Good morning, everyone, and welcome to our 2018 annual results. Overall, 2018 was a good year on many counts. Firstly, the results are absolutely in line with where we told you that they would be. Open center revenue growth reached 13.3%, which we're very pleased with. Strong sequential improvements in revenues continued really throughout the second half of the year. This is both overall and in mature. We've got very good underlying performance improvements. Pre-growth EBITDA, so that's without the cost in the year of growth, reached GBP 447 million, a number we're happy with. It's about 20% improvement, about GBP 70 million improvement. We grew the network substantially during the year. It's a growing industry, lots of opportunity. We found lots of excellent investments. I think the 2018 vintage will be an excellent one overall. It was just the right mix.
Almost all of it came through organic growth, which has a much greater short-term effect on EBITDA, but conversely, it will show much higher returns on capital. Acquisitions bring immediate impacts of positive impact on EBITDA, but have a generally lower return on capital. This vintage will have a very good return on capital because it's almost all organic. The reason it's almost all organic, there's no acquisitions, because there are high price expectations out there, and it's not a sort of an area that we like to play in. We'd much rather be patient and wait for prices to become more normalized. The overall cost to us of negative EBITDA from the new growth in 2018 was GBP 40.5 million and GBP 332 million of actual net capital investment to open those centers. Another highlight for us was cash generation.
It's a positive feature in our results every time. Again, excellent growth in the actual cash produced in the business before growth investment and of course, before returns to shareholders. We generated about GBP 44 million of additional cash, underlying cash flow up to GBP 259 million. Overall, that's up about 20%. With this, we're able to return GBP 93.9 million to shareholders through a combination of repurchasing GBP 40 million of shares and continuing our progressive dividend policy with an annual increase of 11% to GBP 0.063. The balance sheet remains strong with a net debt to EBITDA ratio of 1.2 times and net debt overall totaled GBP 461 million. I think the important thing to pick up from these results and my comments today is that the business has very good momentum.
We saw it in the second half of last year, and that's continued into the beginning of this year. You can see it from the development of our revenue, and I think you can also better see in Eric's comments how it picked up through the year. A strong end to the year gives us an excellent starting point for 2019. We intend to build on this overall, but we still remain cautious in our stance. The world today is, I would say, a slightly more uncertain place than a year ago, and we're very aware of this. We're cautious in, although it's a growing industry, although our cash flow is improving, we are absolutely aware and a little more cautious this year in everything that we are doing.
There's still going to be quite a bit of growth, but we're very much on the cautious end of growth from what we see at the moment. Again, just looking at 2018 and the sort of good momentum points that we had, one of them was our partnering ambitions being more fulfilled in 2018, and we expect that partnering will become a much, much bigger part of our overall growth in 2019. In 2019, we expect to have much more to talk about as we go through the year as we, number one, do a lot more franchising. We had excellent results in the second half of last year. Many franchise partners being signed up. Those same partners start to open centers this year, so it becomes more meaningful.
We haven't got numbers in here in this announcement, actual numbers, because they're still quite small in terms of what's actually been opened. Certainly, we have a lot of sign-ups last year. We will get openings this year. We have excellent interest in both franchising for individual territories. You should expect to have quite a bit of corporate activity as we start to do larger franchising agreements on larger territories. All of this is so that we can have a higher rate of growth. This is a business that benefits greatly from national and global coverage. National coverage, super important. Where you see national coverage, look at the U.S., you have an excellent business. You have a great offer to customers. It's what customers, especially large corporates, are looking for. The more extended we can get the network in a country, the more successful it is.
For us to do all of that from our own balance sheet and with the same hits to in-year EBITDA that you can see last year, if we want to do this at real scale, we have to partner it. The effort was put in last year. The team was put in place. We got the results last year. There will be a lot more this year. About a third of the growth last year was partnered. Over time, we expect to have a complete inversion where I'd be standing here saying that a third of the business was company-owned and two-thirds were partnered. It's going to invert. It's starting to happen now. I think another key point, if you look at momentum, is enterprise customers.
I'm going to talk to you in a moment a little more about this, but what we are doing is becoming more and more mainstream. It's the way companies want to take space to support their workforce. As that, we have the biggest platform, so we can offer it in more places. We are getting more and more of these customers. This is also being helped, of course, by IFRS 16. This is the flip side for us. IFRS 16 puts it right up to the top of every CFO's list of every major company, and we are the solution to part of that problem. It's another thing that I think provided momentum second half of last year and into the beginning of this year.
Finally, if I look at momentum as we end 2018 and coming to 2019, better management, more investment in better people so that we're more able to execute at speed and at scale. Quite a few changes throughout the organization. We made changes in the middle of last year that you'll be aware of. A lot more changes since as we've strengthened the management, built up the franchising support, as an example, built up the partnering support, built up the corporate finance support that we need as we start to move the business to a different strategy and a different growth outlook. Just looking regionally, outstanding performance in the Americas, in particular, the U.S. Great performance in the U.S. and the Canada business. The U.S. business building momentum throughout the year, with over 10% constant currency revenue growth and high single-digit mature revenue growth.
Altogether, great performance. Remember, the U.S. market's the most competitive. Many people talk about London. It's not London, it's the U.S. More people doing it there. It's where our strongest business. All of that competition, a lot more people talking about it's helping us. We have a lot of demand. We got the biggest network. 1,200 sites in the U.S. Every state except Alaska, where we will open this year. Our Canadian business also finished 2017. Here we have very good coverage. It's another national business. You can see good coverage, national business platform with good management. Very strong double-digit growth there. An excellent improvement in profitability. Also in the Americas, Latin America, it's been a drag on us for many reasons, but during 2018, much of this was resolved. Again, better management there. Our Brazilian business, which was a problem business.
Very bad economy. We completely repositioned it, doubled it in size. It's going to have an excellent 2019. Sometimes crises can give opportunity, and there certainly was one in Brazil. I think with good management there, we have and will have an excellent business there. A great store of value for the future. Turning to EMEA. A strong year, both in terms of revenue and profitability. Continental Europe has been the big driver behind this. The annual growth rate reflects a very strong second half performance. Just picking out a few countries. France had a very strong second half as it benefited from new inventory that we added into the market in prior years. The strength of the performance today is really based upon the investments that we made that held back performance in previous years.
That all started to come together during 2018. Again, great platform, national coverage, all brands, lots of corporates. Really is a good business in France. Italy, Germany, Switzerland, all pretty much the same. You're starting to get excellent coverage in those and great business. Russia, restructured. Again, we took 2 ruble dollar hits. It was a poor, very difficult business, mainly from external pressure. Turned around, starting to have quite a good business there as we come into 2019. APAC, here, Japan, outstanding performance both in revenue growth, profitability, and growth of the network, and partnering. Again, good management, really good performance there. Very exciting business there. Philippines, similar, smaller. Hong Kong, similar, smaller. U.K., look, it's all about decisive action. U.K. was a problem. It's not necessarily a problem with the economy.
It was a problem that here we had some of our older stock, older centers that needed to be repositioned. We did this in 2018. We continue to do it in 2019. This is about people, first and foremost. Improve the management, spend more money on the people. We did that. It's about closing locations, refurbing locations, and opening new ones. Lots of new openings and some closures and repositioning. That, we're going to have an excellent turnaround. It was still a very profitable business last year, but not as profitable as it had been. 2019, it won't get back to its former glory, but it won't be far away. There'll be a lot of good profitability growth in the U.K. Building blocks, and this was just about intensive management. People, repositioning, 27 new openings, about 14 closures.
Overall, looking through all of that, it took quite a long time to do this. We've completed in the first half of this year. We still had 5.2% revenue growth last year in the U.K. business. It wasn't a complete write-off, and certainly the end of the year much better than the beginning. I think we're in good shape there. It is a market of opportunity in the U.K., and it is a market where we have our strongest franchising activity all across the country. Very quickly, new locations. We added a lot of them, and as I commented earlier, we added some really great buildings last year. You can see a few of them here. Battersea Power Station for us, it's a completely underserved part of London. Building's not quite finished yet, but it will be. We're the only occupier there along with Apple.
It's a totally iconic building, obviously. Great place to work. We're putting a No. 18 in there. It will do very well. Very confident. This next one is La Défense. Biggest center we've done so far in France. Nearly 200,000 feet. Right next to La Grande Arche in La Défense. It's so big a building, it's even got its own exit from the motorway. We've got a sign up on the motorway, which is quite cool. I think it's the only one in the world like that. Much more importantly, if you just look at it's a center we opened this January, but the costs mainly came last year. We had EBITDA losses and costs in last year for a center that opened this January. More importantly, it's filling very nicely. If you're not quick, you won't be able to get an office there.
It's very popular. It's the Spaces, great design and great positioning. That's a center that we're going to do very well on. If you then look to the U.S., this is Hudson Yards. This is in New York. It's an area of alleged high competition, but it's an expanding market. This center has also done very well. It's part of many launches we did last year in the U.S., and we're getting very good pickup on new centers that we're adding. Remember, the way we look at the world is return on capital. We invest, we make a return. Looking forward, what will this vintage be like? I think it's going to be a very good vintage because we've got the right deals, the right places, the right financial conditions, and some centers that do very well quite quickly.
That's a recipe for good return on capital. Enterprise accounts. I've been asked on many occasions to give a little bit more data on this. Here's some data. What's common in all of these case studies, it's companies that are interested in the network. For us, an enterprise account is a company that's using us significantly in lots of locations. It's not just a big deal. They've got to be doing it in more than one place. It's got to be part of their strategy. If you look at IAG, International Airlines Group, they've moved to a hub and space model in 40 cities, and for them, we were the only choice because we covered everywhere they wanted to be with our international networks, all international. If you look at Deloitte, clearly huge employer globally.
They did an RFP process, a very intensive one, that covered managed space, flex space, and empty space monetization. We won on all three tenders, every one of them. Again, it's network. They wanted a counterparty that was reliable in execution, that was going to be there for the long term. All of those things helped us in getting into a very good position with Deloitte, and we're now opening things with them, for them, the relationship builds. Third one on here is Telos. This is actually U.S. government. It's backing up the Census, and we're seeing a lot of this in this world of cyber insecurity. More and more people, more and more companies are looking for regulated space. They want space that can be secure. They want internet and digital connectivity that can be secure. This cannot be achieved in people's houses.
This cannot be achieved in just any location. We have focused a lot on security, both technology security and, of course, building security. This was a key thing for Telos, which is part of the U.S. Census. We were everywhere again that they needed to be. It started off with 100 sites. It will end up being more. Clearly, it's a contract that requires flexibility. A census is not done every year. HSBC, obviously regulated entity, IFRS 16, very important to them. Again, here, flexible became a core building block on how they want to transition the bank, how they support people into an element of the people being supported through flexible space. These are a few. There are many more. We have significantly grown our enterprise team to meet the demands from these companies, and it's becoming a much more significant part of the business.
Very significant growth end of last year and into this year. Quite optimistic in that area. Big picture. You've seen this slide before if you've been to one of our capital markets days. What's it all about? What are we here for? What are we trying to do? This is what we're trying to do. This is what we're going for. It's the property industry. $29 trillion of capital invested in this huge property industry, which is having trouble with digital. They're not very good at dealing with it because it's a completely different thing. Customer service, flexibility to investment in very fixed things like buildings. It's being disrupted by us and others. It's a good sort of disruption. We're not taking customers away. We're helping them service a new type of customer that's coming with the digital age that we live in.
What companies are looking for is flexibility. They're looking for a product. They're not looking for properties anymore. They want a product, just like you go out and buy a car and you drive it. You don't put the pieces together then drive it. In fact, you don't even buy them today. You lease them by the month, I think. That's what companies want. They said, "We don't need to be in the property industry. Someone give us a product, and we'll buy that product, and we don't mind if there's a company in the middle that makes a margin, and we don't mind if the property investor makes a decent return. That's okay. We're quite happy to pay for a service that works for us." We're in the middle helping that occur. Biggest platform, it's digital, it's support services, and it's the properties themselves.
Putting those three things together helps the property industry move into this new age that we're all going through. Look, it's a huge opportunity. It was when I put this slide up. It's even bigger today. IFRS 16 really has sort of changed things, and it's only just come out in the last couple of months. It's still not affecting people's accounts. There's quite a lot of wind behind us as we enter into 2019. I'm quite optimistic here about the future. Our strategy is really to just go out and capture this opportunity. Firstly, and I repeat, it's an investment in people. Better management, tighter management, better investment in both partnering, franchising, more investment into enterprise service. Technology. Is the technology platform critical? It's all about apps.
We've introduced three new apps into the market, and we continue every month to improve the general app that our customers use. Everything we do, because we've got two and a half million customers, it's all digital these days. We don't have enough people to speak to two and a half million people. It's a digital conversation, which they're happy with most of the time, and because it's on tap, available all the time, it works for them and clearly helps us to manage them. We've also got a new partnership with Hewlett Packard that starts this year, which again is bringing their technology together with our centers. Again, improves customer service. Fantastic route to market for Hewlett Packard. We've got more partnership opportunities coming through. More people want to get into this market, and we're a great conduit to get to those end users.
If we come back to the strategy, additional services, it's something that's overlooked. We're getting lots of acquisition opportunities, investment opportunities, lots of small guys out there, open some centers, run out of money, got to raise more money. You look at them, none of them have any service revenue. You look at the biggest, they have very small percentages. Biggest of all, I think, is 7% of service revenue. If you do not have service revenue in this industry, you're not going to make it in the long term because you can't do it just by repackaging rent. You've got to have service, and you've got to be good at it. You've got to be able to manage costs. You've got to be able to get this additional revenue.
Our revenue, we've been through a lot of hard times over the years, we know how important this is at 29% of group revenue, that's a multiple of what everyone else has, it's a key differentiating factor. We're very focused on growing it. Workplace recovery. Still quite small, but it's a very significant impact on our profits because it grew last year 50% as well. It's very nice. It's just another layer of additional revenue that no one else has. It works off the basis of the network. You need a network to actually do it because you give people recovery everywhere. It's becoming more and more popular. If you look at our membership business, again, what we've got here is more members and more members using, which is important.
The two together gave us an 18% growth in that business last year. We're putting, again, better management on this, more effort, more investment. We expect to be able to get more out of it going forward. We're continuing to work on the platform. We're continuing to find new ways to grow and pulling those together into this slide and this discussion. This is all about, what does it all look like in the future? I think overall, we're pleased with performance, we're pleased with investments. We think there's huge opportunities in the marketplace overall. We're in a position at the moment where our marketplace is growing quickly. There's new entrants and there's existing players that continue to grow, although we think some of that growth is now starting to tail off.
This growth is very helpful to us because we have many evangelists out there, apart from us, talking about why you would want to use flexible space, why you would want to use co-working. This has been a very helpful thing. Again, as I'm explaining about our business, I find it much easier to explain now than at any time in the past, because people pretty much get it. This is helpful today. Tomorrow, we may be helped if some of these competitors become available at more reasonable prices. There will be good consolidation opportunities. Remember, we've consolidated the industry twice so far in 30 years. Okay? You have to do it at the right time. The circumstances have to be right. At the moment, organic growth outplays, it beats acquisition. That will invert at some point. We look forward to that opportunity.
Balanced approach. I think I've made it clear, but I'll say so once again, because it's really important. If you look at where we are today, if you look at our results today, we are being affected by the high level of organic growth that we have in the business. Good investments or not, it's affecting our profits. It's using our cash. As partnering becomes a much bigger part of what we do, the need for cash reinvestment in the business will go down. The effect on profits will go down. It's clear that we're not winning that communication battle, looking at how people value us today. That move to partnering of all kindsBeing the most significant part of how we're growing should give us both the opportunity to grow more quickly, but also help in our investment communication, the overall message. The platform.
It's three things, the property, the digital layer that holds it all together, and it's the support centers that give. Because basically you can't do it just with digital. We've got a very effective support structure that operates globally in 42 languages, 24 hours a day. That's what customers want. They really, really do appreciate that. On that platform, lots of new opportunities will come. It works for any brand. You can see what we've done with Spaces, which we'll come onto in a moment. We will add more brands onto the same platform. Multi-brand is most certainly helping us. It makes your marketing much more effective because we have different work styles, different prices available. It means that we can convert more customers. We have more choice. We built the platform not just for what we have.
We built the platform to add new concepts, to pick out more segments of the market in the future. Spaces. It deserves a slide and a few comments because it's been a great success story and it sort of substantiates the platform and its power. We have been able to roll this out into 38 countries. I think it goes this year to 62 countries. It will catch up WeWork in size this year, where they currently are. It's done it profitably, which is even more amazing. It's an excellent business. Cost a little more to open them. Return on capital, the same as if we're opening an HQ, a Regus, or a No. 18. The returns on capital are very much in line. The centers themselves, this is a big format center.
The actual numbers are much bigger because one Space is equal to four, five, or 10 Reguses. Regus is much smaller. HQs can be very large. If we look at the revenue in 2018 from Spaces, GBP 182 million. If you look at the same business at a simple run rate based on multiplying the revenue in January by 12, you're at GBP 280 million. This is fast growth, fast opening, fast growth, lots of revenue increase here. Overall, we're very excited about this, but we're not less excited. It's not Spaces only. Spaces is only about half of the growth. All the other brands were also growing as well. We've got different brands for different markets. They all work very well. Otherwise, we'd only be opening up Spaces, of course. Watch this space. It's a very exciting segment. You may have seen newspaper coverage.
People are interested in it. We believe a great store of value for the future. It's an excellent brand and really a hidden gem inside of IWG. With that, I will hand over to Eric.
Thank you, Mark. Still thinking about this, watch this space. I like that. All right. Good morning. In the following slides, I want to discuss three topics with you. First and foremost, I will walk you through the 2018 highlights of our P&L balance sheet and cash flow statement. After that, as I'm relatively new to some of you at least, I will set out some corporate finance principles that are fundamental to the way we operate and which we underwrite today. I will end my section, how could we not, with a couple of pages on IFRS 16 before I hand back to Mark. Let us first have a look at the key points to make on the income statement.
As Mark already mentioned, our 2018 revenue increased 9.7% at constant currency to just over $2.5 billion or up $183 million compared to the same period last year. Reflecting the continued uplift in sales activity, revenue growth improved each quarter in 2018. Year-on-year constant currency revenue growth was 6.7% in the first quarter, 7.6% in Q2, 10.2% in Q3, and we ended the year with 14.3% growth in the fourth quarter. It is also important to point out that all four regions contributed to this positive development, certainly in the back end of the year. Mark already said the best indicator of our earnings performance is by looking at our pre-2018 estate EBITDA. In 2018, we generated $447.4 million of EBITDA from this estate, an increase of $71.2 million or up 19% on the EBITDA we generated in 2017.
EBITDA itself increased $13.7 million, or up 4% to $389.9 million as the depreciation and amortization of $22.8 million more than offset the $9 million reduction in our operating profit. This higher level of depreciation reflects the significant investments we've made in recent years to grow our business globally. It is also important to point out that a 4% EBITDA increase is impacted by the $40.5 million of EBITDA investment we did in new 2018 and new 2019 centers, and that it also includes a one-off EBITDA closure cost of $16 million. Overheads was up $16 million compared to 2017, as we invested in building strong foundations for the anticipated future growth of our business. For example, we have invested in additional headcount in our partnering and enterprise account teams, as well as into various activities to support the network development, including marketing.
While the absolute levels of overhead increased in 2018, measured as a percentage of revenue, it actually was down 10 basis points to 10%. Operating profit was down by $9 million to $154.1 million. As we continue to invest in our business and in line with expectations, it reflects a combination of a slightly lower gross profit margin in 2018 and the absolute increase in overheads, as I just mentioned. On a regional basis, there were very strong operating profit improvements in both the Americas and EMEA, as Mark just highlighted. Earnings per share for 2018 was GBP 0.117. This lower level of earnings per share mainly reflects the slightly lower profitability, again, as we continue to build out our network in 2018.
If we now look at our cash flow statements, we can see that cash generated before net investment in growth capital, dividends, and share repurchases increased by GBP 43.7 million to GBP 259.2, or up no less than 20%. This increase is driven by the positive impact from growth in the group's EBITDA and the strong working capital inflow we saw, and is partly offset by the anticipated increase in investment in maintenance CapEx and higher cash outflows in respect of tax and finance cost. Benefiting from the share buybacks we did in 2018 and the subsequent reduction in the number of shares outstanding, cash flow per share increased 22% to GBP 0.286. Our net growth CapEx was GBP 332 million, up from GBP 272.5 in 2017, and a bit higher than our original guidance. Why?
Firstly, we opened 299 locations rather than 275, with a particularly strong end to the year, with 95 locations opened in the fourth quarter. Secondly, this positive momentum at year end also resulted in a much stronger pipeline of openings scheduled for 2019. Thirdly, as these locations were in development and not yet opened, there is also a timing difference in relation to the receipt of partner contribution. What does it mean? It means that some of the CapEx that we invested in 2018 will only actually get the connected landlord contributions in 2019, i.e. this year. Net debt increased from GBP 296.4 million at year end last year to just over GBP 460 million. This increase, by the way, also comes after paying dividends and share buybacks in total for GBP 94 million.
Whilst our debt is up compared to last year, it represents a net debt-to-EBITDA ratio of 1.2 times, and we are quite comfortable with that also because we have approximately GBP 140 million of freehold property investment sitting on our balance sheet. All right. As I said in my opening statement, I felt it was important today to also briefly share with you some of our fundamental principles when it comes to corporate finance matters set out here on these six boxes. I'll talk you through those one by one. All right. First and foremost, as an organization, we remain laser focused on returning very disciplined processes when it comes to allocating capital. As a business that invests significant sums into the build-out of our global network, it is imperative we do this in a very disciplined way.
Investment opportunities need to lead to profitable growth and have to yield a post-tax cash return that materially outstrips our cost of capital. Secondly, based on the high return growth opportunities that we are seeing, both standalone and in cooperation with our partners, and the healthy increase in cash flow that we generate, we feel comfortable with the net debt to EBITDA in the range of three quarters to 1.5 times. As I said, at the end of the calendar year, it was 1.2, this gives us quite a bit of headroom within the range if need be. Thirdly, on the top right, we continue to enjoy strong support from our banking partners. In January 2019, we further increased our revolving credit facility from GBP 750 million to GBP 950 million. This facility provides adequate headroom to continue to execute a profitable growth strategy.
We simultaneously improved the debt maturity profile of this facility by extending it to 2024. There are options in place to extend it further to 2026. I think it's equally important at this moment in time to say that the financial covenants on the increased facility are unchanged. They will not be affected by the implementation of IFRS 16. When it comes to our dividend policy, on the bottom left of this page, this remains firmly in place as we continue to be committed to a sustainable and progressive dividend policy that reflects both our confidence in the long-term prospects of the business, also our desire to reward shareholders for their loyalty. In addition to the dividend, returns to shareholders can further increase by buying back shares, which is, in essence, returning excess cash to shareholders with the added benefit that it shrinks our share count.
The latter, which added two percentage points to our year-on-year cash flow per share growth, as we just saw. Lastly, on the bottom right of this page, our principle when it comes to M&A are that we do it very selectively, that we do it to create value, which means it has to be the right asset at the right price. It needs to compare favorably to the high returns we enjoy on investments in our own business, that a potential deal has to be accretive. A bit more of detail for you on this page on shareholder returns. In essence, it sets out how the dividend and the total share returns have developed over the last five years. What we see is that in the last five years, our TSR has increased by 79%, as you can see on the left-hand side.
On top of that, we're recommending a 10% increase in the final dividend of 2018 to 4.35p, which is subject to approval, of course, by shareholders at the AGM in May. This increase of dividend for the full year by 11% to a total of 6.3p. Based on this, in the last five years, our DPS has increased by 58%. All right. Let's now turn the page and focus on IFRS 16. Let me begin with a couple of key messages. That is to say, if you take anything away from today's presentation on the new accounting standard that is, let it be the following. One, that there is no impact on cash flow or the cash generation per share and how we run our business.
Two, that the new standard has significant impact on our financial reporting in that, A, leases are brought onto our balance sheet, B, my operating profit, or EBIT, increases. My profit before tax and EPS decreases. Three, it also applies to all annual reporting periods beginning at the beginning of this year. Let me just share a bit of background to this new standard and what it means to us in terms of bookkeeping. It becomes effective as 1st of January, replaces IAS 17 on leases and a few other notes on leases attached to that. In essence, IFRS 16 requires lessees like us to recognize most leases on their balance sheet. The exception being, as we already mentioned at the Capital Markets Day in September 2017, are short leases and leases for a modest amount, a couple of grand.
It is correct to say that the majority of IWG's leases fall within the scope of IFRS 16. It is also important to highlight that this change in accounting standard has no impact on the flexibility of our leases. Flexible meaning that they are terminable at our option. Furthermore, it is important to point out that IWG plans to continue to internally manage the company on the former standard, and in addition to adopting IFRS 16 for external reporting purposes, we will provide supplemental external reporting on the previous standard for your information and hopefully benefit. In preparing for the implementation of the new standard, we had several choices to make. One of which meant that we have adopted the so-called modified retrospective approach. We believe that this is the most comprehensive and representative view.
The result of implementing the new standard on leases means that in our balance sheet, we see the creation of a so-called right-of-use asset on the debit side of my balance sheet and a balancing item called lease liability on the other side, the credit side of my balance sheet. In the income statement, rent is now being replaced by a depreciation charge, which is non-cash, and we are depreciating the right-of-use asset, and we have to recognize the finance cost of the lease liability that now sits on my balance sheet as an expense. Again, this is also non-cash. Ladies and gentlemen, what does it all mean for us? What impact does it have on the numbers that we published today? On the left-hand side, under the header KPIs, we see illustrated the impact on the balance sheet.
In simple terms, what happens in the balance sheet is we will see a lease liability appear on the credit side that is based on the present value of the future lease liabilities. This lease liability has been estimated to be circa GBP 6.2 billion. As I said, what makes the balance sheet balance is a corresponding entry, which is so-called right-of-use asset, because as a lessee, I'm actually using that asset. This has been estimated to be circa GBP 5.6 billion. In the middle under the header IAS 17, we show the impact of the new standard on the 2018 numbers. On the right-hand side, we see then the KPIs. If we compare and contrast the former standard to the new standard.
What are we seeing? We can see that our cash flow per share remains the same, and as such, that our ability to generate returns and cash, and hence our ability to invest in future growth, is not impacted by IFRS 16. Secondly, our EBIT is up because the depreciation charge resulting from the new standard is actually lower than the rent charge, and EBITDA is up because of the removal of rental expense in my P&L. You can see, profit before tax will go down because of the finance cost of the now on-balance sheet lease liability will run as an expense through my P&L. This also obviously impacts my earnings per share. Just to be crystal clear, our earnings per share is impacted simply because the earnings calculation has changed as finance cost associated with our lease liabilities lower our earnings from a pure accounting perspective.
Lastly, as you can see, net debt increases as all of my future lease obligations are now shown on the balance sheet. To summarize the topic of IFRS 16, customers will not be impacted by this transition. They may, however, as Mark already said, be prompted to review their own corporate real estate needs and look to use workspace providers more. There is therefore no negative impact on revenue. As I said, cash flows of the group and the cash generation per share are unaffected by this change in accounting standard. There is, again, therefore, no impact on our dividend policy. Our banking covenants are based on the pre-IFRS 16 standard, and as such, this has no impact on our funding via the revolver. In all, IFRS 16 will have no impact on the group strategy, our commercial negotiations on leases, or our investments in growth.
With that, I would like to hand back to Mark.
Thank you, Eric. In conclusion, and looking forward, current trading has provided an encouraging start to 2019. Strong end to last year, strong start to this year. We're very focused on margin improvement as well as growing our network and growing that network in an even more disciplined way. Again, that growth greatly helped this year with an excellent momentum in partnering. We're well-placed to benefit from the strong structural growth trends in our industry, and we look forward to this year overall with great excitement. With that, we'll open up for questions. Over here. Go on, yeah.
Hi, it's Andy Grobler from Credit Suisse. I've got quite a few, but I'll just stick to three for now. Mark, you mentioned that market growth was trailing off. Which market? Market growth in terms of new entrants, you said in your speech.
Yeah.
Where is that trailing off, and why do you think that is the case? Would be the first question. Secondly, I know I've asked this before, on the enterprise solutions, you gave us some interesting examples. Do you have any data in terms of how that has changed numbers-
Yeah
to support that? Thirdly, on IFRS 16, slightly technical one. It mentioned on the slide that you included all leases that weren't standalone legal entity or not fully cross-guaranteed. What view did you take on the SPVs where you have leases that are in SPVs, please?
Enterprise first. Let's just deal with that one. It's up about a third. If you look at overall sales, it's a third up, sort of as you went into the fourth quarter and into the beginning of this year. It's becoming a much, much bigger part of the overall new sales. That's because of IFRS 16, a lot more awareness, and we've got more people doing it. More people working on the same. If you look at the marketplace competitors. Why has growth slowed down? Funding. Just funding. The overall funding for riskier, non-cash, flow-producing, hockey stick-type businesses has dried up a little bit. People are more uncertain now. That's not just in this industry. It's across many industries. Anything with a hockey stick, there's much more skepticism. The value of capital has gone up. I think that's what's happening.
We can see it because there's a huge amount of people out there all fundraising and not all of them succeeding. We clearly see those as potentially future opportunities. Some do. It's not universal. Okay? In the end, these are sub-scale businesses. They may be good businesses, by the way, but they have trouble covering overhead and quite a lot of them don't make a contribution at the gross profit level pre overhead. Low barriers to entry, very cheap capital came together. They're going apart again. I think it's just the market's moved on now.
Is that the case in certain regions more than others?
No, I think it's pretty. We got stuff in Asia. I'm just thinking. Asia, Europe, America, definitely. U.K. I mean, yes.
Just on the enterprise, it's up a third.
Yeah.
Is that new sales or revenue?
New sales.
New sales.
It becomes revenue.
Okay.
It's significant.
Yeah, for sure.
Yeah. It's significant and it's stickier. It's the sort of small guys that will come in, go again, get more churn. This is much stickier.
Yeah.
It's much higher quality revenue in our experience.
As a because it's kind of better business longer term, how much of new sales is that kind of enterprise solution? Just trying to gauge on that.
About half.
About half of it? Okay.
About half. What we've got, I suppose if you detect some confidence, but we're cautious, but at the same time, it's all about the forward order book. What have we got booked in? That's good. That's looking good. That is more enterprise accounts doing that.
Apologies. What is it?
IFRS 16.
Yeah. I understood.
Yeah. This.
I got lost.
of the leases. We take the whole liability. It doesn't matter if they're in a standalone.
Oh, that's right.
Yeah. It's a look through it.
Go on. You're the biggest star. No, go on. It's almost that we've got a holistic approach. I mean, we've got all of them, which is why my sentence said, it's correct you assume that all of our leases are subject to the standard.
That would imply.
Irrespective of whether they're in it. Doesn't matter what they're in. The standard, I mean, this is the surprising thing to me. Remember, I'm a non-finance person, but you take all the liability, not just for your commitments, but even over, if you've got a break, you have to decide whether you're going to be go past the break and take that as a liability. It isn't real in terms of, I have a commitment and I have to pay it. It's the potential total of all those commitments past break dates and notwithstanding. Doesn't matter what the legal structure is, whether it's in a standalone. Is it guaranteed? It takes no account of that. It's just the liability.
Should we assume that those leases in SPVs are fully cross-guaranteed?
No.
No.
It's all a different question. Yeah.
Okay.
No, for the liability, it's important. Nothing changed in the way we've set things up. If it's a lease, doesn't matter what the entity structure is, how it's guaranteed, it doesn't matter.
It comes under it.
It comes under it. That's it. It's pretty harsh judgment, that's what it is.
Okay. Thank you.
Morning, Steve. All from Numis. Just a couple here. In terms of the CapEx, how much do you save by partnering or sort of the dynamics by franchising? I'm sort of trying to get a sense for the CapEx you've outlined so far of GBP 200 million.
A hundred and ninety centers. How much of that portfolio planned is actually franchising or partnering and the CapEx then that you have to go with it? Second one is, of the planned additions you have for 2019, the 190, how much have you already spent in Q4 for those openings, or how many centers? Thirdly, because you mentioned sort of so much of the service offering around things like IT, how much do you think the cost of opening a center is now relative to five years ago when there perhaps was less IT, less sort of your cyber activity around that, if possible?
All right. The good thing about franchising is there's no CapEx. We don't have to have that discussion. There's no CapEx, there's no return on that capital investment because we haven't made it. Our franchise partner makes the capital investment, one of the reasons they're very attracted to it is this is a business with very high returns on capital. They like that. Okay? They are managing the risk. All the same discipline that we use, we ask them to use because we want them to be in business for a long time.
Is that included within the 190 centers?
It's not.
It's not at all.
Not at all.
It's a completely different contribution.
They're company-owned. That's what you're looking at.
Right.
No, I don't think we know, do we, what we've spent already on those?
No.
It's a rolling thing, Steve. Whatever time we're talking to you, we've already invested in some of the future growth, whether it's now, whether it's in six months' time. Until we do no company-owned growth, you always have that effect. As franchising helps us accelerate the growth. Of course, we give up the returns and we give up the ability to invest that capital. That's the trade-off. The returns will be the same, we're just not getting, and we're simply making a fee from providing the platform. We're making a fee. It's the same as InterContinental Hotels Group, IHG. They used to have a lot of assets. They don't have any anymore. They just have fee income. That's it. Which seems to be what the market wants.
How much control do you have on what they do once you're franchising management?
Everything.
You tell them how to open-
Everything
How to operate, they share your IT.
Otherwise-
Everything
It's a liability for us, isn't it? Our brands are really important to us. By the way, that's what they're buying, very important to them. The investment we're making in support here is all about making sure they open successfully, they operate successfully, and the standards are upheld. We cannot have brand damage through poor franchise choices or poor support. It's critically important. There will be many of them, so it's a really important thing to get it right. We've got a lot of focus on it. Again, I would rather report it to you as they start to open.
There's significant activity, really significant. Lots of things going on. It's a major change, because we're clearly not winning the battle of investing and making 20% plus returns on our capital, unleveraged and post-tax. That's not working. You only have to look at our share price to see that. We have a different route to market now, and it will allow us to grow more quickly. We believe that the trade-off is a good one because this is a business that will respond well to coverage. The reason the U.S. is so successful, universal coverage. Still, only 1,200 sites out of 12,000 sites to do, but still, it's got great coverage. As we get more coverage, the business becomes stronger and stronger. That's great news for franchisees, great news for us, and partners of all kinds, by the way.
We've currently franchised people owning property, investors, people owning franchise operations, all sorts of people. Really good partners, impressive people. They will accelerate our growth. We're very happy to be in business with them. Very good partners. It's going to give us a real step up.
Third question, Mark, was.
Like a tea tot.
Are they more expensive now than five years ago?
No, is the answer to that.
Yeah.
The change between now is like night and day difference. What we're talking about here, most of everything is in the cloud. What we used to do in the centers, we don't do in the centers anymore. There's been an increase in investment in security. What we do in the centers is super secure. There's lots of regulated industries that require a very, very high level of security of network-
Resilience
whether that's voice or data. More investment there. That's in physical, actual physical security. Where we used to have a server room full of things running the center, all in the cloud now. It's all in data centers. The cost is broadly the same, but the security is much, much different.
Sorry, just the answer to be clear on the second question about the CapEx that you brought into Q4.
I don't think we know. Mark gave the answer already.
Okay. You don't know how much CapEx you spent on, or how much the openings you've got in Q1.
We could tell you.
Right.
We don't know.
How many centers then, Raise it the other way. How many of the 190 open in Q1? Theoretically, you should have visibility on that.
Of course we do.
Yeah.
Of course. Of course we do.
We'll let you know.
Yeah.
Okay. Andrew.
It went up.
Andrew Sheridan by Peel Hunt. two questions if I may. Firstly, just a stat. You mentioned 29% of revenue coming from ancillary services. Can you say how much of that is space related, i.e., meeting rooms, and how much, and any kind of information on that? The second one is, when we last saw you were talking about obviously the move to franchising, and you've given us the one-third, two-third long-term aspiration, perhaps. Clearly, that can't all be organic and just doing openings under franchises. It'll take us a long time to get there. Can you talk about, can you update us at all in how your thoughts are of actually finding partners to take out some franchises from existing franchises? Creating franchises from existing operations. Thanks.
Okay. Sorry, first question. Ancillary services.
Meeting rooms.
How much is space related? Space related of that, well, it's about 20% would be meeting rooms of that number. 25%, which would be space related, actually, of that number. It would be about 7% of overall revenue. 7% to 29%. About 22% would be non-space related.
Can you give a little bit more detail on that 22%?
IT services. Disaster recovery is in the middle. It is more of a digital thing than a space thing, because that is the service. It gives us additional revenue when disasters happen. It then becomes space, but that's not in the number. That's just people using space. IT services, telephone services, secretarial services, call answering services. We have centralized call answering, lots of digital function stuff there. It's membership people. That's sort of verging between space, because people buy a membership. They may or may not use the space. It's address services. You could say that's space. It's not really, because they don't use any space. There's a whole list. Overall, and this is what people fail to understand, because they look at it and say, "Oh, simple business. Cut the building up, rent the space." There's 120 lines of revenue. It's not one thing.
It's about small things that make up the whole, and it's about being diligent about those things. Some of them are tiny, Andrew, but they make a difference. It's GBP 1 million here and GBP 1 million there, in a business that makes GBP 150 million, aspirational to make more. You want all of those performing. They all count. A good question on partnering. How do we get there? Very large numbers of partners, number 1. Number 2, yes, there will be some partnering on larger parts of the business, we expect. If you hear sort of noise filtering up about banks and corporate activity, that is the beginnings of that, where there is significant interest in the industry. People like the space, but they do not want to start up.
They want to buy into an existing platform, and they want to invest their money in part of that platform to grow it more quickly. Okay? It's not as difficult. If you look at our multiple of cash flow, matured cash flow, can we do better than that? Absolutely.
What we gain is the possible partnering with people of financial means that can give us more growth and some of our cash back. Okay? Some of the parts, question. We're very clear on that, because we're not winning this argument where every meeting we have, we're going back into backwards over CapEx, cost of growth, and so on. We are not focusing on return on capital, which is excellent in this business.
Thank you very much.
Hi, guys. Calum Battersby from Berenberg. Two from me. Firstly, Mark, I think you mentioned that you're obviously seeing a more cautious macroeconomic backdrop and that you're positioning the business accordingly. Just wondered really what that meant in practice. Would we see, say, investment fall if you thought a weaker macro environment was forthcoming? Secondly, on Spaces, you said that it's grown profitably. Wondering if Spaces as a whole is profitable. Just on the timings of the openings, I'd probably think it's loss-making at the moment. If there's any more, say, color on the kind of profitability of that business that you can give away.
Cautious. What we mean is, look, the world's a more uncertain place, and you guys are out there looking at lots of companies. We are cautious. What does that mean? We don't do anything edgy. Sure fire bets, and that's what we do. We just tighten up. Our investment criteria, as Eric said, are very tight in the first place. We tighten them up two notches. We did that, by the way, last year. It's not something that happened now. That was something that happened at the beginning of last year. We remain cautious. Nothing changed. No matter that this is a great industry and everything else, we're very excited about it. It's not a race in the end, and it's very important to be there at all times.
There's going to be some excellent opportunities because others are not addressing the market with the same caution that we would. In answer to the second part of that question, of course, if the macro or the real changed tomorrow, we would stop investing in that market immediately with immediate effect. You focus on the business you have, and you wait, and that's then a growth opportunity. Example, Brazil. We stopped, addressed our business, doubled the size of it. Pretty much one after the other. Because when you want to grow is when times are difficult.
Yeah.
It's about the timing of your growth as opposed to just growth for growth's sake. In terms of Spaces, is it profitable? Look, the centers that we have opened have become profitable, and they're doing very well. I can't tell you whether it's profitable overall at this time. I think it is, actually. Yeah, someone's nodding at me. It is. Even with the new growth, it's profitable. There's enough of the sort of ones that we have opened that are coming through and supporting the new ones that we've just opened. Okay. Again, discipline in pricing. We're not just going for getting full at any price as some others may do. We are opening these centers, filling them at good prices, good service with sticky customers.
Great. Thank you.
Okay.
Thank you. Good morning. It's Michael Donnelly from Investec. Just two quick ones, one for Mark and one for Eric. Mark, just to check what you said on Spaces this year. I think you said it was going to have the same area or number of locations as WeWork. Can you just confirm which of the-
Yeah. Where they are now. They are at about 400 locations today.
Yep.
About. We will be at about 400 locations at the end of this year.
End of this year. That's helpful. Thank you.
Yeah.
We're around 182, 183 now. 182, 183.
Look, it doesn't mean anything. Well, importantly, again, it depends how much you believe in cash flow, old-fashioned things like profitability and cash flow.
Can't argue with that.
It's the same business. It does work. They're doing very well, I'm sure. Again, growing from our platform, which is very efficient, we're able to grow these things, fill them up, and make very good returns on capital and good profits. That's the difference. What they're doing is the same, and they're filling them up, and I'm sure they're going to report excellent revenue growth, just like we are. The difference is, it's that established platform that makes it much more economical.
Got it. Thanks.
Second question for Eric. Page 39 of the report and accounts there shows provisions going up from GBP nine million to GBP 19 million, which is quite a big year-on-year jump. Can you just talk qualitatively what's behind that? Thanks.
Which number is it?
It said GBP 9 million provisions last year, jumps to GBP 19 this year.
Yeah
looking back over the past eight years, that's quite a big delta.
Yeah. Part of what I did when I joined, and we all know, what happened after the capital market day in 2017 is looking at what homework do we have to do as an organization. One is around tax, which you've seen gone up, and you see it less in the income statement, more in the cash flow statement, because there were a handful of I think things that needed to be solved where you had to pay a bit of tax, Latin America mainly related. This is exactly the same thing where we feel as an organization, we need to make sure that we are ready for certain risks that can appear and eventualities that can happen, and we need to make sure we are amply provided for those.
Again, if you think about the word cautious that at times appears in our outlook statement, that is linking that to the homework that I've been doing in the back end of last year.
Great. Thank you.
Over here. Just here at the front. Yeah.
Hi, it's Andy from Credit Suisse again. Just a bit of guidance, I guess, through 2019 in terms of some of the moving parts. What was the impact of the refurb and closure process in the U.K. in 2018? What are your expectations for 2019 as of now? Similarly with SG&A, are you planning a bit more investment through this year as a percentage of sales? Kind of where are you thinking that's going to end up?
Shall I do the second one? If you think about overheads in general, today we talked about how it is down as a percentage of revenue, 10 basis points. It is up GBP 16 million in absolute terms as you saw. For us, that's quite normal because, as we said on several occasions, we are a fast-growing business, double-digit, as you saw. It's natural that the absolute number then goes up too. We also are investing in what we call the building blocks of future profitable growth. If you think about enterprise account management, if you think about marketing, we've mentioned. There is a handful of vectors of growth that we are putting into place in 2018 that we had to pay for. If I then think about 2019, will it go up?
It will go up in absolute terms because of the growth of my business. I think if you think about modeling it as a percentage of revenue, I wouldn't go more than where we currently are at 10%. We spent an awful lot of time talking about managing that number.
It sort of refurbishment, closure, repositioning, it's called. Will there be more? Overall, we've done a lot more of that globally, not just in the U.K. Middle of last year, hands-on intensive management of our business. Step change in the way we manage. That causes you've got to get fast at decision making because our objective, driving margin and performance out of that existing business.
You should expect to see that continuing because sometimes it takes time in some circumstances. We want to do this in the best possible way, and sometimes these require workout, collaboration, things that take time. There will be more closures, there will be more repositioning, both in the U.K. and globally. They have a super beneficial effect on the result. Okay.
Short term, if I can just-
Cost?
Cost in 2018 versus I'm just trying to think of the bridge from 2018 to 2019.
Probably cost, Eric, similar.
Yeah.
Something similar.
Okay. That's clear. Thank you.
Yeah.
Hi, Sam Clifford from City AM. Just one from me. The Q3 update, you spoke about looking at strategic options in addition to-
Sorry, strategic options.
The Q3 update, you spoke about you're looking at strategic options as well as more franchising. I was wondering if you could give any color on your thoughts that are passing on from that, particularly with without the prices . Thanks.
Strategic options. I think Andrew's already asked that in a different way. I think what I said to Andrew, I'll just say again to you. As the chief executive of the business and with the board and with Eric, we've got to, at times, stand back and look at what we're doing. I think that the approaches we had last year made us think much more, not just about cash and return, but value. What's the value of this thing that we have? What we're doing now is based around the work that occurred after those approaches, which said, basically, look, there's another way to do this, and let's move towards that other way to do it. We're not the first people to do it. It's happened in the hotel industry pretty much universally now.
I happened to be at CNBC this morning with Vodafone, who are apparently partnering with many people to roll out 5G more quickly. Vodafone's a big company, but 5G is much bigger than Vodafone. By partnering, they go more quickly. By partnering, we'll go more quickly. I think we'll deliver a simpler message to the market. I think that's critical because it is very clear to me that we just, however simple we think the message is, that's not getting over to investors and potential investors that it's a great business, something for the future. We have to, I believe, simplify it further. That is our objective, and we are well underway in doing that. Again, the reason I'm talking to you now about this because I believe it will happen. Watch this space. No more questions? Right.
Thank you all very much for coming along this morning. As usual, Eric, myself, and Wayne will be available if you've got any follow-up questions. Thank you.