29th Jun 2005 07:00
Savills PLC29 June 2005 29 June 2005 SAVILLS PLC (Savills or 'The Group') ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) Introduction From 1 January 2005, the Group is required to prepare its consolidated financialstatements in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU") and applicable to all listedcompanies for financial reporting periods beginning on or after 1 January 2005. The Group's first results to be published under IFRS will be for the six monthsto 30 June 2005. The Comparative information in those financial statements mustbe restated to IFRS. This report is to inform shareholders of the impact on theGroup's financial position and results for 2004 due to the change from reportingunder UK General Accepted Accounting Principles (UK GAAP) to IFRS. The information presented in this document sets out the adjustments between theaudited UK GAAP prepared financial statements for 2004 and unaudited restatedIFRS results for the same period. The IFRS standards that principally affect adjustments between UK GAAP and IFRSare: • IAS 19 Employee Benefits • IFRS 2 Share Based Payment • IAS 38 Intangible Assets • IAS 12 Income Taxes • IAS 10 Events After the Balance Sheet Date - covering dividends Highlights, unaudited restated IFRS results and net assets • 2004 Group turnover unchanged • 2004 Group profit before tax £58.3m (UK GAAP - £50.2m) • Basic earnings per share 74.0p (UK GAAP - 62.2p) • Adjusted basic earnings per share* 57.4p (UK GAAP - 55.7p) • Net assets of the Group £94.7m (UK GAAP - £102.9m) * After excluding sale of trading & investment properties, impairments andamortisation of goodwill and the one-off impact of the IFRS adjustment relatingto share based payments (see section 5 (b)) Contents 1. Basis of Preparation2 Transition Explanations3.1 Effect of the change to IFRS on the Income Statement for the year ended 31 December 20043.2 Effect of the change to IFRS on the Balance Sheet as at 31 December 20043.3 Explanation of Adjustments for the year ended December 20044. Adoption of IAS 32 and 39 financial assets and liabilities5. Earnings Per Share6. Accounting Policies to be Adopted from 1 January 2005 1. Basis of Preparation The numbers set out under IFRS in this document have been prepared on the basisof current interpretation and application of IFRS Standards as at May 2005,subject to the exemptions set out below. However if the International AccountingStandards Board makes changes to the standards and interpretations before 31December 2005, the figures may be amended in the first full IFRS accounts to bepublished in March 2006. IFRS 1, First Time Adoption of International Financial Reporting Standards,outlines how to apply IFRS to the consolidated financial statements for thefirst time. The Group's transition date is 1 January 2004 and the standardpermits certain exemptions from the full requirements of IFRS as at that date. The Group has taken the following key exemptions or options as at transition: a) Business combinations IFRS 3, Business Combinations: The Group has taken the option not to restate anybusiness combinations that were recorded by the Group before the date oftransition. b) Employee benefits IAS 19, Employee Benefits: From the date of transition, the Group has opted torecognise all cumulative actuarial gains and losses in full. c) Cumulative translation differences IAS 21, The Effects of Changes in Foreign Exchange Rates: The exemption taken bythe Group allows these cumulative translation differences to be set to zero atthe date of transition. d) Financial instruments IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39, FinancialInstruments: Recognition and Measurement will be applied prospectively from 1January 2005 and consequently the restated figures for 2004 do not reflect theimpact of these standards. e) Share-based payments In accordance with IFRS 2, Share-based Payments the Group has applied thestandard only to equity instruments that were granted after 7 November 2002 thathad not vested before 1 January 2005. f) Fair value or revaluation at deemed cost The Group has decided that property, plant and equipment are to remain recordedat their historical cost and has not restated these items at their fair value. g) Joint Ventures The Group has chosen to equity account for all investments in Joint Ventures. 2. Transition Explanations Adjustments to Shareholders Funds on transition to IFRS as at 1 January 2004 Share UK Based Employee Deferred Unaudited GAAP Payment Benefits Tax Dividend IFRS £'000 £'000 £'000 £'000 £'000 £'000Notes (see section 2 (a-d)) (a) (b) (c) (d) As at 1 January 2004 96,277 142 (17,870) (6) 5,563 84,106 a) IFRS 2 Share Based Payment This standard is applied by the Company to equity settled share based paymentsthat have not vested as at 1 January 2005 and that were granted after 7 November2002. Further information regarding the operation of the Group's employee shareschemes can be found on Page 33 of the 2004 Annual Report & Accounts.Information regarding the calculation and allocation of the Group's bonus poolcan be found on pages 30 and 31. The Group policy under IFRS continues to be forthe DSBP accounting expense to be deducted from the total bonus pool beforearriving at cash bonus payments to be made to the employees concerned. Under IFRS 2 the expense relating to an equity-based share based payment iscalculated with reference to the fair value of the option at the date of grant.The expense is then spread equally over the period between the grant date ordate of commencement of services and the vesting date. As the options under theGroup's schemes are all equity settled, the fair value is not re-measured butthe yearly expense is adjusted for the estimated number of options expected tovest. For any options that vest early, the remaining charge not expensed to dateis charged in full on the date the early vest occurs. The following adjustments have been made on transition: UK GAAP IFRS 2 Total adjustment£000's Deferred Share Bonus Plan (229) (243) 14Executive Share Option Scheme - (30) 30Sharesave Scheme - (98) 98Impact on Shareholders funds (229) (371) 142 Deferred Share Bonus Plan (DSBP) Previously, awards granted under the DSBP Scheme were measured at the marketvalue at 31 December each year in determining the expense for awards granted.This expense was recorded in full in the year the employee provided the servicesto which the award related. For example the expense for the March 2005allocation was recorded in 2004. Under IFRS, the expense is spread over theperiod from the date of commencement of services to the date that the employeestake title to the shares. This is typically six years and three months. Executive Share Option Scheme (ESOS) Under UK GAAP, no expense was recorded for the ESOS in accordance with UITF 17 'Employee Share Schemes'. Under IFRS 2, amounts charged to the profit and loss account for ESOS awardsbegin on the date of grant and are spread over the vesting period of 3 years.Under the ESOS if the performance criteria, which are based on internalmeasures, are not met, the options do not vest. The total expense relating tothe grant is reversed if the Company expects that the performance criteria willnot be met. Sharesave scheme Under UK GAAP, no expense was recorded for the Sharesave scheme under theexemption permitted by UITF 17 'Employee Share Schemes'. Under IFRS, the expenseof the Sharesave scheme is spread over 3 years. Under the terms of the Sharesavescheme, employees have the option, at the vesting date, to take shares or havetheir contributions refunded. The full charge remains regardless of which optionis taken. While the share based payment expense does not impact shareholders funds, theseadjustments reflect the consequences of accounting for National Insurancepayable on exercise of the options and deferred tax. A deferred tax liability arises on the IFRS adjustments due to the timingdifference between the recognition of the share based payment expense for taxand accounting purposes. The accounting charge for share based payments are notdeductible for UK taxation. A deduction is given on the exercise date equal tothe market price less exercise price. Therefore deferred tax balances arecarried forward until the options are exercised. b) IAS 19 Employee Benefits The approach under IFRS for Defined Benefit Pension Schemes is similar to therequirements of FRS 17. As disclosed in the 2004 Report & Accounts, FRS 17 wasdue to take effect from 1 January 2005. The liability at 1 January 2004 was£25,528,000 with an offsetting deferred tax asset of £7,658,000. The actuary ofthe scheme has confirmed there is no material difference in the net pensionliability under IAS 19 compared to FRS 17. c) IAS 12 Deferred Tax Under IFRS deferred tax should be recognised on the basis of taxable temporarydifferences (subject to certain exceptions), which represents the differencebetween the carrying value of an asset or liability and the amount used fortaxation purposes. Deferred tax arises on undistributed profits within non-UK equity accountedinvestments, unless there is an agreement covering the distribution of reserves.For such investments, the Group does not exercise control in determining thetiming of dividend payments and for this reason a deferred tax liability ariseson undistributed reserves. As at transition a liability of £6,000 is created. d) IAS 10 Events After the Balance Sheet Date Under IFRS, dividends are included in the accounts in the period in which theyare approved whereas under UK GAAP dividends are included in the period to whichthey relate. The final dividend and provision for 2003 of £5,563,000 aretherefore reversed. 3.1 Effect of the change to IFRS on the Income Statement for the year ended 31December 2004 (unaudited) Impact of move to IFRS UK Intangibles Share Employee Joint Associates Deferred Realloc- IFRS GAAP Based Benefits Ventures Tax ations payment £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Notes (see section 3.3) (a) (b) (c) (d) (e) (f) (g) Total Group 327,975 327,975TurnoverGroup operating 38,951 3,385 3,901 926 (3) 0 0 9,011 56,171profitShare of joint 55 41 96venturesShare of associates 274 6 (12) 268Disposals 9,011 (9,011) 0Profit before 48,291 3,391 3,901 926 38 (12) 0 0 56,535interestNet finance income 1,902 (97) (28) 1,777Profit before tax 50,193 3,391 3,901 926 (59) (40) 0 0 58,312Income tax expense (15,168) (143) (1,167) (278) 59 40 6 (16,651)Profit for the 35,025 3,248 2,734 648 0 0 6 0 41,661period Attributable to:Equity holders of 34,775 3,216 2,734 648 0 0 6 0 41,379the parentMinority interests 250 32 282 35,025 3,248 2,734 648 0 0 6 0 41,661 Basic earnings per 62.2p 5.7p 4.9p 1.2p 0.0p 0.0p 0.0p 0.0p 74.0pshareDiluted earnings 56.5p 5.2p 4.4p 1.1p 0.0p 0.0p 0.0p 0.0p 67.2pper share 3.2 Effect of the change to IFRS on the Balance Sheet as at 31 December 2004(unaudited) Impact of move to IFRS UK GAAP Intangibles Share Employee Joint Dividend IFRS Based Benefits Ventures Payment £'000 £'000 £'000 £'000 £'000 £'000 £'000Notes (see section 3.3) (a) (b) (c) (d) (h) Assets 261,797 3,248 (615) (7,663) (5) 0 256,762Liabilities (158,888) 0 457 (21,592) 5 17,995 (162,023)NET ASSETS 102,909 3,248 (158) (29,255) 0 17,995 94,739 EQUITYShareholder's funds 102,751 3,216 (158) (29,255) 0 17,995 94,549Minority interest 158 32 0 0 0 0 190 102,909 3,248 (158) (29,255) 0 17,995 94,739 3.3 Explanation of Adjustments for the year ended December 2004 a) IAS 38 Intangible Assets An intangible asset is an identifiable non-monetary asset without physicalsubstance. Intangibles are contractual or legal rights or assets that areseparable from the business and can include brands, trade names, contacts andwebsites. IAS 38 requires an intangible asset with a finite useful life to be amortisedover its expected life and tested for impairment whenever there is an indicationthat the intangible asset may be impaired (such as if losses are made). Goodwillrepresents the remaining unidentifiable intangible assets of an acquisitionafter deducting the identifiable intangibles. Goodwill is not amortised fromtransition and is subject to annual impairment testing. Goodwill impairment of£639,000 made in 2004 under UK GAAP, remains as an impairment under IFRS. Goodwill amortisation under UK GAAP of £2,915,000 for the year has beenreversed. In accordance with the transitional provisions within IFRS 1, anassessment was made regarding the fair value of identifiable intangible assetsacquired for all business combinations from 1 January 2004. A value of£1,262,000 has been placed on these intangibles which were all purchased in thefinal few months of 2004. The adjustments further capitalise an intangible asset of £476,000 which isassociated with the set-up of Europa Immobiliare No. 1 fund by CordeaSavills.This amount was expensed under UK GAAP. A deferred tax asset of £143,000 arisingunder UK GAAP is not recognised under IFRS. Under IAS 38, software that is not an integral part of the operating hardware istreated as an intangible asset and is amortised over its useful life. Softwarewith a book value of £810,000 has been reclassified to intangibles anddepreciation expense of £663,000 has been reclassified as amortisation. b) IFRS 2 Share Based Payment The following adjustments have been made for the year to 31 December 2004: UK GAAP IFRS 2 Total adjustment Deferred Share Bonus Plan 5,390 (1,241) 4,149Executive Share Option Scheme - (140) (140)Sharesave Scheme - (108) (108)Impact on profit before tax 5,390 (1,489) 3,901Tax (1,617) 450 (1,167)Impact on profit after tax 3,773 (1,039) 2,734 This profit and loss adjustment increases profit before tax by £3,901,000 ismainly due to the impact of the deferred share bonus plan. The share basedpayment charge for the DSBP during 2004 was £5,390,000, which represented themarket value of the deferred share bonus plan grants made in 2004 and 2005.These grants related to the performance periods of 2003 and 2004. There are tworeasons for this adjustment; firstly the change in the basis of valuation of theoption, and secondly the change to spreading the charge over the vesting period.For the DSBP, the charge is amortised over the period between the first dateservices were provided by employees relating to the grant and the date that theemployees take ownership of the shares. For example, the grant made in March 2005 related to services provided from thebeginning of the 2004 financial year, with employees taking ownership of theshares five years after the date of grant provided that they are still employedby the Group. Under UK GAAP the market value of the options awarded would havebeen expensed during 2004 as they were considered to relate to past service.Under IFRS, the fair value of the shares awarded would be expensed over the 6year and 3 month period from January 2004 to the date that the shares vest inMarch 2010. Under the transitional provisions of IFRS 2, share based payment, companies areonly required to restate their results for equity instruments granted after 7November 2002. Only three grants relating to the DSBP are restated under IFRS.As these grants vest over a 6 year and three month period, the expense underIFRS is less than that under UK GAAP. The method of bonus calculations for the Group means that this adjustment ispurely a transitional difference and will not impact the levels of profit in thefuture. This is explained further in section 5 (a). The only impact on equity is that relating to National Insurance payable onexercise of the options, and deferred tax. c) IAS 19 Employee Benefits Under IFRS, the charge to the profit and loss account includes: • the current service cost which represents the increase in the pension liability in the current period as a result of the employee's employment over that period.• interest cost on the schemes liabilities.• expected return on plan assets.• past service cost and• the impact of any settlements or curtailments. The UK GAAP charge of £4,194,000 has been reversed and replaced by a charge forcurrent service cost of £2,673,000 plus an interest charge of £3,565,000 less£2,970,000 expected income from the return on plan assets. A deferred taxliability arises on this adjustment. The Group has opted to recognise immediately, in full, all actuarial gains orlosses directly in equity as they arise, in accordance with the amendment to IAS19 issued by the IASB on 16 December 2004. The pension deficit as at 31 December 2004 was £20,334,000 (2003 - £25,528,000)with an offsetting deferred tax asset of £6,100,000 (2003 - £7,658,000). Themovement in the pre-tax deficit is represented by increases due to charges tothe income statement of £3,268,000 and an actuarial loss of £9,494,000. This wasreduced by cash contributions in 2004 of £17,956,000. d) IAS 31 Joint Ventures IFRS allows the option for joint ventures to be accounted for on a proportionalconsolidation or equity accounted basis. The Group has chosen to equity accountall joint ventures. The equity method requires an interest in a jointly controlled entity to beinitially recorded at cost and adjusted thereafter for the post-acquisitionchange in the Group's share of net assets of the entity. The Group is requiredto include its share of the profit or loss in the income statement as a singleline and disclose the value of the investment separately on the balance sheet. Under UK GAAP, various property joint ventures were required to beproportionally consolidated and these have been restated to equity accountedinvestments under IFRS. The balance sheets of these entities substantiallyconsist of cash, intercompany loans and outstanding corporation tax liabilities. This change does not impact group profit but reclassifies operating profit,interest and tax to the line share of results of Joint Ventures. e) IAS 28 Associates Associated undertakings are equity accounted under IAS 28. The only differencebetween the treatment of associates under IFRS compared to UK GAAP relate todisclosures in the income statement. The Group's share of post-tax results ofassociates under IAS 1 must be shown on a single line in the income statement.The UK GAAP numbers therefore are adjusted to reduce interest income by £28,000and income tax expense is reduced by £40,000. f) IAS 12 Deferred Tax The deferred tax liability on undistributed reserves in non-UK equity accountedinvestments has reversed at year end as these investments were liquidated in theyear. g) IAS 1 Presentation of financial statements Under IAS 1, items of income and expense may not be presented as extraordinaryitems on the face of the income statement. Under UK GAAP, profit on disposal ofinvestment property of £8,094,000, profit of disposal of interests in subsidiaryundertakings of £763,000 and profit on disposal of interest in associates of£154,000 were classified as exceptionals. These have been reclassified asoperating items under IFRS. h) IAS 10 Events After the Balance Sheet Date The final and special dividends in respect of 2004 of £17,995,000 is notrecognised at the balance sheet date under IFRS. 4. Adoption of IAS 32 and 39 financial assets and liabilities The Group's policy is for each business to borrow in local currencies wherepossible. The Group does not actively seek to hedge risks arising from foreigncurrency transactions due to the high cost associated with such hedging.Therefore this standard is not expected to have a significant impact on theGroup. This standard will be adopted prospectively in 2005. 5. Earnings Per Share a) Basic and diluted earnings per share as at 31 December 2004: Diluted Diluted Earnings Shares EPS Shares EPS £'000 '000 Pence '000 PenceUK GAAP 34,775 55,938 62.2 61,585 56.5IFRS adjustments:Intangibles 3,216 - 5.7 - 5.2Share based payment 2,734 - 4.9 - 4.4Employee benefits 648 - 1.2 - 1.1Deferred tax 6 - - - -IFRS 41,379 55,938 74.0 61,585 67.2 b) Adjusted basic earnings per share as at 31 December 2004 : UK GAAP UK GAAP IFRS IFRS Shares Earnings EPS Earnings EPS '000 £'000 Pence '000 PenceBasic earnings per share 55,938 34,775 62.2 41,373 74.0Amortisation of - 2,915 5.2 - -goodwillImpairment of goodwill - 639 1.1 639 1.1Less IFRS Share based payment charge - - - (2,734) (4.9)Less sale of trading properties after tax - (1,525) (2.7) (1,525) (2.7)Less sale of investment property after tax - (5,666) (10.1) (5,666) (10.1) Adjusted basic earnings per - 31,138 55.7 32,087 57.4share The Directors consider the disclosure of the supplementary earnings per sharenecessary in order for the impact of, impairment of goodwill and amortisation ofgoodwill to be fully appreciated, as well as eliminating the sale of trading andinvestment property results which are not always of a comparable nature. The IFRS share based payment charge is removed to present an indication of theimpact of IFRS changes on the Group going forward. The method of bonuscalculation means that the adjustment will not impact profit levels in thefuture. The Group operates a number of deferred share bonus and options schemes, thelargest of which is the Deferred Share Bonus Plan (DSBP). Under thisnon-pensionable annual bonus scheme for Directors and senior executives, a partof the annual bonus, at the discretion of the Remuneration Committee, may beawarded in the form of deferred conditional rights to ordinary shares in theCompany, with the additional part of the bonus being paid out in cash. Annualbonuses are subject to the attainment of challenging performance targets whichare specific to each individual and either relate to Group thresholds,subsidiary company targets or a combination of both for a period not exceedingthe relevant financial year of the Company. The annual bonus pool for the Groupis fixed, based on pre-bonus profit based calculations. The element of thebonus pool which is paid out in cash is determined by deducting share basedpayment charges made against income in the performance period from the bonuspool. During 2004, the amount which was charged against the bonus pool for share basedpayments was the UK GAAP charge, and the balance of the bonus pool was paid outas cash bonus. The latter amount is not impacted in 2004 by the restatement ofthe share based payment charge to IFRS, but in the future it will be. Theadjusted EPS takes account of this one-off adjustment in 2004. 6. Accounting Policies to be adopted from 1 January 2005 Basis of Accounting The Group accounts have been prepared in accordance with International FinancialReporting Standards (IFRS) as adopted by the European Union and with those partsof the Companies Act 1985 applicable to companies reporting under IFRS. The 2005 financial statements will be the Group's first consolidated financialstatements prepared under IFRS, with a transition date of 1 January 2004.Consequently, the comparative figures for 2004 and the Group's balance sheet asat 1 January 2004 have been restated to comply with IFRS, with the exception ofIAS32 and IAS39 on financial instruments, which have been applied prospectivelyfrom 1 January 2005. In addition, IFRS1, First time adoption of InternationalFinancial Reporting Standards allows certain exemptions from retrospectiveapplication of IFRS in the opening balance sheet for 2004 and where these havebeen used they are explained in the accounting policies below. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. The financial statements have been prepared under the historical costconvention, as modified to include the revaluation of investment properties andfinancial assets. Consolidation The consolidated Accounts include the Accounts of the Company and its subsidiaryundertakings, together with the Group's share of results of its associates andjoint ventures. A subsidiary is an entity controlled by the Group, where control is the power togovern the financial and operating policies of the entity, so as to obtainbenefit from its activities. The results of subsidiary undertakings acquired during the period are includedfrom the date of acquisition of a controlling interest at which date, for thepurpose of consolidation, the purchase consideration is allocated between theunderlying net assets acquired, including intangible assets other than goodwill,on the basis of their fair value. The results of the subsidiary undertakings that have been sold during the yearare included up to date of disposal. The profit or loss is calculated byreference to the net asset value at the date of disposal, adjusted for purchasedgoodwill previously included on the balance sheet. Inter company balances and transactions, and any unrealised gains arising frominter company transactions, are eliminated in preparing the consolidatedfinancial statements. Associates Associates comprise investments in undertakings, which are not subsidiaryundertakings, where the Group's interest in the equity capital is long term andover whose operating and financial policies the Group exercises a significantinfluence. They are accounted using the equity method. Joint Ventures A joint venture is a contractual arrangement whereby two or more partiesundertake an economic activity that is subject to joint control, which existsonly when the strategic financial and operating decisions relating to theactivity require the unanimous consent of the venturer's. The Group's jointventures are accounted for using the equity method. Goodwill Goodwill arising on acquisition is capitalised and subject to annual impairmentreviews. Goodwill represents the excess of the cost of acquisition of asubsidiary or associate over the Group's share of the fair value of identifiablenet assets acquired. Goodwill is stated at cost less accumulated impairmentlosses. The Group's policy up to and including the year ended 30 April 1998 was toeliminate goodwill against reserves. Goodwill acquired from 1 May 1998 to 31December 2003 was capitalised and amortised over its useful economic life. Aspermitted under IFRS1, in respect of acquisitions prior to 1 January 2004, theclassification and accounting treatment of business combinations has not beenamended on transition to IFRS. Goodwill previously written off direct toreserves under UK GAAP is not recycled to the income statement on the disposalof the subsidiary or associate to which it relates. Goodwill in respect of subsidiaries is included in intangible assets. In respectof associates, goodwill is included in the carrying value of the investment inthe associated company. Turnover Turnover in respect of property consultancy represents commissions and feesreceivable excluding VAT. On traditional agency work in progress, no value isattributable until contracts on the underlying transactions have been exchanged.On complex multi-unit developments, revenue is recognised on a staged basis,commencing when the underlying contracts are exchanged. No value is generallyattributed to commercial agency work in progress until completion. However, ifexchange of contracts on the underlying transaction is unconditional, income isrecognised on a phased basis in accordance with the contractual terms. Sales of properties held by the Group as trading assets are included inturnover. Share-Based Payments Equity-settled share-based payments granted after 7 November 2002 that had notvested as of 1 January 2005 are measured at fair value at the date of grant. Thefair value determined at the grant date of the equity-settled share-basedpayments is expensed on a straight-line basis over the vesting period, based onthe Group's estimate of shares that will eventually vest. For cash-settledshare-based payments, which have not vested at 1 January 2005, a liability equalto the portion of the service received is recognised at the current fair valuedetermined at each balance sheet date. The fair value of equity-settled share based payments is measured by the use ofActuarial Binomial option pricing model. The fair value of cash-settled sharebased payments is measured using the method considered to be most appropriate. Employee Benefit Trust The Company has established The Savills plc 1992 Employee Benefit Trust (theEBT), the purposes of which are to grant awards to employees to acquire sharesin the Company pursuant to the Savills plc 1992 Executive Share Option Schemesand the Deferred Share Bonus Plan and to hold shares in the company subsequentto transfer to employees on exercise or vesting of the awards granted under theschemes. The assets and liabilities of the EBT are included in the balancesheets of the Group and the Company. Investments in the Group's own shares areshown as a deduction from shareholders funds. Qualifying Employee Share Trust The Company has established a Qualifying Employee Share Trust (QUEST), whichacquires shares of the Company. These are transferred to employees on theexercise of options granted under the Savills Sharesave Scheme. Property, Plant and Equipment Property, plant and equipment is stated at historical cost less accumulateddepreciation and impairment. Provision for depreciation is made at ratescalculated on a straight-line basis to write-off the assets over their estimateduseful lives as follows: YearsFreehold property 50Leasehold property (less than 50 years) over unexpired term of leaseFurniture & office equipment 6Motor vehicles 5Computer equipment Between 3 & 5 Intangible Assets other than Goodwill Intangible assets acquired as part of business combinations are valued at fairvalue on acquisition and amortised over the useful life. The useful lives ofthese assets are determined on a case by case basis. The useful life of suchintangible assets currently ranges from 2 to 5 years. Amortisation charges arespread over the period of the assets useful life. Computer software is carried at cost less accumulated amortisation and isamortised on a straight-line basis over a period ranging from three to fiveyears. Accounting for Leases Assets financed by leasing agreements which give rights approximating toownership (finance leases) are capitalised in property, plant and equipment.Finance lease assets are initially recognised at an amount equal to the lower oftheir fair value and the present value of the minimum lease payments atinception of the lease, then depreciated over their estimated useful lives. Thecapital elements of future obligations under finance leases are included asliabilities in the balance sheet. Leasing payments comprise capital and financeelements and the finance element is charged to the income statement. The annual payments under all other lease agreements, known as operating leases,are charged to the income statement on a straight line basis over the leaseterm. Investment Properties An investment property is a property held to earn rentals and for capitalappreciation and is initially measured at cost, including direct transactioncosts. Subsequent to initial recognition, investment properties are measured atfair value annually. Fair value is considered to be the open market value withno allowance for disposal costs. Valuations are undertaken by independentqualified valuer's in accordance with Guidance Notes on the valuation of assetsissued by the Royal Institution of Chartered Surveyors. Gains or losses arising from the changes in the fair value of investmentproperties are included in profit or loss for the period in which they arise.Investment properties are not depreciated. Work in Progress Work in progress is stated at the lower of cost and net realisable value. Costincludes an appropriate proportion of overheads. Long-term work in progress isassessed on a contract by contract basis; turnover and related costs areincluded in the income statement as contract activity progresses. Where theoutcome of a long-term contract can be assessed with reasonable certainty,attributable profit is recognised. Long-term contracts are stated at cost net ofamounts transferred to cost of sales, foreseeable losses and applicable paymentson account. Taxation Taxation is that chargeable on the profits for the period, together withdeferred taxation. Deferred taxation is provided in full on temporary differences between thecarrying amount of assets and liabilities for financial reporting purposes andthe amount used for taxation purposes. Deferred tax is provided on temporarydifferences arising on investments in subsidiaries and associates, except wherethe timing of the reversal of the temporary difference is controlled by theGroup and it is probable that it will not reverse in the foreseeable future. Adeferred tax asset is recognised only to the extent that is probable that futuretaxable profits will be available against which the asset can be utilised.Deferred tax assets and liabilities are not discounted. Deferred tax is determined using the tax rates that have been enacted orsubstantially enacted by the balance sheet date and are expected to apply whenthe related deferred tax asset is realised or deferred tax liability is settled. Tax is recognised in the income statement except to the extent that it relatesto items recognised directly in equity, in which case it is recognised inequity. Impairment of Assets Assets that have indefinite useful lives are tested annually for impairment,while assets that are subject to amortisation are reviewed for impairmentwhenever events indicate that the carrying amount may not be recoverable. Animpairments loss is recognised to the extent that the carrying value exceeds thehigher of the asset's fair value less cost to sell and its value in use. Pension Costs Retirement benefits for employees are provided by a defined benefit scheme whichis funded by contributions from the Group and its employees. The Groupcontributions are determined by an independent qualified actuary. The net deficit for the Group defined benefit pension scheme is calculated inaccordance with IAS 19, based on the present value of the defined benefitobligation at the balance sheet date less the fair value of the plan assets. Aspermitted under IFRS1, all cumulative actuarial gains and losses at the date oftransition were fully recognised. The defined benefit scheme charge consists of current service costs, interestcost, expected return on plan assets, past service cost and the impact of anysettlements or curtailments. All actuarial gains and losses are recognisedimmediately in the 'Statement of changes in equity' as they arise. The Group also operates a defined contribution group personal pension plan fornew entrants and a number of defined contribution individual pension plans.Contributions in respect of defined contribution pension schemes are charged tothe income statement when they are payable. Foreign Currency Translation The income and cash flow statements of Group undertakings expressed incurrencies other than sterling are translated to sterling at average rates ofexchange in each year. Where the average rate is not a reasonable approximationthe actual rate is used. Assets and liabilities of these undertakings aretranslated at rates of exchange at the end of each year. The differences between retained profits of overseas subsidiary and associatedundertakings translated at average and closing rates of exchange are taken toreserves, as are differences arising on the retranslation to sterling (usingclosing rates of exchange) of overseas net assets at the beginning of the year.Any differences that have arisen since 1 January 2004 are presented as aseparate component of equity. As permitted under IFRS1, any differences prior tothat date are not included in this separate component of equity. Foreign currency transactions are initially recorded at the exchange rate rulingat the date of the transaction. Foreign exchange gains and losses resulting fromthe settlement of such transactions and from the translation at year-end ratesof exchange are recognised in the income statement. Dividends Final dividend distributions to the Company's shareholders are recognised as aliability in the Group's financial statements in the period in which thedividends are approved by the Company's shareholders, while interim dividenddistributions are recognised in the period in which the dividends are declared. Financial Instruments Non-derivative financial assets are classified as either available-for-saleinvestments, accounts receivable or cash and cash equivalents. Available-for-sale investments are stated at fair value, with changes in fairvalue being recognised directly in equity. When such investments arederecognised (e.g. through disposal) or become impaired, the accumulated gainsand losses, previously recognised in equity, are recognised in the incomestatement. Accounts receivable are valued at cost less estimated non-recoverable amounts.Accounts receivable are discounted where the time value of money is material. Cash and cash equivalents include cash in hand and deposits held on call,together with other short term highly liquid investments and working capitaloverdrafts. Application of IAS32 and IAS39 As noted above, the Group has adopted IFRS for the first time in 2005. It hasapplied the financial instruments' standards IAS32 and IAS39 prospectively from1 January 2005, as permitted by these two standards. The principal impact of theapplication of these standards reflects the change in the measurement andclassification of other investments. These are measured at cost less permanentdiminution in value under UK GAAP and are re-classified as available-for-salefinancial assets, measured at fair value. Segmental Analysis A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that issubject to risks and returns that are different from those of segments operatingin other economic environments. Repurchase of Share Capital When share capital is repurchased, the amount of consideration paid, includingdirectly attributable costs, is recognised as a charge to equity. Repurchasedshares which are not cancelled, or shares purchased for the Employee ShareOwnership Trusts, are classified as treasury shares and presented as a deductionfrom total equity. ENDS For further information, please contact: Savills Aubrey Adams 020 7409 9923 Citigate Dewe Rogerson Simon Rigby/Sarah Gestetner/George Cazenove 020 7638 9571 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Savills