Final Results

RNS Number : 8087S

Savills PLC

14 March 2019

 

14 March 2019  

Savills plc

('Savills' or 'the Group')

PRELIMINARY RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2018

Savills plc, the international real estate advisor, today announces growth in both revenue and underlying profits in 2018.

Key financial highlights

-   Group revenue up 10% to £1.76bn (2017: £1.6bn)

-   Underlying profit* up 2% to £143.7m (2017: £140.5m)

-   Statutory profit before tax decreased 3% to £109.4m (2017: £112.4m)

-   Underlying basic earnings per share ('EPS') grew 3% to 77.8p (2017: 75.8p)

-   Statutory basic EPS decreased 4% to 56.2p (2017: 58.8p)

-   Final ordinary and supplementary interim dividends total 26.4p per share (2017: 25.55p) taking the total dividend for the year up 3% to 31.2p per share (2017: 30.2p)

* Underlying profit before tax ('underlying profit') is calculated on a consistently reported basis in accordance with Note 4 to this Preliminary Statement.

Key operating highlights

The diversity of the Group, both geographically and in our service offering, and the integration of recent acquisitions delivered growth in both revenue and underlying profits in 2018.

·      Transaction Advisory revenues up 9%. Further growth from our less-transactional services with Property and Facilities Management revenue up 14% and Consultancy revenue up 8%.

·      Strong growth from Europe & the Middle East, both organic and through the integration of Aguirre Newman in Spain and the acquisition of Cluttons Middle East in May 2018.

·      North America delivered significant growth in the occupier-focused business with revenue up 18% and underlying profit up 64%.

·      Savills Investment Management successfully mitigated the expected significant decline in activity relating to disposals from liquidating the SEB Open-Ended Funds, raising £2.4bn in new funds, with AUM up 12% to £16.4bn.

Commenting on the results, Mark Ridley, Group Chief Executive, said:

"Savills delivered both revenue and underlying profit growth in 2018, driven by a robust second half of the year. In addition to maintaining or growing our share of transactional markets, the performance of our less transactional business lines was key to this performance.

We have made a solid start to 2019; however, the year ahead is overshadowed by macro-economic and political uncertainties across the world. It is difficult accurately to predict the impact of these issues on corporate expansionary activity and investor demand for real estate. At this stage, we expect to see declines in transaction volumes in a number of markets and growth in our less transactional business lines; accordingly we retain our expectations for the Group's performance in 2019."

For further information, contact:

Savills	020 7409 8934
Mark Ridley, Group Chief Executive
Simon Shaw, Group Chief Financial Officer
Tulchan Communications	020 7353 4200
David Allchurch, Lizzie Snow

There will be an analyst presentation today at 9.30am at Savills, 15 Finsbury Circus, London, EC2M 7EB. A recording of the presentation will be available from noon at www.ir.savills.com.

Chairman's statement

Savills delivered a resilient performance in the face of some challenging market conditions, reflecting our geographic diversity, breadth of operations and recent business investment activity.

Results

The Group's revenue improved by 10% to £1.76bn (2017: £1.6bn) and underlying profit for the year increased by 2% to £143.7m (2017: £140.5m). The Group's statutory profit before tax decreased by 3% to £109.4m (2017: £112.4m).

Overview

As a result of a robust second half of the year, Savills delivered both revenue and underlying profit growth in 2018. In addition to maintaining or growing our share of transactional markets, the performance of our less transactional business lines was key to this performance. This was achieved against a backdrop of heightened uncertainty as Brexit, US trade policy and higher long term treasury yields, particularly in the benchmark US 10 year Treasury Bond, began to have a discernible impact on investor sentiment in a number of our key markets. Currency movements had a negative impact on the Group, decreasing revenue by £20.7m, underlying profit by £1.3m and statutory profit before tax by £0.5m.

Our Transaction Advisory revenue grew by 9%, our Consultancy business revenue by 8% and our Property Management revenue by 14%. The UK delivered a resilient performance in the Commercial Transaction businesses in an environment of relatively robust occupier demand and continued strong investment interest, particularly from the Asia Pacific region, albeit in a softer market in terms of volume traded compared with 2017. Our Residential business continued to perform well in challenging conditions. Our Asia Pacific and Europe & Middle Eastern transactional businesses performed as anticipated, with particularly strong results from Hong Kong, Singapore, South Korea, Ireland and Germany. In addition we benefited from an encouraging maiden year performance from Savills Aguirre Newman in Spain. In the US, we delivered significant growth in the Occupier Service business (including tenant representation brokerage). This led to an improved US performance overall for the year, even after the continued costs of investment in the business, including significant investment in our central office platform and the net costs of the capital markets team in New York. Finally, Savills Investment Management successfully mitigated the expected significant decline in activity relating to disposals from liquidating the SEB German Open-Ended Funds. The business launched a number of new products, raising significant new capital, increasing its Assets Under Management ('AUM') to £16.4bn (2017: £14.6bn) and achieving a result in line with our expectations for the year.

The reduction in transaction fees in the Investment Management business and growth in our lower margin but stable Property Management business, together with our investment activities in a number of markets restricted the underlying profit margin to 8.2% (2017: 8.8%).

In addition to the aforementioned factors impacting the underlying profit margin, higher acquisition-related charges, lower profits on disposal of investments and a one-off charge in relation to the impact of equalising Guaranteed Minimum Pension ('GMP') on the UK defined benefit pension plan also affected the statutory pre-tax profit margin during the year, which declined to 6.2% (2017: 7.0%).

Business development

Savills strategy is to be a leading advisor in the key markets in which we operate. Our global strategy is delivered locally by our experts on the ground with flexibility to adapt quickly to changes in circumstances and opportunities. They are supported by our regional and cross-border investment and occupier services specialists. Over the last few years we have acquired a number of complementary businesses and added teams and individual hires to our strong core business.

In May 2018, we expanded our platform into a new region through the acquisition of Cluttons Middle East, which is being integrated in to the Europe & Middle East business. In addition, the integration of Aguirre Newman in Spain, acquired in December 2017, continues to proceed as planned alongside the continued investment in our new business in the Czech Republic, which now provides a full service offering to commercial clients.

In the UK, we acquired Broadgate Estates' third party property management portfolio from British Land and made a number of incremental acquisitions to complement our existing UK business. These acquisitions included a property agency in Guernsey creating Savills first residential presence in this region (Martel Maides), a property services company in East London (Currell), and a planning and development consultancy business based in London (Porta Planning).

In Asia Pacific, we made some significant hires into our valuation teams in Thailand and Singapore. We continued to expand throughout Australia and in China, where we opened 3 new offices and recruited circa 50 professionals to facilitate our continued long term expansion in this market. During the year we commenced a long term commitment to the start-up of Savills India, which opened for business in October with offices in Delhi, Mumbai and Bangalore focusing on project management, commercial leasing, occupier services, capital markets brokerage and valuation services.

In North America, we continued to expand our occupier-focused business lines through both recruitment and investment in technology.

Finally, the Savills Investment Management business acquired a 25% interest in DRC Capital LLP ('DRC'), a leading European manager of real estate debt funds, with the option to purchase the remaining 75% of DRC in 2021; this transaction provided an exciting opportunity to add real estate debt to our portfolio of real estate investment products.

Emerging technology continues to be a focal area in the real estate industry and also for our business. We have continued to invest in our own technology platform in order both to deliver innovative solutions to our clients through data analysis and insight and to drive internal efficiencies. Examples of this include our award winning Knowledge Cubed platform, deployed to our occupier services clients across all regions which has been recognised for its innovation by both the Financial Times and CoreNet (the occupier Services industry body in the US). We continued the roll out of Workthere.com, our advisory service to corporates seeking flexible office or co-working space. With New York going live in January 2019, we have now launched Workthere in eight countries and seen significant uptake from both tenants and the serviced office providers.  

In addition, we continue to review and support a number of investment opportunities in the field of emerging technology and our proprietary investment arm, Grosvenor Hill Ventures ('GHV'), has made further investments in these promising technology opportunities during the year. Our largest investment to date is in YOPA, the digital hybrid residential UK estate agent, which has grown to become the 6^th largest UK estate agent. During the year GHV made a small additional investment in YOPA to support this growth and also in VuCity, which is a digital city modelling platform, initially focused on optimising development and planning applications for developers, architects, planners and Local Authorities.

Board

Jeremy Helsby retired as Group Chief Executive at the end of 2018 after a 39 year career at Savills, 11 of them as Group Chief Executive. Under Jeremy's leadership Savills has become a leading global real estate advisor and successfully both internationalised and diversified the business. On behalf of the Group as a whole, I thank Jeremy for all that he has done for Savills over many years and we are delighted that he continues to consult for us in respect of the development of the US business in 2019.

Mark Ridley succeeded Jeremy as Chief Executive on 1 January 2019, having joined the Board as Deputy Group Chief Executive in May 2018. Mark has been with Savills for 22 years, latterly in the role of CEO UK, Europe and the Middle East. The Board and I very much look forward to working with him through the next phase of the development of the Savills business worldwide.

The Board announced in September 2018 that Charles McVeigh, who has served on the Board since 2000, will retire at the conclusion on the Company's AGM in May 2019. I thank him for his enormous contribution to the Board over so many years. Liz Hewitt, who has been on the Board since 2014, will also retire at the conclusion of the Company's AGM in May 2019. I would like to thank Liz for her contribution to the Group and, in particular, in Chairing the Audit Committee.

During the year, we reviewed the composition of the Board. Following this review, Stacey Cartwright and Florence Tondu-Mélique were appointed as additional independent Non-Executive Directors in October 2018. Stacey Cartwright will succeed Liz Hewitt as Chairman of the Audit Committee at the conclusion of the 2019 AGM.

Dividends

An initial interim dividend of 4.8p per share (2017: 4.65p) amounting to £6.6m was paid on 3 October 2018, and a final ordinary dividend of 10.8p (2017: 10.45p) is recommended, making the ordinary dividend 15.6p for the year (2017: 15.1p). In addition, a supplemental interim dividend of 15.6p (2017: 15.1p) is declared, based upon the underlying performance of our Transaction Advisory business. Taken together, the ordinary and supplemental interim dividends comprise an aggregate distribution for the year of 31.2p per share, representing an increase of 3% on the 2017 aggregate dividend of 30.2p. The final ordinary dividend of 10.8p per ordinary share will, subject to shareholders' approval at the AGM on 8 May 2019, be paid alongside the supplemental interim dividend of 15.6p per share on 13 May 2019 to shareholders on the register at 12 April 2019.

People

I would like to express my thanks to all our staff worldwide for their hard work, commitment and continued focus on client service, which enable the Group to deliver these results.

Outlook

We have made a solid start to 2019 however, the year ahead is overshadowed by macro-economic and political uncertainties across the world. It is difficult accurately to predict the impact of these issues on corporate expansionary activity and investor demand for real estate. At this stage, we expect to see declines in transaction volumes in a number of markets and growth in our less transactional business lines; accordingly we retain our expectations for the Group's performance in 2019.

Nicholas Ferguson CBE

Chairman

Review of operations

Savills geographic and business diversity were key to achieving the year's result. Continued growth in our less transactional businesses and strong market shares in many of our most important transactional markets contributed to a robust performance for the Group in 2018.

Our performance analysed by region was as follows:

	Revenue £m			Underlying profit/(loss) £m
	2018	2017	% growth	2018	2017	% growth
UK	662.4	626.0	6	76.8	76.5	-
Asia Pacific	587.5	565.7	4	54.9	55.6	(1)
Europe & the Middle East	247.0	182.4	35	12.9	11.2	15
North America	264.5	224.8	18	12.8	7.8	64
Unallocated	-	1.1	n/a	(13.7)	(10.6)	n/a
Total	1,761.4	1,600.0	10	143.7	140.5	2

On a constant currency* basis Group revenue grew by 11% to £1,782.1m, underlying profit grew by 3% to £145.0m and statutory profit before tax declined by 3% to £108.9m. Our Asia Pacific business represented 33% of Group revenue (2017: 35%) and our overseas businesses as a whole represented 62% of Group revenue (2017: 61%). Our performance by service line is set out below:

	Revenue £m			Underlying profit/(loss) £m
	2018	2017	% growth	2018	2017	% growth
Transaction Advisory	813.5	746.2	9	81.1	81.5	-
Property and Facilities Management	586.8	513.1	14	32.2	25.3	27
Consultancy	294.4	273.1	8	33.1	31.0	7
Investment Management	66.7	66.5	-	11.0	13.3	(17)
Unallocated	-	1.1	n/a	(13.7)	(10.6)	n/a
Total	1,761.4	1,600.0	10	143.7	140.5	2

Overall, our Commercial and Residential Transaction Advisory business revenues together represented 46% of Group revenue (2017: 47%). Of this, the Residential Transaction Advisory business represented 10% of Group revenue (2017: 11%). Our Property and Facilities Management businesses continued to perform well, growing overall revenue by 14% and represented 33% of Group revenue (2017: 32%). Our Consultancy businesses represented 17% of revenue (2017: 17%) where improved performances within the UK were bolstered by recent acquisitions in the Europe & Middle East business. Revenues were level in the Investment Management business, reflecting the anticipated decline in activity relating to disposals from the liquidating SEB German Open Ended funds, which was mitigated by the effect of new capital raised and invested during the period. Investment Management revenue represented 4% of Group revenue in the year (2017: 4%).

Transaction Advisory

Overall, our Transaction Advisory revenues grew 9% (11% in constant currency) to £813.5m (2017: £746.2m), this was achieved against a backdrop of heightened uncertainty in a number of our key markets and demonstrated both the importance of having a breadth of transactional business around the world, and our strong market position in many real estate transactional markets and sectors.

Excluding the benefit of recent acquisition activity in the Europe & Middle East business, organic revenue growth year-on-year in the business was 6%. Of particular note was the very strong performance of our team in the US with significant growth in the Occupier Service business (including tenant representation brokerage). 

Underlying profits however were down marginally at £81.1m (2017: £81.5m), with a reduced underlying profit margin of 10% (2017: 10.9%), impacted by both the mix of activity across the globe and ongoing business development costs throughout Europe and the US. 

Asia Pacific Commercial

Revenue of the Asia Pacific Commercial Transaction business decreased by 5% to £160.1m (2017: £168.4m), a 2% decrease in constant currency. In a year when many markets saw a reduction in the volume of real estate traded, Savills Asia Pacific showed the strength of its market position, advising on six of the ten largest intermediated transactions in the region (source: Real Capital Analytics).There was strong revenue growth in Hong Kong (up 21%) and South Korea (up 70%); however this was offset by reduced revenue in Japan, Australia and Mainland China. In Japan, there was a significant slowdown in investment activity alongside reduced leasing revenues. In Australia, capital market revenues declined as a result of a slowdown in the second half of the year with fewer Asian buyers and tighter lending controls, which led to lower volumes and longer transactional timescales. In Mainland China, investment volumes were down as the government tightened restrictions on land usage, particularly in respect of city-centre redevelopment.

The impact of the geographical mix of revenues alongside investment costs in new offices and teams in Mainland China and Japan, is reflected in a 21% decrease in underlying profit to £21.2m (2017: £26.9m). This represented a 19% decrease in constant currency.

UK Commercial

Revenue from UK commercial transactions decreased 3% to £98.4m (2017: £101.6m). This reflected a significant improvement during the second half of the year.

Most commercial leasing and investment sub-markets continued to perform better than anticipated in 2018, as both occupiers and investors continued to transact, the latter supported by the relative value obtainable in the UK compared with a number of European real estate markets. The weakest commercial property sector in 2018 was the retail sector, where a combination of structural and Brexit-related impacts continued to affect retailer performance and investor confidence. Sharp falls in investment turnover in the retail sector contributed to a 5% year-on-year fall in commercial property investment activity across the UK last year, with the overall volume falling to £62bn. Non-domestic investors remained important to the UK commercial property market in 2018, accounting for 43% of all of the purchases of commercial property investments last year, and 73% of London office investments. In both cases this proportion was slightly down from its peak as domestic investors were more acquisitive in 2018 than they had been since the Brexit referendum.

Generally, investors remained heavily biased towards asset classes that offer comparative income security, and this meant that offices, logistics and alternative asset classes remained the most popular segments of the market in 2018.

Similar sectoral trends were prevalent in the occupational markets, with office leasing activity in central London 1% up year-on-year and 25% up in the wider South East market. Take-up in the national logistics market was up 45% year-on year, reaching 34.1m sq. ft. in 2018. Several regions including Yorkshire & Humberside, the North West, the East Midlands and the South East saw a record level of logistics leasing activity last year.

The retail sector remains highly polarised, with strong markets such as central London continuing to out-perform the rest. Indeed, 2018 saw a 66% increase in the number of new openings by international retailers/brands in London.

Overall this reduced market activity led to a 9% decrease in underlying profit to £15.7m (2017: £17.2m), with underlying profit margin falling slightly to 16% (2017: 16.9%).

North America

During the year, we delivered significant growth in the US Occupier Service business (including tenant representation brokerage). Our North American revenue grew by 18% to £264.5m (2017: £224.8m). In constant currency this equated to a year-on-year increase of 21%. Savills Studley transaction volume was 11% higher than the previous year, alongside an increase in larger more complex transactions, for which this business is noted. The pipeline for activity in 2019 is robust.

Strong performances were evident throughout the majority of cities and regions in the business, in particular Washington DC, Southern California, New York, Atlanta and Denver. The investment in the Capital Markets team in New York in 2017 began to deliver fee income with a stronger pipeline for the coming year, however the ongoing cost of investment in this team continued adversely to affect underlying profits.

North American underlying profit increased by 64% to £12.9m (2017: £7.8m), a 69% increase in constant currency. With underlying profit margin improving to 4.8% (2017: 3.5%), even after the continued costs of investment in the business including significant investment in management and in our central office platform.

Europe & the Middle East

In Europe & the Middle East Commercial Transaction fee income grew by 45% (43% in constant currency) to £113.1m (2017: £78.2m). The December 2017 acquisition of Aguirre Newman in Spain, alongside the Cluttons Middle East acquisition in May 2018, contributed significantly to this performance. On an organic basis, revenue grew by 20%, with particularly strong results from investment teams in Ireland and Germany alongside significant contributions from Belgium, Sweden and the Czech Republic.

The significant revenue growth delivered underlying profit of £5.4m (2017: £4.5m) for the Europe & Middle Eastern transactional business and an underlying profit margin of 4.8% (2017: 5.8%). Underlying profit margins continue to be affected by ongoing investment in the business, including in Sweden, where a new, class-leading investment team was recruited, the Netherlands, where an office was opened in Utrecht, and Poland, where further investment was made in our Logistics capabilities to cover both investment and leasing.

UK Residential

Our UK Residential business continued to perform well, growing market share in challenging conditions. This was reflected in revenue growth of 2% to £131.5m (2017: £128.9m).

In the second-hand estate agency business, our exchanges were up 1%, offsetting a 2% fall in average sales value. Our Prime Central London residential business performed well with, the number of properties exchanged growing by 4% despite average values transacted declining by 4%. Of particular note was the substantial increase in transactions with capital values in excess of £15m, which increased by 43% year-on-year.

Outside the capital, which represents 54% of Savills second hand agency residential revenue, the number of exchanges and capital values transacted were both flat year-on-year, with strong performances in the North, Scotland and the Cotswolds offset by weaker markets elsewhere.

In the new homes business, revenue was consistent with 2017, which represented a robust performance in the prevailing market conditions. Average transaction values and the number of exchanges in 2018 both increased by 2%.

The Residential Capital Markets business had a strong year, supported by continued investor interest in the Private Rented Sector (PRS), growing revenue and profits by 15% and 22% respectively.

Overall, the UK Residential Transaction Advisory business showed resilience in challenging markets recording a 6% decrease in underlying profits to £17.6m (2017: £18.7m), with underlying profit margin down to 13.4% (2017: 14.5%).

Asia Pacific Residential

The Residential Transaction Advisory business in Asia is focused primarily on new development, secondary sales and leasing of prime properties in selected markets. It excludes mixed use developments, which are accounted for within the Commercial Transaction Advisory business. Overall, the Asia Pacific Residential business increased revenues by 4% to £45.9m (2017: £44.3m) which represented a 6% increase in constant currency. This was principally driven by a large residential project in Hong Kong and good performances in Mainland China, Thailand and Vietnam. These were partially offset by lower revenues in Australia, Singapore and Taipei. These performances reflect a slowing down in the Australian residential property market, which was exacerbated by government restrictions over foreign ownership of assets, government cooling measures in Taipei and the introduction of a new stamp duty on residential properties in Singapore, which was imposed in Q3 2018.

The net effect of all these factors, alongside an improved profit share from our Singaporean associate Huttons, resulted in a 30% increase in underlying profit to £8.3m (2017: £6.4m), 31% in constant currency.

Property and Facilities Management

Our Property and Facilities Management businesses continued to perform well, growing revenue by 14% (16% in constant currency) to £586.6m (2017: £513.1m). Savills total area under management increased by 4% to 2.03bn sq. ft. (2017: 1.95bn sq. ft.), driven by the Cluttons Middle East acquisition and the UK 'Broadgate Estates' contracts acquired during the year alongside organic growth. Underlying profit increased by 27% to £32.2m (2017: £25.3m), 29% in constant currency.

Asia Pacific

The Asia Pacific region grew revenue by 9% (12% in constant currency) to £327.0m (2017: £300.9m). The Property and Facilities Management business is a significant strength in the region, representing 56% of Savills Asia Pacific revenue and complementing our Transaction Advisory businesses. The total square footage under management in the region was up 2% to approximately 1.51bn sq. ft. (2017: approximately 1.49bn sq. ft.), The Asia Pacific result was driven by improved performances across the region including significant contract wins in Hong Kong / Macau (e.g. Macau Zhuhai Bridge), Mainland China (e.g. Guangzhou Airport) and Vietnam (e.g. Sunview Town). In Australia, profits improved on lower revenues through the termination of certain historical loss-making contracts.  Overall the business grew revenue by 12% in local currency and the underlying profit of the Asia Pacific Property Management business grew 25% (27% in constant currency) to £19.2m (2017: £15.4m).

UK

Our UK Property Management teams, comprising Commercial, Residential and Rural, grew revenue by 15% to £190.9m (2017: £165.8m). This includes the impact of the Broadgate Estates' third party property management portfolio acquired from British Land during the year, contributing £6.0m of revenue growth. This acquisition brought Savills an acknowledged leader in the "High Rise" sector focused on trophy office buildings. Organic growth was 11%, reflecting a 9% increase in area under management in the UK to approximately 384m sq. ft. (2017: 353m sq. ft.). Underlying profit for the UK Property Management business grew 11% to £13.0m (2017: £11.7m). Underlying profit margin decreased to 6.8% (2017: 7.1%), reflecting the impact of investment in the platform. 

Europe & the Middle East

In Europe & the Middle East revenue grew by 48% (48% in constant currency) to £68.9m (2017: £46.4m), with recent acquisition activity contributing to this significant growth (full year impact of Aguirre Newman and Larry Smith and the acquisition of Cluttons Middle East in May 2018). Organic revenue growth in this business was 6%, reflecting a full year of the new team in the Czech Republic and stronger performances in Sweden and France. By the year end the total area under management had increased by 73% to 131.9m sq. ft. (2017: 106.9m sq. ft.), with Cluttons Middle East contributing 18.6m sq ft. The net effect of these factors resulted in a break-even position for the business (2017: loss £1.8m).

Consultancy

Global Consultancy revenue increased by 8% to £294.4m (2017: £273.1m) and underlying profit grew by 7% to £33.1m (2017: £31.0m). Currency movements had a negligible impact on results in the Consultancy business.

UK

Consultancy service revenue in the UK was up 5% at £215.9m (2017: £204.9m), reflecting strong performances in the planning, development, building consultancy and housing teams. In the Planning business, the effect of recent team recruitment in London, Heritage, Newcastle and the broad education sector contributed significant growth. In addition the National Hotels, Leisure and Trading Consultancy significantly increased revenue and profits during the year. This growth was partially offset by a decline in activities in Rural and Energy Consultancy in challenging pre-Brexit markets. Overall underlying profit from the UK Consultancy business increased by 8% to £25.8m (2017: £23.9m), reflecting revenue growth and some efficiency gains which helped to increase the underlying profit margin of 12% (2017: 11.7%).

Asia Pacific

Revenue in the Asia Pacific Consultancy business decreased by 1% to £45.1m (2017: £45.7m), 2% increase in constant currency. A strong revenue performance in China alongside steady growth in the majority of the region was offset by reduced revenues in Hong Kong, which are primarily valuation related and had benefited from a significant assignment in the previous year. In addition the impact of team recruitment in mainland China, Thailand and Singapore affected underlying profit which decreased by 16% to £4.3m (2017: £5.1m), 14% on constant currency basis.

Europe & the Middle East

Our Europe & Middle Eastern Consultancy business, which principally comprises valuation and underwriting advisory services, increased revenue by 48% (47% in constant currency) to £33.4m (2017: £22.5m). Acquisition activity has contributed significantly to this alongside organic revenue growth of 10%, with strong performances throughout the region, in particular Germany and Spain, the latter growing significantly as a result of the breadth of consultancy services acquired with the 2017 acquisition of Aguirre Newman. Underlying profit increased by 50% to £3.0m (2017: £2.0m), reflecting revenue growth and a consistent underlying profit margin of 9% (2017: 8.9%).

Investment Management

Savills Investment Management successfully navigated the expected decline in activity relating to disposals from the liquidating SEB German Open Ended Funds, with revenue in line with the prior year at £66.7m (2017: £66.5m). The business generated an underlying profit of £11.0m (2017: £13.3m). £2.4bn (2017: £1.9bn) of new capital was raised in the year and transactions of approximately £3.8bn (2017: £4.8bn) were executed on behalf of investors, with acquisitions exceeding disposals (£2.8bn versus £1.0bn) for the first time in three years. These factors, together with strong fund performance and the full integration of Zaphir in Spain (the investment management business acquired through the Savills acquisition of Aguirre Newman at the end of 2017), led to an increase in Assets under Management ('AUM') to £16.4bn (2017: £14.6bn). 

Investment performance continued strongly with the majority of our Fund products continuing to exceed their benchmarks over a five-year term. 

Savills Investment Management also entered the real estate debt market with the acquisition of an initial 25% stake in DRC Capital LLP, a leading European real estate debt investment manager, with an option to buy the remaining 75% in 2021.

Financial review

Underlying profit margin

Underlying profit margin decreased to 8.2% (2017: 8.8%), reflecting business mix, the expected reduction in transaction fees in the Investment Management business and the cost of business development in a number of regions. In terms of business mix, the reduction in activity in some of higher margin commercial transaction markets was mitigated by growth in the lower margin Property Management business globally.

Taxation

The tax charge for the year increased to £32.2m (2017: £31.3m), reflecting an effective tax rate on statutory profit before tax of 29.4% (2017: 27.8%). The increased effective tax rate is primarily due to the effect of higher foreign tax rates. In both years, the Group's effective reported tax rate is higher than the UK effective rate of tax of 19% (2017: 19.25%), reflecting the effect of higher foreign rates of tax and permanently disallowed charges, including non-deductible acquisition costs.

The underlying effective tax rate at 25.7% (2017: 25.8%) remains broadly in line with the prior year.

Restructuring and acquisition-related costs

During the year the Group recognised a total of £29.1m in restructuring and acquisition-related costs (2019: £27.0m). These comprised an aggregate restructuring charge of £8.4m primarily in relation to the integration of Aguirre Newman and Cluttons Middle East (2017: £7.7m) and acquisition-related costs of £20.7m (2017: £21.3m). These costs consist of £3.3m (2017: £2.1m) of transaction related costs and £2.2m in respect of Savills Investment Management's 2014 acquisition of Merchant Capital (2017: £1.4m). In addition, there was a £14.2m (2017: £17.2m) charge for future consideration payments which are subject to a future service condition. The largest component of this charge relates to the 2018 acquisition of Aguirre Newman.

These charges have been excluded from the calculation of underlying profit in line with Group policy.

Earnings per share

Basic earnings per share decreased 4% to 56.2p (2017: 58.8p), reflecting a 5% decrease in statutory profit after tax. Adjusted on a consistent basis for exceptional pension charges, restructuring, acquisition-related costs, impairment charges, profits and losses on disposals, certain share-based payment adjustments and amortisation of acquired intangible assets (excluding software), underlying basic earnings per share increased by 3% to 77.8p (2017: 75.8p).

Fully diluted earnings per share decreased by 5% to 54.6p (2017: 57.5p). The underlying fully diluted earnings per share increased by 2% to 75.6p (2017: 74.1p).

Cash resources, borrowings and liquidity

Gross cash and cash equivalents at year end increased 7% to £223.9m (2017: £208.8m). This primarily reflected the profits made in the period and currency gains on cash balances held in non-sterling currencies, partially off-set by cash out-flows associated with investment activities.

Gross borrowings at year end increased to £150.0m (2017: £110.2m). These principally comprise £150.0m of 7, 10 and 12 year private placement fixed rate notes which were issued in June 2018. The implementation of IFRS 16 ("Leases") will have an impact on the Group Balance Sheet and Income Statement from 2019. An analysis of these impacts is set out in Note 2 to this statement.

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.

The Group's net inflow of cash is typically greater in 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 £112.3m (2017: £111.7m) reflecting the Group's 2% increase in underlying profits. With a large proportion of the Group's revenue being 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 the majority of business development opportunities as they arise. In addition to the £150.0m of private placement fixed rate notes, the Group has a £360.0m multi-currency revolving credit facility ('RCF'), which expires on 15 December 2020, and was undrawn at the year end. 

At the year end, net cash was £73.9m (2017: £98.6m)

Capital and shareholders' interests

During the year 0.2m shares (2017: 0.2m) were issued to participants under the Performance Share Plan and 0.8m (2017: nil) new shares were issued to participants on exercise of options under the UK SAYE Scheme. In the prior year, 1.9m new shares were also issued in the final instalment of deferred consideration for the acquisition of Studley. The total number of ordinary shares in issue at 31 December 2018 was 142.9m (2017: 141.9m).

Savills Pension Scheme

The funding level of the defined benefit Savills Pension Scheme in the UK, which is closed to future service-based accrual, improved during the year primarily as a result of an increase in the yield on AA-rated corporate bonds, reducing the value of the liabilities, together with the Company's contributions made during the year. During the year the Group incurred an additional exceptional charge of £3.1m (2017: £nil) in respect of the equalisation of the Guaranteed Minimum Pension 'GMP' on the UK defined benefit pension plan. This plan was in a surplus position of £2.8m at the year-end (2017: £19.5m liability).

Net assets

Net assets as at 31 December 2018 were £505.0m (2017: £441.7m). This movement reflects the Group's profitable trading performance and the effect of acquisitions, alongside actuarial gains on the UK defined benefit pension plan.  

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. The net impact of foreign exchange rate movements represented a £20.7m decrease in revenue (2017: £48.4m increase) and a decrease of £1.3m in underlying profit (2017: £3.9m increase).

Savills plc

Consolidated income statement

for the year ended 31 December 2018

		2018	2017
	Note	£m	£m
Revenue	3	1,761.4	1,600.0
Less:
Employee benefits expense		(1,165.0)	(1,061.7)
Depreciation		(14.9)	(13.5)
Amortisation of intangible assets and impairment of goodwill and intangible assets		(10.6)	(9.3)
Other operating expenses		(473.3)	(418.5)
Other operating income		0.1	0.9
Other gains		2.9	5.9
Operating profit		100.6	103.8
Finance income		4.4	2.8
Finance costs		(6.7)	(4.1)
		(2.3)	(1.3)
Share of post-tax profit from joint ventures and associates		11.1	9.9
Profit before income tax		109.4	112.4
Comprising:
- underlying profit before tax	3, 4	143.7	140.5
- restructuring and acquisition-related costs	4	(29.1)	(29.0)
- other underlying adjustments	4	(5.2)	0.9
		109.4	112.4
Income tax expense	5	(32.2)	(31.3)
Profit for the year		77.2	81.1
Attributable to:
Owners of the parent		76.7	80.1
Non-controlling interests		0.5	1.0
		77.2	81.1
Earnings per share
Basic earnings per share	7(a)	56.2p	58.8p
Diluted earnings per share	7(a)	54.6p	57.5p
Underlying earnings per share
Basic earnings per share	7(b)	77.8p	75.8p
Diluted earnings per share	7(b)	75.6p	74.1p

Savills plc

Consolidated statement of comprehensive income

for the year ended 31 December 2018

	2018	2017
	£m	£m
Profit for the year	77.2	81.1
Other comprehensive income/(loss)
Items that will not be reclassified to profit or loss:
Re-measurement of defined benefit pension scheme obligation	15.7	14.1
Changes in fair value of financial assets at FVOCI	(0.1)	-
Tax on items that will not be reclassified	(2.8)	(2.8)
Total items that will not be reclassified to profit or loss	12.8	11.3
Items that may be reclassified subsequently to profit or loss:
Fair value gain on available-for-sale investments	-	0.3
Currency translation differences	19.3	(16.2)
Tax on items that may be reclassified	(0.3)	2.3
Total items that may be reclassified subsequently to profit or loss	19.0	(13.6)
Other comprehensive income/(loss) for the year, net of tax	31.8	(2.3)
Total comprehensive income for the year	109.0	78.8
Total comprehensive income attributable to:
Owners of the parent	108.5	77.8
Non-controlling interests	0.5	1.0
	109.0	78.8

Savills plc

Consolidated statement of financial position

at 31 December 2018

			2018	2017 Restated*
		Note	£m	£m
Assets: Non-current assets
Property, plant and equipment			71.5	68.2
Goodwill		9	383.8	353.3
Intangible assets			48.7	34.4
Investments in joint ventures and associates		11	48.3	30.0
Deferred income tax assets			29.7	36.9
Available-for-sale investments			-	24.6
Financial assets at fair value through other comprehensive income			31.2	-
Retirement benefit surplus			2.8	1.3
Contract assets			1.3	-
Other receivables			19.1	15.7
			636.4	564.4
Assets: Current assets
Contract assets			7.8	6.0
Trade and other receivables			528.3	490.6
Current income tax receivable			2.7	2.3
Derivative financial instruments			0.1	0.5
Cash and cash equivalents			223.9	208.8
			762.8	708.2
Liabilities: Current liabilities
Borrowings		12	0.4	110.1
Derivative financial instruments			0.1	0.1
Contract liabilities			11.1	7.1
Trade and other payables			629.1	587.6
Current income tax liabilities			11.0	16.4
Employee benefit obligations			15.8	11.2
Provisions for other liabilities and charges			8.4	11.4
			675.9	741.9
Net current assets/(liabilities)			86.9	(35.7)
Total assets less current liabilities			723.3	528.7
Liabilities: Non-current liabilities
Borrowings		12	149.6	0.1
Trade and other payables			38.2	35.6
Retirement and employee benefit obligations			11.7	35.5
Provisions for other liabilities and charges			12.8	12.9
Deferred income tax liabilities			6.0	2.9
			218.3	87.0
Net assets			505.0	441.7
Equity
Share capital			3.6	3.5
Share premium			96.6	91.1
Other reserves			117.6	98.4
Retained earnings			286.5	247.2
Equity attributable to owners of the parent			504.3	440.2
Non-controlling interests			0.7	1.5
Total equity			505.0	441.7

* See Note 1 for details about changes in accounting policies and resulting prior period restatement and Note 9 for prior period restatement of goodwill and trade and other payables in relation to a measurement period adjustment in accordance with IFRS 3.

Savills plc

Consolidated statement of changes in equity

for the year ended 31 December 2018

	Attributable to owners of the parent
	Share capital	Share premium	Other reserves	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2018	3.5	91.1	98.4	247.2	440.2	1.5	441.7
Profit for the year	-	-	-	76.7	76.7	0.5	77.2
Other comprehensive income/(loss):
Re-measurement of defined benefit pension scheme obligation / retirement benefit surplus	-	-	-	15.7	15.7	-	15.7
Changes in fair value of financial assets at FVOCI	-	-	(0.1)	-	(0.1)	-	(0.1)
Tax on items directly taken to reserves	-	-	0.1	(3.2)	(3.1)	-	(3.1)
Currency translation differences	-	-	19.3	-	19.3	-	19.3
Total comprehensive income for the year	-	-	19.3	89.2	108.5	0.5	109.0
Employee share option scheme:
- Value of services provided	-	-	-	18.2	18.2	-	18.2
Purchase of treasury shares	-	-	-	(25.1)	(25.1)	-	(25.1)
Shares issued	0.1	5.5	-	-	5.6	-	5.6
Dividends	-	-	-	(41.4)	(41.4)	(0.2)	(41.6)
Disposal of financial assets at FVOCI	-	-	(0.5)	0.6	0.1	-	0.1
Transfer between reserves	-	-	0.4	(0.4)	-	-	-
Transactions with non-controlling interests (Note 10)	-	-	-	(1.8)	(1.8)	(1.2)	(3.0)
Movement related to business combinations (Note 9)	-	-	-	-	-	0.1	0.1
Balance at 31 December 2018	3.6	96.6	117.6	286.5	504.3	0.7	505.0

	Attributable to owners of the parent
	Share capital	Share premium	Shares to be issued	Other reserves	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2017	3.5	91.1	11.3	103.9	195.8	405.6	1.4	407.0
Profit for the year	-	-	-	-	80.1	80.1	1.0	81.1
Other comprehensive income/(loss):
Re-measurement of defined benefit pension scheme obligation	-	-	-	-	14.1	14.1	-	14.1
Fair value gain on available-for-sale investments	-	-	-	0.3	-	0.3	-	0.3
Tax on items directly taken to reserves	-	-	-	0.3	(0.8)	(0.5)	-	(0.5)
Currency translation differences	-	-	-	(16.2)	-	(16.2)	-	(16.2)
Total comprehensive income for the year	-	-	-	(15.6)	93.4	77.8	1.0	78.8
Employee share option scheme:
- Value of services provided	-	-	-	-	14.5	14.5	-	14.5
Purchase of treasury shares	-	-	-	-	(17.2)	(17.2)	-	(17.2)
Shares issued	-	-	(11.3)	11.3	-	-	-	-
Disposal of available-for-sale investments	-	-	-	(1.2)	-	(1.2)	-	(1.2)
Dividends	-	-	-	-	(39.3)	(39.3)	(0.9)	(40.2)
Balance at 31 December 2017	3.5	91.1	-	98.4	247.2	440.2	1.5	441.7

Savills plc

Consolidated statement of cash flows

for the year ended 31 December 2018

		2018	2017
	Note	£m	£m
Cash flows from operating activities
Cash generated from operations	8	147.8	145.1
Interest received		4.0	2.7
Interest paid		(5.1)	(2.1)
Income tax paid		(34.4)	(34.0)
Net cash generated from operating activities		112.3	111.7
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		0.2	0.1
Proceeds from sale of equity investments		12.3	4.6
Proceeds from sale of interests in joint ventures and associates		1.5	0.4
Dividends received from joint ventures and associates		11.2	8.3
Loans to joint ventures		(1.1)	(0.6)
Disposal of subsidiaries, net of cash disposed		0.4	-
Acquisition of subsidiaries, net of net cash acquired	9	(35.5)	(39.8)
Deferred consideration paid in relation to current and prior year acquisitions		(24.0)	(67.9)
Purchase of property, plant and equipment		(16.9)	(23.1)
Purchase of intangible assets		(5.9)	(8.8)
Purchase of investment in joint ventures, associates and equity investments		(25.3)	(9.4)
Net cash used in investing activities		(83.1)	(136.2)
Cash flows from financing activities
Proceeds from issue of share capital		5.6	-
Proceeds from borrowings		305.0	181.5
Repayments of borrowings		(261.6)	(110.6)
Purchase of treasury shares		(25.1)	(17.2)
Purchase of non-controlling interests	10	(2.6)	-
Dividends paid	6	(41.6)	(40.2)
Net cash (used) in/received from financing activities		(20.3)	13.5
Net increase/(decrease) in cash, cash equivalents and bank overdrafts		8.9	(11.0)
Cash, cash equivalents and bank overdrafts at beginning of year		205.2	223.4
Effect of exchange rate fluctuations on cash held		9.8	(7.2)
Cash, cash equivalents and bank overdrafts at end of year		223.9	205.2

NOTES

1. Basis of preparation

The results for the year ended 31 December 2018 have been extracted from the audited financial statements. The 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 financial statements have been prepared on a going concern basis.

The financial information in this statement does not constitute statutory accounts within the meaning of s434 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2018, on which the auditors have given an unqualified audit report, have not yet been filed with the Registrar of Companies.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

Prior year restatements

IFRS 15, 'Revenue from contracts with customers' ('IFRS 15'), was adopted by the Group for the first time for the financial year beginning 1 January 2018.

In accordance with transition provisions in IFRS 15 the new rules have been adopted using the simplified retrospective transition method. The transition to IFRS 15 did not have a material impact on the Group's opening retained earnings, as a result a reconciliation of retained earnings is not required. There have however been a number of balance sheet reclassifications upon transition to IFRS 15 as follows:

·      Contract assets recognised in relation to consulting contracts were previously presented as work in progress.

·    Contract liabilities recognised which were previously presented in trade and other payables as deferred revenue.

	December 2017 £m	Reclass-ification £m	December 2017 Restated £m
Current assets
Work in progress	6.0	(6.0)	-
Contract assets	-	6.0	6.0
Current liabilities
Contract liabilities	-	7.1	7.1
Trade and other payables	592.7	(7.1)	585.6

In addition to the above, December 2017 goodwill and trade and other payables balances have been restated by a further £2.0m in relation to a measurement period adjustment in accordance with IFRS 3. See Note 9 for details. 

2. Adoption of standards, amendments and interpretations to standards

IFRS 16, 'Leases', effective for the accounting periods beginning on or after 1 January 2019. The standard addresses the classification, measurement and recognition of leases with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. The standard supersedes IAS 17 'Leases'. The standard will have a material impact on the consolidated financial statements of the Group. On adoption, lease agreements will give rise to both a right-of-use asset and a lease liability for future lease payables. Depreciation of the right-of-use asset will be recognised in the income statement on a straight-line basis, with interest recognised on the lease liability. This will result in a change to the profile of the net charge taken to the income statement over the life of the lease. These charges will replace the lease costs currently charged to the income statement.

The Group will apply the standard from its mandatory adoption date of 1 January 2019 and intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets will be measured on transition either as if the new rules had always been applied or at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses and onerous lease provisions where applicable).

As at the reporting date, the Group has non-cancellable operating lease commitments of £354.0m. Of these commitments, approximately £5.2m relates to short-term leases and £0.2m to low value leases which will both be recognised on a straight-line basis as expense in the income statement. 

For the remaining lease commitments the Group expects to recognise lease liabilities of £300.6m, an increase to property, plant and equipment of approximately £260.5m through the recognition of right-of-use assets on 1 January 2019 and an increase to deferred tax assets of £1.5m. Transitional adjustments will also include the reduction of trade and other receivables of £1.7m (prepayments) and trade and other payables of £33.1m (primarily deferred rent accruals). Overall, net assets will be approximately £7.2m lower and net current assets will be £15.3m lower due to the presentation of a portion of the liability as a current liability.

The Group expects that underlying profit before tax will decrease approximately £3.1m for 2019 as a result of adopting the new rules. 

3. Segment analysis

	Transaction Advisory	Consultancy	Property and Facilities Management	Investment Management	Other	Total
Year ended to 31 December 2018	£m	£m	£m	£m	£m	£m
Revenue
United Kingdom
- commercial	98.4	171.5	157.1	25.7	-	452.7
- residential	131.5	44.4	33.8	-	-	209.7
Total United Kingdom	229.9	215.9	190.9	25.7	-	662.4
Europe & the Middle East	113.1	33.4	68.9	31.6	-	247.0
Asia Pacific
- commercial	160.1	45.1	327.0	9.4	-	541.6
- residential	45.9	-	-	-	-	45.9
Total Asia Pacific	206.0	45.1	327.0	9.4	-	587.5
North America	264.5	-	-	-	-	264.5
Revenue	813.5	294.4	586.8	66.7	-	1,761.4
Underlying profit/(loss) before tax
United Kingdom
- commercial	15.7	19.0	10.2	4.7	(13.7)	35.9
- residential	17.6	6.8	2.8	-	-	27.2
Total United Kingdom	33.3	25.8	13.0	4.7	(13.7)	63.1
Europe & the Middle East	5.5	3.0	-	4.4	-	12.9
Asia Pacific
- commercial	21.2	4.3	19.2	1.9	-	46.6
- residential	8.3	-	-	-	-	8.3
Total Asia Pacific	29.5	4.3	19.2	1.9	-	54.9
North America	12.8	-	-	-	-	12.8
Underlying profit/(loss) before tax	81.1	33.1	32.2	11.0	(13.7)	143.7

	Transaction Advisory	Consultancy	Property and Facilities Management	Investment Management	Other	Total
Year ended to 31 December 2017	£m	£m	£m	£m	£m	£m
Revenue
United Kingdom
- commercial	101.6	160.2	135.1	24.8	1.1	422.8
- residential	128.9	44.7	30.7	-	-	204.3
Total United Kingdom	230.5	204.9	165.8	24.8	1.1	627.1
Europe & the Middle East	78.2	22.5	46.4	35.3	-	182.4
Asia Pacific
- commercial	168.4	45.7	300.9	6.4	-	521.4
- residential	44.3	-	-	-	-	44.3
Total Asia Pacific	212.7	45.7	300.9	6.4	-	565.7
North America	224.8	-	-	-	-	224.8
Revenue	746.2	273.1	513.1	66.5	1.1	1,600.0
Underlying profit/(loss) before tax
United Kingdom
- commercial	17.2	17.1	9.0	5.0	(10.6)	37.7
- residential	18.7	6.8	2.7	-	-	28.2
Total United Kingdom	35.9	23.9	11.7	5.0	(10.6)	65.9
Europe & the Middle East	4.5	2.0	(1.8)	6.5	-	11.2
Asia Pacific
- commercial	26.9	5.1	15.4	1.8	-	49.2
- residential	6.4	-	-	-	-	6.4
Total Asia Pacific	33.3	5.1	15.4	1.8	-	55.6
North America	7.8	-	-	-	-	7.8
Underlying profit/(loss) before tax	81.5	31.0	25.3	13.3	(10.6)	140.5

Operating segments reflect internal management reporting to the Group's chief operating decision maker, defined as the Group Executive Board (GEB). The GEB assesses the performance of operating segments based on a measure of underlying profit before tax which adjusts statutory profit before tax by profit/(loss) on disposals, share-based payment adjustment, significant restructuring costs, acquisition-related costs, amortisation of acquired intangible assets (excluding software) and impairments.

The Other segment includes 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 statutory profit before tax is provided in Note 4.

4. Underlying profit before tax

The Directors seek to present a measure of underlying performance which is not impacted by exceptional items or items considered non-operational in nature. This measure is described as 'underlying' and is used by management to assess and monitor performance.

	2018 £m	2017 £m
Statutory profit before tax	109.4	112.4
Adjustments:
Amortisation of acquired intangible assets (excluding software)	6.6	3.9
Impairment of goodwill and acquired intangible assets (excluding software)	0.3	2.3
Share-based payment adjustment	(1.9)	(1.2)
Profit on disposal of subsidiary and equity investments	(2.9)	(5.9)
Restructuring costs	8.4	7.7
Acquisition-related costs	20.7	21.3
GMP equalisation charge	3.1	-
Underlying profit before tax	143.7	140.5

An impairment charge of £0.3m was recognised in the year relating to acquired investment management contracts. In the prior year, a £2.3m impairment charge was recognised relating to the goodwill of the Group's Swedish property management business.

The adjustment for share-based payments 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 in relation to outstanding bonus-related share awards and the estimated value of the current year bonus pool to be awarded in deferred shares. This adjustment is made to align the underlying staff cost in the year with the revenue recognised in the same period.

Profit on disposal includes profits recognised in relation to the disposal of subsidiaries (100% of Savills Asset Management Pte Limited and 80.5% of FPD Property Services (India) Private Limited, which is now treated as an equity investment held at FVOCI) and the part disposal of a joint venture (Beijing Financial Street Savills Property Management Company Limited) in Asia Pacific. In the prior year, profit on disposal included profits recognised in relation to the disposals of the Group's available-for-sale investments, SPF Private Clients Limited (£5.3m) and Cordea Savills German Retail Fund (£0.6m).

Restructuring costs includes costs of integration activities in relation to recent significant business acquisitions (primarily Aguirre Newman in Spain and Cluttons Middle East). In the prior year, costs related to the integration of Smiths Gore and GBR Phoenix Beard ('GBR') in the UK and Savills Investment Management's acquisition of SEB.

Acquisition-related costs include £14.2m (2017: £17.2m) of provisions for future payments in relation to business acquisitions, which are expensed through the income statement to reflect the requirement for the recipients to remain actively engaged in the business at the payment date. These relate to acquisitions in the UK (£3.6m - primarily GBR and Smiths Gore), North America (£2.6m) and Europe & the Middle East (£8.0m - primarily Aguirre Newman). In the prior year, these costs related to acquisitions in the UK (£3.8m - primarily GBR and Smiths Gore), North America (£13.2m - primarily Studley) and Europe & the Middle East (£0.3m). In addition, acquisition-related costs includes £2.2m for payments in relation to Savills Investment Management's acquisition of Merchant Capital (Japan) in May 2014 (2017: £1.4m), £1.0m of unwinding of interest on deferred consideration payments (2017: £0.6m) and £3.3m of transaction costs (2017: £2.1m).  

Guaranteed Minimum Pension ('GMP') equalisation charge in the year reflects the past service cost on the UK defined benefit pension scheme, which is the estimated cost of equalising GMPs for the impact between males and females; this follows the conclusion of a High Court case in the UK on 26 October 2018.

5. Income tax expense

The income tax expense has been calculated on the basis of the underlying rate in each jurisdiction adjusted for any disallowable charges.

	2018	2017
	£m	£m
United Kingdom
- Current tax	12.4	15.4
- Deferred tax	(0.5)	(3.8)
Foreign tax
- Current tax	20.0	23.2
- Deferred tax	0.3	(3.5)
Income tax expense	32.2	31.3

6. Dividends

	2018	2017
	£m	£m
Amounts recognised as distribution to equity holders in the year:
Ordinary final dividend of 10.45p per share (2016: 10.1p)	14.3	13.5
Supplemental interim dividend of 15.1p per share (2016: 14.5p)	20.6	19.5
Interim dividend of 4.8p per share (2017: 4.65p)	6.5	6.3
	41.4	39.3

In addition, the Group paid £0.2m (2016: £0.9m) of dividends to non-controlling interests.

The Board recommends a final dividend of 10.8p (net) per ordinary share (amounting to £14.8m) is paid, alongside the supplemental interim dividend of 15.6p per ordinary share (amounting to £21.4m), to be paid on 13 May 2019 to shareholders on the register at 12 April 2019. These financial statements do not reflect this dividend payable.

The total paid and recommended ordinary and supplemental dividends for the 2018 financial year comprises an aggregate distribution of 31.2p per ordinary share (2017: 30.2p per ordinary share).

7(a). Basic and diluted earnings per share

	2018	2018	2018	2017	2017	2017
	Earnings	Shares	EPS	Earnings	Shares	EPS
Year to 31 December	£m	million	pence	£m	million	pence
Basic earnings per share	76.7	136.4	56.2	80.1	136.2	58.8
Effect of additional shares issuable under option	-	4.0	(1.6)	-	3.0	(1.3)
Diluted earnings per share	76.7	140.4	54.6	80.1	139.2	57.5

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

	2018	2018	2018	2017	2017	2017
	Earnings	Shares	EPS	Earnings	Shares	EPS
Year to 31 December	£m	million	pence	£m	million	pence
Basic earnings per share	76.7	136.4	56.2	80.1	136.2	58.8
- Amortisation of  acquired intangible assets (excluding software) after tax	4.7	-	3.4	2.1	-	1.5
- Impairment of goodwill and acquired intangible assets (excluding software) after tax	0.3	-	0.2	2.3	-	1.7
- Share-based payment adjustment after tax	(1.7)	-	(1.2)	(1.0)	-	(0.7)
- Profit on disposal of subsidiaries, joint ventures and equity investments after tax	(2.9)	-	(2.1)	(5.9)	-	(4.3)
- Restructuring costs after tax	6.9	-	5.1	6.0	-	4.4
- Acquisition related costs after tax	19.7	-	14.4	19.6	-	14.4
- GMP equalisation charge after tax	2.5	-	1.8	-	-	-
Underlying basic earnings per share	106.2	136.4	77.8	103.2	136.2	75.8
Effect of additional shares issuable under option	-	4.0	(2.2)	-	3.0	(1.7)
Underlying diluted earnings per share	106.2	140.4	75.6	103.2	139.2	74.1

8. Cash generated from operations

	2018	2017
	£m	£m
Profit for the year	77.2	81.1
Adjustments for:
Income tax (Note 5)	32.2	31.3
Depreciation	14.9	13.5
Amortisation of intangible assets	10.3	7.0
Impairment of intangible assets and goodwill	0.3	2.3
Loss on disposal of property, plant and equipment and intangible assets	0.8	-
Profit on disposal of subsidiaries, joint ventures and equity investments	(2.9)	(5.9)
Net finance cost	2.3	1.3
Share of post-tax profit from joint ventures and associates	(11.1)	(9.9)
Decrease in employee and retirement obligations	(7.0)	(7.9)
Exchange movements and unrealised gains/losses on financial instruments in operating activities	(0.6)	(0.2)
(Decrease)/increase in provisions	(3.2)	2.3
Charge for share-based compensation	18.2	14.5
Operating cash flows before movements in working capital	131.4	129.4
Increase in trade and other receivables and contract assets	(36.7)	(44.8)
Increase in trade and other payables and contract liabilities	53.1	60.5
Cash generated from operations	147.8	145.1

Foreign exchange movements resulted in a £10.9m increase in current and non-current trade and other receivables and contract assets (2017: £8.9m decrease) and a £12.3m increase in current and non-current trade and other payables and contract liabilities (2017: £16.4m decrease).

9. Acquisition of subsidiaries

The fair values of the assets acquired and liabilities assumed through the acquisition of subsidiaries during the year are summarised below. These are provisional and will be finalised within 12 months of the acquisition dates.

	Provisional fair value to the Group
	Cluttons Middle East £m	Broadgate £m	Currell £m	Other acquisitions £m	Total £m
Property, plant and equipment	0.4	-	0.4	0.2	1.0
Investment in joint ventures	0.5	-	-	-	0.5
Intangible assets	5.5	13.5	-	0.4	19.4
Current assets:
- Trade and other receivables	4.8	-	1.5	0.5	6.8
- Cash and cash equivalents	0.4	-	0.5	0.4	1.3
Total assets	11.6	13.5	2.4	1.5	29.0
Current liabilities:
- Trade and other payables	(1.2)	-	(1.2)	(0.6)	(3.0)
- Current income tax liability	-	-	-	(0.2)	(0.2)
- Employment benefit provision	(1.3)	-	-	-	(1.3)
Non-current other payables	(0.8)	-	-	-	(0.8)
Deferred income tax liabilities	(0.9)	(2.3)	-	(0.1)	(3.3)
Net assets	7.4	11.2	1.2	0.6	20.4
Non-controlling interests	(0.1)	-	-	-	(0.1)
Net assets acquired	7.3	11.2	1.2	0.6	20.3
Goodwill	13.9	2.3	1.8	3.1	21.1
Purchase consideration	21.2	13.5	3.0	3.7	41.4
Consideration satisfied by:
Net cash paid	17.5	12.6	3.0	3.7	36.8
Discounted value of deferred consideration owing at reporting date	3.7	0.9	-	-	4.6
	21.2	13.5	3.0	3.7	41.4

Cluttons International Holdings Limited and Cluttons Management Limited (collectively 'Cluttons Middle East')

On 31 May 2018 the Group acquired 100% of the equity interest in Cluttons Middle East, establishing the Group's first wholly owned business in the region.

Total acquisition consideration is provisionally determined at £21.2m, £17.5m of which was settled on completion and the remainder relating to the discounted value of deferred consideration of up to £3.7m, payable on the first, second and third anniversaries of completion.

Acquisition-related costs of £1.2m have been expensed as incurred to the income statement.

The fair value exercise is in progress and goodwill of £13.9m has been provisionally determined. Goodwill is attributable to the experience and expertise of key staff and strong industry reputation and is not expected to be deductible for tax purposes.

The acquired business contributed revenue of £7.6m and underlying profit of £0.9m to the Group for the period from 1 June 2018 to 31 December 2018. Had the acquisition been made at the beginning of the financial year, revenue would have been £12.3m and underlying profit would have been £1.4m.

The fair value of trade and other receivables is £4.8m and includes trade receivables with a fair value of £2.3m. The gross contractual amount for trade receivables is £2.6m, of which £0.3m is expected to be uncollectible.

Third party property management portfolio of Broadgate Estates Limited ('Broadgate')

On 2 August 2018 the Group acquired Broadgate from British Land.

Total acquisition consideration is provisionally determined at £13.5m, £12.6m of which has been settled in cash during the year with a further estimated £0.9m expected to be paid during 2019.

Acquisition-related costs of £0.6m have been expensed as incurred to the income statement.

The fair value exercise is in progress and goodwill of £2.3m has been provisionally determined. Goodwill is attributable to the strong industry reputation and is not expected to be deductible for tax purposes.

The acquired business contributed revenue of £6.0m and underlying profit of £0.6m to the Group for the period from 2 August 2018 to 31 December 2018. Had the acquisition been made at the beginning of the financial year, revenue would have been £15.0m and underlying profit would have been £1.5m.

The Currell Group Limited ('Currell')

On 10 December 2018 the Group acquired 100% of the equity interest in Currell, a property services company in East London, UK.

Total acquisition consideration is provisionally determined at £3.0m, all of which was settled on completion.

A further £3.5m is payable in December 2019, 2020 and 2021 and is deemed to be linked to continued active engagement with the business. As required by IFRS 3 (revised) these payments will be expensed to the income statement over the relevant period of engagement.

Acquisition-related costs of £0.2m have been expensed as incurred to the income statement.

The fair value exercise is in progress and goodwill of £1.8m has been provisionally determined. Goodwill is attributable to the experience and expertise of key staff and strong industry reputation and is not expected to be deductible for tax purposes.

The acquired business contributed revenue of £0.4m and underlying profit of £nil to the Group for the period from 10 December 2018 to 31 December 2018. Had the acquisition been made at the beginning of the financial year, revenue would have been £8.3m and underlying profit would have been £0.7m.

The fair value of trade and other receivables is £1.5m and includes trade receivables with a fair value of £0.5m. The gross contractual amount for trade receivables is £0.5m, all of which is expected to be collectible.

Other acquisitions during the period

During the period, the Group also made a number of smaller acquisitions, including 100% of Central Management Solutions Limited, an urban-centre management company in the UK, JP Case & Co Property Services Limited, a Manchester city centre based lettings and new homes business, Porta Planning LLP, a London based planning and development consultancy, Martel Maides Limited, a property agency in Guernsey and the Knutsford (UK) branch of residential agency Meller Braggins.

Total cash consideration paid was £3.7m. A further £2.2m is subject to service conditions and will be expensed to the income statement over the period of service. Goodwill of £3.1m has been provisionally determined.

Acquisition-related costs of £0.2m have been expensed as incurred to the income statement.

The acquired businesses contributed revenue of £2.3m and underlying profit of £0.3m to the Group for the year ended 31 December 2018. Had the acquisitions been made at the beginning of the financial year, revenue would have been £5.4m and underlying profit would have been £0.9m.

The total fair value of trade and other receivables is £0.5m and includes trade receivables with a fair value of £nil.

Update to provisional fair value of prior period acquisition

During the period, the total acquisition consideration payable for the Aguirre Newman acquisition on 29 December 2017 was finalised, with an additional £2.0m of consideration paid. This adjustment is considered a measurement period adjustment in accordance with IFRS 3 and as a result the prior period comparatives have been restated by increasing goodwill arising on the acquisition by £2.0m, with a corresponding increase in trade and other payables to recognise additional deferred consideration as at 31 December 2017.

10. 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 2018
Savills Investment Management SGR	April 2018	25%	100%

(a) Acquisitions of additional interest in subsidiaries

Under IFRS 10, transactions with non-controlling interests must be accounted for as equity transactions, therefore no goodwill has been recognised. Acquisition costs related to this transaction were not significant.

In April 2018, the Group acquired an additional 25% of the shares in its Italian investment management business, Savills Investment Management SGR ("SIMSGR"), for a net consideration of £3.0m, with £2.6m paid on completion. This takes the Group's shareholding in the entity to 100%. The carrying amount of SIMSGR's net assets on the date of acquisition was £5.0m. The Group recognised a decrease in non-controlling interest of £1.2m. The amount charged to retained earnings in respect of the transaction was £1.8m.

	2018 £m
Carrying amount of non-controlling interests acquired	1.2
Net consideration to acquire non-controlling interests	(3.0)
Charge recognised in parent's equity	(1.8)

11. Investments in joint ventures and associates

On 28 September 2018, the Group acquired a 25% interest in DRC Capital LLP ('DRC'), a commercial real estate debt investment advisor for an initial consideration of £15.0m, with the option to purchase the remaining 75% of DRC in 2021. 

12. Borrowings

Movements in borrowings are analysed as follows:

			£m
Opening amount as at 1 January 2018			110.2
Additional borrowings			305.0
Repayments of borrowings (including overdraft movement)			(265.2)
Closing amount as at 31 December 2018			150.0

		2018	2017
		£m	£m
Current
Bank overdrafts		-	3.6
Unsecured bank loans		0.4	106.5
		0.4	110.1
Non-current
Loan notes		150.0	-
Transaction costs (issuance of loan notes)		(0.5)	-
Finance leases		0.1	0.1
		149.6	0.1
		150.0	110.2

In April 2018, the Group increased the multi-currency revolving credit facility ('RCF') by £60.0m to £360.0m. The RCF expires on 15 December 2020. As at 31 December 2018 £nil (2017: £106.0m) of the RCF was drawn.

In June 2018, the Group raised £150.0m of long term debt through the issuance of 7, 10 and 12 year fixed rate private note placements into the US institutional market.

The Group has the following undrawn borrowing facilities:

		2018	2017
		£m	£m
Floating rate
- expiring within one year or on demand		32.1	33.5
- expiring between 1 and 5 years		360.1	194.2
		392.2	227.7

13. 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 under the same terms as those available to other customers in the ordinary course of business.

As at 31 December 2018, loans outstanding to joint ventures amounted to £2.3m (2017: £0.6m).

14. 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.

Directors' responsibility statement

The Savills Report and Accounts for year end 31 December 2018 contains a responsibility statement in the following form:

Each of the Directors confirm that, to the best of their 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 Directors' Report 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 is faces.

In the case of each Director in office at the date the Directors' Report is approved:

·      so far as the Director is aware, there is no relevant audit information of which the Group's auditors are unaware; and

·      they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group's auditors are aware of that information.

On behalf of the Board

Mark Ridley

Group Chief Executive

Chris Lee

Group Legal Director and Company Secretary

14 March 2019

Forward-looking statements

The financial information contained in this announcement has not been audited. Certain statements made in this announcement are forward-looking statements 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.

Copies of the Annual Report and Accounts for the year ended 31 December 2018 will be circulated to shareholders on 1 April 2019 and will also be available from the investor relations section of the Company website at www.ir.savills.com or from:

Savills plc, 33 Margaret Street, London, W1G 0JD

Telephone:  [phone]

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