14th Mar 2005 07:00
Regus Group PLC14 March 2005 REGUS GROUP PLC REGUS RECOVERY ON TRACK Chertsey, UK, 14 March 2005, Regus Group plc (LSE: RGU) Regus Group plc, the global office outsourcing company, announces auditedresults for the twelve months ended 31 December 2004. Financial Results (1) 2004 2003 Changes£m (except EPS and REVPAW) Inc HQTurnover 312.2 256.6 +55.6Centre contribution 44.6 16.9 +27.7Group operating loss (3.3) (28.2) +24.9Loss before interest and tax (6.5) (25.5) +19.0Adjusted profit/(loss) before interest and tax (2) 4.1 (25.8) +29.9Loss per share (p) (0.6) (4.7) +4.1Adjusted earnings/(loss) per share (p) (2) 0.3 (4.7) +5.0 REVPAW (£) (3) 5,252 4,614 +638 Notes (1) 2004 includes HQ figures since its acquisition on 20 August 2004. For Reguslike for like revenues see Financial Review. (2) Adjusted profit before interest and tax and EPS is stated before chargingexceptional items of £8.6 million (2003: £6.4 million); amortisation of goodwillof £2.0 million (2003: £Nil) and deducting the profit on sale of subsidiaries of£0.1 million (2003: £6.6 million). (3) REVPAW = Annualised revenue per available workstation. Highlights • Q4 occupancy up 10% to 77% (Q4 2003: 70%)• 2004 annualised REVPAW up 14% to £5,252 (2003: £4,614)• £163.5M ($302.5m) acquisition and successful integration of HQ Global Holdings Inc.• Synergies from HQ acquisition ahead of schedule• Strong cash generation, closing cash £82.3m• £10.5m ($20m) early repayment on £57.9m ($110m) term debt scheduled for April 2005 Mark Dixon, Chief Executive Officer, Regus Group plc, commented: "Regus made further strong progress during 2004. Trading in the final quarterwas particularly good, with the forward order book at record levels providing asolid platform for 2005. With the acquisition of HQ now successfullyintegrated, delivering synergies ahead of schedule, Regus is well positioned forcontinued growth in revenues, profits and cash generation during 2005." For further information, please contact: Regus Group plc Tel: +44 1932 895 135John Matthews, ChairmanMark Dixon, Chief Executive Financial Dynamics Tel: + 44 20 7269 7291David Yates/Richard Mountain A presentation for analysts will be held at City Point, 1 Ropemaker Street,London EC2Y 9HT at 11.00am today, Monday 14 March 2005. Please call Claire Bottof Financial Dynamics on 020 7269 7291 for further details. 2004 OPERATIONAL REVIEW The benefits of the changes put in place at Regus over the past two years havebeen evidenced by the improved results achieved in 2004. The thorough overhaulof our business undertaken in 2003 and the restructuring measures implementedthereafter have delivered a platform for growth in revenues, profits and cashgeneration. We enter 2005 with a record forward order book, customersatisfaction at an all-time high, renewal levels improved by approximately 13%year on year and our costs firmly under control. Last year saw a clear shift in our focus towards the US where, following thesuccessful acquisition and integration of HQ Global Holdings Inc, acquired inAugust 2004 for £163.5 million ($302.5 million), we now generate approximately60 per cent of Group revenues. Reflecting this change in focus, the Company'sChief Executive, Mark Dixon, relocated to the US in 2003 to drive thedevelopment of the business in the US and subsequently to lead the integrationof HQ. Against a continuing backdrop of favourable economic conditions, Regusis well placed to achieve further growth in the US and will benefit from thedual branding that HQ brings to its service offering in that market. We have seen good growth in Asia Pacific in 2004 and we have opened new officesin Shanghai, Sydney and Korea. Performance in Europe, however, has been slowerand we have taken steps in The Netherlands and Germany to rationalise ourportfolio, exiting out of under performing inventory where necessary. We also invested significantly in our products last year and expect to see thebenefits of this in 2005 and beyond. While workstation and related servicescomprise the majority of our revenues, our meeting room business has also beenexpanded, attracting major deals from both government and the private sector,and we have also grown our Virtual Office business by applying dedicatedresources. These businesses are experiencing high teen year on year growth andwe expect both of them to contribute to like for like growth in revenues andprofits this year. There is an increasing trend amongst customers to outsource their business spaceand, as the global leader in office outsourcing, Regus is well placed to benefitfrom this trend. We have also seen similar growing demand from governmentdepartments who recognise the benefits of flexibility and ease of use thatoffice outsourcing can bring. With this increasingly diversified customer base,Regus looks forward with confidence to 2005. Q4 review We delivered an excellent fourth quarter with revenues of £105.5 million (2003:£64.2m) and EBITDA (pre exceptional items, joint ventures and associate) of£16.5 million (2003: £4.8m). Occupancy rose to 77% in the quarter and we saw improvement in pricing on bothnew sales and renewals over the corresponding period last year. Year-on-year global enquiries, excluding HQ, in the fourth quarter have risen by21% through more focused marketing activities. Our substantial investment innew media channels, such as search engine optimisation and marketing, has playeda vital part in increasing enquiries, reducing cost per enquiry and improvingreturn on investment. FINANCIAL REVIEW The following table presents the Group's revenue, centre contribution beforeexceptional items and workstations (i.e. weighted average number of availableworkstations) by geographic region. The table also shows the split between Regusand HQ performance. Segmental Analysis(£ million, except workstations) 2004 2003 Revenue Centre Available Revenue Centre Available Contribution Workstations Contribution WorkstationsAmericasRegus 79.0 4.8 18,238 80.2 (4.1) 20,525HQ 55.7 11.0 9,347 --- --- ---Americas 134.7 15.8 27,585 80.2 (4.1) 20,525EMEA (a) 149.6 27.4 27,431 148.4 13.8 30,831Asia Pacific 25.2 5.3 4,435 24.2 3.4 4,262 309.5 48.5 59,451 252.8 13.1 55,618UK fee (b) 2.7 2.7 - 3.8 3.8 -Group 312.2 51.2 59,451 256.6 16.9 55,618 (a) EMEA represents Europe (excluding UK), Middle East and Africa(b) UK fee is management income for services provided to the UK Associate The table below shows total revenues and profits of the Regus Group as well asthe separate contributions of Regus and HQ. Financial results 2004 2003£m (except REVPAW) Total HQ Regus RegusTurnover 312.2 55.8 256.4 256.6Centre contribution 44.6 11.0 33.6 16.9Group operating (loss)/profit (3.3) 3.3 (6.6) (28.2)(Loss)/profit before interest and tax (6.5) 3.3 (9.8) (25.5)Adjusted profit/(loss) before interest and tax 4.1 6.3 2.3 (25.8) REVPAW (£) 5,252 5,970 5,117 4,614 Workstations The Group has seen a significant improvement in workstation utilisation in 2004with average occupancy for the year improving to 75% (2003: 63%). This has beenachieved through a combination of capacity reductions (10% reduction ininventory) and a 6% increase in the number of occupied workstations on a likefor like basis excluding the impact of HQ. Workstation occupancy of the existingRegus US business increased to 82% (2003:66%). HQ has operated at 80% occupancysince acquisition. New sale and renewal prices grew 14% and 3% respectively onthe average of 2003. Revenue Revenue of £312.2 million (2003: £256.6 million) was 22% above last year,principally due to the acquisition of HQ, which was completed in August 2004.Our reported results (excluding the impact of HQ) were affected by the weakeningdollar and the reduction of inventory by approximately 5,000 less availableworkstations in the year. Compared to 2003, sterling has appreciated by 12%against the US dollar. At constant rates, Regus revenues for the year increasedby 5%. Revenue for the Americas was £54.5 million higher than last year due to theacquisition of HQ. Setting aside the effect of the acquisition, underlyingrevenues at constant currency increased by 8%. Strong economic activity coupledwith the economic benefits of integrating our back office and sales force hasimproved operational performance and profitability. EMEA revenue of £149.6 million (2003: £148.4 million) was achieved despite an11% capacity reduction in the region. Underlying revenues at constant currencyincreased by 3%. We have continued to optimise our inventory base in thisregion by addressing those centres trading below their potential. As discussedin our December trading update, additional plans are in place to improveprofitability in this region, particularly in The Netherlands and Germany,through the removal of excess capacity and continued restructuring of our costbase. Asia Pacific revenues of £25.2 million were £1.0 million (4%) higher than lastyear (2003: £24.2 million). New centre openings generated £0.7 million ofrevenue in the year, while currency had an adverse impact of £1.5 million.Underlying revenues increased by 10% on a constant currency basis. Centre contribution Centre contribution pre exceptional costs increased by £34.3 million to £51.2million (2003: £16.9 million). This represents a centre contribution margin of16% (2003: 7%). After exceptional costs of £6.6m, centre contribution was£44.6m. The improvement in centre contribution has been driven by a combinationof increasing local revenues on reduced inventory and a lower cost base, whichhas benefited from operational improvements and cost control programmes. The Americas region accounted for £15.8 million of the £51.2 million, with HQcontributing £11.0 million in the four months since acquisition. Therestructuring of Regus' operations in the USA, started in 2003 is now largelycompleted. Centre contribution in EMEA increased from £13.8 million to £27.4 million,representing a margin of 18% of turnover (2003: 9%). This improvement wasprincipally realised through a re-alignment of the cost base and better marketconditions. Centre contribution in Asia Pacific increased by 53% to £5.3million. When compared with 2003, total costs (excluding HQ) were reduced by £23.7million or 10% to £216.0 million (2003: £239.7 million). More importantly wehave reduced costs without sacrificing the quality of our customer service. Administration expenses and exceptional items Administration expenses of £43.9 million were 4% down on 2003 even afterincluding HQ administration expenses of £4.6 million and adjusting for theeffect of £2.1 million one-off items benefiting 2003. Results for the year include exceptional items of £8.6 million. Centrecontribution includes a charge of £6.6 million relating to an onerous contractprovision of £3.4 million and a fixed asset impairment of £3.2 million.Administration expenses include a charge of £2.0 million comprising HQintegration costs of £2.8 million offset by the release of prior yearrestructuring provisions of £0.8 million. Adjusted profit and earnings per share pre exceptional items and goodwillamortisation Profit before interest and tax, adjusted for exceptional items, goodwillamortisation and profit on disposal of subsidiaries was £4.1 million, a £29.9million improvement on the prior year. This was achieved through a £23.5 millionreduction in centre costs and a contribution of £6.4 million from HQ. Adjusted earnings per share were 0.3p (2003: 4.7p loss per share). Liquidity and capital resources Cash at bank and in hand at 31 December 2004 was £82.3 million (2003: £85.0million) of which £64.1 million (December 2003: £64.8 million) is readilyaccessible. Indebtedness (excluding finance leases) at 31 December 2004 was £64.1 million(2003: £9.2 million). The Group had outstanding finance lease obligations of£13.2 million (2003: £17.6 million), of which £7.3 million is due within oneyear. Acquisition of HQ In August 2004 we consolidated our position as the No 1 serviced office providerin the USA with the acquisition of HQ for £163.5 million ($302.5 million)financed through new debt facilities and a 1 for 4 rights issue to raise £119.0million, net of expenses. The integration of HQ is substantially complete and we are very pleased to haveachieved this well ahead of our original timetable of 18 months. As a result thecosts of integration and any associated disruption have been minimised. Inaddition the financial benefits we had previously estimated have started toaccrue earlier. We achieved £10.3 million ($19.6 million) of annualisedsynergies in the period to 31 December 2004. This compares favourably againstour original target of synergies of at least $20.0 million by the end of 2005.Our synergies have come mainly from headcount reduction ($11.3 million),procurement savings ($5.2 million), elimination of cost duplication ($2.4million) and other general savings ($0.7 million). Headcount reduction involvedthe loss of 69 corporate employees and 45 centre staff. Our increased capacity has allowed us to strengthen our purchasing power andleverage better deals with suppliers. 70% of the $5.2 million procurementsavings have been achieved through renegotiating contracts with telecom andcourier providers. Elimination of costs have been realised through consolidatinginsurance policies, brokers and financing arrangements. The removal ofmanagement fees and directors' fees incurred by HQ as a standalone operationaccounted for $0.8 million of the $2.4 million cost eliminations. Other savingsamounting to $4.4 million of which $3.7 million is to be delivered in 2005encompasses further headcount reductions and savings arising from propertynegotiations. Overall, the integration costs incurred during the year were £2.5 million. Weexpect to incur a further £3.5 million ($7 million) in 2005 against a totaloriginal estimate of £8 million ($15 million). Since acquisition, HQ has generated revenues of £55.7 million and an underlyingprofit pre exceptional items and amortisation of goodwill of £10.8 million.Total revenues of HQ in 2004 were £153.5 million (translated at an average ratefor the period). In addition to the cost synergies above we have benefited fromcross-selling opportunities as evidenced by contract wins with American Express,NASA and American Home Mortgage. We now have the two leading brands in the industry in the US that are workingeffectively together, able to offer more choice for the customer and attractmore new customers to our portfolio. International Financial Reporting Standards For the period commencing 1 January 2005, Regus will report its financialresults in accordance with International Financial Reporting Standards ("IFRS").The transition date for adoption of IFRS is determined in accordance with IFRS1, First time Adoption of International Financial Reporting Standards, and hasbeen determined as 1 January 2004. The consolidated results of Regus convertedfrom a UK Generally Accepted Accounting Principles (UK GAAP) basis onto an IFRSbasis for the year ended 31 December 2004, together with an explanation of theadjustments, will be presented in a separate announcement before the issuance ofour interim results. Outlook The reorganisation of our business has created a platform for growth andimproving profitability and, following an excellent fourth quarter last year andwith the acquisition of HQ now successfully integrated, we have strong momentumgoing into 2005. Our forward order book is some £10 million higher than at thesame period last year and we have seen a substantial rise in enquiry levels aswell as a reduction of discounting for new sales. Costs remain firmly undercontrol. In the USA, our largest market, there is clear evidence of increasing activitylevels and the outlook in Asia-Pacific is similarly very positive. During 2005,we will look selectively to open new centres in both these regions to addressrising demand. Although the outlook in Europe is less certain, we are makingsteady progress in our key countries and where necessary are addressing thosecentres trading below their potential. We have invested substantially in the business over the past year, particularlyin the acquisition of HQ, but also in our meeting room and Virtual Officebusinesses and we expect these to contribute significantly to our performance inthe coming year. We will also continue to manage our property portfolioactively, taking advantage of lease renewals to realign our cost base and removeexcess or unprofitable capacity. With the current levels of occupancy and good pricing momentum into 2005, theBoard is confident that Regus has a solid platform in place for strong growth inrevenues, profits and cash during 2005. Consolidated profit & loss account 2004 2003 Continuing operations Acquisitions Total Total RestatedFor the year ended 31 December £'000 £'000 £'000 £'000 Turnover (including share of joint ventures and associate) 327,547 55,819 383,366 324,904Less: share of turnover of joint ventures (5,485) - (5,485) (5,501)Less: share of turnover of associate (65,667) - (65,667) (62,822)Group turnover 256,395 55,819 312,214 256,581 Cost of sales (centre costs) before exceptional items (216,169) (44,798) (260,967) (239,683)Exceptional cost of sales (6,620) - (6,620) -Cost of sales (centre costs) after exceptional items (222,789) (44,798) (267,587) (239,683) Gross profit (centre contribution) 33,606 11,021 44,627 16,898Administration expenses before exceptional items and goodwill (39,270) (4,580) (43,850) (38,736)amortisationExceptional cost of sales (967) (1,028) (1,955) (6,355)Goodwill amortisation - (2,037) (2,037) -Administration expenses after exceptional items and goodwill (40,237) (7,645) (47,882) (45,091)amortisation Group operating (loss)/profit (6,631) 3,376 (3,255) (28,193)Share of operating loss in joint ventures (653) (213)Share of operating loss in associate (2,684) (3,722) Total operating loss (6,592) (32,128)Profit on sale of subsidiaries 133 6,585 Loss on ordinary activities before interest (6,459) (25,543)Net interest payable and similar charges (2,190) (4,397) Loss on ordinary activities before tax (8,649) (29,940) Tax loss on ordinary activities 2,887 2,068 Loss on ordinary activities after tax (5,762) (27,872) Equity minority interests 382 885 Retained loss for the financial year (5,380) (26,987) Earnings/(loss) per ordinary share (pence)Basic and diluted (0.6) (4.7)Basic and diluted before exceptional items; profit on sale of subsidiaries and goodwill 0.3 (4.7)amortisation Balance sheets Group Company 2004 2003 2004 2003 RestatedAs at 31 December £'000 £'000 £'000 £'000 Fixed assetsIntangible assets 129,481 - - -Tangible assets 78,137 67,136 - - InvestmentsInvestments in subsidiaries - - 304,313 29,256Investment in associate 6,142 8,361 - -Other investments 5 5 - - 6,147 8,366 304,313 29,256 Current assetsStock 187 144 - -Debtors: amounts falling due after more than one year 5,181 873 - -Debtors: amounts falling due within one year 76,771 62,290 77,873 4,651Cash at bank in hand 82,324 85,001 21,179 50,136 164,463 148,308 99,052 54,814 Creditors: falling within one year (167,351) (134,189) (167,655) (414) Net current (liabilities)/assets (2,888) 14,119 (68,603) 54,400 Total assets less current liabilities 210,877 89,621 235,710 83,656 Creditors: falling due after more than one year (78,289) (34,190) - - Provision for deficit on joint venturesShare of gross assets 4,109 5,076 - -Less: Share of gross liabilities (5,794) (6,073) - - (1,685) (997) - - Provision for liabilities and charges (21,908) (52,554) - - Net assets 108,994 1,880 235,710 83,656 Capital and reservesCalled up share capital 49,290 39,442 49,290 39,442Share premium account 153,498 44,364 153,498 44,364Other reserves (22,709) (22,711) - -Profit and loss account (69,746) (58,139) 32,922 (150) Shareholders' funds 110,333 2,956 235,710 83,656 Equity minority interests (1,339) (1,076) - - Total capital employed 108,994 1,880 235,710 83,656 Shareholders' funds includes amounts relating to both equity and non-equityinterests. The restatement of 2003 results is due to the adoption of UITF 38 "Accountingfor ESOP Trusts" Approved by the Board on 11 March 2005 Mark DixonChief Executive Consolidated cash flow statement 2004 2003 RestatedFor the year ended 31 December £'000 £'000 Operating activitiesNet cash inflow/(outflow) before exceptional operating items 24,228 (8,754)Net cash outflow from exceptional operating items (31,051) (5,868)Net cash outflow from operating activities (6,823) (14,622) Returns on investments and servicing of financeInterest received 1,712 797Interest paid (2,766) (1,750)Interest on finance leases (537) (3,350)Net cash outflow from returns on investment and servicing of finance (1,591) (4,303) Tax paid (1,569) (1,951) Capital expenditure and financial investmentPurchase of tangible fixed assets (5,305) (8,445)Proceeds on disposal of tangible fixed assets 608 3,345Net cash outflow from capital expenditure and financial investments (4,697) (5,100) Acquisitions and disposalsPurchase of subsidiary undertakings (173,741) -Net cash at bank and in hand acquired with subsidiaries 10,758 53Proceeds on disposal of subsidiary undertakings - 6,695Net cash at bank and in hand disposed with subsidiaries (12) (1,137)Investment in joint ventures - (412)Net cash (outflow)/inflow from acquisitions and disposals (162,995) 5,199 Cash outflow before management of liquid resources and financing (177,675) (20,777) Management of liquid resources (6,443) 8,511 Financing 171,546 47,616 (Decrease)/increase in cash (12,569) 35,350 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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