Savills PLC — Annual Report 2012

Dec 31, 2012

Report and Accounts 2012 Report and Accounts 2012

Perspectives Perspectives

A unique approach to prime real estate A unique approach to prime real estate

Contents 2012 Group highlights

Group overview

• 01 Introduction
• 02 Group overview
• 03 Perspectives
• 12 Chairman's statement 14 Group Chief
• Executive's review 16 Strategy and key
• performance indicators 18 Segmental reviews
• 24 Group Chief Financial Officer's report
• 27 Corporate responsibilities
• 31 Risks and uncertainties facing the business

Governance

• 34 Board of Directors
• 35 Group Executive Board 36 Corporate Governance report

• 43 Other statutory information

• 45 Remuneration report

• 58 Directors' responsibilities
• 59 Independent auditors' report to the members of Savills plc

Financial Statements

• 60 Consolidated income statement
• 61 Consolidated statement of comprehensive income
• 62 Consolidated and Company statements of financial position
• 63 Consolidated statement of changes in equity
• 64 Company statement of changes in equity 65 Consolidated and
• Company statements of cash flows
• 66 Notes to the financial statements 112 Shareholder information

Revenue £806.4m (2011: £721.5m)

Underlying profit* £60.8m (2011: £50.4m)

Underlying profit margin 7.5% (2011: 7.0%)

IFRS profit after tax £38.8m (2011: £26.8m)

Operating cash generation £59.7m (2011: £35.7m)

Underlying earnings

per share 35.3p (2011: 29.0p) Geographical spread (% non-uk) 51% (2011: 51%)

Breadth of service (% non-transactional income) 62% (2011: 62%)

Assets under management

£3.6bn (2011: £2.8bn)

Property under management (sq ft) 1,755m (2011: 1,360m)

* Underlying profit is calculated by adjusting reported pre-tax profit for profit/loss on disposals, share-based payment adjustment, impairment and amortisation of goodwill and intangible assets (excluding software), other impairments and restructuring costs (refer to Note 2 to the financial statements).

1 in 4

In 2012 we handled one in every four transactions in the prime London commercial market.

Introduction

Savills is a global real estate services provider listed on the London Stock Exchange. We have an international network of over 500 offices and associates and over 25,000 staff throughout the Americas, the UK, Continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world.

Our vision:

We advise private and institutional clients seeking to acquire, manage, lease, develop or realise the value of prime residential and commercial property in the world's key locations.

Group overview

Our markets

1. United Kingdom Revenue £399.1m

Total staff 3,503

Offices 92

1. Asia Pacific Revenue £331.0m

Total staff 20,657

Offices 39

3. Continental Europe Revenue £70.2m
Total staff	See page 18
817
Offices
26
4. United States Revenue	See page 21
£6.1m
Total staff
39	a building.
Offices
4	See page 22

Our services

Transaction Advisory

The Transaction Advisory business stream comprises commercial, residential, leisure and agricultural agency and investment advice on purchases and sales.

See page 18

Consultancy

Provision of a wide range of professional property services including valuation, building consultancy, environmental consultancy, landlord and tenant, rating, planning, strategic projects and research.

See page 21

Property and Facilities Management

Management of commercial, residential and agricultural property for owners. Provision of a comprehensive range of services to occupiers of property, ranging from strategic advice through project management to all services relating to a building.

See page 22

Investment Management

Investment management of commercial and residential property portfolios for institutional or professional investors, on a pooled or segregated account basis.

See page 22

Total staff 25,016

International and associate offices

Perspectives

Our people give us a unique perspective on the prime real estate markets around the world and help to connect clients with opportunity

Our business

Commercial property in Central London remained the number one destination for cross-border investment in 2012, with the overall volume of investment almost returning to the peak levels of 2006/2007

Through a structured marketing process we were able to achieve a number of competitive bids for Admiralty Arch, a London landmark building, ultimately selling it to Prime Investors Capital who will now seek planning consent for a luxury hotel and apartment building

Our business

Our governance

Our results

2012 government measures to control residential investment led private clients increasingly to invest in commercial property

Savills Investment concluded in excess of HK\$22.5bn of major transactions in 2012 reinforcing our lead position in the market

Washington DC

We are now seeing the predicted increase in interest from international investors in the East Coast gateway cities of Washington DC and New York

We acted as exclusive agent for a European property fund which acquired an 11-storey office building near Washington Circle for approximately \$626 per sq ft

Frankfurt

This year has seen the anticipated increase in leasing activity continue for the fifth straight year

We acted as exclusive advisor on the letting of approximately 323,000 sq ft of office space in the Mertonviertel office region – the largest office leasing transaction in Frankfurt in 2012

Chairman's statement

Revenue growth and margin improvement in key transactional markets together with robust Property Management and Consultancy operations underpinned the Group's strong performance in 2012 and demonstrated the benefit of the acquisitions and recruitment activities of recent years.

Peter Smith Chairman

Results

The Group's underlying profit before tax for the year increased by 21% to £60.8m (2011: £50.4m), on revenue which improved by 12% to £806.4m (2011: £721.5m). The Group's reported profit before tax increased by 36% to £54.2m (2011: £40.0m).

Overview

2012 demonstrated the importance of Savills position in the prime markets of the world's key cities and the benefits of the progressive growth strategy we have pursued in recent years. Our Transaction Advisory revenue grew by 13%, our Consultancy business revenue by 20% and our Property Management revenue by just under 8%. The principal commercial markets in which we operate experienced a strong finish to the year, including a record performance in Asia, and our Residential business continued to benefit from a strong market in Prime Central London.

In Continental Europe, despite economic turmoil continuing to affect our predominantly transaction orientated businesses, revenue increased by 7% and we reduced overall losses by 27% in weak markets.

Cordea Savills, the Group's Investment Management business, delivered a good performance across its European platform increasing assets under management by 29% and winning some high quality mandates, which drove an increase in revenue of 13%.

Business development

Savills strategy is to be a leader in the key markets in which we operate. Our global strategy is delivered locally by those close to the market with flexibility to adapt quickly to changes in circumstances and opportunities. They are supported by our regional and cross-border specialists. Over the last few years we have added smaller acquisitions, teams and individual hires in to our strong core business, particularly when markets have been weak.

At the beginning of 2012 we completed two small acquisitions:– Gresham Down Capital Partners LLP, a Central London commercial investment business and International Property Asset Management GmbH an asset management business in Germany. Aside from buy-outs of minority interests and other deferred payments on past acquisitions and senior recruitments, the year was largely one of consolidation to ensure delivery of the benefits of the business development activities of prior periods. The overall margin improvement in the year, benefiting from stronger transactional markets and market share gains, shows that our business performance is on the right trajectory.

In the UK in 2012 we took the decision to prepare our two hitherto separate operating companies, Savills (L&P) Limited (essentially our residential agency and development businesses) and Savills Commercial Limited, for formal merger into one entity. This took effect on 1 January 2013 when Savills (UK) Limited, trading simply as 'Savills', came into being. In conjunction with the merger, the decision was taken to move the two head offices in the West End of London into one new head office at 33 Margaret Street. This will take place during May and June 2013. The benefits of this merger are more associated with client service improvements than with cost savings, but we have rationalised our leases in the UK and eliminated a small number of duplicated support roles, giving rise to an overall restructuring charge of £4.0m in the year.

We have also continued to strengthen our cross-border investment capability, particularly in Hotels and Retail in the Asia Pacific region, to ensure that we continue to deliver a world class service to both our global and local clients.

Dividends

An initial interim dividend of 3.3p per share (2011: 3.15p) amounting to £4.1m was paid on 15 October 2012, and a final ordinary dividend of 6.7p (2011: 6.35p) is recommended, making the ordinary dividend 10.0p for the year (2011: 9.5p). In addition, a supplemental interim dividend of 6.0p (2011: 4.0p) is declared, based upon the underlying performance of our Transaction Advisory business. Taken together, the ordinary and supplemental dividends comprise an aggregate distribution for the year of 16.0p per share, representing an increase of 19% on the 2011 aggregate dividend of 13.5p. The final ordinary dividend of 6.7p per ordinary share will, subject to shareholders' approval at the Annual General Meeting on 8 May 2013, be paid alongside the supplemental interim dividend of 6.0p per share on 13 May 2013 to shareholders on the register at 12 April 2013.

Board and governance

In January Tim Freshwater joined the Board as a Non-Executive Director and member of the Audit Committee, Remuneration Committee and Nominations Committee. In April, Clare Hollingsworth joined the Board as a Non-Executive Director, Chairman of the Remuneration Committee, member of the Audit Committee and Nominations Committee. The Board has already benefited greatly from Tim's experience of Asian markets and Clare's knowledge of the service sector.

On the retirement of Timothy Ingram from the Board in May, Martin Angle became the Senior Independent Director.

The Board believes that its Directors and the Group's management team should reflect the diversity of Savills international business and that both are representative of the Group's culture and the markets in which we operate. We will continue to appoint those whose skills and experience we believe will make a real contribution to the continuing success of Savills.

People

On behalf of the Board, I wish to express my thanks to all our people worldwide for their hard work, commitment and continued focus on client service, enabling the Group to deliver a strong performance overall.

Outlook

We have made a strong start to 2013, particularly in the UK and Asia, and we expect to make further progress across the Group in the year ahead. We anticipate delivering continued improvements in our businesses in Continental Europe and the US although we are mindful of the risk of further weakness in some of these markets. Our Investment Management business has a good pipeline of funds to invest through its European platform. In Asia, whilst we anticipate that the most recent in a succession of control measures imposed in mainland China and Hong Kong will have an impact on transaction volumes towards the second half of the year, the medium and long term characteristics of these markets remain compelling.

In summary, we have started 2013 more strongly than last year and we are confident in the Group's prospects for the coming period.

Peter Smith Chairman

Group Chief Executive's review Review of operations

Our business development activity of recent times began to show in the improved results of 2012. We are increasingly well placed, thanks to our core strengths in both the commercial and prime residential sectors, to expand our business by meeting the developing needs of our worldwide client base.

Jeremy Helsby Group Chief Executive

Our strategy

• 1. Commitment to clients
• 1. Business diversification
• 1. Geographical diversification
• 1. Maintain financial strength
• 1. Strength in both prime residential and commercial property

Operating highlights

• Revival in prime commercial property; UK commercial transactions profits up 52% reflecting increased market share in Prime Central London transactions
• Total underlying profit margin increased to 7.5% (2011: 7.0%)
• Record level of reported profits from our Property Management segment
• Asia report record level of profit of £32.6m
• Continued geographic expansion of our Residential operation

The strength of our key commercial and residential market positions drove an improved performance for Savills in 2012. As anticipated, we experienced a quieter first half followed by progressive improvement thereafter, with Group revenue growing to a record £806.4m (2011: £721.5m), 12% ahead of the previous year.

Our business in the Asia Pacific region had a record year and the two main UK businesses, in their last year as separate entities before the merger into Savills UK, also posted strong results with a particularly significant improvement in the Commercial Transaction Advisory business. The US business saw a slight decline, but we anticipate a stronger performance in 2013. Cordea Savills underlying business continued to grow, but profitability was affected by expansion costs. In Continental Europe we substantially reduced losses in markets which remained challenging during the year. This was due to improvements in a number of countries as the Group benefited from previous restructuring activities. Overall, the strength of the Group enabled us to increase our underlying profit before tax ('underlying profit') by 21% to £60.8m (2011: £50.4m).

On a statutory basis, profit before tax increased 36% to £54.2m (2011: £40.0m).

Savills geographic and business diversity were key to achieving the year's result. Our performance analysed by region was as follows:

	Revenue £m		Underlying Profit/(Loss) £m
	2012		2011 % growth	2012		2011 % growth
UK	399.1	352.3	13	45.9	41.5	11
Asia Pacific	331.0	297.4	11	32.6	27.7	18
Continental Europe	70.2	65.5	7	(7.0)	(9.6)	27
USA	6.1	6.3	(3)	(2.1)	(1.4)	(50)
Unallocated Cost	n/a	n/a	n/a	(8.6)	(7.8)	(10)
Total	806.4	721.5	12	60.8	50.4	21

Our Asia Pacific business represented 41% of Group revenue (2011: 41%) and our overseas businesses as a whole continued to represent 51% of Group revenue (2011: 51%), despite a year of strong revenue growth in the UK. Our Commercial Transaction Advisory businesses in both Asia and the UK grew strongly on the back of increased international inflows of investment capital. Our Residential Transaction Advisory business represented 14% of Group revenue for the year (2011: 16%).

Overall our Prime Commercial and Residential Transaction business revenues together represented 38% of Group revenue (2011: 38%). Our Property and Facilities Management businesses continued to perform well, growing overall revenue by 8% to represent just above 37% of revenue (2011: 39%). Consultancy increased slightly to 21% of revenues (2011: 20%).

On the following pages we provide an overview of the Group's progress over the last five years using the KPIs we have developed.

Operational development

During the year we have focused on integrating the various small acquisitions and the teams and individuals we had recruited around the world over the course of the market downturn. The benefit of this was seen in substantial improvements in revenue and profitability in key transaction markets such as Central London. Our Consulting and Property Management teams also benefited from past acquisitions and we undertook significant structural reorganisations in both the UK and Hong Kong businesses, which are designed to enhance client service and create improved operating platforms for future growth. In the UK we commenced the merger of our two main businesses, which had hitherto operated separately, to form Savills (UK) Limited. This took significant preparation during 2012 and the merger took effect on 1 January 2013. As part of the merger, we also plan to amalgamate the two West End head offices and move into one new head office at 33 Margaret Street. The building, currently at fit out stage, will be occupied from mid May 2013 and will not only be a physical manifestation of Savills UK, but will create significant opportunities to improve our client service across the Company.

People

I am delighted that Savills business was awarded property agency of the year awards in the UK, Hong Kong, Singapore and Vietnam. Also in the UK, Savills was named the Property Industry Superbrand of the Year and we won the Times Graduate Recruitment Award for Property for the sixth consecutive year. These awards are a testament to the strength of our people and I thank them for their commitment, loyalty and hard work.

Strategy and key performance indicators

Financial KPIs

The measure:

Revenue growth is the increase/decrease in revenue year on year.

The target:

To deliver growth in revenue from expansion both geographically and by business segment.

Underlying earnings per share (p)

The measure:

Earnings per share ('EPS') is the measure of profit generation. EPS is calculated by dividing underlying profit by the weighted average number of shares in issue.

The target:

To deliver growth in EPS to enhance shareholder value.

Non-financial KPIs

Property under management (million sq ft)

The measure:

Total sq ft property under management.

The target:

To progressively increase the global square footage under management.

Underlying profit (£m)*

The measure:

Underlying profit growth is the increase/decrease in underlying profit year on year.

The target:

To deliver sustainable growth in underlying profit.

Underlying profit margin (%)*

The measure:

Profitability after all operating costs but before the impact of exceptional costs, financing, taxation, and the results of associates and joint ventures.

The target:

To deliver growth in operating margin by improving the efficiency with which services are offered.

Geographical spread (% non-UK)

The measure:

Geographical diversity is measured by the spread of revenues by region.

The target:

To progressively balance the Group's geographical exposure through expansion in our chosen geographic markets.

Breadth of service offering

(% non-Transactional income)

The measure:

Revenue by type of business.

The target:

To maintain a healthy balance of Transactional and non-Transactional business revenues.

Cash generation (£m)

The measure:

The amount of cash the business has generated from operating activities.

The target:

To maintain strong cash generation to fund working capital requirements, shareholder dividends and strategic initiatives of the Group.

Assets under management (£bn)

The measure:

Growth in assets under management of our Investment Management business Cordea Savills LLP.

The target:

To increase the value of investment portfolios through portfolio management, new mandates and the launch of new funds.

* Underlying profit is calculated by adjusting reported pre-tax profit for profit/loss on disposals, share-based payment adjustment, impairment and amortisation of goodwill and intangible assets (excluding software), other impairments and restructuring costs (refer to Note 2 to the financial statements).

The key components of our business strategy are as follows:

Business diversification

Non-Transactional business represents approximately 46% of our underlying profit. The growth of Property and Facilities Management income, now representing 37% of Group revenues, and the relative stability of both Investment Management and the Consultancy business, together comprising 24%, show the benefit of a diversified strategy over the course of the property cycle.

Strength in both commercial and residential markets

We believe that it is important to be a significant force in both commercial and residential property in our chosen markets. Experience across the range of services we provide in both these disciplines adds to the quality and depth of our service to clients and differentiates us from our competitors. By being strong in both markets, we can best serve the needs of developers, owners, occupiers and investors in the increasing global trend towards mixed use projects.

Geographical diversification

Our objective is to mitigate the risk of exposure to any one economy or market by being market leaders both in our domestic UK markets and also in our selected overseas markets. Across the cycle we see the benefit of this as the dynamic Asia Pacific markets complement our historical strengths in the UK. In 2012, overseas businesses represented 51% of Group revenues led by Asia Pacific, which accounted for 41% of global revenue.

Maintaining financial strength

We seek to maintain our financial strength in order to withstand volatile market conditions and to take advantage of opportunities as they arise. In a people business, we do not believe it is appropriate to take on material amounts of debt over the long term.

Commitment to our clients

Throughout the cycle, we seek to serve our clients in the principal locations in which they operate by providing them with the services that they require. This means that we have continued to build our Transaction Advisory businesses in the core markets of Continental Europe and the US.

Segmental reviews

The Savills Group advises on commercial, rural, residential and leisure property. We also provide corporate finance advice, investment management and a range of property related financial services. Operations are conducted internationally through four business streams:

Transaction Advisory

Services

Contribution to Group revenue

2012 showed a significant difference in performance between the first and second half of the year, as normal business seasonality was increased by stronger H2 performances in both Asian and UK commercial markets. This, together with progressively stronger performance from recruits and acquisitions of the recent past, resulted in the underlying profit margin of the Transaction Advisory business increasing to 10.6% (2011: 8.8%).

Asia Pacific Commercial

As anticipated, the Asia Pacific Commercial business enjoyed a significantly stronger second half of the year as investment markets adjusted to the impact of progressive government controls over residential investment in Greater China, which resulted in stronger demand for commercial assets by private investors, particularly in Hong Kong. Revenue grew by 23% to £98.4m (2011: £80.2m). On a constant currency basis, this represented an increase of 21% year on year.

In mainland China, where we have 12 offices, our business continued to grow well with Transaction Advisory revenues increasing by over 13% year on year as some significant transactions occurred during the final quarter. Our Hong Kong Commercial business increased revenue by just under 24% as we benefited from increased private investment into commercial real estate assets. Our Japanese business grew transaction revenue by over 130% on renewed activity in the region and the Japanese banks' relative willingness to provide debt for acquisition and re-financing transactions. Our businesses in Australia, Singapore and Taiwan all increased transaction revenues which made up for shortfalls in Vietnam and relatively stable performances elsewhere

* Refer to definition on page 17.

in the region. Overall, the Asia Pacific Commercial Transaction Advisory business recorded a 30% increase in underlying profit to £14.6m (2011: £11.2m). The increase in underlying profit in constant currency was 28%.

UK Residential

The prime residential market, where Savills is a market leader, continued to perform well with Savills acting on a similar number of sales of existing homes as last year (exchanges up 2% year on year). In the Prime Central London market volumes decreased by approximately 7% year on year in the light of changes made to stamp duty and the taxation on foreign and corporate owners of residential property. Transaction volumes in the country market increased by approximately 5%, with the biggest rise being in properties just below the upper threshold for stamp duty (£2m). In the new homes market we saw a significant increase in transactions, buoyed by continued strong overseas interest in high quality developments and good levels of stock availability. A good example was the Fitzroy Place development in Central London, which resulted in the single largest volume of sales by Savills in one weekend of marketing in Hong Kong and Singapore. The Residential Transaction Advisory business increased revenue by 2% to £97.0m (2011: £95.0m).

Despite reduced volumes in London, price growth remained over 5% for the year, although there is evidence that the drivers of growth are the core Prime Central London locations of Knightsbridge, Chelsea, Mayfair and Belgravia, where 2012 represented a record year for properties over £5m, with volumes up approximately 14%.

Despite its relative strength as a market, Savills sales volumes in Central London remain 25% below the 2007 peak. In the broader market the availability of mortgage finance remained a significant obstacle for buyers and transaction volumes continue to reflect this. There is, however, some evidence of movement from London to the Home Counties, as the relative buying power of a London householder in the country market is significant. During the year we opened new offices in Notting Hill and Chelsea and rationalised some regional office space as part of the Savills UK merger.

The Residential Transaction Advisory business, as a whole, recorded slightly reduced underlying profits of £14.7m (2011: £14.8m).

UK Commercial

Revenue from UK commercial transactions increased 26% to £60.4m (2011: £47.9m). This performance reflected significant gains in our share of Prime Central London transactions during the year. During the strong fourth quarter Savills advised on one in four transactions in this market. As we anticipated, trading conditions in the first part of the year were relatively weak, but the Central London market strengthened through the second half, with market volumes in the fourth quarter up 87% year on year. London continued to be the focal point for overseas investment interest in both prime retail and office properties. The same was true of the occupier market which, in London, started quietly and rallied through the year with take up in the City market finishing 18% up on 2011. Take up in the West End remained somewhat lower than the previous year. Regionally, the investment and occupier markets remained relatively subdued outside the prime retail and office sectors. Outside London, we benefited from improved market share, particularly in the retail sector, in markets which remained weaker than the previous year.

Eaton Square, London

Our business

Our governance

Our results

Savills plc Report and Accounts 2012 19

We were involved in over 70% of all sales in Eaton Square in 2012 and were responsible for the sale of the largest apartment.

Abercrombie & Fitch, Hong Kong

We advised Abercrombie & Fitch on the acquisition of their flagship store in Pedder Street, Hong Kong. The premises comprised approximately 30,000 sq ft over five floors and opened in August 2012.

20 Savills plc Report and Accounts 2012

Segmental reviews continued

Many of the expansion activities of previous periods began to demonstrate their potential, particularly in the Central London market where our revenue increased by over 80% year on year. This positively affected the UK Transaction Advisory margin which rose to 11.6% (2011: 9.6%). In absolute terms, Transaction Advisory underlying profits grew 52% to £7.0m (2011: £4.6m).

Asia Pacific Residential

The Residential Transaction Advisory business in Asia is focused primarily on new developments and secondary sales and leasing of prime properties in the region. It excludes mixed use developments, which represent a significant proportion of the region's development and are accounted for within the Commercial Transaction Advisory business. Overall the Asia Pacific Residential business recorded a 7% reduction in revenue to £18.5m (2011: £19.9m). This result reflected the effect of government measures to control activity, particularly in Hong Kong, and a weak market in Vietnam together with stronger performances from Singapore, Thailand and mainland China and resulted in the region reporting a 21% increase in underlying profit to £4.6m (2011: £3.8m).

Continental European Commercial

The Continental European Commercial business saw revenue increase by 14% to £29.6m (2011: £26.0m). In constant currency the underlying increase was 21%. For much of the year capital markets remained very weak as a result of macro-economic factors. There were marked improvements in revenue in Ireland, France, the Netherlands and Belgium which offset weaker market performances in Sweden, Italy and Germany. The restructuring activities of recent years, together with leadership changes made during the year in the Netherlands and Germany, helped to reduce the overall underlying loss by 32% to £6.0m (2011: £8.8m loss). Within this loss, the business incurred approximately £0.6m of redundancy costs in Germany and Sweden.

US Commercial

The revenue of our New York based Investment Advisory business remained largely flat at £6.1m (2011: £6.3m) although we have seen increased interest in the US from international investors. The Healthcare, Retail and Cross-Border teams enjoyed stronger market conditions than in 2011 with some significant domestic and cross-border transactions.

In the third quarter, approaching the fifth anniversary of the acquisition of Granite Partners, we were able to make management changes and revise the local compensation plan for periods beginning 1 January 2013. This resulted in a small redundancy cost and a more muted Q4 than the previous year. As a result of these factors, the underlying loss for the year increased to £2.1m (2011: £1.4m loss). However, on the basis of the deal pipeline going into the new year, we anticipate an improved performance in 2013.

Consultancy

Revenue £172.2m +20%		Underlying profit before tax* £14.8m +17%
2012	172.2	2012	14.8
2011	143.4	2011	12.6
2010	134.2	2010	10.6
2009	119.4	2009	10.9
2008	131.8	2008	16.3
Contribution to Group		Services

Affordable Housing and Student Accommodation Building Consultancy Capital Allowances and Rating Development Environmental Consultancy Housing Consultancy Lease Consultancy Planning Public Sector Research Strategic Projects

Our Consultancy business improved its performance, demonstrating its overall strength in markets which continue to experience pressure on fees and the high costs of professional indemnity insurance.

UK Consultancy

Consultancy service revenue in the UK increased by 23% to £132.3m (2011: £107.4m). Strong all round performances in Building Consultancy, Lease Consultancy, Planning, Development, Public Sector and the Housing Consultancy practices each contributed to the increase. Our Valuations teams enjoyed stable revenues despite continued fee pressure and profitability was marginally affected by an increase in new insurance provisions year on year. Overall underlying profit from the UK Consultancy business increased by 14% to £12.4m (2011: £10.9m).

Asia Pacific Consultancy

Revenue in the Asia Pacific Consultancy business increased by 11% to £27.6m (2011: £24.9m) with increased valuation and feasibility study assignments in Greater China, Taiwan and Vietnam offsetting the effect of marginally reduced activity in Australia and Singapore. This improved underlying profit by 61% to £2.9m (2011: £1.8m).

Continental European Consultancy

Our Continental European Consultancy business, which principally comprises valuation services, faced continued challenges through the year in line with the performance of most European markets. Revenue improved by 11% to £12.3m (2011: £11.1m) with stronger performances in Germany, Poland and Spain offsetting flat or marginally decreased revenues in other markets. In the fourth quarter action was taken to restructure certain teams, particularly in Sweden which resulted in increased overall losses for the European Consultancy business of £0.5m (2011: loss £0.1m).

Segmental reviews continued

Property and Facilities Management

Revenue £300.6m +8%		Underlying profit before tax* £18.2m +9%
2012	300.6	2012	18.2
2011	278.6	2011	16.7
2010	243.7	2010	14.4
2009	215.2	2009	12.6
2008	191.4	2008	14.2

Contribution to Group revenue

Asset Management Facilities Management Commercial Management Rural Management Project Management

Services

Property and Facilities Management

Rest of Group

Our Property and Facilities Management businesses continued to perform strongly, growing revenue by 8% and underlying profit by 9% in markets which were both competitive and subject to wage inflation. This business continues to provide Savills with a strong recurring revenue stream with relatively low volatility.

Asia Pacific Property Management

Overall the business grew revenue by 8% to £186.5m (2011: £172.4m). The Property and Facilities Management business is a significant strength for Savills in Asia, complementing our Transaction Advisory businesses in the region. The total square footage under management in the region was up 33% to approximately 1.6bn sq ft (2011: 1.2bn sq ft). During the year the Guardian Facilities Management business and the Hong Kong Property Management business were merged from a management and operational perspective under new leadership. This gave rise to some additional one-off costs within the period which, together with some restructuring in mainland China, resulted in a marginal decrease in underlying profit to £10.5m (2011: £10.9m).

UK Property Management

Overall our UK Property Management teams, comprising Commercial, Residential and Rural, grew revenue by 10% to £85.8m (2011: £77.8m). The core UK Commercial Property Management business performed well with revenue growth of 8% and a 35% improvement in underlying profit. The Residential management business and the UK Commercial business together grew area under management by 20% to approximately 136m sq ft (2011: 113m sq ft). Our Residential and Rural Estate Management businesses, including lettings, increased revenue by 18% and underlying profit by 9% despite incurring expansion costs during the year. Overall the net effect of revenue growth and investment in the UK business improved underlying profit by 26% to £8.2m (2011: £6.5m).

Continental European Property Management

In Continental Europe revenue was flat at £28.3m (2011: £28.4m). Contract wins and the termination of unprofitable contracts

* Refer to definition on page 17.

helped to reduce the underlying loss for the year to £0.5m (2011: loss £0.7m). By the year end the total area under management had increased to 49m sq ft (2011: 45m sq ft).

Investment Management

Rest of Group

Cordea Savills revenue increased by 13% to £23.5m (2011: £20.8m) on assets under management ('AUM') which increased by 29% to €4.4bn (2011: €3.4bn) through the combination of an acquisition, new segregated mandates, two fund launches and inflows into existing funds. During the year, Cordea acquired International Property Asset Management GmbH to enhance its German platform and made a number of senior appointments in Italy, Germany and the UK. The costs associated with these activities, and the formation of a proprietary KAG investment vehicle in Germany, resulted in additional business development costs during the year which reduced the underlying profit margin to 15.3% (2011: 22.6%) reducing underlying profits by 23% to £3.6m (2011: £4.7m). Having completed a year of change and operational development, Cordea Savills is well positioned to grow its business.

Summary

Overall, in 2012 Savills delivered a strong performance in markets in which activity levels and confidence varied enormously. Our positions in the UK and Asia, in both the prime residential and commercial markets, were substantially enhanced by the acquisitions and appointments we have made over the course of the market downturn of the last few years. Our strong and growing non-Transactional business continued to provide a solid foundation for this performance. We remain focused on further reducing our losses in Continental Europe while at the same time developing our operations in the core markets of France and Germany. Encouraged by the interests of our clients, we also look to develop further the Savills strategic footprint in North America.

On a Group basis Savills is well positioned for further progress in 2013.

Jeremy Helsby Group Chief Executive

Meadowhall, Sheffield

We acted on behalf of London & Stamford on the disposal of its 50% investment in the 1,600,00 sq ft Meadowhall Shopping Centre for £762.5m to Norges Bank Investment Management.

Savills plc Report and Accounts 2012 23

Group Chief Financial Officer's report Financial review The continued strength of the Group's business, particularly in the UK and Asia, resulted in revenue for the year increasing by approximately 12% to £806.4m (2011: £721.5m). Underlying profit grew by 21% to £60.8m (2011: £50.4m).

Simon Shaw Group Chief Financial Officer

Financial highlights

• Group revenue up 12% to £806.4m (2011: £721.5m)
• Underlying Group profit before tax* up 21% to £60.8m (2011: £50.4m)
• Group profit before tax up 36% to £54.2m (2011: £40.0m)
• Underlying basic EPS grew 22% to 35.3p (2011: 29.0p)
• Total dividend for the year up 19%. Final ordinary and supplementary interim dividends total 12.7p per share (2011: 10.35p) taking the total dividend for the year to 16.0p per share (2011: 13.5p)

Underlying profit margin

Underlying profit margin increased to 7.5% (2011: 7.0%) reflecting the effect of increased Transaction Advisory, Consultancy and Property Management activity including progressively improving performance from many of the Group's recruitment and bolt-on acquisition activities of the last few years.

Net interest

Net finance income in the year was £0.3m (2011: £0.1m). With continuing low interest rates this primarily reflects efficiencies in treasury management and the continued reduction in gross debt outstanding.

Taxation

The tax charge for the year increased to £15.4m (2011: £13.2m). The effective tax rate decreased to 28.4% (2011: 33.0%) largely reflecting the 2% reduction in the UK tax rate and the effect of share price movements on allowances related to share based incentive schemes. The underlying effective tax rate was 27.1% (2011: 28.6%).

Restructuring and impairment charges

During the period the Group incurred an aggregate restructuring charge of £4.0m (2011: £1.9m). This related to the merger of the two UK trading businesses into Savills (UK) Limited, which became effective on 1 January 2013. The charge comprised amounts in respect of: the closure of some regional offices, an onerous lease provision and the amalgamation of two West End offices into one new head office at 33 Margaret Street. In addition, the Group incurred costs of approximately £1.3m (2011: £1.6m) relating to redundancy and other cost reduction initiatives primarily in Continental Europe. These latter costs have not been classified as restructuring costs.

At year end the Group recognised an impairment charge in respect of its interest in an available-for-sale investment managed by Cordea Savills. The total impairment charge amounted to £1.2m. In 2011 the impairment charge of £5.4m related to goodwill in our Italian and Spanish businesses.

The restructuring charge and impairment provision have been taken into account in the calculation of underlying profit before tax in line with Group policy.

Earnings per share

Basic earnings per share increased by 43% to 30.8p (2011: 21.5p). Adjusting on a consistent basis for restructuring costs and impairment charges, profits and losses on disposals, certain share-based payment charges and amortisation of intangible assets, underlying basic earnings per share increased by 22% to 35.3p (2011: 29.0p).

Fully diluted earnings per share increased by 41% to 29.5p (2011: 20.9p). The underlying fully diluted earnings per share increased by 20% to 33.7p (2011: 28.2p).

Cash resources, borrowings and liquidity

Year end gross cash and cash equivalents increased 16% to £92.8m (2011: £80.0m) reflecting improved profits and working capital during the period.

Gross borrowings at year end reduced to £1.2m (2011: £6.4m). These included £1.1m in respect of a working capital loan in Australia and £0.1m in overdrafts. Cash is typically retained in a number of subsidiaries in order to meet the requirements of commercial contracts or capital adequacy. In addition, cash in certain territories is retained to meet future growth requirements where to remit it would result in the Group suffering withholding taxes.

The Group's cash flow profile is biased towards the second half of the year. This is as a result of seasonality in trading and the major cash outflows associated with dividends, profit related remuneration payments and related payroll taxes in the first half. The Group cash inflow for the year from operating activities was £59.7m (2011: £35.7m), primarily as a result of improved trading in the Transaction Advisory business. As much of the Group's revenue is transactional in nature, the Board's strategy is to maintain low levels of gearing, but retain sufficient credit facilities to enable it to meet cash requirements during the year and finance business development opportunities as they arise. During the year the Group's revolving credit facility, which expires on 31 March 2014, was increased by £15m to £65m. After the year end, the Group entered into a £12m amortising term loan, which expires on 1 May 2015, to finance the fit out of Savills (UK) Limited's new head office. This loan amortises over the rent free period allowed under the 20 year lease.

At the year end the Group had undrawn facilities, including overdraft facilities of £86.3m (2011: £63.5m).

Group Chief Financial Officer's report Financial review continued

Capital and shareholders' interests

The movement in non-controlling interests of £1.8m to £0.6m (2011: negative £1.2m) reflect the acquisition of the outstanding 25% stake in our US operation. During the year ended 31 December 2012, 0.7m new shares were allotted to participants exercising their options under the Sharesave Scheme and the Executive Share Option Scheme (2001). No shares were repurchased for cancellation (2011: nil). The total number of ordinary shares in issue at 31 December 2012 was 133.3m (2011: 132.6m).

Savills Pension Scheme

The funding level of the Savills Pension Scheme, which is closed to future service based accrual, improved during the year as a result of the rise in asset values. Increased contributions and investment returns were partially offset by an increase in the valuation of long term liabilities as a result of the expected continuation of low interest rates into the future. The plan deficit at the year end amounted to £27.9m (2011: £35.6m).

Net assets

Net assets as at 31 December 2012 were £233.1m (2011: £204.4m). This movement reflected increased receivables and cash balances derived from the Group's trading performance together with reduced borrowings and provisions for retirement and employee benefit obligations.

Business development

During the year the Group made its final payment under the 2007 contract to acquire its US business and further increased its shareholding in Savills Vietnam under pre-existing deferred consideration arrangements. In January 2012 the Group acquired Gresham Down Capital Partners LLP, a specialist Central London investment and asset management business for total consideration of £3.0m, of which £1.6m was paid in the year. Also in January 2012 Cordea Savills acquired IPAM, a German real estate asset management company for total consideration of £3.1m, of which £2.3m was paid during the year. These acquisitions, together with the payment of deferred consideration on previous transactions resulted in the Group investing a total of £21.5m net of cash acquired (2011: £12.4m) in the year.

Key performance indicators

The Group uses a number of key performance indicators (KPIs) to measure its performance and review the impact of management strategies. These KPIs are detailed under the Key Performance Indicators section of the Review of operations on pages 16 and 17. The Group continues to review the mix of KPIs to ensure that these best measure our performance against our strategic objectives, in both financial and non-financial areas.

Financial policies and risk management

The Group has financial risk management policies which cover financial risks considered material to the Group's operations and results. These policies are subject to continuous review in light of developing regulation, accounting standards and practice. Compliance with these policies is mandatory for all Group companies and is reviewed regularly by the Board.

Treasury policies and objectives

The Group Treasury policy is designed to reduce the financial risks faced by the Group, which primarily relate to funding and liquidity, interest rate exposure and currency rate exposures. The Group does not engage in trades of a speculative nature and only uses derivative financial instruments to hedge certain risk exposures. The Group's financial instruments comprise borrowings, cash and liquid resources and various other items such as trade receivables and trade payables that arise directly from its operations. Surplus cash balances are generally held with A+ rated banks and the Group places surplus deposits with AAA rated institutional money market funds.

Interest rate risk

The Group finances its operations through a mixture of retained profits and bank borrowings, at both fixed and floating interest rates. Borrowings issued at variable rates expose the Group cash flow to interest rate risk, which is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain at least 70% of its borrowings in fixed rate instruments.

Liquidity risk

The Group prepares an annual funding plan which is approved by the Board and sets out the Group's expected financing requirements for the next 12 months. These requirements are ordinarily expected to be met through existing cash balances, loan facilities and expected cash flows for the year.

Foreign currency

The Group operates internationally and is exposed to foreign exchange risks. As both revenue and costs in each location are generally denominated in the same currency, transaction related risks are relatively low and generally associated with intra group activities. Consequently, the overriding foreign currency risk relates to the translation of overseas profits and losses into sterling on consolidation. The Group does not actively seek to hedge risks arising from foreign currency translations due to their non-cash nature and the high costs associated with such hedging. The net impact of foreign exchange rate movements in 2012 was a £0.6m decrease in revenue (2011: £3.1m increase) and an increase of £0.6m in underlying profit (2011: £0.1m decrease).

Simon Shaw

Group Chief Financial Officer

Corporate responsibilities

Key highlights in 2012

People

• Further developed our employer of choice standing to ensure that we attract, motivate and retain the talented people who are fundamental to our future success
• Focused our skills and career development programmes to allow our people to fulfil their potential and to deliver our client service commitment

Clients

• Maintained our focus in continually improving our client offering and service, in particular by building our cross-border/inter-regional service capacity
• Developed our client service offering with significant investment in systems

Environment

– Achieved a sector leading Top 10 ranking in the FTSE350 Carbon Disclosure Leadership Index 2012

Community

• Further recognition of good corporate citizenship
• Savills Guardian, our Facilities Management business in Hong Kong awarded '5-Year Plus Caring Company' status
• Retained membership of FTSE4Good, evidencing our commitment to meeting globally recognised corporate responsibility standards

Corporate responsibility at Savills

Corporate responsibility ('CR') is our commitment to the positive impact that our business can make, through our people, on the stakeholders and communities with whom we interface.

Overall responsibility for our corporate responsibility programme sits with the Group Chief Executive and the Board. CR strategy is overseen by our CR Steering Group, comprising senior representatives from a range of business and central teams, and delivered at country level across the four critical areas of CR, namely People, Clients, Environment and Community, which allows our businesses the freedom to adapt quickly to new opportunities. The Board receives annual and ad hoc updates on CR activities and progress.

We continue to include the consideration of CR related issues in our Key Risk Registers ensuring that we can readily identify emerging issues and respond to these on a timely basis.

People

Values

Our vision to be the real estate advisor of choice in our selected markets and deliver superior financial performance can only be achieved through the dedication, commitment and excellence of our people.

Savills is committed to providing employment on an equal basis irrespective of gender, sexual orientation, marital or civil partner status, gender reassignment, race, colour, nationality, ethnic or national origin, religion or belief, disability or age. We support the Core Principles of the International Labour Organization.

Our people strategy remains focused on supporting delivery of the highest standards of client service through motivated and engaged people. We believe that a positive culture is essential to high quality client service. This positive culture is encapsulated in our Values, which are reflected in all our practices and procedures. Our reputation has been built on our people and we believe that staff whose behaviours reflect our Values deliver the excellent client service that we strive to provide. Our Values also capture our commitment to ethical, professional and responsible conduct and our entrepreneurial value-enhancing approach.

Our shared Values are:

Pride in everything we do

We:

• take great pride in delivering services of the highest quality;
• always go 'the extra mile' to meet our clients' objectives; and
• seek to employ only the best people.

Always act with integrity

We:

• behave responsibly;
• act with honesty and respect for other people; and
• adhere to the highest standards of professional ethics.

Take an entrepreneurial approach to business We:

– seek out new markets and opportunities for clients, and take

• a creative and entrepreneurial approach to delivering value; – are forward thinking, and always aim to build long term client relationships;
• aim to be a leader in every market we enter, and commit ourselves with passion, energy and expertise; and
• approach problems with a proactive, practical attitude, delivering robust solutions.

Help our people fulfil their true potential

We:

• encourage an open and supportive culture in which every individual is respected;
• help our people to excel through appropriate training and development;
• share success and reward achievement; and
• recognise that our people's diverse strengths combined with good teamwork produce the best results.

Corporate responsibilities continued

We strive to provide an environment in which our people can flourish and succeed. This allows us to recruit, motivate and retain talented people and build on our status as an employer of choice. We engage with our people to communicate our vision and strategy through well established internal channels.

Training and development

We continued our significant investment in people development. Our graduate programme is recognised in the Times Top 100 UK graduate programmes and continues to go from strength to strength. We came first, for the sixth year running, in the property category of Graduate Employers of Choice at The Times Graduate Recruitment Awards 2012. Our award winning summer scheme, a paid internship allowing prospective graduate entrants to test their interest in real estate, and our new Insight Programme, a one week work shadowing programme for those in their first year at university, feed into the graduate programme to deliver the best possible talent in the market. We are encouraged that our graduate recruitment enjoys a 50/50 male to female ratio in a sector which has historically struggled to recruit a high percentage of female graduates.

We are further developing our People Development programme, which we are piloting in the UK, to build on three key themes:

Career development – from coaching and mentoring to leadership

Client skills – from networking to structured business development

Navigation and knowledge of the Savills business – from induction to secondments

Through these initiatives and better communication we aim to ensure that career development remains aspirational and is clearly defined for individuals.

Ethical commitment

Savills is committed to doing business legally and ethically wherever it operates. Savills Ethical Trading policy is detailed in our Group Code of Conduct which is readily accessible in local languages to all staff, to support their day to day decision making. We continue to maintain our focus on ensuring that our people worldwide work within our specified financial, operational and compliance framework, and that these standards are consistently applied. We demand the highest professional standards from all of our people all of the time and have a zero tolerance to breaches. However, given the breadth of activities and the number of people we employ there may be occasions when we do not meet the high standards we aspire to. Where we fail to reach these high standards, we treat any breach with the utmost seriousness.

Clients

Client care

We are committed to delivering a high quality service and creating long term partnerships with all our clients. To do this we need to deliver exceptional client service over the long term through forging sustained relationships. We seek regular feedback from our clients which is augmented by independent market research and focuses on brand recognition and client service levels to test client satisfaction. This provides an important independent rating of the standard of our client service.

During 2012, we commenced a programme, starting with a pilot in our UK business, to further enhance our client service programme and systems. As part of the UK pilot, we have allocated client advocates to support selected clients. The core responsibilities of our client advocates are to act as a focal point for client servicing enquiries, and in particular to allow any service issues on current instructions to be quickly identified and addressed. These client advocates also play a key role in reviewing our performance with clients, through an annual review meeting, to ensure that we understand where we have met or exceeded expectations and those areas in which we can do better. It also ensures that we have awareness of the client's real estate plans over the coming 12 months so that we can make the appropriate support services available. Our client advocates are supported by a new platform built on Microsoft Dynamics. This system allows us to make online portals available which provide real time information to the client, covering current and historic instructions across our UK business. These portals also ensure that the client has full visibility of our service offering.

Complementing this initiative we have continued to build our global client care programme, in particular to ensure that we are best positioned to provide a seamless cross-border service for clients seeking advice on prime commercial and residential real estate in markets outside of their home market. Our virtual global capital markets team, linking our key investment agents across the globe, has been established to meet these needs. We will continue to develop and extend this capability across other service lines.

Health & safety and the environment Environmental

Savills and its associates operate more than 500 offices around the world. We also manage buildings for clients through our property management teams. We are committed to reducing our impact on the environment and to helping our associates and clients to achieve their environmental goals, by providing quality advice, incorporating the principles of sustainability.

By actively seeking to reduce our environmental impact we are able to achieve increased operational efficiencies and savings, both internally and for our clients.

Our policy and these principles are implemented through our operating businesses and day to day actions.

As part of our drive to control our environmental impact and to act as a hallmark of quality for our clients, our offices continue to work to secure ISO14001 2004 (Environmental Management accreditation. This is designed to achieve sound environmental performance by using a proactive range of practical office management measures consistent with our aim of carbon reduction. Our Property Management team in Hong Kong has already adopted this international standard and others are set to follow.

During 2012, we completed the move of our primary data centres in both Hong Kong and UK to greener data centres by using hosted providers. In 2013 our London teams will be moving to a new head office which has achieved a BREEAM excellent rating. Globally, we continue to adopt innovative technology to deliver research information, marketing materials, web-based collaborative forums and marketing brochures, therefore reducing paper, transport costs and waste.

In Asia Pacific, Savills Guardian was again awarded the Class of Excellence Wastewi\$e label in Hong Kong's 2012 Awards for Environmental Excellence. It has actively participated in energy conservation programmes since 2010 and by the end of 2012 had assisted over 40 properties to complete their energy carbon audit projects. Our efforts were recognised with three Eco-Business awards, two with certificates of merit and a Green Property Management Award (Public Housing) gold award. Its sister company in Hong Kong, Savills Property Management, maintained its focus on fostering environmental awareness with clients by producing an annual environment report and inviting them to participate in the annual Savills Green Gathering event to share ideas and understand the latest developments for energy efficiency and water saving.

In 2012, the Australia and New Zealand businesses established a Savills Earth team to support sustainability initiatives, with Savills obtaining strong results in the International Carbon Disclosure Project ('CDP'), leading the Real Estates Services sub-category. The CDP now involves over 650 leading companies around the world, analysing corporate behaviour and performance in response to climate change. This includes reporting on Greenhouse Gas emissions ('GHG'), reduction strategies, and the Company's perception of the risks and opportunities associated with climate change.

Within the UK, Savills has measured its overall GHG emissions for 2012 in anticipation of the regulatory reporting requirements which are expected to be introduced for 2013/2014 reporting. These are for direct emissions into the atmosphere arising from our activities (Scope 1) and indirectly via consumption of purchased electricity and gas (Scope 2). Details are below.

UK Environmental Reporting: GHG Emissions (Scopes 1+2 2012) (TCO2e/yr(1))

Note:

• 1 Emissions Factors based on Defra/DECC Guidelines 2011
• 2 Total Gross Emissions, divided by Total Full Time Equivalent Staff (FTE) Year Average

Health and safety

Savills is committed to the health, safety and welfare of our staff and others affected by our business operations. Safe working practices form an integral part of our day to day business and we aim to find practical solutions to health and safety risks. To this end our safety strategy is focused on priorities such as reducing significant occupational exposure to workplace hazards and maintaining regulatory compliance. Our 'positive safety' programme has continued to be developed to actively promote a safety culture within the business. During 2012, we reviewed and refined key Health and Safety processes, and refreshed our Health and Safety programmes in relation to personal safety.

One of our primary Health and Safety priorities is to assist our clients to manage their Health and Safety obligations on managed properties and we have further improved our operating systems to accommodate and improve our service.

We have seen a further reduction of our accident frequency rate within the Group and we will continue to seek to drive further Health and Safety improvements across the business during 2013.

A number of locations and departments achieved accreditation of ISO 18001 with all other locations following Health and Safety systems based on the requirements of UK HSG65 management standard.

We were very disappointed given our excellent Health and Safety record, that our UK business was found to have breached its Health and Safety obligations in relation to an accident which occurred at The Brewery Shopping Centre in Essex, UK in October 2009. This accident resulted in a youth suffering injuries after losing his grip on the outside of a rail of an escalator, which he was hanging from as part of a game of 'dare', and falling. All parties accepted that the escalator was perfectly safe when used sensibly and properly by members of the public; however, the court held that we should have attempted to anticipate potential misuse of the escalator in developing operating protocols at the centre. We have a great deal of sympathy for the youth's injuries, and distress to his family, but the judgment comes as a huge disappointment. An appeal has been lodged against the decision.

Community

Charitable giving

Our offices and our people are actively involved in their communities. At a local level, we have developed a series of community engagement programmes to ensure that Savills is firmly engaged with the communities we serve.

In the UK, we support two major charities – LandAid and Honeypot. LandAid is the charity of the UK's property sector which helps homeless people. Honeypot provides respite holidays and support to young carers and at-risk children. Both charities are involved in areas that our UK staff care about.

In line with our ethos of recruiting and retaining the best people, we have made community engagement an integral part of our graduate training programme. As well as delivering social benefits, we believe greater community engagement increases staff commitment and provides real-life development opportunities. For example, Savills UK graduates support ICAN, a charity assisting children with speech, language and communication needs, organising various fundraisers including raising sponsorship for their participation in the Three Peaks Challenge.

Corporate responsibilities continued

In Asia, in recognition of our involvement in the community and our commitment to being a good corporate citizen, Savills Guardian, which was first awarded the Caring Company logo in 2002/03, now holds the 'Caring Company 5 consecutive years' logo. Since 2010 Savills Hong Kong has also held the 'Caring Company' logo.

During 2012 a team from Savills Hong Kong took part in the Walk for Millions to benefit the family and child welfare services in Hong Kong and participated in the Hong Kong marathon which supports the Hong Kong Amateur Athletic Association. They also took part in a charity race organised by MINDSET, a charitable organisation that supports mental health-related organisations. In 2012, Savills Guardian achieved a gold award for Volunteer Service by the Social Welfare Department of Hong Kong.

The Group operates a Give As You Earn scheme which allows staff to donate a portion of their monthly salary to a registered charity. We also operate a profit share waiver scheme whereby staff can elect to waive an element of any annual profit share in favour of registered charities of their choice upon which the Group augments the donation to the chosen charity by 10%.

Future plans

We remain committed to continuous improvement in the area of CR and building on the work we have done in previous years. During 2013 and subsequent years we will seek to further develop our CR approach, focusing on those activities where we are best placed to make a significant contribution.

Risks and uncertainties facing the business

Given the scale and diversity of our businesses, the Board recognises that the nature, scope and potential impact of our key operational and strategic risks are subject to continuous change. The Board oversees an established risk management framework which is designed to provide it with appropriate visibility of the Group's key risks. The Board members participated in a facilitated risk workshop in 2012 to review and challenge the inherent risks of the Group. It regularly assesses the effectiveness of its strategies for managing and mitigating the Group's risks and the controls implemented to manage them.

The Corporate Governance report on pages 36 to 42 describes the systems and processes through which the Board manages and mitigates risks.

Our consideration of the key risks and uncertainties relating to the Group's operations, along with their potential impact and the mitigating factors in place, is set out below. It is not possible to mitigate fully all of our risks and there may be other risks and uncertainties besides those listed below which may also adversely affect the Group and its performance.

Key risk	Description	Change from 2011	Mitigating factors
Currency and country risks	Global market conditions remain volatile, with uncertainty in several of our sectors and markets. The restrictions facing our clients on credit availability continues. Group earnings and/or our financial condition could be adversely affected by these macroeconomic uncertainties. Savills operates in 23 countries which increases the risk that we will be affected by geopolitical and/or economic uncertainties associated with doing business in those jurisdictions.		Our strategy of diversifying our service offering and geographic spread mitigates the impact on the business of weak market conditions in specific geographies, particularly from more widespread uncertainty, but these factors cannot entirely mitigate the overall risk to earnings. To reduce the potential impact of these risks, we continually focus on our cost base and seek to improve operational efficiencies. Our continual monitoring of market conditions and review of market changes against our Group strategy, supported by the quarterly reforecasting and reporting undertaken by all of our businesses, remain key to our ability to respond rapidly to changes in our operating environment. Our exposure to countries currently with financial difficulties/implementing austerity measures is balanced by our business in other markets. When considering entry into a new country we undertake due diligence to assess the impact of any political or economic issues in that particular country.
Achieving the right market positioning in response to the needs of our clients	The markets in which we operate remain highly competitive and we need to ensure that we continue to reflect the changing needs of our clients.		To remain competitive in all markets, it is imperative that we continue to provide the quality of client care and service that our clients expect from us. This need drives our strategy to continuously grow the capabilities and strengthen the services offered by the Group. We continue to invest in the development of client relationships globally and associated best in class systems to support our client service offering.

Risks and uncertainties facing the business continued

Key risk	Description	Change from 2011	Mitigating factors
Reputational and brand risk	Savills is a brand with an excellent reputation in the markets in which we operate. We recognise the need to maintain our reputation as a quality brand and to continue to ensure the quality of the service we provide.		We recognise that our brand strength is vital to maintaining market share and expanding into new markets. To this end, we have a brand management programme in place to ensure the brand's positioning, identity and personality is clearly and consistently promoted.
			We recognise that the quality of the service we offer is vital to maintaining the brand and we have in place policies, controls and processes to monitor the quality of our client service to support our programme of continuous improvement.
Recruitment and retention of high calibre staff	We recognise that our ability to deliver our strategy is dependent on us attracting, developing, motivating and retaining people of the highest quality. This is fundamental to the future success of		We continue to invest in the development of our people and extend our training and development programmes across a number of businesses. Our profit sharing approach to remuneration is
	our business.		combined with selective use of share-based and other longer term incentives to ensure that our people are incentivised to perform over the longer term and to remain with the business. Team scorecards and individual appraisals ensure that rewards are based on improvements in client service, business development, people management, delivery of personal and financial objectives (such as working in co-operation with other teams from other parts of the business) as well as financial performance.
Maintaining standards of professional, regulatory and statutory compliance	We are required to meet a broad range of regulatory compliance requirements in each of the markets in which we operate. For example, in the UK, the Financial Services Authority (FSA) regulates the conduct of Savills Capital Advisors and Cordea Savills Investment Management, and the insurance intermediary services we provide to clients in Savills UK. In addition, the UK Office of Fair Trading regulates our Residential business in the UK. A number of the services we provide through our UK businesses are regulated by The Royal Institution of Chartered Surveyors (RICS). Failure to satisfy regulatory compliance requirements may result in fines being imposed, adverse publicity, brand reputational damage and ultimately the withdrawal of regulatory approvals.		Our Group Policy Framework, which sets out our standards regarding professional, regulatory, statutory compliance and business conduct, is subject to regular review. To support this Framework each of our businesses has its own regulatory and statutory compliance resources who maintain the internal processes and controls required to fulfil our compliance obligations. Our compliance environment, at all levels, is subject to regular review by internal audit and other assurance providers.
	We also have a number of key statutory obligations including the protection of the health, safety and welfare of our staff and others affected by our activities.

Key risk	Description	Change from 2011	Mitigating factors
Legal risk	Failure to fulfil our regulatory or contractual obligations to clients could subject the Group to regulatory action and/or claims from clients. The adverse outcome of such action/claims could negatively impact our reputation, financial condition and/or the results of our businesses. For example:		The Group has legal and regulatory compliance policies which are designed to mitigate against the risk of such action/claims being made and where such claims occur, to limit liability, particularly in relation to consultancy services such as Valuations. Such policies are regularly reviewed and communicated.
	– in accepting client engagements, Group companies may be subject to duty of care obligations. Failure to satisfy these obligations could result in claims being made against the relevant Group company and/or its staff		The Group maintains appropriate levels of professional indemnity insurance to respond to and mitigate the Group's financial exposure to such claims.
	– in our Property Management business, we may assume responsibility for appointing and/or supervising third party contractors that provide construction and engineering services for our managed properties. Again, failure to discharge these responsibilities in accordance with our obligations could result in claims being made against the Group companies
	– in our Valuation Consultancy businesses, we can be subject to claims alleging the over-valuation of a property.
Managing our financial risks	For all areas of financial risk we have an established financial control framework with clear responsibilities for operational and finance teams at all levels of the Group. We recognise that there is a currency risk attached to operating in a large number of countries, particularly given the transaction element of our business.		The key financial risks and uncertainties are identified in the Financial review on pages 24 to 26. We minimise the risk as far as possible in local operations through natural hedging by ensuring that revenue and cost are managed in the local currency.

Board of Directors

1. Peter Smith Chairman of Savills plc and Chairman of the Nominations Committee

Appointment to the Board: Peter was appointed to the Board as a Non-Executive Director on 24 May 2004 and was elected Chairman with effect from 1 November 2004. Aged 66.

Background and relevant experience: Formerly, he was Senior Partner of PricewaterhouseCoopers (PwC) and served for two years as Chairman of Coopers & Lybrand International and as a member of the global leadership team of PwC. He served as Chairman of RAC plc and was a Non-Executive Director of Safeway plc and the Equitable Life Assurance Society.

Other appointments: He is a Non-Executive Director of Associated British Foods plc and Paris Orleans SCA. He is also Chairman of Templeton Emerging Markets Investment Trust plc.

Committee membership: Remuneration Committee and Nominations Committee.

1. Jeremy Helsby Group Chief Executive

Appointment to the Board: Jeremy joined Savills in 1980 and was appointed to the Board in 1999. Aged 57.

Background and relevant experience: He was Chairman and Chief Executive Officer of Savills Commercial and Savills Europe for seven years until he was appointed as Group Chief Executive on 7 May 2008.

Committee membership: Nominations Committee.

1. Simon Shaw Group Chief Financial Officer

Appointment to the Board: Simon joined Savills as Group Chief Financial Officer in March 2009. Aged 48.

Background and relevant experience: He is a Chartered Accountant. He was Chief Financial Officer of Gyrus Group PLC from 2003 until its sale to Olympus Corporation in 2008, having previously been Chief Operating Officer of Profile Therapeutics plc between 1998 and 2003. Between 1991 and 1997 he was a corporate financier, latterly at Hambros Bank Limited.

Other appointments: He is Non-Executive Chairman of Synairgen plc.

1. Martin Angle Senior Independent Non-Executive Director and Chairman of the Audit Committee

Appointment to the Board: Martin was appointed to the Board on 2 January 2007 and replaced Timothy Ingram as the Senior Independent Non-Executive Director from 9 May 2012. Aged 62.

Background and relevant experience: Formerly, he was Group Finance Director of TI Group plc and held various executive roles with Terra Firma Capital Partners and its portfolio companies, including The Waste Recycling Group (Executive Chairman) and Le Meridien Hotel Group (Deputy Chairman). Prior to that he held a number of senior positions in investment banking with S G Warburg & Co., Morgan Stanley and Dresdner Kleinwort.

Other appointments: He is a Non-Executive Director of Pennon Group plc, OAO Severstal, Shuaa Capital psc (Dubai) and Chairman of The National Exhibition Group. He is also Vice Chairman, Treasurer and Chairman of the Investment Committee of the FIA Foundation.

Committee membership: Audit Committee, Remuneration Committee and Nominations Committee.

5. Charles McVeigh Independent Non-Executive Director

Appointment to the Board: Charles was appointed to the Board as a Non-Executive Director on 1 August 2000. Aged 70.

Background and relevant experience: Formerly, he was Co-Chairman of Citigroup's European Investment Bank and served on the Boards of Witan Investment Company plc, Clearstream, the London Stock Exchange, LIFFE, British American Business Inc and was a member of both the Development Board and Advisory Council of the Prince's Trust. He was also appointed by the Bank of England to serve on the City Capital Markets Committee and the Legal Risk Review Committee and was a member of the Fulbright Commission.

Other appointments: He is currently a Senior Advisor at Citigroup. He serves on the Board of EFG-Hermes, Petropavlosk plc (formerly Peter Hambro Mining plc) and was appointed as a trustee of the Landmark Trust in 2010. He was also appointed as a Governor and the Head of Finance of St. Mary's School Shaftesbury in 2012 and was recently appointed as a Trustee of the Natural History Museum Development Board.

6. Tim Freshwater Independent Non-Executive Director

Appointment to the Board: Tim was appointed to the Board as a Non-Executive Director on 1 January 2012. Aged 68.

Background and relevant experience: He was Managing Director and Chairman of Corporate Finance Goldman Sachs (Asia) from 2001 until 2005 and Vice-Chairman of Goldman Sachs (Asia) from 2005 until 2012. He was formerly with Jardine Fleming, becoming Group Chairman in 1999, and was a Partner at Slaughter and May from 1975 to 1996.

Other appointments: He is also currently Non-Executive Chairman of Grosvenor Asia Pacific Limited and a Non-Executive Director of Aquarius Platinum Limited, Chong Hing Bank Limited, COSCO Pacific Limited, Swire Pacific Limited and Hong Kong Exchanges and Clearing Limited.

Committee membership: Audit Committee, Remuneration Committee and Nominations Committee.

7. Clare Hollingsworth

Independent Non-Executive Director and Chair of the Remuneration Committee

Appointment to the Board: Clare was appointed to the Board as a Non-Executive Director on 2 April 2012. Aged 52.

Background and relevant experience: Formerly, she was Chief Executive Officer of Spire Healthcare and its predecessor business, BUPA Hospitals, from 1999 to 2008. Prior to 1999, Clare was Managing Director at Caledonian Airways from 1990 to 1997, having been appointed as part of the leadership team when the airline was established by British Airways in 1988. She was subsequently a Non-Executive Director of Caledonian Airways from 1997 to 1999. She was also a Non-Executive Director of Ambea AB from 2009 to 2010 and a Non-Executive Director of Assura Group Ltd from 2008 to 2012.

Other appointments: She is a Non-Executive Director of Spire Healthcare Limited, Eurostar International Limited, Virgin Healthcare Holdings Limited and Mölnlycke AB.

Committee membership: Audit Committee, Remuneration Committee and Nominations Committee.

Group Executive Board

1. Jeremy Helsby Group Chief Executive

For photograph and full biography see opposite page.

3. Simon Shaw

Group Chief Financial Officer For photograph and full biography see opposite page.

1. Chris Lee

Group Legal Director & Company Secretary

Appointment to the Group Executive Board: Chris joined Savills in June 2008 and was appointed to the Group Executive Board in August 2008. He has responsibility for legal and compliance issues globally. Aged 47.

Background and relevant experience: He held equivalent roles with Alfred McAlpine plc, Courts plc and Scholl plc between 1997 and 2008, prior to which he was Deputy Group Secretary of Delta plc from 1990 to 1997.

9. Rupert Sebag-Montefiore Head of Global Residential

Appointment to the Group Executive Board:

Rupert joined Savills in 1980 and was appointed to the Group Executive Board when it was formed in February 2008. Aged 59.

Background and relevant experience: He was appointed as Head of Global Residential in January 2013 having until then, served as Managing Director and Chairman Chief Executive of Savills (L&P) Limited from May 2000 and October 2004 respectively to 31 December 2012.

1. Mark Ridley Chairman and Chief Executive – Savills UK

Appointment to the Group Executive Board:

Mark was appointed to the Group Executive Board when it was formed in February 2008. Aged 51.

Background and relevant experience: He became Chairman and Chief Executive of Savills (UK) Limited following the reorganisation of the Commercial and L&P businesses in January 2013. He previously served as Chairman and Chief Executive of Savills Commercial Limited from January 2008 and prior to this was Head of the Manchester office which he opened for Savills from when he joined in July 1996.

11. Robert McKellar Chief Executive – Asia Pacific

Appointment to the Group Executive Board: Robert was appointed to the Group Executive Board when it was formed in February 2008. Aged 53.

Background and relevant experience: He was appointed Chief Executive of Asia Pacific on 31 March 2005 having served as the Group Finance Director since June 2000 and prior to this since December 1994 acted as Finance Director of Savills Commercial Limited.

12. Raymond Lee

Chief Executive – Savills Group in Hong Kong, Macau and Greater China

Appointment to the Group Executive Board: Raymond was appointed to the Group Executive Board in January 2011. Aged 51.

Background and relevant experience: He joined Savills in 1989. In 2009, Raymond became the CEO of Savills Group in Hong Kong and Macau and in 2010 was appointed CEO of Greater China. Raymond is a Fellow of the Hong Kong Institute of Directors and is a Guangdong Province Zhuhai Municipal Committee Member, CPPCC.

1. Simon Hope Global Head of Capital Markets

Appointment to the Group Executive Board: Simon was appointed to the Group Executive Board when it was formed in February 2008. Aged 48.

Background and relevant experience: He joined Savills in September 1986 and he is responsible for our Global Capital Markets business and Head of Savills Commercial Investment. He is also a member of the Charities Fund Property Board.

1. Borja Sierra Chief Executive – Continental Europe

Appointment to the Group Executive Board: Borja was appointed to the Group Executive Board in January 2011. Aged 44.

Background and relevant experience: He joined Savills in 1998 and is responsible for Savills Continental European offices. Formerly he was Head of Savills in Spain for 10 years, and in February 2008 he was appointed as Executive Managing Director of Savills New York office, where he assumed responsibility for Savills cross-border business.

1. Justin O'Connor Chief Executive – Cordea Savills

Appointment to the Group Executive Board: Justin was appointed to the Group Executive Board in September 2010. Aged 53.

Background and relevant experience: He joined Cordea Savills in January 2004 as Head of Business Development. He was subsequently appointed Chief Executive of Cordea Savills in January 2006.

Corporate Governance report

The Board is responsible to shareholders for the management and control of the Company's activities and is committed to the highest standards of Corporate Governance, as set out in the UK Corporate Governance Code (the 'Code'). The Code may be reviewed on the website of the Financial Reporting Council at www.frc.org.uk. It is the Board's view that the Company was fully compliant with the provisions of the Code during the year.

The following section together with Other Statutory Information on pages 43 and 44 and the Remuneration report on pages 45 to 57 provides details of how the Company applies the principles and complies with the provisions of the Code.

Governance structure

The Group's corporate governance framework is set out below.

The Directors receive management information, including financial, operating and strategic reports, in advance of Board meetings. The Board receives presentations from the Heads of the Principal Businesses and Functions on matters of significance and periodically meetings are held in regional centres to give the Board greater insight into the business in that region. The Group Legal Director & Company Secretary provides the Board with ongoing reports that cover legal developments and regulatory changes.

The Board has adopted a formal schedule of matters specifically reserved to it for decision making, although its primary role is to provide leadership and to review the overall strategic development of the Group as a whole. In addition, the Board sets the Group's values and standards and ensures that the Group's businesses act ethically and that its obligations to its shareholders are understood and met. The Board delegates to management the day to day operation of the business, subject to appropriate risk parameters. The Board is specifically responsible for:

Strategy	Approving Group strategy and the Group's budgetary and business plans
	Approving significant investments, any decision to divest or close any Group business and capital expenditure
Risk management	Establishing the Group's risk appetite, system of internal control, governance and approval authorities
Governance	Approving executive performance and succession planning, including the appointment of new Directors
	Approving the Group's Code of Conduct
	Determining the standards of ethics and policy in relation to business practice, health, safety, environment, social and community responsibilities
Financial performance	Reviewing performance, assessed against the Group's strategy, objectives, business plans and budgets
	Reviewing changes to the Group's capital structure and the issue of any securities
	Approving annual and half year results and interim management statements, accounting policies and, subject to shareholder approval, the appointment and the remuneration of the external auditors
	Approving the dividend policy and interim and supplemental dividends and recommending final dividends

At its meetings during the year, the Board discharged the duties above and received updates on the following: financial performance; key management changes; material new projects; financial plans; legal and regulatory updates and in particular:

• − reviewed the strategies and policies being pursued to mitigate risks and reconfirmed the Group's risk appetite (at a workshop facilitated by the Group Risk Director and PricewaterhouseCoopers for this purpose); and
• − reviewed the Group's Investor Relations Strategy to ensure that this best communicated the Group's strategy and potential to investors and prospective investors.

One of the Board's meetings during the year was specifically devoted to the review and reconfirmation of the Group's strategy. This meeting benefited from presentations from the Heads of the Principal Businesses on the proposed strategy of the businesses. As the meeting was held in Asia, the heads of the Group's Asian Businesses also presented equivalent updates. The delivery of strategic plans is continually monitored and reviewed by the Board and periodic updates on progress and market developments are presented by the Heads of the Principal Businesses.

As well as planned briefings, Board members are also expected to take responsibility for identifying their own individual needs and to take appropriate steps to ensure that they are properly informed about the Group and their responsibilities as Directors.

Directors' attendance at scheduled Board meetings convened in the year ended 31 December 2012 was as follows:

	Number of meetings possible whilst a Board member	Number of meetings attended
Non-Executive Directors
Peter Smith	6	6
Martin Angle	6	5
Tim Freshwater	6	6
Clare Hollingsworth	4	4
Timothy Ingram	3	3
Charles McVeigh	6	5
Executive Directors
Jeremy Helsby*	6	6
Simon Shaw*	6	6

* Members of the Group Executive Board

The Board and Committee meetings are structured to allow open discussion. All Directors receive detailed papers in advance of Board meetings. When unable to be present in person, Directors may attend by audio or video conference. When Directors are not able to attend Board or Committee meetings, their comments on the papers to be considered at that meeting are relayed in advance to the Chairman of that meeting.

The Non-Executive Directors meet separately at least twice each year without the presence of the Executive Directors and also meet at least once a year without the Chairman, at which time the Chairman's performance is appraised.

The Group Legal Director & Company Secretary, whose appointment is a matter reserved for the Board, is responsible for advising and supporting the Chairman and the Board on company law and corporate governance matters and for ensuring that Board procedures are followed, as well as ensuring that there is a smooth flow of information to enable effective decision making. All the Directors have access to the advice and services of the Group Legal Director & Company Secretary and through him have access to independent professional advice in respect of their duties at the Company's expense.

The Board has delegated authority to certain committees to carry out specified objectives as defined by their terms of reference, which are available on request or on the Company's website (www.savills.com). The principal Committees and membership of each Committee are detailed on pages 39 to 41.

Board composition and balance

Board membership evolved during the year, with Tim Freshwater (with effect from 1 January 2012) and Clare Hollingsworth (with effect from 2 April 2012) joining the Board as additional new Independent Non-Executive Directors, and Timothy Ingram, previously Senior Independent Director, retiring from the Board at the conclusion of the 2012 Annual General Meeting on 9 May.

Notwithstanding these changes, at all times during the year at least half of the Board, excluding the Chairman, were Independent Non-Executive Directors.

The posts of Chairman and Group Chief Executive are distinct and separate. The Chairman leads the Board and ensures the effective engagement and contribution of all Executive and Non-Executive Directors. The Group Chief Executive has responsibility for all Group businesses and acts in accordance with the authority delegated by the Board. There are a number of areas where the Board has delegated specific responsibility to management, including responsibility for the operational management of the Group's businesses as well as reviewing strategic issues and risk matters in advance of these being considered by the Board and/or its Committees.

Accordingly, the Board considers that throughout the year the Company was in full compliance with the Code.

In this regard, the Board considers Martin Angle, Tim Freshwater, Clare Hollingsworth and Charles McVeigh to be Independent Non-Executive Directors, as they are independent of management and have no business or other relationship which could interfere materially with the exercise of their judgement. In particular, and notwithstanding his long service on the Board, the Board continues to consider that Charles McVeigh remains entirely independent in character and judgement. As a result of having served on the Board for over nine years, Charles McVeigh is no longer a member of any of the Board's Committees. Following Timothy Ingram's retirement as a Non-Executive Director at the conclusion of the AGM on 9 May 2012, Martin Angle became Senior Independent Director. The Senior Independent Director is available to shareholders if they have concerns which have not been addressed by contact with the Chairman and/or Group Chief Executive.

Corporate Governance report continued

The biographies of the Board members appear on page 34.

Balance of Non-Executive Directors and Executive Directors

Length of Tenure of Non-Executive Directors

Board induction and training

An induction programme is provided for each new Director which introduces the Group's business, its operations, strategic plans, key risks and its governance arrangements, and includes one to one briefings from the Heads of the Principal Businesses and an introduction to each Group business development strategy.

Ongoing training courses are available and Directors also receive regular updates on developments in legislative and regulatory matters.

Board performance and evaluation

In 2010, the Board engaged Lintstock Limited ('Lintstock') on a three year appointment to undertake an annual independent evaluation of Board and Board Committee performance and to identify areas where performance and procedures might be further improved. Lintstock's evaluation considers:

• − Board composition, expertise and dynamics;
• − Board support, time management and Board Committee performance;
• − strategic, operational and risk oversight, in particular following the restructuring of the Board in 2010, succession planning and human resource management; and
• − priorities for change.

Lintstock engaged with the Chairman and the Group Legal Director & Company Secretary to set the context for the annual Board review and to tailor the heads of enquiry to the specific circumstances of Savills. The content was designed to build upon the learning gained in the previous reviews to ensure that the agreed recommendations had been implemented and to measure progress year on year. The members of the Board were then requested to complete an online questionnaire considering the performance of the Board, the Committees and the Chairman.

On completion of the annual review process, Lintstock presented a report considering the key themes and issues raised and formulated a number of recommendations to further enhance Board effectiveness. It was observed that Board performance had further improved through 2012 and that the issues indentified in the previous review had been addressed satisfactorily. The review confirmed that the Board's major priorities for 2013 were continuing to progress the Group's strategic agenda, gaining a better understanding of Group client service levels and ensuring that performance relative to peers was kept under review.

A performance assessment of the Non-Executive Directors and the Group Chief Executive was undertaken by the Chairman during the year. In addition, the Group Chief Executive conducted a performance review of the Group Chief Financial Officer, and the Senior Independent Director led a review of the Chairman's performance, with input from all Directors.

The individual assessments of each Director confirmed that performance was effective and that each Director continued to demonstrate commitment to the role. The Board subsequently endorsed these assessments and confirmed that the contributions made by each Director, each of whom, in accordance with the Code, offers themselves for re-election at the AGM on 8 May 2013, continued to be effective and that each Director continued to demonstrate commitment to the role and that the Company should therefore support their re-election. The details of the Directors, are set out on page 34.

Directors' Conflicts of Interest

Directors have a statutory duty to avoid situations in which they have, or could have, an interest that conflicts or possibly may conflict with the interests of the Company. A Director will not be in breach of that duty if the relevant matter has been authorised by the other Directors in accordance with the Articles of Association ('Articles'). The Board has adopted a set of guiding principles on managing conflicts and approved a process for identifying current and future actual and potential conflicts of interest. It was also agreed that the Nominations Committee would review authorised conflicts at least annually or if and when a new potential conflict situation was identified or a potential conflict situation materialised. During 2012, actual and potential conflicts of interest that were identified by each Director were subsequently authorised by the Nominations Committee, subject to appropriate conditions in accordance with the guiding principles.

Board Committees

The principal Committees of the Board are as follows:

Nominations Committee

The Board has delegated to the Nominations Committee responsibility for reviewing and progressing appointments to the Board and Board composition. During the year, the Committee comprised the Independent Non-Executive Directors, together with the Chairman and Group Chief Executive. Charles McVeigh ceased to be a member of the Committee on 1 January 2012. On his retirement effective 9 May 2012, Timothy Ingram ceased to be a member of the Committee. The Committee is chaired by the Group Chairman, Peter Smith (save in circumstances where the Chairman's succession is considered). The Committee meets at least once a year and met twice during 2012.

	Number of possible meetings attended	Actual meetings attended
Non-Executive Directors
Peter Smith	2	2
Martin Angle	2	2
Tim Freshwater	2	2
Clare Hollingsworth (joined effective 2 April 2012)	1	1
Timothy Ingram (retired effective 9 May 2012)	1	1
Executive Directors
Jeremy Helsby	2	2

The Committee's activities during the year included:

• reviewing leadership needs of the organisation with a view to ensuring the continued ability to compete effectively in the marketplace;
• approving the appointment of a new Non-Executive Director;
• considering the proposed re-appointment of the Non-Executive Directors, before making a recommendation to the Board regarding their re-election; and
• considering and approving the Directors' potential Conflict of Interests.

The Committee provides a forum to consider Board succession planning and to make recommendations to the Board on specified matters including its composition, structure, size and balance; assist the Board in the formal selection and appointment of directors (Executive and Non-Executive) having regard to the overall balance of skills, knowledge, experience and diversity on the Board; review membership and chairmanship of Group Board Committees; and consider succession planning for the Chairman and the Executive and Non-Executive Directors, taking into account the skills and expertise which will be needed on the Board in the future. No Director is involved in decisions regarding his or her own succession.

The Articles provide that Directors must submit themselves for re-election every three years and that newly appointed Directors must submit themselves for re-appointment at the first AGM after their appointment. Notwithstanding the requirements provided by the Articles, the Board has resolved, consistent with the recommendations of the Code, that all Directors should stand for annual re-election. In making recommendations to shareholders for the re-appointment/re-election of any Director, the Nominations Committee considers the Director's performance and their ongoing contribution to the success of the Company and makes its relevant recommendation to the Board.

The Board endorses the aims of Lord Davies's review entitled 'Women on Boards' and when considering future appointments will, with the support of the Nominations Committee, base such appointments on merit, against an objective criteria and with due regard for the benefits of diversity including gender diversity. These principles were applied to the search that the Committee commissioned Spencer Stuart to undertake during 2011 for two new additional Independent Non-Executive Directors. One of the two additional Independent Non-Executive Directors appointed is female; the other is based in Asia.

Audit Committee

The Audit Committee comprises the Independent Non-Executive Directors (excluding Charles McVeigh who having already served three terms of three years, retired as a member of the Committee with effect from 1 January 2012 in accordance with the Financial Reporting Council ('FRC') Guidance on Audit Committees) and is chaired by Martin Angle. On his retirement effective 9 May 2012, Timothy Ingram ceased to be a member of the Committee. The Committee meets at least three times a year and met four times during 2012.

	Number of possible meetings attended	Actual meetings attended
Martin Angle	4	4
Tim Freshwater	4	4
Clare Hollingsworth (joined effective 2 April 2012)	3	2
Timothy Ingram (retired effective 9 May 2012)	1	1

The meetings are also attended by the Non-Executive Chairman, Group Chief Executive, Group Chief Financial Officer, Group Financial Controller, representatives from the internal and the external auditors, Group Director of Risk Management and Internal Audit, Group Legal Director & Company Secretary and other senior executives of the Group by invitation. Martin Angle has recent and relevant financial experience and the Board considers that the members of the Audit Committee collectively have sufficient recent and relevant financial experience to carry out the functions of the Committee.

The Board has delegated to the Committee responsibility for overseeing financial reporting, internal risk management and control functions and for making recommendations to the Board in relation to the appointment of the Company's internal and external auditors. The Committee is authorised to investigate any matter within its terms of reference and, where necessary, to obtain external legal or other independent professional advice.

Corporate Governance report continued

The Audit Committee's principal activities during the year have included:

• − reviewing the half year and annual financial statements with particular reference to accounting policies, together with significant estimates and financial reporting judgements and the disclosures made therein;
• − monitoring the financial reporting process;
• − reviewing management representations made to the external auditors;
• − reviewing the Group's procedures to ensure that all relevant information is disclosed;
• − discussing any issues arising out of the half year review or the full year audit with the external auditors (in the absence of management where appropriate);
• − making recommendations to the Board with regard to continuing the appointment and remuneration of the external auditors;
• − overseeing the Group's relations with the external auditors and the effectiveness of the audit process;
• − reviewing and assessing the effectiveness of the Group's internal financial controls and their application;
• − monitoring and reviewing the effectiveness of the internal audit function, reviewing all reports prepared by the internal auditors and assessing management's responses to such reports; and
• − reviewing and assessing the effectiveness of the Group's internal control and risk management systems (see pages 31 to 33).

During the last 12 months, the Committee sponsored a risk workshop to confirm the Group's key risks and its risk appetite, reviewed the controls in each business with the Heads of the Principal Businesses and oversaw a Pan-European client monies control review.

To enable it to carry out its duties and responsibilities effectively, the Committee relies on information and support from management across the business.

The Committee also considers on an ongoing basis the independence of the external auditors and has established policies to consider the appropriateness or otherwise of appointing the external auditors to perform non-audit services, including consideration as to whether the external auditors are the most suitable supplier of such services.

As detailed on page 44 the external auditors are PricewaterhouseCoopers LLP (fees included at Note 6(c) to the financial statements). The external auditors are responsible for the annual audit and have also provided certain non-audit services to the Company, principally advice on taxation matters. The approval of the Committee is required prior to awarding contracts to the external auditors for non-audit services with a value in excess of £100,000. Below this level the Chairman of the Audit Committee is kept appraised of new instructions given to the external auditors for the delivery of non-audit services. The Audit Committee is satisfied that such work was best undertaken by PricewaterhouseCoopers LLP and the objectivity of the external auditors has not been impaired by reason of this further work. The Group may not engage the external auditors to provide any of the non-audit services described below:

• bookkeeping or other services related to the accounting records or financial statements;

• financial information systems design and implementation;

• internal audit outsourcing services

• management functions or human resources; or
• advising on senior executive (including Executive Director) remuneration.

The Audit Committee considers that the relationship with the auditors is working well and remains satisfied with their effectiveness and continued independence. The Company's external audit was last tendered in 2000 and resulted in a change of external auditors to the current external auditors, PricewaterhouseCoopers LLP. The external auditors are required to rotate the audit partner responsible for the Group audit every five years and the last partner change was in 2011. The Committee has noted the revisions to the Code introduced by the FRC in September 2012 and, in particular, the recommendation that the external audit is put out to tender at least every 10 years. The FRC has proposed non-binding transitional arrangements with respect to audit tendering, including a suggestion that tendering should normally fit the five yearly cycle of partner rotation. Consequently, the Committee will consider its tendering arrangements towards the conclusion of the current audit partner's period in office or earlier if it has cause to do so. There are no contractual obligations restricting the Company's choice of external auditor. The Auditors' report appears on page 59.

The provision of internal audit services during 2012 was jointly delivered by the Group's internal audit team and a panel arrangement with BDO LLP and Grant Thornton LLP. The Board's responsibility for internal control and risk is detailed on pages 41 and 42.

Remuneration Committee

The Remuneration Committee comprises the Independent Non-Executive Directors and the Non-Executive Chairman, and was chaired by Charles McVeigh until he ceased to be a member of the Committee on 2 April 2012. With effect from 2 April 2012 the Committee was chaired by Clare Hollingsworth following her appointment as a Non-Executive Director of the Company. On his retirement effective 9 May 2012, Timothy Ingram ceased to be a member of the Committee. The Group Legal Director & Company Secretary is secretary to the Committee. The Committee meets at least three times a year and met four times in 2012.

	Number of possible meetings attended	Actual meetings attended
Clare Hollingsworth (joined effective 2 April 2012)	2	2
Martin Angle	4	3
Tim Freshwater	4	4
Timothy Ingram (retired effective 9 May 2012)	2	2
Charles McVeigh (ceased to be a member 2 April 2012)	2	2
Peter Smith	4	4

The Committee's principal responsibilities are to determine Company policy on senior executive remuneration and to agree the remuneration arrangements of the Executive Directors and members of the Group Executive Board. The Committee (excluding the Non-Executive Chairman) also determines the level of fees payable to the Non-Executive Chairman.

In addition to the above responsibilities, during 2012 the Committee reviewed the Group's remuneration policy in the light of the Department for Business, Innovation and Skills' consultation in relation to Directors' pay to ensure that the policy remained appropriate. Towers Watson, the Group's external advisor, continued to provide independent commentary on matters under consideration by the Committee and updates on market developments, legislative requirements and best practice. The Committee is also advised by the Group Legal Director & Company Secretary.

Given the central part that remuneration plays in the success of the Group, in terms of the recruitment, motivation and retention of high quality staff, the Group Chief Executive is consulted on the remuneration package of the Group Chief Financial Officer and attends Committee meetings by invitation. The Committee reviews the remuneration of the other members of the Group Executive Board.

The Committee does not deal with the fees paid to the Non-Executive Directors, which are decided by the Executive Directors and the Chair (except when her own fee is being discussed).

The Report of the Remuneration Committee is set out on pages 45 to 57. The Remuneration report will be put to shareholders for approval at the AGM on 8 May 2013.

Group Executive Board ('GEB')

The GEB comprises the Group Chief Executive, the Group Chief Financial Officer, the Heads of the Principal Businesses and the Group Legal Director & Company Secretary. Under the leadership of the Group Chief Executive, the GEB is responsible for overseeing the development and implementation of strategy, the operational performance of the Group and other specific matters delegated to it by the Board.

An explanation of how the Group creates and preserves value, and the strategy for delivering its objectives is included in the Group Chief Executive's review on pages 14 to 22.

Members of the GEB are detailed on page 35.

Relations with shareholders

The Group recognises the importance of maintaining regular dialogue with its shareholders. The Group Chief Executive and Group Chief Financial Officer have a regular programme of meetings and presentations with analysts and investors, including presentations following the publication of the Company's full and half year results. This programme maintains an ongoing two-way dialogue between the Company and shareholders, and helps to ensure that the Board is aware of shareholders' views on a timely basis. The Board also receives feedback at least twice each year from its corporate brokers on investors' and the market's perceptions of the Company. The Chairman and the Senior Independent Director are also available to shareholders.

The AGM provides the Board with a valuable opportunity to communicate with private shareholders and is generally attended by all of the Directors. Shareholders are given the opportunity to ask questions during the meeting and to meet Directors following the conclusion of the formal part of the meeting. In accordance with the Code, the level and manner of voting of proxies lodged on each resolution at the AGM is declared at the meeting and

published on the Company's website. The Directors aim to give as much notice of the AGM as possible, which is at least 21 clear days, as required by the Articles. In accordance with the Articles, electronic and paper proxy appointments and voting instructions must be received not later than 48 hours before a general meeting.

The Company has taken advantage of the provisions within the Companies Act 2006 which allow communications with shareholders to be made electronically where shareholders have not requested hard copy documentation. Details of the information available to shareholders can be found on page 112. Information about the Company is also available on the Company's website (www.savills.com).

Internal control and risk management

The Board has overall responsibility for establishing and maintaining the Group's system of risk management and internal control to safeguard shareholders' investments and the Group's assets and for reviewing the effectiveness of this system. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.

Key elements of the Group's system of risk management and internal control are:

• − a comprehensive system for planning and reporting the performance of each operating subsidiary. The GEB and the Board meet regularly and review the Group's results against plan and the previous year. The Group regularly reviews performance forecasts. Clear responsibilities are given to operational and financial managers for the maintenance of effective financial controls and the production of accurate and timely management information;
• − the regular review and assessment of the performance of the business including in relation to risk management and internal control by the Board and its sub-committees, including the GEB;
• − attendance at principal subsidiary boards by the Group Chief Executive and Group Chief Financial Officer. These boards and their associated committees also meet regularly and have formal reporting structures. Directors of operating subsidiaries are also closely involved in the day to day business of their respective operations and are tasked with identifying risks and ensuring that appropriate action is taken to mitigate and manage these;
• − a Group Risk Management Policy which sets out the process for identifying, evaluating and managing the risks to the Group's business objectives, supported by an appropriate organisational structure and clearly defined management responsibilities;
• − a Group Risk Committee which reports to the Audit Committee and is tasked with the review, discussion and challenge of risks reported, the ongoing Group wide development of internal controls and the monitoring of internal audits and other sources of assurance on the effectiveness of internal controls. The Committee is chaired by the Group Chief Financial Officer and consists of senior managers from the Principal Businesses and Group Function heads including the Group Director of Risk Management and Internal Audit, Group Legal Director & Company Secretary and Group IT Director;

Corporate Governance report continued

• − a programme of assurance activities which assesses the effectiveness of the Group's internal controls in respect of risks which includes:
• • a programme of internal audits undertaken in accordance with an annual risk based plan approved by the Audit Committee. The plan is designed to ensure that internal audit reviews are focused on priority controls across the Group to provide both independent review and challenge on the effectiveness of these controls, and the promotion of good practice and consistency in their development;
• • compliance programmes within the Group's regulated businesses in support of the Group's commitment to conduct its business responsibly and in accordance with all laws and regulations to which its business activities are subject; and
• • an annual self assessment and certification by management of the existence and effectiveness of the key controls within each of the Group's operating subsidiaries. The results are collated for review and challenge by the Group Risk Committee and onward reporting to the GEB and Audit Committee.

The Audit Committee, on behalf of the Board, has reviewed the effectiveness of the system of risk management and internal control. In performing its review of effectiveness, the Audit Committee considered the following reports and activities:

• − internal audit reports on the review of the controls across the Group and the monitoring of management actions arising from these reviews;
• − management's own assessment of the performance of the system of risk management and internal control during 2012;
• − invitation of the Heads of the Principal Businesses and the Chief Financial Officers of those businesses to present on the operation of the system of risk management and internal control within their businesses;
• − reports from the Group Director of Risk Management & Internal Audit including reporting on Group wide risk assessment activity and annual self assessment findings; and
• − reports from the external auditors on any issues identified during the course of their work.

The Board, having reviewed the effectiveness of the system of internal control, can confirm that necessary actions have been, or are being taken to remedy any significant failings or weaknesses identified.

Whistle-blowing

The Group encourages staff to report any concerns which they feel need to be brought to the attention of management. Whistleblowing procedures, which are published on the Group's intranet site, are available to staff who are concerned about possible impropriety, financial or otherwise, and who may wish to ensure that action is taken without fear of victimisation or reprisal.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Group Chief Executive's review on pages 14 to 22. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial review on pages 24 and 26. In addition, Note 3 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

The Group has considerable financial resources, including a £65m committed revolving credit facility that runs to 31 March 2014, together with a broad spread of businesses across different geographic areas and sectors. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Report and Accounts.

On behalf of the Board

Peter Smith Chairman

13 March 2013

Other statutory information

Principal activity

Savills plc (the 'Company') is a holding company. The activities of its principal subsidiaries are to provide transactional advice, consultancy and management services in connection with commercial, residential and agricultural property, property related financial services and investment management.

Operations

The Company and its subsidiaries (together the 'Group') operate through a network of offices and associates throughout the Americas, the UK, Continental Europe, Asia Pacific, Africa and the Middle East.

Dividend

The profit attributable to shareholders is £38.5m (2011: £26.5m). An interim dividend of 3.3p per ordinary share amounting to £4.1m (2011: £3.9m) was paid on 17 October 2012. It is recommended that a final dividend of 6.7p per ordinary share (amounting to £8.5m) is paid, alongside a supplemental interim dividend of 6.0p per ordinary share (amounting to £7.5m) declared by the Board on 13 March 2013, on 13 May 2013 to shareholders on the register at 12 April 2013.

Principal developments

The development of the business is detailed in the sections entitled Review of operations and Financial review on pages 14 to 26.

The principal risks and uncertainties are detailed on pages 31 to 33.

Directors

Short biographical details of the current Directors are shown on page 34. All the Board members (including Tim Freshwater who was appointed on 1 January 2012) served throughout the year with the exception of Clare Hollingsworth who joined the Board as a Non-Executive Director with effect from 2 April 2012 and Timothy Ingram who retired from the Board at the conclusion of the AGM on 9 May 2012 following which Martin Angle became the Senior Independent Director. The Board comprises the Non-Executive Chairman, two Executive Directors and four Independent Non-Executive Directors (full details are provided on page 34).

In accordance with the recommendations of the UK Corporate Governance Code, the Board has resolved that all Directors should stand for annual re-election. The Board is satisfied that each Director who is standing for re-election continues to show the necessary commitment and to be an effective member of the Board due to their skills, expertise and business acumen. Notwithstanding his appointment in 2000, the Board considers that Charles McVeigh continues to be entirely independent in character and judgement.

Interests in the issued share capital of the Company held at the beginning and end of the year under review by those who were Directors at 31 December 2012 or their families are set out on page 56 of the Remuneration report. Details of share options held by the Directors pursuant to the Company's share option schemes are provided in the Remuneration report on page 56. It is the Board's policy that the GEB Members should retain at least 105,000 shares (value at 31 December 2012: £491,400) in the Company and that the Group Chief Executive retain at least 150,000 shares (value at 31 December 2012: £702,000) at all times.

In accordance with DTR4, the Directors' responsibilities statement is set out on page 58 of this Annual Report.

Enhanced Business Review

In accordance with Section 417, Companies Act 2006, the Company is required to set out in this Report a fair review of the business of the Group during the year ended 31 December 2012 and of the position of the Group at the end of that financial year, together with a description of the principal risks and uncertainties facing the Group. The information can be found in the following sections of this Report and Accounts are incorporated into this report by reference:

Review of operations	page 14
Key performance indicators	page 16
Financial review	page 24
Corporate responsibilities	page 27
Risks and uncertainties	page 31

Statement of Disclosure to Auditors

In accordance with Section 418, Companies Act 2006 each Director at the date of approval of this report confirms that:

• − so far as the Director is aware, there is no information, which would be needed by the Company's auditors in connection with preparing their audit report, of which the auditors are not aware; and
• − each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any such information and to establish that the auditors are aware of it.

Additional Information Disclosure

Pursuant to regulations made under the Companies Act 2006 the Company is required to disclose certain additional information. Those disclosures not covered elsewhere within this Report and Accounts are as follows:

Share capital and major shareholdings

The share capital of the Company is detailed on page 104.

The Company has only one class of share capital formed of ordinary shares. All shares forming part of the ordinary share capital have the same rights and each carries one vote. There are no unusual restrictions on the transfer of ordinary shares. The Directors may refuse to register a transfer of a certificated share unless the instrument of transfer is: (i) lodged at the registered office of the Company or any other place as the Board may decide accompanied by the certificate for the shares to be transferred and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer; or (ii) in respect of only one class of shares.

The Directors may also refuse to register a transfer of a share (whether certificated or uncertificated), whether fully paid or not, in favour of more than four persons jointly. The Board may also close the register of shareholders for up to 30 days effectively suspending the registration of all transfers; however, in respect of uncertificated shares, consent from CREST would be required for such a closure.

As at 13 March 2013 the Company had been notified of the following interests in the Company's ordinary share capital in accordance with Chapter 5 of the UK Listing Authority's Disclosure and Transparency Rules:

Other statutory information continued

Shareholders	Number of shares	%
Artisan Partners Limited Partnership	14,699,703	11.01
Franklin Templeton Institutional, LLC	13,550,309	10.15
Oaktree Capital Management LP*	7,143,054	5.35
Ignis Investment Services Limited	5,262,038	3.94
Heronbridge Investment Management LLP	4,838,300	3.62
BlackRock, Inc	4,227,835	3.17

* Since the date the Report and Accounts was approved by the Board and signed on its behalf by the Group Legal Director & Company Secretary the Company received notice on 26 March 2013 that Oaktree Capital Management LP's interest had fallen below 3% and that it no longer had a shareholding in the Company

As at 31 December 2012, the Savills plc 1992 Employee Benefit Trust (the 'EBT') held 7,183,049 shares. Any voting or other similar decisions relating to these shares are taken by the trustees of the EBT, who may take account of any recommendation of the Company. The EBT waives all but 0.01p per share of its dividend entitlement. For further details of the EBT please refer to Note 2 to the financial statements.

Purchase of own shares

In accordance with the Listing Rules at the AGM on 9 May 2012, shareholders gave authority for a limited purchase of Savills shares of up to 10% of the issued share capital. During the year, no shares were purchased under the authority.

The Board proposes to seek shareholder approval at the AGM on 8 May 2013 to renew the Company's authority to make market purchases of its own ordinary shares of 2.5p each for cancellation or to be held in treasury. Details of the proposed resolution are included in the Notice of AGM circulated to shareholders with this Report and Accounts (the 'AGM Notice').

Change of control

There are no significant agreements which take effect, alter or terminate in the event of change of control of the Company except that under its banking arrangements, a change of control may trigger an early repayment obligation.

Articles of Association

The Company's Articles are governed by relevant statutes and may be amended by special resolution of the shareholders in a general meeting.

The Company's rules about the appointment and replacement of Directors are contained in the Articles. The powers of the Directors are determined by UK legislation, and the Articles of the Company in force from time to time.

Annual General Meeting

The AGM is to be held at 20 Grosvenor Hill, Berkeley Square, London W1K 3HQ at 12 noon on 8 May 2013; details are contained in the AGM Notice circulated to shareholders with this Report and Accounts.

Half Year Report

Like many other listed public companies, we no longer circulate printed Half Year reports to shareholders. Rather, Half Year results' statements are published on the Company's website. This is consistent with our target of saving printing and distribution costs.

Creditor payment policy

The Group does not follow any specified code or standard on payment practice. However, the Group aims to settle supplier accounts in accordance with the individual terms of business agreed with each supplier. There were 41.2 days' purchases outstanding at the end of the year for the Company (2011: 39.3 days).

Charitable donations and political contributions

The amount paid to charitable organisations during the year was £244,783 (2011: £233,372). There were no political contributions (2011: £nil).

Employees

The Directors recognise that the quality, commitment and motivation of Savills staff is a key element in the success of the Group; see pages 27 and 28 for more information.

The Group provides regular updates covering performance, developments and progress to employees through regular newsletters, video addresses, the Group's intranet, social media and through formal and informal briefings. These arrangements also aim at ensuring that all of our staff understand our strategy and to build knowledge on the part of employees of matters affecting the performance of the Group. The Group also consults with employees so as to ascertain their views in relation to decisions which are likely to affect their interests.

Employees are able to share in this success through performance related profit share schemes (see page 49 for more details) and for UK employees (including Executive Directors), share plans which include a Sharesave Scheme and a Share Incentive Plan ('SIP'). The Sharesave Scheme is an HMRC approved save-as-you-earn share option scheme which allows participants to purchase shares out of the proceeds of a linked savings contract at a price set at the time of option grant. Participants may elect to save up to £250 per month and options may normally be exercised in the six months following the maturity of the linked three year savings contract. The potential for extending the Sharesave Scheme internationally remains under consideration. The SIP is also HMRC approved and through which participants may make regular purchases of shares (up to £125 per month which is the current statutory limit) from pre-tax income. Shares under the SIP normally vest after five years free from income tax and national insurance contributions. A resolution to propose the continuance of the SIP is included in the AGM Notice.

It is the policy of the Group to provide employment on an equal basis irrespective of gender, sexual orientation, marital or civil partner status, gender reassignment, race, colour, nationality, ethnic or national origin, religion or belief, disability or age. In particular, the Group gives full consideration to applications for employment from disabled persons. Where existing employees become disabled, it is the Group's policy wherever practicable to provide continuing employment and to provide training and career development and promotion to disabled employees.

Insurance cover

The Company purchases insurance to cover its Directors and Officers against their costs in defending themselves in civil legal proceedings taken against them in that capacity and in respect of damages resulting from the unsuccessful defence of any proceedings. The insurance does not provide cover where the Director has acted fraudulently or dishonestly.

In accordance with the Articles, the Directors and the Group Legal Director & Company Secretary have been granted an indemnity issued by the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage to the extent that a Director or the Group Legal Director & Company Secretary is proved to have acted fraudulently or dishonestly.

Independent Auditors

In accordance with Section 489, Companies Act 2006, a resolution for the re-appointment of PricewaterhouseCoopers LLP as auditors of the Company will be proposed at the forthcoming AGM.

By order of the Board

Chris Lee

Group Legal Director & Company Secretary

13 March 2013 Registered Office: 20 Grosvenor Hill Berkeley Square London W1K 3HQ

Remuneration report

Chair of the Remuneration

2008-2012 Overview

Underlying Profit Before Tax	83%
Dividend Payments to Shareholders*	83%
Executive Director Remuneration**	65%
Total Shareholder Return	100%

* The dividend cost stated for 2012 includes the cost of the final dividend recommended by the Board (amounting to £8.5m), payment of which is subject to shareholder approval at the Company's AGM scheduled to be held on 8 May 2013, and along with the cost of the supplemental dividend (£7.5m), is based on the number of shares in issue as at 31 December 2012.

** Executive Director remuneration comprises the remuneration paid to the Group Chief Executive and Group Chief Financial Officer job holders in 2008 and 2012. Since 1 July 2010 the Executive representation on the Board has comprised these job role holders.

Dear Shareholder

On behalf of the Board, I am pleased to report on the activities of the Remuneration Committee for the period to 31 December 2012. This report will be presented for approval by shareholders at the 2013 Annual General Meeting.

Our philosophy to remuneration

Our focus and business policy is founded on the premise that staff should be motivated through highly incentive based (and therefore variable) remuneration consistent with our partnership style culture. We continue to believe that this approach best aligns shareholders' and management's interests, and incentivises superior performance and the creation of long term shareholder value. This approach also ensures that our reward arrangements are consistent with and able to respond to the cyclical nature of the real estate markets, particularly transactional markets. Reflecting this philosophy, the salaries for the Executive Directors, GEB Members and fee-earners, particularly the more senior ones, are set below market medians for similar businesses, with a greater emphasis on the performance related elements of profit share and/or, outside of the UK, commission in the total reward package.

The Committee, supported by its advisors Towers Watson, is mindful of its responsibility to reward appropriately, but not excessively, and rigorously assesses competitive positioning in setting remuneration and determining targets to ensure that reward reflects performance, that it supports the delivery of our strategic and operational objectives and that it is fair to management and shareholders alike. Overall, we expect employment costs over the cycle to be in the range of 60% to 65% of revenue. In the five years between 2008 and 2012, underlying profit improved by more than 80% and dividend payments to shareholders* increased by the same amount notwithstanding the volatile market conditions. Over the same period we have pursued our strategy of progressively building our non-Transactional businesses which provide more stable, long term earnings, to balance our Transactional businesses which are more dependent on the cycle. We also broadened our geographic footprint. Reward during this period overall for Executive Directors** rose by 65% reflecting this performance and our progress in delivering our strategy, although in some years during this period reward reduced year on year reflecting performance.

There were no changes to our remuneration policy in 2012, and none are anticipated in 2013, although the Committee will continue to keep our reward structure under review.

2012 remuneration

During 2012 the base salaries of the Executive Directors were reviewed, but no increases were awarded. Profit share awards for the Executive Directors for the year were assessed against a combination of the Group's financial performance, which exceeded expectations following a very strong end to the year, and personal performance, measured in terms of the delivery of strategic and operational objectives or the achievement of specific milestones related to their delivery over the medium term. Reflecting this strong performance, profit share awards of 65% of maximum potential were earned by the Executive Directors (compared to approximately 50% in respect of 2011) of which approaching one quarter will be delivered in the form of Savills shares, deferred for a further 3 years.

Remuneration report

continued

Overview of reward and Group performance in 2012

Also in April 2012, Executive Share Option Scheme 2001 ('ESOS') awards granted in 2009 vested and became exercisable following the satisfaction of the EPS growth performance criteria attaching to them. The Group Chief Executive and the Group Chief Financial Officer hold such awards but have not exercised them to date.

After due consideration of Group performance and future plans, Performance Share Plan ('PSP') awards, linked to the delivery of further shareholder value over the medium term, with initial face values of, respectively, £450k (being 2x base salary) for the Group Chief Executive and £250k (being approximately 1.5x base salary) for the Group Chief Financial Officer, were awarded in March 2012.

2013 remuneration

The base salaries of the Executive Directors have been reviewed but will not be increased in 2013. Equally, the established policy in relation to PSP awards will continue to be applied, with the Group Chief Executive eligible to receive an award up to the value of £450k (i.e. 2x base salary) and the Group Chief Financial Officer £250k (approximately 1.5x base salary).

The established profit share arrangements will also remain in place for 2013 and 2014, although for these years the balance between reward for near term profit delivery and for the delivery of strategic or operational objectives, or specific milestones towards the achievement of these, has been reweighted to provide a greater focus on reward for the creation of longer term shareholder value relative to reward for near term annual profit performance.

Accordingly for 2013, the Committee has resolved that 70% of profit share reward potential will relate to annual profit performance and 30% to personal performance (measured in terms of the delivery against preset strategic or operational objectives) (2012: 75%/25%). In addition, the amount of any deferred element has been increased so that progressively up to one third of any award will, at maximum potential award level, be delivered in the form of Savills shares, deferred for three years.

Clear and transparent reporting

During the year, there has been substantial initiative by the Department for Business Innovation and Skills ('BIS') to improve corporate communication on executive pay. While a number of these proposals are still yet to be finalised, the following report attempts to capture the spirit of BIS' direction particularly with regards to simplification, separation of future policy and past pay and transparency. We have also looked to respond to the feedback received from institutional shareholder bodies and shareholders on our 2011 Remuneration report, which we were pleased to see received a 94% vote in favour. In particular we have included more detail on how profit share awards are determined. I hope that you find this revised report clear and informative and will be able to continue your support by voting in favour of the resolutions relating to this Directors' Remuneration report at the AGM.

Clare Hollingsworth

Chair of the Remuneration Committee

Remuneration philosophy

It is essential for Savills continued development and growth that the Group provides remuneration which attracts, retains and motivates individuals of the highest quality. Consistent with this approach, the remuneration arrangements for the Executive Directors are structured to provide a competitive mix of variable performance related (i.e. annual profit share and longer term incentives) and fixed remuneration (principally base salary).

In determining the remuneration of the Executive Directors and GEB Members, the Committee takes into account the role and responsibility of the individual, their performance and the arrangements applying across the wider employee group, alongside consideration of sector and broader market practice. The Committee is also able to consider corporate performance on environmental, social and governance issues.

The remuneration policy and its application to the Executive Directors is described in more detail in the following pages. The information in this report has not been audited unless otherwise stated.

Summary policy

The following chart and accompanying table on pages 48 and 49, provide a summary of the different elements of pay, their purpose and linkage to our strategy, and the key features of each component.

Fixed remuneration Variable remuneration

Remuneration sensitivity to performance

The charts below show how the composition of the Executive Directors' remuneration as a percentage of the total remuneration opportunity will vary at different levels of performance, reflecting the Group's philosophy that staff should be motivated through highly incentive based and therefore variable remuneration.

A high proportion of total reward will be awarded through near and long term performance related remuneration. This is demonstrated by the charts below which illustrate that at target performance over 80% of the remuneration of the Group Chief Executive and Group Chief Financial Officer is delivered in the form of variable pay, which rises to 90% and 89% respectively if maximum performance is achieved.

Group Chief Executive
Below threshold
Target	100%
19% Maximum	81%
10%	90%

Group Chief Financial Ofcer
Below threshold
Target	100%
18% Maximum	82%
11%	89%

Fixed (Base salary, pension and benets)

Variable (Performance related, prot share (cash and deferred shares) and PSP)

Fixed pay comprises base salary, benefits and the cost of employer pension contributions, while variable pay comprises the annual profit share and long term incentive opportunity (in relation to the latter, the PSP, no movement in current share price has been assumed).

Remuneration report continued

Future policy table

The following table sets out the key elements of Executive Directors' remuneration, including the purpose of each element, how the element is structured, the level of award, performance targets and proposed changes for 2013. We have also provided a high level summary and comparison showing how these principles are applied to our next most senior staff (GEB members) and to all staff.

Purpose and Link to Strategy	Operation	Opportunity	Performance Targets	Changes for 2013
Base Salary
– A core component of the total reward package, which overall is designed to attract, motivate and retain individuals of the highest quality – Reflects individual's experience, responsibilities and their value to the Group	– Set significantly below market median levels with greater emphasis placed on the performance related elements of reward to drive performance and the delivery of longer term shareholder value – Periodic review against companies with similar characteristics and sector comparators – Annual reviews (although salaries are not necessarily increased) conducted in the context of the general level of salary reviews across the Group, market comparators and specific circumstances How this applies to other staff	– Significant increases to base salary are unlikely reflecting the Group's philosophy – No increases were applied in 2012	N/A	– No changes to Executive Directors' base salary proposed for 2013
	– The same principles apply to GEB Members and
	fee earners globally – For support staff, salaries are set around market median levels to ensure the Group is able to recruit and retain individuals of highest quality – Reviewed for all staff annually but not necessarily increased
Pension
– Provides appropriate retirement benefits – Rewards sustained contribution	– Retirement benefits are provided through the Savills Group Personal Pension Plan ('GPP'), a defined contribution scheme – HMRC approved salary and profit share sacrifice arrangements in place – For all former members (including the Group Chief Executive) of the defined benefit Pension Plan of Savills (the 'Plan') (which closed to future benefit accrual with effect from 31 March 2010), transitional funding rates were agreed which apply to 31 March 2015 under which the annual employer contribution to the GPP in respect of such individuals is 20% of pensionable earnings (or where such individuals are subject to A-Day limits, an equivalent non-pensionable salary supplement is paid). These contribution rates will reduce to a minimum of 14% p.a. from March 2015	– The Group Chief Executive receives a non-pensionable salary supplement equal to 20% of pensionable earnings to March 2015 and 14% minimum thereafter – For the Group Chief Financial Officer, the Company contributes 18% of pensionable earnings to his personal pension plan	N/A	– No changes proposed for 2013
	How this applies to other staff – Pension benefits for all UK staff are provided through the GPP – Equivalent arrangements in place globally, consistent with local practice	– Employer pension contribution (or an equivalent salary supplement) equal to 8% of salary for staff who are not former members of the Plan
Benefits
– Provides insured benefits to support the individual and their family during periods of ill health – Provision of company car (or car allowance)	– Medical insurance is provided through a trust arrangement – Car allowance How this applies to other staff – The same benefits are available to GEB Members and other senior staff – Car allowances are available on a progressive scale based on seniority	N/A	N/A	– No changes proposed for 2013

Purpose and Link to Strategy	Operation	Opportunity	Performance Targets	Changes for 2013
Performance Related Profit Share
– To encourage the achievement of challenging financial, strategic and/or operational targets – Clawback provisions to provide additional protection for shareholders	– Profit share awards reflect the Group's annual financial performance and personal performance/ contribution – Awards are delivered part in cash and in part, on a progressively increasing scale (up to one third of award), in the form of Savills shares deferred for three years – Not pensionable – Clawback provisions, which can be implemented in exceptional circumstances such as the material misstatement of performance or gross misconduct, apply to profit share awards How this applies to other staff – The annual profit share pool available for distribution for each Group business is formulaically derived from the profit of the relevant business after charging all costs (pre-profit share) including central overheads and finance charges. The amounts available for distribution within these profit share pools are calculated in bands (which are reviewed regularly) between 30% of pre-tax and pre-profit share profits through to 65% for excellent performance, based on the achievement of predetermined targets	– Group Chief Executive – maximum profit share award currently set by the Committee at £2m p.a. – Group Chief Financial Officer – maximum profit share award currently set by the committee at £1.5m p.a. – On target performance – around 50% of maximum profit share	– The Group's annual profit performance – Personal performance/ contribution measured in terms of the delivery of strategic or operational objectives or specific milestones towards these and where appropriate personal fee earning	– For 2013, the Committee has resolved to provide a greater focus on the creation of longer term shareholder value and has rebalanced profit share awards to the effect that 70% of any award will reflect profit performance in 2013 and 30% will reflect the delivery of strategic and operational objectives, or specific milestones towards these (2012: 75%/25%)
Performance Share Plan ('PSP')
– To drive and reward the delivery of longer term sustainable shareholder value, aid retention and ensure alignment of senior management and shareholder interests – To focus on superior relative and absolute performance	– Annual award of nil cost options or conditional awards over shares – May incorporate an award of Company Share Option Plan Options (approved by HMRC) – Vesting dependent on achievement of pre-set conditions – Clawback provisions apply – Performance conditions reviewed annually How this applies to other staff – GEB Members may receive PSP awards, currently set by the Committee at up to a value of £250k – Although other staff are not granted PSP awards, senior individuals may be granted awards under the terms of the Company's Deferred Share Plan ('DSP') if there are particular business reasons for applying a retention element to remuneration (for example the acquisition of a business or the hiring of a team). Such awards do not normally vest until three years after grant (and are normally subject to a longer deferral period) and are forfeited if an individual leaves the employment of the Group before the end of the deferral period (with exceptions for 'good leavers'). Clawback provisions apply to DSP Awards. The Executive Directors are not eligible to receive awards under the DSP.	– No person in any financial year may receive awards over ordinary shares in the Company with an aggregate value of more than £1m (calculated at the date of the grant of the award) – Group Chief Executive may receive PSP awards, currently set by the Committee at up to a face value of £450k (i.e. 2x base salary) – Group Chief Financial Officer may receive PSP awards, currently set by the Committee at up to a face value of £250k (i.e. approximately 1.5x base salary)	To date: TSR Linked Part of Award (50% of potential value) 25% (i.e. threshold) will vest if the Company's TSR matches FTSE Mid 250 Index ('Index') performance rising to 100% (i.e. maximum) if the Company's TSR outperforms the Index by 8% p.a. compound or more over the performance period, with sliding scale vesting between the two points EPS Growth Linked Part of Award (50% of potential value) 25% (i.e. threshold) will vest if the Company's real EPS growth (i.e. growth in excess of the Retail Price Index) is 3% p.a. compound rising to 100% (i.e. maximum) if the Company's real EPS growth is 8% p.a. compound or more over the period with sliding scale vesting between the two points	– No changes proposed for 2013
Share Ownership Guidelines
– To provide alignment between Executives and shareholders	– The Group Chief Executive to aim to hold at least 150,000 shares (valued at 31 December 2012: £702,000) – The Group Chief Financial Officer and GEB Members to aim to hold at least 105,000 shares (valued at 31 December 2012: £491,400) – Executive Directors and GEB Members are expected to build holdings to these levels over time, principally through the retention of shares released to them (after settling any tax due)	N/A	N/A	– No changes proposed for 2013

When satisfying awards made under its Sharesave Scheme, the PSP and its predecessor the ESOS, (under which some options remain available for exercise) the Company may use newly issued shares, subject to compliance with institutional guidelines. For all other share schemes, including the DSP, awards are satisfied via an employee benefit trust (EBT) following purchase in the market. As agreed with shareholders at the AGM held in 2003, the EBT can hold up to 15% of the Group's issued share capital. There are no powers to issue new shares (or to reissue its existing treasury shares) under either the Deferred Share Bonus Plan, Deferred Share Plan or the EBT and therefore there is no further dilution of existing shareholdings.

following the vesting of share awards – Above these limits, Executive Directors may retain

or sell their shares as they see fit

Remuneration report continued

Application of 2012 Executive Director remuneration policy

In accordance with the policy, set out on pages 48 and 49 below are details of Executive Director remuneration in 2012.

The Committee notes that BIS proposes introducing a 'single figure' remuneration disclosure for Executive Directors, although the exact requirements of this disclosure are yet to be finalised. In anticipation of this disclosure, the following table shows total figure for base salary, benefits, pension and annual performance profit share in 2012 for each of the Executive Directors. The final disclosure requirements may be different, but it is hoped that the table below helps shareholders' understanding and demonstrates the Committee's commitment to transparent reporting.

Executive Directors' 'single figure' for financial year ended 31 December 2012 and as a comparison for financial year ended 31 December 2011 (audited)

				Performance Profit Share3	Total 'single figure' remuneration including
	Base salary £	Benefits1 £	Pension2 £	Cash £	Deferred shares £	awards which vested during the year £
J Helsby
2012	225,000	11,216	45,000	997,407	301,280	1,579,903
2011	221,250	10,757	44,250	823,360	168,640	1,268,257
S Shaw
2012	175,000	11,216	31,500	758,464	217,448	1,193,628
2011	175,000	10,990	31,500	559,337	114,563	891,390

Notes:

1 Benefits comprise private medical insurance and car allowance

2 Employer pension contribution costs and any profit share waived in favour of pension contributions

3 The element of performance profit share awarded in the form of cash and deferred shares and excluding any charity/pension waiver. For 2012, J Helsby waived £25,313 and S Shaw waived £12,488 in favour of contributions to registered charities. For 2011, J Helsby waived £20,000 in favour of a contribution to a registered charity and S Shaw waived £40,000 in favour of a contribution to his pension scheme

In addition, the awards granted in May 2009 to J Helsby and S Shaw under the terms of the ESOS became exercisable during the year having satisfied the performance conditions attaching to them in full. As at the date that the awards became exercisable, the value realisable by respectively J Helsby and S Shaw was £82k and £76k; however, neither award has been exercised to date and the values have not been included in the above table pending finalisation of the new regulations and clarification as to whether the amount to be included in the 'single figure' remuneration should be the value realisable at the point that an award becomes exercisable or the values actually realised when an award is exercised. The Sharesave option granted to S Shaw in 2009 matured during the year and was exercised, realising a gain of £5,913

The information in this table has been audited by the independent auditors, PricewaterhouseCoopers LLP.

Performance related remuneration for 2012

The following near term performance measures applied to the 2012 peformance related profit share arrangements. No discretion was exercised with regards to awards made in relation to 2012 performance.

Profit Share Performance Measures for 2012

Profit Performance – 75% of Award

Personal Performance – 25% of Award

Measured in relation to underlying PBT performance

These measures incentivised the delivery of strategic and operational objectives (financial or non-financial), or specific milestones towards them, which create longer term shareholder value, specifically they incentivised sustainable improvements in the underlying drivers of performance, fundamental to the continued development and further growth of the Group as well as the achievement of business development goals. Further detail on specific targets is commercially sensitive, because the delivery of these objectives is targeted over the medium term. The Committee will continue to monitor best practice disclosures and any changes to the disclosure requirements that result from the finalisation of the draft regulations.

Long term incentives

Vesting of awards during 2012

Awards granted under the terms of the ESOS on 17 April 2009, including those granted to the Group Chief Executive and Group Chief Financial Officer, vested on 17 April 2012. The options vested in full following the satisfaction of the performance conditions attaching to them which were that the real growth (i.e. growth in excess of the growth in the Retail Price Index) in the Company's earnings per share over the period from 1 January 2009 to 31 December 2011 amounted to at least 5% p.a. compound (real growth in EPS achieved over the period: 42.5%).

The ESOS was replaced by the PSP in May 2011 when the ESOS reached the end of its agreed ten year lifespan. No awards can vest in normal circumstances under the PSP until 2014 and then only subject to satisfaction of the performance criteria attaching to them.

Grant of awards during 2012

PSP awards were granted to the Group Chief Executive and Group Chief Financial Officer during 2012. These awards will vest in 3 years subject to satisfaction of established TSR (50% of award) and EPS growth (50% of award) performance conditions.

How does Executive Director remuneration compare with other financial distributions?

BIS has said that companies should, to provide context, outline how remuneration for Executive Directors compares with other disbursements, such as dividends and general employment costs. The following table illustrates general employment costs, Executive Director reward, tax charges and dividend payments to shareholders from 2008 to 2012.

	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Employment costs*	356.3	355.8	435.5	456.6	510.3
Executive Directors' remuneration**	1.7	1.4	2.1	2.2	2.8
Tax charge***	39.6	37.5	50.3	54.1	62.0
Dividend payments to shareholders****	11.0	7.4	16.1	16.7	20.1

* Employment costs exclude Executive Directors' Remuneration and comprise basic salaries and wages, profit share and commissions, social security costs, other pension costs and share-based payments

** Executive Director remuneration comprises the remuneration paid to the Group Chief Executive and Group Chief Financial Officer job holders over 2008 to 2012 Since 1 July 2010 the Executive representation on the Board has comprised these two job holders

*** Tax charge comprises corporation tax, social security and business rates and equivalent payments

**** The dividend cost stated for 2012 includes the cost of the final dividend recommended by the Board (amounting to £8.5m), payment of which is subject to shareholder approval at the Company's AGM scheduled to be held on 8 May 2013, and along with the cost of the 2012 supplemental dividend (£7.5m), is based on the number of shares in issue as at 31 December 2012

Executive Directors' service contracts

The Executive Directors' contractual provisions are as follows:

Notice Period	–	12 months' notice by either Company or Executive Director
Exit/Termination Payment	–	Up to 12 months' salary
	–	Payment in lieu of notice subject to mitigation
	–	Pro rata profit share to date of leaving (subject to the individual being classified as a 'good leaver' as defined in their service agreement which expression does not include dismissal due to poor performance)
	–	No profit share would be paid in respect of notice periods not worked
	–	Performance targets would apply in relation to share awards
Change of Control	–	As on termination
Remuneration	–	Base salary
	–	Pension/pension allowance
	–	Private health insurance
	–	Company car or cash allowance
	–	Participation in performance related profit share, employee share schemes and the PSP
Post Employment Restrictive Covenants (e.g. non compete)	–	During employment and for 6 months after leaving
Contract Dates	–	Jeremy Helsby – 1 May 1999
	–	Simon Shaw – 16 March 2009

Remuneration report continued

Deferred share awards made under the performance profit share scheme (and in the case of awards made to staff under the DSP) are subject to forfeiture if the award holder, including the Executive Directors, leaves service prior to the vesting date other than in defined 'good leaver' situations (such as redundancy, disability or ill-health). Under the terms of the PSP, for 'good leavers' the award will normally continue and will vest on the normal vesting date to the extent that the relevant performance conditions have been met. Time pro-rating (i.e. reducing the number of shares which may be received on the basis of the time in the performance period not served as at the date of cessation) applies to such awards.

Additionally for the PSP awards vest on the occurrence of a change of control of the Company or analogous situations, subject to relevant performance conditions having been met at that time. Where such an event occurs before the end of the performance period, the number of shares receivable will also generally be subject to time pro-rating (although the Committee has discretion not to apply this reduction in such circumstances).

Non-Executive Directors

Non-Executive Director fees (audited)

The Non-Executive Director fees for 2012 were as follows:

	Peter Smith	Martin Angle	Tim Freshwater	Clare Hollingsworth	Charles McVeigh
Basic Fee	£150,000	£45,000	£45,000	£33,750	£45,000
Additional fees
Senior Independent Director		£3,225
Remuneration Committee Chair				£5,625	£1,875
Audit Committee Chair		£10,000
Total	£150,000	£58,225	£45,000	£39,375	£46,875
Comments	Non-Executive Chairman	M Angle was appointed as the Senior Independent Director with effect from 9 May 2012		C Hollingsworth chaired the Committee with effect from her appointment as Director from 2 April 2012	C McVeigh chaired the Committee until 2 April 2012 when he ceased to be a Member of the Committee

Note: T Ingram was the Senior Independent Director and member of the Audit, Nominations and Remuneration Committees until he retired as Director of the Company with effect from 9 May 2012. Fees paid to T Ingram in respect of 2012 were £17,935

There were no increases to the Non-Executive Director fee levels in the year.

The fees payable to the Non-Executive Directors are determined by the Non-Executive Chairman and the Executive Directors after considering external market research and individual roles and responsibilities. The fees for the Non-Executive Chairman are determined by the Remuneration Committee (excluding the Non-Executive Chairman).

The Non-Executive Directors do not participate in incentive arrangements or share schemes.

The information in this table has been audited by the independent auditors, PricewaterhouseCoopers LLP.

Governance

The Remuneration report has been prepared in accordance with the requirements of the Companies Act 2006 and Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008. It also describes the Group's compliance with the UK Corporate Governance Code in relation to remuneration with further disclosure in the spirit of the BIS proposals.

This report also complies with disclosures required by the Directors' Remuneration Report Regulations 2002.

Role of the Committee

The Remuneration Committee is responsible for the broad policy governing senior staff pay and remuneration. It sets the actual levels of all elements of the remuneration of the Executive Directors and reviews that of GEB members. The policy is regularly reviewed to ensure that it is consistent with the Company's scale and scope of operations, supports the business strategy and growth plans and helps drive the creation of shareholder value. The Committee also oversees the operation of Savills employee share schemes.

Remuneration Committee members and attendees

The Committee members are the Independent Non-Executive Directors and the Non-Executive Chairman as follows:

Remuneration Committee Member	Position	Comments
Clare Hollingsworth	Chair of the Committee with effect from 2 April 2012	Independent
Martin Angle	Member of the Committee with effect from 2 January 2007	Independent
Tim Freshwater	Member of the Committee with effect from 1 January 2012	Independent
Peter Smith	Member of the Committee with effect from April 2009	Non-Executive Chairman
Former Members
Charles McVeigh	Chairman of the Committee until 2 April 2012 when he ceased to be a member	Independent
Timothy Ingram	Member of the Committee until his retirement as a Director with effect from 9 May 2012	Independent
Remuneration Committee Attendee	Position	Comments
Jeremy Helsby	Group Chief Executive	Attends by invitation (except when his own remuneration is discussed)
Chris Lee	Group Legal Director & Company Secretary	Provides advice and support as well as acting as secretary to the Committee (except when his own remuneration is discussed)

The Directors' biographies can be found on page 34 of this report.

Members' attendance at Committee meetings is listed in the Corporate governance report on page 40 of this Report and Accounts.

No member of the Committee has any personal financial interest in the matters being decided, other than as a shareholder, nor any day to day involvement in running the business of Savills.

Advisor to the Committee

During 2012, Towers Watson continued to provide independent commentary on matters under consideration by the Committee and updates on best practice, legislative requirements and market developments to the Committee. Towers Watson are appointed by the Committee. Fees paid to Towers Watson during 2012 in respect of advice on Directors' pay were £26,600.

Terms of reference

The Committee's terms of reference are available from the Group Legal Director & Company Secretary upon request or can be viewed on the Company's website (www.savills.com).

External directorships

Savills recognises that its Executive Directors may be invited to become Non-Executive Directors of other companies. Such non-executive duties can broaden experience and knowledge which can benefit Savills. Subject to approval by the Board and any conditions that it might impose, the Executive Directors and GEB members are allowed to accept external non-executive directorships and retain the fees received, provided that these appointments are not likely to lead to conflicts of interest. For non-executive directorships which are considered to arise by virtue of an Executive Director's or GEB member's position within Savills, the fees are paid directly to Savills.

During 2012, Simon Shaw received a fee of £30,000 in relation to his continuing appointment as Non-Executive Chairman of Synairgen plc.

Remuneration Committee meetings

The Remuneration Committee has at least three meetings during the year and met four times during 2012. The principal agenda items were as follows:

• review of the Group's remuneration policy and consideration of the proposed new legislation relating to Executive pay and the implications of this for remuneration policy;
• review of the remuneration packages of Executive Directors and GEB members;
• approval of the granting of PSP awards;
• approval of the granting of share awards to other levels of management; and
• review of the Directors' Remuneration report.

Remuneration report continued

2013 and beyond

During 2013 the Committee will in addition to the established work plan:

• continue to monitor and review the Group's remuneration policy to ensure it continues to best align shareholders' and management's interests, incentivises superior performance and that total award potential continues to be appropriate and competitive in terms of peer practice
• continue to review the outcome of the BIS consultation and final form regulations.

Performance graph

The total shareholder return delivered by the Company over the last five years is shown in the chart below. Over this period the Company has delivered total shareholder return of 15% per annum (FTSE 250 (excluding investment trusts): 7% per annum; FTSE 350 Super Sector Real Estate: -4% per annum). Savills was ranked 46th by TSR performance in the FTSE 250 (excluding investment trusts) and ranked 1st by performance in the FTSE 350 Super Sector Real Estate over the five years to 31 December 2012.

The Directors believe that the FTSE 250 (excluding investment trusts) remains the most appropriate index against which to compare TSR over the medium term as it is an index of companies of similar size to Savills. Savills TSR relative to that of the FTSE 350 Super Sector Real Estate Index is also shown, as this Index better reflects conditions in real estate markets over recent years.

Total Shareholder Return (rebased)

Five years to 31 December 2012

Savills FTSE 250 (excluding investment trusts) FTSE 350 Super Sector Real Estate

On behalf of the Board

Clare Hollingsworth Chair of the Remuneration Committee

13 March 2013

Audited information

Analysis of Directors' remuneration	Employer pension contribution (including final salary, GPP
	Salary/fees		Performance profit share	Benefits	and profit share waived)	Total	Total
Executive Directors	Year to 31 December 2012 £	Year to 31 December 2012 Cash** £#	Year to 31 December 2012 Deferred £	Year to 31 December 2012 £	Year to 31 December 2012 £	Year to 31 December 2012 £	Year to 31 December 2011 £
Jeremy Helsby	225,000	997,407	301,280	11,216	45,000	1,579,903	1,268,257
Simon Shaw	175,000	758,464	217,448	11,216	31,500	1,193,628	891,390
Non-Executive Directors Martin Angle# (Chairman – Audit Committee/Senior Independent Director)	58,225	–	–	–	–	58,225	51,250
Tim Freshwater	45,000	–	–	–	–	45,000	–
Clare Hollingsworth## (Chair – Remuneration Committee) Charles McVeigh##	39,375	–	–	–	–	39,375	–
(Chairman – Remuneration Committee)	46,875	–	–	–	–	46,875	50,000
Peter Smith (Group Non-Executive Chairman)	150,000	–	–	–	–	150,000	150,000
Former Directors
Timothy Ingram# (Formerly Senior Independent Director)	17,935	–	–	–	–	17,935	45,000

** Excluded from the performance profit share figure for 2012 for J Helsby is £25,313 and for S Shaw is £12,488 which were waived in favour of a contribution to registered charities (2011: J Helsby waived £20,000). No waiver was made in favour of a contribution to a registered pension scheme (2011: S Shaw waived £40,000)

M Angle was appointed as Senior Independent Director following T Ingram's retirement as Non-Executive Director from the Company with effect from 9 May 2012 ## C Hollingsworth was appointed as Chair of Remuneration Committee on her appointment as Non-Executive Director of the Company with effect from 2 April 2012 in place of C McVeigh (who also ceased to be a member of the Committee on that date)

Pensions disclosure

	Increase/(decrease) in accrued pension during the year in excess of inflation1		Transfer value of the increase/(decrease) less Director's contributions1		Accumulated total accrued pension at the end of the year2		Total increase in accrued pension during the year2		Transfer value of total pension at start and end of year3			Increase/(decrease) in transfer value over the year, less Director's contributions4
Executive	31 December 2012	31 December 2011	31 December 2012	31 December 2011	31 December 2012	31 December 2011	31 December 2012	31 December 2011	31 December 2012	31 December 2011	31 December 2012	31 December 2011
Directors	£	£	£	£	£	£	£	£	£	£	£	£
Jeremy Helsby5	982	(66)	26,961	(1,730)	54,687	52,390	2,297		2,432 1,501,432	1,373,637 127,795		327,187

Notes:

1 The table shows the increase in accrued pension during the year, excluding any increase for inflation. The inflation measure has been taken as the increase in CPI subject to a maximum of 5% p.a. in accordance with Schedule 3 of the Pension Scheme Act 1993. The transfer value of this increase in pension is also shown, less the contributions made by the Director during the year

2 The accumulated accrued pension entitlement shown is that which would have been paid annually based on service to the year end, or where the Director has left the Plan, determined at the Director's date of leaving the Plan (30 April 2010) increased in line with the Plan Rules to the year end. The actual increase in pension over the year is also shown

3 The transfer value of the total pension accrued at the year end, determined at the year end is set out along with the comparative amounts at the end of the previous year

4 The increase/(decrease) in the amount of this transfer value, less the contributions made by the Director during the period, has also been determined

5 Pensionable service ceased at 31 March 2010 for all members of the Plan. J Helsby became a deferred pensioner at 30 April 2010. These figures do not reflect the cost of the non-pensionable salary supplement paid to J Helsby from April 2010

Remuneration Report

continued

Ordinary shares

Interests in the share capital of the Company beneficially held by the Directors as at 31 December 2012 are detailed below:

	At 31 December 2012	At 31 December 2011
Martin Angle	–	–
Tim Freshwater	–	–
Jeremy Helsby	604,849	604,849
Clare Hollingsworth	–	–
Charles McVeigh	–	–
Simon Shaw	4,891	1,091
Peter Smith	20,000	20,000

As at 13 March 2013, no Director has bought or sold shares since 31 December 2012, with the exception of Simon Shaw who participates in the SIP and as such has acquired 72 shares through the SIP since 31 December 2012.

The Sharesave Scheme

			Number of shares
Directors	At 31 December 2011	Granted during year	Exercised during year	Lapsed during year	At 31 December 2012	Market price on date of exercise	Exercise price per share	Exercisable within six months from
Simon Shaw	3,398	–	3,398	–	–	441.0p	267.0p	01.12.12

The total gain on options exercised during the year was £5,913.

The Performance Share Plan ('PSP')

Directors	At 31 December 2011	Awarded during year	HMRC Approved/ Unapproved	Vested during year	At 31 December 2012	Closing mid market price of a Savills plc share the day before grant	Market value at date of vesting	First vesting date
Jeremy Helsby	97,016		– Unapproved	–	97,016	412.3p	–	27.05.14
	–		118,343 Unapproved	–	118,343	354.9p	–	17.04.15
	–	8,453	Approved	–	8,453	354.9p	–	17.04.15
Simon Shaw	60,635		– Unapproved	–	60,635	412.3p	–	27.05.14
	–		70,442 Unapproved	–	70,442	354.9p	–	17.04.15

The Executive Share Option Scheme (2001) ('ESOS')

					Number of shares
Directors	At 31 December 2011	Granted during year	HMRC Approved/ Unapproved	Exercised during year	Lapsed during year	At 31 December 2012	Market price on date of exercise	Exercise price per share	Date normally first exercisable	Expiry date
Jeremy Helsby	135,064	–	Unapproved	–	–	135,064	–	288.75p	17.04.12	17.04.19
	114,386	–	Unapproved	–	–	114,386	–	340.95p	19.04.13	19.04.20
Simon Shaw	10,389	–	Approved	–	–	10,389	–	288.75p	17.04.12	17.04.19
	114,286	–	Unapproved	–	–	114,286	–	288.75p	17.04.12	17.04.19
	61,592	–	Unapproved	–	–	61,592	–	340.95p	19.04.13	19.04.20

The ESOS reached the end of its 10 year agreed life span in May 2011, although options granted up to and including May 2011 continue to be exercisable in the normal fashion, and subject to the satisfaction of a performance criteria attaching to them.

The Deferred Share Bonus Plan ('DSBP')

		Number of shares
Directors	At 31 December 2011	Awarded during year	Vested during year	At 31 December 2012	Closing mid market price of a Savills plc share the day before grant	Market value at date of exercising	Normal vesting date
Jeremy Helsby	72,727	–	72,727	–	288.75p	351.5p	17.04.12
	34,538	–	–	34,538	340.2p	–	13.04.13
	76,238	–	–	76,238	363.2p	–	30.03.14
	–	48,100	–	48,100	350.6p	–	19.04.15
Simon Shaw	42,621	–	–	42,621	340.2p	–	13.04.13
	63,986	–	–	63,986	363.2p	–	30.03.14
	–	32,676	–	32,676	350.6p	–	19.04.15

The total pre-tax gain on shares which vested during the year was £255,635.

No options granted under the ESOS were exercised by Directors during the year. Under the DSBP 72,727 shares vested during the year; no DSBP awards lapsed. During the year, the aggregate gain on the exercise of share options and shares vested was £261,548. The mid-market price of the shares at 31 December 2012 was 468.0p and the range during the year was 300.8p to 480.0p.

Directors' responsibilities

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and parent company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to:

• − select suitable accounting policies and then apply them consistently;
• − make judgements and accounting estimates that are reasonable and prudent;
• − state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

The Directors confirm that pursuant to DTR4, to the best of each person's knowledge:

• − the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• − the Statutory Information contained on pages 43 and 44 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Jeremy Helsby Group Chief Executive

Chris Lee

Group Legal Director & Company Secretary

13 March 2013

Independent auditors' report to the members of Savills plc

We have audited the financial statements of Savills plc for the year ended 31 December 2012 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and Company statements of financial position, the Consolidated statement of changes in equity and Company statement of changes in equity, the Consolidated and Company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 58, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's and the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the parent company's affairs as at 31 December 2012 and of the Group's profit and Group's and parent company's cash flows for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the lAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006 In our opinion:

• the part of the Directors' Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Other Statutory Information for the financial year for which the financial statements are prepared is consistent with the financial statements

Matters on which we are required to report by exception

We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements and the part of the Directors' Remuneration report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• the Directors' statement, set out on page 42, in relation to going concern;
• the parts of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on Directors' remuneration.

David A. Snell

(Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London

13 March 2013

Consolidated income statement

for the year ended 31 December 2012

	Notes	2012 £m	2011 £m
Revenue	5	806.4	721.5
Less:
Employee benefits expense	8(a)	(513.1)	(458.8)
Depreciation	15	(7.2)	(7.1)
Amortisation and impairment of goodwill and intangible assets	6(a)	(3.7)	(9.1)
Other operating expenses	6(a)	(237.8)	(213.4)
Other operating income	6(a)	0.5	0.5
Profit on disposal of subsidiaries, joint venture and available-for-sale investments	6(a)	1.7	2.3
Operating profit		46.8	35.9
Finance income	10	1.2	1.4
Finance costs	10	(0.9)	(1.3)
		0.3	0.1
Share of post-tax profit from associates and joint ventures	16(a)	7.1	4.0
Profit before income tax		54.2	40.0
Income tax expense	11	(15.4)	(13.2)
Profit for the year		38.8	26.8
Attributable to:
Owners of the Company		38.5	26.5
Non-controlling interests		0.3	0.3
Earnings per share		38.8	26.8
Basic earnings per share	13(a)	30.8	21.5
Diluted earnings per share	13(a)	29.5	20.9
Underlying earnings per share
Basic earnings per share	13(b)	35.3	29.0
Diluted earnings per share	13(b)	33.7	28.2

Consolidated statement of comprehensive income

for the year ended 31 December 2012

		2012	2011
Profit for the year	Notes	£m 38.8	£m 26.8
Other comprehensive income
Fair value gain/(loss) on available-for-sale investments	16(b)	0.2	(0.9)
Fair value loss on available-for-sale investments released to income statement	16(b)	0.9	–
Actuarial loss on defined benefit pension scheme	9	(0.1)	(20.3)
Tax on items relating to components of other comprehensive income	11	1.4	5.0
Currency translation differences		(3.6)	0.1
Other comprehensive loss for the year, net of tax		(1.2)	(16.1)
Total comprehensive income for the year		37.6	10.7
Total comprehensive income attributable to:
Owners of the Company		37.2	10.4
Non-controlling interests		0.4	0.3
		37.6	10.7

Consolidated and Company statements of financial position at 31 December 2012

Savills plc

Registered in England

No. 2122174		Group		Company
	Notes	2012 £m	2011 £m	2012 £m	2011 £m
Assets: Non-current assets
Property, plant and equipment	15	18.5	18.4	2.3	1.4
Goodwill	14	136.7	135.6	–	–
Intangible assets	14	17.1	16.9	1.8	1.4
Investments in subsidiaries	16(c)	–	–	103.9	126.0
Investments in associates and joint ventures	16(a)	14.7	13.8	–	–
Deferred income tax assets	17	29.9	29.4	2.5	1.9
Available-for-sale investments	16(b)	15.0	14.4	–	–
Non-current receivables		1.3	3.0	–	–
		233.2	231.5	110.5	130.7
Assets: Current assets
Work in progress		3.0	4.2	–	–
Trade and other receivables	18	220.8	191.2	15.2	16.7
Current income tax receivable		0.9	0.8	1.4	1.6
Derivative financial instruments	23	–	0.1	–	–
Cash and cash equivalents	19	92.8	80.0	21.2	15.8
		317.5	276.3	37.8	34.1
Liabilities: Current liabilities
Borrowings	22	1.2	6.3	–	–
Derivative financial instruments	23	0.1	0.1	–	–
Trade and other payables	20	236.8	208.7	16.3	11.8
Current income tax liabilities		10.1	6.7	–	–
Employee benefit obligations	24(b)	5.9	6.7	–	–
Provisions for other liabilities and charges	24(a)	7.9	11.1	0.1	0.1
		262.0	239.6	16.4	11.9
Net current assets		55.5	36.7	21.4	22.2
Total assets less current liabilities		288.7	268.2	131.9	152.9
Liabilities: Non-current liabilities
Borrowings	22	–	0.1	–	–
Trade and other payables	21	0.6	9.0	6.1	5.1
Retirement and employee benefit obligations	9 & 24(b)	35.6	43.1	1.5	2.0
Provisions for other liabilities and charges	24(a)	17.7	9.5	1.2	1.2
Deferred income tax liabilities	17	1.7	2.1	–	–
		55.6	63.8	8.8	8.3
Net assets		233.1	204.4	123.1	144.6
Equity: Capital and reserves attributable to owners of the Company
Share capital	25	3.3	3.3	3.3	3.3
Share premium		87.3	85.3	87.3	85.3
Other reserves	27	20.8	23.6	3.3	3.3
Retained earnings	27	121.1	93.4	29.2	52.7
		232.5	205.6	123.1	144.6
Non-controlling interests		0.6	(1.2)	–	–
Total equity		233.1	204.4	123.1	144.6

The consolidated financial statements on pages 60 to 111 were authorised for issue by the Board of Directors on 13 March 2013 and were signed on its behalf by:

J C Helsby S J B Shaw

Consolidated statement of changes in equity

for the year ended 31 December 2012

					Attributable to owners of the Group
	Notes	Share capital £m	Share premium £m	Other reserves* £m	Retained earnings** £m	Total £m	Non controlling interests £m	Total equity £m
Balance at 1 January 2012		3.3	85.3	23.6	93.4	205.6	(1.2)	204.4
Profit for the year		–	–	–	38.5	38.5	0.3	38.8
Other comprehensive income/(loss):
Fair value gain on available-for-sale investments	16(b)	–	–	0.2	–	0.2	–	0.2
Fair value loss on available-for-sale investments released to income statement	16(b)	–	–	0.9	–	0.9	–	0.9
Actuarial loss on defined benefit pension scheme	9	–	–	–	(0.1)	(0.1)	–	(0.1)
Tax on items directly taken to reserves	11	–	–	(0.2)	1.6	1.4	–	1.4
Currency translation differences		–	–	(3.7)	–	(3.7)	0.1	(3.6)
Total comprehensive (loss)/income for the year		–	–	(2.8)	40.0	37.2	0.4	37.6
Transactions with owners:
Employee share option scheme:
– Value of services provided	27	–	–	–	10.4	10.4	–	10.4
Purchase of treasury shares	27	–	–	–	(1.6)	(1.6)	–	(1.6)
Issue of share capital	26(a) & (b)	–	2.0	–	–	2.0	–	2.0
Dividends	12	–	–	–	(16.9)	(16.9)	(0.8)	(17.7)
Transactions with non-controlling interests	16(f)	–	–	–	(4.2)	(4.2)	2.2	(2.0)
Balance at 31 December 2012		3.3	87.3	20.8	121.1	232.5	0.6	233.1

		Attributable to owners of the Group
	Notes	Share capital £m	Share premium £m	Other reserves* £m	Retained earnings** £m	Total £m	Non controlling interests £m	Total equity £m
Balance at 1 January 2011		3.3	84.0	24.2	98.9	210.4	(1.3)	209.1
Profit for the year		–	–	–	26.5	26.5	0.3	26.8
Other comprehensive income/(loss):
Fair value loss on available-for-sale investments	16(b)	–	–	(0.9)	–	(0.9)	–	(0.9)
Actuarial loss on defined benefit
pension scheme	9	–	–	–	(20.3)	(20.3)	–	(20.3)
Tax on items directly taken to reserves	11	–	–	0.2	4.8	5.0	–	5.0
Currency translation differences		–	–	0.1	–	0.1	–	0.1
Total comprehensive (loss)/income for the year		–	–	(0.6)	11.0	10.4	0.3	10.7
Transactions with owners:
Employee share option scheme:
– Value of services provided	27	–	–	–	11.3	11.3	–	11.3
Purchase of treasury shares	27	–	–	–	(10.1)	(10.1)	–	(10.1)
Issue of share capital	26(a) & (b)	–	1.3	–	–	1.3	–	1.3
Dividends	12	–	–	–	(16.3)	(16.3)	(0.6)	(16.9)
Non-controlling interest arising on business combination		–	–	–	–	–	0.5	0.5
Transactions with non-controlling interests		–	–	–	(1.4)	(1.4)	(0.1)	(1.5)
Balance at 31 December 2011		3.3	85.3	23.6	93.4	205.6	(1.2)	204.4

* Included within Other reserves on the face of the Statement of Financial Position are the capital redemption reserve, foreign exchange reserve and revaluation reserve as disclosed in Note 27.

** Included within Retained earnings on the face of the Statement of Financial Position are tax on items taken directly to other comprehensive income (Note 11), share-based payments reserve and retained earnings as disclosed in Note 27.

Company statement of changes in equity

for the year ended 31 December 2012

	Attributable to owners of the Company
	Notes	Share capital £m	Share premium £m	Capital redemption reserve* £m	Other reserves* £m	Share based payments reserve** £m	Retained earnings** £m	Total shareholders' equity £m
Balance at 1 January 2012		3.3	85.3	0.3	3.0	1.8	50.9	144.6
Loss for the year	6(b)	–	–	–	–	–	(0.7)	(0.7)
Other comprehensive income:
Tax on items directly taken to reserves	11	–	–	–	–	–	0.2	0.2
Total comprehensive loss for the year		–	–	–	–	–	(0.5)	(0.5)
Employee share option scheme:
– Value of services provided		–	–	–	–	2.1	–	2.1
– Exercise of share options		–	–	–	–	(0.4)	(7.6)	(8.0)
Issue of share capital		–	2.0	–	–	–	–	2.0
Distribution for Employee Benefit Trust		–	–	–	–	–	(0.2)	(0.2)
Dividends		–	–	–	–	–	(16.9)	(16.9)
Balance at 31 December 2012		3.3	87.3	0.3	3.0	3.5	25.7	123.1

					Attributable to owners of the Company
	Notes	Share capital £m	Share premium £m	Capital redemption reserve* £m	Other reserves* £m	Share based payments reserve** £m	Retained earnings** £m	Total shareholders' equity £m
Balance at 1 January 2011		3.3	84.0	0.3	3.0	1.1	32.1	123.8
Profit for the year	6(b)	–	–	–	–	–	46.5	46.5
Other comprehensive income:
Actuarial loss on defined benefit pension scheme	9	–	–	–	–	–	(1.1)	(1.1)
Tax on items directly taken to reserves	11	–	–	–	–	–	0.4	0.4
Total comprehensive income for the year		–	–	–	–	–	45.8	45.8
Employee share option scheme:
– Value of services provided		–	–	–	–	0.9	–	0.9
– Exercise of share options		–	–	–	–	(0.2)	(9.9)	(10.1)
Issue of share capital		–	1.3	–	–	–	–	1.3
Distribution for Employee Benefit Trust		–	–	–	–	–	(0.8)	(0.8)
Dividends		–	–	–	–	–	(16.3)	(16.3)
Balance at 31 December 2011		3.3	85.3	0.3	3.0	1.8	50.9	144.6

* Included within Other reserves on the face of the Statement of Financial Position are the capital redemption reserve and other reserves as disclosed above.

** Included within Retained earnings on the face of the Statement of Financial Position are tax on items taken directly to other comprehensive income (Note 11), share-based payments reserve and retained earnings as disclosed above.

Consolidated and Company statements of cash flows

for the year ended 31 December 2012

		Group		Company
	Notes	2012 £m	2011 £m	2012 £m	2011 £m
Cash flows from operating activities
Cash generated from/(used in) operations	31	71.5	47.1	(3.8)	29.5
Interest received		1.0	1.1	1.6	1.4
Interest paid		(0.8)	(1.0)	–	–
Income tax (paid)/received		(12.0)	(11.5)	2.5	4.7
Net cash generated from operating activities		59.7	35.7	0.3	35.6
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		0.7	0.2	–	–
Proceeds from sale of joint venture and available-for-sale investments		2.8	2.0	–	–
Cash outflow in relation to disposal of subsidiaries, net of cash disposed		–	(1.4)	–	–
Deferred consideration received in relation to prior year disposals		0.7	–	–	–
Dividends received from joint ventures and associates		6.0	1.9	–	–
Repayment of loans by associates, joint ventures and subsidiaries		0.7	0.7	22.8	25.1
Loans to associates, joint ventures and subsidiaries		–	(2.3)	–	(21.6)
Acquisition of subsidiaries, net of cash acquired	16(e)	(2.5)	(7.2)	–	–
Deferred consideration paid in relation to prior year acquisitions		(3.9)	(1.3)	–	–
Purchase of property, plant and equipment	15	(7.7)	(9.2)	(1.7)	(0.8)
Purchase of intangible assets	14	(3.1)	(1.2)	(0.9)	(0.4)
Purchase of investment in associates, joint ventures and
available-for-sale investments	16(a) & (b)	(1.7)	(2.0)	–	–
Net cash (used in)/generated from investing activities		(8.0)	(19.8)	20.2	2.3
Cash flows from financing activities
Proceeds from issue of share capital	26(a) & (b)	2.0	1.3	2.0	1.3
Proceeds from borrowings		49.0	29.5	–	–
Purchase of own shares for Employee Benefit Trust	27	(1.6)	(10.1)	–	–
Contribution to Employee Benefit Trust		–	–	(0.2)	(0.8)
Purchase of non-controlling interests	16(f)	(11.8)	(1.5)	–	–
Deferred consideration paid to non-controlling interests in relation to prior year
acquisitions		(3.3)	(2.4)	–	–
Repayments of borrowings		(52.9)	(33.8)	–	–
Dividends paid	12	(17.7)	(16.9)	(16.9)	(16.3)
Net cash used in financing activities		(36.3)	(33.9)	(15.1)	(15.8)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts		15.4	(18.0)	5.4	22.1
Cash, cash equivalents and bank overdrafts at beginning of year		78.8	96.5	15.8	(6.3)
Effect of exchange rate fluctuations on cash held		(1.5)	0.3	–	–
Cash, cash equivalents and bank overdrafts at end of year	19, 22	92.7	78.8	21.2	15.8

Notes to the financial statements

Year ended 31 December 2012

1. General information

Savills plc (the 'Company') and its subsidiaries (together the 'Group') is a leading international property advisory Group. The Group operates through a network of offices in the UK, Europe, Asia Pacific and the US. Savills is listed on the London Stock Exchange and employs 25,016 staff worldwide.

The Company is a public limited company incorporated and domiciled in England and Wales. The address of its registered office is 20 Grosvenor Hill, Berkeley Square, London W1K 3HQ.

These consolidated financial statements were approved for issue by the Board of Directors on 13 March 2013.

2. Accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated, and are also applicable to the parent Company.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRIC interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and for management to exercise judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4.

The financial statements are prepared on a going concern basis and under the historical cost convention as modified by the revaluation of available for sale investments and derivative financial instruments.

Consolidation

The consolidated financial statements include those of the Company and its subsidiary undertakings, together with the Group's share of results of its associates and joint ventures.

Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.

Acquisition related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Investments in subsidiaries held by the Company are held at cost, less any provision for impairment.

Non-controlling interests

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purpose of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognised at cost. The Group's investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 16(a)).

The Group's share of its associates' post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Accounting policies of associates have been aligned to ensure consistency with the policies adopted by the Group. Gains and losses on dilution of the Group's share of equity in associates are recognised in the income statement.

Joint ventures

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, which exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers. The Group's joint ventures are accounted for using the equity method.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group Executive Board.

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments.

As the Group is strongly affected by both differences in the types of services it provides and the geographical areas in which it operates, the matrix approach of disclosing both the business and geographical segments formats is used.

Revenues and expenses are allocated to segments on the basis that they are directly attributable or the relevant portion can be allocated on a reasonable basis.

Foreign currency translation – Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Sterling, which is also the Company's functional and presentation currency.

– Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying net investment hedges.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss and are recognised in the income statement, except for available-for-sale equity investments, which are recognised in other comprehensive income. Non-monetary items carried at historical cost are reported using the exchange rate at the date of the transaction.

The differences between retained profits of foreign subsidiaries and associated undertakings translated at average and closing rates of exchange are taken to reserves, as are differences arising on the retranslation of foreign net assets to Sterling at the end of the year (using closing rates of exchange). Any differences that have arisen since 1 January 2004 are presented as a separate component of equity. As permitted under IFRS 1, any differences prior to that date are not included in this separate component of equity.

Notes to the financial statements Year ended 31 December 2012 continued

When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure directly attributable to acquisition.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Provision for depreciation is made at rates calculated on a straightline basis to write off the assets over their estimated useful lives as follows:

Freehold property	50 years
Leasehold property (less than 50 years)	over unexpired term of lease
Furniture and office equipment	3 – 6 years
Motor vehicles	3 – 5 years
Computer equipment	3 – 5 years

Useful lives are reviewed and adjusted if appropriate, at each reporting date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Goodwill

Goodwill represents the excess of the cost of acquisition of a subsidiary or associate over the Group's share of the fair value of identifiable net assets acquired.

In respect of associates, goodwill is included in the carrying value of the investment.

Goodwill is carried at cost less accumulated impairment losses. Separately recognised goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate potential impairment. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cashgenerating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The Group allocates goodwill to each business segment in the geographical region in which it operates (Note 14).

Intangible assets other than goodwill

Intangible assets acquired as part of business combinations and incremental contract costs are valued at fair value on acquisition and amortised over the useful life. Fair value on acquisition is determined by third-party valuation where the acquisition is significant.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs associated with maintaining computer software programs are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

• it is technically feasible to complete the software product so that it will be available for use;
• management intends to complete the software product and use or sell it;
• there is an ability to use or sell the software product;
• it can be demonstrated how the software product will generate probable future economic benefits;
• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and
• the expenditure attributable to the software product during its development can be reliably measured.

Measurement subsequent to initial recognition is at cost less accumulated amortisation and impairment.

Intangible assets are tested for impairment where there is an indication that an asset may be impaired. An impairment loss is recognised to the extent that the carrying value exceeds the higher of the asset's fair value less cost to sell and its value-in-use. Amortisation charges are spread on a straight-line basis over the period of the assets' estimated useful lives as follows:

3 – 5 years
2 – 10 years
10 years
6 – 10 years
5 years

Impairment of other non-financial assets

Assets that have indefinite useful lives are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever an indicator of impairment exists. An impairment loss is recognised to the extent that the carrying value exceeds the higher of the asset's fair value less cost to sell and its value-in-use.

Value-in-use is determined using the discounted cash flow method, with an appropriate discount rate to reflect market rates and specific risks associated with the asset.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Financial instruments

Financial assets and liabilities are recognised on the Group's statement of financial position at fair value when the Group becomes party to the contractual provisions of the instrument. Subsequent measurement depends on the classification and is discussed in the following paragraphs.

Available-for-sale investments

Available-for-sale investments are stated at fair value, with changes in fair value being recognised in other comprehensive income. When such investments are disposed or become impaired, the accumulated gains and losses, previously recognised in other comprehensive income, are recognised in the income statement.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. Receivables are discounted where the time value of money is material.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within 'other operating expenses'. When a trade receivable is uncollected, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against 'other operating expenses' in the income statement.

Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held on call with banks, together with other short-term highly liquid investments with original maturities of three months or less and working capital overdrafts, which are subject to an insignificant risk of changes in value. Bank overdrafts are included under borrowings in the statement of financial position.

Bank borrowings

Interest-bearing bank loans and overdrafts are initially measured at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest rate method.

Trade payables

Trade payables are initially measured at fair value and subsequently measured at amortised cost, using the effective interest rate method. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Derivative financial instruments and hedging

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and if so, the nature of the item being hedged. Certain derivatives do not qualify for hedge accounting. In these cases, changes in the fair value of all derivative instruments are recognised immediately in the income statement.

Gains and losses relating to the effective portion of hedges of net investments in foreign operations are recognised in other comprehensive income. Gains or losses relating to the ineffective portion are recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed or sold.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a charge to equity. Repurchased shares which are not cancelled, or shares purchased for the Employee Benefit Trust, are classified as treasury shares and presented as a deduction from total equity.

Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates except for deferred income tax liability where the timing of the reversal of he temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

Notes to the financial statements Year ended 31 December 2012 continued

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Pension obligations

The Group operates both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service and compensation.

The liability recognised in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows.

The defined benefit scheme charge consists of interest costs, expected return on plan assets, past service costs and the impact of any settlements or curtailments and is charged as an expense as they fall due.

All actuarial gains and losses are recognised immediately in other comprehensive income in the period in which they arise.

The Group also operates a defined contribution Group Personal Pension Plan for new entrants and a number of defined contribution individual pension plans. Contributions in respect of defined contribution pension schemes are charged to the income statement when they are payable. The Group has no further payment obligations once the contributions have been paid. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

The net defined benefit cost is allocated amongst participating Group subsidiaries on the basis of pensionable salaries.

Share-based payments

The Group operates equity-settled share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense.

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimate of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

All equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest.

The fair value of equity-settled share-based payments is measured by the use of the Actuarial Binomial option pricing model. At each reporting date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The cash proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

Employee Benefit Trust

The Company has established the Savills plc 1992 Employee Benefit Trust (the 'EBT'), the purposes of which are to grant awards to employees, to acquire shares in the Company pursuant to the Savills Deferred Share Bonus Plan and the Savills Deferred Share Plan and to hold shares in the Company for subsequent transfer to employees on the vesting of the awards granted under the schemes. The assets and liabilities of the EBT are included in the Group statement of financial position. Investments in the Group's own shares are shown as a deduction from equity.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and the amount has been reliably estimated. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

– Professional indemnity claims

Provisions on professional indemnity claims are recognised when it is probable that the Group will be required to settle claims against it as a result of a past event and the amount of the obligation can be reliably estimated.

– Dilapidation provisions

The Group is required to perform dilapidation repairs on leased properties prior to the properties being vacated at the end of their lease term. Provision for such cost is made where a legal obligation is identified and the liability can be reasonably quantified.

– Onerous leases

A provision is recognised where the costs of meeting the obligations under a lease contract exceed the economic benefits expected to be received and is measured as the net least cost of exiting the contract, being the lower of the cost of fulfilling it and any compensation or penalties arising from the failure to fulfil it.

– Restructuring provision

A provision is recognised when there is a present constructive obligation to meet the costs of restructure. This arises when there is a detailed formal plan for the restructuring, identifying at least the business or part of the business concerned, principal locations affected and the location, function and approximate number of employees to be compensated for terminating their services.

Revenue

Revenue comprises the fair value of the consideration received or receivable for the provision of services in the ordinary course of the Group's activities. Revenue is shown net of value-added tax and amounts due to third parties and after elimination of revenue within the Group.

– Residential transactional fees

Generally, where contracts are unconditional, revenue is recognised on exchange of contracts. However, on more complex contracts, revenue will be recognised on the date of completion. On multi-unit developments, revenue is recognised on a staged basis, based on each contract, commencing when the underlying contracts are exchanged.

– Commercial transactional fees

Generally, revenue is recognised on the date of completion or when unconditional contracts have been exchanged.

– Property consultancy

Revenue in respect of property consultancy represents commissions and fees recognised on a time basis, fixed fee or percentage of completion. Percentage of completion is principally measured by the proportion of actual costs incurred in relation to the best estimate of total costs expected for completion of the contract.

– Property and facilities management

Revenue represents fees earned for managing properties and providing facilities and is generally recognised in the period the services are provided using a straight-line basis over the term of the contract.

– Investment management

Revenue represents commissions and fees receivable, net of marketing costs in accordance with the relevant fee agreements.

Annual management fees are recognised, gross of costs, in the period to which the service has been provided, in accordance with the contracted fee agreements. Transaction fees are recognised on the date of completion of a purchase or sale transaction. Distribution fees are recognised on the completion of a signed subscription agreement and performance fees are recognised as earned and when approved by the fund.

– Work in progress

Work in progress generally relates to consultancy revenue and is stated at the lower of cost and net realisable value. Cost includes an appropriate proportion of overheads.

– Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

– Dividend income

Dividend income is recognised when the right to receive payment is established.

– Other income

Other income includes interest and dividend income on availablefor-sale investments plus fair value gains and losses on assets at fair value through profit or loss.

Leases

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases.

Finance lease assets are initially recognised at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease. The assets are then depreciated over the lower of the lease terms or the estimated useful lives of the assets.

The capital elements of future obligations under finance leases are included as liabilities in the statement of financial position. Leasing payments comprise capital and finance elements and the finance element is charged to the income statement.

The annual payments under all other lease agreements (operating leases) are charged to the income statement on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into the operating lease are also spread on a straight-line basis over the lease term.

A lease is classified as onerous where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Dividends

Dividend distributions are recognised as a liability in the Group's financial statements in the period in which they are approved by the Company's shareholders.

Interim dividends are recognised when paid.

Standards, amendments and interpretations to standards effective in 2012

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2012 that would be expected to have a material impact on the Group.

Notes to the financial statements Year ended 31 December 2012 continued

Standards, amendments and interpretations to standards that are not yet effective and have not been early adopted by the Group The following standards and amendments to published standards are mandatory for accounting periods beginning on or after 1 January 2013, and have not been early adopted:

• IAS 1 (amendment), 'Financial statement presentation', regarding other comprehensive income. These amendments require entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently and is effective for accounting periods beginning on or after 1 July 2012.
• IAS 19 (amendment), 'Employee benefits', effective for accounting periods beginning on or after 1 January 2013. These amendments changes a number of disclosure requirements for post employment arrangements and restricts the options currently available on how to account for defined benefit pension plans. The most significant change that will impact the Group is that the amendment requires the expected returns on pension plan assets, currently calculated based on management's estimate of expected returns, to be replaced by a credit on the pension plan assets calculated at the liability discount rate. The Group estimates the adoption of the revised IAS 19 would result in an additional charge to the income statement in the year ended 31 December 2012 of approximately £2.4 million. The change does not impact the Group's net assets.
• IFRS 7 (amendment), 'Financial instruments: Disclosures', regarding asset and liability offsetting, effective for accounting periods beginning on or after 1 January 2013. The amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP.
• IFRS 10, 'Consolidated financial statements', effective for accounting periods beginning on or after 1 January 2014. The standard establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. It defines the principle of control and establishes this as the basis for consolidation. The standard is not expected to have a material impact on the Group.
• IFRS 11, 'Joint arrangements', effective for accounting periods beginning on or after 1 January 2014. The standard defines two types of joint arrangements: joint operations and joint ventures, based on the rights and obligations of the parties to the arrangement. Proportional consolidation of joint ventures will no longer be allowed and must be accounted for using the equity method. The standard is not expected to have a material impact on the Group.

• IFRS 12, 'Disclosures of interests in other entities', effective for accounting periods beginning on or after 1 January 2014. The standard sets out the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

• IFRS 13, 'Fair value measurement', effective for accounting periods beginning on or after 1 January 2013. The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied.

• IAS 32 (amendment), 'Financial instruments: Presentation', regarding asset and liability offsetting, effective for accounting periods beginning on or after 1 January 2014. These amendments are to the application guidance in IAS 32 and clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The amendments are not expected to have a material impact on the Group.
• IFRS 9, 'Financial instruments'. This standard is the first step in the process to replace IAS 39, 'Financial instruments: recognition and measurement'. The effective date has been delayed to annual periods beginning on or after 1 January 2015. Early adoption is permitted, however, the standard has not yet been endorsed by the EU. The Group has yet to assess IFRS 9's full impact.
• IAS 1 (amendment), 'Financial statement presentation', distinguishes between minimum required comparative information and voluntary additional comparative information. The amendment is effective for accounting periods beginning on or after 1 January 2013.
• IAS 32 (amendment), 'Financial instruments: Presentation', clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12, 'Income Taxes'. The amendment is effective for accounting periods beginning on or after 1 January 2013 and is not expected to have a material impact on the Group.
• IAS 34 (amendment), 'Interim Financial Reporting', aligns the disclosure requirement for total segment assets and liabilities in interim financial statements with annual disclosures. The amendment is effective for accounting periods beginning on or after 1 January 2013 and is not expected to have an impact on the Group.
• IAS 28 (amendment), 'Investments in associates and joint ventures', includes requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. The amendment is effective for accounting periods beginning on or after 1 January 2014 and is not expected to have a material impact on the Group.
• IAS 27 (amendment), 'Separate financial statements', includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. The amendment is effective for accounting periods beginning on or after 1 January 2014 and is not expected to have a material impact on the Group.

Other standards, amendments and interpretations not yet effective and not discussed above are not relevant to the Group.

These include:

• IFRS 1, 'First time adoption', on repeated application of IFRS 1, effective for accounting periods beginning on or after 1 January 2013.
• IAS12, 'Income taxes', on recovery of underlying assets, more specifically, of investment properties, effective for accounting periods beginning on or after 1 January 2013.
• IAS 16, 'Property, plant and equipment', on classification of spare parts, effective for accounting periods beginning on or after 1 January 2013.
• IFRIC 20, 'Stripping costs in the production phase of a surface mine', effective for accounting periods beginning on or after 1 January 2013.

Use of non-GAAP measures

The Group believes that the consistent presentation of Underlying profit before tax, Underlying effective tax rate, Underlying basic earnings per share and Underlying diluted earnings per share provides additional useful information to shareholders on the underlying trends and comparable performance of the Group over time. They are used by Savills for internal performance analysis and incentive compensation arrangements for employees. These terms are not defined terms under IFRS and may therefore not be comparable with similarly titled profit measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.

The term 'underlying' refers to the relevant measure of profit, earnings or taxation being reported excluding the following items:

• Amortisation of intangible assets.
• Impairment of goodwill and intangible assets.
• Impairment of investment in available-for-sale investments, joint ventures or associated undertakings.
• The difference between IFRS 2 charges related to in year profit related performance compensation subject to deferral and the opportunity cash cost of such compensation (refer to Notes 7 and Note 13(b) for further explanation).
• Restructuring costs.
• Significant acquisition costs related to business combinations
• Profits or losses on disposals of subsidiaries, investments in available-for-sale investments, joint ventures and associated undertakings.
• Exceptional items which are disclosed separately due to their size or incidence.

A reconciliation between GAAP items and underlying results are set out in notes 7 and 13 (b).

The underlying effective tax rate represents the underlying effective income tax expense expressed as a percentage of underlying profit before tax. The underlying effective income tax expense is the income tax expense excluding the tax effect of the adjustments made to arrive at underlying profit before tax.

3. Financial risk management

Financial risk factors

The Group's activities expose it to a variety of financial risks. The Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Group. Occasionally, the Group uses financial instruments to manage foreign currency and interest rate risk.

The treasury function is responsible for implementing risk management policies applied by the Group and has a policy and procedures manual that sets out specific guidelines on financial risks and the use of financial instruments to manage these.

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risks primarily with respect to the Euro, Hong Kong dollar and US dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group may finance some overseas investments through the use of foreign currency borrowings. The Group does not actively seek to hedge risks arising from foreign currency translations due to their non-cash nature and the high costs associated with such hedging; however when there is a material committed foreign currency exposure the foreign exchange risk will be hedged.

The sensitivity analysis has been prepared for the major currencies to which the Group is exposed. The movements in these currencies over the last three years has been considered and it has been concluded that a 5 – 10% movement in rates is a reasonable benchmark.

For the year ended 31 December 2012, if the average currency conversion rates against Sterling for the year had changed with all other variables held constant, the Group post tax profit for the year would have increased or decreased as shown below:

	Movement of currency against Sterling
£m	–10%	–5%	+5%	+10%
2012
Estimated impact on post-tax profit
Euro	0.8	0.4	(0.5)	(1.0)
Hong Kong dollar	(0.8)	(0.4)	0.4	0.9
US dollar	0.2	0.1	(0.1)	(0.3)
Estimated impact on components of equity
Euro	4.0	2.1	(2.3)	(4.9)
Hong Kong dollar	(10.3)	(5.4)	6.0	12.6
US dollar	(0.5)	(0.3)	0.3	0.6
2011
Estimated impact on post-tax profit
Euro	0.6	0.3	(0.3)	(0.7)
Hong Kong dollar	(0.8)	(0.4)	0.4	0.9
US dollar	0.2	0.1	(0.1)	(0.2)
Estimated impact on components of equity
Euro	3.7	1.9	(2.1)	(4.5)
Hong Kong dollar	(8.1)	(4.3)	4.7	10.0
US dollar	0.7	0.4	(0.4)	(0.9)

Notes to the financial statements

Year ended 31 December 2012 continued

Price risk

The Group is not materially exposed to equity securities price risk because listed investments held on the statement of financial position are not significant. The Group is not exposed to commodity price risk.

Interest rate risk

The Group has both interest-bearing assets and liabilities. The Group finances its operations through a mixture of retained profits and bank borrowings, at both fixed and floating interest rates. Borrowings issued at variable rates expose the Group cash flow to interest rate risk, which is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain at least 70% of its borrowings in fixed rate instruments.

For the year ended 31 December 2012, if the average interest rate for the year had changed with all other variables held constant, the Group post tax profit for the year would have increased or decreased as shown below:

		Increase in interest rates
£m	+0.50% +1.00% +1.50%			+2.00%
2012
Estimated impact on post-tax profit	0.1	0.2	0.3	0.5
2011
Estimated impact on post-tax profit	0.1	0.3	0.4	0.6
		Decrease in interest rates
£m	–0.50%	–1.00%	–1.50%	–2.00%
2012
Estimated impact on post-tax profit	(0.1)	(0.2)	(0.3)	(0.3)
2011
Estimated impact on post-tax profit	(0.1)	(0.3)	(0.4)	(0.4)

Credit risk

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to clients, including outstanding receivables and committed transactions. The Group has policies that require appropriate credit checks on potential customers before engaging with them. A risk control framework is used to assess the credit quality of clients, taking into account financial position, past experience and other factors.

Individual risk limits for banks and financial institutions are set based on external ratings and in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored.

As at the reporting date, no significant credit risk existed in relation to banking counterparties. No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties. There were no other significant receivables or individual trade receivable balances as at 31 December 2012.

The table below shows Group cash balances split by counterparty ratings at the reporting date:

Counterparty rating (provided by S&P)	2012 £m	2011 £m
AA–	52.6	38.1
A+	16.4	22.2
A	12.2	11.8
A–	0.1	0.1
BBB+ or below	11.5	7.8
Total	92.8	80.0

Liquidity risk

The Group maintains appropriate committed facilities to ensure the Group has sufficient funds available for operations and expansion. The Group prepares an annual funding plan approved by the Board which sets out the Group's expected financing requirements for the next 12 months.

Management monitors rolling forecasts of the Group's liquidity reserve (comprising undrawn borrowing facilities (Note 22) and cash and cash equivalents (Note 19)) on the basis of expected cash flow. This is carried out at local level in the operating companies of the Group in accordance with Group practice as well as on a Group consolidated basis.

The table below analyses the Group's financial liabilities and netsettled derivative financial liabilities into relevant maturity groupings based on the remaining period from the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

£m	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years
2012
Borrowings	1.1	–	–
Finance leases	0.1	–	–
Derivative financial instruments	0.1	–	–
Trade and other payables	206.3	0.4	0.2
	207.6	0.4	0.2
£m	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years
2011
Borrowings	6.2	–	–
Finance leases	0.1	0.1	–
Derivative financial instruments	0.1	–	–
Trade and other payables	181.1	8.8	0.2
	187.5	8.9	0.2

Capital risk management

The Group's objectives when managing capital are:

– to safeguard the Group's ability to provide returns for shareholders and benefits for other stakeholders; and

– to maintain an optimal capital structure to reduce the cost of capital.

Savills plc is not subject to any externally imposed capital requirements, with the exception of its FSA regulated entities, which complied with all capital requirements during the year ended 31 December 2012. For more information on FSA capital adequacy requirements, please visit www.cordeasavills.com.

In order to maintain an optimal capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Board has put in place a distribution policy which takes into account the degree of maintainability of Savills different profit streams and the Group's overall exposure to cyclical Transaction Advisory profits, as well as the requirement to maintain a certain level of cash resources for working capital and corporate development purposes. The Board will recommend an ordinary dividend broadly reflecting the profits derived from the Group's less volatile businesses. In addition, when profits from the cyclical Transaction Advisory business are strong, the Board will consider and, if appropriate, recommend the payment of a supplemental dividend alongside the final ordinary dividend. The value of any such supplemental dividend will vary depending on the performance of the Group's Transaction Advisory business and the Group's anticipated working capital and corporate development requirements through the cycle. It is intended that, in normal circumstances, the combined value of the ordinary and supplemental dividends declared in respect of any year are covered at least 1.5 times by statutory retained earnings and/or at least 2.0 times by underlying profits after taxation.

The Group's policy is to borrow centrally if required to meet anticipated funding requirements. These borrowings, together with cash generated from operations, are then on-lent or contributed as equity to certain subsidiaries. The Board of Directors monitors a number of debt measures on a rolling forward 12 month basis including gross cash by location; gross debt by location; cash subject to restrictions; total debt servicing cost to operating profit; gross borrowings as a percentage of EBITDA (earnings before interest, tax, depreciation and amortisation); and forecast headroom against available facilities. These internal measures indicate the levels of debt that the Group has and are closely monitored to ensure compliance with banking covenants and to confirm that the Group has sufficient unused facilities.

The capital structure is as follows:

	Group		Company
£m	2012	2011	2012	2011
Equity	233.1	204.4	123.1	144.6
Cash and cash equivalents		80.0		15.8
	92.8		21.2
Bank overdrafts	(0.1)	(1.2)	–	–
Borrowings	(1.1)	(5.2)	–	–
Net cash	91.6	73.6	21.2	15.8

Fair value estimation

The following table presents the Group's assets and liabilities that are measured at fair value at 31 December 2012:

£m	Level 1	Level 2	Level 3	Total
2012
Assets
Available-for-sale investments
– Unlisted	–	15.0	–	15.0
Total assets	–	15.0	–	15.0
Liabilities
Derivative financial instruments	–	0.1	–	0.1
Total liabilities	–	0.1	–	0.1

The following table presents the Group's assets and liabilities that are measured at fair value at 31 December 2011:

£m	Level 1	Level 2	Level 3	Total
2011
Assets
Available-for-sale investments
– Unlisted	–	14.4	–	14.4
Derivative financial instruments	–	0.1	–	0.1
Total assets	–	14.5	–	14.5
Liabilities
Derivative financial instruments	–	0.1	–	0.1
Total liabilities	–	0.1	–	0.1

The fair value of unlisted available-for-sale investments is determined using valuation techniques using observable market data where available and rely as little as possible on entity estimates. The fair value of investment funds is based on underlying asset values determined by the Fund Manager's audited annual financial statements. The fair value of other unlisted investments is based on price earnings models. These instruments are included in Level 2.

The fair value of derivative financial instruments is determined by using valuation techniques using observable market data. The fair value of derivative financial instruments is based on the market value of similar instruments with similar maturities. These instruments are included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Level 1 instruments are those whose fair values are based on quoted market prices. The Group has no Level 1 instruments.

Notes to the financial statements Year ended 31 December 2012 continued

4. Critical accounting estimates and management judgements Critical accounting estimates and assumptions

Estimates and judgements are continually evaluated and are based on historical experience, current market conditions and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Changes in accounting estimates may be necessary if there are changes in circumstances on which the estimate was based, or as a result of new information or more experience. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Pension benefits

The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 9.

Income taxes

The Group is subject to income taxes in numerous jurisdictions. Judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred taxes

The recognition of deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised, especially with regard to the extent that future taxable profits will be available against which losses can be utilised. Additional information is disclosed in Note 17.

Fair value of options granted to employees

The Group uses the Binomial Model in determining the fair value of options granted to employees under the Group's various schemes as detailed in the Remuneration report. Information on such assumptions is contained in Note 26. The alteration of these assumptions may impact charges to the income statement over the vesting period of the award.

Estimated impairment of assets

The Group tests annually whether goodwill has suffered any impairment. All other assets are tested for impairment where there are indicators of impairment.

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. The use of this method requires the estimate of future cash flows expected to arise from the continuing operation of the cash-generating unit and the choice of a suitable discount rate in order to calculate the present value. Actual outcomes could vary significantly from these estimates. The estimates used in these financial statements are contained in Note 14.

Valuation of intangible assets and useful life

The Group has made assumptions in relation to the potential future cash flows to be determined from separable intangible assets acquired as part of business combinations. This assessment involves assumptions relating to potential future revenues, appropriate discount rates and the useful life of such assets. These assumptions impact the income statement over the useful life of the intangible asset.

Provisions

The Group and its subsidiaries are party to various legal claims. Provisions made within these financial statements are contained in Note 24(a). Additional claims could be made which might not be covered by existing provisions or by insurance as detailed in Note 28.

Critical judgements in applying the entity's accounting policies

The application of the Group's accounting policies may require management to make judgements, apart from those involving estimates, that can affect the amounts recognised in the consolidated financial statements. Such judgements include:

Award of options and deferred shares to employees

The Group applies judgement in deciding the proportion of the available bonus pool to be awarded to employees under its long-term share-based incentive scheme. The Group's current policy is to deduct from the bonus pool an amount equal to the market value of the share price on the date of award. Under IFRS, the value of award is spread over the vesting period and charged to the income statement. The charge to the income statement is currently higher than the market value of shares to be awarded.

5. Segment analysis

Operating segments reflect internal management reporting to the Group's chief operating decision maker, defined as the Group Executive Board (GEB). The operating segments are determined based on differences in the nature of their services. Geographical location also strongly affects the Group and both are therefore disclosed. The reportable operating segments derive their revenue primarily from property related services. Refer to the Group overview on page 2 and the Segmental reviews on pages 17 to 22 for further information on revenue sources.

Operations are based in four main geographical areas. The UK is the home of the parent Company with segment operations throughout the region. Asia Pacific segment operations are based in Hong Kong, Macau, China, Korea, Japan, Taiwan, Thailand, Singapore, Vietnam and Australia. Continental Europe segment operations are based in Germany, France, Spain, Netherlands, Belgium, Sweden, Italy, Ireland and Poland. America segment operations are based in New York. The sales location of the client is not materially different from the location where fees are received and where the segment assets are located.

Within the UK, commercial and residential activities are managed separately. Other geographical areas, although largely commercial based, also provide residential services, in particular Hong Kong, China, Vietnam, Singapore, Australia and Thailand.

The GEB assesses the performance of operating segments based on a measure of underlying profit before tax which adjusts reported pre-tax profit by profit on disposals, share-based payment adjustment, restructuring costs, amortisation and impairment of goodwill and intangible assets (excluding software) and impairment of available-for-sale investments, joint ventures or associated undertakings. Segmental assets and liabilities are not measured or reported to the GEB, but non-current assets are disclosed geographically on page 78.

The segment information provided to the GEB for revenue and profits for the year ended 31 December 2012 is as follows:

	Transaction		Property and Facilities	Investment
	Advisory	Consultancy	Management	Management	Other	Total
2012	£m	£m	£m	£m	£m	£m
Revenue
United Kingdom – commercial	60.4	104.2	65.2	23.5	0.1	253.4
– residential	97.0	28.1	20.6	–	–	145.7
Total United Kingdom	157.4	132.3	85.8	23.5	0.1	399.1
Continental Europe	29.6	12.3	28.3	–	–	70.2
Asia Pacific – commercial	98.4	27.6	186.5	–	–	312.5
– residential	18.5	–	–	–	–	18.5
Total Asia Pacific	116.9	27.6	186.5	–	–	331.0
America	6.1	–	–	–	–	6.1
Total revenue	310.0	172.2	300.6	23.5	0.1	806.4
Underlying profit/(loss) before tax
United Kingdom – commercial	7.0	8.7	5.8	3.6	(8.6)	16.5
– residential	14.7	3.7	2.4	–	–	20.8
Total United Kingdom	21.7	12.4	8.2	3.6	(8.6)	37.3
Continental Europe	(6.0)	(0.5)	(0.5)	–	–	(7.0)
Asia Pacific – commercial	14.6	2.9	10.5	–	–	28.0
– residential	4.6	–	–	–	–	4.6
Total Asia Pacific	19.2	2.9	10.5	–	–	32.6
America	(2.1)	–	–	–	–	(2.1)
Underlying profit/(loss) before tax*	32.8	14.8	18.2	3.6	(8.6)	60.8

Notes to the financial statements

Year ended 31 December 2012 continued

	Transaction		Property and Facilities	Investment
2011	Advisory £m	Consultancy £m	Management £m	Management £m	Other £m	Total £m
Revenue
United Kingdom – commercial	47.9	79.5	60.3	20.8	0.6	209.1
– residential	95.0	27.9	17.5	–	2.8	143.2
Total United Kingdom	142.9	107.4	77.8	20.8	3.4	352.3
Continental Europe	26.0	11.1	28.4	–	–	65.5
Asia Pacific – commercial	80.2	24.9	172.4	–	–	277.5
– residential	19.9	–	–	–	–	19.9
Total Asia Pacific	100.1	24.9	172.4	–	–	297.4
America	6.3	–	–	–	–	6.3
Total revenue	275.3	143.4	278.6	20.8	3.4	721.5
Underlying profit/(loss) before tax
United Kingdom – commercial	4.6	7.8	4.3	4.7	(8.1)	13.3
– residential	14.8	3.1	2.2	–	0.3	20.4
Total United Kingdom	19.4	10.9	6.5	4.7	(7.8)	33.7
Continental Europe	(8.8)	(0.1)	(0.7)	–	–	(9.6)
Asia Pacific – commercial	11.2	1.8	10.9	–	–	23.9
– residential	3.8	–	–	–	–	3.8
Total Asia Pacific	15.0	1.8	10.9	–	–	27.7
America	(1.4)	–	–	–	–	(1.4)
Underlying profit/(loss) before tax*	24.2	12.6	16.7	4.7	(7.8)	50.4

For 2011, the Other segment includes Savills Private Finance Limited up to the date of disposal (£2.9m revenue and £0.3m underlying profit), as well as costs and other expenses at holding company and subsidiary levels, which are not directly attributable to the operating activities of the Group's business segments.

A reconciliation of underlying profit before tax to profit before tax is provided in Note 7.

Inter segmental revenue is not material.

* Transaction Advisory underlying profit before tax includes depreciation of £2.7m (2011: £2.7m), software amortisation of £0.3m (2011: £0.2m) and share of post-tax profit from associates and joint ventures of £4.5m (2011: £2.3m). Consultancy underlying profit before tax includes depreciation of £1.3m (2011: £1.3m) and software amortisation of £0.1m (2011: £0.1m). Property and Facilities Management underlying profit before tax includes depreciation of £2.3m (2011: £2.3m), software amortisation of £0.3m (2011: £0.3m) and share of post-tax profit from associates and joint ventures of £2.6m (2011: £1.5m). Investment management underlying profit before tax includes depreciation of £0.1m (2011: £0.1m) and share of post-tax profit from associates and joint ventures of £nil (2011: £0.3m). Included in Other underlying profit is depreciation of £0.8m (2011: £0.7m), software amortisation of £0.6m (2011: £0.5m) and share of post-tax profit from associates and joint ventures of £nil (2011: £0.1m loss).

Non-current assets by geography are set out below:

	2012 £m	2011 £m
Non-current assets
United Kingdom	79.5	74.4
Continental Europe	43.5	44.7
Asia Pacific	64.1	65.6
America	16.2	17.4
Total non-current assets	203.3	202.1

Non-current assets include goodwill and intangible assets, plant, property and equipment, investments in joint ventures and associates, available-for-sale investments and non-current receivables. Deferred tax assets are not included.

6(a). Operating profit

Operating profit is stated after charging/(crediting):

	Group
	2012 £m	2011 £m
Amortisation and impairment of goodwill and intangible assets include:
– Amortisation (Note 14)	3.7	3.7
– Impairment of goodwill (Note 14)	–	5.4
	3.7	9.1
Other operating expenses include:
– Net foreign exchange losses	0.1	0.2
– Provision for receivables impairment	3.6	3.2
– Restructuring costs*	4.0	1.9
– Loss on sale of property, plant and equipment	0.1	0.3
– Operating lease rentals – Hire of equipment and vehicles	2.2	2.3
– Property	25.1	23.8
– Impairment of available-for-sale investment and investment in associate (Note 16(a) & (b))	1.2	2.0
Other income – dividend and investment income	(0.5)	(0.5)
Profit on disposals is made up as follows:
Profit on disposals – Available-for-sale investments	1.7	1.7
– Joint venture	–	0.1
– Subsidiaries	–	0.5
	1.7	2.3

* Restructuring costs include onerous lease and related property costs of £2.9m (2011: £0.9m), staff costs of £0.4m (2011: £0.9m) and legal and other costs of £0.7m (2011: £0.1m)

6(b). Income Statement of the Company

As permitted by Section 408 of the Companies Act 2006, the income statement and statement of comprehensive income of the Company are not presented as part of these accounts. The Company has produced its own income statement and statement of comprehensive income for approval by its board. The Company receives dividends from subsidiaries and charges subsidiaries for the provision of Group related services. The loss after income tax of the Company for the year was £0.7m (2011: £46.5m profit).

6(c). Fees payable to the Company's auditor, PricewaterhouseCoopers LLP, and its associates

	Group
	2012 £m	2011 £m
Audit services
Fees payable to Company's auditors for the audit of parent Company	0.1	0.1
Fees payable to Company's auditors for the audit of the Company's subsidiaries	0.8	0.9
	0.9	1.0
Other services
Audit related assurance services	0.1	0.1
Tax advisory services	0.2	0.1
Tax compliance services	0.3	0.2
Advisory services	0.1	0.1
	1.6	1.5

Notes to the financial statements

Year ended 31 December 2012 continued

7. Underlying profit before tax

	2012 £m	2011 £m
Reported profit before tax	54.2	40.0
Adjustments:
Amortisation of intangible assets (excluding software) (Note 14)	2.4	2.6
Impairment of goodwill (Note 14)	–	5.4
Impairment of investment in associate and available-for-sale investment (Note 16(b))	1.2	2.0
Share-based payment adjustment	0.7	0.8
Restructuring costs	4.0	1.9
Profit on disposal of subsidiaries, joint venture and available-for-sale investment	(1.7)	(2.3)
Underlying profit before tax	60.8	50.4

The Directors regard the above adjustments necessary to give a fair picture of the underlying results of the Group for the year.

The adjustment for share-based payment relates to the impact of the accounting standard for share-based compensation. The annual bonus is paid in a mixture of cash and deferred shares and the proportions can vary from one year to another. Under IFRS the deferred share element is amortised to the income statement over the vesting period whilst the cash element is expensed in the year. The adjustment above addresses this by adding to or deducting from profit the difference between the IFRS 2 charge and the effective value of the annual share award in order better to match the underlying staff costs in the year with the revenue recognised in the same period.

8(a). Employee benefits expense – Staff and Directors

	Group
	2012 £m	2011 £m
Basic salaries and wages	309.5	288.0
Profit share and commissions	137.5	111.1
Wages and salaries	447.0	399.1
Social security costs	38.6	32.9
Other pension costs	17.1	15.5
Share-based payments	10.4	11.3
	513.1	458.8

8(b). Staff numbers

The weighted average number of employees (including Directors) for the year was:

	Group
	2012	2011
United Kingdom	3,503	3,334
Continental Europe	817	751
Asia Pacific	20,657	19,432
America	39	38
	25,016	23,555

The average number of UK employees (including Directors) during the year included 128 employed under fixed term and temporary contracts (2011: 113).

8(c). Key management compensation

	Group
	2012 £m	2011 £m
Key management
– Short term employee benefits	15.7	12.1
– Post-employment benefits	0.5	1.1
– Share-based payments	2.3	1.9
	18.5	15.1

The key management of the Group for the year ended 31 December 2012 comprised Executive Directors and the GEB members. Details of Directors' remuneration is contained in the Remuneration report on pages 55 to 57.

During the year seven (2011: six) GEB members made aggregate gains totalling £1.2m (2011: £1.2m) on the exercise of options under the DSBP, DSP, ESOP and Sharesave Schemes.

Retirement benefits under the defined benefit scheme are accruing for three (2011: three) GEB members and benefits are accruing under a defined contribution scheme in Hong Kong for two (2011: two) GEB members.

9. Pension scheme

Defined contribution plans

The Group operates the Savills UK Group Personal Pension Plan, a defined contribution scheme, a number of defined contribution individual pension plans and a Mandatory Provident Fund Scheme in Hong Kong, to which it contributes. The total pension charges in respect of these plans were £17.9m (2011: £16.5m). The amount outstanding as at 31 December 2012 in relation to defined contribution schemes is £1.4m (2011: £1.4m).

Defined benefit plan

The Pension Plan of Savills (the 'Plan') provided final salary pension benefits to some employees, but was closed with regard to future service-based benefit accrual with effect from 31 March 2010. From 1 April 2010, pension benefits for former employees of the Plan are provided through the Group's defined contribution Personal Pension Plan.

The assets of the scheme are held separately from those of the Group, and invested in managed fund units. The contributions are determined by an independent qualified actuary on the basis of triennial valuations.

A full actuarial valuation was carried out as at 31 March 2010 and has been updated to 31 December 2012 by a qualified independent actuary. The assumptions which have the most significant effect on the results of the valuation are those relating to the rate of return on investments pre-retirement, the rates of increase in salaries and the post-retirement investment return. The valuation showed that the market value of the scheme's assets was £109.6m and that the actuarial value of those assets represented 80% of the benefits that had accrued to members, after allowing for expected future increases in earnings. The scheme has been closed to new joiners for pension benefits since 1 April 2000.

	Group
Principal assumptions at 31 December	2012	2011
Expected return on plan assets
– Equities	7.70%	7.80%
– Gilts	2.30%	2.50%
– Bonds	4.40%	4.70%
– Property*	–	6.80%
– Diversified growth funds	7.40%	7.50%
– Other	0.50%	0.50%
Expected rate of salary increases	4.50%	4.50%
Rate of increase to pensions in payment
– accrued before 6 April 1997	3.00%	3.00%
– accrued after 5 April 1997	3.00%	3.10%
– accrued after 5 April 2005	2.30%	2.30%
Rate of increase to pensions in deferment
– accrued before 6 April 2001	5.00%	5.00%
– accrued after 5 April 2001	2.40%	2.80%
– accrued after 5 April 2009	2.40%	2.20%
Discount rate	4.60%	4.90%
Inflation assumption	3.00%	3.10%

* No property assets held in 2012.

Notes to the financial statements Year ended 31 December 2012 continued

Using post-retirement mortality assumptions, the assured life expectations on retirement at age 60 (2011: 60) are as follows:

		Group
		2012	2011
Retiring today	– Male	88.1	88.1
	– Female	89.3	89.2
Retiring in 20 years	– Male	89.6	89.5
	– Female	90.9	90.8

Sensitivity analysis:

Change in assumption on discount rate:	Increase by 0.5% p.a. (2011: increase by 0.5% p.a.)
Impact on liabilities	Decrease by 10.6% (2011: decrease by 10.7%)

The amounts recognised in the statement of financial position are as follows:

		Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Fair value of plan assets	151.7	129.0	8.4	7.1
Present value of funded obligations	(179.6)	(164.6)	(9.9)	(9.1)
Deficit	(27.9)	(35.6)	(1.5)	(2.0)
Related deferred tax asset	6.4	9.0	0.4	0.5
Net liability	(21.5)	(26.6)	(1.1)	(1.5)

The amounts recognised in the income statement:

	Group
	2012 £m	2011 £m
Interest cost	8.0	7.7
Expected return on plan assets	(8.8)	(8.7)
Total included in staff costs	(0.8)	(1.0)

All net actuarial gains or losses for each year are recognised in full in the year in which they are incurred in the statement of comprehensive income.

Change in defined benefit obligation:

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Present value of defined benefit obligation at start of year	164.6	141.8	9.1	7.8
Interest cost	8.0	7.7	0.4	0.4
Actuarial loss	9.3	16.1	0.5	0.9
Benefits paid	(2.3)	(1.0)	(0.1)	–
Present value of defined benefit obligation at end of year	179.6	164.6	9.9	9.1

Change in plan assets:

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Fair value of plan assets at start of year	129.0	119.5	7.1	6.6
Expected return on plan assets	8.8	8.7	0.5	0.4
Actuarial gain/(loss)	9.2	(4.2)	0.5	(0.2)
Employer contributions	7.0	6.0	0.4	0.3
Benefits paid	(2.3)	(1.0)	(0.1)	–
Fair value of plan assets at end of year	151.7	129.0	8.4	7.1

The actual return on plan assets was £18.0m (2011: £4.5m). The overall expected return on assets is determined as the weighted average of the expected returns on each separate asset class shown below. The expected return on plan assets is determined by the expected rate of return over the remaining life of the related liabilities held by the scheme. The expected rate of return on equities is based on market expectations of dividend yields and price earnings ratios. Expected returns on bonds are based on gross redemption yields as at the reporting date.

The amounts recognised in the consolidated statement of comprehensive income:

	Group
	2012	2011
	£m	£m
Actuarial losses brought forward	(47.4)	(27.1)
Net actuarial loss for the year	(0.1)	(20.3)
Accumulated net actuarial losses	(47.5)	(47.4)

The major categories of assets as a percentage of total plan assets are as follows:

	2012	2011
Equities	41%	48%
Bonds	31%	31%
Property	–	2%
Diversified Growth Funds	28%	18%
Cash	–	1%
Total	100%	100%

No plan assets are the Group's own financial instruments or property occupied or used by the Group.

Amounts for the current and previous four years are as follows:

	2012 £m	2011 £m	2010 £m	2009 £m	2008 £m
Plan assets	151.7	129.0	119.5	103.5	85.9
Defined benefit obligation	(179.6)	(164.6)	(141.8)	(141.2)	(110.5)
Deficit	(27.9)	(35.6)	(22.3)	(37.7)	(24.6)
Experience gain/(loss) on plan liabilities	1%	(1%)	2%	2%	1%
Experience gain/(loss) on plan assets	6%	(3%)	3%	8%	(35%)

The Group expects to contribute £9.0m to its pension plan in the period to 31 December 2013 (2012: £7.0m). The Company expects to contribute £0.5m (2012: £0.4m).

Notes to the financial statements

Year ended 31 December 2012 continued

10. Finance income and costs

	Group
	2012 £m	2011 £m
Bank interest receivable	1.1	1.1
Fair value gain – interest rate swaps	0.1	0.3
Finance income	1.2	1.4
Bank interest payable	(0.9)	(1.3)
Finance costs	(0.9)	(1.3)
Net finance income	0.3	0.1

11. Income tax expense

	Group
Analysis of tax expense for the year	2012 £m	2011 £m
Current tax
United Kingdom:
Corporation tax on profits for the year	12.2	10.6
Adjustment in respect of prior years	0.8	1.1
	13.0	11.7
Foreign tax	6.8	6.5
Adjustment in respect of prior years	(0.2)	(0.3)
Total current tax	19.6	17.9
Deferred tax
Representing:
United Kingdom	(4.5)	(1.9)
Effect of change in UK tax rate on deferred tax	0.6	–
Foreign tax	(1.2)	(1.9)
Adjustment in respect of prior years	0.9	(0.9)
Total deferred tax (Note 17)	(4.2)	(4.7)
Income tax expense	15.4	13.2

The weighted average applicable UK corporation tax rate was 24.5% (2011: 26.5%) due to the reduction of the UK corporation tax rate from 26% to 24% which was effective from 1 April 2012. The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to Group profits. The tax for the year is higher (2011: higher) than the weighted average rate of 24.5%. The total tax charge on profit can be reconciled to the accounting profit as follows:

	Group
	2012 £m	2011 £m
Profit before tax	54.2	40.0
Tax on profit at 24.5% (2011: 26.5%)	13.3	10.6
Effects of:
Adjustment to tax in respect of prior years	1.5	(0.1)
Adjustments in respect of foreign tax rates	(1.7)	(2.3)
Utilisation of previously unprovided tax losses	(1.1)	–
Impact of (rising)/falling share price compared to the fair value of share awards/options at date of grant	(0.9)	0.8
Income not subject to tax	(0.1)	(0.7)
Non-deductible tax losses	1.4	1.6
Expenses and other charges not deductible for tax purposes	3.8	3.0
Impairment of associate undertaking	–	0.5
Tax on joint ventures and associates	(1.4)	(1.0)
Effect of change in UK tax rate on deferred tax	0.6	0.8
Income tax expense on profit	15.4	13.2

The effective tax rate of the Group for the year ended 31 December 2012 is 28.4% (2011: 33.0%).

The Finance Act 2012 substantively enacted on 17 July 2012 included legislation reducing the UK corporation tax rate from 26% to 24% with effect from 1 April 2012 and to 23% on 1 April 2013.

Deferred tax expected to reverse in the year ended 31 December 2013 has been remeasured using the effective rate that is expected to apply in the period (23.25%) and at 23% for reversals expected after that date.

A further reduction to the UK tax rate has been announced. The change, which is expected to be enacted next year, proposes to reduce the rate by a further 2% to 21% on 1 April 2014. The change has not been substantively enacted at the balance sheet date and, therefore, is not recognised in these financial statements.

The tax (charged)/credited to other comprehensive income is as follows:

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Current tax credit on employee benefits	2.5	3.4	–	0.2
Current tax credit/(charge) on foreign exchange reserves	0.2	(0.2)	–	–
Current tax credit on retirement benefits	1.7	1.6	0.1	0.1
Deferred tax credit/(charge) on pension actuarial losses/(gains)	–	5.4	(0.1)	0.2
Deferred tax on pension additional contributions	(1.7)	(1.6)	–	–
Deferred tax on pension – effect of tax rate change	(0.6)	(0.6)	–	–
Deferred tax (charge)/credit on employee benefits	(0.5)	(3.3)	0.2	(0.1)
Deferred tax (charge)/credit on revaluations of available-for-sale investments	(0.2)	0.2	–	–
Deferred tax credit on foreign exchange reserves	–	0.1	–	–
Tax on items relating to components of other comprehensive income	1.4	5.0	0.2	0.4

12. Dividends – Group and Company

	2012 £m	2011 £m
Amounts recognised as distribution to owners in the year:
Ordinary final dividend for 2011 of 6.35p per share (2010: 6.0p)	7.8	7.4
Supplemental interim dividend for 2011 of 4.0p per share (2010: 4.0p)	5.0	5.0
Interim dividend of 3.3p per share (2011: 3.15p)	4.1	3.9
	16.9	16.3

The Board recommends a final dividend of 6.7p (net) per ordinary share (amounting to £8.5m) is paid, alongside the supplemental interim dividend of 6.0p per ordinary share (amounting to £7.5m), to be paid on 13 May 2013 to shareholders on the register at 12 April 2013. These financial statements do not reflect this dividend payable.

Under the terms of the Savills plc 1992 Employee Benefit Trust (the 'EBT'), the Trustee has waived all but 0.01p of any dividend on each share held by the Trust.

13(a). Basic and diluted earnings per share

Basic earnings per share are based on the profit attributable to owners of the Company and the weighted average number of ordinary shares in issue during the year, excluding the shares held by the EBT, 7,183,049 shares (2011: 9,198,857 shares).

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares, being the share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and where performance conditions have been met.

The earnings and the shares used in the calculations are as follows:

	2012 Earnings £m	2012 Shares million	2012 EPS pence	2011 Earnings £m	2011 Shares million	2011 EPS pence
Basic earnings per share	38.5	124.8	30.8	26.5	123.3	21.5
Effect of additional shares issuable under option	–	5.7	(1.3)	–	3.4	(0.6)
Diluted earnings per share	38.5	130.5	29.5	26.5	126.7	20.9

Notes to the financial statements Year ended 31 December 2012 continued

13(b). Underlying basic and diluted earnings per share

Excludes profit on disposals, share-based payment adjustment, impairment and amortisation of goodwill and intangible assets (excluding software), impairment of available for sale investment and associate undertaking and restructuring costs.

	2012 Earnings £m	2012 Shares million	2012 EPS pence	2011 Earnings £m	2011 Shares million	2011 EPS pence
Basic earnings per share	38.5	124.8	30.8	26.5	123.3	21.5
Amortisation of intangible assets (excluding software) after tax	1.9	–	1.5	2.1	–	1.7
Impairment of goodwill after tax	–	–	–	5.4	–	4.4
Impairment of investment in associate and available-for-sale investment after tax	1.2	–	1.0	2.0	–	1.6
Share-based payment adjustment after tax	0.5	–	0.4	0.6	–	0.5
Restructuring costs after tax	3.2	–	2.6	1.4	–	1.2
Profit on disposal of subsidiaries, joint venture and available-for-sale investment after tax	(1.3)	–	(1.0)	(2.3)	–	(1.9)
Underlying basic earnings per share	44.0	124.8	35.3	35.7	123.3	29.0
Effect of additional shares issuable under option	–	5.7	(1.6)	–	3.4	(0.8)
Underlying diluted earnings per share	44.0	130.5	33.7	35.7	126.7	28.2

The Directors regard the above adjustments necessary to give a fair picture of the underlying results of the Group for the year. The adjustment for share-based payment relates to the impact of the accounting standard for share-based compensation.

The annual bonus is paid in a mixture of cash and deferred shares and the proportions can vary from one year to another. Under IFRS the deferred share element is amortised to the income statement over the vesting period whilst the cash element is expensed in the year. The adjustment above addresses this by adding to or deducting from profit the difference between the IFRS 2 charge and the effective value of the annual share award in order better to match the underlying staff costs in the year with the revenue recognised in the same period.

The gross amounts of the above adjustments (Note 7) are amortisation of intangible assets (excluding software) £2.4m (2011: £2.6m), impairment of goodwill of £nil (2011: £5.4m), impairment of investment in associate and available-for-sale investment of £1.2m (2011: £2.0m), share-based payment adjustment £0.7m (2011: £0.8m), restructuring costs of £4.0m (2011: £1.9m) and profit on disposals of £1.7m (2011: £2.3m).

14. Goodwill and intangible assets

					Group	Company
			Investment
		Customer/	and property
		business	management	Computer
Acquired goodwill and intangible assets	Goodwill £m	relationships £m	contracts £m	software £m	Total £m	Total £m
Cost
At 1 January 2012	179.5	21.2	10.8	12.2	223.7	3.8
Additions through business combinations (Note 16(e))	2.5	0.7	0.4	–	3.6	–
Initial recognition of deferred tax on intangible assets
(Note 17)	0.2	–	–	–	0.2	–
Other additions	–	–	0.1	3.0	3.1	0.9
Disposals	–	–	–	(0.4)	(0.4)	–
Derecognition of fully amortised intangible assets	–	(0.8)	–	–	(0.8)	–
Exchange movement	(2.9)	(0.6)	0.5	(0.2)	(3.2)	–
At 31 December 2012	179.3	20.5	11.8	14.6	226.2	4.7
Accumulated amortisation and impairment
At 1 January 2012	43.9	12.8	5.2	9.3	71.2	2.4
Amortisation charge for the year	–	2.0	0.4	1.3	3.7	0.5
Disposals	–	–	–	(0.4)	(0.4)	–
Derecognition of fully amortised intangible assets	–	(0.8)	–	–	(0.8)	–
Exchange movement	(1.3)	(0.4)	0.5	(0.1)	(1.3)	–
At 31 December 2012	42.6	13.6	6.1	10.1	72.4	2.9
Net book value
At 31 December 2012	136.7	6.9	5.7	4.5	153.8	1.8

All intangible amortisation charges in the year are disclosed on the face of the income statement. The Company's intangible assets consist of computer software only.

						Group	Company
				Investment and
		Customer/ business		property management	Computer
	Goodwill	relationships	Brands	contracts	software	Total	Total
Acquired goodwill and intangible assets Cost	£m	£m	£m	£m	£m	£m	£m
At 1 January 2011	178.1	22.3	6.1	10.6	11.5	228.6	3.4
Additions through business combinations	7.5	0.7	–	0.6	–	8.8	–
Disposals through business combinations	(4.6)	(1.3)	–	(0.3)	(0.4)	(6.6)	–
Initial recognition of deferred tax on intangible assets	0.2	–	–	–	–	0.2	–
Other additions	–	–	–	–	1.2	1.2	0.4
Disposals	–	–	–	–	(0.1)	(0.1)	–
Derecognition of fully amortised intangible assets	–	(0.3)	(6.1)	–	–	(6.4)	–
Exchange movement	(1.7)	(0.2)	–	(0.1)	–	(2.0)	–
At 31 December 2011	179.5	21.2	–	10.8	12.2	223.7	3.8
Accumulated amortisation and impairment
At 1 January 2011	43.8	10.8	6.1	5.3	8.7	74.7	1.9
Amortisation charge for the year	–	2.4	–	0.2	1.1	3.7	0.5
Disposals through business combinations	(4.6)	–	–	(0.3)	(0.4)	(5.3)	–
Impairment	5.4	–	–	–	–	5.4	–
Disposals	–	–	–	–	(0.1)	(0.1)	–
Derecognition of fully amortised intangible assets	–	(0.3)	(6.1)	–	–	(6.4)	–
Exchange movement	(0.7)	(0.1)	–	–	–	(0.8)	–
At 31 December 2011	43.9	12.8	–	5.2	9.3	71.2	2.4
Net book value
At 31 December 2011	135.6	8.4	–	5.6	2.9	152.5	1.4
At 1 January 2011	134.3	11.5	–	5.3	2.8	153.9	1.5

During the year, goodwill and intangible assets were tested for impairment in accordance with IAS 36. Goodwill and intangible assets are allocated to the Group's cash-generating units (CGUs) identified according to country of operation and business segment. In most cases, the CGU is an individual subsidiary or operation and these have been separately assessed and tested. A segment-level summary of the allocation is presented below:

2012	Transactional Advice £m	Consultancy £m	Property and Facilities Management £m	Investment Management £m	Total £m
United Kingdom	24.9	10.2	4.9	3.6	43.6
Continental Europe	24.9	1.1	10.5	–	36.5
Asia Pacific	11.2	3.0	29.7	–	43.9
America	14.7	–	–	–	14.7
Total goodwill and indefinite life intangible assets	75.7	14.3	45.1	3.6	138.7

2011	Transactional Advice £m	Consultancy £m	Property and Facilities Management £m	Investment Management £m	Total £m
United Kingdom	23.8	10.2	4.9	2.2	41.1
Continental Europe	25.3	1.1	10.6	–	37.0
Asia Pacific	11.4	3.1	29.8	–	44.3
America	15.4	–	–	–	15.4
Total goodwill and indefinite life intangible assets	75.9	14.4	45.3	2.2	137.8

Notes to the financial statements

Year ended 31 December 2012 continued

Method of impairment testing

All recoverable amounts were determined based on value-in-use calculations. These calculations use discounted cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using a terminal value. There was no impairment charge for goodwill and intangible assets arising from the the annual impairment tests conducted (2011: £5.4m).

Assumptions

Market recovery

In each case the models used assume that the property markets in which the Group operates (which drive its revenue growth) begin or continue to recover during 2013/2014.

Discount rate

The discount rate applied to cash flows of each CGU is based on the Group's Weighted Average Cost of Capital (WACC). WACC is the average cost of sources of financing (debt and equity), each of which is weighted by its respective use.

Key inputs to the WACC calculation are the risk free rate, the equity market risk premium (the return that Savills shares provide over the risk free rate), beta (reflecting the risk of the Group relative to the market as a whole) and the Group's borrowing rates.

Group WACC was adjusted for risk relative to the country in which the assets were located. The risk adjusted pre-tax discount range of rates used in each region for impairment testing are as follows:

	2012 Pre-tax discount rate range	2011 Pre-tax discount rate range
United Kingdom	10.9%	11.0%
Continental Europe	10.9 – 11.9%	11.0 – 11.5%
Asia Pacific	9.5 – 21.3%	6.3 – 21.3%
America	12.9%	12.5%

Long-term growth rate

To forecast beyond the five years covered by detailed forecasts, a terminal value was calculated, using an average long-term growth rate determined at 1.5%. This reflects management's expectations based on historical growth and current market conditions and does not exceed the long-term growth rate in any country in which the Group operates.

Sensitivity to changes in assumptions

The level of impairment is a reflection of best estimates in arriving at value in use, future growth rates and the discount rate applied to cash flow projections. Nonetheless, there are no CGUs which management considers a reasonable possible change in a key assumption would give rise to an impairment, apart from the Group's US business. If revenue growth rate assumptions decreased by 2.7% per annum between 2014 and 2017, this would begin to give rise to an impairment charge in the US.

Future impairments on goodwill and intangible assets relating to any of the Group's investments may be impacted by the following factors:

Market conditions – the timing and growth expectations for further recovery are key assumptions in the determination of the cash flow projections. For the purposes of the impairment tests, management expects the market to improve slightly over 2013 for the next year, but anticipate a bigger improvement from 2014 onward.

Cost base – the cost base assumptions reflects 2012's costs with limited growth in the fixed cost base going forward. Commissions and profit shares are correlated to the Group's revenue and profits and the percentage payout. These are assumed to be consistent with existing rates.

15. Property, plant and equipment

	Freehold property	Short leasehold property	Equipment and motor vehicles Owned	Equipment and motor vehicles Leased	Total
Group	£m	£m	£m	£m	£m
Cost
At 1 January 2012	0.1	18.4	53.7	0.1	72.3
Additions	–	3.2	4.5	–	7.7
Disposals	–	(0.9)	(6.7)	–	(7.6)
Exchange movement	–	(0.1)	(0.7)	–	(0.8)
At 31 December 2012	0.1	20.6	50.8	0.1	71.6
Accumulated depreciation and impairment
At 1 January 2012	–	11.9	41.9	0.1	53.9
Charge for the year	–	1.8	5.4	–	7.2
Disposals	–	(0.8)	(6.5)	–	(7.3)
Exchange movement	–	–	(0.7)	–	(0.7)
At 31 December 2012	–	12.9	40.1	0.1	53.1
Net book value
At 31 December 2012	0.1	7.7	10.7	–	18.5

The Directors consider that the fair value of plant, property and equipment approximates carrying value.

Group	Freehold property £m	Short leasehold property £m	Equipment and motor vehicles Owned £m	Equipment and motor vehicles Leased £m	Total £m
Cost
At 1 January 2011	0.1	20.6	51.1	0.3	72.1
Subsidiaries acquired	–	–	0.2	–	0.2
Subsidiaries disposed	–	(1.0)	(1.6)	–	(2.6)
Additions	–	2.2	7.0	–	9.2
Reclassifications	–	–	0.2	(0.2)	–
Disposals	–	(3.4)	(3.3)	–	(6.7)
Exchange movement	–	–	0.1	–	0.1
At 31 December 2011	0.1	18.4	53.7	0.1	72.3
Accumulated depreciation and impairment
At 1 January 2011	–	13.7	40.6	0.1	54.4
Charge for the year	–	1.9	5.2	–	7.1
Subsidiaries disposed	–	(0.4)	(1.4)	–	(1.8)
Disposals	–	(3.3)	(2.5)	–	(5.8)
At 31 December 2011	–	11.9	41.9	0.1	53.9
Net book value
At 31 December 2011	0.1	6.5	11.8	–	18.4

Notes to the financial statements

Year ended 31 December 2012 continued

	Short	Equipment
			Total
£m	£m	£m	£m
0.1	0.8	9.5	10.4
–	1.2	0.5	1.7
–	(0.6)	(4.7)	(5.3)
0.1	1.4	5.3	6.8
–	0.8	8.2	9.0
–	–	0.8	0.8
–	(0.6)	(4.7)	(5.3)
–	0.2	4.3	4.5
0.1	1.2	1.0	2.3
	Freehold property	leasehold property	and motor vehicles

Company	Freehold property £m	Short leasehold property £m	Equipment and motor vehicles £m	Total £m
Cost
At 1 January 2011	0.1	0.8	8.8	9.7
Additions	–	–	0.8	0.8
Disposals	–	–	(0.1)	(0.1)
At 31 December 2011	0.1	0.8	9.5	10.4
Accumulated depreciation and impairment
At 1 January 2011	–	0.8	7.6	8.4
Charge for the year	–	–	0.7	0.7
Disposals	–	–	(0.1)	(0.1)
At 31 December 2011	–	0.8	8.2	9.0
Net book value
At 31 December 2011	0.1	–	1.3	1.4

16(a). Group – Investments in joint ventures and associated undertakings

		Joint ventures			Associated undertakings
	Investment £m	Loans £m	Total £m	Investment £m	Goodwill £m	Total £m
Cost or valuation
At 1 January 2012	2.2	3.3	5.5	2.1	–	2.1
Additions	0.4	–	0.4	0.1	0.2	0.3
Loans repaid	–	(0.4)	(0.4)	(0.3)	–	(0.3)
Disposals	(0.1)	(0.4)	(0.5)	–	–	–
Exchange movement	(0.1)	–	(0.1)	–	–	–
At 31 December 2012	2.4	2.5	4.9	1.9	0.2	2.1
Share of profit
At 1 January 2012	3.4	–	3.4	2.8	–	2.8
Group's share of retained profit	2.5	–	2.5	4.6	–	4.6
Dividends received	(0.9)	–	(0.9)	(5.1)	–	(5.1)
Disposals	0.4	–	0.4	–	–	–
Exchange movement	(0.1)	–	(0.1)	0.1	–	0.1
At 31 December 2012	5.3	–	5.3	2.4	–	2.4
Total
At 31 December 2012	7.7	2.5	10.2	4.3	0.2	4.5

		Joint ventures			Associated undertakings
	Investment £m	Loans £m	Total £m	Investment £m	Goodwill £m	Total £m
Cost or valuation
At 1 January 2011	1.4	1.9	3.3	3.8	0.2	4.0
Additions	0.8	–	0.8	–	–	–
Loans advanced	–	2.1	2.1	0.2	–	0.2
Loans repaid	–	(0.7)	(0.7)	–	–	–
Impairment	–	–	–	(1.8)	(0.2)	(2.0)
Exchange movement	–	–	–	(0.1)	–	(0.1)
At 31 December 2011	2.2	3.3	5.5	2.1	–	2.1
Share of profit
At 1 January 2011	2.5	–	2.5	1.8	–	1.8
Group's share of retained profit	1.5	–	1.5	2.5	–	2.5
Dividends received	(0.4)	–	(0.4)	(1.5)	–	(1.5)
Disposals	(0.2)	–	(0.2)	–	–	–
At 31 December 2011	3.4	–	3.4	2.8	–	2.8
Total
At 31 December 2011	5.6	3.3	8.9	4.9	–	4.9

In relation to the Group's interests in joint ventures, the assets, liabilities, income and expenses are shown below:

	2012 £m	2011 £m
Current assets	13.1	10.3
Non-current assets	6.4	5.3
Current liabilities	(9.8)	(8.0)
Non-current liabilities	(2.0)	(2.0)
Net assets	7.7	5.6
Revenue	21.7	16.6
Expenses	(18.8)	(14.8)
Share of income tax	(0.4)	(0.3)
Share of post-tax profit from joint ventures	2.5	1.5

Notes to the financial statements Year ended 31 December 2012 continued

In relation to the Group's associated undertakings, the assets, liabilities, income and expenses are shown below:

	2012 £m	2011 £m
Current assets	9.4	9.6
Non-current assets	1.2	1.6
Current liabilities	(6.3)	(6.3)
Net assets	4.3	4.9
Revenue	54.0	34.1
Expenses	(48.4)	(31.0)
Share of income tax	(1.0)	(0.6)
Share of post-tax profit from associates	4.6	2.5

The joint ventures and associates have no significant liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities or capital commitments in relation to its interests in the joint ventures and associates.

The Group disposed of certain holdings in joint ventures during the year. Net assets of £0.1m were disposed and no gains or losses were recognised through the income statement.

16(b). Available-for-sale investments

		Group 2012 £m	Group 2011 £m
At 1 January		14.4	14.2
Additions		1.0	1.2
Transfer from investment in subsidiary		–	0.3
	Net fair value gain/(loss) transferred to other comprehensive income	0.2	(0.9)
	Impairment through the income statement	(0.3)	–
Exchange movement		(0.3)	(0.4)
At 31 December		15.0	14.4
	Available-for-sale investments comprise the following:
Unlisted securities	UK – equity securities	0.9	0.8
	UK – limited partnership	0.6	0.1
	UK – investment funds	2.7	2.5
	European – limited partnerships	0.1	–
	European – investment funds	10.3	10.6
	Asia Pacific – equity securities	0.4	0.4
		15.0	14.4

Available-for-sale investments are denominated in the following currencies:

	Group 2012 £m	Group 2011 £m
Sterling	4.2	3.4
Euro	10.4	10.6
Other	0.4	0.4
	15.0	14.4

At 31 December 2012, the Group held the following principal available-for-sale investments:

Investment	Holding	Principal activity
		General insurance, mortgage broking and
SPF Private Clients Limited (registered in England and Wales)	19.99%	personal financial planning services
Pinnacle Regeneration Group Limited (registered in England and Wales)	3.03%	Social housing services
Cordea Savills Dawn Syndication LP (registered in England and Wales)	3.50%	Investment property fund
Cordea Savills Student Hall Fund (registered in Jersey)	2.03%	Student accommodation property fund
Cordea Savills Italian Opportunities Fund 1 (registered in Luxembourg)*	2.81%	Investment property fund
Cordea Savills Italian Opportunities Fund 2 (registered in Luxembourg)	1.34%	Investment property fund
Serviced Land No. 2 LP (registered in England and Wales)	1.97%	UK land investment fund
Cordea Savills German Retail Fund (registered in Luxembourg)	1.94%	Retail investment property fund
Cordea Savills Nordic Retail Fund (registered in Luxembourg)	11.33%	Retail investment property fund
Cordea Savills UK Property Ventures No. 1 LP (registered in England and Wales)	4.15%	UK land investment fund
Prime London Residential Development Fund (registered in England and Wales)	3.19%	London Residential Development Fund

* This holding relates to Class C ordinary shares. The Group also holds 100% of Class A1 preference shares and 4.0% of Class B preference shares in this fund.

The Group transferred losses of £0.9m (2011: £nil) from equity into the income statement relating to impairments of available-for-sale investments. An additional £0.3m impairment charge was recognised directly in the income statement.

In October 2012 Savills 4.3% shareholding in IPD Group Ltd was sold resulting in a £1.7m profit on disposal.

The Group does not exert significant influence over these businesses, and therefore does not equity account for these investments. These shareholdings are treated as trade investments and held at fair value.

The fair value of unlisted securities is based on underlying asset values and price earnings models. The fair value of investment funds is determined by the Fund Manager's annual audited financial statements.

At 31 December 2012 the Group held conditional commitments to co-invest £0.5m (2011: £0.6m) in the Cordea Savills UK Property Ventures Fund No. 1 LP, £0.1m (2011: £0.1m) in the Cordea Savills Italian Opportunities Fund 2, £0.2m (2011: £0.3m) in the Cordea Savills Italian Opportunities Fund 1 and £0.5m in the Prime London Residential Development Fund (2011: £nil).

The Company made no available-for-sale investments during the year (2011: £nil).

16(c). Company – Investments in subsidiaries

	Shares in Group undertakings £m	Loans to Group undertakings £m	Total £m
Cost
At 1 January 2011	22.4	104.2	126.6
Loans advanced	–	21.6	21.6
Loans repaid	–	(25.1)	(25.1)
Transfer from current receivables	–	2.9	2.9
At 31 December 2011	22.4	103.6	126.0
Loans repaid	–	(21.6)	(21.6)
Disposals	(0.1)	–	(0.1)
Exchange movement	–	(0.4)	(0.4)
At 31 December 2012	22.3	81.6	103.9

Notes to the financial statements Year ended 31 December 2012 continued

16(d). Investments in subsidiaries, joint ventures and associated undertakings

The principal subsidiaries, joint ventures and associated undertakings of the Group which, in the Directors' opinion principally affect the figures shown in the financial statements, are shown below together with details of their main activities. Except where otherwise noted, they are wholly-owned, have share capital wholly comprised of ordinary shares, are registered in England and Wales, operate in the UK and are consolidated into the Group financial statements. Holding interests are the same as voting interests.

A full list of the Group's subsidiaries, joint ventures and associated undertakings is available from the registered office of Savills plc.

Subsidiary undertakings	Holding	Main activities
Cordea Savills LLP*+	100%	Investment management
Savills Commercial Limited*	100%	Commercial surveyors
Savills (L&P) Limited*	100%	General practice surveyors
Prime Purchase Limited*	100%	Property buying company
Cordea Savills Investment Management Limited*	100%	Asset manager
Savills LLC*++(registered in the US)	100%	Property consultants
Savills Commercial (Ireland) Limited* (registered in Ireland)	100%	Property consultants
Savills Consultores Inmobiliarios SA* (registered in Spain)	100%	Property consultants
Savills Immobilien Beratungs GmbH* (registered in Germany)	100%	Property consultants
Savills SA* (registered in France)	99.97%	Property consultants
Savills Italy SRL* (registered in Italy)	100%	Property consultants
Savills Nederland Holding BV* (registered in the Netherlands)	87%	Property consultants
Savills Sweden AB* (registered in Sweden)	98.40%	Property consultants
Förvaltningsaktiebolaget Stadsmuren* (registered in Sweden)	100%	Project management
Loudden Bygg-och Fastighetsservice AB* (registered in Sweden)	70%	Facilities management
Savills Spolka z Organiczona* (registered in Poland)	100%	Property consultants
Savills Belux Group SA	70%	Property consultants
Savills (Hong Kong) Limited* (registered in Hong Kong)	100%	Mixed practice agency, valuation and research
Savills Valuation and Professional Services Limited*
(registered in Hong Kong)	100%	Valuation and research
Savills Property Management Limited* (registered in Hong Kong)	100%	Property management
Guardian Property Management Limited* (registered in Hong Kong)	100%	Property management
Savills (Singapore) Pte Limited* (registered in Singapore)	100%	Property management and agency
Savills Japan KK* (registered in Japan)	100%	Property management and agency
Savills Property Services (Shanghai) Co Limited* (registered in China)	100%	Property management
Savills Property Services (Beijing) Co Limited* (registered in China)	100%	Property management
Savills Korea Asset Management Limited* (registered in Korea)	100%	Property management
Savills Korea Co. Limited* (registered in Korea)	100%	Property agency and consultants
Savills (Vietnam) Limited* (registered in BVI)	92.10%	Property management and agency
Savills (Thailand) Limited* (registered in Thailand)	100%	Property agency, consultants and management
Savills (Taiwan) Limited* (registered in Taiwan)	100%	Property agency and consultants
Savills (Aust) Pty Limited* (registered in Australia)	96.19%	Property agency, consultants and management
Joint ventures
GES Holdings Limited* (Macau)	50%	Property management
Associated undertakings
Hutton Asia Pte Ltd* (Singapore)	48%	Property agency

* Shares/interests held indirectly by the Company.

• Limited Liability Partnership.

++ Limited Liability Company.

16(e). Acquisitions of subsidiaries

Gresham Down Capital Partners LLP

On 5 January 2012 the Group acquired the specialist Central London investment and asset management business Gresham Down Capital Partners LLP. The business provides investment advisory and brokerage advice focusing primarily on the Central London Commercial property market, as well as asset management services, and will strengthen the Group's existing Central London presence.

Consideration of £1.6m was paid on completion, with a further total of £1.4m payable across the subsequent four anniversaries subject to service conditions. Goodwill and other intangible assets of £0.9m and £0.7m have been determined. Goodwill represents synergies that the Group expects to gain as a result of the acquisition.

IFRS 3 (revised) has been applied to this acquisition which was accounted for using the acquisition method. Acquisition related costs for this transaction were negligible.

International Property Asset Management GmbH

On 20 January 2012 Cordea Savills acquired International Property Asset Management GmbH (IPAM), a German real estate asset management company. The acquisition complements and expands the Group's existing German business and investment platform.

Total consideration was £3.1m, of which £2.3m was paid on completion. Contingent consideration is payable in 2013 and 2014 based on the actual performance of the business. Goodwill on acquisition of £1.6m has been determined, and is attributable to key staff and their industry reputation. Other intangible assets of £0.4m have been identified and relate to asset management contracts.

IFRS 3 (revised) has been applied to this acquisition which was accounted for using the acquisition method. Acquisition related costs of £0.3m are included in the income statement.

	Fair value to the Group
Subsidiaries acquired	£m
Current assets:
Trade and other receivables	0.2
Cash and cash equivalents	1.4
Total assets	1.6
Current liabilities:
Trade and other payables	0.5
Current income tax liabilities	0.1
Net assets	1.0
Other intangible assets (Note 14)	1.1
Fair value of net assets acquired	2.1
Goodwill (Note 14)	2.5
Purchase consideration	4.6
Consideration satisfied by:
Net cash paid as per cash flow statement	2.5

Cash acquired	1.4
Deferred consideration owing at reporting date	0.7
	4.6

For these acquisitions, there was no difference between the fair value and carrying value of net assets acquired, except for intangible assets. The Group acquires businesses intended for use on a continuing basis. There were no significant changes to the provisional goodwill that arose in the previous year on acquisitions.

Included in Group operating profit relating to acquisitions is:

	£m
Turnover	5.4
Staff costs	(2.8)
Depreciation	(0.1)
Other operating charges	(0.8)
Operating profit (before finance charges)	1.7

Notes to the financial statements Year ended 31 December 2012

continued

If the date for all acquisitions made during the year had been 1 January 2012, the amounts included in Group operating profit would have been:

	£m
Turnover	5.4
Staff costs	(2.8)
Depreciation	(0.1)
Other operating charges	(0.8)
Operating profit (before finance charges)	1.7

16(f). Transactions with non-controlling interests

During the year, the Group undertook the following transactions with non-controlling interests:

Name	Date	Holding acquired	Total holding at 31 December 2012
Savills (Vietnam) Limited	October 2012	20.0%	92.1%
Savills LLC	December 2012	25.0%	100.0%

Under IAS 27 (revised), transactions with non-controlling interests must be accounted for as equity transactions, therefore no goodwill has been recognised. Acquisition costs related to these transactions were not significant.

In October 2012, the Group acquired an additional 20.0% of the shares in Savills (Vietnam) Limited for cash consideration of £3.5m. This takes the Group's shareholding to 92.1%. The carrying amount of Savills (Vietnam) Limited's net assets on the date of acquisition was £0.3m. The Group recognised a decrease in non-controlling interest of £0.1m. The amount charged to retained earnings in respect of this transaction was £3.4m.

In December 2012, the Group acquired the remaining 25.0% of the shares in Savills LLC, which operates in the United States of America. Cash consideration of £8.3m was paid. The carrying amount of Savills LLC's net liabilities on the dates of acquisition was £8.7m. The Group recognised an increase in non-controlling interests of £2.3m. A corresponding decrease in retained earnings was recognised in respect of this transaction.

An amount of £1.5m was credited to retained earnings reflecting a reduction in deferred consideration payable to non-controlling interests.

In 2011 the Group acquired additional stakes in Savills Italy SRL and Savills (Vietnam) Limited for a total consideration of £1.2m.

17. Deferred income tax

Deferred income tax assets and liabilities are only offset where there are legally enforceable rights to offset current tax assets against current tax liabilities and when the deferred income tax relates to the same fiscal authority. The deferred tax assets and liabilities are offset when realised through current tax. The deferred income tax assets and liabilities at 31 December, without taking into consideration the offsetting balances within the same jurisdiction, are as follows:

The movement on the deferred tax account is shown below:

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Deferred tax assets
– Deferred tax asset to be recovered after more than 12 months	21.4	25.8	1.8	1.3
– Deferred tax asset to be recovered within 12 months	8.5	3.6	0.7	0.6
	29.9	29.4	2.5	1.9
Deferred tax liabilities
– Deferred tax liability to be recovered after more than 12 months	(1.2)	(1.7)	–	–
– Deferred tax liability to be recovered within 12 months	(0.5)	(0.4)	–	–
	(1.7)	(2.1)	–	–
Deferred tax asset – net	28.2	27.3	2.5	1.9

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
At 1 January – asset	27.3	22.7	1.9	1.6
Amount credited to income statement (Note 11)	4.8	5.5	0.6	0.2
Effect of UK tax rate change within income statement (Note 11)	(0.6)	(0.8)	(0.1)	–
Tax charged to other comprehensive income
– Pension asset on actuarial loss/(gain)	–	5.4	(0.1)	0.2
– Pension asset on additional contributions	(1.7)	(1.6)	–	–
– Pension asset – effect of UK tax rate change within other comprehensive income	(0.6)	(0.6)	–	–
– Employee benefits	(0.5)	(3.3)	0.2	(0.1)
– Revaluations of available-for-sale investments	(0.2)	0.2	–	–
– Movement on foreign exchange reserves	–	0.1	–	–
Exchange movement	(0.1)	(0.1)	–	–
Initial recognition of intangible assets	(0.2)	(0.2)	–	–
At 31 December – asset	28.2	27.3	2.5	1.9

Deferred income tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that the realisation of the related tax benefit through the future taxable profits is probable.

As at the reporting date the Group did not recognise deferred tax income tax assets of £8.5m (2011: £8.1m) in respect of losses amounting to £24.9m (2011: £24.8m) that can be carried forward against future taxable income. Losses amounting to £0.7m (2011: £1.2m) expire within 2 years, losses amounting to £1.1m (2011: £1.5m) expire between 3 and 8 years and the remaining loss of £23.1m (2011: £22.1m) remains available for offset indefinitely.

Deferred tax assets – Group	Accelerated capital allowances £m	Other including provisions £m	Tax losses £m	Retirement benefits £m	Revaluation £m	Employee benefits £m	Total £m
At 1 January 2011	1.0	6.4	4.0	6.1	–	8.0	25.5
Amount credited/(charged) to income statement	–	1.4	1.8	(0.3)	–	1.9	4.8
Effect of UK tax rate change within income statement	(0.1)	(0.4)	–	–	–	(0.2)	(0.7)
Tax charged to other comprehensive income	–	–	–	3.8	–	(3.3)	0.5
Effect of UK tax rate change within other comprehensive income	–	–	–	(0.6)	–	–	(0.6)
Transfer (to)/from deferred tax liabilities	–	(0.3)	–	–	0.3	–	–
Exchange movement	–	–	(0.1)	–	–	–	(0.1)
At 31 December 2011	0.9	7.1	5.7	9.0	0.3	6.4	29.4
Amount credited/(charged) to income statement (Note 11)	0.1	1.1	1.4	(0.3)	–	2.1	4.4
Effect of UK tax rate change within income statement (Note 11)	–	(0.3)	–	–	–	(0.4)	(0.7)
Tax charged to other comprehensive income (Note 11)	–	–	–	(1.7)	(0.3)	(0.5)	(2.5)
Effect of UK tax rate change within other comprehensive income (Note 11)	–	–	–	(0.6)	–	–	(0.6)
Exchange movement	–	0.1	(0.2)	–	–	–	(0.1)
At 31 December 2012	1.0	8.0	6.9	6.4	–	7.6	29.9

Notes to the financial statements

Year ended 31 December 2012 continued

	Other including
	provisions and foreign exchange reserves	Revaluations	Intangible assets	Total
Deferred tax liabilities – Group	£m	£m	£m	£m
At 1 January 2011	(0.6)	(0.1)	(2.1)	(2.8)
Amount credited to income statement	–	–	0.7	0.7
Effect of UK tax rate change within income statement	–	–	(0.1)	(0.1)
Tax credited to other comprehensive income	0.1	0.2	–	0.3
Transfer from/(to) deferred tax assets	0.3	(0.3)	–	–
Initial recognition of intangible assets	–	–	(0.2)	(0.2)
At 31 December 2011	(0.2)	(0.2)	(1.7)	(2.1)
Amount credited to income statement (Note 11)	(0.1)	–	0.5	0.4
Effect of UK tax rate change within income statement (Note 11)	–	–	0.1	0.1
Effect of UK tax rate change within other comprehensive income (Note 11)	–	0.1	–	0.1
Initial recognition of intangible assets (Note 14)	–	–	(0.2)	(0.2)
At 31 December 2012	(0.3)	(0.1)	(1.3)	(1.7)
Net deferred tax asset
At 31 December 2012				28.2
At 31 December 2011				27.3

The proposed reduction in the main UK rate of corporation tax by 2% to 21% on 1 April 2014 is expected to be enacted separately next year. The overall effect of this 2% reduction if this applied to the deferred tax balance at 31 December 2012, would be to reduce the net deferred tax asset by approximately £0.9m. Please refer to note 11 for details of proposed tax rate reductions.

	Accelerated capital	Other including	Retirement	Employee
Deferred tax assets – Company	allowances £m	provisions £m	benefits £m	benefits £m	Total £m
At 1 January 2011	0.3	0.6	0.3	0.4	1.6
Amount (charged)/credited to income statement	–	–	–	0.2	0.2
Tax charged to other comprehensive income (Note 11)	–	–	0.2	(0.1)	0.1
As at 31 December 2011	0.3	0.6	0.5	0.5	1.9
Amount credited to income statement	–	–	–	0.6	0.6
Effect of UK tax rate change within income statement	–	(0.1)	–	–	(0.1)
Tax (charged)/credited to other comprehensive income (Note 11)	–	–	(0.1)	0.2	0.1
At 31 December 2012	0.3	0.5	0.4	1.3	2.5
Net deferred tax asset
At 31 December 2012					2.5
At 31 December 2011					1.9

18. Trade and other receivables

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Trade receivables	182.5	151.1	–	–
Less: provision for impairment of receivables	(8.4)	(7.9)	–	–
Trade receivables – net	174.1	143.2	–	–
Amounts owed by subsidiary undertakings	–	–	13.8	15.0
Other receivables	17.4	19.4	0.6	1.0
Prepayments and accrued income	29.3	28.6	0.8	0.7
	220.8	191.2	15.2	16.7

The carrying value of trade and other receivables is approximate to their fair value.

There is no other concentration of credit risk with respect to trade and other receivables as the Group has a large number of clients internationally dispersed with no individual client owing a significant amount.

Inter-company trade receivables are generally cleared within the month.

As at 31 December 2012, trade receivables of £8.4m (2011: £7.9m) were impaired and provided for. The individually impaired receivables mainly relate to receivables from clients that have been affected by the uncertain economic conditions where funding and completion have been delayed and cash flow has become uncertain.

The ageing of these receivables is as follows:

	Group
	2012 £m	2011 £m
Up to 3 months	0.9	1.1
3 to 6 months	1.5	1.5
Over 6 months	6.0	5.3
	8.4	7.9

As at 31 December 2012, trade receivables of £48.6m (2011: £43.2m) were past due but not impaired. These relate to trade receivables which are past due at the reporting date but are not considered impaired as there has not been a significant change in credit quality and the amounts are still considered recoverable.

The ageing of these receivables is as follows:

		Group
	2012 £m	2011 £m
Up to 3 months	35.8	31.9
3 to 6 months	8.4	6.6
Over 6 months	4.4	4.7
	48.6	43.2

The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:

		Group
	2012 £m	2011 £m
Sterling	107.1	93.1
Euro	25.3	21.2
Hong Kong dollar	39.1	32.2
Australian dollar	14.9	15.7
Other*	34.4	29.0
	220.8	191.2

* Other currencies include US dollar, Chinese renminbi, Singapore dollar, Polish zloty and Swedish krona.

Notes to the financial statements Year ended 31 December 2012 continued

Movement on the provision for impairment of trade receivables is as follows:

	Group
	2012 £m	2011 £m
At 1 January	(7.9)	(9.1)
Provisions for receivables impairment	(3.6)	(3.2)
Receivables written off during the year as uncollectible	1.9	2.7
Unused provisions released	1.1	1.5
Subsidiary disposed	–	0.2
Exchange movements	0.1	–
At 31 December	(8.4)	(7.9)

The creation and release of the provision for impaired receivables have been included in other operating expenses in the income statement.

The other classes within trade and other receivables do not contain impaired assets.

The Group does not hold any collateral as security.

19. Cash and cash equivalents

		Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Cash at bank and in hand	85.8	69.3	21.2	15.8
Short-term bank deposits	7.0	10.7	–	–
	92.8	80.0	21.2	15.8

The carrying value of cash and cash equivalents approximates their fair value.

The effective interest rate on short-term bank deposits as at 31 December 2012 was 1.81% (2011: 1.19%); these deposits have an average maturity of 55 days (2011: 51 days).

Cash subject to restrictions in Asia Pacific amounts to £15.9m (2011: £16.3m) which is cash pledged to banks in relation to property management contracts and cash remittance restrictions in certain countries. These amounts are consolidated.

Cash, cash equivalents and bank overdrafts include the following for the purposes of the cash flow statement:

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Cash and cash equivalents	92.8	80.0	21.2	15.8
Bank overdrafts (Note 22)	(0.1)	(1.2)	–	–
	92.7	78.8	21.2	15.8
Cash and cash equivalents are denominated in the following currencies:
Sterling	15.7	18.8	21.2	15.8
Euro	3.5	4.4	–	–
Hong Kong dollar	36.8	23.6	–	–
Singapore dollar	6.6	3.8	–	–
Australian dollar	4.4	5.9	–	–
Chinese renminbi	14.8	14.4	–	–
South Korean wan	2.3	1.5	–	–
Japanese yen	2.7	1.1	–	–
US dollar	1.2	2.3	–	–
Other currencies*	4.8	4.2	–	–
	92.8	80.0	21.2	15.8

* Other currencies include New Taiwan dollar, Macau pataca, Thai baht, Vietnamese dong, Polish zloty and Swedish krona.

20. Trade and other payables – current

2012
£m	2011 £m	2012 £m	2011 £m
0.6	8.6	–	–
43.0	32.2	2.4	2.0
–	–	0.8	1.1
30.5	27.6	5.9	3.1
9.0	10.3	–	–
153.7	130.0	7.2	5.6
236.8	208.7	16.3	11.8

* Includes accruals for profit shares.

The carrying value of trade and other payables is approximate to their fair value.

21. Trade and other payables – non-current

		Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Deferred consideration	0.4	8.8	–	–
Other payables	0.2	0.2	–	–
Amounts owed to subsidiary undertakings	–	–	6.1	5.1
	0.6	9.0	6.1	5.1

22. Borrowings

		Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Current
Bank overdrafts	0.1	1.2	–	–
Unsecured bank loans due within one year or on demand	1.0	5.0	–	–
Finance leases	0.1	0.1	–	–
	1.2	6.3	–	–
Non-current
Finance leases	–	0.1	–	–
	–	0.1	–	–

In October 2012 Savills (Aust) Pty Ltd borrowed £1.4m as a working capital loan. The borrowings are denominated in Australian dollars and have an effective rate of 6.28%. The loan is repaid in equal monthly instalments until July 2013. At 31 December, at the year end exchange rate, £1.0m was outstanding (2011: £1.1m) and is due within one year. A similar loan entered into in October 2011 was fully repaid during the year.

The exposure of the Group's borrowings to interest rate changes and the contractual repricing dates at the reporting date are:

		Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Less than 1 year	1.2	6.3	–	–
Between 1 and 2 years	–	0.1	–	–
Between 2 and 5 years	–	–	–	–
	1.2	6.4	–	–

Notes to the financial statements Year ended 31 December 2012 continued

The maturity of non-current borrowings is as follows:

		Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Between 1 and 2 years	–	0.1	–	–
Between 2 and 5 years	–	–	–	–
	–	0.1	–	–

The effective interest rates at the reporting date were as follows:

	Group
	2012 £m	2011 £m
Bank overdraft	6.75%	3.76%
Bank loans	6.28%	5.77%
Finance leases	9.72%	9.69%

The carrying amounts of borrowings are approximate to their fair value.

The carrying amounts of the Group's borrowings are denominated in the following currencies:

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
US dollar	–	3.9	–	–
Euro	–	1.2	–	–
Australian dollar	1.1	1.2	–	–
Thai baht	0.1	0.1	–	–
	1.2	6.4	–	–
The Group has the following undrawn borrowing facilities:
Floating rate – expiring within 1 year or on demand	21.3	13.5	–	–
Floating rate – expiring between 1 and 5 years	65.0	50.0	–	–

During the year the Group's revolving credit facility, which expires on 31 March 2014, was increased by £15m to £65m. As at 31 December 2012 this facility was undrawn. After the year end, the Group entered into a £12m amortising term loan, which expires on 1 May 2015, to finance the fit out costs for the Group's new head office.

23. Derivative financial instruments

		Group	Company
2012	Assets £m	Liabilities £m	Assets £m	Liabilities £m
Forward foreign exchange contracts – at fair value	–	0.1	–	–

	Group		Company
2011	Assets £m	Liabilities £m	Assets £m	Liabilities £m
Interest rate swaps – at fair value	–	0.1	–	–
Forward foreign exchange contracts – at fair value	0.1	–	–	–
Total	0.1	0.1	–	–

Forward foreign exchange contracts

The gross notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2012 were £7.8m (2011: £13.4m). All contracts mature within one year and are classed as current.

Gains and losses on forward foreign exchange contracts are recognised in net foreign exchange gains and losses in the income statement.

24(a). Provisions for other liabilities and charges

	Professional indemnity claims £m	Dilapidation provisions £m	Onerous leases £m	Restructuring provision £m	Group Total £m	Company £m
At 1 January 2012	15.7	2.4	1.7	0.8	20.6	1.3
Provided during the year	9.4	0.4	2.5	0.2	12.5	–
Utilised during the year	(3.8)	–	(0.6)	(0.6)	(5.0)	–
Released during the year	(2.3)	–	(0.2)	–	(2.5)	–
Total	19.0	2.8	3.4	0.4	25.6	1.3
Less non-current portion	13.7	1.7	2.3	–	17.7	1.2
Current portion	5.3	1.1	1.1	0.4	7.9	0.1
2011	Professional indemnity claims £m	Dilapidation provisions £m	Onerous leases £m	Restructuring provision £m	Group Total £m	Company £m
Current	9.3	0.2	0.8	0.8	11.1	0.1
Non-current	6.4	2.2	0.9	–	9.5	1.2
Total	15.7	2.4	1.7	0.8	20.6	1.3

Professional indemnity claims

These arise from various legal actions, proceedings and other claims that are pending against the Group. The outcomes of these claims are not predictable with any assurance and the amounts are based on reasonable estimates, taking into account the opinions of legal counsel. The non-current portion of these provisions is expected to be utilised within the next two to five years. Included are provisions for claims relating to subsidiaries prior to their disposal.

Dilapidation provisions

The Group is required to perform dilapidation repairs on leased properties prior to the properties being vacated at the end of their lease term. These amounts are based on estimates of repair costs at a future date and are subject to price fluctuations in these costs and the extent of repairs to be completed. The majority of the non-current portion of these provisions is expected to be utilised within the next two to six years.

Onerous leases

A provision is recognised where the costs of meeting the obligations under a lease contract exceed the economic benefits expected to be received and is measured as the net least cost of exiting the contract, being the lower of the cost of fulfilling it and any compensation or penalties arising from the failure to fulfil it. The majority of the non-current portion of these provisions is expected to be utilised within the next two to four years.

Restructuring provision

This provision comprises termination payments to employees affected by restructuring and lease termination penalties.

24(b). Employee benefit obligations

In addition to the defined benefit obligation pension scheme disclosed in Note 9, the following are included in employee benefit obligations:

Group	Total £m
At 1 January 2012	14.2
Provided during the year	6.5
Utilised during the year	(6.7)
Exchange movements	(0.4)
At 31 December 2012	13.6

The above provisions relate to holiday pay and long service leave in Asia Pacific and Europe and are expected to crystallise within five to seven years of the reporting date. Profit shares are included within accruals (Note 20).

The Company had no employee benefit obligations at 31 December 2012 or 31 December 2011.

The above employee benefit obligations have been analysed between current and non-current as follows:

Notes to the financial statements

Year ended 31 December 2012 continued

	Group
	2012 £m	2011 £m
Current	5.9	6.7
Non-current	7.7	7.5
	13.6	14.2

25. Share capital – Group and Company

Authorised and allotted	2012 Number of shares	2011 Number of shares	2012 £m	2011 £m
Ordinary shares of 2.5p each:
Authorised	202,000,000	202,000,000	5.1	5.1
Allotted, called up and fully paid	133,342,240	132,589,303	3.3	3.3

Movement in allotted, called up and fully paid share capital

	2012	2011
	Number of shares	£m	Number of shares	£m
At 1 January	132,589,303	3.3	132,152,375	3.3
Allotted to direct participants on exercise of options under the Sharesave Scheme	680,210	–	357,928	–
Allotted to direct participants on exercise of options under the Executive
Share Option Scheme (2001)	72,727	–	79,000	–
At 31 December	133,342,240	3.3	132,589,303	3.3

At the Annual General Meeting held on 9 May 2012, the shareholders gave the Company authority, subject to stated conditions, to purchase for cancellation up to 13,259,678 of its own ordinary shares (AGM held on 4 May 2011: 13,233,349). Such authority remains valid until the conclusion of the next Annual General Meeting or 1 July 2013 whichever is the earlier.

26. Share-based payment

Details of the terms of the following schemes are contained in the Remuneration report on pages 48 and 49.

26(a). Executive Share Option Scheme (2001)

The following share options have been granted under the Executive Share Option Scheme (2001) and were outstanding at 31 December 2012:

Date of grant	Exercise period		Exercise price	2012 Number of shares '000	2011 Number of shares '000
14 March 2005	7 years from 14 March 2008	Approved	321.3p	28	28
14 March 2005	7 years from 14 March 2008	Unapproved	321.3p	67	67
17 April 2009	7 years from 17 April 2012	Approved	288.8p	21	21
17 April 2009	7 years from 17 April 2012	Unapproved	288.8p	457	530
19 April 2010	7 years from 19 April 2013	Unapproved	341.0p	422	422
				995	1,068

A reconciliation of option movements over the year to 31 December 2012 is shown below:

	2012		2011
	Number of shares '000	Weighted average exercise price	Number of shares '000	Weighted average exercise price
Outstanding at 1 January	1,068	312.3p	1,307	307.7p
Exercised	(73)	288.8p	(79)	261.0p
Lapsed	–	–	(160)	300.1p
Outstanding at 31 December	995	314.0p	1,068	312.3p
Exercisable at 31 December	573	294.1p	95	321.3p

The weighted average share price on the date of exercise during the year was 461.0p (2011: 404.1p) and total consideration of £0.2m (2011: £0.2m) was received.

The weighted average remaining contractual life of share options outstanding at 31 December 2012 is 6.3 years (2011: 7.3 years).

26(b). Sharesave Scheme

During the year 680,210 shares (2011: 357,928 shares) were allotted directly to participants on the exercise of options under the Sharesave Scheme, for consideration of £1,816,161 (2011: £1,120,417). The following table shows the options remaining outstanding as at 31 December 2012:

Date of grant	Exercise price	Exercise period	2012 Number of shares '000	2011 Number of shares '000
29 October 2009	267.0p	01.12.12 – 01.06.13	245	976
			245	976

A reconciliation of option movements over the year to 31 December 2012 is shown below:

		2012		2011
	Number of shares '000	Weighted average exercise price	Number of shares '000	Weighted average exercise price
Outstanding at 1 January	976	267.0p	1,563	282.2p
Lapsed	(51)	267.0p	(229)	299.1p
Exercised	(680)	267.0p	(358)	313.0p
Outstanding at 31 December	245	267.0p	976	267.0p
Exercisable at 31 December	245	267.0p	–	–

The weighted average share price on the date of exercise during the year was 445.5p (2011: 376.9p) and the weighted average remaining contractual life of share options outstanding at 31 December 2012 is 0.4 years (2011: 1.4 years).

26(c). Deferred Share Bonus Plan

The following awards of deferred shares, without exercise price, have been granted under the Deferred Share Bonus Plan (the DSBP) and were outstanding at 31 December 2012:

			2012 Number of	2011 Number of
Date of award	Deferred period	Vesting date	shares '000	shares '000
19 March 2007	5 years	19 March 2012	–	534
17 March 2008	5 years	17 March 2013	1,128	1,192
17 April 2009	3 years	17 April 2012	–	815
17 April 2009	5 years	17 April 2014	505	521
13 April 2010	3 years	13 April 2013	446	492
13 April 2010	5 years	13 April 2015	49	54
30 March 2011	3 years	30 March 2014	719	739
30 March 2011	5 years	30 March 2016	599	621
19 April 2012	3 years	19 April 2015	422	–
19 April 2012	5 years	19 April 2017	345	–
			4,213	4,968

Notes to the financial statements Year ended 31 December 2012 continued

As at 31 December 2012, 327 (2011: 346) individuals held outstanding awards under the DSBP. Awards made under the DSBP from 2006 onwards are subject to rolled-up dividends whereby the number of shares awarded will be increased on the vesting date to reflect dividends paid to shareholders throughout the deferred period.

A reconciliation of award movements over the year to 31 December 2012 is shown below:

		2012		2011
	Number of shares '000	Weighted average share price at date of exercise	Number of shares '000	Weighted average share price at date of exercise
Outstanding at 1 January	4,968	–	5,873	–
Granted	773	–	1,378	–
Forfeited	(133)	–	(149)	–
Exercised	(1,395)	360.7p	(2,134)	374.3p
Outstanding at 31 December	4,213	–	4,968	–
Exercisable at 31 December	–	–	–	–

The weighted average exercise price for awards granted under this scheme is £nil (2011: £nil). No awards were exercisable under this scheme as at 31 December 2012 (31 December 2011: nil).

The weighted average remaining contractual life of share options outstanding at 31 December 2012 is 2.3 years (2011: 1.6 years).

26(d). Deferred Share Plan

The following awards of deferred shares, without exercise price, have been granted under the Deferred Share Plan (the DSP) and remained outstanding at 31 December 2012:

			2012 Number of	2011 Number of
Date of grant	Deferred period	Vesting date	shares '000	shares '000
19 March 2007	5 years	19 March 2012	–	29
17 September 2007	5 years	17 September 2012	–	12
17 March 2008	5 years	17 March 2013	30	30
17 April 2009	3 years	10 April 2012	–	591
10 September 2009	3 years	10 September 2012	–	14
10 September 2009	5 years	10 September 2014	6	17
13 April 2010	3 years	13 April 2013	1,225	1,283
13 April 2010	4 years	13 April 2014	338	344
13 April 2010	5 years	13 April 2015	1,458	1,508
8 September 2010	3 years	8 September 2013	297	373
30 March 2011	3 years	30 March 2014	656	656
30 March 2011	4 years	30 March 2015	362	362
30 March 2011	5 years	30 March 2016	357	371
27 September 2011	3 years	27 September 2014	113	148
27 September 2011	5 years	27 September 2016	43	43
19 April 2012	3 years	19 April 2015	512	–
19 April 2012	4 years	19 April 2016	6	–
19 April 2012	5 years	19 April 2017	21	–
13 September 2012	3 years	13 September 2015	112	–
13 September 2012	5 years	13 September 2017	12	–
			5,548	5,781

As at 31 December 2012, 271 individuals (2011: 265) held outstanding awards under the DSP. Awards made under the DSP are subject to rolled-up dividends whereby the number of shares awarded will be increased on the vesting date to reflect dividends paid to shareholders during the deferred period.

A reconciliation of award movements over the year to 31 December 2012 is shown below:

	2012		2011
	Number of shares '000	Weighted average share price at date of exercise	Number of shares '000	Weighted average share price at date of exercise
Outstanding at 1 January	5,781	–	5,164	–
Granted	664	–	1,593	–
Forfeited	(111)	–	(116)	–
Exercised	(786)	359.6p	(860)	358.0p
Outstanding at 31 December	5,548	–	5,781	–
Exercisable at 31 December	–	–	–	–

The weighted average exercise price for awards granted under this scheme is £nil (2011: £nil). No awards were exercisable under this scheme as at 31 December 2012 (31 December 2011: nil).

The weighted average remaining contractual life of share options outstanding at 31 December 2012 is 1.6 years (2011: 2.3 years).

26(e). Performance Share Plan

The following awards of deferred shares, without exercise price, have been granted under the Performance Share Plan (the PSP) and were outstanding at 31 December 2012:

Date of award	Vesting date		2012 Number of shares '000	2011 Number of shares '000
27 May 2011	27 May 2014		552	552
17 April 2012	17 April 2015	Approved	34	–
17 April 2012	17 April 2015	Unapproved	621	–
			1,207	552

As at 31 December 2012, 9 individuals (2011: 9) held outstanding awards under the PSP. Awards made under the PSP are subject to rolled-up dividends whereby the number of shares awarded will be increased on the vesting date to reflect dividends paid to shareholders during the deferred period.

A reconciliation of award movements over the year to 31 December 2012 is shown below:

		2012	2011
	Number of shares '000	Weighted average share price at date of exercise	Number of shares '000	Weighted average share price at date of exercise
Outstanding at 1 January	552	–	–	–
Granted	655	–	552	–
Outstanding at 31 December	1,207	–	552	–
Exercisable at 31 December	–	–	–	–

The weighted average remaining contractual life of share options outstanding at 31 December 2012 is 1.9 years (2011: 2.4).

Notes to the financial statements Year ended 31 December 2012 continued

26(f). Fair value of options

Options and awards for the Sharesave Scheme, PSP and ESOS were valued at fair value using the Actuarial Binomial model of actuaries Lane Clark & Peacock LLP.

The key assumptions used in the calculation are as follows:

Risk free rate	0.5% p.a. – 4.9% p.a. depending on grant date and expected life
Volatility	29% p.a. – 51% p.a. depending on grant date
Correlation	46% – 57% correlation for company share price against comparator index at grant date (PSP only)
Employee turnover	Zero for ESOS and PSP, 2.5% p.a. for Sharesave
Early exercise	50% of employees exercise early when options and awards are 20% in the money (ESOS and SAYE)
Performance criteria	All vest after three years (only relevant for ESOS)

The expected volatility is measured over the three years prior to the date of grant to match the vesting period of the award. The risk free rate is the yield on a zero coupon UK Government bond at each grant date, with term based on the expected life of the option or award.

Fair value of options and awards at grant dates are:

Grant	Grant date	Fair value pence
DSBP 2007	19 March 2007	656.0
DSBP 2008	17 March 2008	328.3
DSBP 2009	17 April 2009	288.9
DSBP 2010	17 April 2010	340.2
DSBP 2011	30 March 2011	363.2
DSBP 2012	19 April 2012	350.6
Sharesave 2009	29 October 2009	129.9
DSP 2007	19 March 2007	656.0
DSP 2007	17 September 2007	408.8
DSP 2008	17 March 2008	328.3
DSP 2009	17 April 2009	288.9
DSP 2009	10 September 2009	351.9
DSP 2010	17 April 2010	340.2
DSP 2010	8 September 2010	317.0
DSP 2011	30 March 2011	363.2
DSP 2011	27 September 2011	300.0
DSP 2012	19 April 2012	350.6
DSP 2012	13 September 2012	411.6
ESOS 2005	14 March 2005	102.8
ESOS 2009	17 April 2009	136.8
ESOS 2010	17 April 2010	150.3
PSP 2011	27 May 2011	313.0
PSP 2012	17 April 2012	244.3

The total charge for the year relating to employee share-based payments plans was £10.4m (2011: £11.3m), all of which related to equitysettled share-based payment transactions.

27. Retained earnings and other reserves

Group	Share-based payments reserve £m	Treasury shares £m	Profit and loss account* £m	Total retained earnings* £m	Capital redemption reserve £m	Foreign exchange reserves £m	Revaluation reserves £m	Total other reserves £m
Balance at 1 January 2012	24.1	(30.1)	99.4	93.4	0.3	23.8	(0.5)	23.6
Profit attributable to owners of the Company	–	–	38.5	38.5	–	–	–	–
Other comprehensive income	–	–	1.5	1.5	–	(3.6)	0.8	(2.8)
Employee share option scheme:
– Value of services provided	10.4	–	–	10.4	–	–	–	–
– Exercise of options	(9.3)	8.1	1.2	–	–	–	–	–
Purchase of treasury shares	–	(1.6)	–	(1.6)	–	–	–	–
Dividends	–	–	(16.9)	(16.9)	–	–	–	–
Transactions with non-controlling interests	–	–	(4.2)	(4.2)	–	–	–	–
Balance at 31 December 2012	25.2	(23.6)	119.5	121.1	0.3	20.2	0.3	20.8
Balance at 1 January 2011	23.4	(30.3)	105.8	98.9	0.3	23.7	0.2	24.2
Profit attributable to owners of the Company	–	–	26.5	26.5	–	–	–	–
Other comprehensive income	–	–	(15.5)	(15.5)	–	0.1	(0.7)	(0.6)
Employee share option scheme:
– Value of services provided	11.3	–	–	11.3	–	–	–	–
– Exercise of options	(10.6)	10.3	0.3	–	–	–	–	–
Purchase of treasury shares	–	(10.1)	–	(10.1)	–	–	–	–
Dividends	–	–	(16.3)	(16.3)	–	–	–	–
Transactions with non-controlling interests	–	–	(1.4)	(1.4)	–	–	–	–
Balance at 31 December 2011	24.1	(30.1)	99.4	93.4	0.3	23.8	(0.5)	23.6

* Included within Profit and loss account is tax on items taken directly to equity (Note 11) as disclosed above.

28. Contingent liabilities

In common with comparable professional services businesses, the Group is involved in a number of disputes in the ordinary course of business. Provision is made in the financial statements for all claims where costs are likely to be incurred and represents the cost of defending and concluding claims. The Group carries professional indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.

29. Operating lease commitments – minimum lease payments

	Property leases		Other leases		Total
Group	2012 £m	2011 £m	2012 £m	2011 £m	2012 £m	2011 £m
Future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within 1 year	18.4	19.9	3.4	3.0	21.8	22.9
Between 1 to 5 years	64.7	67.1	3.1	3.6	67.8	70.7
After 5 years	143.9	98.0	–	–	143.9	98.0
	227.0	185.0	6.5	6.6	233.5	191.6

Notes to the financial statements Year ended 31 December 2012 continued

Operating lease commitments payable by the Company at 31 December 2012 (2011: £89.5m) are shown below.

	Property leases		Other leases		Total
Company	2012 £m	2011 £m	2012 £m	2011 £m	2012 £m	2011 £m
Future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within 1 year	–	–	–	–	–	–
Between 1 to 5 years	16.8	10.1	–	–	16.8	10.1
After 5 years	121.1	79.4	–	–	121.1	79.4
	137.9	89.5	–	–	137.9	89.5

During the year, the Group entered into a 20 year lease for an office building in London from December 2012. The Group will relocate from its two existing premises in London's West End.

Significant operating leases relate to the various property leases for Savills offices in the United Kingdom, Europe and Asia Pacific. There are no significant non-cancellable subleases.

30. Capital commitments

	Group	Company
	2012 £m	2011 £m	2012 £m	2011 £m
Contracts placed for future expenditure not provided for in the financial statements	7.1	–	7.1	–

Capital commitments of £7.1m (2011: £nil) reflect contracts placed for the fit out of the Group's new head office at 33 Margaret Street, London.

31. Cash generated from/(used in) operations

	Group		Company
	2012 £m	2011 £m	2012 £m	2011 £m
Profit/(loss) for the year	38.8	26.8	(0.7)	46.5
Adjustments for:
Income tax (Note 11)	15.4	13.2	(2.8)	(1.2)
Depreciation (Note 15)	7.2	7.1	0.8	0.7
Amortisation of intangible assets (Note 14)	3.7	3.7	0.5	0.5
Loss on sale of property, plant and equipment	0.1	0.3	–	–
Impairment of goodwill (Note 14)	–	5.4	–	–
Profit on disposal of subsidiaries, joint venture and available-for-sale investment (Note 6(a) & (b))	(1.7)	(2.3)	–	–
Net finance income (Note 10)	(0.3)	(0.1)	(1.6)	(1.9)
Share of post-tax profit from associates and joint ventures (Note 16(a))	(7.1)	(4.0)	–	–
Decrease in employee and retirement obligations	(7.2)	(3.5)	–	(0.4)
Exchange movement on operating activities	(0.1)	(0.2)	0.2	(0.2)
Increase/(decrease) in provisions	5.1	4.2	–	(0.1)
Credit for defined benefit pension scheme (Note 9)	(0.8)	(1.0)	(0.3)	(0.1)
Impairment of associated undertaking and available-for-sale investment
included within operating income	1.2	2.0	–	–
Charge for share-based compensation (Note 26(f))	10.4	11.3	2.1	0.9
Exercise of share options	–	–	(8.0)	(10.1)
Operating cash flows before movements in working capital	64.7	62.9	(9.8)	34.6
Decrease/(increase) in work in progress	1.2	(0.6)	–	–
(Increase)/decrease in trade and other receivables	(31.3)	(9.5)	1.5	(4.5)
Increase/(decrease) in trade and other payables	36.9	(5.7)	4.5	(0.6)
Cash generated from/(used in) operations	71.5	47.1	(3.8)	29.5

32. Analysis of cash net of debt

2012	At 1 January £m	Cash flows £m	Exchange movement £m	At 31 December £m
Cash and cash equivalents	80.0	14.4	(1.6)	92.8
Bank overdrafts	(1.2)	1.0	0.1	(0.1)
	78.8	15.4	(1.5)	92.7
Bank loans	(5.0)	3.8	0.2	(1.0)
Finance Leases	(0.2)	0.1	–	(0.1)
Cash and cash equivalents net of debt	73.6	19.3	(1.3)	91.6

2011	At 1 January £m	Cash flows £m	Exchange movement £m	At 31 December £m
Cash and cash equivalents	97.2	(17.5)	0.3	80.0
Bank overdrafts	(0.7)	(0.5)	–	(1.2)
	96.5	(18.0)	0.3	78.8
Bank loans	(9.0)	3.9	0.1	(5.0)
Loan notes	(0.4)	0.4	–	–
Finance Leases	(0.2)	–	–	(0.2)
Cash and cash equivalents net of debt	86.9	(13.7)	0.4	73.6

33. Related party transactions

There were no significant related party transactions during the year. All related party transactions take place on an arm's length basis.

Loans to related parties

Loans to associates and joint ventures are disclosed in Note 16(a).

Company transactions

The Company provided corporate function services to its subsidiaries at an arm's-length value of £12.5m (2011: £11.6m).

No dividends were received from subsidiaries during the year (2011: £40.0m). Amounts outstanding to and from subsidiaries as at 31 December 2012 are disclosed in Notes 18, 20 and 21.

Shareholder information

Key dates for 2013

Annual General Meeting 8 May Financial half year end 30 June Announcement of half year results August

Website

Visit our investor relations website www.savills.com for full up to date investor relations information, including the latest share price, recent annual and half year reports, results presentations and financial news.

Shareholder enquiries

For shareholder enquiries please contact our Registrars, Equiniti. For general enquiries please call our Shareholder Services helpline on: 0871 384 2018 (overseas holders need to ring +44 (0)121 415 7047). Calls to Equiniti's 0871 numbers are charged at 8p per minute plus network extras. Other telephony service providers costs may vary. Lines are open from 8.30am to 5.30pm, Monday to Friday, excluding bank holidays. For further administrative queries in respect of your shareholding please access our Registrars' website at www.shareview.co.uk

Electronic communications

If you would prefer to receive shareholder communications electronically in future, including your annual and half-yearly reports and notices of meetings, please visit our Registrars' website, www.shareview.co.uk and follow the link to 'Sign up for paper-free communications'.

Half Year Report

Like many other listed public companies, we no longer circulate printed Half Year reports to shareholders. Rather, Half Year results' statements are published on the Company's website. We believe that this is of benefit to those shareholders who do not wish to be burdened with such paper documents, and to the Company, as it is consistent with our target of saving printing and distribution costs.

Cautionary note regarding forward-looking statements

Certain statements included in this Annual Report are forwardlooking and are therefore subject to risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied because they relate to future events. These forward-looking statements include, but are not limited to, statements relating to the Company's expectations. Forward-looking statements can be identified by the use of relevant terminology including the words: 'believes', 'estimates', 'anticipates', 'expects', 'intends', 'plans', 'goal', 'target', 'aim', 'may', 'will', 'would', 'could' or 'should' or, in each case, their negative or other variations or comparable terminology and include all matters that are not historical facts. They appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the businesses we operate.

Professional advisers and service providers

Solicitors

CMS Cameron McKenna LLP Mitre House 160 Aldersgate Street London EC1A 4DD

Registrars

Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA

Auditors

PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH

Joint Stockbrokers

UBS Investment Bank 1 Finsbury Avenue London EC2M 2PP

Numis Securities Ltd The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT

Principal Bankers

Barclays Bank Plc 1 Churchill Place London E14 5HP

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements include, but are not limited to:

• − Global economic business conditions;
• − Monetary and interest rate policies;
• − Foreign currency exchange rates;
• − Equity and property prices;
• − The impact of competition, inflation;
• − Changes to regulations, taxes;
• − Changes to consumer saving and spending habits; and
• − Our success in managing the above factors.

Consequently, our actual future financial condition, performance and results could differ materially from the plans, goals and expectations set out in our forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Date

This report is printed on Claro silk, which is 100% ECF (Elemental Chlorine Free) pulp and is 100% recyclable and sourced from carefully managed and renewed commercial forests, certified in accordance with the FSC (Forest Stewardship Council). The mill is ISO 14001 certified. Our printers are fully accredited to the ISO 14001 environmental management system. They utilise vegetable based inks and operate a direct computer to plate repro system, eliminating the need for film with its chemicals such as developer and acid fixers.

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Savills plc Savills plc

20 Grosvenor Hill Berkeley Square London W1K 3HQ T: +44 (0)20 7499 8644 F: +44 (0)20 7495 3773 20 Grosvenor Hill Berkeley Square London W1K 3HQ T: +44 (0)20 7499 8644 F: +44 (0)20 7495 3773

Registered in England No. 2122174 Registered in England No. 2122174