8 March 2022

IWG plc - ANNUAL FINANCIAL REPORT ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2021

IWG plc, the world's leading provider of hybrid work solutions, today announces its annual results for the year ended 31 December 2021

During 2021 the Group has delivered a decisive recovery in trading performance as the adoption of hybrid working patterns has become established practice for most employers

Key Highlights⁽¹⁾

Highlights

-  Strengthening trading recovery from April 2021

-  Strong momentum into 2022

-  Significant increased demand with shift to hybrid working

-  Group-wide strategic review completed

-  Merger of digital assets with The Instant Group to create world's only fully integrated independent workspace platform

Financial performance recovery evident

-  Strong and increasing demand for our products as interest and adoption of hybrid working grows

-  Open centre revenue increased 0.6% year-on-year, with a strong H2 recovery with growth over H1 of 14.9%

-  Pre-2020 centres ended the year at 74.5% occupancy

-  Adjusted EBITDA of £79.6m for 2021, almost all delivered in H2

-  Cash flow improved each month sequentially following Q1

-  Growth continues into 2022

Record customer demand

-  Sequential occupancy growth since March 2021 and the Group reported its highest ever demand in Q4 2021 eclipsing pre-pandemic levels

-  83% of the Fortune 500 now amongst IWG's global customer base

Significant advance on capital-light growth

-  Strategy of moving to capital-light franchise and managed centres is working

-  Pipeline of increased growth in 2022

-  Mix between company owned and partnered / franchised will be close to 50/50 by end 2022

-  Several small MFAs completed and more discussions in the pipeline

Strong performance of company owned new investments

-  Both 2020 and 2021 investments developing strongly

-  Continuing investment in our network as we see growing demand in both the demand and supply side of the market

-  During 2020 and 2021 287 new centres were opened, delivering on our strategy of operating near-to-home centres in commuter areas along with prestige locations in metropolitan zones

Record visibility of revenue

-  Strong end to 2021 and excellent momentum into Q1, 2022

-  High level of revenue visibility driven by a progressive mix-shift towards multi-site and enterprise clients

Merger of digital assets with The Instant Group

-  Merger of digital assets with The Instant Group separately announced today

⁽¹⁾  Results presented in accordance with pre-IFRS 16 accounting standards (as defined in Alternative performance measures section)

⁽²⁾  At constant currency

⁽³⁾  Pre-2020 refers to the performance for all operations opened on or before 31 December 2019 and which were open throughout the period

⁽⁴⁾  Adjusting items are separately disclosed as they are considered to be significant in nature and/or size

⁽⁵⁾  Net debt in accordance with IFRS 16 includes lease liabilities of £6,121.2m (2020: £6,558.5m)

Mark Dixon, Chief Executive of IWG plc, said:

"2021 has been a year of extraordinary transformation for IWG, for our employees, clients and for the markets we serve. Hybrid working is now an established model and businesses of all sizes are planning for a hybrid future. The shift from fixed workspace to flex is now accelerating and irreversible.

Scale is essential for us to offer the convenience that employers and employees everywhere are looking for and it is our unrivalled network with four times the number of locations, compared to our nearest competitor, that provides a unique opportunity to capitalise upon these structural changes to drive improved returns. Looking forward, the strength of our balance sheet, the flexibility of our technology and the reach of our teams give us the ability to build momentum and deliver strong growth, both with enterprises and on-line. Our strategy is delivering, and, with a strong start to the year, we look forward to continuing and accelerating the momentum achieved so far in 2022 as businesses of all sizes continue to embrace the hybrid model."

Details of results presentation

Mark Dixon, Chief Executive Officer, and Glyn Hughes, Chief Financial Officer, are hosting a conference call today for analysts and investors at 9.00am GMT.  You must pre-register to gain access to the call. Please contact [email protected] for the link if you have not already received it.

A replay facility will be available for 7 days following the call:

Replay dial-in number:                 08445718951

Access PIN:                                     2937735

For further information, please contact:
 

Chairman's statement
 

Strong finish despite the challenges
 

The last year has proven beyond all doubt that people around the world wish to work flexibly. With the widespread and accelerating adoption of hybrid working, the structural growth opportunity is clearly defining the runway that lies ahead of us. IWG is a business in the right place at the right time.

In last year's Annual Report, I wrote about how a year that started with enormous promise rapidly became one of the most difficult and challenging in IWG's history.

This year, our experience was the virtual opposite. 2021 was a year that started with a pandemic induced decline in demand across our global footprint as governments imposed unprecedented curbs on travel and work practices, yet ended with a significant uplift to our business as more and more companies across the world took action to gain the benefits inherent in the hybrid-working model.

The Delta and Omicron variants introduced new challenges during the year, but with focused sales efforts and building on the benefits of our efforts to reduce operating costs, we have now delivered a meaningful transition to revenue and EBITDA growth during the second half of the year. 

As a result, we ended 2021 with a sustained uplift to our business, including the strongest period for sales in our history. This positive development shows every sign of continuing as we support our customers' safe return to the office. Our improving financial results provide a powerful springboard for accelerating our growth strategy in 2022.

ESG journey

As described further in this report, we are committed to our ESG journey and during 2021 we continued to deliver against the objectives we have identified across our Environmental, Social and Governance pillars. We are proud to be a global organisation that is doing so much to promote and enable the uptake of the hybrid-working model, which is at the forefront of efforts to reduce the global impact of the daily commute. The transition to hybrid working not only allows corporations to more efficiently provide office space, reducing their overall property footprint by up to 50%, it also enables workers to eliminate the commute, reducing both the environmental impact and personal time loss associated with travel.

I would like to highlight here the progress we are making on our commitment to achieving net-zero emissions. We are working hard on multiple fronts to reduce our own carbon footprint through initiatives to switch to renewable energy sources and reduce energy consumption. Colleague-led initiatives are underway across the business to reduce waste and promote recycling. After the benefits from our efforts to continuously reduce our carbon footprint, we will be investing in carbon offset projects to eliminate the remaining net effect of IWG's operating activities. As a result of these collective efforts, we are bringing forward our objective to achieve being carbon neutral during 2023.

Strategic review

Companies are being driven by the need to reduce their real-estate costs and carbon footprint while attracting and retaining talent. Employees want the choice to work in a metropolitan headquarters, at home, or to collaborate with colleagues in a suburban location closer to their home. We had begun planning for this shift at IWG well before the pandemic and, with the continued development of our capital-light expansion model through franchising and management agreements, are well placed to take the next major steps forward in our growth story.

We understand our success depends on executing against a strategy which provides value for all of our stakeholders, including customers, partners, employees and communities, as well as shareholders. For our customers we are committed to ensuring that our products and services continue to empower them to attract and retain the best talent and manage their real estate efficiently and sustainably. We are developing new ways of working with our partners to maximise and share the opportunities being created by the shift to hybrid working. For our shareholders, we are working to realise the full potential of their investment through improving our operating results and the implementation of our strategy.

As previously announced, we conducted a strategic review to address and capture the opportunities being created by the rapid shift to hybrid working. We believe the value of our industry-leading digital and technology assets, services, and network of physical locations will be better recognised through their being separately organised for focused management and development. In this regard, we are pleased to announce the transfer of certain of our digital assets into a business to be merged with and operated by The Instant Group to create the world's leading fully integrated independent workspace platform.

Our people

For our people, we aim to provide every opportunity to build a great career with us, developing their talent and capabilities in a diverse and inclusive environment and representing IWG as a progressive force in the countries where we operate. I would like to take this opportunity to extend my personal thanks to everybody who has been responsible for IWG's outstanding achievements during the year. I would especially like to thank all those team members at every level who have continued to represent the company so brilliantly in all our markets across the world. Despite the many challenges they have faced during the pandemic, they have shown great resolve to continuing to provide great service to our customers to maintain the IWG difference and our position at the forefront of one of the world's most exciting business sectors.

Our Board

I am immensely grateful to my Board colleagues for their continued dedication to fulfilling the IWG vision and the outstanding quality of advice that they have brought to the business during another very active year. The recommendations of the external evaluation of Board performance conducted during the year have been incorporated into our plans and we continue to have full confidence in the Board members and processes. Succession planning at Board level will remain a key focus area for 2022.

We are committed to increasing the ethnic diversity of the board and are pleased to announce that Tarun Lal will be joining the Board as a Non-Executive Director with effect from 10 May 2022, subject to applicable law including shareholder approval at the Company's upcoming annual general meeting. Tarun will bring extensive franchising expertise to the Board from his over 20 years of experience with Yum! Restaurants where he has held executive roles including Global Chief Operating Officer KFC and his current role as Managing Director, Middle East, Turkey, Africa and India. 

Looking ahead

The case for hybrid has been accelerated to the forefront of employer and employee thinking across the world by the pandemic. As hybrid working becomes the operational model for many organisations, we are confident about the continuing structural growth drivers at play in our industry. For many businesses embracing these changes, IWG is the automatic first port of call due to the advantages offered by the geographic coverage of our network, our differentiated technology platform and the experience of our people.

We are all watching with great concern the increasing geopolitical uncertainties and devastating humanitarian crises arising from the conflict in Ukraine, where our thoughts are with those directly impacted, including our own colleagues and customers.

IWG has strong momentum as we prepare to address the challenges and capture the opportunities in 2022 and beyond. Our ability to address new challenges has been demonstrated repeatedly during the pandemic. We look forward to the opportunity to further strengthen both our lead and role as a facilitator of positive change and improvement for employers and employees as we deliver on our mission to provide a great day at work.

Douglas Sutherland

Chairman

8 March 2022

Chief executive officer's review
 

Right business,



right place, right time
 

As more people around the world want to work flexibly, IWG is a business in the right place at the right time.

The rapid global rise in the adoption of the hybrid-working model, where companies use technology to give their employees effective remote access and home working, in combination with easy-to-access local centres and traditional head-office sites, is here to stay. These structural changes in the way that people across the world work are driving an irreversible change in the office market. As a result, opportunities to grow our business are accelerating strongly.

The global pandemic presented IWG with many challenges throughout 2020 and the first half of 2021. However, these proved to be short-term issues, and during the second half of 2021 we made a rapid return to business growth, which is continuing strongly into 2022.

Today, we are enhancing our strategy to enable us to deliver our full potential by leveraging our global leadership position in two key areas. The first of these is our focus on growing our network through the increasing use of capital-light expansion methods such as franchising, management agreements and partnering deals. The second is our parallel focus on developing and deploying our digital assets to create an improved customer experience and build strong long-term growth with recurring revenues.

As we enter 2022, our focus is sharper than ever. Our goals are clear. I believe that with 3,314 centres, we are operating at only a fraction of our underlying potential of 30,000 centres. I also believe that the optimal proportion of IWG-owned centres in the future will be 10% at most. Today, conventional leases represent approximately 65% of our global portfolio, we expect to end the year with franchises, partnerships and management agreements reaching close to 50%.

During 2021, we entered into many attractive new franchising and management agreements. These included the sale of existing units to franchise partners, as well as entering new relationships with new partners on new properties. These actions significantly improved the quality and diversity of our global portfolio and are designed to accelerate our activities in this area throughout 2022 and the years ahead as we drive IWG towards achieving its full potential.

Our business performance in 2021

Throughout 2021, a period once again dominated by the global impact of the COVID-19 pandemic, we have shown that we are well-positioned to meet the needs of individuals and organisations who wish to change the way they work.

This was a year of two halves that culminated in a period of significant positive change. In a matter of a few months, we moved from one of the most challenging moments in our company's history at the beginning of 2021 when we experienced the highest concentration of lockdowns, which contributed to the losses reported for the year ended 31 December 2021, to a point where sales growth is now ahead of pre-pandemic levels.

In fact, we experienced the best-selling months in our more than 30-year history in the year's fourth quarter. Our global membership continues to grow and over the year we added 2 million new network users. This was complemented with a major inflection in profitability and a cash positive performance that gathered strength as the year went on.

We delivered our first franchise deals in new countries such as the USA, India, Malaysia, Poland, Brazil, Spain and Scotland.  We have good momentum in the pipeline providing a positive outlook. We also continued to invest in capital-light network growth during 2021, adding 146 new centres to our global network at a cost of £142.5m (£111.8m on a pre-IFRS 16 basis). We used an approach based on our franchise and management-agreement model for 80 of these new centre openings.

This accelerating growth in our franchise footprint is highly significant. Scale is essential for us to offer the convenience that employers and employees everywhere are looking for, and the fast-increasing coverage provided by our global network is a key competitive advantage. Working with new and existing franchise partners will therefore continue to be at the heart of our growth.

Expansion through partnership rather than investment delivers the capital-light growth that we and our shareholders are looking for, enabling us to invest in the brands, technologies and people that are our true differentiators. It also empowers us to add higher-quality centres to our network, with the full engagement of owners who retain a powerful interest in making our franchise partnerships, management agreements and partnership deals work. As a result of this expansion in 2021, we have significantly improved the quality of our portfolio overall and will continue to do so throughout 2022 and beyond as we grow our global network.

In addition, to underscore the relevance of our network to new and existing users across the world, we have progressively rebased our portfolio to deliver more choice and supply to commuter towns and rural areas. In this way, we continue to bring the workplace closer to home, helping to reduce the need for commuting and all the environmental and wellbeing challenges it brings.

Recognising that it is essential for us to offer customers brands that cater to everybody's working style, we also further developed our market leadership in this area during 2021.

The new brands in our portfolio include The Wing in the US and the Italian-based Copernico, both of which have ambitious expansion plans. The Wing, for example, is a female-focused co-working business and its acquisition gives us an exciting opportunity to expand its offer to women during a time of growing demand for alternative work environments.

We also launched a new retail-based office-space concept: 'OpenDesks', with a more open plan environment. In addition, we continued to invest in industry-leading technology and focused on ensuring that our people have the opportunity to fulfil their talent with us.

Ultimately, IWG creates value by enabling our customers to operate more cost-effectively and efficiently. We also maximise our own success by ensuring we have the skills and resources needed at every level to minimise the unnecessary use of resources, both physical and in terms of time and effort.

Our unique technology platform has evolved over many years to ensure our customers have access to some of the world's most innovative and effective tools to streamline and simplify the working day. We made significant investments in our platform during the year, recording a total IT spend of £50m. Innovations we introduced during the year include solutions supporting very large enterprise customers with tens of thousands of employees in multiple locations, to apps that help the smallest SMEs comply with local legislation. We have also continued to develop our solutions supporting hybrid working, cloud telephony and cloud printing around the world. We have invested to further support home working through our virtual products including HomeToWork, our leading platform providing access to useful daily content, a carefully curated programme of events and resources, and valuable benefits from industry-leading companies. HomeToWork enables members to make home a great place to work. We also invested in our own systems and processes, including new enterprise ERP systems, leadership succession, and redesigned processes for forecasting and business review.

In addition, we took the opportunity to improve efficiency by reducing our discretionary expenditure, with a notable reduction in our overheads while investing in technology, brand and growth.

Success on this scale is very exciting, and it continues to fuel our ambition to create the global coverage that will enable people to work anywhere and everywhere, no matter where they are located.

As a result, as we enter 2022, the company is clearly very well positioned for the future. Our network coverage is already four times the size of our nearest competitor's, and now we are on a powerful trajectory of business wins, new partnerships and capital-light network expansion.

Our financial performance in 2021

My greatest thanks go to all our team members, who were the driving force behind our success in achieving excellent results in very difficult circumstances.

The first half of 2021 was challenging, with a revenue decline of 15.3% at constant currency and a significant impact on our EBITDA and cashflow. However, this gave way to a strong second half, with a return to trading profit, reduced overheads and clear visibility into 2022. We saw an increase in sales in every quarter from March onwards, with progressive increases in occupancy and price, giving excellent momentum for further improvement in the year ahead. With the improvement in occupancy and price, a recovery in service revenues has followed, with further improvement expected in 2022.

During 2021, we saw a significant recovery in the profitability of our existing company-owned assets. Encouragingly, we are witnessing this strength of performance in multiple markets across the world, driven in part by the strong performance of our new centres which have improved the overall quality of our estate.

To take maximum advantage, we amended our financing facilities in early 2022, further securing our liquidity and strengthening our borrowing capacity for the medium term.

Overall, these achievements and trends are delivering tangible evidence that we have entered 2022 as a much stronger business than we entered 2021.

Group income statement

1.  Including joint ventures

Revenue and gross margin by maturity

Open centre revenue performance by region

On a regional basis, open centre revenue performance can be analysed as follows:

Americas

The Americas, our largest region, was significantly impacted by the pandemic reaching its trough occupancy in February 2021 and has recovered strongly since then. The recovery in performance is mainly being driven by the US and the business in Canada also showed good recovery momentum in the second half of the year.

Major Central Business Districts (CBDs) were challenged most in early 2021 but recovered well in the second half of the year which bodes well for a continuing trend in 2022. Regional districts achieved a higher level of occupancy and customer activity in the centres. In-line with increasing occupancies, promotions were removed, and discounts tightened which will result in improved pricing in 2022. Sales in the Americas continued its positive trend into 2022.

According to IWG research, 6 in 10 Americans want to work in the hybrid model and since the onset of the pandemic only 1 in 5 are now willing to commute for more than 30 minutes.

Revenue from open centres declined 3.7% at constant currency to £911.1m. In the fourth quarter open centre revenue grew strongly by 25.0% at constant currency. It was a similar positive trend in Q4 in the pre-2020 estate with revenue growth of 18.4% at constant currency, while full year revenue decreased 7.4% at constant currency to £866.1m.

Average occupancy for the region in the pre-2020 business was 70.9% (FY 2020: 73.9%), with strong occupancy recovery in the second half. Pre-2020 occupancy reached 74.7% in Q4 2021, being 555 bps higher compared to Q4 2020.

Meeting room and day office revenues in the Americas improved strongly throughout the second half of 2021. The recovery of occupancy in LATAM improved in the fourth quarter with strong occupancy improvements in markets like Brazil, Peru and Chile.

There were 25 new locations added in the region in 2021 and 39 locations were rationalised. After these movements, the total number of locations in the region was 1,257 at 31 December 2021.

EMEA

Our EMEA business has seen a clear turnaround in performance since February 2021, with turnover and occupancy improving strongly, especially in the second half of the year. The momentum of occupancy recovery improved in the second half of the year in all EMEA countries. Similarly, increased customer activity in centres led to improved ancillary service revenues with the fourth quarter being the strongest of the year.

Open centre revenue increased by 8.0% at constant currency, with strong year-on-year growth of 25.6% in Q4. Pre-2020 revenue improved by 0.4%, while occupancy increased to 72.1% (FY 2020: 71.5%). Pre-2020 occupancy reached 76.8% in Q4 2021, being 775 bps higher compared to Q4 2020.

COVID-19 restrictions in EMEA have been diverse across countries with respective impacts on our business, but the recovery in the second half of the year was across all markets. Our major markets like France, Germany, Italy and Spain all gained momentum in the recovery of occupancy in the second half of the year. Occupancy recovery was also strong in smaller countries, especially in markets like Ireland, Luxembourg, Norway and Portugal.

Growth of our network in EMEA is progressively accelerating with the benefit of new franchise locations, management agreements and acquisitions. A total of 84 new locations were added across this region in 2021. After these additions and the rationalisation of 49 locations, the total locations in the region were 1,128 at 31 December 2021.

Asia Pacific

The impact of COVID-19 on our business in Asia Pacific was quite diverse. Revenue from all open centres increased 2.2% at constant currency to £228.4m. Revenue growth improved throughout the second half of the year. Pre-2020 revenue was down 2.2% to £214.5m (FY 2020: £223.9m) and pre-2020 occupancy decreased to 67.3% (FY 2020: 69.5%). Q4 occupancy was at 67.8%, up 144bps compared to Q4 2020.

Trading in the second half of the year improved in major countries like Australia, China, Hong Kong, India, Singapore and Pakistan. In other markets the business environment remained challenging with recoveries anticipated in 2022.

A total of 32 new locations were added and 33 were rationalised in the region in 2021. We are seeing a clear acceleration in variable rent and management agreement deals in the region. At 31 December 2021 we had a total of 644 centres in the region.

Good progress is being made on franchising in the region. During the year we entered into a 50:50 joint venture with Hysan Development Company Limited to operate a flexible workspace business across Hong Kong, Macau and Guangdong ("the Greater Bay Area" ("GBA")).

UK

Lockdown restrictions had a significant impact on the UK business, with lower demand throughout the CBD of London. Outside of London our business has been more robust. Since the announcement of easing restrictions in March 2021, demand for more distributed working has further increased sales in many of the satellite towns and cities outside of London, and since summer, also in CBD of London. As a result, pre-2020 occupancy improved from March to exit the year at 70.8%. Pre-2020 occupancy for the period averaged 69.2% (FY 2020: 72.6%).

Enquiries are good and sales conversion is improving. Lower discounting and the removal of COVID-19 promotions is helping pricing on new sales. Retention is improving and is now at its highest level since the start of the pandemic. Renewal pricing is also strengthening. Meeting room demand came back strongly in June and revenue from other services is recovering with footfall improvement.

Revenue from open centres reduced by 2.1% to £342.4m, with the growth rate improving to 20.1% in Q4 year-on-year. Pre-2020 revenue declined by 7.9% to £316.9m (FY 2020: £344.1m), with the rate of growth improving in Q4 to 11.5%.

Five new locations were added and 24 rationalised in the UK in 2021. The net of these additions and the network rationalisation led to an overall reduction of locations in the region to 285 at 31 December 2021.

Strategic review

The case for hybrid working has never been clearer.

At its simplest, employers wish to reduce their real-estate costs and minimise their carbon footprint while successfully attracting the best available talent to help them compete as effectively as possible.

Hybrid working is projected to save organisations an average of £8,000 every year for every person who works remotely for half of the week. The estimated savings have been calculated based on conservative assumptions by Global Workplace Analytics. The research-based consulting firm had noted that the primary savings will come from increased productivity, lower real-estate costs, reduced absenteeism and turnover and better disaster preparedness.

Employees, meanwhile, want the freedom to choose to work in a metropolitan headquarters or at home, and to collaborate with colleagues in a rural or suburban centre close to where they live. Research commissioned by IWG shows that 70% of job candidates are insisting that companies have a hybrid work policy and half of existing employees would quit their job if forced back to the office five days a week.

Enabling companies and individuals alike to gain from all these benefits takes more than just a global network of high-quality business centres. Technology also plays an essential role, and IWG is unique in having a true platform strategy that enables us to bring together the users of hybrid space and the owners of real estate across the world.

In a very important strategic review of our organisational structure, we set in motion a major programme of work in 2021 that will shape our future direction, not only throughout 2022 but for many years to come.

The Group will continue to maintain a clear strategic focus on capital light growth. Our franchise and partnering proposition is successful and growing. Discussions in respect of small company-owned MFAs have recommenced.  We are also doing more management agreements and establishing investment partnerships, all of which contribute to capital light growth.

The Group's ongoing investment in its intellectual and digital assets will further improve efficiency and the customer experience. Together with reducing unit overhead, these are important components of our strategy to continue to maximise the performance of our company-owned locations.

The Board has also concluded that customers and shareholders would benefit from a structural separation of some of the Group's operating assets and capabilities.

We have subsequently completed the separation of certain of our digital assets and, as separately announced today, these digital assets will be merged with The Instant Group to create the world's leading fully integrated independent workspace platform. The merged business will be run by Instant's current management, led by CEO Tim Rodber, who have achieved c. 31% Compound Average Growth Rate in EBITDA over the period 2019 - 2021. The transaction comprises a net cash investment of £270m, provided by a fully underwritten debt facility, to acquire the shares of selling shareholders and provide capital for growth with Instant management investing a further £50m into the merged business. The merger underpins the new company's independent leadership position in the flexible workspace market and creates a preferred platform for the booking of flexible office space, services and inventory management, similar to models already operating in the travel and hospitality sectors. The merged business creates the largest digital platform, accessing over 30,000 buildings in more than 175 countries, served 24/7 through an integrated platform operating in more than 40 languages. The next step anticipated is a formal separation from the Group via a listing on the US or UK markets within the next two years.

In a separate strategic strand, the Group continues to review the potential separation of the property investing activities.

With these clear strategic objectives in place, the Group is in a strong position to generate enhanced free cash flow.

Focusing on what matters most to IWG

During the pandemic, I believe our purpose - creating a better day at work - became stronger, more clearly defined, and more relevant for our stakeholders than ever before.

This new strength has manifested itself in several ways over the last year, enabling us to articulate what matters most to us. For our customers, we aim always to ensure that our offering enables them to create value and flexibility in their working days, helps them to attract the best talent, and supports them with the sustainable management of their real estate.

For our people, we continuously invest in our teams, ensuring diversity and equal opportunities in all the communities across over 120 countries where we operate.

For the environment, we are empowering thousands of businesses and millions of people to reduce their carbon footprint. We achieve this simply by growing our network of centres to bring more and more workspaces into the local communities, small towns and suburbs where people actually live, raise their families and socialise with their friends.

Over the last two years, market demand has led us to open almost all our new centres in non-city centre environments.

This approach is having three important positive results. First, by driving down the need to commute, it is significantly reducing the carbon footprint of millions of workers across the world. Second, it is enabling companies to play more than lip service to the concept of work-life balance by giving people more of their own time by enabling them to work close to where they live. And third, it is supporting local economies and small businesses by encouraging people to spend more in local communities, once again making them vibrant places to live and work.

In short, it is making the much-vaunted concept of the 15-minute city a reality for millions by providing all the facilities required for hybrid working in self-sustaining local neighbourhoods.

In our 2020 Annual Report, I announced our commitment to being a carbon-neutral organisation by 2025. Throughout 2021, we have refined further our carbon-neutral programme. We accelerated our activities around minimising carbon emissions that arise from our supply chain and will be investing in carbon offset projects. As a result, we are bringing forward our ambition of becoming carbon-neutral during 2023.

Looking forward to 2022 and beyond

I believe that today IWG is uniquely well-positioned to continue to grow strongly in 2022, benefiting from the trends I have already described. We have a clear strategy and are capitalising on continuing structural tailwinds. As a result, our scale, our history, our profile and our franchise offer make us the obvious partner for property owners everywhere.

Our presence in markets across the world, long-established in urban centres and growing fast in suburban and rural communities, make us globally the most visible, the most reputable and the most experienced provider of high-quality hybrid and flexible office accommodation, membership and home-work products and associated services.

Looking to 2022 and beyond, I firmly believe that these advantages will drive our success and further strengthen our leadership position. We are committed to further improvement as accelerating capital-light growth, enabled by an expanding base of franchise and property partners, helps us serve the fast-increasing demand we are witnessing.

We already have a strong balance sheet, a superior and differentiated technology offering and strong team. More innovation, an ever-better platform and even stronger brands will improve our market-leading position yet further. This will enable us to bring new employment opportunities, a reduced carbon footprint, better work-life balance and heightened efficiency to businesses, workers and communities everywhere.

We have all been watching with horror the devastating humanitarian crisis unfolding in Ukraine, where our thoughts are with those impacted, including some of our own people. Our commitment to our colleagues and customers in Ukraine is unwavering and we are supporting humanitarian relief efforts.  Our centres in neighbouring countries are organising collections of essential supplies including clothing and food for the Ukrainian people displaced by the conflict. Additionally, a fund in aid of UNICEF has also been created.

Notwithstanding geopolitical uncertainties, I am confident that IWG has the energy, agility and momentum required for the significant opportunities ahead. Our trading momentum and forward order book are giving us clear visibility for strong growth in 2022 and an increasingly positive future, which confirms we are in the right place at the right time as businesses continue to embrace hybrid working.

Mark Dixon

Founder and CEO

8 March 2022

Chief financial officer's review
 

2021 dominated by COVID-19, but good


progress achieved
 

COVID-19 continued to present challenges globally, but it has also increased awareness and adoption of hybrid working. This, together with the swift actions the Group has taken since the onset of the pandemic, has delivered a sequentially improving financial performance commencing in the second quarter."

Financial performance

The review below highlights the reported results in accordance with IFRS. Under IFRS 16, while total lease-related charges over the life of a lease remain unchanged, the lease charges are characterised as depreciation and financing expenses with higher total expense in the early periods of a lease and lower total expense in the later periods of the lease.

The Group also presents the results in accordance with pre-IFRS 16 accounting standards as it provides useful information to stakeholders on how the Group is managed, operating performance targets are measured, and reporting for bank covenants and certain lease agreements are prepared.

Adjusting items

The continuation of COVID-19 in most of the Group's markets had a significant impact on our business in early 2021 which initially slowed the pace of recovery and directly contributed to the reduced revenue reported in 2021 (when compared to 2020) and the net losses. Consequently, the Group in 2021 continued to take measures to build greater resilience into the business and future-proof it for the long-term structural growth opportunity. The success of these measures became evident in the momentum that built in the business during the remainder of 2021. These actions, together with the slower than originally anticipated recovery caused directly by COVID-19, have resulted in further charges. These adjusting items totalled £31.4m (2020: £389.8m), £8.4m of which are non-cash items.

Group income statement

1.  Adjusting items relate to income and costs arising specifically from the impact of COVID-19

2.  Overheads for 2021 include COVID-19 non-recurring items of £33.1m (2020: £56.4m).

On a pre-IFRS 16 basis these adjusting items totalled £21.1m (2020: £379.5m), of which a net benefit of £1.9m was non-cash. These adjusting items primarily reflect network rationalisation, Group restructuring costs and provision for expected credit losses.

Network rationalisation

With the uncertainty caused directly by COVID-19 persisting through 2021, further marginal centres were eliminated from the network. This led to a charge of £83.1m (2020: £58.5m). This charge was offset by a £125.2m reversal of impairment of property, plant and equipment (2020: impairment of £244.8m).

Under pre-IFRS 16, COVID-19 related rationalisation of the network led to a charge of £59.8m which was more than fully offset by utilising £124.6m of the previously established provision, resulting in a net benefit of £64.8m (2020: net charge of £312.0m).

Restructuring costs

A charge of £32.6m (2020: £43.3m) is included within adjusting items to cover legal and other professional costs, including costs associated with the significant number of individual centre renegotiations undertaken during 2021.

Provision for expected credit losses

The prolonged impact of COVID-19 and the emergence of new variants of the virus in some markets continued to present an unprecedented challenge to many customers who may struggle to navigate through these challenges. The Group has therefore further reviewed the recoverability of its debtor profile and recognised an additional £53.5m (2020: £17.5m) in credit losses. The increase is low compared to the overall debtor profile as the Group has not historically incurred significant credit losses and continues to maintain customer deposits as additional security in the event of non-performance of customer contracts.

Other one-off items

During the year the Group incurred £0.5m of transaction costs in respect of aborted transactions that did not complete due to COVID-19 (2020: £8.2m). In addition, during the year, the Group received a total of £0.7m (2020: £6.4m) in respect of worldwide support schemes.

Cost benefit

The swift actions taken to mitigate the impact of the global pandemic on the business, together with the ongoing sharp focus on all costs, has resulted in significant savings in overheads and centre-related costs, despite the operating losses incurred in 2021. Overall, the cost optimisation programme has delivered an annualised run rate cost reduction of approximately £324m.

These cost savings exclude the c. £129m of cost investment in new centres. After the new centre investment, the net cost benefit in 2021 was c. £148m.

Revenue

System-wide revenue decreased from £2,721.9m to £2,498.5m, a 4.2% decline at constant currency. This is a new additional performance measurement for the Group and one we consider provides a better reflection of the scale of the business, which will become increasingly relevant as we progress our strategy of faster, capital-light growth, with the resultant increased emphasis on franchising, management agreements and other partnering arrangements.

On a reported basis, total Group revenue decreased from £2,431.9m to £2,227.9m, a 4.7% decline when compared at constant currency. This is a good outcome given the on-going impact of the pandemic and one that demonstrates the growing sequential momentum achieved from the second quarter onwards. The reported decline in Group revenue in Q1 was 20.9%, down 15.3% for the first half and down 9.9% for the nine months to 30 September, all at constant currency. Full year revenue declined 4.7% reflecting the first half decline of 15.3% being offset by year-on-year growth in the second half of 7.3%.

This improving momentum in the business from March 2021 was similarly reflected in the revenue from open centres and the like-for-like pre-2020 estate. Open centre revenue declined 10.4% in H1 but increased 12.6% in H2 year-on-year, delivering a 0.6% increase at constant currency to £2,180.1m (2020: £2,254.3m). Pre-2020 revenue increased by 7.1% in H2 which, after a H1 decline of 15.0%, resulted in a revenue decline of 4.6% at constant currency to £2,028.0m (2020: £2,210.1m).

Occupancy in the pre-2020 estate for 2021 was 70.6% (2020: 72.5%), with momentum improving during the year. Fourth quarter occupancy was 270 bps higher than the third quarter at 71.2%, with a December exit rate of 74.5%. Encouragingly, this performance has continued into the start of 2022, with most major markets contributing. The breadth of our coverage in satellite towns and suburban locations continues to be beneficial.

The continued maturation of the locations opened in 2019 and 2020 has been good. Revenue from centres opened in 2019 increased by 9.5% at constant currency. The new locations opened in 2020 have performed strongly, with occupancy increasing from 33.9% to 54.2%. The initial revenue contribution from the new 2021 openings has also been strong with exit occupancy in December 2021 of 44.5%.

Gross profit

The adjusted gross profit reported for the period was £240.9m, which compares to £353.5m for 2020. Reported gross profit including the adjusting items was £242.6m (2020: £20.1m).

Under pre-IFRS 16 the adjusted gross profit was £69.3m (2020: £149.4m). With a loss of £15.1m reported for the first half of 2021, this full year gross profit illustrates the improved profitability of the business in the second half. Adjusting for the negative contribution from closures of £44.3m and the contribution drag of £50.9m from the new centres added in 2020 and 2021, the gross profit generated by the pre-2020 estate was £164.5m (2020: £211.6m).

1.  Results presented in accordance with pre-IFRS 16 accounting standards and before adjusting items.

EBITDA

Adjusted EBITDA as reported reduced to £1,057.7m (2020: £1,233.9m), due to the continued impact of COVID-19 on our business performance. Reported EBITDA including the adjusting items was £1,026.3m (2020: £844.1m).

Under pre-IFRS 16, adjusted EBITDA declined from £133.8m to £79.6m. Adjusted EBITDA reflects the significant drag from the investment in growth, which in 2021 was £50.1m (2020: £36.0m), and a further £42.6m in respect of closed centres (2020: £23.3m).

Pre-IFRS 16 EBITDA including the adjusting items was £58.5m (2020: a loss of £245.7).

Overhead investment

Reported Group overheads, excluding adjusting items of £33.1m, decreased 2.4% at constant currency to £294.7m (2020: £311.1m).

Under pre-IFRS 16, Group overheads excluding adjusting items reduced by 6.2% at constant currency to £294.0m (2020: £322.8m). This is another good performance, building on the decisive actions which commenced in 2020. As a percentage of Group revenue, overheads were 13.2% which is 10bps lower than the 13.3% of revenue they represented in 2020, notwithstanding the £204.0m reduction in Group revenue from 2020. We also invested in building our in-country sales teams and our marketing to support our pivot to capital-light growth.

Operating loss - continuing operations

Adjusted operating loss as reported was £56.0m (2020: profit of £39.8m). Including the adjusting items, the operating loss was £87.4m compared to a loss of £350.0m in 2020.

Under pre-IFRS 16, the adjusted operating loss for the year was £226.9m (2020: loss of £176.0m). The operating profit continues to reflect the drag from growth investment of £83.8m (2020: £51.0m) as well as losses of £49.4m from centres closed during 2021 (2020: £49.4m from closures in 2021 and 2020). Including the adjusting items of £21.1m, the operating loss was £248.0m (2020: loss of £555.5m).

Net finance costs

The Group has reported net finance costs under IFRS 16 for the year of £172.0m (2020: £263.3m), including interest on the Group's lease liabilities.

Under pre-IFRS 16, the Group reported a net finance expense for the year of £5.1m (2020: £10.8m). The reduction in the net finance expense primarily reflects the significant gain on the mark-to-market of the option element of the convertible bond, resulting in a gain of £22.5m (2020: £2.4m gain). Excluding the mark-to-market of the convertible bond and a small foreign exchange translation gain of £0.1m (2020: £3.2m gain), the total net financial expense was £27.7m (2020: £16.4m).

Taxation

The reported effective tax rate for 2021 is (4.0)% (2020: (5.2)%) on continuing operations. The effective tax rate on continuing operations under pre-IFRS 16 is (4.9)% (2020: (7.6)%). Despite reporting a loss for the year, the Group incurred a tax charge due to the continuing profitability of certain countries and entities within the overall Group.

Looking forward, factors that may potentially influence the effective tax rate include the shape of the recovery in the Group's trading performance, the availability of tax losses and the continuing ownership of specific countries or regions which may change due to future potential franchise agreements.

Earnings per share

Reported basic earnings per share for the year was a loss of 20.3p (2020: loss of 67.9p). The loss per share from continuing operations before adjusting items was 17.2p (2020: loss of 26.4p).

Under pre-IFRS 16, earnings per share improved in the year from a loss 63.5p to a loss per share of 20.9p. Earnings per share from continuing operations was a loss of 25.8p compared to a loss of 64.0p in 2020. Excluding the adjusting items, the loss per share was 23.7p (2020: loss of 24.2p).

Diluted earnings per share for the year was a loss of 20.9p (2020: loss of 63.5p). Diluted earnings per share on a continuing basis before adjusting items for the year was a loss of 23.7p (2020: loss of 24.2p).

The weighted average number of shares in issue for the year was 1,007,214,854 (2020: 951,890,712). The weighted average number of shares for diluted earnings per share was 1,102,442,649 (2020: 1,045,771,886). No shares were acquired during 2021 to be held in treasury. The Group reissued 844,559 shares from treasury to satisfy exercises under various Group long-term incentive schemes during 2021.

Cash flow

The Group reported cash inflow for the year of £111.1m before net investment in growth capital expenditure (2020: £74.4m), which is a strong improvement on the cash outflow of £230m in the six months to 30 June 2021. This reflects the inflection of our trading performance and an improvement in working capital after the payment of deferred rents in H1 which were retained in 2020.

Overall, the Group reported a reduction in net debt for the year of £391.4m. This was after the investment in net growth capital expenditure of £142.5m (2020: £203.8m), purchase of investments in joint ventures £33.4m, proceeds from franchise agreements of £52.3m, the return from an aborted potential acquisition of £283.7m and a currency translation benefit of £119.6m. Net debt at 31 December 2021 reduced to £6,518.2m from £6,909.6m at 31 December 2020.

On a pre-IFRS 16 basis, the Group experienced a cash outflow of £239.1m before investment in growth compared to a cash inflow of £140.7m for 2020. The full year cash outflow reflects an improvement on the £303.0m outflow in the six months to 30 June 2021.

The overall increase in net debt on a pre-IFRS 16 basis was £45.9m, primarily through the planned reduction in net growth capital expenditure to £111.8m (2020: £250.9m) and the £283.7m return of cash from an aborted potential acquisition. Net debt at 31 December 2021 was £397.0m (2020: £351.1m). With the Group generating positive cash flow in the second half of 2021, the year-end position is better than the interim net debt position of £414.6m at 30 June 2021.

Capital investment in the network

In line with the Group's expectations, net growth capital expenditure in 2021 reduced by £61.3m to £142.5m (2020: £203.8m) whilst adding a similar number of new locations and space, representing clear evidence of the increasing success of our capital light growth strategy.

Under pre-IFRS 16, net growth capital expenditure reduced by £139.1m to £111.8m (2020: £250.9m).