12th Sep 2005 07:02
Regus Group PLC12 September 2005 Press Release 12 September 2005, (LSE: RGU) REGUS REPORTS STRONG PERFORMANCE IN FIRST HALF 2005 FINANCIAL HIGHLIGHTS • Earnings ahead of last year by £23.4m with adjusted EPS of 1.7p • EBITDA increased by 228% to £37.4m • Strong cash generation - operating cash flow of £34.5m and cash at bankof £81.5m following early payment of $20m on $110m term debt. • Strong REVPAW growth; up 12.6% • Substantial increase in operating profit; £24.2m improvement • Centre contribution (gross profit) up by £31.2m; £18.0m generatedthrough expansions (acquisitions and new centres) and £13.2m organically • HQ acquisition contributed £77.6m of revenue and £17.8m of centrecontribution in the first half of 2005 H1 2005 H1 2004Group - £m Like for Expansions(c) Closures Exchange Group Group Like Turnover 136.5 81.9 (1.3) (1.1) 216.0 124.9Centre Contribution 30.7 18.0 0.1 (0.1) 48.7 17.5Operating profit/(loss) (a) 13.4 8.8 0.2 (0.1) 22.3 (1.9)Profit/(Loss) after tax (a) - - - 17.3 (6.1)Operating cash flow (a) - - - 34.5 3.8EBITDA (a) 20.2 17.4 0.1 (0.3) 37.4 11.4 Earnings/(loss) per share (a) - - - 1.7 (0.8)Occupancy - - - 76.2% 72.0%REVPAW (b) - - - £5,584 £4,961 (a) Results are before charging exceptional items of £3m in H1, 2005 (H12004: Nil) and amortisation of intangibles of £1.3 million (H1 2004: £0.1m).EBITDA excludes losses of joint ventures and UK associate, which are non - cashand equates to a £1m loss in H1 2005 (H1 2004: £3.9 million). (b) REVPAW = Annualised Revenue Per Available Workstation (c) Expansions are new centres and acquisitions opened since H1 2004. OPERATIONAL HIGHLIGHTS • Month on month sales increase throughout H1 2005 • Continued double-digit growth in Meeting Room and Virtual officeproducts • 12 month workstation forward order book 16% higher than the sameperiod last year • Excellent performance in EMEA • Costs under control across the business • Contracted synergies on HQ acquisition continue to be realised • Nine new centres opened in the period plus acquisition of sevencentres in Mexico • Six underperforming centres closed in Europe Mark Dixon, Chief Executive commented: "We have delivered strong performanceacross all areas of the business in the first half of 2005, increasing month onmonth revenues, profitability and cash generation. The business is performingwell and we are delighted with the results in all three regions, in particularEMEA, which has seen excellent performance. We continue to pursue selectivegrowth and acquisitions that will bring positive impact to our business in thefuture." Forward-looking statements Statements in this report include 'forward-looking statements' that expressexpectations of future events or results. All statements based on futureexpectations rather than on historical facts are forward-looking statements thatinvolve a number of risks and uncertainties, and Regus cannot give assurancethat such statements will prove to be correct. For further information, please contact: Regus Group plc Tel: +44 1932 895135John Matthews, ChairmanMark Dixon, Chief Executive Financial Dynamics Tel: + 44 207 831 3113David Yates/Richard Mountain A presentation for analysts will be held at City Point, Ropemaker Street,London, EC2Y 9HT, UK at 11.00am today, 12 September 2005. Please call ClaireBott of Financial Dynamics on 020 7269 7291 for further details. Operational and Financial Review BASIS OF PREPARATION International Financial Reporting Standards (IFRS) From 1 January 2005, Regus Group plc adopted IFRS having previously reported itsresults under UK GAAP. The change to IFRS is a requirement for all companieslisted in the European Union. The financial information contained in this report has been prepared on thebasis of the accounting policies contained within and has not been audited anddoes not constitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985. The statutory accounts for 2004, which were prepared underUK GAAP, have been delivered to the Registrar of Companies. The auditors'opinion on those accounts was unqualified and did not contain a statement madeunder Section 232(2) or Section 237(3) of the Companies Act 1985. Forward-looking statements Statements in this report include 'forward-looking statements' that expressexpectations of future events or results. All statements based on futureexpectations rather than on historical facts are forward-looking statements thatinvolve a number of risks and uncertainties, and Regus cannot give assurancethat such statements will prove to be correct. OPERATING REVIEW The Group had a strong first half performance - both financially andoperationally. The Group generated profits from operations of £22.3 million (H12004: £1.9 million loss), after adding back non recurring integration costs of£3.0 million (H1 2004: £nil) and amortisation of intangibles of £1.3 million (H12004: £0.1 million). This reflects a complete turnaround on previous years. Thestrong EBITDA to cash conversion in the period of £34.5 million has enabled theGroup to make an early payment of $20 million on its $110 million term debt andinvest in future growth. In August last year, we acquired HQ Global Holdings Incin the USA and we were pleased to have contracted $20 million of synergies wellahead of schedule. HQ has now been successfully integrated and we are nowlooking at further opportunities to optimise the performance of the enlargedGroup and improve the quality of our business. Since June 2004, we have made progress in each of the following areas: • Improving yield and occupancy • Improving EBITDA to cash conversion • Using geographic presence to optimise economies of scale • Leveraging our strong brands • Establishing a strong foothold in growth economies • Continued restructuring of the business • Targeted marketing strategy Improving yield and occupancy We continue to leverage the existing business by increasing occupancy andimproving yields through generation of higher service and ancillary revenuesfrom our customer base. Average workstation prices have risen steadily month onmonth and this has been achieved through focusing on optimal pricing for ourproduct. Investment in products, the sales process and marketing have paid dividends withboth our Meeting Room and Virtual Office businesses both reporting growth inexcess of 20% on a like for like basis and now generating £12.6 million and£12.9 million of revenues respectively in the six months ended 30 June 2005.Going forward we will optimise workstation capacity in profitable centres andgrow market share through: • Furthering our business relationships with existing clients • Attracting new clients • Diversifying our customer portfolio • Exploiting market trends • Creating new product streams Improving EBITDA to cash conversion The Group continues to successfully translate earnings into cash with over 90%of EBITDA converted into cash during the period. Using geographic presence to optimise economies of scale Our global coverage and multi brand approach has proved successful in providinga fully packaged workplace solution which is flexible and responsive to customerneeds. Regus continues to be the global market leader in all major servicedoffice markets. The consistency in approach and the ease and simplicity of usingthe Regus network around the world is a critical success factor in achievingcustomer satisfaction and recurring business. Leveraging our strong brands Our brand portfolio has allowed us to extend customer choice through offering awide variety of locations, office configurations, term length and scope ofservices. Our network of brands enables us to access multiple markets andaccommodate a wider customer choice. Establishing a strong foothold in growth economies Our objective is to execute disciplined demand led volume growth. During 2005,we opened five new centres in Asia Pacific, three in EMEA and one in NorthAmerica. In addition seven centres were acquired in Mexico in May, 2005. We enter the second half of 2005 with advanced plans to open 28 centres. Whilewe have a very strong pipeline of new centres and acquisitions, we remaincautious in our selection to ensure the best return on investment and a low riskprofile. Capital investment in new centre openings was £3.0 million in H1 2005 and isanticipated to be circa £7.0 million in H2 2005. In addition we invested £2.9 million on acquisitions in the first half of 2005and we have committed a further £1.8 million in H2 2005. Continued restructuring of the business We continue to manage our lease portfolio proactively to enable us to exitunderperforming locations at minimal cost and risk. In addition, as part of ourrisk management strategy, we continue to renegotiate lease and property coststhereby enhancing our ability to maintain the quality of the business in toughertrading conditions. Targeted marketing strategy We have modified our marketing strategy so that spend is focused on directmarketing, rather than strategic brand advertising. Marketing spend, which was£1.7 million up on the same period last year, has been focused on the rightpromotion to the right customer. In addition our new internet site has beenlaunched, with online bookings up 80% versus the same period last year. FINANCIAL REVIEW We are making good progress against our objectives. Additional costs incurredfor the future development and growth of the business have been offset by costsavings delivered in line with our planned synergies. Demand, as measured by number of enquiries, has increased when compared to thesame period last year. Margins have improved on the back of strong revenuegrowth and a firm control on costs. Our like for like revenues grew by 9.3%. There were good revenue performances inour products with strong growth in Meeting Rooms (+27%) and Virtual Offices(+23%) on a like for like basis. The following table presents the revenue, centre contribution before exceptionalitems and workstations (i.e. weighted average number of available workstations)by geographic region on an IFRS basis (with 2004 restated). 2005 2004 Revenue Centre Workstations Revenue Centre Workstations £m Contribution £m Contribution £m £m Regus 43.0 6.6 18,257 38.5 1.6 18,193 HQ 77.6 17.8 28,222 - - - Americas 120.6 24.4 46,479 38.5 1.6 18,193 EMEA 79.3 19.0 25,807 73.2 12.6 27,881 Asia Pacific 14.9 4,1 5,072 11.9 2.0 4,279 Total 214.8 47.5 77,358 123.6 16.2 50,353 UK fee 1.2 1.2 - 1.3 1.3 - Group 216.0 48.7 77,358 124.9 17.5 50,353 (a) EMEA represents Europe (excluding UK), Middle East and Africa. Workstations The Group has seen a significant improvement in workstation utilisation withoccupancy improving by 4 percentage points to 76% (H1 2004: 72%). In EMEA,occupancy increased by 3 percentage points to 71%. REVPAW grew by 12.6% to £5,584 on H1 2004 (£4,961) due to growth in occupancy,price and services. Revenue Group revenues of £216.0 million (H1 2004: £124.9 million) were £91.1 millionabove last year, principally due to the acquisition of HQ, completed in August2004, which contributed £77.6 million revenues in H1 2005. Revenue for the Americas was £82.1 million higher than last year, again mainlydue to the acquisition of HQ. Strong activity coupled with benefits ofintegrating our back office and sales force has improved operational performanceand profitability in the Americas region. This is illustrated by gross marginsincreasing from 4.2% to 20.2% between the two periods. EMEA revenue of £79.3 million (H1 2004: £73.2 million) was achieved despite a7.4% net capacity reduction in the region. We continue to optimise our inventorybase in this region by addressing centres trading below their expectations,whilst managing existing centre performance. Asia Pacific revenues of £14.9 million were £3.0 million higher than the sameperiod last year (H1 2004: £11.9 million). New centre openings generated £1.7million of revenue in the year. Centre contribution Centre contribution before exceptional items increased by £31.2 million to £48.7million (H1 2004: £17.5 million). This represents a centre contribution marginof 22.5% (H1 2004: 14.0%). The improvement in centre contribution has beendriven by a combination of increasing local revenues on reduced inventory and alower cost base, following operational efficiency improvements and cost controlprogrammes. The Americas region accounted for £22.8 million of this improvement in centrecontribution with HQ delivering £17.8 million. Centre contribution in EMEAincreased by £6.4 million to £19.0 million, representing a margin of 24% ofturnover (H1 2004: 17.2%). This improvement was principally realised throughbetter trading. Centre contribution in Asia Pacific increased by £2.1 million to£4.1 million. Administrative expenses and exceptional items (integration costs) Administrative expenses in the period of £30.7 million included £3.0 million ofnon recurring integration costs. Administrative expenses excluding these costsamounted to £27.7 million which includes £7.2 million of HQ administrationexpenses. Share of operating loss in joint ventures and associate In the half year ended 30 June 2005, the share of joint venture lossesattributable to Regus was £0.1 million (H1 2004: £0.6 million loss). Our UKassociate reported a £2.1 million (H1 2004: £7.9 million) operating loss in thesix month period ended 30 June 2005. Our 42% share holding resulted in a £0.9million loss being charged to our Group profit and loss account in 2005 (H12004: £3.3 million loss). Net interest Net interest payable increased by £1.9 million to £3.1 million (H1 2004: £1.2million). Interest payable on bank loans and overdrafts increased by £2.3million as a result of the additional $110.0 million debt taken on to financethe HQ acquisition. This was offset by £1.0 million (H1 2004: £0.6 million) ofinterest receivable on increased average free cash balances of £57.0 million in2005 against £33.0 million in 2004. Taxation The tax charge for the period of £0.9 million (H1 2004: £0.9 million taxcredit), includes £1.8 million foreign tax charge (H1 2004: £nil) and £0.9million tax credit (H1 2004: £0.9 million tax credit) arising from therecognition of a deferred tax asset on prior year losses. Adjusted profit after tax and earnings per share pre exceptional items andintangible amortisation Profit after tax of £13.0 million (H1 2004: £6.2 million loss), adjusted forexceptional items of £3.0 million (H1 2004: £nil) and intangible amortisation of£1.3 million (H1 2004: £0.1 million) was £17.3 million, a £23.4 millionimprovement on the prior year. Adjusted earnings per share were 1.7p (H1 2004: 0.8p loss per share). Liquidity and capital resources Cash at bank and in hand at 30 June 2005 was £81.5 million (December 2004: £82.3million) of which £65.6 million (December 2004: £64.2 million) was free cash. A$20.0 million early repayment on the $110.0 million term debt was made in March2005. Indebtedness (excluding finance leases) at 30 June 2005 was £52.9 million(December 2004: £64.1 million). The Group had outstanding finance leaseobligations of £9.6 million (December 2004: £13.2 million), of which £4.7million is due within one year. Net cash within the business was £19.0 million at June 2005, up from £5.0million at December 2004. Cash inflow from operating activities in the half year ended 30 June 2005 was£31.5 million. Net cash inflow before financing activities was £19.1 millionafter paying £2.9 million on acquisitions (net of cash assumed), net capitalexpenditure of £5.5 million, interest received of £0.9 million and £0.1 millionpaid to acquire the minority interest in our Italian joint venture. The Group is financed through working capital and a $155.0 million senior creditfacility, which was entered into in August 2004, and is repayable between nowand August 2010. The Group was in compliance with the covenant conditions of thesenior credit facility throughout the period. At 30 June 2005, $81.75 million ofthe Term A debt was outstanding, $20.0 million of the Letter of Credit facilitywas fully utilised and the $25.0 million revolver facility was un-drawn andavailable until August 2008. The Group seeks to maintain comfortable headroom oncommitted facilities at all times and ensure all future contractual commitmentscan be covered by the existing facilities. Both the Group's cash and debt is kept at short term floating interest ratesowing to the current cash flow generation of the business, the debt is deemednon-core and earlier repayment is probable. PRIORITIES The focus for the remainder of the year is to continue to improve the quality ofour business through a combination of activities: • Increasing revenues through increasing occupancy across the portfolio, drivingbetter yields from high demand inventory and maximising meeting roomutilisation. • Using the benefits of our scale, geographic coverage and multi brand offeringto leverage our purchasing power and rationalise back office administrativeoperations. • Optimise revenue synergies achieved through selling across brands andgeographic regions. • Proactively managing our lease portfolio to enable us to exit underperforminglocations at minimal cost and risk. In addition we will continue to manage ourinventory to ensure we meet demand and maximise occupancy and profitability. As part of our risk management strategy we are focused on introducing moreflexibility in our cost base so costs can be varied in line with revenues. OUTLOOK We will continue to invest in the long term growth of the business. Favourablemarket drivers and strong cash generation have provided a catalyst for the Groupto focus on a disciplined expansion programme of new centres and bolt-onacquisitions. Looking forward, we expect the underlying trends experienced in the first sixmonths of the year to continue and we are confident of making further progressin the second half of this year. Consolidated Income Statement Six months Six months Full year ended ended ended 30 June 2005 30 June 2004 31 Dec 2004 Notes (unaudited) (unaudited) (unaudited) £m Restated Restated £m £mRevenue 2 216.0 124.9 312.2 Cost of sales (centre costs) before impairments andonerous lease charges (167.3) (107.4) (259.9)Impairments and onerous lease charges - - (6.6)Cost of sales (centre costs after impairments andonerous lease charges) (167.3) (107.4) (266.5) Gross profit (centre contribution) 48.7 17.5 45.7 Administrative expenses before integration costs (27.7) (19.5) (44.2)Integration costs (3.0) - (2.0) Administrative expenses after integration costs (30.7) (19.5) (46.2) Profit/(loss) from operations 18.0 (2.0) (0.5) Share of loss of joint ventures (0.1) (0.6) (0.7)Share of loss of associate (0.9) (3.3) (3.1) Profit/(loss) before interest and taxation 17.0 (5.9) (4.3) Interest receivable 1.0 0.6 1.4Interest payable (4.1) (1.8) (3.7) Profit/(loss) on ordinary activities before tax 13.9 (7.1) (6.6) Tax (charge)/credit (0.9) 0.9 2.6 Profit/(loss) on ordinary activities after tax 13.0 (6.2) (4.0) Attributable to:Equity shareholders 13.0 (5.9) (3.7)Minority interest - (0.3) (0.3) 13.0 (6.2) (0.4) Earning /(loss) per ordinary share:Basic and diluted (p) 4 1.3 (0.8) (0.4 Results are presented under IFRS with comparatives restated. See note 9. All results relate to continuing operations. Consolidated Balance Sheets As at As at As at 30 June 2005 30 June 2004 31 Dec 2004 (unaudited) (unaudited) (unaudited) Restated Restated notes £m £m £mNon-current assetsGoodwill 105.9 - 96.0Other intangible assets 36.5 2.0 37.2Property, plant and equipment 69.8 50.7 76.1Deferred tax assets 7.2 3.6 6.2 219.4 56.3 215.5Current assetsTrade and other receivables 87.4 56.6 76.0Cash and cash equivalents 81.5 58.3 82.3 168.9 114.9 158.3Total assets 388.3 171.2 373.8 Current liabilities Trade and other payables (70.7) (57.0) (71.0)Customer deposits (52.8) (33.2) (48.8)Deferred income (39.1) (21.7) (34.0)Obligations under finance leases (4.7) (7.1) (7.3)Bank overdrafts and loans (7.6) (3.0) (7.7)Provisions 5 (12.0) (12.4) (13.0) (186.9) (134.4) (181.8) Net current liabilities (18.0) (19.5) (23.5) Total assets less current 201.4 36.8 192.0liabilities Non-current liabilities Obligations under finance leases (4.9) (7.7) (5.9)Loans (41.7) (5.8) (52.2)Accruals (26.3) (26.7) (25.9)Provision for deficit on jointventures and associate (6.8) (5.9) (5.8)Provisions 5 (7.9) (11.8) (8.9) (87.6) (57.9) (98.7) Total liabilities (274.5) (192.3) (280.5) Net assets/(liabilities) 113.8 (21.1) 93.3 EquityShare capital 49.3 39.4 49.3Share premium account 153.5 44.4 153.5Other reserves (22.7) (22.7) (22.7)Retained earnings (65.1) (81.0) (85.7)Equity attributable to shareholders 115.0 (19.9) 94.4 Minority interests (1.2) (1.2) (1.1)Total equity 113.8 (21.1) 93.3 Consolidated Cash Flow Statement Six months Six months Full year ended ended ended 30 June 2005 30 June 2004 31 Dec 2004 Notes (unaudited) (unaudited) (unaudited) Restated Restated £m £m £mCash generated from Operations 6 31.5 3.8 21.0 Interest paid on finance leases (0.5) (1.4) (0.5)Interest paid on credit facilities (3.5) (0.2) (2.8)Tax paid (0.8) (0.9) (1.6) Net cash flows from operation activities pre Chapter 11 payments 26.7 1.3 16.1 Chapter 11 payments - (27.8) (27.8) Net cash flows from operating activities afterChapter 11 payments 26.7 (26.5) (11.7) Investing activitiesPurchase of subsidiary undertakings (2.9) - (173.7)Cash acquired with subsidiary - - 10.8Investment in joint venture (0.1) - -Sale of tangible fixed assets 0.6 0.1 0.6Purchase of tangible fixed assets (6.1) (1.6) (5.3)Interest received 0.9 0.5 1.7 Cash flows from investing activities (7.6) (1.0) (165.9) Financing activities New loans - 0.1 61.2Repayment of loans (14.3) (0.1) (1.6)Payment of principal under finance leases (4.2) (3.3) (7.7)Issue of equity shares - 3.2 125.8Debt issue costs - - (4.7)Issue costs on shares issued - - (3.6)Sale of own shares held by ESOP - 2.1 2.0 Cash flows from financing activities (18.5) 2.0 171.4 Net increase/(decrease) in cash and cash equivalents 0.6 (25.5) (6.2)Cash and cash equivalents at beginning of period 82.3 85.0 85.0Effect of exchange rate fluctuations on cash held (1.4) (1.2) 3.5 Cash and cash equivalents at end of period 8 81.5 58.3 82.3 Included within cash and cash equivalents is cash at bank and in hand of £65.6million (December 2004: £64.2 million) and liquid resources of £15.9 million(December 2004: £18.1 million). See note 8 for additional analysis. Consolidated Statement of Changes in Equity Attributable to equity holders of the Group Share Share Foreign Other Retained Minority Total capital premium currency reserves earnings interests equity £m account translation £m £m £m £m £m reserve £mBalance at 31 Dec 2003 39.4 44.4 - (22.7) (75.8) (1.1) (15.8) Loss for the period - - - - (5.9) (0.3) (6.2)Sales of shares help by ESOP - - - - 2.1 - 2.1Exchange differences - - (1.4) - - 0.2 (1.2) Balance at 30 June 2004 39.4 44.4 (1.4) (22.7) (79.6) (1.2) (21.1) Profit for the period - - - - 2.2 - 2.2Exchange differences - - (7.1) - - 0.1 (7.0)Placing and Open Offer 9.9 112.7 - - - - 122.6Issue costs on Placing andOpen Offer - (3.6) - - - - (3.6)Share based payments - - - - 0.2 - 0.2 Balance at 31 Dec 2004 49.3 153.5 (8.5) (22.7) (77.2) (1.1) 93.3 Profit for the period - - - - 13.0 - 13.0Exchange differences - - 7.4 - - (0.1) 7.3Share based payments - - - - 0.2 - 0.2 Balance at 30 June 2005 49.3 153.5 (1.1) (22.7) (64.0) (1.2) 113.8 This statement is unaudited. Notes 1 ACCOUNTING POLICIES ADOPTED IN 2005 REPORTED FINANCIAL INFORMATION Basis of preparation The Group has adopted IFRS from 1 January 2004 ("the date of transition") basedon the standards expected to be in issue at 31 December 2005. EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the company, for the year ending 31 December 2005, beprepared in accordance with International Financial Reporting Standards (IFRSs)adopted for use in the EU ("adopted IFRSs"). This interim financial information has been prepared in accordance with adoptedIFRSs for interim financial statements (adopted IAS 34 Interim FinancialReporting). These are the Group's first adopted IFRS condensed consolidatedinterim financial statements for part of the period that will be covered by thefirst adopted IFRS annual financial statements and IFRS 1 First-time Adoption ofInternational Financial Reporting Standards has been applied. The condensedconsolidated interim financial statements do not include all of the informationrequired for full annual financial statements. These consolidated interim financial statements have been prepared on the basisof adopted IFRSs in issue that are effective or available for early adoption at31 December 2005, the Group's first annual reporting date at which it isrequired to use adopted IFRSs. However, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2005 are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 December 2005. First time application In accordance with IFRS 1 the Group is entitled to a number of voluntary andmandatory exemptions from full restatement, which have been adopted as follows: • The basis of accounting for pre-transition combinations under UK GAAP has notbeen revisited. • The reserve for cumulative foreign currency translation differences has beenset to zero at the transition date. • IFRS 2 has been applied to all grants of equity instruments after 7 November2002 that had not been vested at 1 January 2005. Basis of consolidation The consolidated financial statements comprise the financial statements of theparent company (Regus Group plc) and its subsidiaries. The financial statementsof subsidiaries are prepared for the same reporting year as the parent company,using consistent accounting policies. The results of subsidiaries are consolidated, using the purchase method ofaccounting, from the date on which control of net assets and operations of theacquired company are effectively transferred to the Group. Similarly, theresults of subsidiaries divested cease to be consolidated from the date on whichcontrol of the net assets and operations are transferred out of the Group. Goodwill Goodwill represents the difference between cost of acquisition over the share ofthe fair value of identifiable net assets (including intangible assets) of asubsidiary, associate or joint venture at the date of acquisition. Positivegoodwill is stated at cost less any provision for impairment in value. Animpairment test is carried out annually. Positive goodwill is allocated to cashgenerating units for the purpose of impairment testing. Intangible assets Intangible assets acquired separately from the business are capitalised at cost.Intangible assets acquired as part of an acquisition of a business arecapitalised separately from goodwill if their fair value can be measuredreliably on initial recognition. Intangible assets are amortised on a straight line basis over the estimateduseful life of the assets as follows: HQ brand 10-20 yearsComputer software 2 yearsCustomer lists 1-2 years Leases Plant and equipment leases for which the Group assumes substantially all of therisks and rewards of ownership are classified as finance leases. All otherleases, including all of the Group's building leases are categorised asoperating leases. Finance leases Plant and equipment acquired by way of a finance lease is capitalised at thecommencement of the lease at the lower of its fair value and the present valueof the minimum lease payments at inception. Future payments under finance leasesare included in creditors, net of any future finance charges. Minimum lease payments are apportioned between the finance charge and thereduction of the outstanding liability. Finance charges are recognised in theincome statement over the lease term so as to produce a constant periodic rateof interest on the remaining balance of the liability. Operating leases Minimum lease payments under operating leases are recognised in the incomestatement on a straight line basis over the lease term. Lease incentives andrent 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 entitledto use the leased asset. The lease term is the non-cancellable period of thelease, together with any further periods for which the Group has the option tocontinue to lease the asset and when at the inception of the lease it isreasonably certain that the Group will exercise that option. Contingent rentals include rent increases based on future inflation indices ornon-guaranteed rental payments based on centre turnover or profitability and areexcluded from the calculation of minimum lease payments. Contingent rentals arerecognised in the income statement as they are incurred. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment in value. Depreciation is calculated on a straight line basisover the estimated useful life of the assets as follows: Fixtures and fittings Over the shorter of the lease term and 10 yearsFurniture 5 yearsOffice equipment and telephones 5 yearsMotor vehicles 4 yearsComputer hardware 3 years Investments in associates and joint ventures Investments in associates and joint ventures are equity accounted and carried inthe balance sheet at cost plus post-acquisition changes in the Group's share ofnet assets of the associate, less any impairment in value from the date thatsignificant influence commences until the date that significant influenceceases. The profit and loss account reflects the Group's share of the results ofoperations of the joint venture or associate. To the extent that losses of anassociate or joint venture exceed the carrying amount of the investment, theinvestment is reported at nil value and additional losses are only provided ifthe Group has incurred legal or constructive obligations. Revenue Revenue from the provision of services to customers is measured at the fairvalue of consideration received or receivable (excluding sales taxes). Workstations Workstation revenue is recognised in the income statement as it falls due underthe customer rental contract or service agreement. Amounts invoiced in advanceare deferred and recognised as revenue upon provision of the service. Customer service income Service income (including the rental of meeting rooms) is recognised on amonthly basis as services are rendered. In circumstances where Regus acts as anagent for the sale and purchase of goods to customers, only the commission feeearned is recognised as revenue. Management and franchise fees Fees received for the provision of initial and subsequent services arerecognised as revenue as the services are rendered. Fees charged for the use ofcontinuing rights granted by the agreement, or for other services providedduring the period of the agreement, are recognised as revenue as the servicesare provided or the rights used. Pensions and employee benefits The Group's contributions to defined contribution plans and other paid andunpaid benefits earned by employees are charged to the profit and loss accountin the period to which the contributions relate. Share based payments The Group issues share options to certain employees (including directors). Thefair value of these payments is measured at fair value at the date of grant byuse of the Black - Scholes model and charged to profit and loss on a straightline basis over the vesting period. No cost is recognised for awards that do notultimately vest due to the failure to meet non market conditions. Deferred taxation Deferred tax is provided, using the liability method, on all taxable temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts. Deferred tax assets are recognised for all deductible temporary differences tothe extent that it is probable that taxable profit will be available againstwhich the deductible temporary differences, carry forward of unused tax assetsand unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profit will be available to allow all or part of the deferred income taxasset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that areexpected to apply to the period when the asset is realised or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date. Deferred tax balances are not discounted. Provisions Provisions are recognised when an obligation exists for a future liability inrespect of a past event and where the amount of the obligation can be reliablyestimated. Restructuring provisions are made for direct expenditures of a businessreorganisation where the plans are sufficiently detailed and well advanced, andwhere the appropriate communication to those affected has been undertaken at thebalance sheet date. Provision is made for onerous contracts to the extent that the unavoidable costsof meeting the obligations under a contract exceed the economic benefitsexpected to be delivered, discounted using the Group's weighted average cost ofcapital. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchangeruling at the date of the transaction. Monetary assets and liabilities, goodwilland fair value adjustments denominated in foreign currencies are translatedusing the closing rate of exchange at the balance sheet date and the gains orlosses on translation are taken to the income statement. The results and cash flows of overseas operations are translated using theaverage rate for the period. Assets and liabilities, including goodwill and fairvalue adjustments, of overseas operations are translated using the closing ratewith all exchange differences arising on consolidation being recognised in theforeign currency translation reserve. Exchange differences are released to theincome statement on disposal. Financial instruments Financial instruments are recorded initially at fair value and their subsequentmeasurement depends on the designation of the instrument. Cash deposits and trade receivables are classified as loans and receivables andare held at amortised cost. All other financial assets are classified asavailable for sale and changes in fair value are taken to reserves. All debt isheld at amortised cost. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and liquidresources. Impairment The carrying amount of the Group's assets are reviewed at each balance sheetdate to determine whether there is any indication of impairment. If any suchindication exists, the asset's recoverable amount is estimated. An impairmentloss is recognised whenever the carrying amount of an asset exceeds itsrecoverable amount. Impairment losses are recognised in the income statement. 2 SEGMENTAL REPORTING H1 2004 Like for Like Expansions Closures Exchange H1 2005 £m £m £m £m £m £m Group Revenue 124.9 136.5 81.9 (1.3) (1.1) 216.0 Centre contribution 17.5 30.7 18.0 0.1 (0.1) 48.7 (Loss)/profit from operations (2.0) 9.1 8.8 0.2 (0.1) 18.0 EBITDA 11.4 20.2 17.4 0.1 (0.3) 37.4 EBITDA (%) 9.1 14.8 21.2 (7.7) - 17.3 Average occupancy (%) 72.0 72.6 77.4 32.4 - 76.2 REVPAW (£) 4,961 5601 5,559 3,048 - 5,584 Americas Revenue 38.5 43.3 79.9 (0.2) (2.4) 120.6 Centre contribution 1.6 6.9 17.9 - (0.4) 24.4 (Loss)/profit from operations (3.4) 1.4 8.9 - (1.1) 9.2 EBITDA 2.5 6.6 17.4 - (1.4) 22.6 EBITDA (%) 6.5 15.2 21.8 - - 18.7 Average occupancy (%) 79.7 79.9 78.7 23.5 - 79.5 REVPAW (£) 4,219 4,747 5,628 2,553 - 5,189 EMEA Revenue 73.2 78.7 0.3 (1.1) 1.4 79.3 Centre contribution 12.6 18.5 0.1 0.1 0.3 19.0 Profit from operations 3.5 9.2 - 0.2 0.1 9.5 EBITDA 9.2 13.5 - 0.1 0.2 13.8 EBITDA (%) 12.6 17.2 - (9.1) - 17.4 Average occupancy (%) 67.5 67.3 29.8 34.4 - 70.6 REVPAW (£) 5,262 5,995 2,423 3,159 - 6,146 Asia Pacific Revenue 11.9 13.3 1.7 - (0.1) 14.9 Centre contribution 2.0 4.1 - - - 4.1 Profit/(loss) from operations 0.7 2.4 (0.1) - (0.1) 2.2 EBITDA 2.3 3.3 - - (0.1) 3.2 EBITDA (%) 19.3 24.8 - - - 21.5 Average occupancy (%) 75.2 75.8 49.8 - - 74.7 REVPAW (£) 5,562 6,269 4,102 - - 5,875 Other Revenue 1.3 1.2 - - - 1.2 Centre Contribution 1.3 1.2 - - - 1.2 (Loss)/profit from operations (2.8) (3.9) - - 1.0 (2.9) EBITDA (2.6) (3.2) - - 1.0 (2.2) 3 RECONCILIATION OF PROFIT/(LOSS) BEFORE INTEREST AND TAX TO ADJUSTED EBIT ANDEBITDA Six months Six months Full year ended ended ended 30 June 2005 30 June 2004 31 Dec 2004 (unaudited) (unaudited) (unaudited) £m £m £mProfit/(loss) before interest and tax 17.0 (5.9) (4.3) Add back:Non-recurring items (impairments, onerous lease charges andintegration costs) 3.0 - 8.6Share of loss of joint venture and associate 1.0 3.9 3.8 Adjusted EBIT 21.0 (2.0) 8.1 Add back:Depreciation 15.1 13.3 30.1Amortisation 1.3 0.1 1.0 Adjusted EBITDA 37.4 11.4 39.2 4 EARNINGS/(LOSS) PER SHARE (BASIC AND DILUTED) Six months Six months Full year ended ended ended 30 June 2005 30 June 2004 31 Dec 2004 (unaudited) (unaudited) (unaudited) £m p £m p £m pProfit/(loss) for the periodretainedfor equity shareholders 13.0 1.3 (5.9) (0.8) (3.7) (0.4) Add back:Non-recurring cost of sales - - - - 6.6 0.8Non-recurring administrationexpenses 3.0 0.3 - - 2.0 0.2Amortisation of intangible assets 1.3 0.1 0.1 - 1.0 0.1Profit on sale of subsidiaries - - - - 0.1 -Tax effect on non-recurring items - - - - (2.2) (0.3) Profit/(loss) for the periodbefore non-recurring items,amortisation and profit on saleof subsidiaries 17.3 1.7 (5.8) (0.8) 3.8 0.4 '000 '000 '000Ordinary shares - basic 985,800 787,591 859,702Ordinary shares - diluted 988,611 787,591 859,702 In 2004 share options were not included in the computation of diluted loss pershare due to them being anti-dilutive. 5 PROVISIONS Six months Six months Full year ended ended ended 30 June 2005 30 June 2004 31 Dec 2004 (unaudited) (unaudited) (unaudited) £m £m £m1 January 21.9 52.6 52.6 Provided in the period 0.1 - 2.7Utilised in the period (2.2) (26.7) (32.1)Provisions released - - (0.6)Transferred to accruals (0.4) (0.8) -Exchange differences 0.5 (0.9) (0.7)At end of period 19.9 24.2 21.9 Analysed between:Amounts due within one year 12.0 12.4 13.0Amounts due after one year 7.9 11.8 8.9 6 RECONCILIATION OF PROFIT/(LOSS) FROM OPERATIONS TO CASH GENERATED FROMOPERATIONS Six months Six months Full year ended ended ended 30 June 2005 30 June 2004 31 Dec 2004 (unaudited) (unaudited) (unaudited) £m £m £m Profit/(loss) from operations 18.0 (2.0) (0.5) Adjustments for: Depreciation charge 15.1 13.3 30.1 Loss on disposal of fixed assets 0.3 0.2 - Amortisation of intangible assets 1.3 0.1 1.0 Impairment of fixed assets - - 3.2 Decrease in provisions (2.0) (3.2) (5.6) Operating cashflows before movements in working capital 32.7 8.4 28.2 (Increase)/decrease in debtors (5.5) (2.5) (1.0) Increase/(decrease) in creditors 4.3 (2.1) (6.2) Cash generated from operations 31.5 3.8 21.0 7 CONTINGENT LIABILITIES The Group has bank guarantees and letters of credit held with certain banksamounting to £21.8 million (December 2004: £22.9 million), the Group acts as aguarantor for certain lease obligations of its UK associate. 8 ANALYSIS OF CHANGES IN NET FUNDS At Non-cash Exchange At 1 Jan 2005 Cash flow changes movement 30 June 2005 £m £m £m £m £mCash at bank and in hand 64.2 1.1 - 0.3 65.6Overdrafts (0.4) 0.1 - - (0.3) 63.8 1.2 - 0.3 65.3 Debt due after one year (55.8) 13.7 - (2.8) (44.9)Debt due within one year (7.9) 0.6 - (0.4) (7.7)Unamortised portion of discount andfinancing fees 4.1 - (0.4) - 3.7Finance leases due after one year (5.9) 0.4 0.9 (0.3) (4.9)Finance leases due within one year (7.3) 3.9 (0.9) (0.4) (4.7) (72.8) 18.6 (0.4) (3.9) (58.5) Liquid resources 18.1 (2.2) - - 15.9 9.1 17.6 (0.4) (3.6) 22.7 Liquid resources at 30 June 2005 include cash held on deposit of which £2.4million (December 2004: £2.7 million) relates to collateral against bank loans;£11.6 million (December 2004: £13.5 million) relates to deposits which are heldby banks and landlords as security against lease commitments by Regus operatingcompanies and £1.9 million (December 2004: £1.9 million) held by the ESOP Trust.These amounts are blocked and not available for use by the business. Non-cash changes include movements between categories. 9 RESTATEMENT OF FINANCIAL INFORMATION FOR 2004 UNDER IFRS 1 Analysis of impact The tables below illustrate the impact of IFRS restatement on previouslyreported results under UK GAAP. a. Income statement (un-audited) Year Six months ended ended 31 Dec 2004 30 June 2004 notes £m £mGroup operating loss reported under UK GAAP (a) (3.2) (3.1)Lease accounting 2.1 1.2 1.1Share options 2.2 (0.2) -Amortisation of goodwill 2.3a 2.0 -Amortisation of intangible assets 2.3b (0.3) - Loss from operations on an IFRS basis (0.5) (2.0)Share result of joint ventures (b) (0.7) (0.6)Share of result of associate (b) 2.4 (3.1) (3.3)Net finance costs (2.2) (1.2)Tax 2.5 2.5 0.9 Loss for the period on an IFRS basis (4.0) (6.2) (a) Includes profit from sale of subsidiaries.(b) Includes associated finance costs and tax. 9 RESTATEMENT OF FINANCIAL INFORMATION FOR 2004 UNDER IFRS CONTINUED b. Net assets (un-audited): notes 31 Dec 2004 30 June 2004 31 Dec 2003 £m £m £mNet assets/(liabilities) reported under UK 109.0 (4.1) 1.9GAAPLease accounting 2.1 (6.3) (6.3) (7.4)Goodwill and intangibles 2.3 1.7 - -Share of net liabilities of associate 2.4 (10.2) (9.8) (9.4)Deferred revenue - franchise fee 2.6 (0.8) (0.8) (0.8)Holiday pay 2.7 (0.1) (0.1) (0.1) Net assets/(liabilities) on an IFRS basis 93.3 (21.1) (15.8) 2 Notes on restatement 2.1 Lease Accounting The following differences were identified between UK GAAP and IFRS: a. During the Group's Chapter 11 process a number of lease contracts wererenegotiated to a more favourable cost to the Group. Under UK GAAP, rentaccruals were released to the profit and loss account when negotiations werecompleted. In contrast, IFRS requires rent accruals to be spread over theremaining lease term and consequently an adjustment has been made to reinstatethese accruals in the transition balance sheet and recognise them over the leaseterm with a favourable impact to centre profitability. b. Under UK GAAP, minimum lease payments (net of lease incentives) are spread ona straight line basis over the shorter of the period to the first contractualbreak point or the first market rent review date. IFRS requires that, minimumlease payments be assessed over the period to the first contractual break pointonly. As a result of this change, certain operating lease incentives are spreadover a longer period and additional rental periods are brought into theassessment of minimum lease payments. Consequently an adjustment has been madeto increase the rent accrual in the transition balance sheet. c. Under UK GAAP the Group made an accrual for rental costs which are dependenton centre performance (e.g. turnover or profitability) based on the bestestimate of the future liability by spreading the expected cost over the leaseterm. Under IFRS accruals are only made for contingent rents in the period inwhich they arise. Consequently, an adjustment has been made to release accrualsin the transition balance sheet relating to rentals that were anticipated butwere not contractually due at that date. The total impact of the adjustments described above is to instate an accrual of£7.4 million in the transition balance sheet and to reduce the charge for rentcosts in 2004 by £1.1 million. 2.2. Share options In accordance with IFRS 2 and the transitional exemption permitted by IFRS 1,the Group has recognised a charge reflecting the fair value of outstanding shareoptions granted to employees since 7 November 2002. The fair value has beencalculated using a Black - Scholes valuation model and is charged to profit andloss over the vesting period of the options. The impact of this change has been a charge of £0.2 million to operating profitfor the year to 31 December 2004. The total charge over the three year vestingperiod is calculated to be a charge of £1.5 million to operating profit. 2.3. Goodwill and intangible assets There are two adjustments arising in relation to the acquisition of HQ GlobalWorkplaces Inc (HQ), which effect the carrying value and amortisation ofgoodwill and intangible assets. a. IFRS 3 prohibits the amortisation of goodwill but requires an impairment testto be carried out on an annual basis. Consequently the UK GAAP amortisationcharge of £2.0 million has been reversed. b. IFRS requires certain intangible assets to be recognised separately when itis capable of being separated from the business or arises from contractual orother legal rights. Accordingly, an intangible asset of £1.9 millionrepresenting the value of the customer list acquired with HQ has been separatelyrecognised. This is being amortised over a period of two years resulting in a2004 charge of £0.3 million. 2.4. UK associate The Group will continue to apply the equity method of accounting for its UKassociate. Changes to Group accounting policies, in particular lease accounting, whenapplied to the UK associate result have the effect of increasing the reportedloss of the UK associate and reducing net assets. The impact on the Group is toincrease the share of the net loss in 2004 by £0.8 million and to reduce thecarrying value of the UK associate in the transition balance sheet by £9.4million. 2.5. Tax Tax on an IFRS basis is restated to exclude tax attributable to the UKassociate. The respective tax is now included within 'Share of result ofassociate'. On an IFRS basis the tax credit for the year ended 31 December 2004was £2.5 million compared with £2.9 million on a UK GAAP basis. Due to the uncertainty of recovering tax losses the Group has not recognised therelated deferred tax assets on either a UK GAAP or IFRS basis. None of the IFRSconversion adjustments result in a change in the position with regard to therecoverability of these losses and consequently there is no adjustment to thetax credit for the year. 2.6. Deferred revenue - franchise fees Under UK GAAP, franchise fees are recognised as income in the period received.IFRS requires franchise fees charged for the use of continuing rights granted bythe agreement, or for other services provided during the period of the agreementto be recognised as revenue as the services are provided or the rights used. Theincome recognised prior to 1 January 2004, which under IFRS is spread over theperiod of the franchise contract, amounted to £0.8 million and is unchanged at31 December 2004. 2.7. Holiday pay UK GAAP does not require the recognition of a holiday accrual for unpaid holidaycarried over a period end. An accrual is only recognised where a liability topay employees for holiday earned exists at the balance sheet date. Under IFRS, full provision is made for paid leave accrued by employees andtherefore an accrual of £0.1 million has been established in the opening balancesheet. There has been no movement in this accrual subsequent to the transitionbalance sheet. Regus Group plc3000 Hillswood DriveHillswood Business ParkChertseySurrey KT16 0RS This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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