transaction costs will result in a greater number of smaller firms/tenants seeking divisible, modular and flexible office space. Concurrently, we expect larger firms will downsize, using technology such as Artificial Intelligence, machine learning and algorithms, while opening up previously closed networks to engage in the 21st century economy.'

The paper also states: 'the long lease to a large single tenant is at risk … and business models not positioned to embrace the flexible workspace era will risk being underexposed to a quickly growing and vibrant part of the emerging office market.'

I could not agree more. In this new world, technology in the shape of increasing numbers of apps, VoIP (voice over internet protocol) solutions and instant messaging opportunities are making physical distance irrelevant. All that's required is a fast and stable internet connection. This is equally important to increasingly dispersed corporations and to the growing number of self-employed workers, who are looking for co-working spaces as an alternative to working exclusively from home.

Our investment case

At IWG, we are giving employers and employees what they want and need. We are the primary enablers of this revolution in how people are working globally. We have more flexible workspaces worldwide than anyone else, serving organisations of all sizes. We also have a strong and growing portfolio of brands to meet the needs of the market. And our economies of scale, years of experience, organisational agility and focus on customer needs make us less costly and easier to work with.

With the workplace revolution, our investment case continues to strengthen. We have detailed plans to extend our current lead, in existing and new markets across the world. We are increasingly positioned as the 'intermediary' that brings together our property-owner partners with end customers - supplying one with strong cash flow and the other with workspace flexibility and access to different formats. Our advantages are tangible and important: we can expand faster than our competitors; our operational efficiency is better and improving all the time as we work to streamline our management processes. The relevance and quality of our service offering is compelling.

These advantages - scale, maturity, brands, technological leadership, efficiency and agility - were all reflected in our financial performance during 2016, when we successfully achieved the increased revenue and reduced cost-base we targeted to deliver improved margins and returns.

Strong financial performance

The post-tax cash return on net growth investment from locations opened on or before 31 December 2011 improved to 25.1% from the 23.1% achieved in 2015 on the same estate. Rolling this estate forward one year, the 2016 post-tax cash return on net growth investment from locations opened on or before 31 December 2012 was 23.6% (2015: 21.5%).

Group revenue increased by 5.5% at constant currency to £2,233.4m (2015: £1,927.0m) (up 15.9% at actual rates).

Whilst we experienced a deceleration in revenue progression throughout the course of 2016, this reflected a number of factors including the base-line effect of prior year acquisitions and softening demand in certain geographic markets. We also took a more cautious and selective approach to growth and, in certain instances, sought to consolidate locations.

Although a higher level of closures has reduced Group revenues, it has been the right thing to do for the profitability of our business. This, together with the very strong control of overhead costs which actually reduced by 13% at constant currency, has delivered a 14% constant currency increase in underlying operating profit to £186.2m (2015: £144.8m) (up 29% at actual rates). Overheads as a percentage of revenues have reduced three percentage points from 14.7% to 11.7%, which is a strong performance and one on which we can continue to build.

During 2016 we invested £162.3m of net growth capital expenditure, adding a further 231 locations to the network, which stood at 2,926 locations at the end of the year. As expected this reflects a more selective approach to new location openings, increasing traction on partnering deals which result in less capital intensity of new openings and a significantly lower level of acquisition growth.

Group income statement

* After contribution from joint ventures

Converting profit into cash remains an attractive feature of our business model. We increased our cash flow before investment in growth capital expenditure, dividends and buying back shares by 33% to £286.1m (2015: £215.7m). This scale of cash generation more than funded our growth programme, the buyback of shares and the continuation of our progressive dividend policy. Consequently, our net debt position reduced from an opening position of £190.6m at 1 January 2016 to £151.3m at 31 December, 2016. This represents an underlying Group net debt to EBITDA leverage of 0.4 times, which is well below our internal 1.5 times limit and reflects the continuation of our prudent approach to the Group's capital structure.

Performance by region

This year's results represent an endorsement of our strategy and investment case, as IWG drives growth alongside greater overhead efficiency and improved returns. We added 231 new locations during the year and we selectively entered a new national market with Barbados. The rate of growth was, however, deliberately tempered in response to increased macro-economic and geopolitical uncertainties in certain geographies in order to maintain the quality of our new locations and returns on investment, with more partnering deals and the roll out of our Spaces format.

We also benefited from the scale and spread of our global footprint. In last year's report, for example, I referred to the need to be 'watchful' in our Asia Pacific region, due to the slowing Chinese economy. This did cause some challenges during 2016, which we successfully managed by taking early action and improving efficiencies across the Group.

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

* Centres open on or before 31 December 2014.

Americas

Mature revenues in the Americas, our largest region, declined 2.2% at constant currency to £826.2m (up 10.5% at actual rates). Total revenues for the region were up 4.8% at constant currency to £923.0m (up 18.5% at actual rates). This performance reflects a better relative result in the US offset by more pronounced weakness in other parts of the region, most notably in Mexico, Brazil and Canada which saw a further deceleration during the fourth quarter. Mexico has been a difficult market, with the weak currency impacting business activity, and Brazil has continued to struggle in a recessionary environment. In Canada our business has been affected by challenging market conditions around the oil industry, particularly in Western Canada.

Performance across the US was, however, mixed with several very good areas and some much weaker, as management were challenged with implementing the changes to the field structure across a very large business, which extended into the fourth quarter as anticipated. Although these moves have led to strong cost savings at the centre level, in the near-term these have been offset by the impact of some related distraction and the need to grow into the capacity that has been introduced in recent years through the growth programme.

Notwithstanding this, there has been a gradual improvement in sales activity and deals won since October. Whilst this is encouraging, and suggests the fourth quarter was a low point for our performance in the region, it does take a period of time for this to materialise in our revenues, so we would expect a steady rebuilding throughout the coming year.

Although the mature gross profit margin for the region declined from 24.3% to 22.8%, overhead cost savings have been material in the Americas. Average mature occupancy was 78.8% (2015: 81.0%).

We added 86 new locations into the region during the course of the year. We are expanding into more parts of the region geographically and rolling out our Spaces format. In total we had 1,212 locations in the Americas at 31 December 2016.

EMEA

EMEA experienced a mixed performance. Mature revenues for the region declined 2.2% at constant currency to £406.9m (up 9.2% at actual rates). Total revenues for EMEA increased 5.0% at constant currency to £476.8m (up 17.3% at actual rates). The mature gross profit margin improved from 24.6% to 25.6% and gross profit increased 2% on a constant currency basis. Overhead savings have been strong in the region and this has helped the operating profit performance. Mature occupancy increased from 76.4% to 78.5%. We added 80 locations to the network during 2016, including some small acquisitions towards the end of the year. At 31 December 2016 we had 794 locations in EMEA.

Trading across this diverse region has been mixed. Our overall performance in Northern and Southern Europe has been good. Russia, on the other hand, has been a very difficult market as a result of the economic environment and the weakness of the Rouble against the US dollar, and required significant reorganisation during the period. Turkey has also been a more challenging market, as too has been the Middle East region with a weak oil & gas industry.

We are now starting to see a gradual improvement in sales activity in several larger markets in Europe.

Asia Pacific

Mature revenues in Asia Pacific declined 2.7% at constant currency to £293.2m (up 10.4% at actual rates). Total revenues for the region were £363.2m, an increase of 10.6% at constant currency (up 25.6% at actual rates). Mature occupancy was 78.8% (2015: 79.4%) and the gross profit margin was maintained at 24.9%. While we still see a significant opportunity for long-term growth in this region, we approached 2016 with a little more caution and selectivity, with a particular focus on partnering deals. As a result, we added 54 new locations during 2016 compared to 146 in 2015. In total we had 590 locations across the region at 31 December 2016.

Individual market performances during the period have been varied. Our businesses in India and Hong Kong improved their performance and our business in Japan was stable and in line with the Group performance. We experienced a deceleration in growth in our businesses in China and Australia. Both these markets weakened throughout the year, leading to a very weak fourth quarter. The slowdown in growth in China has been well documented and similarly for Australia with its exposure to natural resources. Notwithstanding the external factors that have presented a challenge to some of our businesses in the region, we have taken early action to introduce changes to improve the management team in the region.

UK

Mature revenue in the UK declined 0.7% to £358.5m, which is a better performance than the 1.7% mature revenue decline in constant currency for the Group overall. The mature gross profit margin remained strong at 23.4% (2015: 23.3%), while mature occupancy reduced from 80.5% to 75.4%. This reduction partly reflects a 5% increase in available inventory and the decision to selectively increase pricing in certain locations. Total revenues in the UK increased 2.9% to £462.1m (2015: £449.2m). After a relatively stable performance for the first nine months, we started to experience some pressure on revenue growth in the fourth quarter. Another contributing factor to the decline in overall revenue growth in the UK has been the large number of location closures and the more selective approach to growth. In addition to complying with the Competition and Markets Authority ruling to dispose of certain acquired locations in the UK, we took the opportunity to consolidate and refresh some of our existing estate. This has given rise to a higher than normal number of closures. During 2016 we added 11 new locations but closed 28 locations. This reduced the number of UK locations from 347 to 330 at 31 December 2016. Although the closures had a negative impact on total revenues, they helped to improve the gross profit. The UK is a very operationally efficient business, and with its further contribution to the Group's strong overhead performance, operating profits increased significantly.

We believe our cautious approach to the UK market was absolutely the right thing to have done, although it has contributed to a more challenging short-term outlook for revenue growth.

Strategic direction

Our strategy directly addresses the clear drivers of growth in the flexible workspace market. Despite our status as the clear global market leader by some distance, the size of the market opportunity ahead and the relatively early stage in customer adoption of WaaS mean we have significant scope for growth. Even in our most mature market, the UK, there is substantial growth potential, while the USA, China and India between them offer scope to become far more significant parts of our global business.

To help us accelerate our progress towards our goals, we made some important changes to our business model during 2016, including:

· partnering with property owners and funders to bring investors together with our fast-growing customer base;

· educating business about the growing opportunities available within the WaaS sector; and

· accelerating the digitisation of our business to drive efficiencies and better service.

We are determined to lead and benefit from the disruptive power of digital technology and its impact on our industry.

As I have already said, we are committed to further improving our position as the global leader of the WaaS sector. And it almost goes without saying that to be relevant to corporations' and workers' needs, physical space must keep pace with technological change. This belief is at the heart of our business today.

We are not merely exploiting the disruptive impact of the digital revolution on traditional working practices. We are also using digital technologies to change how we operate and improve what we have to offer our customers.

This is why we are constantly developing new digital platforms, apps and customer communications. By doing this, and by expanding our global network of locations sited in the places people want to be, we are committed to staying ahead of any competition.

We demonstrated our organisational agility by focusing more closely than ever before on partnering with others in the property industry. This gathered pace during the second half of the year and partnering is set to take on a more important role in delivering our future development.

We placed great emphasis, particularly in the early months of 2016, on standardising our business and processes to enhance the scalability of our business as we focus on delivering high-quality growth. Cost reductions were also a helpful by-product of our work on re-engineering our field structure, in which we started using a city clustering approach to the local management of our locations. While this was primarily introduced to generate higher productivity and better customer service, it has also significantly improved the cost structure of the business. In fact, partly as a result of this initiative, our overhead costs fell by 13%, at constant currency, during 2016 despite a 6% increase in the size of the network.

Products and innovation

We continued to be active in innovation during 2016, thanks to our determination to offer customers the opportunity to become more productive, more quickly than ever before and at the lowest possible cost.

As a company built on giving employers and employees what they want, we are in constant communication with customers to identify new products and services that would help add value to their operations and streamline their interactions with us.

During 2016, such innovation extended beyond technology to embrace developments including:

· cutting-edge location designs that reflect what companies and employees are looking for, such as the co-working format;

· constant enhancements to our formats, to ensure we are offering bespoke environments to the different constituents of our market;

· an award-winning workplace recovery solution;

· developing digital access control solutions;

· a proactive approach to measuring customer satisfaction and implementing feedback in ever-improving service levels; and

· a simplified pricing model.

We believe this will help ensure we can support any organisation's workspace needs, anywhere in the world. And, by helping customers participate in shared communities, we are enabling them to extract more value from their relationship with us and one another through the co-promotion of their products and services.

Staying ahead of the game

Overall, our focus during 2016 - particularly in the first quarter - was on standardising our business to make it more easily scalable during 2017 and the years ahead. As such, 2016 was a transformative year that I am confident will underpin strong progress from the first half of 2017.

I am pleased with the progress we have made in the last year, and am confident that during 2017 and beyond we will continue to benefit from the significant structural growth opportunities that the WaaS sector offers. As we expand further through accumulating new sites, strengthening our commitment to partnering with the global property industry, we will further extend our existing competitive advantage. I am confident that our improved cost structure will continue to deliver higher productivity and enhanced efficiency and deliver further benefits as we scale.

Above all, I believe that our strengthening leadership position, our commitment to innovation and the flexibility we bring to fulfilling the needs of our customers means that we remain very well placed to deliver attractive returns for shareholders.

Looking ahead to 2017, we have started to see a pick-up in sales activity in some of our key markets, which is encouraging and, we believe, validates the significant actions we have taken during 2016. Although it is still early in the new financial year and sales activity levels take time to feed through, we anticipate an improvement in performance through the course of the year. Overall, the trading outlook for 2017 remains in line with management's expectations.

Mark Dixon

Chief Executive Officer

28 February 2017

Chief Financial Officer's review

Strong cost discipline driving profit growth, cash generation and attractive returns

This has been a year of significant transition, with many important changes implemented which we are confident will build further on the strong returns on investment the business has delivered during 2016. Our cost leadership has been enhanced and we have reduced overheads as a percentage of revenues by three percentage points to 11.7% and target further improvement.

Return on investment

Our strategic focus remains on driving returns that achieve our post-tax cash payback criteria, which typically is within four years. We have made further progress against this goal in 2016. For the 12 months to 31 December 2016, the Group delivered a record post-tax cash return on net growth investment of 25.1% in respect of locations opened on or before 31 December 2011 (up from 23.1% on the same estate for the 12 months to 31 December 2015). Moving the aggregated estate forward and incorporating the centres opened during 2012, the Group delivered a post-tax cash return on net growth investment of 23.6% in respect of all locations opened on or before 31 December 2012 (the equivalent return for the 12 months to 31 December 2015 on the same estate was 21.5%).

This very strong performance reflects the underlying progress in the profitability of the Group from the continued focus on efficiency and productivity, and the economies of scale on overheads that we enjoy as the Group continues to grow.

The table below shows the status of our centre openings by year of opening. There has been good progress in the development of returns for centres added in 2012, 2013, 2014 and 2015 as they continue to progress towards full maturity.

2016 Post-tax cash return on net investment by year group - 12 months to 31 December 2016

2015 Post-tax cash return on net investment by year group - 12 months to 31 December 2015

(1) These returns are based on the post-tax cash return divided by the net growth capital investment. The post-tax return is calculated as the EBITDA achieved, less the amortisation of any partner capital contribution, less tax based on the EBIT and after deducting maintenance capital expenditure. Net growth capital expenditure is the growth capital after any partner contributions. We believe this provides an appropriate and conservative measure of cash return.

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

Developing the network

We continued to grow our unrivalled network and this remains a strategic priority. Increasing the depth and breadth of our geographic scope, and addressing different styles of working and price points, is a major differentiator for IWG and provides a competitive advantage as well as building further resilience into the business. However, we rightly approached 2016 with a high level of vigilance. We have always maintained a sharp focus on our investment decision-making, reflecting its critical importance to maintaining the strong returns into the future with our new investments. Notwithstanding this, we were even more selective during 2016 given the uncertain macro-economic environment and geopolitical issues in certain markets.

During 2016, we invested £162.3m of net growth capital expenditure. This included expenditure on locations opened in 2015 and to be opened in 2017 of £54.1m. The majority of the remaining investment related to the 231 locations added to the network in 2016, including a net investment of £12.5m in property assets. These locations added approximately 3.4m sq ft, taking the Group's total space globally to almost 48m sq ft as at 31 December 2016. The significant majority of these locations were organic openings. This is in contrast to 2015 when we invested net growth capital expenditure of £284.9m, including £99.4m on acquisitions, adding 554 locations, the equivalent of 7.7m sq ft of space. Another important focus area was the roll out of our Spaces format, which represented approximately 25% of the net growth capital expenditure. We remain confident that the returns from these investments will, in due course, be in line with the returns we generate on our historic investments.

We continue to have a good pipeline of new openings. As of 22 February we had visibility on net growth capital expenditure so far for 2017 of approximately £120m, representing approximately 250 locations and 4.0m sq ft of additional space. Notably, we have a strong pipeline of locations within our Spaces co-working format. Although these represent just over 15% of the total locations we currently see in the pipeline, each individual Spaces location, however, can be a factor of approximately three times larger than the average footprint of a Regus location. Consequently, these Spaces locations account for approximately 40% of the current pipeline of net growth capital expenditure.

Operational developments

We are constantly striving to improve our business and future potential returns. Whilst this is an ongoing process, we implemented changes to the operational field structure during 2016, introducing a city cluster approach to the management and organisation of our locations. With the in-field selling resource focused on a specific number of locations, we believe this will better promote the active marketing of the whole range of what is offered by the entire city cluster, including format and price point. Moreover, the unrivalled scale of our business provides us with the opportunity to automate more processes to allow our employees to have greater focus on customer service across more than one location. We believe this will generate many positives for our business, including improved cost efficiency in the field, better productivity and a sharper focus on 'selling the city' to unlock the full benefit of our broad offering. We have also implemented important changes to the compensation structure for our colleagues operating our locations by moving away from a largely sales commission-based bonus system to one based on financial performance. We believe this will be important and better align business behaviour with the interests of our shareholders. 2016 was therefore a transformational year and these changes are now fully embedded into the business.

Non-recurring items

For 2016 we have reported a net loss on non-recurring items of £1.0m. This non-recurring loss is in respect of three items: the receipt of funds following the settlement of a third-party litigation in the UK; additional provision relating to a litigation action in California; and a loss on disposal of specific assets and liabilities acquired as part of the Avanta acquisition which were disposed of in the second half of the year following the UK Competition and Markets Authority inquiry.

The non-recurring gain of £15.3m in 2015 reflected the £21.3m gain after expenses on the sale of various portfolios of property assets less two negative non-recurring items relating to a litigation action in California and the Competition and

Markets Authority's review of the acquisition of Avanta in the UK, which reduced the overall net gain by £6m.

Except where specifically mentioned, the following commentary and profit and loss analysis exclude the impact of these non-recurring items.

Financial performance

Group income statement (before non-recurring items)

Revenue

Group revenues increased 5.5% at constant currency to £2,233.4m (2015: £1,927.0m), an increase of 15.9% at actual rates. This revenue growth reflects the growing contribution from additional locations. This also represents a sequential deceleration in growth over the course of the year. There were a number of contributing factors to this deceleration.

There was the base-line effect of acquisitions, the impact of a higher level of closures, together with some softening in market conditions across certain geographies. These softer conditions accentuated the normal impact on the business of absorbing the significant network growth in recent years. Mature revenues (from 2,153 like-for-like locations added on or before 31 December 2014) declined 1.7% at constant currency to £1,891.6m (2015: £1,750.1m), up 8.1% at actual rates. Mature occupancy was 78.2% (2015: 79.6%).

Gross profit

Group gross profit declined 4% at constant currency rates to £448.8m (2015: £428.4m), up 5% at actual rates. The reduction in Group gross margin from 22.2% to 20.1% largely reflects the dilution from a relatively large number of financially immature locations within the overall estate resulting from the significant investment in growing the network over recent years. The mature gross margin remained relatively stable at 24.1% (2015: 24.3%).

Gross margin

Overhead efficiency improves further

As anticipated, the Group has made further strong progress in relation to overhead efficiency, thereby building on the achievements in recent years. We have not only continued to reduce total overheads as a percentage of revenues from 14.7% in 2015 to 11.7%, the absolute level of investment in overheads reduced by 13% in constant currency terms to £261.8m (2015: £283.9m) (down 8% at actual rates). Changes implemented to our business model and structure during 2016 to further improve the Group's productivity and financial performance also created further overhead efficiency.

We continue to maintain a strong focus on overhead discipline and anticipate further scale benefits.

Operating profit (excluding non-recurring items)

As a result of the very strong control of overheads, the incremental gross profit has dropped through to augment the Group operating profit, which increased 14% at constant currency to £186.2m (2015: £144.8m), an increase of 29% at actual rates. Consequently, the underlying Group operating margin increased from 7.5% in 2015 to 8.3% in 2016.

Net finance costs

The Group's net finance costs decreased 20% to £11.5m (2015: £14.4m). This reflects, in part, the reduction in net debt from an opening position of £190.6m to £151.3m as at 31 December 2016 and lower funding costs in general. Following the weakness of sterling after the result of the UK Referendum on EU membership, there has been a favourable foreign exchange movement.

Tax

The underlying effective tax rate for the year was 20.0% (2015: 19.9%). The Group's reported tax rate was 20.1% (2015: 17.7%). Our expectation is that the effective tax rate will remain around 20%.

Earnings per share

Earnings per share increased significantly to 14.9p (2015: 12.8p). Excluding the non-recurring items, underlying Group earnings per share increased 34% to 15.0p, reflecting the strong growth in underlying Group operating profit and the favourable foreign exchange tailwind.

The weighted average number of shares for the year was 929,830,458 (2015: 933,457,741). The weighted average number of shares for diluted earnings per share was 944,015,143 (2015: 953,678,034). As at 31 December 2016 the total number of shares in issue was 923,357,438.

In the period up to 19 December 2016, when the Scheme of Arrangement to create IWG plc as the new holding company became effective, Regus purchased 11,834,627 shares at a cost of £31.1m designated to be held in treasury to satisfy future exercises under various Group long-term incentive schemes. Over the same period, Regus utilised 4,712,856 shares from treasury to satisfy such exercises. At 19 December 2016, 27,612,384 were held as treasury shares. All these shares were cancelled as part of the Group reorganisation and Scheme of Arrangement.

In the period from 19 December 2016 to 31 December 2016, IWG plc purchased 1,280,032 shares designated to be held in treasury at a cost of £3.1m and 109,333 treasury shares were used to satisfy the exercise of share awards by employees.

Cash flow and funding

With the growth in profitability, cash generation has been very strong during 2016. This ability to convert profits into cash continues to be a highly attractive feature of our business model. Cash generated before the net investment in growth capital expenditure, dividends and share repurchases, and excluding the non-recurring material £80m disposal proceeds, net of expenses, received in 2015, increased 33% in 2016 to £286.1m (2015: £215.7m), reflecting the strong growth in underlying Group operating profit and very strong cash conversion. As well as the normal positive working capital development stemming from our network growth programme and the maturation of these locations, we have also benefitted from more specific focus to unlock working capital.

With our more selective approach to network growth during 2016 and increased traction on our strategic priority of targeting less capital intensive growth, Group net debt decreased from £190.6m at 31 December 2015 to £151.3m at 31 December 2016. This decrease comes after taking the growth capital expenditure into account, and after paying dividends of £43.3m and spending £38.6m mainly on a combination of buying our own shares, as noted opposite, and settlement of employee share options. This represents an underlying Group net debt: EBITDA leverage ratio of 0.4 times, which is a very conservative level, well below our internal 1.5 times limit and reflects our continued prudent approach to the Group's capital structure. Whilst our approach to our net indebtedness has been prudent, we continue to recognise the long-term benefit of also operating with an efficient balance sheet.

In May 2016, we extended and amended our key Revolving Credit Facility. The facility was increased from £320.0m to £550.0m and the maturity extended to 2021 (previously 2020), with an option to extend until 2023. The facility is denominated in sterling but can be drawn in several major currencies. This financing further improved our debt maturity profile and provides the Group with adequate financial headroom to pursue its strategy. With this facility in place, the Group took the opportunity to settle the €210m Schuldschein debt securities prior to their final maturity.

Cash flow

The table below reflects the Group's cash flow:

(5) Net growth capital expenditure of £162.3m relates to the cash outflow in 2016. Accordingly, it includes capital expenditure related to locations opened in 2015 and to be added in 2017 of £54.1m. The majority of the remaining investment relates to the [231] locations added in 2016, including a net investment in property assets of £12.5m. The total net investment in the 2016 additions amounts to £130.8m so far.

Foreign exchange

The Group's results are exposed to translation risk from the movement in currencies. During 2016 key individual currency exchange rates have moved, as shown in the table below. The subsequent weakness in sterling following the UK Referendum on EU membership in June provided a more positive boost to the translation of our significant international earnings.

Overall, the favourable impact of the movement in exchange rates increased reported revenue, gross profit and operating profit by £199.7m, £36.3m and £20.5m respectively.

Foreign exchange rates

Risk management

The principal risks and uncertainties affecting the Group remain broadly unchanged. A detailed assessment of the principal risks and uncertainties which could impact the Group's long-term performance and the risk management structure in place to identify, manage and mitigate such risks can be found on pages 27 to 32 and 46 to 48 of the Annual Report and Accounts.

Related parties

There have been no changes to the type of related party transactions entered into by the Group that had a material effect on the financial statements for the period ended 31 December 2016. Details of related party transactions that have taken place in the period can be found in note 30 to the 2016 Annual Report and Accounts.

Dividends

Consistent with IWG's progressive dividend policy and subject to shareholder approval, we will increase the final dividend for 2016 by approximately 15% to 3.55p (2015: 3.10p). This will be paid on Friday, 26 May 2017, to shareholders on the register at the close of business on Friday 28 April 2017. This represents an increase in the full-year dividend of approximately 13%, taking it from 4.50p for 2015 to 5.10p for 2016.

Dominik de Daniel

Chief Financial Officer and Chief Operating Officer

28 February 2017

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

1. Attributable to equity holders of the parent

On 19 December 2016, the Group entered into a court approved Scheme of Arrangement. As a result of the Scheme of Arrangement shares in Regus plc were cancelled and shares in the new Group holding company, IWG plc, were issued on the basis of one IWG plc share (nominal value one pence) for one share previously held in Regus plc (nominal value one pence). As a result, the shareholders of Regus plc became the shareholders of IWG plc. The establishment of IWG plc as the new parent company was accounted for as a common control transaction under IFRS and consequently the aggregate of the Group reserves have been attributable to IWG plc.

At 31 December 2016, treasury shares represent 1,170,699 (2015: 20,490,613) ordinary shares of the Group that were acquired for the purposes of the Group's
employee share option plans and the share buy-back programme. During the year, prior to the Scheme of Arrangement on 19 December 2016, 11,834,627 (2015: 9,543,800) shares were purchased in the open market and 4,712,856 (2015: 1,936,642) treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. Subsequent to the Scheme of Arrangement, a further 1,280,032 shares were purchased in the open market and 109,333 treasury shares held by the Group were utilised to satisfy the exercise of share awards by employees. As at 28 February 2017, 1,013,938 treasury shares were held.

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and
joint ventures.

The revaluation reserve arose on the restatement of the assets and liabilities of the UK associate from historic to fair value at the time of the acquisition of the
outstanding 58% interest on 19 April 2006. Other reserves include £37.9m arising from the Scheme of Arrangement undertaken on 14 October 2008, £6.5m
relating to merger reserves and £0.1m to the redemption of preference shares partly offset by £29.2m arising from the Scheme of Arrangement undertaken in 2003.

Consolidated balance sheet

Approved by the Board on 28 February 2017

Consolidated statement of cash flows

Notes to the accounts

1. Authorisation of financial statements

The Group and Company financial statements for the year ended 31 December 2016 were authorised for issue by the Board of Directors on 28 February 2017 and the balance sheets were signed on the Board's behalf by Mark Dixon and Dominik de Daniel. 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 leased to a variety of business customers. Information on the Group's structure is provided in note 31, and information on other related party relationships of the Group is provided in note 30.

The Group financial statements have been prepared and approved by the Directors in accordance with Companies (Jersey) Law 1991 and International Financial Reporting Standards as adopted by the European Union ('Adopted IFRSs'). The Company prepares its parent company annual accounts in accordance with the Swiss Code of Obligations; extracts from these are presented on page 113.

2. Accounting policies

Basis of preparation

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

The accounting policies set out below have been applied consistently to all periods presented in these Group financial statements. Amendments to adopted IFRSs issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) with an effective date from 1 January 2016 did not have a material effect on the Group financial statements, unless otherwise indicated.

The following standards, interpretations and amendments to standards were adopted by the Group for periods commencing on or after 1 January 2016:

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

The consolidated financial statements are prepared on a historical cost basis, with the exception of certain financial assets and liabilities that are measured at fair value as described in note 23.

The Directors, having made appropriate enquiries, have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the consolidated financial statements on pages 66 to 112.

In adopting the going concern basis for preparing the consolidated financial statements, the Directors have considered the further information included in the business activities commentary as set out on pages 14 to 17 as well as the Group's principal risks and uncertainties as set out on pages 28 to 32.

Further details on the going concern basis of preparation can be found in note 23 to the notes to the consolidated financial statements on page 92.

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

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

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies.

The consolidated financial statements include the Group's share of the total recognised income and expense of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases or the associate qualifies as a disposal group at which point the investment is carried at the lower of fair value less costs to sell and carrying value.

Joint ventures that are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The consolidated financial statements include the Group's share of the total recognised gains and losses of joint ventures on an equity accounted basis, from the date that joint control commences until the date that joint control ceases or the joint venture qualifies as a disposal group at which point the investment is carried at the lower of fair value less costs to sell and carrying value.

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

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

On 14 October 2008, Regus plc acquired the entire share capital of Regus Group plc in exchange for the issue of new shares of Regus plc on the basis of one share in Regus plc for one share held previously in Regus Group plc. At the date of the transaction, Regus plc had nominal assets and liabilities and therefore the transaction was accounted for as a reverse acquisition of Regus plc by Regus Group plc. Consequently, no fair value acquisition adjustments were required and the aggregate of the Group reserves have been attributed to Regus plc.

On 19 December 2016, under a Scheme of Arrangement between Regus plc, the former holding company of the Group, and its shareholders, under Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by The Royal Court of Jersey, all the issued shares in Regus plc were cancelled and an equivalent number of new shares in Regus plc were issued to IWG plc in consideration for the allotment to shareholders of one ordinary share in IWG plc for each ordinary share in Regus plc that they held on the record date 18 December 2016. The establishment of IWG plc as the new parent company was accounted for as a common control transaction under IFRS. Consequently, no fair value acquisition adjustments were required and the aggregate of the Group reserves have been attributed to IWG plc.

IFRSs not yet effective

Except for IFRS 16 Leases, the following new or amended standards and interpretations that are mandatory for 2017 annual periods
(and future years) are not expected to have a material impact on the Company:

The adoption of IFRS 16 will result in the recognition of a significant right-of-use asset together with corresponding lease liabilities. The Group is in the process of quantifying the related impact.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Basis of consolidation

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

Impairment of non-financial assets

For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount was estimated at 30 September 2016. At each reporting date, the Group reviews the carrying amount of these assets to determine whether there is an indicator of impairment. If any indicator is identified then the assets' recoverable amount is re-evaluated.

The carrying amount of the Group's other non-financial assets (other than deferred tax assets) are reviewed at the reporting date to determine whether there is an indicator of impairment. If any such indication exists, the asset's recoverable amount is estimated.

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

A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Group has identified individual business centres as the CGU.

We evaluate the potential impairment of property, plant and equipment at the centre (CGU) level where there are indicators of impairment.

Centres (CGUs) are grouped by country of operation for the purposes of carrying out impairment reviews of goodwill as this is the lowest level at which it can be assessed.

Individual fittings and equipment in our centres or elsewhere in the business that become obsolete or are damaged are assessed and impaired where appropriate.

Calculation of recoverable amount

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

Goodwill

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

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

Intangible assets

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

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

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

Acquisitions of non-controlling interests

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

Assets held for sale

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

Leases

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

Operating leases

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

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

Onerous lease provisions are an estimate of the net amounts payable under the terms of the lease to the first break point, discounted at
an appropriate pre-tax rate that reflects the time value of money and the risks specific to the liability.

Partner contributions

Partner contributions are contributions from our business partners (property owners and landlords) towards the initial costs of opening a business centre, including the fit-out of the property and the losses that we incur early in the centre life. The partner contribution is treated as a lease incentive and is amortised over the period of the lease.

Property, plant and equipment

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

Revenue

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

· Workstations

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

· Customer service income

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

· Management and franchise fees

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

· Membership card income

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

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

Employee benefits

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

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

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

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

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

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

Share-based payments

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

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

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

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

Taxation

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

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

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

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

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

Provisions

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

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

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

Equity

Equity instruments issued by the Group are recorded at the value of proceeds received, net of direct issue costs.

When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within retained earnings.

Net finance expenses

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

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

Costs arising on bank guarantees and letters of credit and foreign exchange gains or losses are included in other finance costs (note 8).

Interest bearing borrowings and other financial liabilities

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

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

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

Non-recurring items

Significant, infrequent transactions not indicative of the underlying performance of the consolidated Group are reported separately as non-recurring items.

Financial assets

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

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

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

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

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

Customer deposits

Deposits received from customers against non-performance of the contract are held on the balance sheet as a current liability until they are returned to the customer at the end of their relationship with the Group.

Foreign currency transactions and foreign operations

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

Cash and cash equivalents

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

Derivative financial instruments

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

Foreign currency translation rates

3. Segmental analysis - statutory basis

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

The business is run on a worldwide basis but managed through four principal geographical segments: Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; and the United Kingdom. These geographical segments exclude the Group's non-trading, holding and corporate management companies. The results of business centres in each of these regions form the basis for reporting geographical results to the chief operating decision maker. All reportable segments are involved in the provision of global workplace solutions.

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

The accounting policies of the operating segments are the same as those described in the Annual Report and Accounts for the Group for the year ended 31 December 2015. The performance of each segment is assessed on the basis of the segment operating profit, which excludes internal revenue, corporate overheads and foreign exchange gains and losses arising on transactions with other operating segments.

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

4. Segmental analysis - entity-wide disclosures

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

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

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

1. Excluding deferred tax assets.

5. Operating profit

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

6. Non-recurring items

Disposal of assets held for sale

The following major classes of assets and liabilities were disposed of as part of the assets held for sale:

During 2016 the Group disposed of specific assets and liabilities acquired as part of the Avanta Services Offices Group plc acquisition in accordance with the agreed settlement with the United Kingdom Competition & Markets Authority for a consideration of £3.3m.

During 2014 the Group completed a project to dispose of the assets and liabilities of specific non-core operations to release the related capital originally invested in these operations. The sale of these assets and liabilities, which were previously classified as assets held for sale, completed during February 2015 for a consideration of £84.0m and a non-recurring profit of £21.3m after expenses.

Proceeds from litigation settlement

A settlement agreement between former shareholders and directors of a company acquired by the Group was reached during 2016. This settlement entitled IWG to a share of the reparations agreed, with £2.5m received during the year.

California class action

During 2015 a class action was filed against the Group alleging a breach of labour regulations in California. While the outcome of this legal action remains uncertain, the Group has provided for an additional £1.3m in respect of any potential settlement and related legal costs.

Competition & Markets Authority investigation

The United Kingdom Competition & Markets Authority initiated an inquiry into competition in the serviced offices industry after the Group acquired Avanta Serviced Offices Group plc during 2015. This inquiry was completed in early 2016. During 2015 the Group provided for £2.8m in respect of related legal costs.

7. Staff costs

Details of Directors' emoluments and interests are given on pages 50 to 60 in the Remuneration Report, with audited schedules identified where relevant.

8. Net finance expense

9. Taxation

(a) Analysis of charge in the year

(b) Reconciliation of taxation charge

The applicable tax rate is determined based on the tax rate in the canton of Zug in Switzerland (2015: Luxembourg) which was the statutory tax rate applicable in the country of domicile of the parent company of the Group for the financial year.

(c) Factors that may affect the future tax charge

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

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

Estimates relating to deferred tax assets, including assumptions about future profitability, are re-evaluated at the end of each reporting period.

(d) Corporation tax

(e) Deferred taxation

The movement in deferred tax is analysed below: