Preliminary Results

12th Mar 2008 07:01

Savills PLC12 March 2008 SAVILLS PLC ("Savills" or "the Group") PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 RECORD RESULT FOR SAVILLS Savills plc, the international property advisers, is pleased to announce itspreliminary results for the year ended 31 December 2007. Operational Highlights • Strong performance during 2007; underlying profits before tax up 14% to £85.5m reflecting the benefits of the Group's business and geographical diversification • US platform established with acquisition of Savills Granite. Asian and continental European businesses continuing to grow strongly • Continued investment in growth through acquisitions, recruiting new teams and opening new offices: - Further geographic expansion: US, Vietnam and Taiwan - 29 new offices opened - Important acquisitions successfully completed: Hepher Dixon (UK planning) Christopher Rowland (UK residential) and Granite (US commercial) - Selective hiring of both individuals and teams • £41 million spent on share buy backs for cancellation and for Employee Benefit Trust • Jeremy Helsby appointed as Group Chief Executive effective from May 2008 and Mark Dearsley appointed as Group Finance Director effective from September 2007 Financial Highlights Underlying results* • Revenue up 26% to £650.5m (2006: £517.6m)• Underlying Group profit before tax up 14% to £85.5m (2006: £75m)• Underlying basic earnings per share up 13% to 46.1p (2006: 40.8p) *Underlying Group profit is calculated by adjusting reported profit before taxto deduct profit on disposals of £0.7m (2006: £5.1m), share based paymentadjustment of £4.8m (2006: £6.1m) and add back amortisation of intangibles andimpairment of goodwill and available-for-sale investments of £5.1m (2006:£1.8m). Reported IFRS results - continuing operations • Revenue up 26% to £650.5m (2006: £517.6m)• Group profit before tax up 2% to £85.9m (2006: £84.4m)• Basic earnings per share 45.5p (2006: 46.0p)• Proposed final dividend of 12p net per share (2006: 11p), making 18p for the year, an increase of 12.5% Aubrey Adams, Group Chief Executive of Savills plc, commented: "Underlying pre-tax profits increased from £75.0m to £85.5m and reported IFRSpre-tax profits increased from £84.4m to £85.9m. In the UK, acquisition andorganic expansion continued to bring new teams and new expertise into all partsof the business. Commercial investment transactions slowed in the second halffollowing the effect of the credit squeeze and the anticipation of yields movingout. On the Residential side, prime markets held up well, but showed some signsof slowing towards the end of the year. Our Consultancy teams produced a strongperformance. In Europe, investment markets remained firm and we expanded our range ofservices. Asia Pacific saw strong growth in revenues, with a significant increase inprofitability. This was largely attributable to organic growth in our businessesin Hong Kong, China, Australia and Singapore." Jeremy Helsby, Group Chief Executive (Designate) of Savills plc, commented: "I strongly believe that Savills' unique culture will be its greatest asset inthe times ahead. This culture is embodied in the Savills brand and sets us apartfrom our competitors. Our clients understand that the Savills brand representsthe best people, a premium service that is creative and entrepreneurial, and onethat is dynamic and distinctive. This culture combined with the very highquality of Savills staff across the globe, our strong financial position andemphasis on cost control will ensure that we are well placed to take advantageof the opportunities that might arise in the months ahead as a result of thevolatile financial markets." Peter Smith, Non-Executive Chairman of Savills plc, commented: "2008 will be a challenging year for the property industry worldwide. However,not all segments and geographies will be affected equally. With its broad rangeof services, its high quality staff and its geographic spread Savills is wellplaced to seize the opportunities. The outlook for our UK and US Commercial Capital Markets businesses and our UKResidential and Mortgage Broking businesses, continues to depend on how quicklyconfidence returns to financial markets. Our Transactional businesses in Europeand Asia continue to be more resilient. Demand for our Consulting, PropertyManagement and Fund Management services remains strong in all our markets acrossthe world." For further information, contact: Savills 020 7409 8844Aubrey Adams, Group Chief ExecutiveJeremy Helsby, Group Chief Executive (Designate)Mark Dearsley, Group Finance Director Citigate Dewe Rogerson 020 7638 9571Sarah GestetnerGeorge Cazenove There will be an analyst presentation today at 9am at Citigate Dewe Rogerson, 3London Wall Buildings, London Wall, London EC2M 5SY. CHAIRMAN'S STATEMENT Despite turmoil in the financial markets and the consequent effects on propertyinvestment markets, Savills had an excellent 2007, producing a record result.This outstanding achievement reflects the significant efforts over the last fewyears to broaden our geographical spread and diversify our business lines. Results The Group's underlying profit before tax was £85.5m, a 14% increase on 2006.Revenue increased by 26% to £650.5m. Reported profit before tax was £85.9m(2006: £84.4m). Dividends The Board has recommended an increase in the final dividend for 2007 of 9% to12p per share to those shareholders on the register on 11 April 2008, payable on14 May 2008. This gives a total ordinary dividend for the year ended 31 December2007 of 18p (2006: 16p). In the five years to 31 December 2007 underlyingearnings have increased by an average of 24% per annum and dividends by anaverage of 29% per annum. Major acquisitions In 2007, as part of our continuing strategy both to grow geographically and addgreater diversity to the Group, we acquired Granite Partners LLC in the US foran initial consideration of US$54m to form Savills Granite. This means that wecan now offer clients commercial investment sales, debt and equity placement andadvisory services in the US and gives us a platform from which to growprogressively the range of services we can offer to both US clients and forthose with an interest in the US. Our acquisition of Hepher Dixon Limited at the beginning of the year for £5.1menabled our planning business become a major force in London and across theregions. We continued to build our UK residential network with a number of acquisitionsincluding that of Christopher Rowland Limited. Share buyback programme At the last Annual General Meeting shareholders gave authority for a limitedpurchase of Savills shares for cancellation of up to 10% of the issued sharecapital. During the year ended 31 December 2007, 3.5m shares, representing 2.6%of issued share capital were repurchased for cancellation under this programme.The Company may make further purchases of shares under this authority up to theAnnual General Meeting (AGM) to be held on 7 May 2008. As in previous years,shareholders will again be asked to consider a resolution to approve therepurchase of shares at this year's AGM. Board and staff I am delighted to welcome Mark Dearsley, who was appointed as Group FinanceDirector with effect from 3 September 2007. On 18 October 2007 we announced the retirement after 18 years of Aubrey Adams,Group Chief Executive, which will take effect from the AGM on 7 May 2008. Aubreyjoined Savills in 1990 and was appointed Managing Director in 1991. UnderAubrey's leadership Savills has become a leading global property advisorybusiness with revenues growing from £24m in 1992 to over £650m in 2007. A lossof some £2.3m in 1992 has been transformed into a profit of £86m this year andthe Company is now a constituent of the FTSE 250. I would like to thank Aubreyon behalf of all our staff, clients and shareholders for the significant rolethat he has played in expanding our business. We engaged outside advisers to assist us in the appointment of Aubrey'ssuccessor and a number of candidates were interviewed. I was pleased to announcethat Jeremy Helsby will succeed Aubrey as Group Chief Executive. Jeremy joinedSavills in 1980 and has successfully developed the UK Commercial business fromrevenue of £47m in 2001 to over £142m in 2007. Jeremy has also led the growth ofour Continental European business, establishing 13 Savills offices andassociations in 8 countries over the past seven years. I look forward to workingwith Jeremy in his new role. After Aubrey Adams' retirement, the Board will comprise a Non-ExecutiveChairman, four Independent Non-Executive Directors and five Executive Directors,which the Board considers is an appropriate balance and meets the present needsof the Group. The Non-Executive Directors have a wide range of businessexperience and expertise and provide a strong independent element to the Board.However, the Board will keep under review the need for any changes in thestructure of the Board. Our People Savills' continued growth is a result of the committed and dedicated efforts ofour people whose continued ability to provide a professional service to ourclients is the basis for the excellent results achieved; I thank them all fortheir dedication and hard work. Our reward system, which is essentially based onteam profit performance, is an important mechanism in providing a balancebetween the interests of staff and shareholders. Strategy Our strategy remains unchanged and Jeremy Helsby outlines his priorities in hisGroup Chief Executive (Designate's) message. Outlook 2008 will be a challenging year for the property industry worldwide. However,not all segments and geographies will be affected equally. With its broad rangeof services, its high quality staff and its geographic spread Savills is wellplaced to seize the opportunities. The outlook for our UK and US Commercial Capital Markets businesses and our UKResidential and Mortgage Broking businesses, continues to depend on how quicklyconfidence returns to financial markets. Our Transactional businesses in Europeand Asia continue to be more resilient. Demand for our Consulting, PropertyManagement and Fund Management services remains strong in all our markets acrossthe world. Peter Smith, Chairman Review of Operations Group Chief Executive's Review Underlying pre-tax profits increased from £75.0m to £85.5m and reported IFRSpre-tax profits increased from £84.4m to £85.9m. In the UK, acquisition andorganic expansion continued to bring new teams and new expertise into all partsof the business. Commercial investment transactions slowed in the second halffollowing the effect of the credit squeeze and the anticipation of yields movingout. On the Residential side, prime markets held up well, but showed some signsof slowing towards the end of the year. Our Consultancy teams produced a strongperformance. In Europe, investment markets remained firm and we expanded our range ofservices. Asia Pacific saw strong growth in revenues, with a significant increase inprofitability. This was largely attributable to organic growth in our businessesin Hong Kong, China, Australia and Singapore. I am delighted that Jeremy will be taking over from me and will continue todevelop and grow the business in line with our stated strategy. Aubrey Adams, Group Chief Executive Group Chief Executive (Designate's) message In my first message to shareholders I would like to thank Aubrey for his hugecontribution to the success of Savills over the last 18 years. I take over fromAubrey at a time when we announce another set of record results for Savills.However, looking forward we are experiencing unsettled and volatile marketconditions in many of the markets in which we operate across the globe. Makingaccurate predictions for Savills' future trading therefore is difficult. I hopethat with the benefit of my 28 years at Savills and of my experience of workingfor different Savills subsidiaries in many different markets and countries, thatI am well placed and have the experience to guide the Group successfully throughthese challenging times. I strongly believe that Savills' unique culture will be its greatest asset inthe times ahead. This culture is embodied in the Savills brand and sets us apartfrom our competitors. Our clients understand that the Savills brand representsthe best people, a premium service that is creative and entrepreneurial, and onethat is dynamic and distinctive. This culture combined with the very highquality of Savills staff across the globe, our strong financial position andemphasis on cost control will ensure that we are well placed to take advantageof the opportunities that might arise in the months ahead as a result of thevolatile financial markets. The challenge will be to prioritise all these opportunities to maximiseshareholder value in both the short and long term. Our strategy will be tocontinue to grow globally but also to build on the significant acquisitions andrecruitment that we have made over the last two years. Our aim is to continue todiversify our income earnings globally to reduce our reliance on the UK market,which currently represents a significant percentage of our earnings. My vision for Savills for 2008 and beyond is for the Savills brand to be themarket leader. We have a brand that is the envy of our competitors and one I amdetermined to grow, nurture and expand across the globe. I have a passion forSavills, a passion that is shared by all who work for Savills, from ourgraduates, where for the second year running we were voted the 'GraduateEmployer of Choice for Property 2007' by The Times, right up to our ExecutiveBoard, whose loyalty and passion is evidenced by the Board's extensiveexperience at Savills. Our clients deserve and expect the best from Savills. I am committed to ensuringthat they will receive the high level of professionalism, drive, creativity,entrepreneurialism, honesty and quality that is synonymous with the Savillsbrand. I am excited by the new challenges ahead of me and my aim is to ensurethat Savills continues to build and grow its global business for the benefit ofits clients, staff and shareholders. Jeremy Helsby, Group Chief Executive (Designate) Group Strategy Introduction: Savills is entering a new phase in its evolution Savills has established successful businesses in many of the major propertymarkets around the world, focusing its energy and resource on building stronglocal businesses with excellent local people. Each of the subsidiaries has hadthe freedom to maximise its earnings relatively independently, and to growrapidly with the markets in which they are operating. As we enter 2008, theobjective for the Group continues to be to grow earnings, but the strategy toachieve that growth will emphasise growing market share in the markets in whichwe are already established, making more of what we have already, for examplethrough more effective cross-selling and client relationship management. Savills vision The vision overall for Savills remains: 'To be one of the leading providers ofreal estate services in the major markets of the world'. There is clearly aseparation between the truly global players and the rest of the propertyservices competitors. Savills is already a major global player and intends tostay in the top league. However, while total global revenues are important,being perceived as a leader by clients and prospective employees is essential,and this requires a careful balance between being global - in range andcapability - and local - having depth of expertise and breadth of service in keylocal markets. By getting the balance right, we believe we will deliver superiorreturns to shareholders, and we will be the employer of choice for outstandingindividuals in our chosen markets. The market Clients - trends There is no doubt that property remains an important asset class and, as marketsbecome more transparent and the corporate users of property continue to sell offtheir property assets, this trend will continue. We plan to continue tostrengthen the services we can offer our clients, from transaction and corporatefinance advice, through valuation, leasing, property management, and, in places,facilities management. We also believe that more global cross-border capital flows into property willcontinue - cross-border investors have represented the fastest growing segmentof most markets over the past two years and, in Europe, now account for almosthalf of the total investment market. The domestic investment markets remainlarge however, particularly in North America and Asia, reinforcing theimportance of strong local businesses. Savills will focus on expanding share inthe largest markets in which it operates, prioritising growth efforts on thecities and countries that have substantial domestic markets as well as beingboth sources and destinations for international capital investment. For developers, the trend worldwide is for mixed-use projects, where offices,hotel, retail and residential are all important elements. Savills is uniquelyqualified among the major global players in this market, with its depth andbreadth of both residential and commercial businesses. This will be an area offocus for Savills over the next few years. Investors are looking to the emerging markets for greater returns. While thesemarkets are currently small, their future potential and forecast growth ratesare appealing. Savills will be taking a proactive approach to identifying theright opportunities to enter these markets. The competitive environment We have a strong and diverse client base that is the envy of many of ourcompetitors. In more challenging market conditions ahead we will have to competeeffectively both to retain existing and win new clients. In particular, we willbe aiming to do more to retain our current clients and ensure they understandthe range of our services and the value we can bring to their business. The employment market for top quality staff remains highly competitive in allcountries. However, Savills has an excellent track record of hiring andretaining top people both at graduate and more experienced levels. We arecontinuing to make improvements to our working environment, career developmentprospects and remuneration structures to ensure we remain the employer of choicein the industry. Savills strategy - focused expansion and making more of our existing assets Based on the assessment of the market dynamics and trends, our strategy for2008-2010 builds from our strengths and achievements in 2007. Building scale and brand recognition in the major cities and countries of theworld In the UK, we will continue to strengthen and grow our share in existingsegments through selected acquisitions and hiring. This includes areas whereSavills is already a leader, for example in Planning and Housing Associationwork, and also in higher growth sectors and discipline areas that have adifferent revenue profile from transactions. We will also selectively expand into new areas of specialisation. We willcontinue to grow our UK Residential business, although expansion of the networkwill slow down during the current period of economic uncertainty, and we willfocus in 2008 on improving productivity in existing offices and integrating theteams and businesses acquired and recruited in 2007. In the US, the Savills Granite business is focussing on expanding its share inNew York City and adding capability in selected sector-focussed teams. Thepriority in the US is using New York City as a platform to build and expand ourpresence in the US with the aim of building our share of international capitalflows into and out of North America. Expansion in Europe will be focussed on the countries which we believe willbenefit the most from increased cross-border investment activity. In these keymarkets we will be increasing our Capital Markets teams and expanding into newsectors and cities. We will also be expanding our Consultancy teams acrossEurope with particular focus on our existing Valuation and Property Managementteams. We will selectively establish in new locations and we have already openeda new office in Brussels. We have initiatives in place to improve ourcross-selling from London to Europe and, having established our relationshipwith Asteco in the Middle East in 2007, we will now be working to grow referralsbetween them and the rest of Savills' businesses. In Asia our strategy is to consolidate and extend the regional platform that hasbeen built over the past few years. We will be creating an integrated regionalservice platform to better handle clients' pan-regional requirements. In Chinawe will grow revenue from existing offices, marketing our services to domesticinvestors, as well as extending into new cities when the time is right. Selectedsector teams will be strengthened and Japan will be restructured to improveprofitability. Continued pursuit of the cross-border investment market The aim is to establish a leadership position in this market through improvedclient relationship management and teamwork. Some of our leading investmentspecialists have been taken out of their previous roles to concentrate ondeveloping this area of the business. Exploring new opportunities in the strongest emerging economies We will continue to pursue opportunities in selected emerging markets. Growth in fund management We continue to see fund management as an important part of our global business.Cordea Savills plans to continue expanding its product range in Europe and, inAsia to build on its strategic venture with Nichani Group in India. Exploit our strength in residential on a more global scale Savills has an enviable, nationwide prime Residential business in the UK, andnew homes businesses in a number of major cities around the world. In addition,we have an associate network of residential agents in popular, upmarket resortdestinations around the world. This breadth and depth of customers and knowledgegives the business a real advantage over commercial competitors in advising ourclients on mixed development opportunities worldwide. It also supports theSavills brand positioning as 'premium', and 'international'. Exploiting our strengths An important theme for Savills over the next few years will be making better useof our strengths and assets. This relates to taking a longer term view of clientrelationships, as well as how we manage the business internally. More effortwill be directed to make clients aware of what we can do for them. For 2008there are already initiatives in place to further improve the co-operationbetween our UK mortgage broking and residential businesses, between the variouscommercial departments in the UK, and to grow international cross-referrals ofclients between the US, UK, Europe, Asia and the Middle East. We have improvedmanagement structures to strengthen intra-regional cooperation within both Asiaand Europe. Team structures and remuneration will be selectively adapted inorder to support this initiative. Following a review of our HR policies andpractices in 2007, we will be working to improve our people policies andmanagement practices. Building the brand One of the most important assets of the Group is the Savills brand and our aimis to strengthen the Savills brand recognition across the globe. We have startedto review its identity, and to understand better the perception of clients, andboth current and prospective employees. This in turn will help us to improve ourmarketing and communications over the coming years and ensure that investmentsin marketing are most effective. The identity revolves around the people whowork at Savills - passionate, creative, hungry, fun, entrepreneurial - and ourpremium, global reputation in the market. We aim to maintain this focus on greatpeople and premium brand positioning. We have recently established a newMarketing and Communications working group, reporting into the new Group ChiefExecutive. Savills Marketplace Overview UK Commercial Retail and industrial/distribution tenant demand remained positive during 2007.Steady demand in regional office markets continued throughout the year,particularly for Grade A space. In the Central London office market, whilelevels of leasing activity were well above average in the first three quartersof 2007, there was some caution in the final quarter of the year. While we haveseen little evidence of requirements being eased as a result of the creditsqueeze, it is clear that banking sector tenants are less certain about thefuture than they were a year ago. In the second half of the year, the investment markets in the UK were hit hardby the credit squeeze, with debt-backed purchasers significantly less activethan they have been in recent years. Transactional activity was driven by equityinvestors, both domestic and international. The relatively low levels oftransactional activity have made it hard for investors to ascertain the degreeto which yields have corrected and some element of valuation lag is furthercomplicating this. Barring any major external shock in 2008, we expect tenant demand outside theLondon office markets to remain stable and heavily biased towards Grade Abuildings and locations. Until the credit squeeze has eased demand for CentralLondon offices is likely to remain subdued. However, given the current lowlevels of vacancy in this market we do not believe there will be a significantdownward correction in the rents on Grade A buildings. Once the credit squeeze has begun to ease, we expect a gradual pick up in thevolume of capital market transactions across the UK commercial property market,with investors continuing to focus on opportunities that offer the prospect ofabove average rental growth. Cross-border investors are expected to continue toview the UK as an attractive investment market due to its landlord favourablelease structure, high levels of liquidity and transparency. Residential The UK mainstream residential market started 2007 strongly. However, fivesuccessive interest rate rises had a progressive impact upon price growth andmarket activity over the course of the year. Annual UK house price growth, whichpeaked in the middle of 2007, fell by the year end, as tightened affordabilitywas compounded by the fallout from the credit squeeze. Markets in the South Eastproved the most resilient to the slowdown, with no noticeable impact upon ratesof price growth being evident in London until August, when buyer confidence washit by poor economic news reports and accessibility to mortgage finance becamemore constrained. As confidence dipped, so did market activity. Turnover in thenew homes market was noticeably down in the last quarter, as demand from buy tolet purchasers and other investors tailed off. Prime markets performed strongly in the first half of the year, with annualhouse price growth at the very top end of the Central London market reaching 29%in June, fuelled by record City bonus payouts and strong overseas demand. Pricegrowth in the rest of Prime Central London ended the year at slightly over 16%,even after accounting for a 2% fall in prices in the last quarter, whichoccurred as a result of uncertainty in the City and reduced earningsexpectations amongst those employed in the financial sector. The 2008 market is expected to be characterised by low turnover and flat houseprice growth. Further cuts in interest rates, a freeing up of capital marketsand some reassurance that the taxation of non-domiciled residents is not goingto be too onerous, will be critical to the performance of the sector in 2008. Europe Tenant demand for commercial property across Europe remained steady for most of2007. Occupiers in all sectors were, however, more selective on location, with aheavy preference towards prime properties. While the credit squeeze raisedquestions about the prospects for banking sector demand there has been littleevidence of tenant requirements being put on hold. Looking ahead we expectleasing activity to remain stable in 2008 unless there is a major externalshock. Occupiers in the retail and distribution markets will continue to focuson locations that deliver high profitability per square foot. Occupationaldemand for offices will remain heavily skewed towards Grade A properties. In the investment markets, following a strong first half to 2007, volumes havebeen restrained by the credit squeeze. Debt has become harder to obtain, anddebt backed buyers have consequently been less active. Equity investors haveremained active across Europe, focusing on both trophy investments and rentalgrowth opportunities. Investors in Europe in the second half of 2007 were focusing on Grade Aproperties in the office, retail and industrial sectors with secondaryproperties being increasingly difficult to sell. Investors' main focus continuedto be Germany where the potential for sustained rental growth continues toattract investors, both domestic and international. Looking forward to 2008,general activity in the European Investment markets will be constrained untilthere is a greater availability of debt from the banks. We expect investors tocontinue to focus on France, and Paris in particular, where yields for primeoffice and retail have proven resilient and where there remains significantdemand for good quality, well let office buildings. In Spain, there appears tobe concern that the residential markets have been overpriced but there is stilla very active commercial market with investors believing that 2008 will providesome interesting buying opportunities. We believe that there will be increased interest in the Nordic region as some ofthe countries there begin to attract increased investor demand. The Netherlands market has remained resilient throughout 2007, and in 2008 todate, with many of the Dutch banks being largely unaffected by the creditsqueeze. We see this market attracting significant investor interest in 2008 inboth the retail and office sectors. Asia In 2007, Asia was largely unaffected by the credit squeeze with investor andoccupier markets continuing to perform strongly. Upward economic momentumremained. Local and international investors were particularly active during 2007and a considerable weight of institutional funds targeted the region. Yieldcompression and a limited stock of available properties created a challengingoperating environment for investors and forced many to look further afield tosecond tier markets for opportunities. In the prime office markets, corporate expansion at a time of generally limitedsupply drove rents up. In the retail markets, growing visitor numbers and risinghousehold incomes generated strong consumer demand amidst constrained supplylevels, especially at the top end of the market. Residential markets performed well with some evidence of moderating price growthafter a year of rapid gains. In China, measures were being taken to cool theeconomy and curb inflation and may act to cool the market in the near term. US In the second half of 2007, with the advent of the subprime credit issues,buyers and sellers became more cautious and the credit markets becamesignificantly more restrictive resulting in costlier debt and slowing salesvolumes. The subprime credit squeeze and its ensuing effects on consumerconfidence, construction starts, unemployment and GDP had a significant impacton commercial property. While the overwhelming majority of subprime loans arerelated to single family home mortgages, the fallout spread to the commerciallending sector. We expect this sentiment to continue into 2008. SEGMENTAL REVIEWS Transactional Advice 2007 2006Year to 31 December 2007 £m £m ChangeRevenue 304.1 247.2 +23%Underlying profit before tax 48.6 46.2 +5% Our Transactional Advice business comprises four major elements: - Capital Markets - we advise a wide range of investors including institutions, REITS, sovereign funds and private clients on buying or selling commercial property throughout Europe, Asia and, since July 2007, the US. - Occupational/Corporate Services - we provide letting advice to property owners and represent tenants and owner occupiers in negotiations on acquiring/ disposing of their accommodation including offices, retail and industrial. We continue to support the business needs of global corporate occupiers in providing them with a full range of strategic advisory, professional, transactional and management services across varied property portfolios and asset classes. - Residential - we act for vendors of residential properties and also have a specialist purchasing business in the UK. - Development - we advise on acquisitions and disposal of development land/ sites. Performance in 2007 Overall we increased transactional revenues by 23% to £304.1m, which represents47% of total Group revenue. Underlying profit before tax increased by 5% to£48.6m, representing 57% of total Group underlying profit before tax. Overallmargins were down 3% reflecting the slowing investment market particularly inthe UK. In the first half, investment markets across the UK and Europe were strong withall asset classes being in demand from both local and international investors,resulting in rising prices and falling yields. The second half was verydifferent following the global credit squeeze, saw a decrease in investmentactivity, particularly in the UK and US. In continental Europe, investment markets remained firm and were less affectedby the credit squeeze. Germany, in particular, was popular with investors seeinggood rental growth opportunities in all sectors. In July 2007 we acquired a capital markets business, Granite Partners LLC, inthe US (now Savills Granite), which traded in line with our expectations in thesecond half. This was a good performance in a market where the impact of thecredit squeeze was most noticeable. In Asia, our Capital Markets team had a successful 2007, with major increasesfrom our businesses in Hong Kong, Macau, Singapore and Australia. The additionof a new office in Taipei, together with new offices in Chengdu, Dalian andTianjin in Greater China plus the opening of Savills offices in Hanoi and Ho ChiMinh City were additional factors contributing to the growth of transactionalincome. Our Occupational business is focused mainly on London and the other Europeancapitals. Demand in the London City market was mixed with some large potentialrequirements for additional space from financial sector tenants being put onhold. In the West End, strong demand resulted in record rents being achievedthroughout the year for Grade A accommodation in prime locations. In the rest ofEurope, tenant demand remained firm, with many international occupiers expandingtheir operations throughout Europe, leading to a number of pre-lets in manymajor cities where there remains a severe shortage of good quality, well locatedbuildings. The UK residential agency market experienced a confident start to the year;prime Central London saw price growth of 16% in 2007, with the super primemarket reaching as high as 39%. However most of this growth occurred in thefirst half of the year. In the second half, market sentiment slowed and therewas minimal price growth. The country market also showed strong demand during2007, although this tailed off in the Autumn. The UK residential development market experienced strong demand for land formore traditional housing as there is still a lack of supply in most parts of theUK. However, the market for new build apartments, where government policyfocused growth on high density apartment schemes, has led to over-supply in someregional cities. Prime central London developments continue to perform well. Key achievements of 2007 We continued to expand our Capital Markets teams in all regions. In Madrid,where we recently recruited a new team, we advised on the largest transaction inSpanish history advising Pontegadea on the acquisition of an 11 buildingportfolio from Santander Bank, for a price of €500m. In December, the Madridteam also advised Deka Immobilien on the acquisition of thePricewaterhouseCoopers headquarters in Mexico City from BCBA for in excess ofUS$110m. The UK Capital Markets team transacted more than £57bn of property deals with anumber of high profile transactions in the City, London. Our Capital Markets teams across Asia Pacific had an outstanding year and ourHong Kong and Macau based teams alone transacted more than HK$24bn of propertydeals during 2007. In China, we completed the sale of two office towers inSuzhou's 'Times Square' for US$90m to a Korean fund. In Australia, our Capital Markets team completed the sale of a A$300mresidential land sale at Alkimos, the largest sale of a single residential landholding ever in Western Australia. In the US, Savills Granite advised private property investor and developer, TheStarmount Company, on the sale of its shopping centre, retail and officeportfolio comprising 46 properties for £262m. Savills Granite also expanded itscore competencies by adding several new employees with expertise in urban officemarkets and senior housing. The firm continues to develop its specialty in thesale of medical office properties. The UK Agency Offices team transacted 5.9m sq ft and the National Industrialteam transacted 12.0m sq ft. The teams continue to operate a diversifiedbusiness model representing owners and occupiers alike and focussed on the mostprime and large scale developments across the UK. A key transaction for theOffices team involved pre letting 85% of the space at 40 Portman Square, Londonat rents in excess of £115 per sq ft on behalf of Delancey and Standard Life.They also leased and concluded a sale and leaseback of an 850,000 sq ftdistribution centre in Nottingham to B&Q plc. A key achievement for the Retail Warehouse agency team was being retained by B&Qto market their surplus stores and we sold approximately 400,000 sq ft in 2007.Additionally, we now act on over 100 retail parks throughout the UK for leadinglandlords, such as British Land, Hammerson and Land Securities. Food stores remain a key area of growth and we now have a dedicated Food Storeteam. Our retail development work in the food store sector, primarily for Tesco,has included providing development consultancy advice on several major schemes,and acquisition advice on sites across the country from the north of Scotland tothe Home Counties. We also provided brokerage advice on the acquisition of twoportfolios of stores from Somerfield. In total, our work for Tesco resulted inthem acquiring over 300,000 sq ft of retail space. Our Leasing teams in Australia were particularly active and included leasing51,000 sq m, the whole of Darling Park Tower 1, to the Commonwealth Bank Group,believed to be the largest leasing transaction of an existing building. During the year, our UK Residential business continued to expand, opening newoffices in Barnet, Chester, Bournemouth, Cheltenham, Loughton andStratford-upon-Avon, as well as strengthening many of our existing teams. Weacquired Christopher Rowland, with offices in Northwood, Rickmansworth, Amershamand Chesham. Overall in London, transactions were up 12% over 2006 with anaverage sale price of almost £2m, compared with £1.45m in 2006. The LondonRegion set new benchmarks for prime houses in Belgravia at over £3,000 per sq ftin February with a sale price circa £30m. In the country, transactions were upby 30% over last year at an average sale price of £875,000. Achievements includethe sale of 'Polwartha', Rock at a guide of £4.95m (the highest price per sq ftfor a house in Cornwall). Savills marketed 26,000 acres of farmland representing over 14% of the landopenly marketed, once again proving to be the market leader in this sector. Outof 16 farms and estate sales over £10m in the UK, Savills sold 11. Those soldincluded The Park Place Estate, near Henley in Oxfordshire, an unmodernisedhouse set in 499 acres sold with a guide price of £45m. Prime Purchase, our purchasing advisory business, which specialises in acting onbehalf of retained buyers of residential property in both London and thecountry, had an exceptional year. In 2007, the average search time in London wasjust 3.9 months. In the country, over 56% of properties were secured for clientseither privately or before advertising. We have continued to grow significantly our Development Land team throughout themain UK cities. Savills were instructed by Derwent London plc to dispose ofGreenwich Reach, London, a mixed use development site of 7.8 acres. Planningpermission was granted for the redevelopment of the site to provide 980residential units. The development was sold for £112m to Galliard Homes Ltd. From our 24 regional New Homes centres we are providing consultancy advice orhave concluded terms of business on residential developments with a combinedgross development value of £20bn. We continue to maintain a high market sharewithin prime Central London with strong off plan sales being achieved at premiumprices frequently to overseas buyers for internationally recognised developmentssuch as One Hyde Park. Nationally, interest in investment properties has slowedwith some localised markets becoming oversaturated; however, many creativelymarketed well-priced city centre apartment schemes have still sold well. In Singapore, our Residential Sales team were very active and concluded morethan S$1bn (£360m) of en bloc sales in the second half of 2007 alone, includingthe sale of Westwood Apartments to a Malaysian conglomerate for S$435m (£156m). Future plans We will continue to develop our Transactional businesses worldwide through amixture of acquisitions and strategic recruitment. Consultancy 2007 2006Year to 31 December 2007 £m £m ChangeRevenue 141.5 98.8 +43%Underlying profit before tax 22.3 16.1 +39% Our Consultancy business covers a wide range of professional property servicesincluding: - Valuation - a professional service typically focussing on valuations for bank lending purposes. - Building Consultancy - providing a wide range of advice on all aspects of building including structural surveys and advice on fitting out. - Housing Consultancy - advising housing associations and institutions on all aspects of housing including affordable housing and student accommodation. - Landlord and Tenant - advising on all issues stemming from rent review and lease renewals. - Town and Country Planning - comprehensive service advising on all aspects of planning including assisting with planning appeals. - Research - a highly regarded research department providing research capabilities including reports on specific markets for clients. Performance in 2007 We increased the revenue of our consultancy business in 2007 to £141.5m, anincrease of 43% (2006: £98.8m). Underlying profit before tax increased by 39% to£22.3m (2006: £16.1m). The strong performance reflects the long-term investmentin this business. Margins are slightly down reflecting both the investment beingmade and salary pressure in this growing market. Our UK Commercial Valuation team increased revenue by over 45% and we are nowone of the leading valuation practices in London. In Europe, we valued assets inexcess of €5.5bn and our clients included both UK based and internationallenders, together with a number of European funds. In March 2007, we set up anew London based European Valuation team, focussing on valuation instructionsoutside of the UK. This new team had an excellent first year working closelywith all our Valuation teams across Europe. During 2007, we expanded ourValuation teams across the network. Working with our European Valuation team,our local European teams had a good year. The biggest growth was in Germanywhere our valuation revenue in 2007 increased four-fold compared to 2006. We nowhave a team of 23 valuers in Germany based in Frankfurt and Berlin, servicingboth domestic and international clients. Elsewhere we recruited into all ourexisting teams with a particular focus on Italy, the Netherlands and Sweden. 2007 was another busy year for our UK Residential Valuation team. We have seenparticular growth in loan security valuations and have provided valuation adviceto over 80 lending institutions. Due to Savills' size and reputation we arebenefiting from a tightening of lenders' approved valuers panels. Our UK Housing Consultancy team also had another strong year, specialising instock condition surveys and procurement advice to local authorities and housingassociations. We are a leading provider of these specialist services and lastyear we carried out a record number of surveys and substantially increased ourmarket share in providing procurement and investment advice. Our UK Landlord & Tenant team is one of the most experienced in the country. Wewere retained on over 100 retail and shopping parks including 25 of the top 100UK schemes. Our high calibre staff in London, Birmingham and Manchester havecontinued to be involved with some of the highest value single let office andindustrial/warehouse properties throughout the country. Our specialist UK Business Rates team had an exceptionally busy year makingsignificant savings for clients in respect of their ongoing and future ratesliabilities. The changes in the 2007 budget to reform the Empty Rates ReliefSystem provided additional business as we advised clients on how to mitigatetheir rates liability in light of the new legislation. Following the acquisition and integration of Hepher Dixon at the start of 2007we are now one of the largest and most diverse planning consultancy businessesin the UK, based in 13 locations throughout the country. We continue to build onthe strength in our housing, commercial, retail and mixed use sectors andexpanded into other important areas including public sector, environmental andurban design, the water industry, healthcare and airports. Our planning specialisation in renewable energy is contributing to the build upin value in Infinergy Limited, a company set up to acquire consents for windfarming in which Savills has a 50% stake. In Asia, the growth in the professional services markets remained strongthroughout the year. We saw significant growth of our businesses in Hong Kong,Macau, China and Australia. We are the leading valuer for IPOs in Hong Kong.During the year our expansion into mainland China and the addition of newoffices in Vietnam enabled us to offer our services to a wider market. Key achievements High profile valuation instructions in Europe included a €1.7bn portfolio ofGerman office buildings, a €200m portfolio of around 60 office buildings inFrance and a portfolio of retail schemes in Sweden and Finland. In the UK, theRetail Planning Consultancy team obtained planning permission for new floorspace at Cleveland Retail Park for Hammerson and promoted a retail park inSouthend as part of the football club's proposals. Our London Planning team continued to secure permissions to expand and add valueto the already large and award winning Arsenal Regeneration Area, around the newEmirates Stadium. This includes 2,600 new homes, together with business, retailand leisure space. Our Regional Planning teams are engaged in a number of high profile projectsincluding Wellington Place, a 2m sq ft mixed use development for MEPC in the new'west end' of Leeds. The diversity of our planning work is exemplified bywinning consent for Bio Ethanol Ltd for a new production plant in Lincolnshire,and we continue to act for six water companies, three wind farm developers andseveral utilities. Building Consultancy's Industrial team has targeted the large shed developersand are working successfully with Gazeley and Industrial Securities on newdevelopments, both speculatively and occupier led. We are continuing to grow ourdue diligence and project monitoring service with repeat instructions fromMetLife Investments and CBRE Investors, as well as new work with IndustrialSecurities in Europe. We are also targeting end users directly and have providedproject management support for Asda Walmart on a number of schemes. We havecontinued to develop our service into Europe, providing strategic project advicefor some of our developer and fund clients. Europe continues to offerconsiderable potential for our business growth. Our Project Management Team enjoyed a successful year and notable projectssecured have included head office refurbishments for Benfield Group Ltd, SymbianSoftware Ltd and Zurich Insurance Company (UK) Ltd. Our Leisure team have been instrumental in advising on several significantmerger and acquisition projects in the hotel, leisure and the childcare sectorin the UK and continental Europe. Our UK Residential Valuation team has been involved in providing valuationadvice to one of the four shortlisted parties for the acquisition of the £800mNational Grid portfolio. The recruitment of a 35 person valuation team in China and Hong Kong in 2006 hasproved to be successful and the teams were active in the numerous IPO listingsthat took place during the year. In Beijing, Savills were appointed as theconsultant of Wanda Plaza a 680,000 sq m mixed use complex in the Chaoyang. In Australia, our Valuation team continued to provide valuation services on anannual basis to many of the Australian property listed trusts. Future plans Over the past few years we have broadened the range of consultancy services weoffer and reinforced this with key acquisitions. We will continue to pursue thisapproach in 2008. Property and Facilities Management 2007 2006Year to 31 December 2007 £m £m ChangeRevenue 159.7 137.2 +16%Underlying profit before tax 10.9 11.5 -5% Our Property Management business consists of three main elements: - Property Management - we manage commercial and residential property on behalf of owners. - Facilities Management - we provide a comprehensive range of services to occupiers including all services relating to a building, project management and strategic advice. - Land and Farm Management - in the UK we provide a specialist service to manage agricultural land including managing farms. Performance in 2007 During 2007 we increased revenue by 16% to £159.7m although, profit decreased by5%. UK and Europe followed a slow first six months with a stronger second halfperformance resulting in a slight increase on full year profits. In Asia,profits fell by 15% reflecting year on year currency movements and reducedincome from our operations in Australia and Korea. Our Land and Farm Management business benefitted from the marked increased inconfidence following CAP reforms and a rise in commodity prices. However, thechallenges in the UK investment market in the second half of 2007 meant it washarder to win new commercial instructions but there are signs of investorsfocusing on the need for more intensive asset management and this has benefitedour business. We achieved a significant increase in revenue in Europe through a mixture oforganic growth and newly recruited teams. The profit was held back however byinvestment in growing the infrastructure. In Asia, we continue to expand our business and now manage 437m sq ft (2006:334m sq ft) in Greater China, where we are increasing our market share. Marginsreflect increasing competition from local operators in China, Hong Kong andKorea. In addition, Savills has made further investment into winning newbusiness and improving its infrastructure, the benefits of which will emerge infuture periods. Key achievements of 2007 We have continued to grow our UK Property Management business. We opened newdepartments in Leeds and Bristol and expanded our existing teams in London,Birmingham, Manchester, Glasgow and Edinburgh. This has enabled us to secure newclients, including Delancey and WELPUT, whilst consolidating existingrelationships with other major clients including RREEF, British Land and GECapital. We now have national property management mandates with GE Capital, INGReal Estate Investment Management, Morley, Diageo and Resolution AssetManagement. In Europe, there has been increasing demand from investors for quality propertymanagement services. In order to meet this demand, we have expanded ouroperations, both through acquisition and recruitment. The focus of thisexpansion has been in the Netherlands, Spain and Germany, where we acquiredTheodor Schone, a leading property management firm based in Hamburg. This was inaddition to further expansion of our Property Management team in Berlin. We havealso set up a new Property Management department in Warsaw, managing in excessof 47,000 sq m. Our Paris team won instructions to manage 171 high street retail units in Parisfor Generali and 18,000 sq m of high technology warehouses in Caen for Societeda la Tour Eiffel. The team are also working on behalf of Henderson (for theirHerald Fund) managing 8,300 sq m of retail warehouse in Franconville, north westof Paris. The Asia property management practice continues to grow as demand for betterquality property and asset management services increased. China and Hong Kongremained particularly strong while demand from other markets gathered pace. In China our office in Guangzhou has been appointed as property manager to thelargest international residential and commercial project in Dongguan CBD, whichhas a gross floor area of 980,000 sq m. In Chengdu, we were instructed to manage'Sun Dynasty' a mixed use complex of over 650,000 sq m. In Japan, Savills secured a number of asset management instructions frominternational investors, including Deka and Credit Suisse. In Korea, Savills was appointed as the corporate facility manager for StandardChartered First Bank Korea's 414 premises located throughout the country. The Hong Kong government is actively encouraging anti-pollution measures in abid to improve air quality and reduce waste. Our facility management business inHong Kong is responding by exploring a number of eco-friendly initiativesincluding eco-park management, reverse vending machines (RVM's) andbio-engineering greening techniques for use on any of the buildings and propertyschemes under our management. The business has also been instructed to manage anumber of elderly home operations, and currently we have 500 beds undermanagement. The Rural Management business in the UK has had an excellent year as marketsgradually emerged from a long recession in British agriculture. The exceptionwas the livestock sector, which has continuing problems in disease control.Global and city interest in soft commodities remains strong and this has led toincreased professional work with rent reviews and farm contracting arrangements.We also advised on specialist sectors such as organics and our researchdepartment carried out a considerable amount of work on the measurement ofcarbon emissions. We won 18 new estate management instructions across the country, including theappointment as Estate Consultants to Imperial College London. In November, we opened a specialist Country House consultancy business targetingadvice to high net worth individuals in the delivery of services and managementof their homes and estates. Future plans We will continue to focus on growing our Property Management operations in UKand Europe. In Asia, property and facilities management is a cornerstone of ourbusiness and helps us secure additional advisory instructions. Financial Services 2007 2006Year to 31 December 2007 £m £m ChangeRevenue 29.8 26.9 +11%Underlying profit before tax 5.1 4.4 +16% The Financial Services division - Savills Private Finance Limited - is anindependent adviser for residential and commercial mortgages. It is a marketleader at the top end of the residential mortgage broking market sourcing loansfrom a wide range of banks for new purchases, remortgages and investmentacquisitions. SPF also provides insurance broking services and financialplanning advice to larger clients. Performance in 2007 We increased revenue by 11% in 2007 to £29.8m (2006: £26.9m) benefitting fromthe strong mortgage market. Underlying profit before tax increased by 16% to£5.1m (2006: £4.4m), margins improved from 16% to 17%. This is a strong resultgiven the tightening of liquidity in the UK market and the significantinvestment in improving systems and additional regulatory costs. Currently,around two-thirds of our income comes within the M25; however, we continue toexpand the traditional residential mortgage broking business geographically andnow operate from 24 locations including new offices in Cardiff, Jersey andWindsor. The Commercial and Agricultural Debt Broking business performed strongly in moredifficult market conditions, where the need for independent advice has becomemore important. Key achievements of 2007 During the year we re-launched the relationship with the Residential Agencybusiness, setting benchmarks for all offices to drive a greater flow of mortgagereferrals. Future plans The outstanding quality of our people and our continuing investment indeveloping our infrastructure will serve us well in a market where borrowerswill increasingly need the advice from professional mortgage brokers. We areplanning to open new offices in Newcastle, Liverpool and Exeter and are alsoputting extra effort into our customer contact programme to ensure we retainexisting clients and continue to deliver the high level of service they expect. Fund Management 2007 2006Year to 31 December 2007 £m £m ChangeRevenue 15.4 7.2 +114%Underlying profit before tax 4.1 0.7 +486% 2007 2006As at 31 December £bn £bn GrowthFunds under management 3.5 2.1 66% Cordea Savills manages a number of mainly closed ended funds in the UK andEurope on behalf of institutional investors. It focuses on creating market andsector specialist funds as well as core pan-European funds. Through a limitedliability partnership, Savills owns 60% of this business; the remaining 40%being owned by members of the Cordea Savills management team. Performance in 2007 Revenue increased to £15.4m (2006: £7.2m) reflecting the growth of funds undermanagement to £3.5bn (2006: £2.1bn) at the year end. Underlying profit beforetax increased to £4.1m (2006: £0.7m) reflecting the investment we have made overthe last few years which is now starting to generate substantial income. Cordea Savills has successfully met investor demand for alternative sectors inthe UK, such as student halls as well as more specialist funds. In continentalEurope, investors have been looking at more opportunistic-style ventures to meettheir performance objectives. Cordea Savills was well placed to service both ofthese requirements and six new funds were launched. Total staff grew to over 80 people and we opened new offices in Stockholm,Luxembourg and Dublin to complement the existing offices in London, Milan,Munich and Paris. We expanded our European institutional client base with newinvestors from the UK and the Netherlands, the Nordic countries and Italy. Key achievements of 2007 We have been building a reputation for creating innovative funds, especiallymarket and sector specialist funds. Particular achievements in 2007 include thelaunch of the following funds: - German Retail Fund - Italian Opportunities No.2 - UK Property Ventures No. 1 - Pan-European Property Fund - Cordea Nichani Indian Opportunities No.1 - Cordea Savills Nordic Retail Fund Investment performance was particularly pleasing. The UK-based segregatedmandate team was recognised with awards from two leading trade journals formanaging the best performing UK pension fund property portfolio over theprevious three-year period to December 2006. The investment programme for Cordea Savills Italian Opportunities No.1 wascompleted in the first half of the year, and further equity raising andinvestment was completed for the Cordea Savills Student Hall Fund. This latterfund was also the top performer in the IPD UK Pooled Property Fund Indices for2007 reflecting Cordea Savills' strength in alternative sector investment. Future plans Cordea Savills continues to expand its European product range in new Europeanmarkets and to build on its strategic venture with Nichani Group in India. Financial Review Financial highlights The key financial information for the year was as follows: - Revenue up 26% to £650.5m (2006 : £517.6m). - Underlying profit before tax up 14% to £85.5m (2006: £75.0m). - Underlying earnings per share up 13% to 46.1p. - Dividend up 12.5% to 18p (2006 : 16p). - £41m spent on share buy backs for cancellation and the Employee Benefit Trust (EBT) (2006: £5m). - Continued significant investment in the business though acquisitions, investment in recruiting new teams and opening new offices. Acquisitions During the year we completed a number of acquisitions both in the UK (inaggregate £12m (2006: £21.1m)), and overseas (in aggregate £31.5m (2006:£50.9m)) including: - On 7 January 2007, the Group acquired the share capital of Hepher Dixon Limited, a leading planning consultancy, for consideration of £5.1m. Goodwill on acquisition of £4.3m has been capitalised. Cash consideration of £2.8m was paid with £2.3m deferred cash consideration due over the next five years. - On 3 May 2007, the Group acquired the share capital of Christopher Rowland Limited, a residential property agency, for consideration of £4.0m. Goodwill on acquisition of £3.9m has been capitalised. Cash consideration of £2.1m was paid with £1.9m deferred cash consideration due over the next five years. - On 31 July 2007, the Group acquired Granite Partners LLC, a New York based property investment banking firm, for an initial consideration of US$54.0m, of which 75% was payable upon completion. The remainder is subject to a five year earn-out, such that the total consideration is capped at US$84.6m, dependent on the achievement of certain EBITDA targets over a two year future period. As at the balance sheet date, this remaining 25% has been accounted for as deferred consideration at a discounted amount of £5.8m. Goodwill of £22m and intangible assets of £5.0m have been capitalised. Taxation The effective tax rate is 32.6% (2006: 30.3%). The principal reason for theincrease in the tax charge is the impact of the fall in the share price belowthe fair value price at the date of grant of share based options. This hasresulted in an additional charge to tax in the income statement of £2.1m (2006:nil). Earnings per share and dividend Basic earnings per share from continuing operations fell by 1% to 45.5p (2006:46.0p). Adjusting for profit on disposals, share based payments, amortisation ofintangibles and impairment of goodwill and available-for-sale investments,underlying basic earnings per share rose by 13% to 46.1p (2006: 40.8p). The Board is recommending a final dividend of 12p (net), making 18p for the fullyear, a 12.5% increase on last year. Key performance indicators The Group uses a number of key performance indicators to measure its performanceand highlight the impact of management actions. At Group level, the most visibleindicators are revenue growth, underlying profit growth, operating margins, cashgeneration, earnings per share, growth in assets under management and totalshareholder return. The Group continues to review the mix of key performanceindicators to measure our performance against strategic objectives, specialisingin both financial and non financial areas. Financial policies and risk management The Group has financial risk management policies which cover financial risksconsidered material to the Group's operations and results. These policies arereviewed regularly and approved by the Board to ensure compliance and policiesthat reflect best practice. Treasury policies and objectives The Group Treasury policy is designed to reduce the financial risks faced by theGroup, which primarily relate to funding and liquidity, interest rate exposureand currency rate exposures. The Group does not engage in trades of aspeculative nature. The Group uses derivative financial instruments to hedgecertain risk exposures. The Group's financial instruments comprise borrowings, cash and liquid resourcesand various other items such as trade receivables and trade payables that arisedirectly from its operations. Interest rate risk The Group finances its operations through a mixture of retained profits and bankborrowings, at both fixed and floating interest rates. Liquidity risk The Group prepares an annual funding plan approved by the Board which sets outthe Group's expected financing requirements for the next 12 months. Theserequirements will be met with our existing cash balances, loan facilities andexpected cash flows for the year. Foreign currency risk Our policy is for each business to borrow in local currencies where possible. Inparticular, we financed the acquisition of Granite Partners LLC in part througha 5 year US$40m loan. The Group does not actively seek to hedge risks arisingfrom foreign currency transactions due to their non-cash nature and the highcosts associated with such hedging. Net interest Net finance income is £2.1m (2006: £3.7m). Share buy-backs, investments,acquisitions and lower disposal proceeds led to lower cash balances than in2006. Capital and shareholders' interests Minority interests Minority interests increased to £5.9m (2006: £4.3m) and reflects acquisitionsand increased profits from Cordea Savills during the year. Share capital During the year ended 31 December 2007, 189,000 shares were issued toparticipants in the Savills Executive Share Option Scheme (2001 Scheme) and66,041 shares to participants in the Savills Sharesave Scheme. No shares wereissued to the QUEST. 3.5m shares were repurchased for cancellation during theyear. The total number of ordinary shares in issue at 31 December 2007 was131.8m (2006: 135.1m). Cash flow and liquidity The Group generated cash from operating activities of £102.8m (2006: £76.1m). At the year end, the Group had cash and cash equivalents of £110.7m (2006:£124.1m). At the same time it had borrowings of £33.2m (2006: £19.3m). However,the Group's cash flow profile is highly seasonal, with significant cash outflowsin the second quarter of the year for dividends, taxation and staff bonuses. The Group retains cash balances throughout the year in a number of subsidiaries.This reflects factors including: fiscal - minimising withholding tax onremittance where future investment is anticipated; commercial - where cash isrequired to support commercial contracts; regulatory - where our regulatedbusinesses have minimum capital requirements; and where there are minorityshareholders. This position remains under review to ensure the Group has theoptimal capital structure. Overall, the Group is run with low financial gearing which the Board believes isappropriate given the transactional nature of many of its revenue streams andits tangible asset base. Future liquidity The Group's existing net cash balances available bank facilities and expectedcash flows for the year provide the Group with the resources to fund operatingand investment activities. At the year end the Group also had undrawn overdraftfacilities of £16.8m (2006: £8.9m). Since the year end, £10m of the overdraftfacility has been replaced with a £60m, 18 month, revolving credit facilitywhich has been put in place to provide additional flexibility. Net assets Net assets continue to grow with an increase of 5% from 31 December 2006 to£223.6m. Goodwill has increased from £99.9m to £138.7m largely due to the £22mof goodwill capitalised through the acquisition of Granite in July. Pension scheme During the year the Company and Trustees undertook a review of the Pension Planof Savills to ensure that it complied with the Employment Equality (Age)(Amendment No.2) Regulations 2006. From January 2007 the Plan has fulfilled thePension Act 2004 requirement of having at least one-third Member NominatedTrustees. The triennial valuation of the Plan as at 5 April 2007 has beencompleted and the necessary certificates were signed on 29 January 2008. Forward looking statement In preparing this Review of Operations and Financial Review, whilst we haveprovided a detailed management commentary on our markets, activities andprospects, all forward looking statements and forecasts involve risk anduncertainty because they relate to events and depend upon circumstances thatwill occur in the future. Mark Dearsley, Group Finance Director SAVILLS plcCONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2007 Year ended Year ended 31.12.07 31.12.06 Notes £m £mContinuing operationsRevenue 2 650.5 517.6Less:Employee benefits expense (382.3) (306.1)Depreciation (6.2) (5.6)Amortisation of intangibles and impairment of goodwill andavailable-for-sale investments (2.4) (5.7)Other operating expenses (174.3) (129.2)Other income 0.7 0.8Profit on disposal of subsidiary, associate, joint ventures andavailable-for-sale investments 0.7 5.1Operating profit 2 83.4 80.2Finance income 4.5 4.8Finance costs (2.4) (1.1) 2.1 3.7Share of post tax profit from associates and joint ventures 0.4 0.5Profit before income tax 85.9 84.4Income tax expense (including foreign tax of £6.1m,December 2006 - £4.4m) 4 (28.0) (25.6)Profit for the year from continuing operations 57.9 58.8 Discontinued operationsProfit for the year from discontinued operations 3 - 0.3Profit after income tax 57.9 59.1 Attributable to:Equity shareholders of the Company 55.3 57.7Minority interest 2.6 1.4 57.9 59.1 Earnings per shareFrom continuing and discontinued operationsBasic earnings per share 7(a) 45.5p 46.3pDiluted earnings per share 7(a) 44.3p 44.2pFrom continuing operationsBasic earnings per share 7(a) 45.5p 46.0pDiluted earnings per share 7(a) 44.3p 44.0p Underlying earnings per shareFrom continuing and discontinued operationsBasic earnings per share 7(b) 46.1p 41.1pDiluted earnings per share 7(b) 44.9p 39.2pFrom continuing operationsBasic earnings per share 7(b) 46.1p 40.8pDiluted earnings per share 7(b) 44.9p 39.0p Dividends per shareFull year dividends proposed 5 18.0p 16.0pDividends paid 5 17.0p 13.0p SAVILLS plcCONSOLIDATED BALANCE SHEETat 31 December 2007 31.12.07 31.12.06 Notes £m £mAssets: Non-current assetsProperty, plant and equipment 21.7 16.5Goodwill 138.7 99.9Intangible assets 21.8 19.1Investments in associates and joint ventures 8.9 5.6Deferred income tax assets 12.9 20.6Available-for-sale investments 21.6 8.8Financial assets at fair value through profit or loss 1.5 1.5Derivative financial instruments 0.2 - 227.3 172.0Assets: Current assetsWork in progress 3.2 3.2Trade and other receivables 196.1 163.9Derivative financial instruments 0.3 -Cash and cash equivalents 110.7 124.1 310.3 291.2Liabilities: Current LiabilitiesBorrowings 10.7 7.3Derivative financial instruments - 0.2Trade and other payables 234.3 191.8Current income tax liabilities 11.6 10.3Employee benefit obligations 2.7 3.0Provisions for other liabilities and charges 2.2 1.5 261.5 214.1Net current assets 48.8 77.1Total assets less current liabilities 276.1 249.1Liabilities: Non-current LiabilitiesBorrowings 22.5 12.0Derivative financial instruments 0.2 0.3Trade and other payables 12.0 2.0Retirement and employee benefit obligations 13.8 19.0Provisions for other liabilities and charges 1.8 1.6Deferred income tax liabilities 2.2 1.4 52.5 36.3Net assets 223.6 212.8Equity: Capital and reserves attributable to equity holders of the CompanyShare capital 10 3.3 3.4Share premium 10 83.0 82.4Other reserves 10 3.9 (1.8)Retained earnings 10 127.5 124.5 217.7 208.5Minority interest 10 5.9 4.3Total equity 223.6 212.8 SAVILLS plcCONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2007 Year ended Year ended 31.12.07 31.12.06 Notes £m £mCash flows from operating activitiesCash generated from continuing operations 8 124.3 87.4Interest received 4.5 4.7Interest paid (2.3) (0.9)Income tax paid (23.7) (15.1) Net cash generated from operating activities 102.8 76.1 Cash flows from investing activitiesOutflow from sale of subsidiary, net of cash disposed - (0.2)Proceeds from sale of property, plant and equipment 0.1 0.2Proceeds from sale of associates, joint ventures andavailable-for-sale investments 5.2 7.9Dividends received 0.5 0.5Net loans to associates and joint ventures (1.4) (2.0)Acquisition of subsidiaries, net of cash acquired 9 (32.3) (37.8)Sale of assets held for sale - 16.3Purchase of property, plant and equipment (11.6) (7.3)Purchase of intangible assets (1.0) (1.1)Purchase of investment in associates, joint ventures andavailable-for-sale investments (26.8) (2.2)Purchase of financial assets at fair value through profitor loss - (1.5) Net cash used in investing activities (67.3) (27.2) Cash flows from financing activitiesProceeds from issue of share capital 0.4 1.2Proceeds from borrowings 20.3 0.2Repurchase of own shares (21.8) -Purchase of own shares for Employee Benefit Trust (18.9) (5.0)Repayments of borrowings (7.8) (1.1)Dividends paid (22.1) (16.4) Net cash used in financing activities (49.9) (21.1) Net (decrease)/increase in cash, cash equivalents andbank overdrafts (14.4) 27.8Cash, cash equivalents and bank overdrafts at beginningof the year 123.7 99.9Effect of exchange rate fluctuations on cash held 1.1 (4.0) Cash, cash equivalents and bank overdrafts at end of year 110.4 123.7 SAVILLS plcCONSOLIDATED STATEMENT OF RECOGNISED INCOME & EXPENSEfor the year ended 31 December 2007 Year ended Year ended 31.12.07 31.12.06 £m £mProfit for the year 57.9 59.1 Revaluation of available-for-sale investments 0.6 0.4Actuarial gain on defined benefit pension scheme 5.8 2.5Tax on items directly taken to reserves (5.0) 3.5Foreign exchange translation differences 5.7 (4.3)Net income recognised directly in equity 7.1 2.1 Total recognised income and expense for the year 65.0 61.2 Attributable to:Equity shareholders of the Company 62.4 59.6Minority interest 2.6 1.6 65.0 61.2 NOTES 1. Basis of preparation The results for the year ended 31 December 2007 have been extracted from theaudited financial statements. The financial statements have been prepared inaccordance with International Financial Reporting Standards and IFRICinterpretations as adopted by the European Union and with those parts of theCompanies Act 1985 applicable to companies reporting under IFRS. The financial information in this statement does not constitute statutoryaccounts within the meaning of s240 of the Companies Act 1985. The statutoryaccounts for the year ended 31 December 2007, on which the auditors have givenan unqualified audit report, have not yet been filed with the Registrar ofCompanies. 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. 2. Segment analysis Trans- Property & Year to actional Facilities Fund Financial 31 December 2007 Advice Consultancy Management Management Services Unallocated* Total £m £m £m £m £m £m £mRevenueUnited Kingdom - Commercial 79.4 84.0 38.9 15.4 3.5 - 221.2 - Residential 115.0 30.4 12.7 - 26.3 - 184.4 194.4 114.4 51.6 15.4 29.8 - 405.6Rest of Europe 45.4 10.7 18.1 - - - 74.2Asia Pacific 60.6 16.4 90.0 - - - 167.0America 3.7 - - - - - 3.7Total revenue 304.1 141.5 159.7 15.4 29.8 - 650.5Operating profitUnited Kingdom - Commercial 15.9 14.2 3.0 4.1 1.0 (3.0) 35.2 - Residential 17.8 5.7 0.7 - 3.5 - 27.7 33.7 19.9 3.7 4.1 4.5 (3.0) 62.9Rest of Europe 3.9 2.1 (0.3) - - - 5.7Asia Pacific 8.9 1.6 4.1 - - - 14.6America 0.2 - - - - - 0.2Operating profit/(loss) 46.7 23.6 7.5 4.1 4.5 (3.0) 83.4Finance income 2.1Share of post taxprofit/(loss) fromassociates & jointventures 1.1 (1.4) 0.7 - - - 0.4Profit before income tax 85.9Income tax expense (28.0)Profit for the year from continuing operations 57.9 Trans- Property & Year to actional Facilities Fund Financial 31 December 2006 Advice Consultancy Management Management Services Unallocated* Total £m £m £m £m £m £m £mRevenueUnited Kingdom - Commercial 83.5 59.6 34.8 7.2 3.7 0.3 189.1 - Residential 91.5 22.4 8.8 - 23.2 - 145.9 175.0 82.0 43.6 7.2 26.9 0.3 335.0Rest of Europe 32.6 5.3 10.2 - - - 48.1Asia Pacific 39.6 11.5 83.4 - - - 134.5Total revenue 247.2 98.8 137.2 7.2 26.9 0.3 517.6Operating profitUnited Kingdom - Commercial 19.7 11.0 3.1 0.8 1.0 0.5 36.1 - Residential 20.4 4.0 1.0 - 3.0 - 28.4 40.1 15.0 4.1 0.8 4.0 0.5 64.5Rest of Europe 4.3 0.7 (0.1) - - - 4.9Asia Pacific 4.2 0.7 5.9 - - - 10.8Operating profit 48.6 16.4 9.9 0.8 4.0 0.5 80.2Finance income 3.7Share of post taxprofit/(loss) fromassociates & jointventures 0.6 (0.7) 0.6 - - -Profit before income tax 84.4Income tax expense (25.6)Profit for the year from continuing operations 58.8 The unallocated segment includes holding company costs, Group bonuses and otherexpenses not directly attributable to the operating activities of the Group'sbusiness segments. *For the purpose of the segmental information above, and to assist in thecomparison of segmental information, the benefit arising from the amortisationof the share based payment charge as discussed in more detail in Note 6, isretained within the unallocated segment. 3. Non-current assets held for sale and discontinued operations Year ended Year ended 31.12.07 31.12.06 £m £mRevenue - 1.1Expenses - (0.4)Profit before income tax - 0.7Income tax expense - (0.4)Profit after income tax - 0.3 The 2006 results relate to the assets and liabilities of the Student Halls LongLease 1 Unit Trust which were disposed during the year ended 31 December 2006. 4. Income tax on profit from continuing operations The income tax expense/(credit) has been calculated on the basis of theunderlying rate in each jurisdiction adjusted for any disallowable charges. Year ended Year ended 31.12.07 31.12.06 £m £mUnited Kingdom income tax- Current 21.4 18.7- Deferred 0.5 2.5Foreign income tax- Current 7.0 4.7- Deferred (0.9) (0.3) 28.0 25.6 5. Dividends Year ended Year ended 31.12.07 31.12.06 £m £mAmounts recognised as distribution to equity holders in the year:Ordinary final dividend of 11.0p per share (2006 - 8.0p) 13.4 10.0Interim dividend of 6.0p per share (2006- 5.0p) 7.3 6.2 20.7 16.2 Proposed final dividend for the year ended 31 December 2007 of12.0p per share 14.5 The final dividend in respect of the year ended 31 December 2007 is to beproposed at the Annual General Meeting on 7 May 2008. These financial statementsdo not reflect this dividend payable. 6. Underlying profit before tax Year ended Year ended(a) From continuing operations 31.12.07 31.12.06 £m £mReported profit before income tax 85.9 84.4Adjustments:- Amortisation of intangibles (excluding software) and impairment of goodwill and available-for-sale investments 5.1 1.8- Share based payment adjustment (4.8) (6.1)- Profit on disposal of subsidiary, associate, joint ventures and available-for-sale investments (0.7) (5.1)Underlying profit before tax 85.5 75.0 The Directors regard the above adjustments necessary to give a fair picture ofthe underlying results of the Group for the period. The adjustment for share based payment relates to the impact of the accountingstandard for share based compensation. The annual bonus is paid in a mixture ofcash 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 overthe vesting period whilst the cash element is expensed in the year. Theadjustment above addresses this by deducting from profit the difference betweenthe IFRS 2 charge and the value of the annual share award. (b) Underlying segmental analysis Property &Year to 31 December Transactional Facilities Fund Financial 2007 Advice Consultancy Management Management Services Unallocated Total £m £m £m £m £m £m £mUnited Kingdom - Commercial 17.7 13.1 3.0 4.1 1.0 (5.5) 33.4 - Residential 17.3 5.6 1.6 - 4.1 - 28.6 35.0 18.7 4.6 4.1 5.1 (5.5) 62.0Rest of Europe 3.8 2.0 0.1 - - - 5.9Asia Pacific 9.6 1.6 6.2 - - - 17.4America 0.2 - - - - - 0.2Underlying profit / (loss) before tax 48.6 22.3 10.9 4.1 5.1 (5.5) 85.5 Property &Year to 31 December Transactional Facilities Fund Financial 2006 Advice Consultancy Management Management Services Unallocated Total £m £m £m £m £m £m £mUnited Kingdom - Commercial 20.5 10.6 2.8 0.7 1.0 (3.9) 31.7 - Residential 16.6 4.0 1.4 - 3.4 - 25.4 37.1 14.6 4.2 0.7 4.4 (3.9) 57.1Rest of Europe 4.7 0.8 - - - - 5.5Asia Pacific 4.4 0.7 7.3 - - - 12.4Underlying profit / (loss) before tax 46.2 16.1 11.5 0.7 4.4 (3.9) 75.0 7. Basic and diluted earnings per share (a) Basic and diluted earnings per share Earnings Shares EPS Earnings Shares EPSYear to 31 December 2007 2007 2007 2006 2006 2006 £m million Pence £m million PenceFrom continuing and discontinued operationsBasic earnings per share 55.3 121.6 45.5 57.7 124.7 46.3Effect of additional sharesissuable under option - 3.2 (1.2) - 5.8 (2.1)Diluted earnings per share 55.3 124.8 44.3 57.7 130.5 44.2 From continuing operationsBasic earnings per share 55.3 121.6 45.5 57.4 124.7 46.0Effect of additional sharesissuable under option - 3.2 (1.2) - 5.8 (2.0)Diluted earnings per share 55.3 124.8 44.3 57.4 130.5 44.0 From discontinued operationsBasic earnings per share - 121.6 - 0.3 124.7 0.3Effect of additional sharesissuable under option 5.8 - 3.2 - - (0.1)Diluted earnings per share - 124.8 - 0.3 130.5 0.2 (b) Underlying basic earnings per share Earnings Shares EPS Earnings Shares EPSYear to 31 December 2007 2007 2007 2006 2006 2006 £m million Pence £m million PenceFrom continuing and discontinued operationsBasic earnings from continuingoperations 55.3 121.6 45.5 57.7 124.7 46.3- Amortisation of intangibles(excluding software) andimpairment of goodwill andavailable-for-sale investmentsafter tax 4.6 - 3.8 1.3 - 1.0- Share based payment adjustmentafter tax (3.4) - (2.8) (4.3) - (3.4)- Profit on disposal ofsubsidiary, associate, jointventure and available-for-saleinvestments after tax (0.5) - (0.4) (3.5) - (2.8) Underlying basic earnings pershare 56.0 121.6 46.1 51.2 124.7 41.1 Effect of additional sharesissuable under option - 3.2 (1.2) - 5.8 (1.9) Underlying diluted earnings pershare 56.0 124.8 44.9 51.2 130.5 39.2 From continuing operationsBasic earnings from continuingoperations 55.3 121.6 45.5 57.4 124.7 46.0- Amortisation of intangibles(excluding software) andimpairment of goodwill andavailable-for-sale investmentsafter tax 4.6 - 3.8 1.3 - 1.0- Share based payment adjustmentafter tax (3.4) - (2.8) (4.3) - (3.4)- Profit on disposal ofsubsidiary, associate, jointventure and available-for-saleinvestments after tax (0.5) - (0.4) (3.5) - (2.8) Underlying basic earnings pershare 56.0 121.6 46.1 50.9 124.7 40.8 Effect of additional sharesissuable under option - 3.2 (1.2) - 5.8 (1.8) Underlying diluted earnings pershare 56.0 124.8 44.9 50.9 135.5 39.0 8. Cash generated from continuing operations Year ended Year ended 31.12.07 31.12.06 £m £mProfit for the year from continuing operations 57.9 58.8Adjustments for:Income tax (Note 4) 28.0 25.6Depreciation 6.2 5.6Amortisation of intangibles and impairment of goodwill andavailable-for-sale investments 5.7 2.4Finance income (2.1) (3.7)Share of post tax profit from associates and joint ventures (0.4) (0.5)Profit on disposal of subsidiary, associate, joint venture andavailable-for-sale investments (0.7) (5.1)Loss on sale of property, plant and equipment 0.7 0.4Profit on disposal of available-for-sale investments includedwithin other income (0.7) -Increase in provisions 0.4 0.5Increase/(decrease) in employee and retirement obligations 0.2 (2.2)Charge for share based compensation 8.1 5.3Operating cash flows before movements in working capital 103.3 87.1Decrease in work in progress 0.4 0.4Increase in debtors (20.4) (37.2)Increase in creditors 41.0 37.1Cash generated from operations 124.3 87.4 9. Acquisitions On 7 January 2007, the Group acquired the share capital of Hepher Dixon Limitedfor consideration of £5.1m. Goodwill on acquisition of £4.3m has beencapitalised and this can be attributed to key staff and their industryreputation. Cash consideration of £2.8m was paid with £2.3m deferred cashconsideration due over the next five years. On 3 May 2007, the Group acquired the share capital of Christopher RowlandLimited for consideration of £4.0m. Goodwill on acquisition of £3.9m has beendetermined and is attributable to key staff and their industry reputation. Cashconsideration of £2.1m was paid with £1.9m deferred cash consideration due overthe next five years. On 31 July 2007, the Group acquired Granite Partners LLC for an initialconsideration of US$54.0m, of which 75% was payable upon completion. Theremainder is subject to a five year earn-out, such that the total considerationis capped at US$84.6m, dependent on the achievement of certain EBITDA targetsover a two year future period. As at the balance sheet date, this remaining 25%has been accounted for as deferred consideration at a discounted amount of£5.8m. Goodwill of £22.0m and intangible assets of £5.0m have been capitalised. 10. Statement of changes in equity Attributable to equity holders of the Group Share Share Other Retained Minority Total capital premium reserves earnings interest equity £m £m £m £m £m £mBalance at 1 January 2007 3.4 82.4 (1.8) 124.5 4.3 212.8Total recognised income andexpense for the year - - 5.9 56.5 2.6 65.0Employee share option scheme:- Value of services provided - - - 8.1 - 8.1- Exercise of options - 0.2 - (0.2) - -Issue of share capital - 0.4 - - - 0.4Purchase of own shares (0.1) - 0.1 (21.8) - (21.8)Purchase of treasury shares - - - (18.9) - (18.9)Dividends - - - (20.7) (1.4) (22.1)Disposals (net of tax) - - (0.3) - - (0.3)Acquisitions - - - - 0.4 0.4Balance at 31 December 2007 3.3 83.0 3.9 127.5 5.9 223.6 Attributable to equity holders of the Group Share Share Other Retained Minority Total capital premium reserves earnings interest equity £m £m £m £m £m £mBalance at 1 January 2006 3.3 80.9 6.5 77.0 0.6 168.3Total recognised income andexpense for the year - - (4.2) 63.8 1.6 61.2Employee share option scheme:- Value of services provided - - - 5.3 - 5.3- Exercise of options - 0.4 - (0.4) - -Issue of share capital 0.1 1.1 - - - 1.2Purchase of treasury shares - - - (5.0) - (5.0)Dividends - - - (16.2) (0.2) (16.4)Disposals (net of tax) - - (4.1) - - (4.1)Acquisitions - - - - 2.3 2.3Balance at 31 December 2006 3.4 82.4 (1.8) 124.5 4.3 212.8 Copies of this statement are available from the Company website at:www.savills.com and also from: Savills plc, 20 Grosvenor Hill, Berkeley Square, London W1K 3HQTelephone: 020 7409 9928 Fax: 020 7491 0505 Email: [email protected]: Kathryn Charmley In addition, with prior notice, copies in alternative formats i.e. large print,audio tape, braille are available if required from: Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA End This information is provided by RNS The company news service from the London Stock Exchange

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